Nature of the Case
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Facts
P are approximately 400 presumably unsophisticated, income-oriented investors in a limited partnership called the Hutton/Indian Wells 1983 Energy Income Fund, Ltd. It was organized to acquire properties upon which existing oil and gas wells are located and to provide regular cash distributions to investors from sales of oil and gas produced from those properties. As part of the sales pitch, D presented the written documents with all the appropriate disclaimers and then went on to lie to Ps giving assurance to each Limited Partner that the Partnership had either no risk or low risk. The Brochure depicts the Partnership's financial outlook in bright terms. It emphasized that the purchase of 'only producing oil and gas properties' eliminates exploration risk. The Brochure's disclosure concerning other risks is by reference to the Prospectus. A brochure and prospectus were provided to each of the investors. The brochure compared the investment to other oil gas investments as low risk because exploration was eliminated. The brochure had a disclaimer statement that: The use of this material is authorized only when preceded or accompanied by a prospectus for Hutton Indian Wells 1983 Energy Income Fund, Ltd. Prospective investors are encouraged to read the prospectus, including the section entitled 'Risk Factors.' Although the Brochure, again and again, references the risk disclosure sections in the Prospectus, nowhere does the Brochure quote or otherwise recite the cautionary statements in the Prospectus. The brochure was a selling tool. The Prospectus' disclosure of the risks is thorough and materially complete, if not decidedly glum. The cover of the Prospectus warns that 'no person has been authorized to give any information or to make any representations, other than those contained in this prospectus, and if given or made, such information or representations must not be relied upon.' The Prospectus lists and gives a clear warning to all the bad things that may happen and which in fact did happen. There were even clear warnings that the gas and oil produced may not be enough to cover expenses nor continue in any kind of quantity to make the investment profitable and may, in fact, cease altogether. The investment turned out to be worthless. Ps sued D asserting an unsuitability claim under §10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The trial court granted summary judgment for D and P appealed.
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