Arizona Corp. Com'n v. Media Products, Inc., 1
| Decision Date | 16 June 1988 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 763 P.2d 527,158 Ariz. 463 |
| Parties | , Blue Sky L. Rep. P 72,749, 57 USLW 2028 The ARIZONA CORPORATION COMMISSION, Plaintiff-Appellee, v. MEDIA PRODUCTS, INC., a Delaware corporation, Defendant-Appellant. 9655. |
| Court | Arizona Court of Appeals |
The Arizona Corporation Commission (Commission) brought this action under the Securities Act (Act) to enjoin the initial public stock offering of Media Products, Inc. (Media), for civil penalties under A.R.S. § 44-2037, restoration to investors of amounts paid for Media stock, and other related relief. The offering was not registered in the State of Arizona. The parties stipulated to consolidate the preliminary injunction request with the trial of all other matters raised in the complaint. Prior to trial, the court bifurcated the liability and remedies portion of the case and proceeded to try only the liability issues. We summarize the trial court's conclusions as follows:
1. That A.R.S. § 44-1841 required the registration of securities sold entirely to persons residing outside of the state by an underwriter located outside of the state on behalf of a foreign corporation having a base of operations in Arizona; and
2. That Arizona has a sufficient state interest in the issuance of securities by a company with a base of operations in the state, even though it was incorporated in the State of Delaware so that Arizona's prohibition of the sale of Media Products stock in other states is not an impermissible burden on interstate commerce in contravention of the United States Constitution.
The trial court entered a final appealable order pursuant to rule 54(b), Arizona Rules of Civil Procedure, adjudging that Media had violated the securities laws of Arizona by failing to register the sale of its initial public offering with the Commission. The court reserved determination of any applicable remedies following appeal. Media timely appealed.
Media is a Delaware corporation with its principal offices in Arizona. It entered into a "Selling Agency Agreement" with First Devonshire Securities, Inc. of Spokane, Washington, wherein the "agent" agreed, on a "best efforts, all-or-none" basis, to sell its initial public stock offering of 1,300,000 shares of common stock. Media's offering was properly registered with the federal Securities and Exchange Commission (SEC). Media's offering was also duly registered under applicable Blue Sky laws in California, Colorado, Connecticut, Georgia, Idaho, Illinois, Minnesota, Montana, New Jersey, New York, Oregon, Pennsylvania and Washington. It made application to the Securities Division of the Commission to register the offering in Arizona but subsequently withdrew its application. The agent as underwriter then informed the Securities Division that it would proceed with the offering in the states where registration had been accomplished. The Securities Division informed Media that such an offering would constitute a violation of the Act. Media then informed the Securities Division that it would proceed, as it did not agree with the Division's interpretation of the Act.
Sales of the entire issue were negotiated out-of-state solely by the out-of-state agent underwriter and its selling out-of-state broker-dealers with purchasers who were residents of states where the offerings were duly registered. No sales or offers of sale were made in Arizona or to Arizona residents. There is no contention that the offerings were fraudulent.
In reviewing the trial court's conclusions of law, this court is not bound by those conclusions, and we will determine questions of law independently of the trial court. Gary Outdoor Advertising v. Sun Lodge, Inc., 133 Ariz. 240, 242, 650 P.2d 1222, 1224 (1982).
The first issue on appeal is:
Did the court err as a matter of law in interpreting A.R.S. § 44-1841 to prohibit the sale of securities by a foreign corporation having a base of operations in Arizona where (i) all of the sales activities were conducted by out-of-state broker-dealers in states other than Arizona, (ii) the offers to purchase were made and accepted out-of-state, and (iii) no sale or offer of sale was made to any resident of Arizona?
Arizona Revised Statutes § 44-1841(A) reads:
Sale of unregistered securities prohibited; classification
It is unlawful to sell or offer for sale within or from this state any securities unless such securities have been registered by description under §§ 44-1871 through 44-1875 or registered by qualification under §§ 44-1891 through 44-1900, except securities exempt under §§ 44-1843 or 44-1843.01 or securities sold in exempt transactions under § 44-1844.
Media posits that A.R.S. § 44-1841 is inapplicable to the Media offering because the offers to sell and the sales were not made within or from the State of Arizona. Media and Amici Curiae assert that in interpreting A.R.S. § 44-1841, the court should look to the interpretation of the California Blue Sky Statutes by the California Department of Corporations. They cite A.R.S. § 44-1815, which reads:
The director shall cooperate with the administrators of the securities laws of other states and of the United States with a view to achieving maximum uniformity in the interpretation and enforcement of like provisions of the laws administered by them. (Emphasis added)
The pertinent California statute states in detail under what circumstances an offer to sell or sale of securities is considered to be made within or to originate from that state. Arizona Revised Statutes § 44-1841 only states that "It is unlawful to sell or offer to sell within or from this state any securities unless such securities have been registered ..." The pertinent California statute does not contain provisions "like" A.R.S. § 44-1841. As a result, the California Department of Corporations' interpretation of its statute is irrelevant.
The key words in our statute are "sell or offer for sale within or from this state any securities unless such securities have been registered ..." A.R.S. § 44-1841. Media posits that the Commission created a legal fiction in holding that the sale took place from Arizona because the issuer only performed ministerial actions from its base of operations in Arizona. We disagree. The following actions by Media took place within the State of Arizona:
1. The principal place of business and base of operations for Media is in Arizona.
2. The officers and directors operated from and reside in Arizona.
3. The stock certificates were prepared and issued by the transfer agent in Arizona.
4. The Board of Directors' meetings took place in Arizona.
5. The Selling Agency Agreement stated: "[N]otice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered (a) to the Company at the office of the Company, 3230 East Roeser Road, Phoenix, Arizona 85040, Attention: David J. Riddle ..." 6. The agreement designated an Arizona bank as the escrow agent.
7. The agreement states:
VI. PAYMENT AND DELIVERY
A. Payment for the one million three hundred thousand (1,300,000) Shares shall be made to the Company at the offices of Lukins & Annis, P.S., by the Escrow Agent by certified or bank cashier's check in United States currency, same day funds, upon satisfying the conditions of escrow and upon delivery to the Escrow Agent of certificates for such Shares, registered in such name or names and in such denominations as the Agent shall have requested, in all cases against the signed receipt of the Escrow Agent. The Company shall pay to the Agent from funds paid to it by the Escrow Agent the agreed commission provided for hereinabove. The date on which the sale of securities described in this Section A of Article VI occurs is herein referred to as the "Closing Date."
B. The Company agrees to cause certificates for Shares, which the Company agrees to sell, to be made available to the Agent at the Company's address at least one full business day prior to the relevant Closing Date for checking and packaging.
C. A Closing Date, as referred to in this Agreement, shall be the date or dates mutually agreed upon within three (3) regular full business days after written notice by the Agent to the Company, on which the Agent or the Escrow Agent, in the case of the Closing Date, shall make payment for and the Company shall deliver certificates for the Shares, in accordance with this Article VI. (Emphasis added)
Media's actions were more than ministerial. Pursuant to the contract, the agent had the duty not only to notify the company's escrow agent of the names under which shares were to be registered and in what denominations, but the certificates for these shares were to be made available to the agent at the company's Arizona address at least one full business day prior to the closing date for checking and packaging. Pursuant to the agreement, the date on which the sale of the securities occurred is the closing date of the escrow. The closing occurred in Arizona.
Media and Amici Curiae assert that their position is supported by analogous provisions of the Uniform ...
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