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COSTELLO v. MCFADDEN9/18/1996
The district court denied the defendant's motion to vacate judgment against him. The court also denied the plaintiffs' request for attorney fees. The defendant appealed and the plaintiffs cross-appealed. We affirm on the appeal and the cross-appeal.
I. Background Facts.
In April 1991 Kevin McFadden approached the plaintiffs to solicit their investment in an oil well drilling operation conducted by Big Sandy Oil, Inc., a Texas corporation. The plaintiffs are Patricia Costello, Margaret Costello, Paula Costello, and J. Chandler Knapek. The Costellos are sisters; Knapek is Paula's husband. At the time, the plaintiffs lived in Iowa and McFadden lived in California.
McFadden spoke with the plaintiffs several times by phone and in person during April and May. McFadden strongly urged them to invest in the drilling operation. McFadden's acquaintance Welden Roberts was selling interests in the drilling operation, and McFadden urged the plaintiffs to purchase the interests from Roberts. At the time, Roberts also lived in California.
McFadden represented to the plaintiffs that investing in Big Sandy was an extremely [553 NW2d Page 609]
low-risk, high-yield opportunity. McFadden personally guaranteed the return of their investment.
In May the plaintiffs signed an agreement with Big Sandy whereby each invested $7500. Later that summer, McFadden and Roberts spoke again with the plaintiffs, attempting to induce them to make further investment in Big Sandy.
In September the plaintiffs signed additional investment agreements with Big Sandy. The four invested an additional $15,000, bringing their collective investment to $45,000.
The well did not produce as McFadden had promised. The plaintiffs lost their entire $45,000 investment, less a $20,650 payment McFadden made them from his personal funds.
II. Background Proceedings.
On May 13, 1993, the plaintiffs sued McFadden, Roberts, and Big Sandy. Count I of their petition is the only count involved in this appeal. In count I the plaintiffs alleged McFadden, Roberts, and Big Sandy sold them unregistered securities in violation of Iowa's Blue Sky Law. See Iowa Code § 502.501 (1991). The plaintiffs asked for judgment against each defendant, jointly and severally, for the lost amount of their investment plus prejudgment interests, costs, and attorney fees.
Roberts told McFadden he would take care of defending against the claims. Roberts retained Michael R. Brown as local counsel to defend against the claims. Roberts paid Brown a retainer.
On July 16 Brown filed an answer on behalf of all three defendants. The answer admitted (1) the plaintiffs collectively invested $45,000 for interests in an oil and gas well to be drilled and operated by Big Sandy in Texas and (2) the interests were not registered as securities in Iowa. The answer, however, denied that the oil and gas interests were securities under Iowa law. The answer asked that the petition be dismissed.
Between July 16 and January 20, 1994, Brown communicated with Roberts several times. Roberts told McFadden not to worry about the defense and that everything was being taken care of. Brown never spoke with McFadden, although Brown made one unsuccessful attempt to call.
On January 20 the plaintiffs filed a motion for summary judgment on count I — the sale of unregistered securities count. See Iowa R. Civ. P. 237. The court granted their unresisted motion on February 11.
The court filed the final judgment order on February 18. The judgment is against the three defendants jointly and severally and is in favor of each individual
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