Pikofsky v. Jem Oil

• Decision Date: 02 May 1985
• Docket Number: No. 83-C-1637.,83-C-1637.
• Citation: 607 F. Supp. 727
• Parties: Seymour PIKOFSKY, Alan Lever, Michael Lever, Jack Lever and Celia Lever, Plaintiffs, v. JEM OIL, d/b/a Jem Oil Partnership, Olav E. Jore and Howard Mann, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

607 F. Supp. 727

Seymour PIKOFSKY, Alan Lever, Michael Lever, Jack Lever and Celia Lever, Plaintiffs, v. JEM OIL, d/b/a Jem Oil Partnership, Olav E. Jore and Howard Mann, Defendants.

No. 83-C-1637.

United States District Court, E.D. Wisconsin.

May 2, 1985.

Donald A. Schoenfeld, Habush, Habush & Davis, Milwaukee, Wis., for plaintiffs.

James Dries, Philipp & Sletteland, Milwaukee, Wis., for defendant O.E. Jore.

R. Edward Veltman, Jr., Crain, Cooksey, Veltman & Pursell, Ltd., Centralia, Ill., for defendant H. Mann.

DECISION AND ORDER

WARREN, District Judge.

There are three motions presently before the Court in this matter — the motion of defendant Howard Mann for a change of venue, the motion of plaintiffs for the entry of default judgment, and the motion of defendant Howard Mann to dismiss the plaintiffs' complaint for failure to state a claim upon which relief can be granted. The Court, having carefully considered the merits of these several motions, concludes, for the reasons articulated herein, that each must be denied.

BACKGROUND

This action was initiated on September 23, 1983, when the plaintiffs, all citizens of the State of Wisconsin, filed their complaint alleging principally that the defendants, an Illinois partnership and its two chief executive officers, induced them to invest in certain "working interests" in Illinois oil wells, to their eventual financial damage. Specifically, the complaint states that, between October and December of 1981, plaintiffs Seymour Pikofsky, Alan Lever, and Michael Lever entered into a series of agreements with defendant Jem Oil for the purchase of interests in wells numbered 701, 702, and 703; similarly, plaintiffs Jack Lever and Celia Lever purportedly executed an agreement with Jem Oil on or about May 27, 1982, for the purchase of a working interest in well number 704. Subsequently, based on representations allegedly made by the defendants with respect to the presence of commercial quantities of oil in the subject wells, all plaintiffs purchased additional working interests.

The gravamen of the complaint is that the defendants made material misrepresentations with respect to the commercial profitability of the Illinois oil wells to induce the plaintiffs' investments; that the defendants provided no substantive information about those wells with the exception of a certain drilling prospect report sent to the plaintiffs on or about May 13, 1982; and, significantly, that the defendants failed to warn of substantial dangers and problems attendant upon oil and gas drilling, potentially affecting the profitability of the investments. Despite the defendants' alleged misrepresentations regarding the financial return on the working interests purchased and the lack of any need for further payments, the wells are either not producing to expected levels or require investments of additional funds to cover expenses, or so the plaintiffs charge.

Alleging violations of Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l; Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; and Wis.Stat. § 551.01 et seq., the plaintiffs further contend that the defendants have failed to register the securities offerings with the appropriate federal and state agencies or to obtain registration exemptions; that the defendants engaged in reckless and intentional misconduct in making material omissions and misstatements of fact with respect to the sale of the working interests; and that, as a result of their lack of sophistication and consequent reliance on the materially significant misrepresentations by the defendants, the plaintiffs collectively suffered damages totaling $58,000.00. By the ad damnum clause of their complaint, the plaintiffs also seek punitive damages in the amount of one million dollars, attorneys' fees and costs, and such other relief as the Court may deem just and equitable.

On November 15, 1983, defendant Olav E. Jore filed his answer to the complaint, denying all material allegations incorporated therein and raising six affirmative defenses — among them, that the plaintiffs' claims are barred by certain legal and equitable doctrines, including assumption of risk, contributory negligence, estoppel, and laches; that the plaintiffs knew or should have known of any alleged misrepresentations which were, in any event, immaterial to the transactions upon which this action is premised; and that, as one of the three named defendants, he had no knowledge of the purported untruths or omissions and thus played no causative role in the infliction of any injuries suffered by the plaintiffs. Contending that the plaintiffs' prayer for punitive damages is inappropriate under the circumstances of this action, this defendant seeks judgment dismissing the complaint and awarding him appropriate costs and fees.

On December 15, 1983, nearly three months after the filing of the plaintiffs' complaint, defendant Howard Mann interposed a motion for transfer of venue to the United States District Court for the Southern District of Illinois. In summary support of his petition, this movant argues that all of the defendants reside in Centralia, Illinois, and maintain no residences or offices in Wisconsin; that the transactions upon which this lawsuit are based occurred in the Southern District of Illinois; and that the subject oil wells and all relevant records are located in that region.

Some two months later, on February 14, 1984, the plaintiffs moved for the entry of default judgment against defendant Mann on the basis of his purported failure to answer or enter any appearance in this matter. Invoking the relevant prerequisites to securing relief under Rule 55(b)(2) of the Federal Rules of Civil Procedure, the plaintiffs seek judgment against this defendant for the total amounts of compensatory and punitive damages requested in their complaint, plus interest, reasonable attorneys' fees, and the costs incurred in the prosecution of the action.

In the wake of these cross-motions for the transfer of venue and the entry of default judgment, the Court conducted a brief status hearing on April 12, 1984. At that time, the Court established a briefing schedule on the plaintiffs' Rule 55(b)(2) petition and indicated that it would schedule further proceedings in this matter, as appropriate, in its order resolving the pending motions.¹

Pursuant to the established filing deadline, the plaintiffs, on April 23, 1984, filed a memorandum in opposition to the motion for a change of venue and in support of the entry of default judgment against defendant Mann. In their brief, the plaintiffs contend, at the outset, that the request for transfer of venue should be dismissed for failure to comply with Local Rule 6.01, requiring that every motion be accompanied by either a supporting brief and appropriate affidavits or a certificate that the moving party does not intend to file such supporting documents. Based on this procedural deficiency, the plaintiffs ask that the motion be summarily denied and default judgment entered.

In substantive response to the request for transfer of this matter to the Southern District of Illinois, the plaintiffs confess to some confusion as to whether the motion is brought under 28 U.S.C. § 1404(a), authorizing transfer of cases based on the convenience of parties and witnesses and in the interest of justice, or under 28 U.S.C. § 1406(a), mandating dismissal or transfer upon a finding that the action is improperly venued in the original forum. Construing the present motion as a request for transfer under § 1404(a), the plaintiffs urge denial of the motion

on the basis of improper presentation. Under FRCP 12(b), all affirmative defenses must be raised by Answer except those specifically enumerated in that subsection. Among others, the only enumerated exception which is relevant is under FRCP 12(b)(3) which allows the matter of improper venue to be raised by motion in lieu of an Answer....

Plaintiffs' Memorandum of Law at 5 (April 23, 1984). Since defendant Mann has not filed a formal answer to the complaint, the request for entry of default judgment against him should be granted, or so the plaintiffs conclude.

Parenthetically, the plaintiffs contend that, since defendant Mann has failed to assert any facts demonstrating the impropriety — as opposed to mere inconvenience — of venue in this district, the petition for transfer should not be resolved pursuant to 28 U.S.C. § 1406(a). In any event, the movants have appended to their memorandum the affidavit of plaintiff Seymour Pikofsky, arguably establishing a sufficient basis upon which to conclude that the claim arose in the State of Wisconsin and that venue in this district is therefore proper. On this alternative assumption that the defendants' motion will, indeed, be construed as a request for relief under § 1406(a), the plaintiffs seek an order of the Court requiring that an answer be filed forthwith and establishing dates for further proceedings in this action.

In the final volley of pretrial motions, defendant Mann, on May 21, 1984, filed a petition to dismiss each of the four counts of the plaintiffs' complaint on the basis that none fails to state a claim upon which relief can be granted. Presumably invoking Rule 12(b)(6) of the Federal Rules of Civil Procedure, the movant contends, among other things, that the plaintiffs have failed to allege excusable ignorance of the purported misrepresentations; that the alleged omissions partake of general risks attendant upon any investment in the oil industry; that the plaintiffs have failed to assert the material significance of any purported misstatements or that they reasonably relied on them to their detriment; and, in any event, that paragraph 17 of the standard purchase agreement — establishing the Illinois statutes as the body of law governing any transactions between the parties — effectively precludes the plaintiffs from asserting violations of...