Ek v. Nationwide Candy Division, Ltd.

• Decision Date: 22 July 1981
• Docket Number: No. 8322,8322
• Citation: 403 So.2d 780
• Parties: Blue Sky L. Rep. P 71,771 Patricia C. EK, Plaintiff-Appellee v. NATIONWIDE CANDY DIVISION, LTD. and Rob L. Lammers, Defendants-Appellants.
• Court: Court of Appeal of Louisiana — District of US

Page 780

403 So.2d 780

Blue Sky L. Rep. P 71,771

Patricia C. EK, Plaintiff-Appellee v. NATIONWIDE CANDY DIVISION, LTD. and Rob L. Lammers Defendants-Appellants.

No. 8322.

Court of Appeal of Louisiana, Third Circuit.

July 22, 1981.

Camp, Carmouche, Palmer, Barsh & Hunter, David R. Frohn, Lake Charles, for defendants-appellants.

Cox & Cox, James J. Cox, Lake Charles, for plaintiff-appellee.

Before DOMENGEAUX, GUIDRY and CUTRER, JJ.

GUIDRY, Judge.

Plaintiff, Mrs. Patricia C. Ek, instituted this suit against defendants, Nationwide Candy Division, Ltd. (hereafter Nationwide) and Rob L. Lammers, Nationwide's Director of Operations, seeking the rescission of a contract entered into by Mrs. Ek and Nationwide dated February 22, 1979 and the return of all monies paid by plaintiff to defendant, Nationwide, pursuant to such contract. In addition, plaintiff seeks damages and attorney's fees. In support of her demand, plaintiff alleges fraud, misrepresentation and the violation of LSA-R.S. 51:701-720 (Louisiana's Blue Sky Law) in the negotiation and confection of such contract which pertained to the sale of candy vending machines coupled with a guaranteed income agreement. Prior to trial, defendant Lammers filed a declinatory exception of lack of in personam jurisdiction seeking his dismissal from the suit. In addition, Nationwide filed a motion to stay the proceedings contending that the matter in dispute was referable to arbitration in accordance with the provisions of the contract. Both motions were denied by the trial court and subsequently, a trial on the merits was held.

After hearing the evidence, the trial court concluded that portions of the disputed contract by which Nationwide sought to disavow any responsibility for the representations of its agents and which declared the transaction as not constituting a security offering were repugnant to the laws of Louisiana and contra bonos mores, thus, such provisions were to be considered as unwritten. In addition, the lower court found that Nationwide and Rob L. Lammers made fraudulent misrepresentations to the plaintiff which induced her to confect the contract. The trial court additionally determined that the independent sales contract as modified by the guaranteed income refund policy constituted an investment contract, thus the transaction was governed by the provisions of Louisiana's Blue Sky Law. The trial court then concluded that defendants violated the state's securities law by offering non-exempt, unregistered securities for sale in Louisiana, and thus the contract was, voidable at the instance of the investor. Accordingly, pursuant to LSA-R.S. 51:701, et seq., the trial court ordered defendants to pay plaintiff $6,597.00 with interest of 6% per annum from the date of judicial demand until paid. Also, defendants were assessed with attorney's fees in the sum of $2500.00 and costs of the proceedings. Defendants appeal from that judgment. Plaintiff answered the instant appeal praying for an increase in the lower court's award of attorney's fees as well as an award of attorney's fees for legal services rendered in the course of the instant appeal. ¹

FACTS

On Sunday, February 19, 1979, the following advertisement placed by Nationwide, appeared in the Lake Charles American Press:

"$32,614/Year

Guaranteed Income

No Selling * No Experience

Can Start Part-Time

Company furnishes all protected top quality locations, products, dispensers, displays, supplies, training and guaranteed earnings. We feature America's top brands:

Snickers * Mars * 3 Musketeers * M & M's Milky Way * Starburst * and many more.

ALL you do is service these rental outlets weekly. We insure your success in writing because of the high turn over in sales. You need to be service-oriented, desire your own business and have some operating funds. We do the rest if you qualify.

In Beaumont, Call Mr. Barron

(713) 892-2222

Sunday, Monday, Tuesday, (9-9) only

Nationwide Candy Division

6455 Almaden Expwy, San Jose Calif."

In response to the above, plaintiff contacted Nationwide's representative, Mr. James Barron, to schedule a meeting with him to discuss the advertised business opportunity. Plaintiff, her husband, Steven Ek, and Barron met together on February 19, 1979, at the Holiday Inn in Beaumont, Texas. At that meeting, Mr. Barron made various representations concerning the sale of candy vending machines coupled with a guaranteed income refund policy. Barron explained that the program involved plaintiff's purchase of eight candy vending machines and an initial order of candy supplied by the defendant company. According to the plaintiff, in return for her initial investment of $6,597.00, Nationwide would provide a professional locator who would secure the necessary locations for the vending machines; physically place the machines on the premises; arrange delivery of the machines by the manufacturer; train plaintiff in the repair and maintenance of the machines; supply candy for the machines at the lowest possible cost; conduct seminars to pool information and knowledge from over vending machine operators; and, train the plaintiff regarding the most efficient method of keeping business records. Additionally, Nationwide agreed to guarantee to plaintiff a stated income to be derived from the operation of the machines. Nationwide's guaranteed income refund policy provides that if the plaintiff is not satisfied with her earnings after operating the machines for a one year period, Nationwide will refund 100% of plaintiff's investment less any income derived from the venture. The defendant company guaranteed Mrs. Ek yearly earnings of $10,250.24. At the conclusion of her initial appointment with Barron, Mrs. Ek signed a document entitled, "Non-Disclosure Waiver" in which she agreed not to disclose to others the information she obtained via their meeting for a period of ninety days.

On February 22, 1979, Mr. and Mrs. Ek again met with Mr. Barron in Beaumont at a busy cafe where they concluded the business transaction. At that meeting, Barron presented several documents for the plaintiff's signature including an Independent Sales Agreement, A Guaranteed Income Refund Policy, and a Location Guarantee. Plaintiff signed all of the aforesaid documents and gave Barron a cashier's check for $750.00 as a deposit pending her acceptance as a distributor by Nationwide. Subsequently, Mrs. Ek was accepted by the defendant company and paid to Nationwide the balance due of $5,847.00. On or about May 10, 1979, Mrs. Ek received a "sample" monthly operating statement from Nationwide which prompted plaintiff to call Mr. Lammers at his California office. During their telephone conversation, Mrs. Ek inquired about the promised training seminars and meetings, the procedure for ordering candy, and the validity, in light of accepted accounting principles, of the "sample" monthly operating statement. Plaintiff testified that Lammers indicated that she was not bound to use the "sample" statement and that the training workshop and seminars had not been arranged.

Prior to the delivery of her Nationwide vending machines, plaintiff purchased ten additional vending machines from a woman in the Lake Charles area. Mrs. Ek stated that she operated the machines for several weeks, however, she soon realized that it was impossible to derive the amount of profit from the vending machine venture which was promised by Nationwide. Subsequently, the plaintiff sold the ten machines.

On May 2, 1979, Nationwide's "professional locator", Mr. Eric Kelley, contacted the plaintiff regarding the proposed locations for her machines. Plaintiff testified that contrary to the parties' agreement, Mr. Kelley did not introduce her to the owners of the various locations, but rather, simply drove past the locations pointing them out to her. In addition, Kelley informed plaintiff that he was not responsible for placing the machines at these locations. Shortly thereafter, Mrs. Ek sought the advice of counsel who recommended that plaintiff refuse delivery of the machines. Plaintiff's attorney then contacted Mr. Lammers via mail requesting that Nationwide refund all monies paid by plaintiff to that company in connection with the vending machine transaction. We observe that the record is unclear regarding whether or not plaintiff's counsel sent this letter before or after plaintiff refused delivery of the subject vending machines. Mr. Lammers responded to plaintiff's demands by stating that a refund was impossible and that all written agreements signed by the parties were valid. Thereafter, the instant suit was filed.

Appellants contend that the trial court erred in denying defendant Lammers' exception of jurisdiction and Nationwide's motion to stay the proceedings pending arbitration of the matter. Further, appellants contend that the record fails to substantiate plaintiff's allegations of fraud and misrepresentation in the negotiation and confection of the subject agreements. Finally, appellants contend that plaintiff cannot avail herself of the remedies provided in LSA-R.S. 51:715 (Louisiana Blue Sky Law) because she is unable to tender back the "securities" to Nationwide as required by statute.

JURISDICTION

The trial court concluded that defendant, Rob L. Lammers, is subject to the jurisdiction of the Louisiana courts in accordance with Louisiana's Long Arm Statute, LSA-R.S. 13:3201, and specifically, sections (a) and (b) thereof. LSA-R.S. 13:3201 provides in pertinent part as follows:

"A court may exercise personal jurisdiction over a nonresident who acts directly or by an agent, as to a cause of action arising from the nonresident's

(a) transacting any business in this state;

(b) contracting to supply services or things in this state; ..."

Appellants contend that Lammers is not amenable to suit in Louisiana since he did not have "sufficient contacts" with the Louisiana forum to make the exercise of personal jurisdiction over him constitutional.

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