Wilson v. Southward Inv. Co. No. 1

• Decision Date: 06 April 1984
• Docket Number: No. 83-CA-950-MR,83-CA-950-MR
• Citation: 675 S.W.2d 10
• Parties: Blue Sky L. Rep. P 72,096 Ewert WILSON, Individually, and Wilson Drilling and Exploration, Inc., Appellants, v. SOUTHWARD INVESTMENT COMPANY # 1, Southward Investment Company # 2, Southward Investment Company # 3, Southward Investment Company # 4, Southward Investment Company # 5, Southward Investment Company # 6, Southward Investment Company # 7, Southward Investment Company # 8, Southward Investment Company # 9, Appellees.
• Court: Kentucky Court of Appeals

Page 10

675 S.W.2d 10

Blue Sky L. Rep. P 72,096

Ewert WILSON, Individually, and Wilson Drilling and Exploration, Inc., Appellants, v. SOUTHWARD INVESTMENT COMPANY # 1, Southward Investment Company # 2, Southward Investment Company # 3, Southward Investment Company # 4, Southward Investment Company # 5 Southward Investment Company # 6, Southward Investment Company # 7, Southward Investment Company # 8, Southward Investment Company # 9, Appellees.

No. 83-CA-950-MR

Court of Appeals of Kentucky.

April 6, 1984.

Rehearing Denied May 18, 1984.

Discretionary Review Denied and

Opinion Ordered Published by

Supreme Court Sept. 5, 1984.

Elmer P. Heist, Hurt & Heist, Burkesville, for appellants.

Bruce Barrickman, Richardson, Barrickman & Dickinson, Glasgow, for appellees.

Before DUNN, REYNOLDS and WHITE, JJ.

REYNOLDS, Judge.

Appellants, sellers, appeal from summary judgment granting appellees, buyers, rescission of a sale of oil interests for appellants' violation of state and federal securities law.

Appellant, Ewert Wilson, is the sole stockholder/owner of Wilson Drilling and Exploration, Inc. The primary business activity during the period concerned herein relates to oil exploration, drilling and drilling rig sales in the Clinton County area. The appellees are nine separate Tennessee limited partnerships which had as their general partners three Tennessee residents who raised money by selling units in the limited partnerships, with the purpose of the limited partnerships being confined to investments in oil and gas properties.

During the period from November 16, 1980, until May 10, 1981, appellants and appellees entered into discussions culminating in the sale, by appellants to appellees, of interest in eight separate oil leases in Clinton County, Kentucky. The total sale price of the various interests was $121,678. Some income was derived from a portion of the oil wells involved in this litigation.

On February 13, 1981, the Department of Banking and Securities entered a stop order directed to appellants, specifically enjoining them from selling securities in reliance on the exemptions of KRS 292.410(1), or other applicable exemptions for which a required claim of exemption had not been filed under KRS 292.415(1) until compliance with the chapter had been achieved and until further order of the Director. It was found that no application for exemptions had been filed, and appellants acknowledged that they had had no contact with the Department prior to February of 1981. The stop order was withdrawn in June of 1981.

Appellants maintain that the trial court erred by entering summary judgment insofar as genuine issues existed as to material facts; that appellees failed to establish that no genuine issues of material fact existed; and that the court failed to view the record herein in a light most favorable to the appellants.

We determine that the record supports the trial court's finding that there are no genuine issues as to the material facts herein as to entry of judgment for rescission. The nature of the evidence submitted by appellees bolsters the soundness of this conclusion. The depositions of the parties and the exhibits, including the orders of the Department of Banking and Securities, permitted the trial court to discover and determine that there was no issue of fact to be tried. Appellants' assertion that there are disputed facts does not transform undisputed facts into disputed facts. We view the affidavit of Elmer P. Heist as argument insofar as the facts reflect that the majority of sales were made starting in the fall of 1980 and increasing in the winter of 1981. Neither the affiant nor the appellants showed contact, application, or receipt of exemptions from the Department at such time aforesaid for those interests of oil and gas wells which are the subject matter of the litigation. CR 56.

Appellants argue that Federal and Kentucky laws did not require registration of securities involved in exempt transactions.

Appellants admit that they neither applied for, nor received an exemption under Federal Securities Law insofar as appellants relied upon the private offering exemption reflected in 15 U.S.C. Sec. 77d. The facts of this case do not fit within all the factors enumerated in Doran v. Petroleum Management Corp., 545 F.2d 893 (5th Cir.1977). We determine that the principles enumerated in SEC v. Murphy, 626 F.2d 633 (9th Cir.1980), are applicable and that the appellants' offerings herein should be viewed as integrated. Additionally, we hold that Doran, supra, requires that the person (appellants) claiming the private offering exemption has the burden of proving the applicability of the exemption. From the record we note that the appellants have presented no evidence regarding the number of offerees, except that there may have been a minimum of 100 purchasers. It is necessary for the appellants, in claiming the exemption, to prove the number of offerees and not just the number of purchasers. The failure to prove the number of offerees is fatal to a claim of exemption from the registration requirements. Doran, supra; see also Swenson v. Englestad, 626 F.2d 421 (5th Cir.1980).

While appellants contend they did not violate the registration provisions of KRS 292.340 insofar as they applied for and secured exemptions from the Department of Banking and Securities, we find that the appellants (sellers) have the burden of proving that an exemption from registration requirements was duly applicable at the time of the sale of the security instruments. KRS 292.420; see also General Life of Missouri Inv. Co. v. Shamburger, 546 F.2d 774 (8th Cir.1976). Additionally, in this case, appellants are without any facts which would support an exemption provided by KRS 292.410(1)(i).

KRS 292.415 provides that prior approval must be obtained from the Kentucky Department of Banking Securities before securities can be issued as exempt securities. The order of the Department was unequivocably clear that appellants had not at such time made application for exemption nor did they qualify for exemption. The findings of the order may be deemed binding on appellants. See Parklane Hosiery Co....