Adams v. State, 82-2217

• Decision Date: 30 November 1983
• Docket Number: No. 82-2217,82-2217
• Parties: Blue Sky L. Rep. P 71,891 John Newton ADAMS, III, Appellant, v. STATE of Florida, Appellee.
• Court: Florida District Court of Appeals

Page 1003

443 So.2d 1003

Blue Sky L. Rep. P 71,891

John Newton ADAMS, III, Appellant, v. STATE of Florida, Appellee.

No. 82-2217.

District Court of Appeal of Florida,

Second District.

Nov. 30, 1983.

Rehearing Denied Jan. 11, 1984.

Marshall G. Slaughter, and Jack T. Edmund, Bartow, for appellant.

Jim Smith, Atty. Gen., Tallahassee, and Robert J. Krauss, Asst. Atty. Gen., Tampa, for appellee.

GRIMES, Acting Chief Judge.

This case involves a business venture to raise and sell rabbits for pelts.

Appellant John N. Adams, III, was a promoter and rabbit breeder. In late 1978 he devised a plan in which buyers would purchase a rabbit kit in order to breed and raise Rex rabbits for pelts. The pelts were then sold to a furrier for the eventual manufacture into clothing. Adams advertised in local newspapers and held rabbit seminars at various motels.

Through a slide presentation and printed material distributed at the seminars, Adams represented to potential buyers the time and money involved in an individual rabbit operation. For an initial investment of $7,200, the buyer received the minimal plan of twelve does and two bucks. In his lecture on the breeding patterns of the animals, Adams explained that by the end of the first year, an investor could expect to have 720 new breeding does from the original twelve does.

Adams represented that a typical Rex rabbit could be raised to pelting age in four and a half months at an average cost of $1.87 per month for a return of $14-$18 per pelt. The commercial demand for fur combined with the rapid production rate of the animals should result in a profit of $400-$600 per year for each rabbit. Adams pointed out that rabbit breeding could be conducted as a secondary occupation.

Each breeder had the option of selling his pelts individually. Adams recommended, however, that a new buyer join Regency Rex Breeders' Association [Regency] of which he was a founding member. The group held meetings and published a newsletter. More importantly, a Regency member could be certain of the sale of his pelts through Regency International, Inc. [International], Adams' family rabbitry. The corporation functioned as the representative of the Regency members, collecting the rabbits and pelting them and then negotiating for the members in transactions with the furriers. Thus, when buyers purchased their kits, they frequently purchased a membership in Regency as well.

When Adams began his rabbit venture, he contacted Johannes Niemz, a foreign businessman, to establish Rex Furriers [Rex]. Rex guaranteed the purchase of all pelts raised by Regency breeders and sold through International. When a new prospect signed a purchase agreement with Adams, the investor often signed a contract with Niemz as well. Although Adams disputed any agency relationship with or monetary benefit from Rex, he did sign company checks and Rex business cards were distributed in his name.

By June 1981, Niemz proved unreliable and eventually disappeared. Rex then ceased operations. Many members of Regency who had sent their rabbits to International for pelting had not been paid. Meanwhile, Cliff Jones, an employee of Regency who assisted members with the caretaking of their rabbits, was fostering dissent among the breeders. He stopped delivering Adams' stock to new members claiming that it was of inferior quality. Charles and Mary Embry were new breeders who gave Adams a down payment but never received their animals. Jones encouraged members disaffected with Adams and his corporation, International, to split off and form a second breeders' association, United Rex Breeders [United]. The new group planned to sell their pelts independently.

By August 1981, Adams attempted to recoup his losses. Recognizing that Rex was defunct, he contacted a former business acquaintance and personal friend, Don Rowberry, who headed an investment group. As a result, Rowberry established Royal Fur Company [Royal], a Nevada corporation, which immediately began purchasing Regency pelts through International. Adams denied receiving any compensation from Royal as an employee, although he was again listed as a signatory for its company checks. Adams then contacted by letter all former breeders, including those lost to United, to reassure them of the purchase of their pelts. He encouraged disaffected members to rejoin Regency upon their signing a "contract of reaffirmation." Adams reorganized his International corporation as well. He continued his general format of lecturing in small towns throughout northern and central Florida to acquire new investors.

Adams and Niemz had originally come to the attention of the Division of Securities of the Office of the State Comptroller in 1979 for alleged violations of the state securities statute. The matter ended in Adams signing a stipulated final judgment filed in April 1981, wherein he agreed to change his sales presentation and offered to make restitution to all previous investors of his rabbit kits. The instant prosecution arose after further complaints were received, which culminated in an investigation by the Florida Department of Law Enforcement. Following a jury trial in August 1982, Adams was convicted on one count each of grand theft (count 7), sale of unregistered securities (count 8), sale of securities by an unregistered person (count 9), fraudulent security transaction (count 10), and failure to file a disclosure statement by the seller of a business opportunity (count 11). Adams now appeals each conviction.

Since Adams was charged with violating various provisions of the Florida Securities Act, our first determination must be whether the purchase agreement for his rabbit kit and Regency Association membership constituted the sale of a security. Section 517.021(15), Florida Statutes (1981), defines "security" as follows:

"Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation, whiskey warehouse receipt or other commodity warehouse receipt, or right to subscribe to any of the foregoing; certificate of interest in a profit-sharing agreement or the right to participate therein; certificate of interest in an oil, gas, petroleum, mineral, or mining title or lease, or the right to participate therein; collateral trust certificate, reorganization certificate, preorganization subscription, or any transferable share, investment contract, or beneficial interest in title to property, profits, or earnings; interests in or under a profit-sharing or participation agreement or scheme, or any other instrument commonly known as a security, including an interim or temporary bond, debenture, note, certificate, or receipt for a security or for subscription to a security.

The state contends that Adams' contract constituted an "investment contract." The meaning of this term is not spelled out in the Florida act. However, the same term is used in the Federal Securities Act, and its classic definition was stated by the United States Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), as "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." Id. at 299, 66 S.Ct. at 1102, 90 L.Ed. at 1249. Thus, to prove the existence of an investment contract, the three-pronged test of Howey requires:

1. an investment of money;

2. a common enterprise; and

3. expectations of profits to be derived solely from the efforts of another.

Subsequent federal decisions have expansively...