Petition for Writ of Certiorari — C & M Petroleum Producers, Inc. v. Meyers

o” ——— - | Supreme Coart, U. S.

ted States

'} MICHAEL ROBAL, IR_CLERZ

oa a cece »

C & M PETROLEUM PRODUCERS, INC.: HERMAN

MORRIS; DAVE MADRAY; AND

HERSHELL COLLINS.

Petitioners,

vs.

JOHN C. MEYERS and LUCY B. MEYERS; JOHNNY

DEAL; BILLY G. TILLMAN ; H. LEHMAN

FRANKLIN, JR..

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

JOHN B. MILLER

Post Office Box 8426

Savannah, Georgia 31402

Counsel for Petitioners

Of Counsel:

Luur G. C. BeckMANN, Jr.

Joun M. Tatum

MILLER, BECKMANN & SIMPSON

Post Office Box 8426

Savannah, Georgia 31402

WiLttAmM A. Zorn

ZorN & Roya

Post Office Box 1075

Jesup, Georgia 31545

ELL. Mewnnesnarn, Ive., 998 Cherry Street, Kansas City. Mo. 64106, 421-2030

TABLE OF CONTENTS

FREI ORE. LEE Rat nie a ed ene ER 1

AAR ALE RI ies RE SENSO ee 2

I a liaeesebiertens 2

Constitutional Provisions, Treaties, Statutes, Or-

dinances, Regulations Involved ..........22.2..220.......-.-0------ 3

Statement of the Case 4

Reasons for Granting the Writ -.2.220.22.2...2.....e.ececeeeceeeee-- 6

Conclusion i 14

Appendix—

Judgment, United States Court of Appeals for

the Fifth Circuit ........... * Al

Petition for Rehearing Denied A2

Opinion ...... A3

Table of Authorities

CASES

Allied Artists Pictures Corp. v. Giroux, 312 F. Supp.

450 (S.D. N.Y. 1970) 8

Can-Am Petroleum Company v. Beck, 331 F.2d 371

(10th Cir. 1964) 10

Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d

242 (3rd Cir. 1968) —.................. 9,12, 14

Pearlstein v. Scudder & German, 295 F. Supp. 1197

(S.D. N.Y. 1968) ........... 9, 12,14

Reader v. Hirsch & Co., 197 F. Supp. 111 (S.D. N-Y.

1961) ... 12

Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9th

EIR ea em Meceeacn revel cna ON RE 11, 13, 14

It

Straley v. Universal Uranium & Milling Corporation,

289 F.2d 370 (9th Cir. 1961) ..........---------------+ 11, 12, 13, 14

Wilco v. Swan, 346 U.S. 427, 98 L.ed. 168 (1953) -...6-7, 9, 10

Woodmen of the World Life Ins. Soc. Vv. Greathouse,

. Fe Seales ll

STATUTES

Interstate Land Sale Full Disclosure Act of 1970—

ee a ecsnessnecinnincnnedeneanenienieniiornanins 7

Investment Advisers Act of 1940—

15 U.S.C. §80b-15 (a) -..----.-------c--c-ce-cecceeceneecerennsenseeersees 7

Investment Company Act of 1940—

15 U.S.C. $80a-46 (a) -...-.--.--------0--c-ececcsensocseceenserenesneseee 7

Public Utility Holding Company Act of 1935—

6 Sc. tee) ......-. os

Securities Act of 1933—

Section 5, 15 U.S.C. §77e ......------------------ee-+ 2, 3, 4, 6, 10

Section 12(1), 15 U.S.C. 771 ..2, 3, 4, 6, 8, 10, 11, 12, 13, 14

Section 14, 15 U.S.C. §77n ..........------ 4, 6, 7, 8, 9, 10, 11, 12

Section 22, 15 U.S.C. §77V_ ....------------seeeeeeerttte h)

Securities Exchange Act of 1934—

action: TOG cers 13

Section 29(a), 15 U.S.C. §78ec(a) -...---------------- 7, 8, 9, 12

OTHER

Black’s Law Dictionary (rev. 4th ed. 1968), at pp. 1453,

eS ante 8

Black’s Law Dictionary, Pp. 651 ........---------------s0-eereeerere ll

50 Am. Jur., Statutes, §272, at 260 7

Rule 10b-5, Securities Exchange Commission .........------ 13

In the Supreme Court of the United States

OCTOBER TERM, 1972

C & M PETROLEUM PRODUCERS, INC.; HERMAN

MORRIS; DAVE MADRAY; AND

HERSHELL COLLINS,

Petitioners,

vs.

JOHN C. MEYERS and LUCY B. MEYERS; JOHNNY

DEAL; BILLY G. TILLMAN; H. LEHMAN

FRANKLIN, JR.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

C & M Petroleum Producers, Inc., Herman Morris,

Dave Madray and Hershell Collins, hereinafter collec-

tively referred to as “Petitioners”, respectfully request

that a writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Fifth Circuit

entered in the above case on April 10, 1973.

OPINIONS BELOW

No opinions of the United States District Court of the

Southern District of Georgia, in this case, were reported

either officially or unofficially.

2

The opinion of the United States Court of Appeals for

the Fifth Circuit has not yet been officially reported. An

unofficial report of the opinion appears at CCH, Federal

Securities Law Reports, {93,941 (No. 476, April 25, 1973).

JURISDICTION

The judgment of the Court of Appeals for the Fifth

Circuit was made and entered on April 10, 1973.

On April 23, 1973, Petitioners filed a petition for re-

hearing in the Court of Appeals for the Fifth Circuit

which petition was denied by order of that Court, made

and entered on May 24, 1973.

The jurisdiction of this Court is invoked under 28

U.S.C. §1254(1).

QUESTION PRESENTED

Respondents, as Plaintiffs below, commenced this case

against Petitioners to recover under §12(1) of the Secu-

rities Act of 1933, 15 U.S.C. $771. Petitioners assert the

defense that Respondents, subsequent to the contro-

versy but, prior to commencement of the action, waived

any rights they may have had under Section 12, Secu-

rities Act of 1933. The sole question presented by this

case is:

Whether a purchaser of securities sold in violation of

Section 5, Securities Act of 1933, may, after the occur-

rence of the violation and after knowledge of his statu-

tory rights, effectively waive such rights.

CONSTITUTIONAL PROVISIONS, TREATIES,

STATUTES, ORDINANCES, REGULATIONS

INVOLVED

This case does not involve any Constitutional provi-

sions, treaties, ordinances, or regulations. The case in-

volves only matters of Federal law arising under the fol-

lowing statutes which are set out verbatim.

Section 5, Securities Act of 1933, 15 U.S.C. §77e:

(a) Unless a registration statement is in effect as to a

security, it shall be unlawful for any person, di-

rectly or indirectly—

(1) to make use of any means or instruments

of transportation or communication in interstate

commerce or of the mails to sell such security

through the use or medium of any prospectus or

otherwise; or

(2) to carry or cause to be carried through the

mails or in interstate commerce, by any means or

instruments of transportation, any such security

for the purpose of sale or for delivery after sale.

Section 12(1), Securities Act of 1933, 15 U.S.C. §771:

Any person who—

(1) offers or sells a security in violation of section

77e of this title . . . shall be liable to the person

purchasing such security from him, who may

sue either at law or in equity in any court of

competent jurisdiction, to recover the considera-

tion paid for such security with interest thereon,

less the amount of any income received thereon,

upon the tender ce: such security, or for dam-

ages if he no longer owns the security.

4

Section 14, Securities Act of 1933, 15 U.S.C. §77n:

Any condition, stipulation, or provision binding

any person acquiring any security to waive compli-

ance with any provision of this subchapter or of the

rules and regulations of ihe Commission shall be void.

STATEMENT OF THE CASE

On December 24, 1968, Petitioners began offering for

sale working interests in oil wells located in Ohio. These

interests are “securities” and Petitioners are each a “per-

son who offers or sells a security” within the meaning

of the applicable statutes. These interests or securities

were offered and sold in violation of Section 5, Securities

Act of 1933, 15 U.S.C. §$77e, since no registration statement

as required by that statute had been filed at the time. No

such registration statement has ever been filed. Re-

spondents are purchasers of some of these securities.

Upon being informed of its violation of the law with

respect to the offer and sale of these securities, the Peti-

tioner C & M Petroleum Producers, Inc., notified the Re-

spondents of the violation, offered to rescind the sales and

to provide the statutory remedy under Section 12(1), Se-

curities Act of 1933, 15 U.S.C. §771.

The controversy between petitioners and respondents

came into existence at this point. Petitioners took the

position that they had violated the law and incurred civil

liability to the respondents and offered respondents the

choice of accepting the legal remedy or retaining their

investment. On the other hand, respondents said, in ef-

fect, “we will keep our investment and rescind our pur-

chase only if we lose money.”

5

Instead of accepting this offer, respondents indi-

cated a desire to retain the securities if they were worth

more than they had paid for them by requesting data that

would reflect their value, thereby evidencing an unwilling-

ness to accept the remedy provided by Section 12.

Respondents took no further action with regard to

these securities until this action was commenced approxi-

mately seven months later, and respondents did, after the

communications, receive and retain the sum of $1,472.91

in income from the securities.

This case was commenced in the United States Dis-

trict Court for the Southern District of Georgia, which

had jurisdiction under Section 22, Securities Act of 1933,

15 U.S.C. §77v. The District Court admitted. testimony and

correspondence concerning the above facts into evidence

over the respondents’ objection, and a jury returned the

following special verdict:

Under the evidence and charge of this Court, did

the Plaintiffs waive the right to the return of the

money they invested in working interests in certain

gas wells?

Answer: “Yes” or “No”

This 3rd day of April, 1972.

s/ Yes

s/ Maxine Williams

Foreman

Thereupon the jury was directed by the Court and did

return the following general verdict:

“We, the Jury, find for the Defendants. This 3rd day

of April, 1972.

s/ Maxine Williams

Foreman

6

In accordance with the verdict of the jury, the Dis- |

trict Court entered judgment against Respondents, Plain-

tiffs in the District Court, and in favor of Petitioners, De-

fendants in the District Court. On Respondents’ appeal

from the District Court’s judgment, the Court of Appeals

for the Fifth Circuit reversed and remanded the case with

directions to enter judgment in Respondents’ favor against

Petitioners, holding that “waiver” is not a defense under

any circumstances to civil liability under the Securities Act

of 1933.

REASONS FOR GRANTING THE WRIT

The decision of the Court of Appeals for the Fifth

Circuit should be reviewed by this Court on Writ of Cer-

tiorari because:

(1) it has erroneously decided an important question

of Federal Law which has not been, but should be, set-

tled by this court; and

(2) the decision is in conflict with the decision of

another Court of Appeals on the same matter.

In either event, this Court should grant review and

decide the question presented in this case.

1. The Court of Appeals for the Fifth Circuit has er-

roneously held, in this case, that a purchaser of securities

sold in violation of Section 5, Securities Act of 1933, 15

U.S.C. $77e, cannot effectively waive his rights under Sec-

tion 12(1), even after full knowledge of the violation,

rights and remedies and after the occurrence of the con-

troversy. The Court of Appeals bases this holding upon

Section 14 of the Act. While this Court has previously

held the waiver of a future controversy arising under the

Securities Act of 1933 invalid, in Wilko v. Swan, 346 US.

7

427, 98 L.ed. 168 (1953), it has never decided the im-

portant question presented by this case.

The importance of the question presented is under-

scored by the fact that other Federal Acts in the interest

of public protection contain non-waiver provisions almost

identical in wording to Section 14, Securities Act of 1933.

Examples of such provisions may be found in the Se-

curities Exchange Act of 1934,’ the Public Utility Hold-

ing Company Act of 1935,? the Investment Company Act

of 1940," the Investment Advisers Act of 1940, and the

Interstate Land Sale Full Disclosure Act of 1970.5 In ad-

dition to the important effect of the question presented

upon the administration of civil rights and remedies under

the Securities Act of 1933, it will, in all probability, have

an equally important effect upon the administration of

such rights and remedies under these and any other acts

for the public protection containing non-waiver provi-

sions.®

The only realistic construction of Section 14 is that

such section prohibits only waivers of rights or remedies

under the Act that occur prior to the violation or prior

to the controversy. The legal system of this nation has

historically encouraged civil litigants to settle their dif-

ferences outside of Court, but the decision sought to be

reviewed by this application would preclude litigants’

reaching a binding voluntary settlement even after the

See note 8, infra.

15 U.S.C. §79z(a).

15 U.S.C. §80a-46(a).

15 U.S.C. §80b-15(a).

15 U.S.C. §1712.

6. “Ordinarily, the same words used in different statutes

on the same subject are interpreted to have the same meaning.”

50 Am. Jur., Statutes, §272, at 260.

a a

8

controversy. If Section 14, as declared by the Court of

Appeals, prohibits all types of waiver as a defense to an

action under Section 12(1), then private civil litigants

could never settle a Section 12(1) case. Suppose, for

example, that a purchaser of Securities, sold in violation

of the act, and the sellers wish to settle their dispute in a

way which would require the guilty seller to pay an

agreed sum to the purchaser and the purchaser to give to

the seller a “release’’ of his rights. If such persons did in

fact consummate such a settlement agreement, the Court

of Appeals decision in this case would permit the purchaser

to, nevertheless, proceed, at any time within the Statute

of Limitations, under Section 12(1) against the seller who

would not be permitted to defend the action on the settle-

ment release.

While the Securities Exchange Act of 1934 is not

directly involved in this case, the language of Section 29(a)

7. There is no material distinction between a “release” and

a “waiver”. Black’s Law Dictionary (rev. 4th ed. 1968), at 175],

offers, among its variously worded definitions of “waiver”, the

following:

The intentional or voluntary relinquishment of a known

right . . . or such conduct as warrants an inference of the

relinquishment of such right.... The renunciation, repudia-

tion, abandonment, or surrender of some claim, right, privi-

lege, or the opportunity to take advantage of some defect,

irregularity, or wrong. (citations omitted.)

In the same publication at page 1453 “release” is defined as:

The relinquishment, concession, or giving up of a right, claim,

or privilege, by the person in whom it exists or to whom it

accrues, to the person against whom it might have been

demanded or enforced.

Neither Section 14, Securities Act of 1933, nor Section 29(a), Se-

curities Exchange Act of 1934 contain the word “release”. How-

ever, it was recognized in Allied Artists Pictures Corp. v. Girouz,

312 F. Supp. 450 (S.D.N.Y. 1970), that a “release” was equiva-

lent to a “condition, stipulation, or provision binding any person

to waive” as used in Section 29(a), Securities Exchange Act of

1934. In that case it was held that a “release” of all liability was

void as applied to liabilities on account of future violations of

the Securities Exchange Act under Section 29(a) of that Act.

9

of that Act is almost identical to Section 14 of the Se-

curities Act of 1933.8 Referring to these sections of both

acts, it was noted in Moran v. Paine, Webber, Jackson &

Curtis, 389 F.2d 242, at 245 (3rd Cir. 1968) that “the same

logic is applicable . . . to both non-waiver sections”. In

Pearlstein v. Scudder & German, 295 F. Supp. 1197 (S.D.

N.Y. 1968), it was held that stipulations agreed to after

the existence of a controversy under the Securities Ex-

change Act of 1934 are valid and enforceable notwithstand-

ing Section 29(a) of that Act.

That Section 14 prohibits “anticipatory” type waivers?

was held by this Court in Wilko v. Swan, 346 US. 427, 98

Led. 168 (1953). However, the opinion in that case, at

least implicitly recognized the validity of a waiver occur-

ring after the controversy or violation.” The Court stated

the issue before it as:

Whether an agreement to arbitrate a future contro-

versy is a “condition, stipulation, or provision binding

any person acquiring any security to waive compli-

ance with any provision” of the Securities Act which

§14 declares “void”.

346 U.S. at 430, 98 L.ed. at 173 (emphasis added). Mr.

Justice Jackson in a separate concurring opinion expressly

declared that after the controversy arose “the parties could

agree on arbitration” effectively since Section 14 pro-

8. Any condition, stipulation, or provision binding any per-

son to waive compliance with any Provision of this chapter

or of any rule or regulation thereunder, or of any rule of

an exchange required thereby shall be void.

Securities Act of 1934, Section 29(a); 15 U.S.C. §78cc(a).

9. “Anticipatory type waivers” as used herein refers to

those waivers of rights coming into existence in the future.

10. Wilko v. Swan, 346 U.S. 427, at 438, 98 L.ed. 168, at 177

{majority opinion distinguishing waivers of existing controversies

from waivers in advance of controversies); Moran v. Paine,

Webber, Jackson & Curtis, 389 F.2d 242, at 246 (3rd Cir. 1968);

see discussion at page 12, infra.

10

hibited only the waiver of the statutory judicial remedies

provided by the act by agreement made before the con-

troversy arose.

Can-Am Petroleum Company v. Beck, 331 F.2d 371

(10th Cir. 1964) is an application of a modified version

of the doctrine of pari delicto rather than a direct appli-

cation of Section 14. The plaintiff had purchased unreg-

istered securities and after doing so had urged others to do

so, had worked closely with the promoter in his promo-

tional efforts and had received additional securities for

such efforts. When she brought the action against the

sellers for violation of 15 U.S.C. §s$77e and 771,"' the de-

fense that she was in pari delicto with the sellers was as-

serted. In view of the conflict between the law’s policy

not to afford relief to either party to an illegal contract

with the effective enforcement of the Securities Act, the

Court formulated what we deem to be a new and modified

version of the doctrine of pari delicto to apply in Section

12(1), Securities Act cases. The rule as was formulated

in the Can-Am Petroleum case is fairly and accurately

stated as where both parties are guilty of acts violating the

Securities Act of 1933, the law will weigh their guilt and

provide the statutory relief to the purchaser if he is the

less culpable. While the opinion in Can-Am Petroleum

contains the statement that the remedial aspects of the

Securities Act may not be waived and cites Section 14,

and Wilko v. Swan, supra, in support of such statement, it

clearly recognized that the plaintiff-purchaser could, by

subsequent conduct, become equally as culpable and be

denied the remedy under the Securities Act,’* thereby

11. Sections 5 and 12(1), Securities Act of 1933.

12. The guilty conduct of the purchaser was weighed

against that of the seller and the court held the purchaser’s con-

duct to be the less culpable stating, “she at no time had the

degree of culpability attributed to the defendants.” 331 F.2d

at 373.

11

supporting the view that provisions of the Act may be

effectively waived after the existence of the controversy.

The Fifth Circuit Court of Appeals in the instant case

has stated that if the respondents had rejected an un-

conditional tender of the amounts due under the statute

with a demand for the return of the securities, “they would

have impaled themselves upon such an estoppel as recog-

nized by the Court of Appeals for the Ninth Circuit in the

cases of Straley v. Universal Uranium and Milling Cor-

poration, 1961, 289 F.2d 370 and Royal Air Properties, Inc.,

v. Smith, 1964, 312 F.2d 210”. In the first place, it is clear

from a review of those two Ninth Circuit opinions that

such an unconditional offer and demand was not made in

either case. Furthermore, the Fifth Circuit’s statement

in the instant case is a misconstruction of the holding in the

Straley case since, as will be pointed out in subsequent

argument, the Straley case holds squarely that “waiver”

as well as “estoppel”, after the violation, is a valid de-

fense to a Section 12(1) case.

In any event, there is no material distinction between

conduct labeled as “waiver” and conduct labeled as “es-

toppel” insofar as Section 14 of the Securities Act is con-

cerned. Black’s Law Dictionary at p. 651, citing Woodmen

of the World Life Ins. Soc. v. Greathouse, 242 Ala. 532,

points out that the “legal effect of waiver and estoppel

is the same”. The law should no more permit conduct

occurring prior to the violation or prior to the controversy

to constitute a defense to a Section 12(1) case, than it

should permit such conduct labeled as a waiver to consti-

tute such a defense. Section 14 prohibits defenses based

upon both conduct labeled as an estoppel to assert rights

arising in the future and conduct labeled as a waiver

of rights arising because of future Violations. It does not

void either a waiver or estoppel by conduct or agreement

after the occurrence of a violation or controversy.

en

12

The waivers of Section 12 rights which are justified

as being valid notwithstanding Section 14, are waivers

which occur after the particular controversy arises. As

noted in Moran v. Paine, Webber, Jackson & Curtis, supra,

at 246,

The “differentiation” [between such waivers and an-

ticipatory waivers] expresses itself in Wilko v. Swan,

supra, at p. 438, as well as in the concurring opinion

of Justice Jackson. . .

In Reader v. Hirsch & Co., 197 F. Supp. 111 (S.D. N-Y.

1961), where an agreement to arbitrate was held to be

void under Section 29(a), Securities Exchange Act of 1934,

the Court was cautious to note, at page 117, that its hold-

ing

is not inteaded to suggest that arbitration is not avail-

able where an existing dispute is, upon the consent

of the parties, submitted to arbitration. . . . It may

be noted . .. that the arguments and considerations

which preclude the validity of an agreement to arbi-

trate future disputes are generally inapplicable to an

agreement to arbitrate existing disputes. .. . (em-

phasis added).

As noted in Pearlstein v. Scudder & German, supra, at

p. 1203, “section 29(a) [Securities Exchange Act of 1934]

has been judicially construed to preclude only those

waivers of Securities Exchange Act provisions . . . made

prior to the existence of a controversy”.

2. The decision sought to be reviewed by this peti-

tion is in direct contradiction to Straley v. Universal Ura-

nium & Milling Corp., 289 F.2d 370, decided by the Court

of Appeals for the Ninth Circuit in 1961. Straley remains

to this day binding authority in the Ninth Circuit for

the rule that a securities purchaser’s conduct subsequent

to a violation of Section 5, Securities Act of 1933, may

13

validly waive such purchaser’s rights under Section 12(1).

While the Court in Straley stated the question before

it as being

May laches bar the recovery by the purchaser of the

consideration paid for securities issued in violation

of Title 15 U.S.C.A. §77e, where the purchaser proves

his claim under Title 15 U.S.C.A. §77(1), and has

brought his action within one year from the date of

the sale of such securities as required by Title 15

U.S.C.A. $77m?

it was also necessary for the Court to decide whether

the defenses of estoppel or waiver were valid in such

an action. In holding that the equitable defense of laches

was not available in a Section 12(1) case but that both

waiver and estoppel were each available and valid defenses

the Court of Appeals remanded the case to the District

Court with instructions to consider and rule upon each

of those defenses as applied to the evidence.

Following the holding in the Straley case, the same

Court declared that waiver and estoppel subsequent to

the violation were both valid defenses to a civil action

based upon Section 10b-5, Securities Exchange Act of 1934,

and Rule 10b-5 of the Securities Exchange Commission in

Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9th Cir.

1962). The opinion of the Court in Royal Air expressly

supports Petitioners’ contention that Straley v. Universal

Uranium & Milling Corp., supra, held squarely that waiver

is an available defense to a Section 12(1), Securities Act

case.” Royal Air cannot be distinguished from the instant

case because it arose under Section 10b, Securities Ex-

change Act, while the instant case arises under Section

13. If Straley had held that waiver and estoppel were not

available defenses, the court “would not have remanded the case

to permit their presentation. . .” Royal Air Properties y. Smith,

312 F.2d at 213.

14

12, Securities Act. As noted in previous discussion, both

acts contain almost identical nonwaiver provisions. As

noted in Royal Air, the Securities Exchange Act is in

no way designed to afford a remedy to an investor who

loses his innocence and chooses to wait and see how his

investment turns out.

Petitioners submit that the Securities Act like the

Securities Exchange Act, is in no way intended to afford

such a securities purchaser with a “guaranteed or your

money back with interest” “no-risk” investment opportun-

ity. But the decision sought to be reviewed hereby does,

in fact, create such an opportunity, despite the Court’s

denial of this effect.

CONCLUSION

It is respectfully submitted that a writ of certiorari

should issue to the United States Court of Appeals for

the Fifth Circuit in order that this case be reviewed by

this Court for the reasons that:

1. The Court of Appeals has decided an important

question of Federal law not previously decided by this

Court and has under, Moran v. Paine, Webber, Jackson

& Curtis, 389 F.2d 242 (3d Cir. 1968) ; Royal Air Properties,

Inc. v. Smith, 312 F.2d 210 (9th Cir. 1964); Straley v.

Universal Uranium and Milling Corp., 289 F.2d 370 (9th

Cir. 1961); and Pearlstein v. Scudder & German, 295 F.

Supp. 1197 (D.C. N.Y. 1968), decided such question er-

roneously; and

9. The decision of the Court of Appeals for the Fifth

Circuit is in direct conflict with Straley v. Universal Uran-

ium and Milling Corp., 289 F.2d 370 (9th Cir. 1961), de-

cided by the Court of Appeals for the Ninth Circuit.

ewe cceccececenowerer®

JOHN B. MILLER

APPENDIX

Al

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

October Term, 1972

No. 72-2632

D. C. Docket Nos. CA 492, 493 & 499

JOHN C. MEYERS & LUCY B. MEYERS, ET AL,

Plaintiffs-Appellants,

versus

C & M PETROLEUM PRODUCERS, INC., ET AL,

Defendants-Appellees.

Appeal from the United States District Court for the

Southern District of Georgia

Before COLEMAN, MORGAN and RONEY,

Circuit Judges.

JUDGMENT

This cause came on to be heard on the transcript of

the record from the United States District Court for the

Southern District of Georgia, and was argued by counsel;

ON CONSIDERATION WHEREOF, It is now here or-

dered and adjudged by this Court that the judgment of the

said District Court in this cause be, and the same is here-

by, reversed; and that this cause be, and the same is here-

by remanded to the said District Court with directions

in accordance with the opinion of this Court;

It is further ordered that defendants-appellees pay to

plaintiffs-appellants the costs on appeal to be taxed by the

Clerk of this Court.

Powe ap tad ore

os ered

7 x

A2

April 10, 1973

RONEY, Circuit Judge, specially concurring:

Iss. ed as Mandate:

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 72-2632

JOHN C. MEYERS & LUCY B. MEYERS, ET AL,

Plaintiffs-Appellants,

versus

C & M PETROLEUM PRODUCERS, INC., ET AL,

Defendants-Appellees.

Appeal from the United States District Court for the

Southern District of Georgia

ON PETITION FOR REHEARING AND PETITION

FOR REHEARING EN BANC

(Opinion April 10, 1973, 5 Cir., 1973, ........ F.2d ........

(May 24, 1973)

Before COLEMAN, MORGAN and RONEY,

Circuit Judges.

PER CURIAM: The Petition for Rehearing is DE-

NIED and no member of this panel nor Judge in regu-

lar active service on the Court having requested that

the Court be polled on rehearing en banc, (Rule 35

Federal Rules of Appellate Procedure; Local Fifth Cir-

cuit Rule 12) the Petition for Rehearing En Banc is

DENIED.

A3

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 72-2632

JOHN C. MEYERS & LUCY B. MEYERS, ET AL,

Plaintiffs-Appellants,

versus

C & M PETROLEUM PRODUCERS, INC., ET AL,

Defendants-Appellees.

Appeal from the United States District Court for the

Southern District of Georgia

(April 10, 1973)

Before COLEMAN , MORGAN and RON EY,

Circuit Judges.

COLEMAN, Circuit Judge: Section 771, Title 15,

United States Code provides as follows:

$771. Civil liabilities arising in connection

pectuses and communications.

Any person who—

with pros-

(1) offers or sells a securit

y in violation of sec-

tion 77e of this title,

* * * * * * *

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shall be liable to the person purchasing such security

from him, who may sue either at law or in equity in

any court of competent jurisdiction, to recover the

consideration paid for such security with interest

thereon, less the amount of any income received there-

on, upon the tender of such security, or for damages

if he no longer owns the security.

In this appeal the sole issue is whether, under the

pleadings and the facts, plaintiffs-appellants waived the

right of recovery provided by the above statute.

The District Court submitted the issue to a jury, which

found for the defendants, with judgment accordingly. We

reverse and remand, with directions that judgment be

entered for plaintiffs for the recovery specified by $771.

C & M Petroleum Producers, Inc., is a Georgia cor-

poration with its principal office and place of business

in Jessup, Georgia. The corporation was organized for

the purpose of buying and selling mineral leases in gas

and oil wells in Ohio. The Company began to offer to sell

and deliver these securities to certain residents of Georgia

and Florida. The purchasers-appellants paid C & Ma

total of $23,750 for their interests in the wells. Although

no registration statement has been filed with the Securi-

ties and Exchange Commission as required by §5 of the

Securities Act of 1933, the mails, telephone, and other

means of interstate transportation and communication

were employed by C & M in these offers, sales, and de-

liveries.

*

Being informed of non-compliance with the regis-

tration requirements of the Securities Act of 1933 and the

Georgia Securities Act of 1957, C & M wrote purchasers-

appellants on May 27, 1969, advising them of the status

of the matter and offering to repurchase their interests

in the wells. The letter stated:

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“We are advised that as a result of having sold

you an interest in the above mentioned gas wells,

we are in violation of the Georgia Securities Act of

1957 as amended and the Securities Act of 1933 as

amended. These Statutes provide that we should

have registered this interest as a security before of-

fering it to you for sale. Consequently, in view of

our violation of the Georgia and Federal Statutes, we

hereby offer to repurchase from you said interest for

the sum of money paid by you for said interest, less

any monies received by you therefrom. This offer

to repurchase the above described interest from you

shall terminate ten days after the date hereof. In

other words, you have ten days to decide whether

you want to keep your interest or not. Enclosed is

a copy of this letter on which you are requested to

indicate your preference. You will also find here-

with a stamped, self-addressed envelope in order that

you may return the enclosed copy to us promptly.

Very truly yours, C & M Petroleum Producers, Incor-

porated. Herman Morris.

“1. I desire that my interest be repurchased

( ).

“2. I do not desire that my interest be repur-

chased (_ ).

“If we have not received a reply within ten days,

we will assume that you wish to keep your interest in

the referred well or wells.”

The purchasers did not accept this propcsal. Their

‘ttorney wrote C & M that he felt it impossible to deter-

mine the feasibility of accepting or rejecting the purchase

offer unless first given data which would reflect the ac-

tual value of the securities. This clearly meant that the

A6

purchasers did not wish to surrender the securities if

they were worth more than had been paid for them. The

letter raised no other impediment to the return of the

stock. It indicated an unwillingness to accept the remedy

provided by the statute.

The purchasers took no further action and the ten

day period expired. C & M then revoked the offer to re-

purchase.

Thereafter, the purchasers received and accepted

$1,472.91 in income from the wells.

On December 23, 1969, the purchasers brought suit to

recover the consideration paid for the securities, with in-

terest, less the income received therefrom.

As already stated, the District Court allowed into evi-

dence C & M’s ten day repurchase offer as bearing on

whether the purchasers had waived their rights under $5

and 12(1) of the Securities Act of 1933 [15 US.C., S7ie

and 771]. The jury found that the purchasers-appellants

had waived their rights and judgment was entered for

C&M.

Appellants assert two grounds for reversal: that the

defense of waiver is not available in a suit arising under

$12(1) of the Act, and that the repurchase offer itself vio-

lated the registration requirements of the Act.

Since, except for the self-imposed ten day limitation,

the C & M letter was an offer to provide the remedy

prescribed by statute, we find no merit in the second ar-

gument.

This leaves remaining only the contention that by

the express provisions of the Securities Act mere waiver

was not, and could not be, a defense to this suit.

A7

We recognize, of course, that ordinarily one may

waive constitutionally guaranteed rights if it is intention-

ally and voluntarily done, Johnson v. Zerbst, 304 US. 458,

58 S.Ct. 1019, 82 L.Ed. 1461 (1938).

As to the sale of unregistered securities, however,

Congress has specifically placed waivers in a different con-

text. 15 U.S.C., §77n, provides that:

“Any condition, stipulation, or provision binding

any person acquiring any security to waive compliance

with any provision of this subchapter or of the rules

and regulations of the Commission shal] be void.”

Can-Am Petroleum v. Beck, 10 Cir., 1964, 331 F.2d

331, was a case in which undivided interests in oil and

gas leases had been sold in violation of §77e and 771 of

the Act. The Court held that the remedial aspects of the

Securities Act cannot be waived, either directly or in-

directly, citing Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182,

9 L.Ed. 168 (1953). The appellees here, defendants in

the court below, sought to establish a waiver in the man-

ner and form already set forth. Contrary to the general

rule applicable to other transactions, this has been ex-

pressly prohibited by the Congress for the purpose of mak-

ing the Act as effective as possible.

If C & M had unconditionally tendered the refund of

the purchase price together with interest, less income re-

ceived from the securities, coupled with a demand for the

return of the securities, and had the purchasers rejected

such an unconditional tender and demand they would have

mpaled themselves upon such an estoppel as recognized

oy the Court of Appeals for the Ninth Circuit in the

cases of Straley v. Universal Uranium and Milling Corpo-

‘ation, 1961, 289 F.2d 370, and Royal Air Properties, Inc.

v. Smith, 1964, 312 F.2d 210. What the appellees did was

to make an offer to repay the purchase price and accept

A8

return of the securities, but they imposed their own ten

day limitation upon the acceptance of the offer. When

the offer was not accepted within the prescribed time the

sellers cancelled it, restoring the parties to the position

they occupied before the offer was made. While, as the

jury found, this could be enough to establish a waiver, it

was not enough to create an estoppel, lacking, as it did,

an unconditional tender and demand.

Our opinion in this case is not to be construed as hold-

ing that purchasers of unregistered securities may reject

the remedy provided by law when unconditionally tendered

and thereafter, at their option, dally around while interest

is running and increment is occurring, only to bring suit,

at their pleasure, sometime within the statutory period.

Such a course is on its face a distortion of the remedy

provided by Congress.

Neither is this opinion to be construed as holding that

once a purchaser receives such an unconditional tender and

demand he may take the attitude of accepting it only if

it is to his pecuniary advantage to do so. Without cavil,

he must accept or reject. He cannot eat the cake and

keep it, too.

Our holding in this case is that while the defendants-

appellees established a waiver, the statute permits none.

For these reasons, the judgment of the District Court

must be reversed and the cause remanded, with directions

as hereinabove set forth.

REVERSED and REMANDED,

with DIRECTIONS.

A9

RONEY, Circuit Judge, specially concurring:

I concur in the decision that the failure of the pur-

chasers to accept the repurchase offer of the sellers did

not constitute an effective waiver of rights under the stat-

ute. The matter is completely within the control of Con-

gress, which provided that

Any condition, stipulation, or provision binding

any person acquiring any security to waive compliance

with any provision of this subchapter or of the rules

and regulations of the Commission shall be void.

(Italics added)

Section 14, Securities Act of 1933, 15 U.S.C.A. $77n. Since

apparently an intentional, formal, written waiver executed

either before or after the acquisition of securities is void,

a fortiori any waiver that might be inferred from less

formal acts must also be void.

Although I understand the other comments in the

opinion to be only an explanation of the holding, I would

not pass on the possibility of an estoppel until confronted

with a case to which that doctrine might be applicable.