Aztec Motel, Inc. v. State ex rel. Faircloth, s. 39299

• Decision Date: 30 June 1971
• Docket Number: Nos. 39299,39350,s. 39299
• Citation: 251 So.2d 849
• Parties: AZTEC MOTEL, INC., et al., Appellants, v. STATE ex rel. Earl FAIRCLOTH, Attorney General of the State of Florida, Appellee, (Two Cases).
• Court: Florida Supreme Court

Page 849

251 So.2d 849

AZTEC MOTEL, INC., et al., Appellants, v. STATE ex rel. Earl FAIRCLOTH, Attorney General of the State of Florida, Appellee, (Two Cases).

Nos. 39299, 39350.

Supreme Court of Florida.

June 30, 1971.

Rehearing Denied July 29, 1971.

Arthur B. Stark, of Koeppel, Stark, Marks & Newman, Miami, for appellants.

Robert L. Shevin, Atty. Gen., Eugene P. Spellman, Special Asst. Atty. Gen., Ronald W. Sabo, Asst. Atty. Gen., and Herbert P. Benn, Deputy Atty. Gen., for appellee.

ADKINS, Justice.

The Attorney General of the State of Florida instituted proceedings against the Appellants (hereinafter referred to as the Defendants) by filing a complaint in the Circuit Court under the provisions of Fla.Stat. § 932.58, ¹ § 932.59, ² and § 932.60, ³ F.S.A. The Defendants attacked the constitutionality of the statutes involved by a motion to dismiss. On December 9, 1969, the motion to dismiss on constitutional grounds was denied and on December 12, 1969, an amended order denying the motion to dismiss was entered.

Interlocutory appeal was taken by the Defendants from the order denying their motion to dismiss. It should be noted that Rule 2.1 subd. a(5)(a), F.A.R., 32 F.S.A., provides that this Court may directly review interlocutory orders passing upon chancery matters which upon final judgment would be directly appealable to the Supreme Court. Fla.Const., art. V, § 4(2), (1968), F.S.A., provides that this Court may directly 'review by certiorari' interlocutory orders passing upon chancery matters which upon a final judgment would be directly appealable to the Supreme Court. The rule prescribes the use of an interlocutory appeal as the procedure by which an interlocutory order in chancery matters may be reviewed, but the constitution limits the nature and extent of the review to that authorized by certiorari proceedings. We accept jurisdiction.

The State argues that there are at least three power sources for the statutes: (1) the power to charter corporations; (2) the police power regarding business regulations; and (3) the common law authority of the Attorney General.

It is true that the right to act as a corporation does not belong to the citizens by common right, but is a special privilege. 18 Am.Jur.2d, Corporations, § 24. But once a charter is granted a corporation, the charter becomes a contract and the law in force at the time of such a contract enters into it. County Commissioners of Columbia County v. King, 13 Fla. 451 (1871); Marion Mortgage Co. v. State ex rel. Davis, 107 Fla. 472, 145 So. 222 (1932).

In Ex parte Amos, 94 Fla. 1023, 114 So. 760 (1927), this Court said:

'A franchise is property within the meaning of the Constitution, and in respect of its enjoyment and protection it is regarded by the law precisely as any other property.'

The Court then held that the franchise of a corporation may be subject to forfeiture because of an abuse or misuse of the rights and powers thereby granted, but that such a result could be attained, as a general rule, only by the judgment of a competent tribunal in a legal proceeding instituted directly for that purpose in which the cause of the forfeiture is judicially ascertained and in which the grantee of the franchise is afforded reasonable notice and an opportunity to be heard according to the ordinary course of law.

The Legislature cannot, by any contract, divest itself of the power to provide for the protection of the lives, health and property of citizens, and the preservation of good order and public morals. All rights, including some under charters of corporations, are held subject to the police power of the State. See Annotation, 9 L.R.A. 33, text 35.

So it is that courts will look through the screen of corporate entity to the individuals who compose it in cases in which the corporation is a mere device or sham to accomplish some ulterior purpose, or is a mere instrumentality or agent of another corporation or individual owning all or most of its stock, or where the purpose is to evade some statute or to accomplish some fraud or illegal purpose. Mayer v. Eastwood-Smith Co., 122 Fla. 34, 164 So. 684 (1935).

As argued by the Attorney General, the State, under its police power, may exercise its sovereign right to promote order, safety, health, morals and general welfare of society within constitutional limits. See Lincoln Federal Labor Union v. Northwestern I. & M. Co., 149 Neb. 507, 31 N.W.2d 477, 478 (1948).

'When any business, lawful in nature, is such that it may be conducted in such a way as to become harmful to the public or when supervision is necessary to confine it to legitimate channels, the state has a right to throw around it such safeguards as will fully protect the public.' 16 Am.Jur.2d, Constitutional Law, § 314, p. 613.

'The police power is not to be confined narrowly within the field of public health, safety or morality. It is within the police power to regulate occupations or businesses which, by their nature, their location, or the manner in which they are conducted, if conducted without restriction, are or may be materially injurious to the public health, morals, comfort, prosperity or convenience, or otherwise detrimental to the general welfare.' Rotenberg v. City of Fort Pierce, 202 So.2d 782 (Fla.App.4th, 1967)

'It is also well established that, when a state exerting its recognized authority undertakes to suppress what it is free to regard as a public evil, it may adopt such measures having reasonable relation to that end as it may deem necessary in order to make its action effective.' Pompano Horse Club v. State, 93 Fla. 415, 111 So. 801, 805 (1927)

It should be noted that the statutes under attack are not aimed at a corporation used as a mere device to accomplish an ulterior purpose, fraud, or illegal act. They are directed toward one or more individuals engaged in or associated with illegal activities who represent, control or manage a corporation engaged in a lawful business.

Even in the absence of statute, if all the stockholders or members of a corporation, acting as individuals instead of by formal corporate action, do illegal acts which, if done by formal corporate action, would be ground for forfeiting the charter of the corporation and dissolving it, the fiction of corporate entity apart from the members will be disregarded and such action of the stockholders or members will be treated as the action of the corporation in a proceeding by the state to forfeit the charter. See 18 C.J.S. Corporations § 7(b). The statutes under consideration attempt to modify this general rule so that a corporation may be dissolved because of the illegal acts of less than all the stockholders or members of a corporation. In other words, the factual situations under which the corporation would be dissolved are not necessarily such as would warrant the court to disregard the corporate entity on the ground that the corporation itself was being used to accomplish an illegal act.

With this distinction in mind, we consider Defendants' contention that the statutes involved are all vague, indefinite and ambiguous so that they do not constitute proper notice of activities which they purport to prohibit and further do not adequately provide any ascertainable standard, in violation of the due process clause of Fla.Const., art. I, Declaration of Rights, § 9, (1968), and the Fifth and Fourteenth Amendments to the United States Constitution. On the other hand, the Attorney General says that the statutes clearly fall within the constitutionally permissible standards setting forth the validity of regulatory statutes of a remedial nature imposing civil sanctions.

The statutes involved clearly impose a forfeiture or penalty. Under their provisions a corporation, engaged in lawful endeavors, may be required to forfeit its charter and be involuntarily dissolved because of activities of one or more officer, director, stockholder, or agent. As succinctly stated in General Motors Acceptance Corp. v. State, 152 Fla. 297, 11 So.2d 482 (1943),

'Forfeitures are not favored in law or equity and a statute authorizing the same must by the courts be strictly construed. If statutes...