Appeal from the Circuit Court of Crawford County; the Hon.
Bruce Saxe, Judge, presiding.
PRESIDING JUSTICE WELCH DELIVERED THE OPINION OF THE COURT:
Section 13(A) of the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1983, ch. 121 1/2, par. 137.13(A)) allows a purchaser of securities to rescind any sale made in violation of that law. Notice of the election to rescind must be given to each person from whom recovery will be sought "within 6 months after the purchaser shall have knowledge that the sale of securities to him is voidable." (Ill. Rev. Stat. 1983, ch. 121 1/2, par. 137.13(B).) This action was commenced in the circuit court of Crawford County to rescind the purchase of certain oil and gas interests which had not been registered with the Illinois Secretary of State. The court held that defendants Louie O. Dayson and M.L. Rich received notice of the plaintiffs' election to rescind more than six months after the plaintiffs had learned that the sales were voidable. This finding was supported by the evidence introduced at trial, and therefore we affirm the judgment in favor of defendants Dayson and Rich.
In the summer of 1979, Rich, who is an oil producer, approached Dayson, a physician in Vincennes, Indiana. Dayson had operated on Rich and Rich said that he wanted to show his gratitude by letting him in on some oil and gas leases he had acquired in Crawford County. Rich desired to develop the leases, but he needed investment capital. He suggested that he would be responsible for drilling wells on the leases if Dayson would find investors and sell them working interests in the wells and leases. Dayson and Rich entered into a written agreement to that effect in August, 1979.
Throughout the summer, Dayson spoke to several of his friends, neighbors and professional colleagues about the project. Among the investors were plaintiffs Dr. Frederick Buehl, his wife Bettie, Dr. Alan Stewart, his wife Pamela, Curtis Small, and Dayson's neighbors Roger Davis and Michael Kopp. Defendants Dr. James Rohrer and attorney Robert Lewis also invested. Seven wells were drilled and oil was obtained from most of them. But by late 1979, production began to drop off and eventually ceased. Drilling expenses were not paid and liens were filed against the wells.
In mid-December, plaintiff Frederick Buehl learned from Rich's secretary, Esther Odle, that the drilling venture was in debt. Buehl went to Rich's office in Robinson, Illinois, soon after that. Rich told him that Dayson had not contributed any money toward the drilling, and those missing contributions caused the shortage of money. Rich and Mrs. Odle testified that Kopp and Small were also present then. Buehl returned to Vincennes and contacted a local attorney, Arthur Hart of the firm of Hart, Bell, Deem, Ewing and Stuckey the following day. Hart said that he would investigate the matter for Buehl.
On January 3, 1980, Hart accompanied Buehl to Rich's office. In an affidavit, Rich recalled that this visit took place on December 18, 1979, although at trial he was of the opinion that it occurred on January 3. Rich testified that Hart asked him whether he had made securities filings with the appropriate State or Federal agencies. According to his testimony, Rich replied that a securities attorney had told him that he did not have to do so. Rich's attorney, James Hill of Robinson, testified that he had given Rich the name of a Chicago attorney who specialized in securities law. Both Rich and Mrs. Odle indicated that Rich had spoken with this attorney by telephone in December 1979. Rich admitted to Hart that he had filed nothing pertaining to the sales of working interests, but he noted at trial that he did not admit violating Illinois securities law by so doing. Rich stated that in response, Hart informed him that the investors were entitled to refunds of their investments.
Buehl and Hart presented a different version of the January 3 meeting. They both described the primary purpose of the meeting, as memorialized in a contemporaneous affidavit by Rich, as securing production of oil from the wells. No reference to securities or rescission was made in that affidavit, and Buehl and Hart testified that neither subject was mentioned during the meeting. Hart recalled that he had done no research into securities laws as of January 3, 1980.
Rich, Buehl and Hart did agree that Mrs. Odle and attorney Hill arrived at Rich's office some time after Buehl and Hart did. Like Rich, Hill and Mrs. Odle executed affidavits in which they claimed that the meetings took place the previous month, but at trial they acknowledged that it occurred on January 3. Hill took no notes of the proceedings, and, although Mrs. Odle did, she later lost her stenographer's pad. Both Hill and Mrs. Odle remembered that they heard Hart announce that Rich had not complied with pertinent securities laws and that the investors could get their money back.
Dayson met with Buehl and Stewart in Buehl's Vincennes office on January 4 or 5, 1980. Buehl testified that the parties discussed obtaining the services of another oil producer. Dayson stated that Buehl recounted his visit to Rich's office with attorney Hart. As Dayson remembered, Buehl informed him that "under Federal or State statutes or regulations," he and Rich would be responsible for the debts incurred and the remaining investors "can get our money back."
On January 9, 1980, a meeting was held at Dayson's Vincennes home. Some of the parties differed in their recollections of the identity of the participants at the meeting, but it appears that investors Buehl, Davis, Kopp, Lewis, Rohrer and Small were there, along with Dayson, his brother Bob, and an oil producer named Elijah Jr. Wolfe. Dayson conceded to the group that he had not invested his share of money in the drilling operations, which, as a result, had stopped. As indicated in the testimony of the participants and in notes transcribed the following day by Buehl, much of the discussion at the meeting centered around paying outstanding bills and resuming the operation of the wells. The meeting began with a more formal session, then moved to a bar in the same room of Dayson's house.
Plaintiffs Small, Davis and Buehl testified that securities and rescission were not discussed at the meeting. Attorney Lewis recalled that there was some mention of violation of securities laws, but that discussion was "minor in nature." Lewis said that he made a comment to plaintiffs Kopp and Davis that Federal or Illinois securities laws had been violated. Elijah Jr. Wolfe did not remember any conversation about securities among the members of the group at their main meeting. However, he did indicate that Buehl informed him that he and Hart had been to Rich's office, where Rich admitted that he had not registered the securities.
Attorney Hart had a brief conversation with Dayson's counsel, Roscoe Cunningham, in Hart's office in Vincennes on January 14, 1980. Cunningham had come to the office to speak with attorney Mark Ewing about an unrelated matter and had met Hart in the halls of the office. Hart and Cunningham spoke about the developing dispute over the oil wells. Hart described the meeting as "very superficial," as he had not yet done much investigation into the case. He testified that they did not refer to securities laws. Cunningham said that Hart notified him that Rich and Dayson had not complied with Illinois and Federal securities acts and that Buehl and the other investors were going to receive their money back.
Much of the chronology of events in this case was recorded in the billing records of Hart, Bell, Deem, Ewing and Stuckey. Those records consist of a 13-page itemized statement admitted in two parts as plaintiffs' exhibits Nos. 77 and 84. Relying on those exhibits, attorney Donald Bell testified that he first became involved with the case on January 23, 1980. Attorney Hart, who was leaving for Florida, instructed Bell to review the file and handle the case for him during his absence. Bell "looked the file over, which consisted mainly of lists of investments and interests in various wells, and tried to figure out just who owned what."
The following day, Bell met with Buehl, where they "discussed the ramifications of the matter," as the firm's billing records reflect. Bell remembered that they considered several approaches to resuming production from the wells. Bell testified that he had no knowledge of the effects of Illinois securities laws at that time. He also stated that plaintiffs' exhibits ...