Wingsco Energy One v. Vanguard Groups Resources 1984, Inc.

699 F. Supp. 1232, 106 Oil & Gas Rep. 576, 1988 U.S. Dist. LEXIS 12612, 1988 WL 119957
CourtDistrict Court, S.D. Texas
DecidedAugust 11, 1988
DocketCiv. A. Nos. H-86-452, H-86-4236, H-86-4254, H-86-4255, H-86-4286, H-86-4288, H-86-4312 and H-86-4338
StatusPublished
Cited by1 cases

This text of 699 F. Supp. 1232 (Wingsco Energy One v. Vanguard Groups Resources 1984, Inc.) is published on Counsel Stack Legal Research, covering District Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Wingsco Energy One v. Vanguard Groups Resources 1984, Inc., 699 F. Supp. 1232, 106 Oil & Gas Rep. 576, 1988 U.S. Dist. LEXIS 12612, 1988 WL 119957 (S.D. Tex. 1988).

Opinion

[1234]*1234MEMORANDUM AND ORDER

NORMAN W. BLACK, District Judge.

This complex securities case involves hundreds of individual investors who either originally brought suit against or filed counterclaims against four solvent Defendants, Greycas, Inc. and Greyhound Leasing & Financial Corporation (hereinafter “Greycas” collectively), Chrysler Capital Corporation, • the successor in interest to E.F. Hutton Credit Corporation (hereinafter referred to as “CCC”), Northwestern National Insurance Company of Milwaukee, Wisconsin (hereinafter “Northwestern”) and First City Bank — Westheimer Plaza, N.A. (“First City”). Plaintiffs also brought suit against Vanguard Groups Resources 1984, Inc., Vanguard Groups International, Robert L. Sonfield, Jack Singleton, Mark Singleton, Allan Esrine, ITI Glendale, Inc., various Vanguard Oil Limited Partnerships, and individuals who do not figure in this disposition of the pending motions for summary judgment.

This case has come before the Court in an unusual procedural posture. Before turning to the claims and motions of the Defendants and the Plaintiffs, the Court will recite the uncontroverted fact and procedural history of this suit.

I. Factual Background.

The Plaintiffs in this suit are investors who in 1984 purchased interests in leveraged oil and gas limited partnerships promoted by an entrepreneur named Edward G. Baker. Due to alleged misuse of partnership funds by Edward G. Baker, the limited partnerships failed to live up to the investors’ expectations, and, as discussed below, many of these investors brought suit against the Defendants seeking monetary relief and rescission of notes and indemnity agreements.

Vanguard Groups Resources 1984 (VGR) and Vanguard Groups International (VGI) engaged, from 1981 to 1985, in the syndication of limited partnership tax shelter primarily for the production and sale of oil and gas. The twelve 1984 Vanguard Oil Limited Partnerships which are the subject of this suit were sold to 347 investors. VGI was the general partner of 84L-1, VGR was general partner of 84L-2 through 84L-12. These investments were highly leveraged to increase the anticipated tax benefits and to provide a greater rate of return to the investors. Most investors made a down payment of 5% of the purchase price of his or her interest and signed an investor note payable to the order of the limited partnership for the unpaid 95% of the purchase price. As security for payment of the principal and interest under the investor note, each partnership purchased a financial guarantee bond from Northwestern. The bond obligates Northwestern to make payment of each investor note to the limited partnership or to a permitted as-signee in the event that a maker of the investor note failed to do so. The investors, the makers of the investor notes, agreed to indemnify Northwestern in the event that Northwestern was required to make payment on the investors’ behalf. Northwestern acted as surety.

Allan Esrine of ITI Glendale acted as a financial intermediary to secure bonding of the investors’ notes. Esrine collected bond premiums on behalf of Northwestern and delivered the premiums to Financial Guaranty Corporation, Northwestern’s licensed agent, or to Northwestern. Esrine suggested that investors be moved from the L-10 through L-12 programs to the L-9 program when those four programs were undersubscribed. The investors gave Vanguard the authority to make such a change, and Sonfield, counsel for Vanguard, approved.

An additional feature of the 1984 Vanguard Limited Partnerships, with the exception of Vanguard Oil 84L-1, was the purchase by the partnership of an interest bearing instrument from the lender. The interest bearing instruments known as zero coupon bonds were notes payable by the lender structured to provide that interest would accrue and be compounded periodically but would not be payable until maturity. These interest bearing instruments were pledged as collateral for loans from either CCC or Greycas. The loans, collat-[1235]*1235eralized by the zero coupon bonds, were allegedly used to finance the partnership’s operations. The partnership debt to the lenders was also secured by the investor notes. Furthermore, the applicable bond by Northwestern served as security for payment of the investor notes and was assigned to the lender.

E.F. Hutton Capital Corporation, now CCC, agreed to act as the lender to the first seven of the twelve Vanguard Limited Partnerships. CCC approved a loan to Vanguard Oil 84L-1 on September 26, 1984. The loan to 84L-1 was only secured by the investor notes. Subsequently, from late October until early December of 1984, E.F. Hutton Capital Corporation extended loans to Vanguard Oil 84L-2 through 84L-7. These loans were secured by the investor notes and the zero coupon bonds. Greycas provided the financing for Vanguard Oil L-8 through 84L-12.

The investors signed estoppel letters when they made their investment. These letters acknowledged that E.F. Hutton (CCC) acted solely in the capacity of a lender and that the lender made no representations or recommendations whatsoever concerning the investment. Also the letter states that investors acknowledge CCC made no investigation of the persons (including the promoters) involved. Based on these letters CCC has filed a motion for summary judgment based on promissory estoppel for reimbursement of CCC’s costs and attorney’s fees.

In mid 1985 the Vanguard Limited Partnerships failed to make quarterly interest payments to Chrysler Capital Corporation and Greycas. Accordingly, the lenders looked to the makers of the investor notes for payment and when the makers (the investors) failed to comply with the request for payment, the lenders looked to Northwestern for payment under the bonds. Northwestern has made a number of payments as required by the bonds and has initiated collection actions against the Plaintiffs (the investors) under the indemnity agreement signed by the nonpaying investors. After or in anticipation of these collection actions by Northwestern, a number of the investors filed suit or were sued in federal court by Northwestern asserting federal securities law and state law causes of action.

After Vanguard had a disagreement with Interfirst Bank, First City-Westheimer Plaza was appointed substitute escrow agent for the 1988 Vanguard L-10 drilling program. Later First City agreed to also serve as escrow agent for the 84L-1 program. First City reviewed the confidential memoranda sent to investors in that program. First City was also escrow agent for the L-2 through L-12 programs.

First City was the escrow agent for the money loaned by Greycas and CCC to the Vanguard Limited Partnerships. The loans were paid by Greycas and Chrysler Capital Corporation to the Bank which subsequently distributed funds at the direction of the general partner. These allegedly misdirected payments are one of the bases of Plaintiffs’ claims against First City Bank.

Pursuant to the terms of the escrow agreements entered into in the 12 Vanguard 1984 programs, a Certificate of Closing was required before the escrow agent, First City, could properly deliver funds into the escrow account for the limited partnerships. If that certificate was not received by the closing date the escrow agent had to return the investors’ money. However, Robert Sonfield, counsel for the limited partnerships, issued an opinion letter that said First City could hold escrow funds without the closing letter.

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699 F. Supp. 1232, 106 Oil & Gas Rep. 576, 1988 U.S. Dist. LEXIS 12612, 1988 WL 119957, Counsel Stack Legal Research, https://law.counselstack.com/opinion/wingsco-energy-one-v-vanguard-groups-resources-1984-inc-txsd-1988.