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MARTIN J. BRENNAN v. REED (07/02/82)

decided: July 2, 1982.

MARTIN J. BRENNAN, LARRY L. MURPHY AND FREDERICK H. STIERHEIM, APPELLANTS,
v.
REED, SMITH, SHAW & MCCLAY



No. 479 Pittsburgh, 1980, Appeal from the Order of the Court of Common Pleas, Civil Division, Allegheny County, at No. GD 76-26979.

COUNSEL

C. William Berger, Pittsburgh, for appellants.

Frederick N. Egler, Pittsburgh, for appellees.

Cercone, President Judge, and Johnson and Shertz, JJ. Shertz, J., did not participate in the consideration or decision of this case.

Author: Cercone

[ 304 Pa. Super. Page 401]

This is an appeal from a judgment of compulsory non-suit entered in favor of defendant, Reed, Smith, Shaw & McClay, at the close of the plaintiffs' case. The plaintiffs, Brennan, Murphy and Stierheim, filed a timely motion to remove or take off the non-suit which was denied and this appeal followed. Appellants contend that the non-suit was improperly granted because their suit in trespass and assumpsit against their former attorney for alleged malpractice in

[ 304 Pa. Super. Page 402]

    causing or failing to prevent their violation of the Pennsylvania Securities Act is a valid and proper action at law.

In reviewing the entry of a compulsory non-suit, it is well established that the non-moving party is entitled to a favorable view of the evidence and all reasonable inferences arising therefrom. That party is to receive the beneficial resolution of any conflicts which may exist in the evidence and a non-suit should be awarded only in clear cases. Scott v. Purcell, 490 Pa. 109, 415 A.2d 56 (1980), Kardibin v. Associated Hardware, 284 Pa. Superior Ct. 586, 426 A.2d 649 (1981); Rutter v. Northeastern Beaver County School Dist., 283 Pa. Superior Ct. 155, 423 A.2d 1035 (1980) rev'd on other grounds, 496 Pa. 590, 437 A.2d 1198 (1981). This will be kept in mind as we recount the evidence in the present case.

The record indicates that appellants Brennan and Murphy obtained lease options on oil and gas properties in Bradford Field during the spring of 1972 for the purpose of engaging in the exploration and production of oil and gas. They intended to finance drilling on these leases by selling one-eighth interests in individual wells to limited partners, and to form a general partnership to conduct the drilling operations. To implement their desires, they met with attorney William H. Powderly, III, a partner in the law firm of Reed, Smith, Shaw & McClay, in May of 1972. Attorney Powderly represented himself as being knowledgeable in this area of the law. He agreed to represent Brennan and Murphy as general counsel and to prepare the necessary documents for forming their partnership. Also at that initial meeting, attorney Powderly was given a limited partnership agreement form which Brennan and Murphy had copied from an oil and gas journal. They instructed attorney Powderly to review the agreement form to determine whether it was suitable to effectuate the desired business purpose, to make whatever changes he saw fit, and to make sure he kept them "out of trouble with the Securities Commission."

Later that month, Brennan and Murphy returned to attorney Powderly's office and executed the general partnership agreement that Powderly had prepared in the name of

[ 304 Pa. Super. Page 403]

Kaylar Development. At that meeting, the limited partnership agreement form that had been submitted to attorney Powderly was returned to Murphy and Brennan. Attorney Powderly told them that the agreement form, with the changes he had made, would adequately fulfill their needs. At that time, attorney Powderly was informed that Brennan was going right out to sell wells, and the first one-eighth limited partnership interest was in fact sold on June 10, 1972.

Attorney Powderly continued to represent Brennan and Murphy, trading as Kaylar Development Company, throughout the remainder of 1972, and Reed, Smith, Shaw and McClay billed that partnership for his legal services. Numerous fractional interests in several wells were sold to limited partners during this period. Also around this time, attorney Powderly attended a dinner meeting of a large group of then present and prospective investors in these limited partnerships and addressed the group on the tax advantage of their participation.

In January, 1973, attorney Powderly incorporated Kaylar Development and arranged for the transfer of the partnership's assets to the corporation. Appellant Stierheim, who had previously helped in the sale of the limited partnership interests, now became a stockholder in the newly formed corporation. Through this corporation, all three appellants, Brennan, Murphy and Stierheim, continued selling limited partnership interests in new wells. Attorney Powderly was kept advised of the corporation's activities and continued to act as its counsel and bill the corporation for his services. He was, therefore, aware that the limited partnership agreements were still being used.

In 1974, Kayler ran into financial difficulties and entered into bankruptcy. At that time, several purchasers of fractional interests in the oil and gas wells brought suit against appellants on the ground that those sales were in violation

[ 304 Pa. Super. Page 404]

    of Federal Securities Laws.*fn1 Additionally, the Commonwealth of Pennsylvania issued a rule against appellants to show cause why they should not be held in violation of the Pennsylvania Securities Act. After a hearing, the Pennsylvania Securities Commission issued Findings of Fact and Conclusions of Law which read as follows:

1. In offering and selling the limited partnership interests named in the transcript prior to December 31, 1972, Respondents violated Section 3(a) of the 1941 Act in that they offered and sold securities in the Commonwealth of Pennsylvania without registering as a dealer and no exemption from registration was available under the 1941 Act.

2. In offering and selling the above-described securities prior to December 31, 1972, Respondents violated Section 13(c) of the 1941 Act in that they failed to file with the Commission a notice to sell the above-described securities.

3. Respondent, Frederick H. Stierheim, violated Regulation 1510 of the Commission promulgated under the 1941 Act in that he offered and sold the above-described securities without being registered as a salesman in connection therewith.

4. In offering and selling the limited partnership interests named in the transcript on and after January 1, 1973, in the Commonwealth of Pennsylvania, Respondents violated Section 201 of the 1972 Act in that the securities were not registered under the 1972 Act nor were the securities or the ...


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