Dempsey-Tegeler & Co. v. Flowers

• Decision Date: 25 February 1971
• Docket Number: DEMPSEY-TEGELER,No. 7210,7210
• Parties: Blue Sky L. Rep. P 70,905 & CO., Inc., et al., Appellants, v. Roger Scott FLOWERS and John H. Carrell, Appellees.
• Court: Texas Court of Appeals

Page 208

465 S.W.2d 208

Blue Sky L. Rep. P 70,905

DEMPSEY-TEGELER & CO., Inc., et al., Appellants, v. Roger Scott FLOWERS and John H. Carrell, Appellees.

No. 7210.

Court of Civil Appeals of Texas Beaumont.

Feb. 25, 1971.

Rehearing Denied March 25, 1971.

Barefoot Sanders, Dallas, for appellant.

Don R. Kidd, Lubbock, for appellee.

KEITH, Justice.

In this appeal, we consider two orders of the District Court overruling the pleas of privilege filed by Dempsey-Tegeler & Co., Inc., a corporation, to be sued in Harris County. In separate suits, Flowers and Carrell sought to recover the sums of money which each had paid for shares of stock in Devilliers Nuclear Corporation. Two individuals, both residents of Lubbock County, where the suit was pending, were joined as parties defendant and answered generally. Dempsey-Tegeler's pleas of privilege having been overruled, it appeals and we have consolidated the two cases for the purpose of this appeal. We will refer to the parties as they appeared in the trial court.

Plaintiffs sought to recover the precise sum paid for the shares which each had purchased from defendant, together with six per cent interest from the date of the sale, and relied for their recovery exclusively upon the provisions of The Securities Act, Article 581--1, Vernon's Ann.C.S. (hereinafter 'Act'). There was no allegation of any cause of action sounding in breach of contract, fraud, or otherwise so that the pleadings tendered only the issue of a cause of action, vel non, under Section 33 of the Act.

Plaintiffs sought to maintain venue under Subdivisions 4, 9, 23, and 30, Article 1995. Insofar as Subdivision 9 is concerned, plaintiffs specifically invoked the penal provisions of the Act, Section 29B, providing a criminal penalty for the sale of securities which had not 'been registered or granted a permit as provided in Section 7 of this Act.' The necessary allegation was made that the corporate defendant 'participated as a principal, accomplice, or accessory therein or that the offense was committed by its agent or representative while he was within the course and scope of his agency and employment.'

By its first two points, defendant contends that it was error to overrule its plea of privilege because the plaintiffs failed to establish, by the pleadings Or the proof, a cause of action against the defendant. The thrust of the argument is that the corporate defendant is not subject to the provisions of Section 33 of The Securities Act; and, since plaintiffs sought to allege and prove Only a violation of the Act, they failed to allege or to prove the existence of a cause of action.

The Securities Act, Article 581--1, et seq., V.A.C.S., is a comprehensive statute enacted for the purpose of regulating the sale of securities in the State. Like its predecessor Act, it is 'strictly penal in nature, and was enacted solely to protect the interests of the public.' Kadane v. Clark, 135 Tex. 496, 143 S.W.2d 197, 200 (1940). The question posed by the appeal revolves around the scope of the word 'person' as found in Section 33A(1) of the Act, which created the only cause of action upon which plaintiffs sought a recovery. The pertinent provision reads:

'A. Any Person who

'(1) Offers or sells a security in violation of Sections 7, 9 (or any requirement of the Commissioner thereunder), 12, 23B or any order under 23A of this Act,

'(2) * * * is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, * * *.' ¹

The corporate appellant, recognizing the existence of Article 23, V.A.C.S. ('unless a different meaning in apparent from the context' the word "Person' includes a corporation'), contends that from a consideration of the entire Act, the meaning is clear: the word 'person', used in Section 33, does not include corporations.

The interpretation of this particular section requires an analysis of several sections of the Act. In so doing, we will refer to the section and the particular subsection involved by a parenthetical reference. The first use of the word 'person' found in the Act is in Section 2A, establishing eligibility for membership upon the Securities Board, an obvious reference to a natural person. In Section 4 are found numerous definitions: 'The term 'company' shall Include ² a corporation, person, joint stock company, partnership, * * *' (B); 'The term 'dealer' shall include every person or company, other than a salesman, * * *' (C); 'The term 'salesman' shall include every person or company * * *' (D); "Issuer' shall mean and include every company or person * * *' (G); while "Broker' shall mean dealer as herein defined' (H).

Although the word 'company' is defined to include 'person' in Section 4B, supra, the disjunctive is used in Section 5, relating to exempt transactions--' company Or person'--whereas, in Section 12, dealing with registration of sellers, the prohibition is made applicable to every 'person, firm, corporation or dealer.' Again we find, in Section 24, relating to hearings before the Commissioner, a reference to 'person or company'; but, when we reach the provision relating to subpoena, Section 28, we find that an unauthorized disclosure by the Commissioner gives rise to a cause of action on his bond by any 'affected corporation, firm or person.' In Section 31, entitled 'Construction', the Legislature uses 'person or company' as is done in the injunctive provision, Section 32, and in Section 34, the compliance section.

On the other hand, the unqualified word 'person' standing alone appears in only three sections of the Act: Section 22, relating to advertising; Section 29, containing the penal provisions of the Act; and Section 33, creating the civil cause of action.

We note in passing that the federal legislation upon the subject defines the word 'person' to include corporations. Securities Act of 1933, 15 U.S.C., § 77b(2), and Securities Exchange Act of 1934, 15 U.S.C. § 78c(9). Since there is no comparable definition found in the Texas Act, we resort to the customary canons of statutory construction in an effort to determine the meaning to be given to the word as it appears in Section 33.

Although the Act is penal in nature (Kadane v. Clark, supra), we do not follow the usual rule of construing a penal statute strictly, preferring to adopt the rule laid down in Board of Ins. Com'rs v. Great Southern Life Ins. Co., 150 Tex. 258, 239 S.W.2d 803, 809 (1951), wherein the court said:

'The most that can be said in favor of respondents' position is that the article is both remedial and penal. 'Where a statute is both penal and remedial, as where it is penal in one part and remedial in another part, it should be considered as a penal statute when it is sought to enforce the penalty, and as a remedial statute when it is sought to enforce the remedy.' 59 C.J., p. 1121, sec. 662 (now 82 C.J.S., Statutes, § 390, p. 935). See also 50 Amer.Jur., p. 444, sec. 423.'

And, as was said in City of Mason v. West Texas Utilities Co., 150 Tex. 18, 237 S.W.2d 273, 280 (1951):

'If a statute is curative or remedial in its nature, the rule is generally applied that it be given the most comprehensive and liberal construction possible. It certainly should not be given a narrow, technical construction which would defeat the very purpose for which the statute was enacted.'

But, compare City of Corpus Christi v. Atlantic Mills Serv. Corp., 368 S.W.2d 640, 642 (Tex.Civ.App., San Antonio, 1963, error ref. nor .e.), holding that 'if the use of the term 'person' identifies the party against whom a violation is charged, it is strictly construed.'

In the construction of Section 33 of the Act, we will endeavor to do so 'in the light of and in connection with the other sections' of the Act in an effort to harmonize the several sections so as to effectuate the legislative intent. New Way Lumber Co. v. Smith, 128 Tex. 173, 96 S.W.2d 282, 288 (1936). And, when we come to examine the several sections of the single Act, we consider them in pari materia. State v. Dyer, 145 Tex. 586, 200 S.W.2d 813 (1947). But, in interpreting the statute, we must give consideration to all applicable sections of the Act and cannot look solely to one particular section. Gerst v. Oak Cliff Savings and Loan Association, 432 S.W.2d 702, 704 (Tex.Sup., 1968).

The Legislature made Section 33 of the Act applicable only to a Person, although it had used 'person or company' at least eight other places in the Act, and this notwithstanding the definition of 'company' found in Section 4B included corporation And person. This clearly demonstrates that the Legislature meant to distinguish between a 'company' which included natural and artificial persons and 'person' which did not include a corporation. If the Legislature meant to include corporations in the penal section (29) or that creating the civil action (33), 'it would have used more apt language to describe them.' State v. Central Power & Light Co., 139 Tex. 51, 161 S.W.2d 766, 768 (1942).

We have no difficulty in reconciling all of the several subsections of the Act, including the myriad of definitions found therein, when we consider the obvious fact that Sections 29 and 33 are essentially parallel provisions. Section 29 creates a new penal offense and Section 33 gives rise to a new statutory cause of action . ³ So considered, the intent of the Legislature becomes clear and the word 'person' used in each section can refer only to natural and not artificial persons. This result is reached when we consider the status of a corporation in Texas as a defendant in a Criminal case.

In the excellent article, 'Corporate Criminal Liability in Texas', 47 Tex.Law Rev. 60 (1968), the author makes this bold assertion: 'Texas apparently is the only state that 'does not permit corporations to be subjected to criminal prosecution.' The existence of this legal anomaly is confirmed by the authorities cited in the...