94-0082 La.App. 4 Cir. 10/3/94, Amato v. Office of Louisiana Com'r of Securities

Decision Date03 October 1994
Citation644 So.2d 412
Parties94-0082 La.App. 4 Cir
CourtCourt of Appeal of Louisiana — District of US

Rehearing Filed by Justice Plotkin

Nov. 15, 1994.

Writ Denied Feb. 3, 1995.

James E. Stovall, Jackson and Stovall, Metairie, for plaintiff/appellant.

Adrian F. LaPeyronnie III, and Henry G. Sullivan, Jr., Campbell, McCranie, Sistrunk, Anzelmo & Hardy, Metairie, for defendants/appellees.

Before BARRY, BYRNES and PLOTKIN, JJ.

[94-0082 La.App. 4 Cir. 1] BARRY, Judge.

Robert Amato appeals the dismissal of his suit for a declaratory judgment and damages based on the defendants' alleged failure to comply with procedural due process requirements of the Louisiana Securities Law. We hold that defendants did not comply with the Louisiana Securities Law; however, the commissioner is immune from liability when acting under the Louisiana Securities Law or under color of law. We affirm.

FACTS

Amato is a stock broker and specializes in selling "penny stocks" i.e., stocks under $5.00 a share. He testified that in June 1987 he began working for Brennan Ross Securities which ceased operations in October 1990. On October 31, 1990 Amato resigned and in early November 1990 Brennan Ross submitted a form U-5, Uniform Termination Notice for Securities Industry Registration, to the National Association of Securities Dealers (NASD) to notify them of Amato's termination.

[94-0082 La.App. 4 Cir. 2] Amato applied for employment with Adams Securities and on November 1, 1990 he completed a form U-4, Form Application For Securities Industry Registration or Transfer. As Amato's prospective employer, Adams Securities submitted the U-4 in November or early December 1990 to register Amato through the NASD. Mr. Daniel Bagdanov, compliance director for Adams Securities, testified by deposition that the U-4 is prepared by the employee but submitted by the firm. 1

Bagdanov testified that on December 19, 1990 he received a telephone call from Deputy Securities Commissioner Harry Stansbury. The context of that conversation is disputed, but it is agreed that Stansbury told Bagdanov that Amato's U-4 was incomplete because it failed to disclose a Louisiana investigation of Amato.

According to Amato, he did not have notice that he was the subject of an investigation by the Louisiana Securities Commissioner. Stansbury testified that there is no such thing as notice of an investigation and the Louisiana Commissioner's office does not maintain a file on persons under investigation which Amato could check. However, Stansbury believed that Amato should have known of the investigation and reported it after Amato signed for a subpoena directed to Brennan Ross Securities.

Bagdanov stated that Stansbury called him on December 28, 1990 and demanded the immediate withdrawal of Amato's U-4, subject to suspension of Adams Securities' license. That testimony was corroborated by Amato, who testified that Bagdanov relayed that information to him shortly after December 28, 1990. Stansbury denied that he demanded withdrawal of the U-4, but [94-0082 La.App. 4 Cir. 3] admitted that he told Bagdanov that failure to withdraw the application would result in the denial of Adams Securities' license. Stansbury testified that the options available to Adams Securities were to amend or withdraw the U-4 or risk non-renewal of the firm's license, a disciplinary measure. Adams Securities filed a form U-5 and withdrew Amato's application.

Amato's legal counsel inquired about Amato's application and was told by Stansbury that because Amato's U-4 was withdrawn there was no pending application and nothing for Stansbury to rule upon.

On April 10, 1991 Amato filed this suit for injunctive relief and a declaratory judgment. He amended his petition to pray for damages resulting from the defendants' alleged violation of Amato's due process rights. On April 11, 1991 Amato completed an amended U-4 application and disclosed the Louisiana investigation. The Louisiana Commissioner's Office approved his application shortly thereafter.

The trial court ruled in favor of defendants and Amato appeals. The defendants answer the appeal and contest the trial court's assessment of costs. The issues are whether Amato was denied due process; whether the trial judge erred in his factual findings; and quantum (the trial court rendered judgment for defendants and assessed damages).

DUE PROCESS

Amato argues that he was refused registration without notice or opportunity for a hearing in violation of due process. He contends that Stansbury's insistence upon withdrawal of the U-4 without formal notice effectively refused his registration without affording him an opportunity for a hearing. Defendants respond that the U-4 was voluntarily withdrawn by Adams [94-0082 La.App. 4 Cir. 4] Securities and there was no pending application until the amended U-4 was submitted in April 1991. Thus, there was no refusal or denial of Amato's registration.

The regulation of securities in Louisiana is governed in part by the Louisiana Securities Law, LSA-R.S. 51:701 et seq. Section 703 controls the application and registration of a securities salesman.

Under Section 703(C)(4), the registration of a salesman automatically terminates from the time of termination of employment. Amato resigned from Brennan Ross October 31, 1990. Brennan Ross ceased operations in October 1990 and submitted the U-5 termination notice in early November 1990. Joseph Long, who was qualified as an attorney and testified for the defense, stated that a salesman's transfer from one broker-dealer to another is usually simultaneous. The NASD Central Registration Depository (a computer filing system) listed the application as a transfer, but there is no evidence that Amato submitted an application for transfer before or simultaneously with the U-5 termination notice. Thus Amato's registration terminated when his employment terminated and Brennan Ross submitted the U-5 termination form on his behalf. His subsequent application was one for re-registration rather than transfer.

Section 703(C)(4) provides that when an individual completes an application for registration,

the commissioner shall register such applicant as a salesman, unless he finds that such applicant is not of good business reputation or does not appear to be qualified by training, experience, or knowledge of the securities business to act as a salesman of securities.

[94-0082 La.App. 4 Cir. 5] If the commissioner finds that an applicant omitted any material fact required to be stated in the application, that omission may support a finding by the commissioner that the applicant is not of "good business reputation." See §§ 703(E)(2) and 704(A)(1). That would presumably be sufficient ground to refuse to register an applicant under § 703(C)(3). 2

The Louisiana Securities Law clearly contemplates that an applicant be afforded notice and an opportunity for a hearing prior to refusal of his registration. Section 703(E)(1) provides in pertinent part:

If, after affording an applicant a hearing or an opportunity for a hearing as provided in R.S. 51:716, the commissioner finds that there are sufficient grounds to refuse to register such applicant as provided in this Section, he shall issue an order refusing to register such applicant. [Emphasis added]

Section 716(A) requires:

Before entering an order refusing to register any person under R.S. 51:703, ... the commissioner shall promptly send to such person and, if such person is a salesman to the dealer who employs or proposes to employ such salesman a notice of opportunity for hearing. [Emphasis added]

Section 716(B) provides that the notice and hearing shall be in the manner prescribed in the Administrative Procedure Act, LSA-R.S. 49:950 et seq.

The defendants argue that Sections 703 and 716 are inapplicable because Adams Securities withdrew Amato's U-4 application and there was no refusal of registration. The trial judge apparently agreed and stated in his reasons:

[94-0082 La.App. 4 Cir. 6] Since Adams Securities withdrew the plaintiff's U4 by filing a U5, it is questionable whether (the Administrative Procedure[s] Act) ever applies.

Stansbury acknowledged that denial could be made only through the statutory process and testified that he used the informal procedure for informational purposes. Joseph Long testified that the informal procedure involving withdrawal of an incorrect application is common across the United States and avoids the formal process of denial.

Neither the Louisiana Securities Law nor the Administrative Procedure Act sets forth an informal procedure for refusal of registration, particularly where, as here, the validity of the underlying facts are in dispute. Compare Louisiana State Board of Medical Examiners v. Bertucci, 593 So.2d 798 (La.App. 4th Cir.1992), which recognized the existence of a legislatively mandated informal compliance procedure within the Administrative Procedure Act. In Bertucci this Court considered the requirements for revocation, suspension, annulment or withdrawal of an existing license under LSA-R.S. 49:961(C) and held that, in addition to the basic procedural due process elements of notice and an opportunity for a hearing, § 961(C) required that the licensee be given an opportunity to show compliance prior to the institution of formal proceedings. This Court stated that "(t)he purpose of the additional compliance opportunity of subsection (C) is to 'short circuit' the procedure." Id. at 801. Unlike Bertucci, Amato's license was terminated before his U-4 was submitted and § 961(C) is not applicable. However, Bertucci clearly indicates that an informal procedure is...

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