Ouachita Industries, Inc. v. Willingham

• Decision Date: 31 December 1959
• Docket Number: Civ. A. No. 731.
• Citation: 179 F. Supp. 493
• Parties: OUACHITA INDUSTRIES, INC., Successor to Creswell-Keith, Inc., an Arkansas Corporation, Trustee, and Creswell-Keith Mining Trust, Plaintiff, v. B. F. WILLINGHAM, W. S. (Pete) Bradham Mildred Willingham and Floy Bradham, Defendants, J. E. McMillan and Mary McMillan, Intervenors.
• Court: U.S. District Court — Western District of Arkansas

179 F. Supp. 493

OUACHITA INDUSTRIES, INC., Successor to Creswell-Keith, Inc., an Arkansas Corporation, Trustee, and Creswell-Keith Mining Trust, Plaintiff, v. B. F. WILLINGHAM, W. S. (Pete) Bradham Mildred Willingham and Floy Bradham, Defendants J. E. McMillan and Mary McMillan, Intervenors.

Civ. A. No. 731.

United States District Court W. D. Arkansas, Hot Springs Division.

December 31, 1959.

COPYRIGHT MATERIAL OMITTED

N. L. Schoenfeld, Hot Springs, Ark., Spencer & Spencer, El Dorado, Ark., for plaintiff.

McMillan & McMillan, Arkadelphia, Ark., for Willinghams.

Brown & Compton, El Dorado, Ark., for Bradhams.

McMillan & McMillan, Arkadelphia, Ark., for McMillans.

JOHN E. MILLER, Chief Judge.

This is an action brought by the plaintiff under the Securities Act of 1933, as amended. The section upon which the plaintiff particularly relies is 12(2), 15 U.S.C.A. § 77l(2). The action is based upon alleged misrepresentations made by defendants which induced plaintiff's predecessors to purchase certain interests in oil leases and oil field equipment as set forth in an assignment executed by defendants on November 29, 1956. The defendants denied they made any misrepresentations and filed a counterclaim for damages in which they alleged that the plaintiff failed to pay in full the note executed by it as consideration for the assignment.

The intervenors seek to recover the sum of $6,000 allegedly due them by virtue of an assignment from the defendants, and alleged in their intervention that the obligation was assumed by the plaintiff. The plaintiff in turn filed a counterclaim against the intervenors, in which it alleged that the intervenors were parties to the defendants' misrepresentations.

The case was tried to the court on November 10-12, 1959, and at the conclusion of the trial the case was submitted and briefs were requested from each side. The briefs have been received and considered by the court together with the pleadings, all the testimony, exhibits and entire record. Findings of fact and conclusions of law are included in this opinion, which is filed in accordance with the provisions of Rule 52(a), F.R.Civ.P. 28 U.S.C.A.

The plaintiff, Ouachita Industries, Inc., is an Arkansas corporation, organized in 1959, and is the successor to Keith Mining Trust. By virtue of an indenture, dated March 2, 1956, Creswell-Keith, Inc., was the Trustee for Creswell-Keith Mining Trust. Creswell-Keith, Inc., was also a major shareholder in the Trust. The Trust was originally created to develop and operate uranium mines in Nevada and gold mines in Mexico. The founders of the enterprise were Arch Creswell and R. Neville Keith. Creswell, an engineer, was not directly involved in the oil assignment, and apparently was working in Mexico during the period in question. Keith was the promoter and in charge of the sale of stock in the plaintiff's predecessors. He was the principal representative of plaintiff's predecessors in the purchase of the interests in the leases and the oil field equipment.

The defendants, W. S. Bradham and B. F. Willingham, were partners in the Oil Well Service Company, a partnership, organized in June 1955. The partnership purchased, developed, and serviced oil leases in the south Arkansas fields. Defendant Willingham was and is an automobile dealer at Gurdon, Arkansas. The defendant Bradham is a long-time oil man from El Dorado, Arkansas.

The intervenors, J. E. and Mary McMillan, are husband and wife and operate a mercantile store at Gurdon, Arkansas. Mr. McMillan loaned money to the defendants on various occasions, and at the time of the assignment to the plaintiff, he was the holder of a mortgage on all of the partnership assets as security for a $40,000 loan. The intervenors are now claiming against the defendants and the plaintiff by virtue of an assignment of January 13, 1956, executed by the defendants and allegedly assumed by the plaintiff.

Originally the plaintiff seemed to contend that between September 6 and November 29, 1956, the parties had a continuing series of interlocking transactions by which Creswell-Keith, Inc., acquired from the defendants Willingham and Bradham certain undivided mineral interests purchased because of oral misrepresentations by defendants, and that in these transactions the defendants made use of the mails in that:

"A. Defendants and plaintiffs entered into an escrow agreement * * *. The escrow agent obtained money by draft through the United States mails.

"B. Defendant signed and mailed * * * a division order * * (and) caused the Stanolind Oil Purchasing Company to mail its check to plaintiff."

The plaintiff further alleged that "there were other uses of the United States mails * * * not specifically stated here."

On February 28, 1958, the plaintiff filed an amendment to its complaint in which it alleged that as a part of the consideration for the assignment (meaning the assignment dated November 29, 1956) plaintiff was required to send more than 120 payments by means of the United States mails.

In June 1955 the defendants formed the partnership known as the Oil Well Service Company for the purpose of drilling oil wells and operating and servicing them. They obtained certain oil leases and sold a part of the 7/8 th working interest to various persons, such as the plaintiff's witnesses, Harry Sadler and Oliver Bass. The Oil Well Service Company would furnish the lease, the drilling rig, and the know-how and proceed to drill wells on the lease. Apparently in each instance the arrangements were made and the money was put up by various persons who had purchased part of the 7/8 th working interest before the drilling of the well was begun. After the well was drilled the Oil Well Service Company was required to operate it. Thus the drilling of a well gave the partnership an opportunity to keep the rig at work and gave them wells to service.

In addition to the wells which they drilled, they also serviced wells for other people. They charged for their services the customary price, whether it was servicing wells in which they had an interest or wells of third parties.

At the trial of the case the evidence clearly established that there was no continuing series of interlocking transactions, but rather there were three separate and distinct transactions between Creswell-Keith, Inc., and the defendants, but as hereinafter shown the liability, if any, of the defendants to the plaintiff arises from the assignment of November 29, 1956.

In order to properly understand and evaluate the assignment of November 29, 1956, which is the basis of this lawsuit, it is necessary to first examine the actions and events that preceded the execution of the assignment.

On November 21, 1955, Marvin and Virginia Harr assigned a 7/8 th working interest in certain oil and gas leases held by them to the defendants. The assignment was recorded on December 3, 1955.

On January 13, 1956, J. E. McMillan loaned $6,000 to the defendants. To secure the payment of the loan, the defendants assigned to McMillan a 1/16th interest in certain oil and gas leases and guaranteed McMillan a 1/16th interest in no less than three producing oil wells with the option that if the interest conveyed in the oil wells did not pay McMillan $6,000 in oil royalties plus 6 percent interest within three years, he could elect to have the defendants pay him the sum of $6,000 plus 6 percent interest, less the amount he had received in oil royalties, and McMillan agreed to assign back to the defendants the interest they had assigned to him. This assignment was recorded on January 17, 1956.

On May 14, 1956, J. E. McMillan made another loan of $40,000 to the defendants and took a mortgage on all of the partnership assets. For interest on this loan the defendants assigned to McMillan a 1/16th interest in certain oil and gas leases and guaranteed him a 1/16th interest in at least six producing wells. This assignment was recorded on May 17, 1956.

On July 3, 1956, Neville Keith and another director, Dr. Kenneth Stuart, representing the plaintiff, called on defendant Willingham at his place of business in Gurdon, Arkansas. The purpose of this visit was to attempt to sell Willingham stock in the Creswell-Keith Mining Trust. Keith told Willingham of the operations of the Trust, including the Nevada uranium mines and the Mexico gold mines. Willingham declined to purchase any stock, and in the conference told Keith and Stuart of his own oil interests, more in an effort to explain his lack of interest in a project to develop uranium and gold mines than to sell the assets and business of the partnership. However, Keith and Stuart became interested in the oil business, apparently thinking that the opportunities in the oil business were better than those in the mining operations.

Following the conversation of July 3, 1956, there were negotiations in August between the plaintiff, represented by Keith, and the defendants for the purchase of the remaining 1/8 th working interest in the so-called "Harr" oil and gas lease. As a result of such negotiations the plaintiff and defendants on September 6, 1956, entered into an escrow agreement at the First National Bank of Gurdon, Arkansas, for the purchase by the defendants of the 1/8 th working interest in the "Harr" lease.

Creswell-Keith, Inc., deposited with the bank cashier's checks payable to it for the purpose of obtaining cash with which Creswell-Keith, Inc., could comply with the escrow agreement. The checks were sent through regular banking channels by the bank for the benefit of Creswell-Keith, Inc., and when they were collected, this cash was made available to Creswell-Keith at Gurdon to consummate the transaction.

On September 11, 1956, Marvin and Virginia Harr assigned to the defendants their remaining 1/8 th working interest in the oil and gas leases held by them. On the same day the defendants assigned this 1/8 th interest to the plaintiff, thereby completing the escrow...