Garza v. Forquest Ventures, Inc.

Garza v. Forquest Ventures, Inc., 2015 MT 284 (Sept. 29, 2015) (Baker, J.) (5-0, aff’d & rev’d)

Issue: (1) Whether the district court correctly determined that Plaintiffs-Investors timely asserted their claims under the Montana Securities Act; (2) whether the district court correctly determined that the non-Garza Investors’ claims relate back to the original complaint’s filing date; (3) whether the district court correctly determined there were no genuine issues of material fact regarding Forquest’s failure to use reasonable care in its sale of securities; and (4) whether the district court correctly held that Advanced Analytical could not “unintentionally” waive its right to raise personal jurisdiction by filing an empty 12(b)(6) motion.

Short Answer: (1) Yes; (2) yes; (3) yes; and (4) no.

Affirmed (issues 1, 2, 3) and reversed (issue 4) and remanded

Facts: Forquest Ventures is an Idaho corporation formed to operate a placer mine at the El Dorado Bar site near Helena. Ken Hagman and his wife, Allison, were Forquest’s principal investors and only corporate officers. Hagman had no commercial mining experience and relied on his brother-in-law Ronnie Miller’s representations regarding the El Dorado Bar site. Miller and Hagman reviewed and relied on assay reports allegedly performed by Advanced Analytical. Forquest did not have a professional mining feasibility study completed before soliciting investors.

After incorporation in 2005, Forquest sold or issued stock to at least 36 shareholders, including Plaintiffs-Investors, most of whom are family or friends of Miller and Hagman. Forquest repeatedly represented that the mine would be highly profitable, and received more than $600,000 from Investors.

In September 2007, Forquest received independent third-party assay results showing very little precious metal content at the El Dorado Bar site. It did not share the information with Investors until mid-October 2007, at which time it told them Forquest was ceasing mining.

In October 2009, Emilio and Candice Garza, individually and on behalf of other investors, sued Forquest for compensatory and punitive damages, alleging violations of the Montana Securities Act and Consumer Protection Act, breach of fiduciary duty, negligent misrepresentation, and constructive fraud. In October 2010, Garzas amended their complaint to add other investors as named plaintiffs. Forquest counterclaimed against Investors and filed a third-party complaint against Miller and Advanced Analytical.

Advanced Analytical filed an unsupported motion to dismiss, which the district court denied. Under new counsel, Advanced Analytical then moved to dismiss for lack of personal jurisdiction and alternatively for summary judgment on statute of limitations grounds. Investors moved for summary judgment on their Securities Act claims, and Forquest filed a cross-motion arguing the claims were time-barred.

Procedural Posture & Holding: The district court heard argument in June 2012, and in June 2013 issued a 194-page order granting summary judgment to Investors, denying Forquest’s cross-motion for summary judgment, and granting Advanced Analytical’s motion to dismiss. It entered an amended and final judgment in September 2014. Forquest appeals, and the Supreme Court affirms, reverses, and remands for further proceedings.

Reasoning: (1) The Montana Securities Act has a two-year statute of limitations, and federal law is persuasive in interpreting it. The district court correctly determined that Investors’ claim accrued when they received Forquest’s Oct. 19, 2007 letter, and that their complaint was timely filed on Oct. 14, 2009. Forquest argues Investors should have discovered Forquest’s misrepresentations earlier by finding publicly available information. But the Securities Act puts the duty of ensuring the truth of representations made during the sale of security on the seller, not the investor. Merck does not counsel otherwise.

(2) A new plaintiff’s claim relates back to the original complaint if there is a “clear identity of interest” between the original plaintiff and the newly added plaintiff. Forquest argues there is no identify of interest because the investors became involved under different circumstances, citing Walstad. The Supreme Court agrees with the district court that Walstad does not apply. There is a clear identity of interest and the claims relate back.

(3) Forquest argues that reasonable care is an issue for the jury, and that it raised genuine issues of disputed fact regarding its exercise of reasonable care. But the Court holds that Forquest’s proffered evidence does not rise above the level of mere denial, speculation or conclusory assertions.

(4) The district court held that Advanced Analytical unintentionally waived its personal jurisdiction defense by filing an empty 12(b)(6) motion, and concluded personal jurisdiction could only be waived knowingly. Investors have no standing to argue this issue, and are unaffected in any case because their right to recover the judgment from Forquest in unaffected by Forquest’s contribution claim against Advanced Analytical. Personal jurisdiction can be waived impliedly, and such waiver does not implicate due process concerns. By failing to raise personal jurisdiction in its original 12(b)(6) motion, Advanced Analytical waived its right to raise it subsequently.