Court Opinion

ID: 9445475
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:30:04.242167+00
Date Added: 2024-06-11T17:30:16.968090
License: Public Domain

PHILLIPS, Circuit Judge
(dissenting).
Prior to the organization of the San Juan Uranium Corporation,1 one Rollie B. Walter learned that a certain mining lease covering lands near Durango, Colorado, could be obtained from the owners thereof, without consideration other than an agreement to explore and develop the claims and to pay the owners certain royalties.
Walter, B. C. Deardorf and Thomas G. Wolfe entered into an agreement whereby Walter would obtain the lease; that a corporation would be formed to take title to the lease and that Walter would receive 100,000 shares of the common capital stock of the corporation upon its formation as consideration for his services in obtaining the lease and other services to be performed for the corporation.
The lease was “procured” by Walter, but taken in the name of William Small-wood, a fourth party who had no apparent interest in the transaction.
The San Juan Uranium Corporation was then organized, receiving its charter on March 15, 1954.
On or about March 17, 1954, Small-wood assigned the lease to San Juan and received San Juan’s promissory note of that date for $25,000, due September 17, 1954, and 300,000 shares of stock in San Juan.
San Juan then offered its stock to the public under an exemption from registra*124tion of the Securities Exchange Commission, under an offering circular dated April 9, 1954, as amended to June 7, 1954.
On November 1, 1954, out of its proceeds of the sale of its common stock, San Juan issued its check to William Smallwood in the amount of $25,000. This check was delivered to Thomas G. Wolfe and when cashed by him it bore the endorsements of Smallwood and Wolfe.
On July 19, 1955, the SEC issued an order temporarily suspending the exemption for non-compliance with Regulation A of the Securities Act of 1933, as amended, 15 U.S.C.A. § 77aa, listing numerous instances of “failure to disclose” certain facts, which, inter alia, were vital to the continuance of the exemption in the absence of satisfactory explanation.
In the instant case San Juan seeks to establish an equitable lien on certain property purchased by Wolfe with the proceeds of the $25,000 check.
The theory of San Juan’s case is that the promoters of San Juan, Wolfe and Deardorf, perpetrated an actionable fraud on San Juan by obtaining “secret profits” in violation of their fiduciary relationship to San Juan, since there were subsequent stockholders who obtained stock from San Juan after the lease was taken by Smallwood and assigned to San Juan. It predicates its claim of fraud on the alleged fact that the promoters failed to disclose to such subsequent stockholders that the promoters caused San Juan to pay a “dummy” (Smallwood) the $25,000 for valueless mining leases, which San Juan, in fact, owned, through the agreement to give Walter 100,000 shares of common capital stock for services in acquiring the lease.
In the Offering Circular published and distributed by San Juan, the following information was stated:
“ * * * The Corporation has acquired by assignment from William M. Smallwood and wife Dettie Smallwood, of Oklahoma City, Oklahoma, a lease Ion the mining properties * * *. Consideration for this lease assignment is $25,000.00 in cash and 300,000 shares of the Corporation’s ¿ommon stock. The $25,000.00 cash is to be paid six (6) months after the execution date of the assignment.
« * * « *
“300,000 shares of the common stock have been issued to William M. Smallwood j * * *, as part of the eonsideratión for the acquisition of the mining lease and option owned by the > Corporation. (Emphasis supplied.)
* * * * * *
“For promotional services rendered in connection with the acquisition of the properties for the Corporation and the formation of the Corporation, shares of common stock have been issued to the following:
Rollie B. Walter..........100,000
James B. Kenney..........100,000
P. Ray Schwoerke........100,000
300,000
" * * * William M. Smallwood, from whom thie Company acquired the lease on the mining claims, will own approximately 25.02% or 300,-000 shares, for which he will have paid no cash consideration; * * *
* * * * * *
“The Company intends to carry on a preliminary ¡exploratory program to establish the extent and possible value of uranium and vanadium ore located on the above leased mining claims. (Emphasis supplied.)
“It is anticipated that the first stage of the operation on this property will provide for core drilling primarily to determine whether a commercially minable body of ore exists and if so, to determine the extent. * * . * (Emphasis supplied.) .
*125“It is estimated the above core drilling * ■■ * will cost approximately $75,000.00. If a commercially minable body of ore is found to exist, mining and selling * * * will result.
# * * *
“In the event the results of the exploratory program outlined above are unsatisfactory for mining the ore commercially from these mining claims, the company will then acquire other mining properties for the purpose of exploration to determine their value for commercial mining purposes.” (Emphasis supplied.)
“During the period of World War II, the Vanadium Corporation of America had an operating lease on the above list of mining claims and mined and shipped ore to their mill in Durango. * * *.
“Since the end of World War II, the Vanadium Corporation of America has returned the lease to the claim owners as the Company does not maintain mining organization in this area * * *.”
At the time of the assignment of the lease by Smallwood to San Juan and the issuance of the promissory note to Small-wood as consideration therefor, no cause of action came into, being in the corporation, since all of the then directors and all of the then stockholders had full and complete knowledge of the facts and assented to the transaction.2
I do not think that under such circumstances a cause of action thereafter came into being on behalf of San Juan by reason of the fact that subsequent stockholders purchased stock in the corporation without a full disclosure to them of the facts with respect to the Smallwood transaction.
If there was a fraud perpetrated on the subsequent stockholders, which fact I doubt, because of the disclosure in the offering circular that the lease was wholly undeveloped and unproven and, at most, had a purely speculative value, while it may have given rise to a personal cause of action, respectively, in the stockholders,2
3 it did not bring into existence a cause of action in the corporation which had not theretofore existed.
I am not willing to overrule our decision in the Arn v. Dunnett case, 93 F.2d 634, which involved Oklahoma transactions, controlled by Oklahoma law, nor reject the principles laid down in Old Dominion Copper Mining & Smelting Co. v. Lewisohn, 210 U.S. 206, 28 S.Ct. 634, 52 L.Ed. 1025. I think those cases represent the better reason and logic in this facet of corporation law than do the cases relied on in the majority opinion. Neither do I find any substantial difference in the facts in the Arn and Old Dominion Copper Company eases and the instant case, nor any real basis for distinguishing the instant case from those cases.
McCandless v. Furlaud, 296 U.S. 140, 56 S.Ct. 41, 80 L.Ed. 121, is distinguishable from the Old Dominion Copper Company case on the facts, as the opinion of the majority in the McCandless case clearly indicated. In the McCandless case there was a violation of a state statute, not present in the Old Dominion case, nor in the instant case.
For the reasons indicated, I would affirm.

. Old Dominion Copper Mining & Smelting Co. v. Lewisohn, 210 U.S. 206, 212, 28 S.Ct. 634, 52 L.Ed. 1025; Arn v. Dunnett, 10 Cir., 93 F.2d 634, 637; Arn v. Operators Royalty & Producing Co., D.C.N.D.Okl., 13 F.Supp. 769, 772; South Penn Collieries Co. v. Sproul, 3 Cir., 52 F.2d 557; Ball v. Breed, Elliott & Harrison, 2 Cir., 294 F. 227.

. See in this regard; Manning v. Berdan, C.C., 135 F. 159.