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NEW PARK MINING CO. v. CRANMER

November 1, 1963

NEW PARK MINING COMPANY and East Utah Mining Company, Plaintiffs,
v.
William Henry Harrison CRANMER, Robert L. Cranmer and Peter Joralemon, Defendants



The opinion of the court was delivered by: BONSAL

Plaintiffs New Park Mining Company (New Park), a Nevada corporation, and East Utah Mining Company (East Utah), a Utah corporation, both having their principal places of business in Utah, bring this action against three of their former officers and directors. The defendants, W. H. H. Cranmer, R. L. Cranmer and Peter Joralemon, are citizens of New York, Colorado and California respectively. It is stated by affidavit that the capital stock of plaintiff New Park is listed on the American Stock Exchange (New York), and was so listed throughout the period of time covered by the complaint.

The complaint alleges six causes of action, three charging defendants with breach of their common law fiduciary duty to plaintiffs, and three charging fraud under the Securities Act of 1933 (the 1933 Act) and the Securities Exchange Act of 1934 (the 1934 Act). Jurisdiction is founded on (1) diversity of citizenship (28 U.S.C. § 1332) and (2) the 1933 and 1934 Acts. *fn1" The complaint was filed on May 1, 1963, and personal service of the summons and complaint was made upon defendant W. H. H. Cranmer in New York on May 1, 1963; upon defendant R. L. Cranmer in Colorado on May 6, 1963; and upon defendant Peter Joralemon in California on June 5, 1963.

 There are three transactions described in the complaint, and as to each transaction plaintiffs allege two causes of action: (1) a common law cause of action for breach of defendants' fiduciary duty to plaintiffs, and (2) an action for fraud under Section 17(a) of the 1933 Act (15 U.S.C. § 77q(a)), and Section 10(b) of the 1934 Act (15 U.S.C. § 78j(b)) and Rule 10b-5 promulgated pursuant thereto (17 C.F.R. 240.10b-5).

 Defendants have moved before answer, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, to dismiss all the causes of action set out in the complaint except the common law causes of action against defendant W. H. H. Cranmer, a resident of the State of New York. Defendants move on the following grounds:

 (1) That the causes of action based on the 1933 Act and the 1934 Act do not state claims upon which relief can be granted;

 (2) That even if these causes of action are sustained, venue is improper as to the two defendants who are not citizens of the State of New York; and

 (3) That the common law causes of action against the two defendants who are not citizens of the State of New York must fall since personal jurisdiction was not acquired over these defendants within this district.

 The three transactions which are alleged by the plaintiffs took place at a time when the defendants W. H. H. Cranmer and R. L. Cranmer were officers and directors of both plaintiff companies, and defendant Joralemon was Mining Superintendent and a director of plaintiff New Park. The causes of action founded on the first transaction are alleged by plaintiff New Park against all three defendants. The causes of action founded on the second transaction are alleged by plaintiff New Park against the defendants W. H. H. Cranmer and R. L. Cranmer. The causes of action founded on the third transaction are alleged by both plaintiffs against the defendants W. H. H. Cranmer and R. L. Cranmer.

 The three transactions which are the subject matter of the complaint are as follows:

 (1) That in 1954 the owners of the Lucky Mc uranium mining claims in Wyoming interested plaintiff New Park, through defendant W. H. H. Cranmer, its president, in the Lucky Mc claims; that the defendants caused New Park to expend monies and to utilize its personnel to explore and develop the claims; that thereafter the owners of the Lucky Mc claims offered plaintiff New Park an option to acquire a controlling interest in the Lucky Mc claims and proposed that New Park enter into a joint venture with the owners for the development of the claims; that thereafter the owners transferred the Lucky Mc claims to Lucky Mc Uranium Corporation, a Nevada corporation, and the defendants by reason of their control of plaintiff New Park and with the use of its assets, caused plaintiff New Park to purchase for good and valuable consideration 160,000 shares of Lucky Mc stock, and were able to cause 310,000 shares of Lucky Mc stock to be issued to the defendants personally for no consideration or a purely fictitious consideration, and that each defendant converted the stock he so received to his own use, violating his fiduciary duty to plaintiff New Park. *fn2"

 (2) That in 1956 or January 1957 Great Western Mining Company, a Utah corporation, was prepared to lease certain mining claims in Utah to plaintiff New Park, and that defendant W. H. H. Cranmer, in violation of his fiduciary duty to New Park, caused one H. W. Myers to acquire the lease of the mining claims in his own name and that of plaintiff New Park on February 5, 1957, the consideration for the lease having been furnished solely by plaintiff New Park; that thereafter, pursuant to an alleged agreement between defendant W. H. H. Cranmer and Myers, the former caused New Park to acquire Myers' interest in the lease for 40,000 shares of New Park stock, having a value of $ 1.00 per share, and that at or about the same time defendants W. H. H. Cranmer and R. L. Cranmer caused plaintiff New Park to purchase from Carl D. Hopper 25,000 shares of New Park stock at a price of $ 2.02 per share, being substantially in excess of its market value; and that thereafter Myers transferred in excess of 11,000 of the 40,000 shares acquired by him to defendant W. H. H. Cranmer, without consideration. Defendant R. L. Cranmer is charged with conspiring with defendant W. H. H. Cranmer to effect these transactions by New Park, and both defendants are alleged to have wrongfully concealed the pertinent facts from the plaintiff New Park;

 (3) That on or about September 16, 1957 the defendants W. H. H. Cranmer and R. L. Cranmer caused plaintiffs New Park and East Utah to enter into an agreement pertaining to the exploration and development of the Yale Gold Mining claims in Nevada, which claims were transferred to Yale Gold Mining Company, a Nevada corporation. In violation of their fiduciary duty to plaintiffs, the two Cranmers are alleged to have caused the plaintiffs to believe that each company would acquire a 50% Interest in the Yale Gold Mining Company, and to have concealed from the plaintiffs that the Cranmers were to have an interest in the venture. As a consequence, plaintiff New Park was induced by defendants to expend between September 15, 1957 and December 31, 1961, the sum of $ 71,201.26, and the plaintiff East Utah was induced to expend during the same period the sum of $ 70,523.91, for the exploration and development of the Yale Gold Mining properties, and that these sums were lost when the exploration and development proved unsuccessful.

 As previously stated, the plaintiffs assert one cause of action for breach of common law fiduciary duty, and a second cause of action for fraud under the 1933 Act and the 1934 Act in connection with each of the foregoing transactions. As to the first transaction, the defendants are charged with causing plaintiff New Park to purchase for good and valuable consideration 160,000 shares of Lucky Mc stock; that they defrauded plaintiff New Park through 'the establishment of a fictitious interest' by the defendants in certain properties of Lucky Mc and by failing to disclose that they also had received Lucky Mc stock, and by failing to disclose that the former owners had offered an option on the claims to the plaintiff New Park. Plaintiff New Park charges that the defendants' conduct violated the 1933 and 1934 Acts and that, as a result, 'plaintiff New Park was deprived of certain shares of stock of Lucky Mc and acquired a number far less than those to which it was entitled under and pursuant to the option described * * * above'.

 As to the second transaction, plaintiff New Park charges violations of the 1933 Act and the 1934 Act by reason of the failure of the defendants Cranmer to disclose to plaintiff New Park the willingness of Great Western to lease its claims directly to New Park; failure to disclose the agreement between defendant W. H. H. Cranmer and Myers; 'the establishment by defendants of a fictitious interest in certain properties of New ...


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