Wilentz v. Edwards

• Decision Date: 09 March 1944
• Citation: Wilentz v. Edwards, 134 N.J.Eq. 522, 36 A.2d 423 (N.J. 1944)
• Docket Number: 219,231,235
• Court: New Jersey Supreme Court
• Parties: DAVID T. WILENTZ, Attorney-General of New Jersey, complainant-respondent, v. CLIFFORD WILFRED EDWARDS, defendant-appellant. DAVID T. WILENTZ, Attorney-General of New Jersey, complainant-respondent, v. JOHN H. ROBERTS, defendant-appellant. DAVID T. WILENTZ, Attorney-General of New Jersey, complainant-respondent, v. JOHN M. BAIRD, defendant-appellant

36 A.2d 423

WILENTZ, Atty. Gen.,

v.EDWARDS.

SAME

v.ROBERTS.

SAME

v.BAIRD.

Nos. 219, 231, 235.

Court of Errors and Appeals of New Jersey.

March 9, 1944.

Appeals from Court of Chancery.

Separate suits by David T. Wilentz, Attorney General of New Jersey, against Clifford Wilfred Edwards, against John H. Roberts, and against John M. Baird, to restrain sales of securities by defendants until after they appear and submit to examination and further order of the court thereon. From orders denying leave to enter unconditional special appearances, 33 A.2d 297, 133 N.J.Eq. 488, defendants Edwards and Baird appeal, and from the final decree making the respective orders absolute, defendant Roberts appeals.

Affirmed.

1. A bill in chancery, under Revised Statutes, Title 49, Chapter 1-known technically as the New Jersey Securities Law and popularly as the Blue Sky Law-filed by the Attorney General and praying that process of subpoena and of subpoena duces tecum issue against a securities dealer who has failed to appear for examination by the Attorney General, that such dealer and those acting in aid of him give testimony any produce books and that he and his agents be restrained and enjoined from engaging in the securities business within this state until the decree be complied with and the court shall otherwise order is not a proceeding in personam in the sense that process thereon must be served upon the dealer within the territorial limits of the state.

2. In a chancery suit by the Attorney General under R.S. 49:1-1 et seq., N.J.S.A., to restrain a dealer from selling securities within this state until he shall appear and submit to examination and until the further order of the court thereon service under court direction of notice, in form an order to show cause, by registered mail outside the state is valid.

3. Neither a bill in chancery, filed by the Attorney General under R.S. 49:1-1 et seq., N.J.S.A., praying that a restraint issue against a securities dealer enjoining him and his agents from engaging in the securities business within this state until he shall submit to inquiry, nor an order of the court directing the dealer to show cause why such a restraint should not issue, nor the service thereof under court direction by registered mail outside the territorial limits of the state, nor the decree granting the restraint, nor the provision of the cited statute which authorizes such proceedings is in violation of Paragraph 1 of Article I of the State Constitution, N.J.S.A., or of Section 1 of the Fourteenth Amendment to the United States Constitution.

David T. Wilentz, Atty. Gen., and Andrew J. Markey, Asst. Atty. Gen., for complainant-respondent.

Elias A. Kanter and Kanter & Kanter, all of Newark, for appellant Clifford Wilfred Edwards.

G. W. C. McCarter, of Newark, for appellant John H. Roberts.

G. W. C. McCarter, of Newark, for appellant John M. Baird.

CASE, Justice.

The appeals are from orders and a decree of the Court of Chancery. The suits are related and arise under the provisions of the New Jersey Securities Law, R.S. 49:1-1 et seq., N.J.S.A., known as the ‘Blue Sky’ Law.

The statute prohibits the sale of securities by fraud or by illegal practices as therein defined. It also provides, 49:1-5: ‘When it shall appear to the attorney general, * * * that a person * * * has engaged in, is engaging in, or is about to engage in, any practice declared to be illegal and prohibited by this chapter, or when he believes it to be in the public interest that an investigation should be made to ascertain whether a person * * * in fact has engaged in, is engaging in, or is about to engage in, any such practice, he may:

‘a. Require or permit such person * * * to file with him on such forms as he may prescribe, a statement or report in writing under oath or otherwise, as to all the facts and circumstances concerning the issuance, sale, offer for sale, purchase, offer to purchase, promotion, negotiation, advertisement or distribution of securities, within or from this state, by such person * * *and such other data and information as may be relevant and material thereto;

‘b. Examine the promoter, seller, broker, dealer, negotiator, advertiser and issuer of any such securities * * *, under oath, and examine any record, book, document, account or paper that may be relevant or material to the inquiry * * *’; and it further provides that if the person shall fail or refuse to comply with the demand so made upon him the Court of Chancery may, on application of the Attorney General and proof thereof, by summary proceeding and upon such notice as the court may direct, grant a writ of injunction restraining such person from undertaking to deal in securities within or from this state until he shall file the required statement and comply with the subpoena. The statute runs against residents and nonresidents alike.

In each of the appealed cases the Attorney General, conceiving that it was in the public interest that investigation should be made to ascertain whether the defendant had been, or was, or was about to be engaged in one of the prohibited practices, caused a notice, in form and by title a subpoena ad testificandum, to be served by registered mail outside of the jurisdiction and upon failure of the noticed person to appear sued from the Court of Chancery an order to show cause why subpoenas should not issue and why a restraint, pending compliance, should not go. Those orders were likewise served, under court direction, by registered mail outside the jurisdiction. Roberts appeared specially by permission of the court, agreeing that if the decision should go against him he would appear generally, and endeavored, without success, to set aside the service. Edwards and Baird asked permission to appear specially for the same purpose but without stipulating upon a conditional general appearance and were denied. Decrees were entered which in effect made the respective orders absolute; they directed specifically (1) that process of subpoena and of subpoena duces tecum issue, (2) that the respective defendants and those acting in aid of them give testimony and produce books and papers as required, and (3) that each ‘defendant, his agents, employees, brokers, partners, officers, directors and stockholders, as well as all persons acting in aid or assistance of them, or any of them, be and they are hereby, jointly and severally, restrained and enjoined from the issuance, sale, offer for sale, purchase and offer to purchase, promotion, negotiation, advertisement and distribution within and from this state of any securities until the filing of the statement and report hereinbefore mentioned, the compliance with the subpoena and subpoena duces tecum hereinbefore mentioned, the production specified therein, the giving of testimony, the answering of questions, the completion of the complainant's investigation of said practices of the defendant, and until this court shall otherwise order’. Edwards and Baird appeal from the orders denying leave to enter unconditional special appearances; Roberts, from the final decree. Roberts assumes also to appeal from the denial of his motion, on special appearance, to set aside service of the order; but we find no petition of appeal in the state of case as to that judicial act. However, it appears that the issue that would have been presented by such an appeal is within the scope of our decision.

The contentions are that the Court of Chancery erred in refusing Edwards and Baird the privilege in limine of appearing specially and unconditionally to attack the service of the rules; and that the decrees are in personam and that, therefore, both independently of constitutional provision and specifically under the limitations in Paragraph 1 of Article I of our State Constitution and Section 1 of the Fourteenth Amendment to the United States Constitution, the exterritorial service of process and the pertinent statute if it authorizes such service, are void. The suit and the service were clearly within the statute and there is no serious argument to the contrary. We discover no ground for the contention that any phase of the proceedings is invalid independent of constitutional provision. Obviously, if, as we hold herein, the character of service was adequate to sustain the relief sought by the Attorney General, the appellants were not harmed by the court's refusal to permit two of them, unconditionally, to appear specially in order to attack the service. The contest resolves itself, therefore, into one of constitutionality. We have sustained the general authority of the state to make demand under the statute and to proceed with injunctive relief on non-compliance. Katzenbach v. Tomadelli, etc., Corp., 104 N.J.Eq. 217, 140 A. 26, 144 A. 920. The validity of service of process by registered mail directed to the defendant's address outside the state, under our securities law, has been upheld in Chancery, Stevens v. Television, Inc., 111 N.J.Eq. 306, 162 A. 248, but has never been directly passed upon in this court.

The primary question, then, is whether the suits are within the class of actions in personam, which, under Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565, must be accompanied, if against a nonresident, by personal service of process within the jurisdiction.

In each case the Chancery decree last made is nominated a ‘final decree’. That is a misnomer. The defendants are forbidden to deal in securities within the state until they shall submit to the inquiry sought to be made on behalf of the state. Such a prohibition is in the nature of a preliminary restraint regardless of the name applied to the paper. The...