Bulldog Investors Gen. P'ship & Others v. Sec'y Of The Commonwealth

• Citation: 457 Mass. 210,929 N.E.2d 293
• Decision Date: 02 July 2010
• Docket Number: SJC-10589.
• Parties: BULLDOG INVESTORS GENERAL PARTNERSHIP & others v.SECRETARY OF THE COMMONWEALTH.
• Court: United States State Supreme Judicial Court of Massachusetts

457 Mass. 210

929 N.E.2d 293

BULLDOG INVESTORS GENERAL PARTNERSHIP & others ¹v.SECRETARY OF THE COMMONWEALTH.

SJC-10589.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued April 6, 2010.

Decided July 2, 2010.

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Andrew Good (Philip G. Cormier with him), Boston, for the plaintiffs.

Pierce O. Cray, Assistant Attorney General (Peter W. Cassidy with him) for the defendant.

Present: MARSHALL, C.J., IRELAND, SPINA, COWIN, CORDY, & GANTS, JJ.

COWIN, J.

A hearing officer in the Securities Division (division) of the office of the Secretary of the Commonwealth (Secretary) found that the plaintiffs violated G.L. c. 110A, the Massachusetts Uniform Securities Act (act), by offering unregistered securities to a Massachusetts resident via electronic mail (e-mail). The plaintiffs sought judicial review of this ruling, and a judge in the Superior Court affirmed. The plaintiffs contend that their contacts with the Commonwealth were insufficient to permit the Secretary to exercise personal jurisdiction over them, that the act violates their constitutional right to free speech, and that the communication did not constitute an offer within the meaning of the act. We conclude that personal jurisdiction over the plaintiffs was both statutorily authorized and consistent with due process, that the constitutional claim is not properly before us, and that the Secretary determined correctly that the plaintiffs violated the act. Unlike at common law, where the definition of an offer includes only communications to which an offeree's affirmative response would conclude a bargain, the act defines an “offer” more broadly to include the “solicitation of an offer.” See G.L. c. 110A, § 401 ( i ) (2). Thus, the plaintiffs violated the act by sending to a Massachusetts resident materials soliciting an offer to purchase unregistered securities.

1. Facts and procedural history. We summarize the facts found by the hearing officer, supplemented with undisputed facts from the record. From approximately June 9, 2005, through January 5, 2007, Bulldog Investors General Partnership (Bulldog) operated an interactive Web site that provided information about investment products it offered for sale. Users could obtain more specific information about Bulldog's “hedge funds” by registering with the site.

On November 10, 2006, Brendan Hickey, a Massachusetts resident, registered by providing Bulldog with his name, address, telephone number, and e-mail address. Steven Samuels, a Bulldog employee, responded to Hickey's registration with an e-mail message to which documents were attached that contained detailed information regarding the performance of the plaintiffs' hedge funds, the returns the funds had earned, background information on Bulldog's partners, news articles about the funds, and a description of the plaintiffs' investment philosophy and strategy. Samuels also invited Hickey to contact him by telephone to discuss Bulldog's funds in greater detail.

On January 31, 2007, the Secretary filed an administrative complaint against the plaintiffs ² alleging that Bulldog's Web site and e-mail contact with Hickey constituted an offer of securities that were neither registered nor exempt from registration, in violation of the act. See G.L. c. 110A, § 301. In their answer, the plaintiffs denied violating the act and asserted as affirmative defenses (1) that the act and the Secretary's regulations violated the plaintiffs' right to free speech under the First Amendment to the United States Constitution and art. 16 of the Massachusetts Declaration of Rights; and (2) that in any event the Secretary lacked personal jurisdiction over the plaintiffs. The Secretary appointed a hearing officer pursuant to 950 Code Mass. Regs. § 10.02(b)(8) (1993).

The Secretary moved for summary decision, arguing that the hearing officer lacked the authority to decide the plaintiffs' constitutional claims. In response, the plaintiffs filed a complaint in the Superior Court pursuant to 42 U.S.C. § 1983 and G.L. c. 12, § 11I, asserting their constitutional claim regarding free speech.³ The plaintiffs sought a stay of the administrative proceeding pending resolution of the First Amendment claim in the Superior Court; the hearing officer denied the request. She stated that the only issue before her was whether the plaintiffs violated the act and that she was required to make a finding regarding liability before a court could decide whether there had been an abridgement of the plaintiffs' First Amendment right.⁴

The hearing officer concluded that the plaintiffs had offered unregistered securities for sale in the Commonwealth. In addition, she determined that the plaintiffs did not qualify for various exemptions to the registration requirement. Finally, the hearing officer concluded that the plaintiffs were subject to personal jurisdiction in Massachusetts because their violation of the act constituted a sufficient nexus to permit personal jurisdiction. She recommended the issuance of a cease and desist order and a $25,000 fine.

The acting director of the Securities Division (acting director) adopted the hearing officer's recommended findings of fact and rulings of law and imposed the recommended sanctions.⁵ The plaintiffs sought judicial review of the acting director's determination in the Superior Court and moved for judgment on the pleadings. See G.L. c. 30A, § 14; G.L. c. 110A, § 411. See also Standing Order 1-96(4) of the Rules of the Superior Court (2002) (“A claim for judicial review shall be resolved through a motion for judgment on the pleadings ...”). In a thoughtful memorandum of decision, a judge in the Superior Court ⁶ denied the motion and affirmed the acting director's ruling. The judge concluded that personal jurisdiction over the plaintiffs was both statutorily authorized and consonant with due process. In addition, she held that, after having chosen to use the separate 42 U.S.C. § 1983 action as the vehicle to obtain relief on their First Amendment claim, the plaintiffs could not raise that claim in the action pursuant to G.L. c. 30A, § 14. The plaintiffs appealed, and we transferred the case from the Appeals Court on our own motion.

2. Standard of review. Pursuant to G.L. c. 110A, § 411, “[a]ny person aggrieved by a final decision of the Secretary in an adjudicatory proceeding may obtain judicial review.” See G.L. c. 30A, § 14. We reverse the Secretary's decision only if it was “( a ) [i]n violation of constitutional provisions”; “( b ) [i]n excess of the statutory authority or jurisdiction” of the Secretary; “( c ) [b]ased upon an error of law”; “( d ) [m]ade upon unlawful procedure”; “( e ) [u]nsupported by substantial evidence”; “( f ) [u]nwarranted by facts found by the court ... where the court is constitutionally required to make independent findings of fact”; or “( g ) [a]rbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law.” See G.L. c. 30A, § 14(7).

3. Discussion. The plaintiffs contend that the Web site and the single e-mail message to Hickey were insufficient contacts with the Commonwealth to subject them to personal jurisdiction before the Secretary. They claim that the act does not authorize the Secretary to subject nonresidents to administrative enforcement proceedings. Furthermore, they argue that exercising personal jurisdiction in this case violated the due process clause of the Fourteenth Amendment to the United States Constitution because the plaintiffs did not purposefully avail themselves of the benefits of Massachusetts law.

The plaintiffs contend also that “[t]he Secretary's order is an unconstitutional prior restraint on truthful, non-misleading speech that does not concern an illegal transaction,” in violation of the First Amendment and art. 16. They argue in addition that their Web site and e-mail message did not constitute an “offer” within the meaning of the act. See G.L. c. 110A, § 401 ( i ) (2). They contend that the communication to Hickey was not an offer because he could not have purchased securities merely by responding to the e-mail message. In addition, they contend that Hickey agreed to a disclaimer posted on the Web site stating that the information contained therein did not constitute a solicitation.

The Secretary responds that the broad enforcement powers granted him under the act authorized personal jurisdiction in this case. He argues also that his exercise of jurisdiction comported with due process because the plaintiffs purposefully availed themselves of the privilege of conducting activities in Massachusetts. Furthermore, he contends that they could have reasonably anticipated being the subject of an enforcement proceeding by virtue of their violation of the act. Additionally, the Secretary contends that the plaintiffs' First Amendment claim is waived, and that, even if not waived, the claim fails because there is no constitutional prohibition on requiring that a seller of securities disclose information about its products through registration before being allowed to offer or advertise them. Finally, the Secretary argues that the plaintiffs' communication with Hickey constituted a solicitation that falls within the act's definition of an offer; he notes that the act's definition of the term “offer” is not limited to its common-law definition.

a Personal jurisdiction. For a nonresident to be subject to personal jurisdiction in Massachusetts, there must be a statute authorizing jurisdiction and the exercise of jurisdiction must be “consistent with basic due process requirements mandated by the United States Constitution.” Intech, Inc. v. Triple “C” Marine Salvage, Inc., 444 Mass. 122, 125, 826 N.E.2d 194 (2005), quoting Tatro v. Manor Care, Inc., 416 Mass. 763, 767, 625 N.E.2d 549 (1994). We analyze each requirement separately.

i Statutory authorization of personal jurisdiction. In court proceedings, personal jurisdiction in Massachusetts over a nonresident...