Cola v. Terzano

• Decision Date: 05 June 1974
• Citation: 129 N.J.Super. 47,322 A.2d 195
• Parties: , Blue Sky L. Rep. P 71,144 Louisa COLA, Plaintiff, v. Spartaco V. TERZANO et al., Defendants.
• Court: New Jersey Superior Court

Page 47

129 N.J.Super. 47

322 A.2d 195, Blue Sky L. Rep. P 71,144

Louisa COLA, Plaintiff, v. Spartaco V. TERZANO et al., Defendants.

Superior Court of New Jersey Law Division.

June 5, 1974.

Leon S. Wolk, Fort Lee, for plaintiff.

Robert Greenberg, Berkeley Heights, for defendant Spartaco V. Terzano. (Greenberg & Feiner, Berkeley Heights, attorneys).

Herman B. Packer, Passaic, for defendants Carvel A. Klee, Sidney Packer, I.I.S. Financial Corp. and Interamerica Investors Services, Inc. (Packer & Packer, Passaic, attorneys).

VAN TASSEL, J.C.C., Temporarily Assigned.

This is a case involving the sale of unregistered stock in which the buyer seeks to invoke civil remedies under New Jersey's Uniform Securities Law, N.J.S.A. 49:3--47 et seq. In this regard it is a case of first impression in New Jersey.

The complaint and pretrial order sound in fraud and deceit; however, the court is permitting an amendment to conform to proof, pursuant to R. 4:9--2, to include the violations of N.J.S.A. 49:3--47 et seq., since the facts alleged and testimony adduced provided reasonable notice as to the basis upon which relief was sought. See South v. West Windsor, 82 N.J.L. 262, 264, 82 A. 852 (Sup.Ct.1912). R. 4:9--3 permits amendments to relate back to the date of the original pleading.

Spartaco V. Terzano was employed as a group manager of Interamerica Investors Services, Inc. (Interamerica) in the Hudson County area. As an agent of Interamerica he was authorized to sell shares of stock in I.I.S. Financial Corp. (I.I.S.). Interamerica, a subsidiary of I.I.S. was a broker-dealer involved in the sale of mutual funds and insurance. Terzano was licensed to sell stock 14 years before the subject sale in this suit. He had attended an Investor's Planning Corp. formal training program relating to stock sales.

On January 14, 1971 Terzano visited the home of plaintiff Louisa Cola at the request of her son-in-law Ciriaco DiPalma. Terzano and the DiPalmas were to discuss the prospect of insurance for personal property within their home. Mrs. Cola owned the two-family home and was introduced to Terzano as a friend of DiPalma's for 20 years. Their discussion of insurance culminated in Mrs. Cola's purchase of a fire insurance policy on the house. DiPalma also purchased insurance from Terzano.

Thereafter, Mrs. Cola's nephew Mr. Barrota, who was seated at the living room table along with Terzano, Cola and the DiPalmas, began a discussion about investments in the Oppenheimer Fund. Terzano noted that this was a long-term investment and said that he was familiar with other investments which paid much more quickly. DiPalma then mentioned that Mrs. Cola had been involved in mortgage loans which paid 6% Interest. Terzano replied that he knew of a company which 'guaranteed' 9% 'interest' as opposed to the 6%-7% Flowing from mortgage investments. At the trial Terzano insisted that he used the word 'dividend' and that plaintiff insisted that he used the word 'interest' when discussing the terms of the investment. Terzano also claims that he used the word 'return.' He advised the group that his company had great potential, with offices 'all over,' and that an investment with his company would prove far more profitable.

Terzano remained at Cola's residence for approximately 2 1/2 hours during which time Mrs. Cola and Terzano discussed the details of an investment with Terzano's company. Louisa Cola, a 75-year-old foreign-born widow with no formal education, spoke very little English. She understood only through her son-in-law's translation into Italian, that she was investing her money in a Pennsylvania insurance company. She thought she was transacting an interest-bearing loan arrangement whereby she would receive a guaranteed 9% Interest semi-annually. She was familiar with this type of arrangement since she had given mortgage investment loans through her attorney, Mr. Delchop, two or three times in the past, and in each had received back her capital and interest. According to her testimony, she was assured by Terzano that she could have her money back at any time; that if she died, her children would receive it and that the 9% Interest semi-annually was 'guaranteed.' Terzano's own testimony corroborates the 'guarantee' representation.

That night arrangements were made by Mrs. Cola and Terzano to finalize the deal. The other members of her family were not aware of this or the fact that on January 16, 1971 Terzano drove Mrs. Cola to the Oritani Savings & Loan where she drew a check for $15,000. She endorsed it for deposit only, payable to I.I.S., and gave it to Terzano. He then forwarded it to his home office in Pennsylvania and later received a commission on the sale. On March 16, 1971 Mrs. Cola received a letter from Sidney Packer which acknowledged her purchase of 150 shares of I.I.S. 9% Preferred stock at $100 a share. Packer indicated that the shares were to convert to 40 shares of common stock on April 15, 1973 and that the shares were registered in his name until converted. No prospectus, financial statement or brochure of company information had been shown to Mrs. Cola. Only an Interamerica calendar with Terzano's card attached was produced as to the authenticity of the company and the subject transaction. The card indicated that Terzano was a manager for Interamerica.

Mrs. Cola had never owned or been involved in the purchase of any corporate stock, public or private, and was totally unfamiliar with such sophisticated investments. In March 1972 she sought the assistance of counsel for collection purposes. It was then that she first learned of the legal significance and speculative nature of the January 1971 transaction.

The sale of corporate stock and securities is a sophisticated business which requires regulation in the public interest. Those who deal in these transactions must be held to high standards. Higgins v. N.J. Bureau of Securities, 100 N.J.Super. 266, 241 A.2d 660 (App.Div.1968). The Securities Laws were intended to protect the uninitiated and to prevent frauds on the public at large. Stevens v. Liberty Packing Corporation, 111 N.J.Eq. 61, 161 A. 193 (Ch.1932). Historically, the Securities Act was purely preventative and not redressive. Its sanctions were imposed only through the criminal courts. Stevens v. Home Brewery, Inc., 112 N.J.Eq. 513, 517, 164 A. 903 (Ch.1933).

In 1960 New Jersey provided for civil actions in connection with the sale of securities. ¹ In the 1967 amendments the Legislature added a fourth basis upon which to predicate civil liability. ² This section reads:

(a) Any person who (1) offers or sells a security in violation of sections 8(b) (unlawful representation concerning registration), 9(a) (broker dealers, agent or investment advisor; registration requirement), or 13 (registration of securities; requirement) of this act . . . is liable to the person buying the security from him, who may sue to recover the consideration paid for the security, together with interest at 6% Per year from the date of payment and costs, less the amount of any income received on the security, upon the tender of the security and any income received on it, or for damages if he no longer owns the security.

N.J.S.A. 49:3--71(b) provides:

(b) Every person who directly or indirectly controls a seller liable under paragraph (a), every partner, officer, or director of such a seller, every person occupying a similar status or performing similar functions, every employee of such a seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller, unless the nonseller who is so liable sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.

The language of this 1967 amendment is clear that liability attaches 'by operation of law' to the sale by any person of any nonexempt, unregistered security. N.J.S.A. 49:3--71; N.J.S.A. 49:3--60; see also, State v. West, 29 N.J. 327, 331, 149 A.2d 217 (1959); 96 N.J.L.J. 305, 324. Cf. Data Access Systems, Inc. v. State, 63 N.J. 158, 163, 305 A.2d 427 (1973); In re Information Resources, 126 N.J.Super. 42, 312 A.2d 671 (App.Div.1973). With regard to the liability of 'nonsellers,' such as officers, directors and 'control persons,' other jurisdictions have interpreted statutes similar to N.J.S.A. 49:3--71(b) and have based liability on minimal participation in the sale. Moerman v. Zipco, Inc., 302 F.Supp. 439 (D.E.D.N.Y.1969), aff'd 422 F.2d 871 (2 Cir. 1970); Goelitz v. Lathrop, 286 Ill.App. 248, 3 N.E.2d 305 (App.Ct.1936). Abrams v. Love, 254 Ill.App. 428 (App.Ct.1928); see generally, 44 A.L.R.3d 588. Guidance from these and other sister state decisions in this area is particularly appropriate. These decisions should be followed, especially where, as here, the purpose of the Uniform Securities Law, insofar as adopted by N.J.S.A. 49:3--47 et seq., is to promote uniformity and standardization of transactions thereunder. State v. Russell, 119 N.J.Super. 344, 350, 291 A.2d 583 (App.Div.1972); State v. Weissman, 73 N.J.Super. 274, 281, 179 A.2d 748 (App.Div.1962); see also, 2 Sutherland Statutory Construction (3d ed. Horack 1943), § 5211 at 557 (similar construction to be given to comparable statutes).

Kneeland v. Emerton, 280 Mass. 371, 183 N.E. 155 (Sup.Jud.Ct.Mass.1932), was the first decision in Massachusetts under its Sale of Securities Act. In that case plaintiff sued to recover the purchase price of stock based on the seller's failure to comply with statutory requirements similar to our registration requirements. The court held that the seller's failure to comply with the securities law justified rescission by the buyer. This civil remedy...