Ex parte Dill, Dill, Carr, Stonbraker & Hutchings, PC
| Decision Date | 21 February 2003 |
| Citation | 866 So.2d 519 |
| Parties | Ex parte DILL, DILL, CARR, STONBRAKER & HUTCHINGS, P.C., and Fay Matsukage. (In re Allen Austin et al. v. Dill, Dill, Carr, Stonbraker & Hutchings, P.C., et al. Mary Champion et al. v. Dill, Dill, Carr, Stonbraker & Hutchings, P.C., et al.). |
| Court | Alabama Supreme Court |
Thomas R. Elliott, Jr., Allen R. Trippeer, Jr., and Robert J. Campbell of London & Yancey, L.L.C., Birmingham, for petitioners.
E. Britton Monroe of Lloyd, Gray & Whitehead, P.C., Birmingham; Andrew P. Campbell and Caroline Smith Gidiere of Campbell, Waller & Loper, L.L.C., Birmingham; and Frank Corley Ellis, Jr., of Wallace, Ellis, Fowler & Head, Columbiana, for respondents.
Dill, Dill, Carr, Stonbraker & Hutchings, P.C., and Fay Matsukage petition this Court for a writ of mandamus directing the Shelby Circuit Court to vacate its order denying their motion to dismiss, for lack of in personam jurisdiction, the plaintiffs' claims against them in two actions pending in that court. We grant the petition.
This dispute arose out of failed investment plans developed by some, or all, of the following: (1) Steven S. Nichols, (2) Charles E. Dickerson, (3) Lawrence B. Lavin, (4) Andrew P. Leventis, Jr., (5) Myron Livingston, (6) Hugh MaCaulay, (7) Frank M. Miller, (8) James C. Norton, (9) Joseph L. Pertz, Jr., (10) Philip A. Sharpton, and (11) Charlie M. Thackston (hereinafter referred to collectively as the "Developers"). Of those 11 Developers, only one—James Norton—was an Alabama resident. The investment plans envisioned raising funds through the sale of securities for reinvestment in companies owned by Richard Homa and Michael Gause. Through those companies, which included C4T, Inc. ("C4T"), and Sunset Financial Services, L.L.C. ("Sunset"), Homa and Gause operated a number of stores, known as "Cash 4 Titles."
According to the Developers, "Messrs Homa and Gause raised money from investors (such as Plaintiffs in this case) that was to be loaned to C4T, which in turn would finance the Cash 4 Titles' stores to make car loans to the general public." Respondents' Brief in Opposition to Petitioners' Petition for Writ of Mandamus (hereinafter "Respondents' Brief"), at 4. "Messrs Homa and Gause agreed to pay investors between 1% and 4% per month on funds loaned to C4T and remit the interest payments to investors on a monthly basis." Id.
In February 1998, five individuals, including Nichols, Sharpton, Pertz, and Norton, implemented the first of two investment plans. They did so by forming Bellwether Holdings, L.L.C. ("Bellwether"), a Colorado limited-liability company, through which they—as "managing marketers"—proposed to issue 270-day promissory notes to potential investors throughout the United States. As they explain it, Respondent's Brief, at 5.
Dill—a Colorado law firm located in Denver—was, according to the Developers, retained by Bellwether to "review[] the Bellwether securities offering to ensure it complied with the State (including Alabama) and Federal securities laws where the promissory notes were being sold, [and to determine] whether any State or Federal securities filings needed to be made and whether the promissory notes were exempt securities." Affidavit of Steven Nichols. The Developers allege that this project was undertaken specifically by Matsukage, a lawyer and shareholder in Dill. According to the Developers, Matsukage represented that the offering documents and the promissory notes complied with the securities laws of the United States and of those states in which Bellwether proposed to sell the notes.1
From March 1998 to June 10, 1999, Bellwether sold the promissory notes and invested the proceeds in C4T. Seven individuals residing in Alabama, including Mary Champion and Allen Austin, invested approximately $527,292 in the Bellwether offering.
In June 1998, the Developers created a second entity through which to raise money for investment in the car-title-loan business. More specifically, the Developers formed Southwestern Holdings, L.L.C. ("Southwestern"), to loan money to Sunset, a foreign entity with its principal place of business in Georgia. Through Southwestern, they proposed to issue seven-year bonds to investors throughout the United States.
Southwestern was organized under the laws of Nevada. Southwestern's "Private Placement Memorandum" describes Nichols as the "Managing Director." In that document, the other Developers, including Norton, were described as "Marketing Managers."
Dill was retained, among other things, to draft offering documents for Southwestern's seven-year bonds and to ensure that the bond offering complied with the securities laws of the United States and of the states in which the bonds were to be sold. It is undisputed that Matsukage was the Dill attorney responsible for providing those services.
In that connection, she prepared and mailed to the securities commissions of various states—including Alabama—an instrument, styled "Form-D Notice of Sale of Securities Pursuant to Regulation D, Section 4(6), and/or Uniform Limited Offering Exemption" (the "Form-D notice"). The eight-page form primarily contains information regarding (1) the date of Southwestern's organization or incorporation; (2) Steven Nichols's name and his address as Southwestern's "promoter" and "general and/or managing partner"; (3) the "minimum investment [to] be accepted from any individual"; and (4) the "aggregate offering price" of the bonds to be offered. Accompanying the Form-D notice was a "Form U-2 Uniform Consent to Service of Process" (the "consent form"), by which Southwestern appointed the secretary of state as its attorney to receive process. Also on that form was the following:
In their briefs to this Court, the parties refer—as we do hereinafter collectively— to the mailing of the Form-D notice and the consent form to the Alabama Securities Commission as the "blue-sky filing."2
From March 1999 through June 10, 1999, Southwestern sold bonds and loaned the proceeds from the sale to Sunset. Nineteen Alabama residents invested $2,539,000 in the Southwestern offering.
Southwestern and Bellwether investors received their interest payments until October 1, 1999. By that time, an investigation of Homa and Gause by the United States Securities and Exchange Commission ("the SEC") had revealed that Homa and Gause were involved in what the Developers describe as a "Ponzi" scheme.3 As the Developers describe it:
The SEC eventually included in its investigation some of the Developers, including Alabama resident James Norton. Indeed, Norton retained Dill in October 1999 to represent him in the SEC investigation. Norton's representation was undertaken by attorney John A. Hutchings.
On April 27, 2001, Bellwether, Southwestern, 8 of the Developers, and 19 other individuals or entities residing in 7 states, who had invested in Bellwether or Southwestern, commenced case CV-01-430 in the Shelby Circuit Court against, among others not material to this proceeding, Dill, Hutchings, and Matsukage. On May 11, 2001, a complaint was filed in case CV-01-430 by Mary Champion and others, which amended or "superseded" the original complaint. The amended complaint contained the claims of approximately 135 plaintiffs, in addition to the claims of the plaintiffs in the original complaint (that case is hereinafter referred to as "Champion"). In all, Champion involved the claims of plaintiffs from 17 states in which the Bellwether and Southwestern securities were sold. The claims against Dill and Matsukage were set forth in 22 counts. Of those counts, 17 alleged violations of the securities laws of 17 states in which Bellwether and Southwestern securities were sold.4 The remaining counts alleged (1) breach of contract, (2) common-law fraud, (3) breach of fiduciary duty, (4) professional malpractice, and (5) negligent supervision.
On September 12, 2001, Allen Austin, an Alabama resident, and a second group of plaintiffs, who had invested in Bellwether, Southwestern, or both, commenced case CV-01-971 in the Shelby Circuit Court (that case is hereinafter referred to as "Austin"). The complaint in Austin contained claims against Dill and Matsukage, alleging violations of the securities laws of 11 states, including 2 states not alleged in Champion.5 Like the complaint in Champion, the Austin complaint also contained counts against Dill and Matsukage alleging (1) breach of contract, (2) common-law fraud, (3) breach of fiduciary duty, (4)...
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