Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83-C-4180 - Milton I. Shadur, Judge.
BEFORE: FLAUM and EASTERBROOK, Circuit Judges, and WEIGEL, Senior District Judge.*fn*
This appeal stems from a diversity action filed by the plaintiffs, an Illinois partnership and its partners, against the defendant, an Indiana partnership and its partners, to rescind the plaintiffs' purchase of certain oil securities from the defendants. The plaintiffs claimed damages under both federal and state securities laws. The district court granted the plaintiffs' motion for summary judgment and awarded $106,007.22 in damages. We affirm.
The plaintiffs Alfred G. McConnell and Alexander H. McConnell are partners in plaintiff Odessa Petroleum Development (collectively referred to as "Odessa"). This partnership was formed in August 1982 as a vehicle for the partners' investment in oil and gas leases offered by the defendants S & L Oil Company and its partners, Michael Surak and Randall Lane (collectively referred to as "S & L").
On August 27, 1982, Odessa purchased from S & L a fractional undivided one-eighth interest in oil and gas leases for property located in Crawford County, Illinois, pursuant to a participation agreement. For this one-eighth interest, Odessa paid S & L $68,000. Following its purchase, Odessa received only royalty payment in the amount of $510.15 from S & L.
Prior to the sale of this one-eighth interest to Odessa, S & L did not register the interest with the Illinois Secretary of State (the "Secretary"), but rather merely submitted a Form 4H report of sale to the Secretary on November 1, 1982, after the sale had been completed. Form 4H is filed pursuant to section 4H of the Illinois Securities Law of 1953 ("Securities Law"), ILL. REV. STAT. ch. 121 1/2, § 137.4H (1983), and provides an exemption from registration under certain circumstances. Upon receipt of this form on November 17, 1982, the Secretary notified S & L the next day that the report of sale could not be accepted for filing because it was not received within thirty days from the date of the sale pursuant to subsection 4H. The Secretary thus concluded that the sale to Odessa was not eligible for the subsection 4H exemption from registration and that Odessa might thus be able to rescind the transaction under subsection 13 of the Securities Law, ILL. REV. STAT. ch. 121 1/2, § 137.13.
On January 3, 1983, S & L wrote to the Secretary, claiming that the form had not been mailed within the statutory thirty-day filing period due to an oversight by one of its attorneys. S & L explained that it immediately one the report of sale to the Secretary when it discovered this oversight. In a letter to S & L on February 23, 1983, the Secretary explained that it was closing its files and would not decide whether S & L was entitled to an exemption under the Securities Law.
On March 28, 1983, Odessa sent a letter to the Secretary to find out whether S & L had ever filed a report of sale. On April 6, 1983, the Secretary notified Odessa by letter that S & L had submitted a report of sale, but that the report had not been acceptable for filing. Upon learning of this failure to file, Odessa sent a letter to S & L on April 18, 1983, stating that it was electing to rescind its purchase of the one-eighth interest pursuant to subsection 13 of the Securities Law. Odessa sought the return of the $68,000 purchase price plus 9% interest less the amount of the royalty already paid to Odessa. S & L refused to rescind the sale and return the purchase price.
Following S & L's refusal to rescind the transaction, Odessa brought an action for rescission against S & L under subsection 13 of the Securities Law, ILL. REV. STAT. ch. 121 1/2, § 137.13, and section 12 of the Securities Act of 1933, 15 U.S.C. § 77(1) (1982). The parties filed cross-motions for summary judgment. The district court granted Odessa's motion on the state securities count, awarding $106,007.22 in damages plus interest and costs. The district court held that S & L had failed to meet the strict requirements for exempting its sale to Odessa because S & L did not file a Form 4H report of sale with the Secretary within thirty days of the date of the sale and because the sales transaction did not meet the requirements for application of the sophisticated investor exemption of subsection 4D, ILL. REV. STAT. ch. 121 1/2, § 137.4D. Thus, the court held that Odessa was entitled both to rescind its purchase and to recover damages. The district court also found that the count based on the federal securities laws had been rendered moot because it was based on the same facts as the state securities law count and because a favorable ruling by the court on the federal count would not entitle the plaintiffs to any greater relief than what they would recover under the state securities law count.
On appeal, S & L argues that (1) the Securities Law does not give a purchaser of an interest in oil and gas leases the right to rescind the transaction merely because the seller of the interest fails to submit a report of sale to the Secretary within thirty days of the sale, (2) the district court erred in holding that S & L was not entitled to assert any equitable defenses, and (3) even if the report of sale requirement must be strictly enforced, the sales transaction qualifies for the sophisticated investor exemption of subsection 4D. We will address these arguments below.
Under Rule 56(c) of the Federal Rules of Civil Procedure, a district court shall render summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). In reviewing a district court's grant of summary judgment, an appellate court must view the entire record and the inferences drawn therefrom in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Cedillo v. International Association of Bridge & Structural ...