Boehnen v. Walston & Co., Inc.

• Decision Date: 04 May 1973
• Docket Number: Civ. No. 71-75S.
• Citation: 358 F. Supp. 537
• Parties: Lloyd L. BOEHNEN, Plaintiff, v. WALSTON & CO., INC., a corporation, and James Nissan, Defendants.
• Court: U.S. District Court — District of South Dakota

358 F. Supp. 537

Lloyd L. BOEHNEN, Plaintiff, v. WALSTON & CO., INC., a corporation, and James Nissan, Defendants.

Civ. No. 71-75S.

United States District Court, D. South Dakota, S. D.

May 4, 1973.

Harold C. Doyle, of May, Johnson & Burke, Sioux Falls, S. D., and Richard B. Solum, of Henson & Tully, Minneapolis, Minn., for plaintiff.

Carleton R. Hoy, of Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., for defendants.

Julian H. Brown, Asst. Atty. Gen., Pierre, S. D., for applicants for intervention.

MEMORANDUM DECISION

NICHOL, Chief Judge.

Pursuant to Rule 56, Fed.R.Civ. P., plaintiff, Lloyd L. Boehnen, has moved for summary judgment in his suit against Walston & Co., Inc., a securities dealer, and James Nissan, its agent. Federal jurisdiction is alleged pursuant to the Securities and Exchange Act of 1934, 15 U.S.C. Secs. 78, 78aa, as amended. In addition, jurisdiction is purportedly established under 28 U.S.C. Sec. 1332, as a diversity suit.¹ Plaintiff claims this court has pendent jurisdiction over nonfederal questions arising out of the same transaction.

Boehnen's five count complaint alleges five separate causes of action.² In their respective order the complaint alleges: (1) violations of 10(b) and rule 10b-5 of the Securities and Exchange Act of 1934; (2) common law fraud; (3) violations of South Dakota Blue Sky Laws; (4) violations of the rules of the New York Stock Exchange.

The motion for summary judgment is premised upon Count Three, violations of the South Dakota Blue Sky Laws. Chapter 47-31 SDCL (1967). Plaintiff specifically contends that the South Dakota Blue Sky Laws were violated in that defendant Walston, through its agent defendant Nissan, sold several different stocks to him as a resident of South Dakota, without Nissan being licensed under South Dakota law to do so. SDCL 47-31-47 (1967).³ It is further alleged that the stocks sold to Boehnen were not registered for sale in accordance with the laws of the State of South Dakota. SDCL 47-31-9 (1967).⁴ The relief sought pursuant to this count is a judgment against defendants for the purchase price of said securities, plus interest from the date of purchase, along with costs and disbursements of this action and reasonable attorney fees. SDCL XX-XX-XXX (1967).⁵

It is the defendants' "position that the South Dakota Blue Sky Laws have no bearing upon and are not material to the issues involved in this litigation, this because there was no security `offered for sale or sold within the State of South Dakota' as required by SDCL 47-31-9"; that it was agreed that the defendants were to act as brokers for the plaintiff in all transactions which took place in this controversy and that New York law would apply.

The facts disclosed by the pleadings, affidavits, answers to interrogatories, and depositions show that: In October, 1968, Boehnen, while attending a pre-Notre Dame football game social function, became acquainted with a Chicago, Illinois, businessman, Judson Sayre. Sayre agreed to introduce Boehnen to one of his brokers, James Nissan of Walston & Co., Inc. Defendant Nissan is a broker registered on the New York Stock Exchange and, for the issues involved here, was never physically present in South Dakota. Defendant Walston & Co., Inc., is a nationwide securities dealer licensed to do business in all states. A telephone call between Chicago and New York provided Boehnen's initial introduction to Nissan. Thereafter, on October 7, 1968, Boehnen completed the Walston & Co. Customer Agreement form sent to him by the defendants from New York. Defendants deem these two provisions of that Agreement significant:

14. In all transactions between you and the undersigned, the undersigned understands that you are acting as the brokers of the undersigned, except when you disclose to the undersigned by your formal confirmation or otherwise in writing that you are acting, with respect to a particular transaction, as dealers for your own account or as brokers for some other person.

18. The provisions of this agreement shall in all respects be construed according to, and the rights and liabilities of the parties hereto shall in all respects be governed by, the laws of the State of New York.

Defendant Walston & Co., through its agent Nissan, handled the plaintiff's security transactions until July, 1969. All business between the parties was transacted by telephone and by use of the mail. Plaintiff Boehnen made numerous stock transactions with the defendants, four of which stocks are in dispute in this litigation. The stocks in issue are the common stock of Dasa Corporation (5,000 shares for $189,353), KSF Chemical Processes (1,000 shares for $5,867), National Computer Analysts (500 shares for $12,490), and Princeton Time Sharing Services (500 shares for $12,657). Together a total of $220,367 was paid in consideration for these purchases.

Rule 56 of the Federal Rules of Civil Procedure provides "a method for promptly disposing of actions in which there is no genuine issue as to any material fact or in which only a question of law is involved." 10 C. Wright and A. Miller Federal Practice and Procedure Sec. 2712 (1973). The crux of the issue presented by this motion is whether or not South Dakota law is applicable under these circumstances and, if found to be applicable, whether or not the record now before this court raises a "genuine issue as to any material fact" requiring a trial. I conclude that the South Dakota Blue Sky Laws, could apply, depending upon plaintiff's proof, and that the present state of the record reveals an issue of fact for trial.

DOES SOUTH DAKOTA LAW APPLY?

It is the defendants' first contention that the South Dakota Blue Sky Laws do not apply because the parties have expressed their intentions that the laws of New York should govern. Paragraph 18 of the Customer's Agreement provides the basis upon which the defendants make this assertion. A close reading of that paragraph discloses that it is the construction of the provisions of that agreement upon the rights and liabilities of the parties thereto which will be governed by New York law. The plaintiff does not quarrel with the provisions of the Customer's Agreement, therefore a construction of its provisions is unnecessary. However, the plaintiff is alleging acts of the defendants, in selling or offering for sale securities, which fall within the clear language of the South Dakota Blue Sky Laws. The agreement's choice of law provision, selecting New York law as governing, simply does not apply to the alleged actions of the defendants in alleged violations of the South Dakota Blue Sky Laws.

Thus a stipulation by which the parties select the law to govern the contract is valid and will be given effect only if it is not contrary to public policy generally, or to the public policy of the forum, . . ., or in violation of a statute of the forum enacted for the protection of its citizens, . . . .

16 Am.Jur.2d Conflicts of Laws Sec. 46 (1964). The purpose of the South Dakota Blue Sky Laws is to protect the public. State v. Martin, 187 N.W.2d 576, 580 (S.D.1971). To permit the choice of law stipulation in question to control the determination of whether or not South Dakota law will apply, would be to provide an effective means of circumventing legislation designed to protect the citizens of South Dakota. This would clearly be against public policy.

Secondly, it is contended by defendants that under the fact situation presented here the blue sky laws of the forum court are not involved. This argument is based principally upon the cases of Doherty v. Bartlett, 81 F.2d 920 (1st Cir. 1936), cert. denied sub nom., Doherty v. Knowlton, 298 U.S. 676, 56 S.Ct. 941, 80 L.Ed. 1398 (1936), and Lane v. Griswold, 273 N.C. 1, 159 S.E.2d 338 (1968). Both decisions are distinguishable from the suit now before this court.

In Doherty, supra, Bartlett, a resident of Manchester, New Hampshire, phoned a brokerage firm located in Boston, Massachusetts to inquire about a previous purchase. During the conversation a salesman prevailed upon Bartlett to purchase additional stock. Although the brokerage firm was registered in New Hampshire as a dealer, the salesman was not registered there. The court ruled that while "(t)he solicitation and offer to sell the stock was made by (the salesman) in Massachusetts, and, while the consummation of the transaction was the acceptance by telephone by Bartlett in Manchester, Restatement of the Conflict of Laws § 325, we do not think the effect of this conference over the telephone was a violation of the New Hampshire statute." 81 F.2d at 928. The court further stated that no act of the salesman, either of solicitation or offer of sale, took place in New Hampshire. The salesman violated no provision of the New Hampshire law by soliciting sales in Massachusetts, where he was duly licensed. Without discussion the First Circuit Court of Appeals in Doherty construed the defendants' acts to not...