Bulldog Investors Gen. P'ship & Others 1 v. Sec'y of The Commonwealth.

• Decision Date: 22 September 2011
• Docket Number: SJC–10756.
• Citation: 953 N.E.2d 691,460 Mass. 647
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: BULLDOG INVESTORS GENERAL PARTNERSHIP & others 1v.SECRETARY OF the COMMONWEALTH.

460 Mass. 647

953 N.E.2d 691

BULLDOG INVESTORS GENERAL PARTNERSHIP & others 1

v.SECRETARY OF the COMMONWEALTH.

SJC–10756.

Supreme Judicial Court of Massachusetts, Suffolk.

Submitted Jan. 6, 2011.Decided Sept. 22, 2011.

Laurence Tribe (Alan S. Lewis, of New York, & Andrew Good with him) for the plaintiffs.Pierce O. Cray, Assistant Attorney General, for the defendant.Lee Tien & Adam Kessel, Boston, for John Berlau & others, amici curiae, submitted a brief.Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, & GANTS, JJ.GANTS, J.

On January 31, 2007, the Enforcement Section of the Securities Division of the office of the Secretary of the Commonwealth (Secretary) filed an administrative complaint alleging that three “hedge funds” offered by Bulldog Investors General Partnership operating under the trade name “Bulldog Investors” had violated § 301 of G.L. c. 110A of the Massachusetts Uniform Securities Act (Massachusetts act) by offering unregistered securities to a Massachusetts resident through a publicly available Web site and an electronic mail (e-mail) message. The respondents to this enforcement action included the Bulldog Investors General Partnership and various general partners and principals (collectively, Bulldog).² The Secretary adopted the hearing officer's finding of a violation and ordered Bulldog to cease and desist from committing any further violations of the Massachusetts act and to take all necessary actions to ensure that future offers and sales of securities complied with § 301 of the Massachusetts act.³

Bulldog filed two actions challenging the administrative decision. One action sought judicial review pursuant to G.L. c. 30A, § 14, claiming that Bulldog's contacts with the Commonwealth were insufficient to permit the Secretary to exercise personal jurisdiction, that Bulldog's communications with the Massachusetts resident did not offer unregistered securities in violation of the Massachusetts act, and that the Secretary's enforcement proceeding and order violated Bulldog's constitutional right to free speech. See Bulldog Investors Gen. Partnership v. Secretary of the Commonwealth, 457 Mass. 210, 213–214, 929 N.E.2d 293 (2010) ( Bulldog I ). The second action, the case now before us on appeal, sought relief under the Federal civil rights statute, 42 U.S.C. § 1983 (2006), from what Bulldog contends was the violation of free speech and due process rights guaranteed under the First and Fourteenth Amendments to the United States Constitution. Leonard Bloness, who has no interest in investing in any Bulldog security but wishes to read the information that was contained in Bulldog's Web site and receive other information about Bulldog's securities, is also a plaintiff in the § 1983 action.

In the G.L. c. 30A, § 14, action, a judge in the Superior Court entered judgment affirming the Secretary's final order, and we affirmed that judgment, concluding that personal jurisdiction over the plaintiffs was both statutorily authorized and consistent with due process, and that the Secretary correctly determined that the plaintiffs violated the Massachusetts act by sending to a Massachusetts resident materials that constituted an offer of unregistered securities. Bulldog I, supra at 211, 929 N.E.2d 293. We also concluded that Bulldog's First Amendment claim was not properly before us where the plaintiffs had chosen to bring a separate § 1983 action in order to raise that claim, rather than press it in their G.L. c. 30A, § 14, action. Id. at 211, 220, 929 N.E.2d 293.

In the § 1983 case, the judge dismissed the plaintiffs' due process claims, which were based on a claimed lack of personal jurisdiction, and conducted a bench trial on the First Amendment claims. The evidence at trial consisted of the parties' stipulations of fact; the administrative record and other agreed-on exhibits; and the testimony and report of the Secretary's expert witness, Joseph A. Franco, an expert on securities regulation. In a carefully reasoned decision, the judge concluded that the challenged statute, regulations, and enforcement action did not violate the First Amendment rights of Bulldog or Bloness and entered judgment for the Secretary. The plaintiffs appealed, and we transferred the appeal to this court on our own motion. We now affirm.^4,5

I. Factual background. The following facts were found by the judge or are undisputed in the record. From about June 9, 2005 to January 5, 2007, Bulldog maintained an interactive Web site that provided information about its investment products. Any visitor to the Web site could view an opening home page, a “press room” containing links to various media articles, and a printable brochure that described the three hedge funds and gave a brief summary of each fund's approach to investment. For example, one of the hedge funds, Full Value Partners, L.P., was described in the brochure as “a fund that concentrates on taking substantial positions in undervalued operating companies and closed-end mutual funds [and] acts as a catalyst to ‘unlock’ these values through proprietary means.” The brochure also stated that, “[s]ince its inception, Bulldog Investors has delivered a net average annual return significantly higher than that of the S & P [Standard & Poor's] 500 Index. Moreover, Bulldog has performed especially well in difficult investment periods like 2000 through 2002.”

A visitor to the Web site could obtain additional information only by clicking the “I Agree” button to the following disclaimer on the opening screen:

“The information is available for information purposes only and does not constitute solicitation as to any investment service or product and is not an invitation to subscribe for shares or units in any fund herein. For the avoidance of doubt this Web site may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. Whilst every effort has been made to ensure the accuracy of the information herein, Bulldog Investors accepts no responsibility for the accuracy of information, nor the reasonableness of the conclusions based upon such information, which has been obtained from third parties. The pages referring specifically to investment products offered by Bulldog Investors are only available for view with a username and password, which can be obtained by contacting the company on the Registration Form provided. The value of investments and the income from them can fall as well as rise. Past performance is not a guarantee of future performance and investors may not get back the full amount invested. Changes in the rates of exchange may affect the value of investments.”

A follow-up screen invited the visitor to fill out a registration form that asked for the visitor's name, address, telephone and facsimile machine numbers, and an electronic mail (e-mail) address. This registration page contained the same disclaimer as appeared on the opening screen of the Bulldog Web site, and the visitor was once again required to indicate agreement.

On November 10, 2006, Brendan Hickey registered on the Bulldog Investors Web site by providing this information, including his Massachusetts address. Shortly after Hickey's registration, Steven Samuels, one of the managers of Bulldog Investors, sent an e-mail to Hickey that contained several attachments. Samuels's e-mail thanked Hickey for his interest in Bulldog and stated:

“While we are proud to have one of the best long term records in the business, it is very difficult to adequately describe what, why, and how we do what we do in a quick response to an email inquiry.... I have attached some basic information on our management including performance and philosophy. I would be more than happy to spend a few minutes on the phone if you wish to discuss in more detail. Please contact me at [telephone number provided].”

The attachments to Samuels' e-mail included press articles, a presentation about Bulldog's investment philosophy, managers, investment vehicles, and performance, and a letter to “Dear Partner” from two fund managers. The letter compared one hedge fund's returns to the S & P 500, described several of the fund's investments, and discussed successful litigation by fund managers against the Securities and Exchange Commission (SEC). The parties have stipulated that, but for the administrative proceeding and the sanctions imposed, Bulldog would provide other Massachusetts residents, including Bloness, with access to the same type of information that was available to Hickey through the Web site and e-mail communication.

II. The Federal Securities Act of 1933. Congress enacted the Securities Act of 1933 (1933 act), 15 U.S.C. §§ 77a et seq. (2006), to address the problems that were thought to have caused the stock market crash of 1929 and the Great Depression that followed. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); Securities & Exch. Comm'n v. Capital Gains Research Bur., Inc., 375 U.S. 180, 186–187, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963). The overarching strategy of the 1933 act was to protect investors by requiring the disclosures that were necessary for informed decision-making. See Securities & Exch. Comm'n v. Ralston Purina Co., 346 U.S. 119, 124, 73 S.Ct. 981, 97 L.Ed. 1494 (1953). See also Pinter v. Dahl, 486 U.S. 622, 638, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988); Ernst & Ernst v. Hochfelder, supra at 195, 96 S.Ct. 1375; A.C. Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 40, 61 S.Ct. 414, 85 L.Ed. 500 (1941). As acknowledged in its preamble, the 1933 act aimed to “provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails.” Pub.L. No. 73–22, 48 Stat. 74 (May 27, 1933), 15 U.S.C. §§ 77a et seq. In urging Congress to enact the legislation, President Franklin D. Roosevelt explained that, while the...