The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Excalibur Oil, Inc. ("Excalibur")*fn1 has sued Larry
Sullivan ("Sullivan")*fn2 under a melange of federal and
state securities laws and under Illinois common law, claiming
it suffered damages as a result of Sullivan's alleged
misrepresentations in connection with a sale of securities to
Excalibur. Sullivan now moves to dismiss under Fed.R.Civ.P.
("Rule") 12(b)(6). For the reasons stated in this memorandum
opinion and order, Sullivan's motion is denied in principal
part and granted to a narrow extent.
1. geology reports on the proposed well sites
2. a May 11, 1982 title opinion prepared by
Sullivan, relating to one proposed site known as
the Jackson property.
Sullivan, an attorney, had previously prepared title opinions
for Gable on other properties in which Gable had a leasehold
interest (Complaint ¶ 11(c)).
On May 24, 1983 Turetzky met with Gable in Davisville, West
Virginia to discuss Excalibur's purchase of working interests
in two wells to be drilled: one (known as Jackson # 6) on the
Jackson property and the other (known as Lambert # 2) on
another parcel called the Lambert property (Complaint ¶ 10).
Gable represented to Turetzky that no liens had been created on
the Jackson lease since 1982 (when Sullivan had prepared the
title report) and that ODC had no undisclosed liabilities
(Complaint ¶ 11(a)). Turetzky told Gable Excalibur required
assurances, including current title opinions on the two
properties, that the oil leases on the properties were free of
encumbrances (Complaint ¶ 11(b)).
Having told Turetzky Sullivan did all of Gable's title work
(Complaint ¶¶ 11(c) and 11(e)), Gable took Turetzky to an
office across the hall from Gable's office to meet Sullivan
(Complaint ¶ 11(d)). At that meeting Turetzky repeated to
Sullivan that before Excalibur would invest in the wells it
needed assurances of unencumbered property leases, and he
therefore asked Sullivan to prepare up-to-date title opinions
(Complaint ¶ 11(f)). Sullivan responded (id.):
[N]o problem. I know that the leases are clean.
It is just a matter of getting the paperwork out
Turetzky told Sullivan to bill Excalibur for his legal
services rendered in preparing the title opinions, and
Sullivan agreed to do so (Complaint ¶ 12).
On July 1, 1983 Gable visited Excalibur's offices in
Illinois and the parties executed two participation and
operating agreements, pursuant to which Excalibur was to
purchase a 50% working interest in each of the to-be-drilled
Jackson # 6 and Lambert # 2 wells (Complaint ¶ 13). Those
agreements were subject to a warranty of title "against claims
of persons claiming by, through or under" ODC (Complaint ¶ 14).
On July 28, 1983 Turetzky telephoned ODC and spoke with
Young, saying Excalibur would not deliver funds in connection
with the property agreements unless it received assurances the
leases were clear of encumbrances (Complaint ¶ 15(a)). Young
connected Turetzky with Sullivan, who again said there was "no
problem" with the leases and he was just behind in preparing
his paperwork (Complaint ¶ 15(d)). In reliance on Sullivan's
statements, Excalibur delivered $270,000 to ODC in accordance
with their agreement (Complaint ¶ 16).
On August 23, 1983 Excalibur and ODC entered into a third
participation and operating agreement, under which Excalibur
was to purchase a 50% working interest in a third proposed
well, Lambert # 3 (Complaint ¶ 17). That agreement too was
subject to a comparable warranty of title (Complaint ¶ 18).
During September 1983, based on Sullivan's earlier
representations about the Lambert property, Excalibur delivered
$135,000 to ODC (Complaint ¶ 19).
Complaint ¶ 21 and 22 charge Sullivan's statements at the May
24 and July 28, 1983 meeting and his other representations were
false in that:
1. ODC's Jackson property lease (and hence
Jackson # 6) was actually encumbered by:
(a) the Halliburton Agreement and
(b) a July 22, 1983 mortgage and conditional
assignment in the amount of $100,000 to Buckeye
Crude Exploration, Inc.
2. ODC's Lambert property lease (and thus
Lambert # 2 and # 3) was subject to an August 24,
1983 mortgage and conditional assignment in the
amount of $100,000 to Buckeye Crude
3. Both leases were subject to numerous
mechanic's and judgment liens.
Excalibur advances a battery of claims against Sullivan,
some on the theory he was ODC's attorney and agent and others
predicated on his acting as Excalibur's attorney and
agent.*fn4 Counts I-III assert common law claims stemming
from Sullivan's alleged misrepresentations and based on
2. breach of Sullivan's fiduciary duty as
Excalibur's attorney (Count II); and
3. breach of Sullivan's contract with Excalibur
to provide updated title opinions (Count III).
Counts IV-VIII allege violations of various federal and state
1. Securities Exchange Act of 1934 ("1934 Act")
§ 10(b) ("Section 10(b)"), 15 U.S.C. § 78j(b), and
related Rule 10b-5, 17 C.F.R. § 240.106-5 (Count
2. Securities Act of 1933 ("1933 Act") § 17(a)
("Section 17a"), 15 U.S.C. § 77q(a) (Count V);
3. 1933 Act § 12(2) ("Section 12(2)"),
15 U.S.C. § 77l (Count VI);
4. Illinois Securities Law of 1953 as amended
("Illinois Act") §§ 5, 6 and 7, Ill.Rev.Stat. ch.
121 1/2, ¶¶ 137.5, 137.6 and 137.7 (citations to
the Illinois Act will also take the form "Section
—," omitting the prefatory 137.) (Count VII); and
5. Uniform Securities Act of West Virginia
("West Virginia Act") §§ 32-1-101, 32-2-202 and
32-4-410, W. Va.Code §§ 32-1-101, 32-2-202 and
32-4-410 (again this opinion's citations will take
the form "Section —," this time omitting the
prefatory 32-) (Count VIII).
In support of his motion Sullivan contends:
1. All counts should be dismissed as to the
Lambert property transactions, because Excalibur
has not alleged the Lambert property was
encumbered when Sullivan made his
2. Excalibur's breach of contract claim is
defective because the failure to prepare title
opinions was not the proximate ...