Houston Business Journal September 20, 1993; SECTION: Vol 23; No 18; Sec 1; pg 5

BYLINE: Kenneth R Pybus

A Houston jury turned the tables on a Pennsylvania insurance company
last week, awarding approximately $ 1 million to a group of Houston
investors the firm had sued.

The jury's award included $ 400,000 in damages plus interest and
attorneys' fees to eight Houston investors who countersued Insurance
Company of North America, a subsidiary of CIGNA Companies.

The case centered on oil and gas limited partnership deals that went
bad. INA underwrote the limited partnerships, marketed during the 1980s
as units of Overlord III and Overlord IV. The jury found INA had
committed fraud, conspiracy and violations of the Texas Deceptive Trade
Practices Act in marketing the partnerships. Instead of granting INA the
nearly $ 1 million it sought in the six-year-old lawsuit, jurors ordered
the company to pay the Houston investors.

Although the investors say an appeal may be in the works, they are
claiming a victory of David-vs.-Goliath proportions.

"This company has been going around beating up on small investors across
the country, and this is the first time somebody has successfully
defended themselves against these tactics," says John W. Morris, a
Houston computer consultant who led the countersuit.

The oil and gas partnerships were first created in the early 1980s as a
tax shelter for people in the highest federal tax bracket. Proceeds were
to be used by Tennessee-based Commonwealth Enterprises Inc. to finance
drilling in the southeastern United States. But investors contended that
the partnership units--at $ 10,000 each--were touted not as tax
shelters, but as low-risk investments in a project backed by proven and
semi-proven petroleum reserves.

The Houston group bought into the partnerships through agents of INA in
1984. When the partnerships went sour in 1986 and Commonwealth
Enterprises declared bankruptcy, INA sued the individual investors to
recoup its costs in the deals.

Many investors settled with the company to avoid costly legal battles,
Morris says. But the Houston group fought back, accusing IPA in court of
fraud and conspiracy.

"At first, we all paid the first payment INA asked for," Morris says.
"But when we found out that Commonwealth's president had been enjoined
by the (Securities and Exchange Commission) from the sale of securities,
we began to get concerned. When we found out the deal was fraud, we told
INA not to pay, but they paid anyway."

Then the insurance company sought reimbursement from Morris and the
others.

The existence of a 1980 injunction against Commonwealth President John
Meatte, and INA's knowledge of it, helped push the jury decision in
favor of Morris and his fellow investors. And their lawyer, James Doyle,
says the partnership literature touted the investment as having a high
rate of return when historically, it hadn't.

"Internally, the documents going to INA were telling them the company
had poor return in the past and that they had little history of
success," says Doyle, a partner with Doyle, Reed, Restrepo, Harvin &
Robbins. "That was never mentioned in the private placement memorandum,
but they knew this was going to be on a wish and a prayer.

Although judgment has yet to be entered by Harris County District Court
Judge Carolyn Garcia, who heard the case, the jury agreed with Morris'
claim that INA knew of the fraud and the injunction against
Commonwealth's sale of securities.

Attorneys from INA's Dallas law firm, Munsch, Hardt, Kopf, Harr & Dinan,
did not return telephone calls. Morris says he and his fellow investors
spent six years on the case, researching the connection between the
insurance company and the failed oil and gas developer.

"We spent somewhere between 10,000 and 20,000 hours," he says. "I've
been to Nashville six times myself I've crawled over a warehouse of
documents going through them. Other people have done it as well. We've
had to dig and dig to find out what was going on."

In the case decided last week, the CIGNA subsidiary portrayed Morris and
the others as sophisticated investors who knew what the risks were. But
attorney Doyle argued that the group--a businessmen, a professor,
teachers and engineers--should not be held to such a standard. After six
days of evidence and three days of deliberations, the jury apparently
agreed.

"These are basically middle-class people who were invited into these
investments and were taken advantage of," Doyle says. "And part of what
gave this whole thing credibility was lending the name of the insurance
company. When things went bad, they came out and hounded these people."