Decided: July 19, 1988.
DAVID ZENDELL, BURTON C. D'LUGOFF, EUGENE MAUSNER, STEPHEN THOMAS, WILLIAM THOMAS, G & S REALTY CO., A CORPORATION, DAVID PRICE, LAWRENCE WILENS, JOSEPH CORCORAN, LEONARD GREEN, DONALD HAYFORD, THEODORE HAYFORD, ANTHONY J. PERSICO, ELLIOT SHEAR, IRVING MENDELSON, STANLEY ADELMAN, JOHN VAN DECKER, ROSARIE BAYLON, GEORGE HELLER, JEAN GOLLAY, EXECUTRIX FOR THE ESTATE OF BENJAMIN GOLLAY, DECEASED, ROBERT MULCAHEY, ANDREW ELELMAN, DR. PINK NAN CHENG, AND MARTHA EVERDS, PLAINTIFFS-APPELLANTS AND CROSS-RESPONDENTS,
NEWPORT OIL CORPORATION, A DELAWARE CORPORATION, JOHN E. BRUYNELL, RAWLE & HENDERSON, ESQS., A PENNSYLVANIA PARTNERSHIP, DAVID I. FARBER, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS, AND S.M.A.A. REALTY CORP., A NEW JERSEY CORPORATION, ISLAND PLANNING CORPORATION OF AMERICA, A NEW YORK CORPORATION, MURRAY SILVER, SHIRLEY SILVER, MARLENE SILVER, LEONARD C. NACHTMAN, JOHN DOE AND RICHARD ROE, INC., DEFENDANTS-RESPONDENTS
On appeal from the Superior Court of New Jersey, Chancery Division, Essex County.
Michels, Gaynor and Arnold M. Stein. The opinion of the court was delivered by Arnold M. Stein, J.s.c., (temporarily assigned).
The principal allegation of this law suit is that defendants offered to sell units in a limited partnership in violation of federal and state securities registration and disclosure requirements. The motion judge ruled that the offerings were exempt from the registration requirements, found no material misrepresentation existed and granted summary judgment prior to trial on these issues. R. 4:46-2. The judge also granted summary judgment in favor of the Pennsylvania law firm which provided legal assistance in the partnership offering. Plaintiffs alleged that the firm was liable as a "seller" of securities as that term is defined in § 12(1) of the Securities Act of 1933, 15 U.S.C.A. § 77 l (1), and alleged separate claims of malpractice and negligence for allowing the offering of an unregistered security. We reverse that part of the order granting summary judgment on the registration and related attorney negligence issues.
In September 1981, Oak Oil 1981-1 (1981-1), a limited partnership, was formed to engage in oil production in Kansas. Oak Oil 1981-2 (1981-2) was formed on December 16, 1981. This limited partnership engaged in oil and gas exploration and production in Kansas and Oklahoma. Plaintiffs are the purchasers of the partnership interests, defendants were involved in various capacities in the interests' issuance. Thirty-four 1981-1 and thirty-one 1981-2 units were sold.
The operations were unsuccessful. Plaintiffs sought rescission of the agreement alleging, among other things, violation of federal and state securities regulations. The motion
judge had to determine whether the 1981-1 and 1981-2 offerings met the requirements to afford them non-public status which in turn permits the offering without registration. 15 U.S.C.A. § 77 d (2); 17 C.F.R. § 230.146 (1982) (Rule 146).*fn1 He separately addressed issues involving alleged omissions and misrepresentations in the sale of the interests.
The Securities and Exchange Commission (SEC) promulgated Rule 146 to help coordinate and integrate the disclosure system of the 1933 Securities Act with the exemptive provisions therein. SEC Release No. 33-5487, April 12, 1974, 39 Fed.Reg. 15,261. The preliminary note to Rule 146 reads:
In order to obtain protection of the Rule, all its conditions must be satisfied and the issuer has the burden of establishing, in an appropriate form, that it has satisfied them. The burden of proof applies with respect to each offeree as well as each purchaser. [Emphasis added]
Conditions in the Rule include, among others, the allowable scope of the offerings, the number of purchasers and a limitation that offerees be knowledgeable in business affairs. The conditions reflect concern, expressed in case law prior to the Rules' promulgation, for the protection of securities purchasers. Securities and Exchange Com'n v. Ralston Purina, 346 U.S. 119, 125-126, 73 S. Ct. 981, 984-985, 97 L. Ed. 1494, 1498-1499 (1953).
The judge properly ruled that securities exempt from Federal registration requirements are also exempt from State requirements. N.J.S.A. 49:3-60(b). We therefore focus on the Federal regulations.
In order to establish a prima facie violation of the 15 U.S.C.A. § 77e registration requirements, the plaintiff need only show: (1) the securities are unregistered and (2) defendant used the mails in an effort to sell the securities. Securities & ...
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