Naranjo v. Paull

• Decision Date: 04 October 1990
• Docket Number: No. 11502,11502
• Citation: 1990 NMCA 111,111 N.M. 165,803 P.2d 254
• Parties: Raymond NARANJO and Fil Naranjo, Plaintiffs-Appellees and Cross-Appellants, v. Les PAULL and Mrs. Les Paull, Paull Petroleum Corporation, GF 83 Ltd. and ABO 84 Ltd., Defendants-Appellants and Cross-Appellees.
• Court: Court of Appeals of New Mexico

Page 254

803 P.2d 254

111 N.M. 165

Raymond NARANJO and Fil Naranjo, Plaintiffs-Appellees and Cross-Appellants, v. Les PAULL and Mrs. Les Paull, Paull Petroleum Corporation GF 83 Ltd. and ABO 84 Ltd., Defendants-Appellants and Cross-Appellees.

No. 11502.

Court of Appeals of New Mexico.

Oct. 4, 1990.

[111 N.M. 166] Richard E. Olson and Howard R. Thomas, Hinkle, Cox, Eaton, Coffield & Hensley and K. Douglas Perrin, Shamas & Perrin, Roswell, for defendants-appellants and cross-appellees.

Tandy L. Hunt and Charles C. Currier, Hunt & Currier, Roswell, for plaintiffs-appellees and cross-appellants.

OPINION

HARTZ, Judge.

In 1983 and 1984 Raymond and Fil Naranjo (the Naranjos) invested in two oil-and-gas limited partnerships, GF 83 Limited and ABO 84 Limited. The general partner for each limited partnership was Paull Petroleum Corporation (PPC). Mr. and Mrs. Les Paull were the two directors of PPC. Also, Mr. Paull served as president and treasurer, Mrs. Paull as vice-president and secretary.

The Naranjos sued PPC, Mr. and Mrs. Paull, and the two partnerships as a result of losses incurred in the investments. After a nonjury trial the district court ruled that the limited partnership interests in GF 83 and ABO 84 were securities under New Mexico law but that Mr. Paull failed to register them or apply for exemption from registration. The district court also found that Mr. Paull made various material misrepresentations concerning the partnerships and that the Naranjos relied on those misrepresentations in deciding to invest. The district court entered judgment in favor of the Naranjos against Mr. Paull, awarding damages under the New Mexico Securities Act and punitive damages. The district court denied the Naranjos' claims against PPC, Mrs. Paull, and the partnerships. Mr. Paull appealed and the Naranjos cross-appealed.

On appeal Mr. Paull contends: (1) his offers of rescission to the Naranjos barred his liability under the New Mexico Securities Act; (2) the calculation of damages did not correctly account for offsets to which Mr. Paull was entitled; and (3) the district court erred in awarding punitive damages. In their cross-appeal the Naranjos claim: (1) they were entitled to benefit-of-the-bargain damages, rather than just the statutory damages awarded by the court; (2) they were entitled to treble damages under the New Mexico Racketeering Act; and (3) the district court should have found Mrs. Paull liable (a) because of her relationship to PPC and (b) because of her status as the wife of Mr. Paull, since the liability of Mr. Paull was a community debt. We affirm the district court on all issues, except that we remand for a determination of whether the liability of Mr. Paull is a community debt.

I. MR. PAULL'S CONTENTIONS ON APPEAL

A. The Offer to Repurchase the Naranjos' Investment

The district court judgment awarded damages against Mr. Paull for violation of the New Mexico Securities Act. The remedies provisions of the Act in effect at the time of the transaction in this case appear in NMSA 1978, Section 58-13-42 (Repl.Pamp.1984). Mr. Paull contends that the Naranjos are barred from recovery by the following language in subsection B:

[N]o purchaser shall claim or have the benefit of this section if he refused or failed to accept, within thirty days from the date of such offer, an offer in writing of the seller to take back the securities in question and to refund the full amount paid by such purchaser, together with interest on such amount for the period from the date of payment by such purchaser to the date of repayment, such interest to be computed:

....

(2) * * * at the rate of ten percent a year;

less, in every case, the amount of any income from such securities that may have been received by such purchaser * * * *

He relies on proposals contained in newsletters sent to limited partners in the two partnerships.

In a two-and-one-half-page letter dated March 25, 1984, and entitled "GF 83 LTD Newsletter," Mr. Paull wrote as follows:

We are involved in one of the most exciting times in the history of oil and gas exploration. Each week brings us closer to our future predictions. Each week makes me more confident that we have done very well already and will do even better. As a matter of fact I am so convinced that we have a real windfall ahead of us that I am prepared to purchase anyone's interest in the partnership, through April 30, for cost plus 25%. That is 25% annual interest on your funds. However, be advised that their worth is significantly greater. Should any of you be desirous of investigating this further please give me a call.

The next few months should begin to yield the fruits of our labors. As you, I am anxious for our first revenue. Best wishes for a great second Quarter.

Then, in a letter to the limited partners of ABO 84 Limited, dated May 15, 1985, and entitled "ABO 84 LTD. NEWSLETTER," Mr. Paull, after a brief introductory paragraph, wrote:

We have not received any revenue yet from the Wilkerson # 1 or # 2 wells, but as soon as it arrives we will send it out with an additional letter.

Obviously we have had numerous successes at drilling and are looking forward to a very lucrative program. However, as in our GF 83 LTD program there are a few of you that are in need of liquidity. In light of this idea we are willing to offer all participants the opportunity to recoup 125% of there [sic] investment. We are willing to pay anyone interested in selling there [sic] interest 25% more than their total investment less any monies already received. For example if you invested $20,000 and have received $2,000 in payments, we will pay you $25,000 less the $2000, or $23,000 net. In evaluating this offer you should contact your accountant for the tax ramifications. It is our opinion that the value offered for your interest is substantially less than its ultimate value, but you must make the decision.

This offer is valid for a period of 30 days from this date. If any of you are interested in this offer please contact me as soon as possible. We will be contacting you as soon as the Wilkerson revenue hits.

The district court rejected this defense, finding:

The offers to repurchase submitted by [Mr.] Paull to the [Naranjos] regarding GF 83 Ltd. and ABO 84 Ltd. were not sufficient to cure the defects in the promotion and sale of the limited partnership interest[s] to the [Naranjos] in that [Mr.] Paull did not disclose at the time of the offer to repurchase the earlier misrepresentations which were then unknown to the [Naranjos].

Mr. Paull argues that the proposals satisfied Section 58-13-42(B) and that the district court mistakenly applied the provisions of an amended version of the paragraph, which did not become law until 1986.

The amended law, NMSA 1978, Section 58-138-42(A) (Repl.1986) now provides that a written offer to repurchase securities does not foreclose the purchaser from suing for fraudulent securities practices unless the repurchase offer includes "financial and other information necessary to correct all material misstatements or omissions in the information which was required by [the Act] to be furnished to the purchaser as of the time of the sale of the security to the purchaser." This new language makes explicit that a seller of securities cannot obtain immunity from civil suit for statutory securities fraud by writing a subsequent fraudulent letter offering to repurchase the securities. Such a provision undoubtedly advances the Act's purpose of protecting investors against fraud. That does not mean, however, that this new provision was already inherent in the pre-amendment statute.

We should not read language into a statute simply because it would improve the statute, or even because we believe a "reasonable" legislature would have wanted the language in the statute if it had thought about it. In particular, we should be wary of rendering a statutory amendment retroactive by finding the amendment implicit in the earlier version of the statute. Some statutory amendments are mere clarifications; many are not. Judicial self-discipline is essential in determining legislative "intent." Excessive mind reading by the courts becomes improper judicial legislation.

On the other hand, courts have a duty to recognize what is necessarily implicit in statutory language. "[W]hat is clearly implied is as much a part of a law as what is expressed." Luria v. United States, 231 U.S. 9, 24, 34 S.Ct. 10, 13, 58 L.Ed. 101 (1913).

That principle applies here. Clearly implied within Section 58-13-42(B) is the requirement that an offer pursuant to that provision must advise the offeree of the statutory consequences of the offer. Because the letters from Mr. Paull did not refer to the statute or otherwise alert the Naranjos that the proposals foreclosed them from obtaining remedies under the Act, the letters cannot protect Mr. Paull from suit under the Act.

In reaching this conclusion, we first note that the Act nowhere explicitly states that it is enumerating all the terms that must be contained in an offer under Section 58-13-42(B). To be sure, the Act spells out the minimum financial terms that must be offered to avoid later suit under the Act--the seller must offer to take back the securities in exchange for the purchaser's net outlay, plus interest. The Act also expressly states that the offer must be written. The Act does not, however, expressly state that the financial terms are the only terms of the offer that must be conveyed to the purchaser in writing. Nor is it reasonable to infer that no other terms need be included in the offer.

For example, although the Act states that the purchaser has only thirty days to accept the offer, it does not explicitly require the offer to advise the purchaser of that deadline. Yet the time for a response is an essential element of the offer. Since it would be patently unjust to impose on the offeree an undisclosed thirty-day deadline, it cannot...