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VEREINS-UND WESTBANK AG v. CARTER

July 7, 1986

VEREINS-UND WESTBANK AG, and ROCKWOOD INSURANCE COMPANY, Plaintiffs,
v.
JEFFREY E. CARTER, J. E. CARTER ENERGY & DEVELOPMENT CORPORATION, PETTET ENERGY CORPORATION, PETTET 1984 ACQUISITION AND DEVELOPMENT PROGRAM, W. AUSTIN BARSALOU, BARSALOU AND ASSOCIATES, P.C., Defendants



The opinion of the court was delivered by: KNAPP

WHITMAN KNAPP, D. J.

Plaintiff Vereins-Und Westbank AG ("Vereinwest") is a German bank. Plaintiff Rockwood Insurance Company ("Rockwood") has its principal place of business in Pennsylvania. They sue the defendants for alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and for state law fraud, negligence, and professional malpractice in connection with their agreement to make several million dollars worth of loans to parties which have defaulted.

 Two groups of defendants move to dismiss the complaint. The first group (the "Carter defendants") consists of four defendants: a limited partnership (Pettet 1984 Acquisition and Development Program ("Pettet 1984")), the general partner of Pettet 1984 (Pettet Energy Corporation), ("PEC") a Texas corporation (J.E. Carter Energy & Development Corporation ("Carter Energy")), and the president and sole shareholder of PEC and Carter Energy (Jeffrey E. Carter ("Carter")). The second group (the "attorney defendants") consists of an attorney (W. Austin Barsalou) and his law firm (Barsalou & Associates, P.C.) which acted as counsel to the first group of defendants. Also named as a defendant is Interdiscount, Ltd. ("IDL"), which has not joined in these motions.

 The complaint alleges that in December, 1984, Carter and Carter Energy formed with the assistance of the attorney defendants four limited partnerships with the aim of discovering and exploiting oil and gas resources. Pettet 1984 was one of those partnerships; the other three -- Hardin 1984, Arriola 1984, and Splendora 1984 -- have filed for bankruptcy. *fn1" Carter and Carter Energy also formed other, unidentified limited partnerships at or about the same time.

 The partnerships' private placement memoranda required limited partners to pay their capital contributions in the form of a 20 percent cash down payment and a promissory note representing the remaining 80 percent. Plaintiffs allege that defendants falsely represented that the cash down payments had been made when in fact they had not been and never were, and that had they known the truth they would not have entered into the subject transactions.

 The misrepresentations are said to have been contained in Certificates of limited partnership filed with the Texas Secretary of State which indicated that the limited partners had made the required 20 percent cash down payments, and as well in documents sent to plaintiffs in the course of the limited partnerships' efforts to obtain financing. These included the private placement memoranda which indicated that limited partners would make a 20 percent cash down payment, note pledge agreements, the Texas certificates of limited partnership, and opinion letters from the attorney defendants indicating that the cash down payments had been made. Plaintiffs relied on these materials in providing financing.

 Financing was arranged in the following way. The Partnerships first negotiated the issuance to their limited partners of surety bonds from Rockwood which guaranteed the promissory notes made by the limited partners. They also arranged to borrow from defendant IDL up to $3.2 million each. IDL turned these loans over to Vereinwest, which actually advanced the funds. The partnership materials state that a lending bank would succeed IDL as lender and advance the required funds; plaintiffs claim that, at the time the loans were being negotiated, the Carter defendants knew that that bank would be Vereinwest.

 The loans were evidenced by partnership notes executed by each limited partnership. As collateral for the loans, the partnerships executed note pledge agreements by which they pledged to IDL the promissory notes made by the limited partners and secured by Rockwood's bonds. The note pledge agreements, which were prepared by the attorney defendants, represent that the limited partners had in fact made their 20 percent cash down payments.

 Shortly after receiving the loans, the partnerships defaulted. Three of them declared bankruptcy.

 Plaintiffs allege that defendants either deliberately made misrepresentations or failed to exercise the requisite degree of care necessary to establish the truth or falsity of the information they provided to plaintiffs. Plaintiffs assert that had they known that the limited partners had not in fact made the required cash down payments, they would not have issued the loans and surety bonds.

 Plaintiffs also assert claims under RICO, identifying the named limited partnerships and defendants as an enterprise which engaged in a pattern of racketeering activity to defraud plaintiffs and unnamed others.

 DISCUSSION

 Rule 9(b)

 We do not agree that, as to the Carter defendants, the complaint fails to plead fraud with specificity. Paragraph 20 of the complaint alleges that all defendants together conspired to exact funds fraudulently from the plaintiffs. It identifies the alleged misrepresentations, the documents in which they were contained, and the two month period in which they were they were made. In light of the Carter defendants' intimate involvement in the formation and operation of the limited partnerships, we think the complaint sufficient despite its failure to pinpoint which among the four of them was the speaker or mailer on any given occasion. The complaint further states that the defendants knew the statements ...


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