Underhill Associates, Inc. v. Bradshaw, 81-1222

• Decision Date: 25 March 1982
• Docket Number: No. 81-1222,81-1222
• Citation: 674 F.2d 293
• Parties: Blue Sky L. Rep. P 71,729, Fed. Sec. L. Rep. P 98,625 UNDERHILL ASSOCIATES, INC., Brenner Steed & Associates, Inc., First Omaha Securities, Corp., Appellants, v. Junie BRADSHAW, Thomas P. Harwood, Jr., Preston C. Shannon, All Commissioners of the Va. State Corp. Commission, Lewis Brothers, Jr., Director, Securities Division State Corp. Commission, Appellees, Securities and Exchange Commission, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 293

674 F.2d 293

Blue Sky L. Rep. P 71,729, Fed. Sec. L. Rep. P 98,625

UNDERHILL ASSOCIATES, INC., Brenner Steed & Associates Inc., First Omaha Securities, Corp., Appellants, v. Junie BRADSHAW, Thomas P. Harwood, Jr., Preston C. Shannon All Commissioners of the Va. State Corp Commission, Lewis Brothers, Jr. Director, Securities Division State Corp. Commission, Appellees, Securities and Exchange Commission, Amicus Curiae.

No. 81-1222.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 6, 1982.

Decided March 25, 1982.

Thomas C. Henry, Washington, D.C. (Carl L. Shipley, Shipley, Smoak & Henry, Washington, D.C., on brief), for appellants.

Joel H. Peck, Richmond, Va., Harvey Bell, Little Rock, Ark. (Lewis S. Minter, Donald G. Owens, State Corp. Commission of Virginia, Richmond, Va., on brief), for appellees.

Edward F. Greene, Gen. Counsel, Securities & Exchange Commission, Washington, D.C. (Paul Gonson, Sol., Jacob H. Stillman, Associate Gen. Counsel, Richard A. Kirby, Sp. Counsel, Robert Lipsher, Robert Mills, Washington, D.C., on brief), for amicus curiae.

Before INGRAHAM, Senior Circuit Judge, ^* and MURNAGHAN and SPROUSE, Circuit Judges.

SPROUSE, Circuit Judge:

Underhill Associates, Inc., Brenner Steed & Associates, Inc., and First Omaha Securities Corp. appeal from the judgment of the district court denying them relief and holding constitutional the registration provision of the Virginia Securities Act (Act), Va.Code § 13.1-504. The appellants instituted this action in district court against the commissioners of the State Corporation Commission (SCC) and the director of the SCC's securities division seeking a declaration that the broker-dealer registration requirement violates numerous provisions of the United States Constitution-the commerce clause, the supremacy clause, the free speech guarantees of the first amendment, and the due process clause of the fourteenth amendment. They also sought to enjoin the enforcement of the remedies provided by the Act. We affirm.

Section 13.1-504(a) makes it "unlawful for any person to transact business in (Virginia) as a broker-dealer, investment advisor or as an agent ... unless registered" with the SCC. The Act provides that a broker-dealer or agent may be registered after filing an application demonstrating that

he ... is a person of good character and reputation, that he intends to maintain his records pertaining to the securities business in accordance with the rules of the Commission, that his knowledge or conduct of the securities business and his financial responsibility are such that he is a suitable person to engage in the business, that he has supplied all information required by the Commission and that he had paid the necessary fee.

Va.Code § 13.1-505(a).

All three appellants are broker-dealers registered with the United States Securities and Exchange Commission, and are, in effect, "discount securities brokers"-offering brokerage services to the public at a lower rate than is usually charged by full service brokers. Although there is some variation between the appellants' operations, their businesses are generally similar. Each appellant is registered in accordance with the local blue sky securities laws of the individual states in which it maintains an office; none have offices, salesmen or representatives physically present in Virginia. They make extensive use of the mails, telephone and advertising to contract business. The advertisements do not disclose the state in which they are registered but the appellants hold themselves out as being available to do business with anyone, anywhere.

Appellants' first contention is that Virginia cannot, consistent with the due process clause of the fourteenth amendment, regulate their transactions with Virginia residents because they do not have sufficient contacts with that state to justify the exertion of its authority over them. To determine Virginia's power to regulate the activities of nonresidents, we must look to the extent of these nonresidents' contacts with Virginia and to the nature and extent of the state's interest in exercising its authority. Travelers Health Association v. Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950); Merrick v. N. W. Halsey & Co., 242 U.S. 568, 37 S.Ct. 227, 61 L.Ed. 498 (1917); Caldwell v. Sioux Falls Stock Yards Co., 242 U.S. 559, 37 S.Ct. 224, 61 L.Ed. 493 (1917); Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480 (1917). See also Aldens, Inc. v. Miller, 610 F.2d 538 (8th Cir. 1979), cert. denied, 446 U.S. 919, 100 S.Ct. 1853, 64 L.Ed.2d 273 (1980); Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir.), cert. denied, 439 U.S. 860, 99 S.Ct. 180, 58 L.Ed.2d 169 (1978); Aldens, Inc. v. LaFollette, 552 F.2d 745 (7th Cir.), cert. denied, 434 U.S. 880, 98 S.Ct. 236, 54 L.Ed.2d 161 (1977); Aldens, Inc. v. Packel, 524 F.2d 38 (3d Cir. 1975), cert. denied, 425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976).

Despite appellants' arguments, it is apparent they have greater contacts with Virginia than merely accepting unsolicited orders. Their advertisements are circulated throughout Virginia. Interested persons contact appellants by toll-free telephone numbers and are then sent various informational materials, including an application. Upon receipt of an application, appellants check the prospective customer's financial data, run a credit check and may contact his employer. Only after his application is approved does the discount broker open his account. The appellants send the Virginia customers confirmations after purchase and require them to forward stock certificates after sale. The...