Whittaker v. Wall

• Decision Date: 08 November 1955
• Docket Number: No. 15293.,15293.
• Citation: 226 F.2d 868
• Parties: C. C. WHITTAKER, Sr., and Pay Rock Oil, Inc., Appellants, v. William G. WALL and Doris I. Wall and A. J. Wagner, Real Name Unknown, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

226 F.2d 868 (1955)

C. C. WHITTAKER, Sr., and Pay Rock Oil, Inc., Appellants, v. William G. WALL and Doris I. Wall and A. J. Wagner, Real Name Unknown, Appellees.

No. 15293.

United States Court of Appeals Eighth Circuit.

November 8, 1955.

Warren K. Dalton, Lincoln, Neb. (Robert Van Pelt and Van Pelt, Marti & O'Gara, Lincoln, Neb., with him on the brief), for appellants.

Frederick M. Deutsch, Norfolk, Neb. (Deutsch & Jewell, Norfolk, Neb., with him on the brief), for appellees Wall.

William H. Timbers, Gen. Counsel, Alexander Cohen, Sp. Counsel, Elizabeth B. A. Rogers, Atty., Securities and Exchange Commission, Washington, D. C., filed brief as amicus curiae.

Before WOODROUGH, JOHNSEN and VOGEL, Circuit Judges.

VOGEL, Circuit Judge.

Appellees Wall commenced this action against A. J. Wagner, Pay Rock Oil, Inc. and C. C. Whittaker, Sr., under the Securities Act of 1933, 15 U.S.C.A. § 77a et seq., to recover the consideration paid by them for unregistered fractional interests in oil and gas leases. From an adverse judgment C. C. Whittaker and Pay Rock Oil, Inc., appeal.

Pay Rock Oil, Inc., a Delaware corporation, whose principal place of business was Eureka, Kansas, and of which C. C. Whittaker was president and substantial stockholder, employed A. J. Wagner, a resident of Nebraska, as "representative" to sell oil and gas leases on a commission basis. In July, 1952, Wagner told appellees Wall in Nebraska of certain likely oil prospects and persuaded the Walls to inspect the holdings in Kansas with him. As a result, the Walls accompanied Wagner from Nebraska to Kansas, where they were introduced to C. C. Whittaker and taken on a tour of the drilling sites. On the following day, at the offices of Pay Rock Oil, Inc., in Kansas, the Walls signed an agreement authorizing Wagner to procure a 1/16th working interest in certain property known as the Freeburg "A" tract for $3,000.00 plus $1,500.00 if oil was found in commercial quantities. The $1,500.00 was stipulated to be for equipment and drilling expenses. Appellees also acquired an option to purchase a similar lease on the Freeburg "B" tract under the same terms. Provision was made that another $900.00 would be due in each case if a second well was drilled.

After conclusion of the negotiations, Wagner signed the agreement as "representative". Appellees then gave Whittaker a check for $3,000.00 and returned to Nebraska. About two weeks later appellees wrote to the secretary of Pay Rock, asking for their copy of the agreement and it was forwarded promptly. Shortly thereafter another document, entitled "Development Contract of Oil and Gas Lease", was sent by mail from the company in Kansas to the Walls in Nebraska. This development contract was executed and acknowledged by Wagner in Kansas.

On August 12, 1952, after the Freeburg "A" well struck oil, appellees received a statement by mail, from Kansas to Nebraska, requesting $1,500.00 for equipment and drilling expenses, and on September 5, 1952, they received a similar bill requesting $900.00 for a second well on the "A" tract. Both amounts were remitted by check. On September 1, 1952, in Nebraska, Wagner urged the Walls, by letter and telephone, to exercise the option on the "B" tract, and they did so, paying $3,000.00 then and $1,500.00 when the well struck oil. Such payments were made by mailing checks in Nebraska addressed to Pay Rock Oil, Inc., in Kansas. From December, 1952, through April, 1953, appellees received $342.04 in royalty distributions from Pay Rock in connection with the Freeburg "A" and "B" tracts. No registration certificate for either lease interest was filed with the Federal Securities Commission by Pay Rock or its officers.

Appellees, presumably concluding that they had made a bad investment, filed suit in the United States District Court of Nebraska, seeking return of the consideration paid. They relied on the provisions of 15 U.S.C.A. §§ 77e and 77l. These subsections state summarily that unless a registration certificate is in effect as to a security, it is unlawful to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to buy such security, or to carry or cause to be carried any such security for the purpose of sale or for delivery after sale. Any person who sells a security in violation of such provisions shall be liable to the purchaser, who may sue in any court of competent jurisdiction for the consideration paid plus interest, less any income received.

Appellants admitted sale of the securities in Kansas, but contended that the Nebraska court had no jurisdiction because there was no "sale" as contemplated by the statute in the District of Nebraska.

The trial court found, Wall v. Wagner, D.C., 125 F.Supp. 854, that it had jurisdiction and gave judgment for the plaintiffs for the entire amounts of the consideration paid, including the two $1,500.- 00 payments and the $900.00 payment, less $342.04 royalty distributions. The court also gave plaintiffs a lien on the involved securities, property and trust funds for payment of the judgment, and gave Wagner a similar lien in the event that he would pay any part of or all of the judgment. The court retained jurisdiction for the purpose of disposal of the properties upon payment of the judgment.

The questions presented by this appeal involve the jurisdictional issue and the propriety of the relief afforded.

Appellants contend, with reference to the question of jurisdiction, that no sale of securities took place in the State or District of Nebraska. 15 U.S. C.A. § 77v at the time in question provided in part:

"Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found." (The Securities Act has since been amended. Act of August 10, 1954, 68 Stat. 684.) (Emphasis supplied.)

As a basis for jurisdiction under the act, the trial court found that there had been a "sale" in Nebraska. D.C., 125 F.Supp. 854, 858:

"d) Jurisdiction and Venue. An action such as this under the Securities Act of 1933 may be brought in the district where the sale took place if the defendant participated therein. The court finds that the `sale\' in this case took place in Nebraska within the meaning of that term as used in the Act. The term `sale\', `sell\', `"offer to sell",\' or `"offer for sale",\' unless the context otherwise requires, includes a solicitation of an offer to buy a security for value. 15 U.S.C.A. § 77b(3). Such a solicitation was made in Nebraska by Wagner, the Agent of Pay Rock Oil, Inc."

Section 77b (3), insofar as it is applicable herein, provides:

"The term `sale\', `sell\', `offer to sell\', or `offer for sale\' shall include every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value; except that such terms shall not include preliminary negotiations or agreements between an issuer and any underwriter."

Appellants argue that this definition is out of context and does not apply to Section 77v because the latter section contemplates only a suit for damages as a consequence of a sale, there being no accrual of damages from a solicitation or an offer to dispose of securities. There would, instead, be a criminal prosecution or suit for an injunction handled by the Securities and Exchange Commission in accordance with Section 77t. Thus, it is concluded by appellants, Section 77v deals only with private, consummated sales and they claim there was no such sale in Nebraska.

Whether the statutory periphery of the court's jurisdiction is to be extended liberally by utilizing the Section 77b(3) definition as the meaning of "sale" or whether it shall be limited by the construction proffered by appellants is a query which may be decided by a perusal of the various purposes sought to be accomplished by the Securities Act. In the case of Wilko v. Swan, 1953, 346 U.S. 427, 430, 74 S.Ct. 182, 184, 98 L.Ed. 168, the Supreme Court, through Mr. Justice Reed, used this significant language:

"In response to a Presidential message urging that there be added to the ancient rule of caveat emptor the further doctrine of `let the seller also beware,\' Congress passed the Securities Act of 1933. Designed to protect investors, the Act requires issuers, underwriters, and dealers to make full and fair disclosure of the character of securities sold in interstate and foreign commerce and to prevent fraud in their sale. * * * The Act\'s special right is enforceable in any court of competent jurisdiction — federal or state — and removal from a state court is prohibited. If suit be brought in a federal court, the purchaser has a wide choice of venue, the privilege of nation-wide service of process and the jurisdictional $3,000 requirement of diversity cases is inapplicable." (Emphasis supplied.)

It is thus apparent that from the inception of the statute the accent has been on liberality. Securities & Exchange Commission v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L. Ed. 88; Blackwell v. Bentsen, 5 Cir., 1953, 203 F.2d 690. To restrict jurisdiction here to the situs of the consummated sale would run contrary to this liberal tenor and submit the jurisdictional situs to the vagaries of conflicts of laws issues as to where the sale took place. We therefore hold that it was the intent of Congress to permit an action to be brought in any jurisdiction wherein a "sale", as defined in Section 77b(3), took place. See Securities & Exchange Commission v. Wimer, D.C.1948, 75 F.Supp. 955, 962. As pointed out by the Securities & Exchange Commission in its brief as amicus curiae, this argument finds...