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Brown v. E.F. Hutton Group, Inc.

United States Court of Appeals for the Second Circuit
991 F.2d 1020 (2d Cir. 1993)


Kay Brown and other unsophisticated investors (plaintiffs) were in a limited partnership called the Hutton/Indian Wells 1983 Energy Income Fund, Ltd. (the partnership) (defendant). The partnership was organized to buy properties upon which oil and gas wells were located and provide cash distributions to the investors from the sales of oil and gas produced on the properties. Before the investment, account executives for E.F. Hutton Group, Inc. (Hutton) had informed the members of the partnership that the investment carried little risk. A brochure and prospectus had been provided to the investors. The brochure indicated that the investment was low risk, as opposed to the high risk of most other oil and gas investments. The brochure disclosed other risks by reference to a portion of the prospectus entitled "Risk Factors." The brochure referenced the Risk Factors section but never quoted the section. The cover of the prospectus warned that no person was authorized to make representations other than those in the prospectus and that any other representations made would not be reliable. The Risk Factors portion of the prospectus was lengthy and stated that there could be no assurance that the properties selected would produce oil or gas in the quantities or at the cost anticipated or that the properties would not cease producing oil or gas entirely. After the investments became worthless, the limited partners of the partnership sued Hutton. The limited partners asserted an unsuitability claim under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The district court granted summary judgment to Hutton, and the plaintiffs appealed.

Rule of Law


Holding and Reasoning (Jacobs, J.)

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