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11/16/89 Charles W. Harrison, v. Leland Fulkerson

November 16, 1989

CHARLES W. HARRISON, PLAINTIFF-APPELLANT

v.

LELAND FULKERSON, DEFENDANT-APPELLEE

THE ACT IS PATERNALISTIC AND IS TO BE LIBERALLY CONSTRUED TO ALLOW ACCOMPLISHMENT OF ITS PURPOSE. MEIHSNER

v.

RUNYON (1960), 23 ILL. APP. 2D 446, 163 N.E.2D 236.

THE OIL LEASES IN THIS CASE NEVER WERE REGISTERED WITH THE SECRETARY OF THE STATE OF ILLINOIS, SECURITIES DIVISION, AS REQUIRED BY THE ACT. ILL. RE

v.

STAT. 1981, CH. 121 1/2, PAR. 137.5.



APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT

548 N.E.2d 15, 191 Ill. App. 3d 562, 138 Ill. Dec. 785 1989.IL.1792

Appeal from the Circuit Court of Richland County; the Hon. David M. Correll, Judge, presiding.

APPELLATE Judges:

JUSTICE HOWERTON delivered the opinion of the court. GOLDENHERSH and CHAPMAN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HOWERTON

The circuit court of Richland County found plaintiff, a physician, to be a trader, buying and selling oil leases in frequent operations to such an extent that he could be said to be engaged in the buying and selling of oil leases as a trade or business.

We reverse, because the finding is against the manifest weight of the evidence. We believe that imprecise language in this field has led the circuit court to misconstrue the operation of the Illinois Securities Law of 1953 (the Act) (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.1 et seq.).

The Act is designed to protect the investing public from dubious, "fly-by-night" investment schemes. See Ill. Ann. Stat. ch. 121 1/2, par. 137.1 et seq., Appendix by Samuel H. Young (Smith-Hurd (1960)); see also Stein v. Twilight Motel, Inc. (1961), 29 Ill. App. 2d 131, 172 N.E.2d 642; Martin v. Orvis Brothers & Co. (1974), 25 Ill. App. 3d 238, 323 N.E.2d 73.

The Act allows a buyer to rescind a purchase if the sale violates the Act. (Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.13.) In this case, plaintiff bought an interest in oil leases. Oil leases are covered by the Act. Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.2-1.

The Act, however, exempts a sale of an interest in an oil lease where the sale is to a trader buying or selling interests in oil leases "in frequent operations," for "his own account," and "to such extent that . . . he may be said to be engaged in such activities as a trade or business." Ill. Rev. Stat. 1981, ch. 121 1/2, par. 137.4.

If this sale is exempt from the Act, plaintiff cannot rescind. On the other hand, if this sale is not exempt from the Act, plaintiff is afforded the Act's protection and, therefore, can rescind.

The pivotal issue, therefore, is whether the evidence showed plaintiff to be a trader in oil leases in frequent operations for his own account to such an extent that he may be said to be engaged in trading in oil leases as a trade or business, because if plaintiff is such a trader, this sale is exempt from the protections afforded by the Act.

We must note that decisions of Illinois courts that have interpreted the Act and its exemptions have spoken of "sophisticated investor" exemptions. (McConnell v. Surak (7th Cir. 1985), 774 F.2d 746; Stein v. Twilight Motel, Inc. (1961), 29 Ill. App. 2d 131, 172 N.E.2d 642.) Indeed, the circuit court said, "his is not . . . one who perceived himself as an unsophisticated investor. . . . It is not a requirement that the plaintiff be engaged in oil production as his only business. It is only a requirement that he be in the business to such an extent that he is a sophisticated investor." Use of the word "sophisticated" is a paraphrase of the statute; a paraphrase can lead to the wrong result. The test is not "sophistication"; rather, the test is the express language contained in the exemption. Investors are not deprived the protection of the Act merely because they are "sophisticated." (Martin v. Orvis Brothers & Co. (1974), 25 Ill. App. 3d 238, 323 N.E.2d 73.) Investors fall outside the protection of the Act only if the Act specifically excludes them. (Martin v. Orvis Brothers & Co. (1974), 25 Ill. App. 3d 238, 323 N.E.2d 73.) The Act calls us to assess whether the evidence proved plaintiff to be a trader, buying and selling, in frequent operations, interests in oil leases for his own account to such an extent that he may be said to be engaged in the buying and selling interests in oil leases as a trade or business. The Act does not call us to assess whether plaintiff was "sophisticated."

We have found no Illinois case directly on point. The facts of this case are most like those in Martin v. Orvis Brothers & Co., but Martin dealt with whether plaintiff was a "dealer" under section 4of the Act; whereas, here the issue is whether plaintiff is a "trader" under section 4. (Ill. Rev. Stat. 1981, ch. 121 1/2, pars. 137.4, .) ...


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