DeCook v. Environmental Sec. Corp., Inc.

• Decision Date: 19 October 1977
• Docket Number: 2-58326,Nos. 2-58325,s. 2-58325
• Citation: 258 N.W.2d 721
• Parties: Gradus DeCOOK et al., Appellants, v. ENVIRONMENTAL SECURITY CORPORATION, INC., et al., Appellees. Kenneth W. GETHMANN et al., Appellants, v. ENVIRONMENTAL SECURITY CORPORATION, INC., et al., Appellees.
• Court: Iowa Supreme Court

Page 721

258 N.W.2d 721

100 A.L.R.3d 1094

Gradus DeCOOK et al., Appellants, v. ENVIRONMENTAL SECURITY CORPORATION, INC., et al., Appellees.

Kenneth W. GETHMANN et al., Appellants, v. ENVIRONMENTAL SECURITY CORPORATION, INC., et al., Appellees.

Nos. 2-58325, 2-58326.

Supreme Court of Iowa.

Oct. 19, 1977.

Patrick W. Brick and Robert B. Scism of Scalise, Scism, Gentry, Brick & Brick, Des Moines, for appellants.

Joel D. Novak of Herrick, Langdon, Belin, Harris, Langdon & Helmick, Des Moines, for appellees John C. Thornton and Kenneth E. Hazeldine.

Louis A. Lavorato of Williams, Hart, Lavorato & Kirtley, West Des Moines, for appellees Environmental Security Corp., Inc., Design Research Corp., William Spencer and R. Drew McNamara.

Clarence Cosson of Cosson, Christianson, Hohnbaum & George, Des Moines, for appellees Environmental Securities Co. of Ill. and Russell T. Stelle.

Heard by MOORE, C. J., and RAWLINGS, LeGRAND, REYNOLDSON and McCORMICK, JJ.

RAWLINGS, Justice.

Plaintiffs take permissive appeal from trial court's order sustaining special appearances of one foreign corporation and three nonresident directors of an Iowa corporation, all served with process under Section 617.3, The Code 1975. We affirm in part, reverse in part.

Involved here are two causes of action, apparently consolidated for appellate review, one brought by Gradus DeCook and 27 co-plaintiffs, the other by Kenneth W. Gethmann and four co-plaintiffs, upon petitions filed September 16, 1974, and October 16, 1974, respectively. The nine named defendants include two domestic corporations, an Illinois corporation, two individual resident corporate directors, and four individual nonresident corporate directors.

Defendant, Environmental Security Corporation, Inc. (Environmental of Iowa), is a local corporate entity with its principal place of business in Des Moines. Defendants, Stelle, Thornton and Hazeldine, are alleged to have been directors of Environmental of Iowa at all times material hereto. They are also assertedly directors of defendant, Environmental Securities Company of Illinois (Environmental of Illinois), an Illinois corporation. The three above named individuals, Environmental of Iowa directors, are residents of Indiana.

May 25, 1972, an Environmental of Iowa board of directors special meeting was held in Chicago, Illinois. The directors (including Stelle, Thornton and Hazeldine) then unanimously voted to authorize the sale of Environmental of Iowa stock in this state "in accordance with the blue sky laws of the state of Iowa." It was further resolved the defendants, Spencer and McNamara, also directors of Environmental of Iowa and residents of this state, serve as agents for the corporation in supervising the sale of such stock.

Each plaintiff purchased Environmental of Iowa stock. They now allege the securities were not properly registered, therefore sold in violation of Chapter 502, The Code 1975. In Count I of their petitions, they seek rescission of the sale pursuant to Code § 502.23 with return of purchase price paid.

By Count II, plaintiffs assert that on November 24, 1972, defendants McNamara and Stelle converted $100,000 from the assets of Environmental of Iowa to the account of Design Research Corporation, another Iowa corporate entity with its principal place of business in Des Moines. McNamara and Stelle are assertedly the sole directors, officers and owners of Design Research. It is alleged this conversion was effected willfully and maliciously.

Finally, in Count III, plaintiffs aver defendants Thornton, Stelle, Hazeldine and Kelly conspired and consorted to further convert these assets by issuing a certificate of deposit to the company now known as Environmental of Illinois, apparently using the $100,000 previously deposited in the Design Research account. Plaintiffs further state defendants McNamara, Thornton, Stelle, Kelly, Spencer and Hazeldine, members of Environmental of Iowa board of directors, converted an additional $40,000 of that company's assets to their own use or for the benefit of Environmental of Illinois or Design Research.

November 14, 1974, special appearances were filed by defendants Thornton and Hazeldine. They were sustained in both the Gethmann and DeCook actions. December 18, 1974, special appearances were filed by defendants Stelle and Environmental of Illinois. These too were sustained.

December 27, 1974, plaintiffs moved for reconsideration of the order upholding the special appearances by defendants Thornton and Hazeldine. Resistances to all special appearances were also filed, stating (1) defendants Thornton and Hazeldine were members of the Environmental of Iowa board of directors; (2) records in the office of the Secretary of State verify defendants Thornton, Hazeldine and Stelle actively authorized the sale of securities within this state; (3) these three defendants also served as Environmental of Illinois directors and as such authorized the Iowa corporation to serve as their agent in attempting to raise funds in this state for use and benefit of the Illinois company; (4) defendants McNamara and Stelle were agents of the Illinois corporation when they misappropriated funds from the Des Moines bank; and (5) the Illinois corporation, in arranging for a transfer of funds from said bank to the Illinois account, was doing business with an Iowa resident within the state as contemplated by the long-arm statute, § 617.3. Counsel for plaintiffs also submitted an affidavit setting forth many material facts.

Thornton, Hazeldine and Stelle (defendants) filed affidavits in support of their special appearances. Thornton and Hazeldine thereby stated nothing more than that they had, at all relevant times, been residents of Indiana "and have in no way transacted business of any kind or nature or made any contract in the State of Iowa". Stelle likewise related only that he was a resident of Indiana, had not been in Iowa since prior to 1972, never transacted any business or done any act in Iowa, and had made no contracts in this state.

January 17, 1975, a hearing was held on the above noted four special appearances. These proceedings were not carried of record. In sustaining these special appearances, trial court merely stated:

"Plaintiffs allege that the acts of these defendants, upon which the cause of action is based, occurred in 1972 and 1973.

"The pleadings and affidavits establish the facts that the individual defendants have not been in Iowa since prior to 1972.

"It is the plaintiffs' position that since the individual defendants were members of the Board of Directors of the Corporation that the individuals are liable in tort.

"To summarize, after consideration of the record and the briefs submitted, this court finds there has been no substantial connection by either of the defendants with the State of Iowa, and no contact which justifies Iowa courts rendering personal judgment against them."

May 21, 1975, plaintiffs filed applications for leave to appeal. June 4, 1975, this court granted the request.

I. Before considering the merits of the present controversy we note two procedural problems presented on this appeal. First, no consolidation order is found in the record. It appears, however, all parties acquiesced therein below. Accordingly, this appeal is entertained on the premise that the actions were, without objection, tried as though consolidated. In any event, there is no apparent basis upon which to find defendants would be prejudiced by consolidation of the cases for appellate review.

Second, plaintiffs present no argument to the effect trial court erred in sustaining the special appearance of Environmental of Illinois. In fact, they ask only that the ruling on special appearances of Thornton, Hazeldine and Stelle be reversed. Therefore, the assignment as to Environmental of Illinois is deemed waived. McCleeary v. Wirtz, 222 N.W.2d 409, 415 (Iowa 1974);

Plaintiffs contend, however, the three above named Environmental of Iowa nonresident directors are subject to in personam jurisdiction of our courts pursuant to § 617.3, quoted later. They also maintain trial court erred in concluding service upon these defendants under the cited long-arm statute would not comport with due process.

On the other hand, defendants here argue (1) plaintiffs have not complied with the procedural requisites in Code § 617.3; (2) they failed to prepare a record which will permit a proper review of trial court's ruling; (3) they failed to sustain their burden of establishing facts which would warrant the invocation of statutory jurisdiction; and (4) the exercise of in personam jurisdiction under the established facts would not satisfy due process of law requirements.

II. We first entertain defendants' contention as to absence of compliance with procedural requisites established by Code § 617.3. See Powers v. Iowa Harvestore Systems, Inc., 204 N.W.2d 623, 624-625 (Iowa 1973). Specifically, defendants urge plaintiffs have failed to effect proper proof of service. See generally Boyer v. Broadwater, 168 N.W.2d 799, 801-802 (Iowa 1969).

It is conceded, however, this issue was never presented to the court below. Therefore, it cannot be here raised for the first time. Wiles v. Myerly, 210 N.W.2d 619, 624 (Iowa 1973); Volkswagen Iowa City, Inc. v. Scott's Incorporated, 165 N.W.2d 789, 794-795 (Iowa 1969). See also Baker v. Beal, 225 N.W.2d 106, 113-114 (Iowa 1975). And we have specifically held that where no defect or omission in effecting process upon a defendant under Code § 617.3 was ever called to attention of the trial court, such contention will not be considered by us on appeal. Tice v. Wilmington Chemical Corp., 259 Iowa 27, 34-35, 141 N.W.2d 616, 621 (1966). This is instantly dispositive.

III. Defendants also contend trial court's adjudication should not be reversed because plaintiffs have failed to submit on appeal all evidence upon which that adjudication was effected. Specifically, defe...