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HAGGERTY v. COMSTOCK GOLD CO.

May 29, 1991

ROBERT H. HAGGERTY, ROBERT C. GRAHAM, AND KIRK PARRISH, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS WHO ARE CLASS I LIMITED PARTNERS OF COMSTOCK GOLD COMPANY, L.P., PLAINTIFFS,
v.
COMSTOCK GOLD COMPANY, L.P., UNITED MINING CORPORATION, RAYNHAM HALL CONTRACTING, INC., TIMOTHY COLLINS, MAURICE CASTAGNE, GEORGE WERK AND ALICE WERK, DEFENDANTS. HOWARD T. BELLIN, M.D. AND ROBERT M. GILLER, M.D., INTERVENOR-PLAINTIFFS, V. COMSTOCK GOLD COMPANY, L.P., UNITED MINING CORPORATION, RAYNHAM HALL CONTRACTING, INC., TIMOTHY COLLINS, MAURICE CASTAGNE, GEORGE WERK AND ALICE WERK, DEFENDANTS.



The opinion of the court was delivered by: Leisure, District Judge:

ORDER AND OPINION

This is an action for violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b promulgated thereunder, as well as pendent state law claims for fraud, rescission, and breach of contract and fiduciary duties. The parties have cross-moved for summary judgment. For the reasons set forth below, the cross-motion of defendants Comstock Gold Company, L.P., United Mining Corporation, Raynham Hall Contracting, Inc., Timothy Collins and Maurice Castagne (collectively "the Moving Defendants") is granted, and plaintiffs' cross-motion is denied.*fn1

Background

The instant action arises out of the sale to plaintiffs of limited partnership shares in defendant Comstock Gold Company, L.P. ("Comstock") in 1978 and 1979. Comstock was organized in 1978 by defendants United Mining Corporation ("UMC") and Timothy Collins ("Collins") to explore for and mine gold and silver in the Comstock Lode near Virginia City, Nevada. The first offering occurred in December 1978, when Comstock, UMC and Collins issued a private placement memorandum (the "1978 Memorandum") offering for sale $1,600,000 in Class I limited partnership interests, in ten units of $160,000 each. When this offering did not result in a sale of all ten units, a second offering was made in March 1979 with the issuance of a substantially identical private placement memorandum (the "1979 Memorandum"), offering sufficient units, again at $160,000 per unit, to reach the original goal of raising $1,600,000.

Plaintiff Robert C. Haggerty was at the time of his investment a senior partner with the New York law firm of Dewey, Ballentine, Bushby, Palmer & Wood. Plaintiff Robert C. Graham was the president of a real estate company and president of the Graham Gallery, Ltd. Plaintiff Kirk Parrish was the executive vice president of an advertising company, and had previously been president of Life Savers, Inc., the American Chicle Company, and Lanvin Charles of the Ritz, and a director of the Squibb Corporation. Plaintiff Howard T. Bellin, M.D. was a surgeon in New York, as well as president of Bellin's Department Store, Bellin Aviation, and Speed Flying Service. Plaintiff Robert Giller, M.D. was a doctor in New York. All of the plaintiffs were experienced in tax shelter investments, all were college graduates, and all had incomes that placed them in the top tax bracket.

The 1978 Memorandum and 1979 Memorandum (collectively, "the Offering Memoranda") included the following warnings regarding the proposed investment in Comstock:

  THE INVESTMENT DESCRIBED HEREIN INVOLVES
  SUBSTANTIAL RISKS AND IS OFFERED ONLY TO
  INDIVIDUALS WHO CAN AFFORD SUCH RISKS. SEE
  "PRINCIPAL RISK FACTORS" HEREIN. THERE WILL BE NO
  PUBLIC MARKET FOR THE UNITS, AND RESALES AND OTHER
  TRANSFERS ARE LIMITED BY FEDERAL AND STATE
  SECURITIES LAWS, THE INTERNAL REVENUE CODE, AND
  THE LIMITED PARTNERSHIP AGREEMENT. SEE ALSO
  "CONFLICTS OF INTERESTS," AND "FEDERAL INCOME TAX
  CONSEQUENCES" FOR ADDITIONAL RISK CONSIDERATIONS.

Offering Memoranda at cover page.

  Of course, there can be no assurance that [gold
  and silver] reserves will be discovered in
  commercially recoverable quantities or, if
  reserves are discovered, that a sufficient
  quantity of gold and silver will be extracted to
  pay operating expenses and/or a return on the
  investment made in the Partnership.

Offering Memoranda at 2.

  Estimates of profit, loss and cash flow have been
  made by the General Partners through 1984.
  However, there is no assurance whatsoever that the
  Partnership will ever operate at a profit or that
  distributions, if made, will equal those estimated
  by the General Partners at the present time.

1979 Memorandum at 3.*fn2

  Each prospective Class I Limited Partner must take
  into account the fact that all of his notes will
  be presented for payment and that the Partnership
  may never be in a position to make any cash
  distributions. The risk factors relating to
  investment in the Partnership are set forth in
  this memorandum; they should be carefully reviewed
  by any prospective ...

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