Keys v. Wolfe
Decision Date | 29 April 1982 |
Docket Number | Civ. A. No. CA-3-81-1137-G. |
Citation | 540 F. Supp. 1054 |
Parties | John D. KEYS and Lewis E. Eastham, Plaintiffs, v. Dan M. WOLFE, Charles W. Maguire, Randy Moseley, Gene O'Neal, James D. Willeford, Bascom Lynn, Luther A. Henderson, Charles W. Tindall, Alden E. Wagner, Milton E. Loy, Gary M. Beach and Dean Bagley, Defendants. |
Court | U.S. District Court — Northern District of Texas |
COPYRIGHT MATERIAL OMITTED
Werner A. Powers, M. Robert Blakeney, Seay, Gwinn, Crawford, Mebus & Blakeney, Dallas, Tex., for plaintiffs.
James V. Hammett, Jr., Stubbeman, McRae, Sealy, Laughlin & Browder, Austin, Tex., Wm. E. Adams, San Saba, Tex., for Dean Bagley.
Coyt Randal Johnston, Dallas, Tex., for Luther Henderson, Chas. Tindall and Alden Wagner.
Blake Tartt, Tom Alan Cunningham, Houston, Tex., for Milton E. Loy and Dan Wolfe; Fulbright & Jaworski, Houston, Tex., of counsel.
Morris C. Gore, Baker, Miller, Phillips & Murray, Dallas, Tex., for Bascom Lynn.
Larry S. Parnass, Irving, Tex., for Gary Beach.
Roger L. Glandon, Abilene, Tex., for James D. Willeford.
Wolfe Pecanlands, Inc. ("Wolfe") was formed in October 1971 for the purpose of planting, developing, and managing high density pecan orchards in Erath, Comanche and Eastland Counties, Texas. Wolfe planned to use new agricultural techniques to raise pecan trees to bearing size within five years from the date of planting rather than traditional techniques by which trees required ten years to reach maturity. As part of its plan, Wolfe acquired 6,000 acres of farm land. Through annual offerings or "programs" from 1972 to 1977, Wolfe sold units of land and contracted with investors to perform tree-growing and orchard management services. Plaintiffs invested in the 1973 program. The investment contract contained two phases. The first, or tree-growing phase, was for a term of five years during which plaintiffs paid an annual fee of $1,000 per acre, and Wolfe promised to plant and raise pecan trees to bearing size. During the second or management phase, a period of ten to twenty years, Wolfe agreed to manage the orchard at no cost to plaintiffs. Wolfe would recover its management costs from pecan orchard revenues and share 75% of any profit with the investor.1
During the five-year tree-growing phase, actual costs were greater in later years than earlier ones. By staggering sales of programs on an annual basis, Wolfe planned to generate cash flow through sales of newer orchards in order to cover costs generated by those in a later phase. Wolfe needed to keep selling programs long enough for the earlier programs to reach maturity, but the trees first planted did not reach maturity on schedule so Wolfe had no revenues from the sale of pecans by 1979 when the investment contracts on the older programs had moved from the tree-growing to the management phase. As a consequence, the tree-growing fees paid by investors in the early programs ended while Wolfe incurred substantial management costs without pecan revenues.
Plaintiffs made their investment decision based on a 1973 prospectus. In the prospectus, Wolfe promised to install a drip irrigation system, but by late 1978, plaintiffs' land remained unirrigated. Defendant Maguire, president of Wolfe, encouraged all orchard owners in the 1973 program2 to petition their land into a water district. The district was formed by Wolfe in 1976 to raise revenues by selling tax exempt bonds. In January 1979, Maguire promised in a memorandum to plaintiffs that Wolfe would indemnify plaintiffs for any taxes assessed by the water district and that, without expense to plaintiffs, the water district would irrigate their land. Plaintiffs petitioned the water district to add their land, but irrigation was never completed. Rather, plaintiffs irrigated the property themselves while the water district continued to assess and collect taxes.
Plaintiff seeks relief under sections 15 and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77o & 77q(a) and sections 10(b) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) & 78t, together with rule 10b-5, 17 C.F.R. § 240.10b-5 as well as Tex.Bus. & Com.Code Ann. §§ 17.46 and 27.01 (Vernon 1968), Tex.Rev.Civ.Stat. Ann. art. 581-33 (Vernon Supp. 1980-1981), and common law fraud. Specifically, plaintiffs claim that the 1973 prospectus contained these material misrepresentations:
The plaintiffs further allege that the 1973 prospectus omitted these material facts:
In addition, plaintiffs claim that the 1979 memorandum encouraging their participation in the water district omitted these material facts:
Defendants Wolfe, Henderson, Tindall, Wagner, Maguire, Moseley, O'Neal, Lynn and Willeford have moved to dismiss plaintiffs' complaints on these common grounds:3
Plaintiffs claim a violation of section 17(a) of the Securities Act of 1933, 15 U.S. C.A. § 77q, by Wolfe and defendant Maguire, president of Wolfe.4 That section provides:
The statute is silent regarding its enforcement by a citizen's suit. Some lower courts, relying primarily on Judge Friendly's concurring opinion in S.E.C. v. Texas Gulf Sulphur Co., 401 F.2d 833, 867-68 (2d Cir. 1968), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971), have found an implied right of action under section 17(a).5 Judge Friendly concluded: "Once it has been established ... that an aggrieved buyer has a private action under section 10(b) of the 1934 Act, there seems little practical point in denying the existence of such an action under section 17." Id. at 867.
The Supreme Court has expressly reserved deciding the issue, see Blue Chip Stamps v. Manor Drug Store, 421 U.S. 723, 752 n.15, 95 S.Ct. 1917, 1933 n.15, 44 L.Ed.2d 539 (1975), but in two recent decisions, it has shown a reluctance to infer a private right of action under other statutes. In Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), the Court refused to find a private right of action under section 17(a) of the Securities Exchange Act of 1934, pointing to the absence of legislative history that Congress so intended. The Court noted that of the four factors...
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