Gaudina v. Haberman

• Decision Date: 16 April 1982
• Docket Number: No. 5581,5581
• Citation: Gaudina v. Haberman, 644 P.2d 159 (Wyo. 1982)
• Parties: Blue Sky L. Rep. P 71,733 Jan H. GAUDINA, Appellant (Defendant), v. Richard F. HABERMAN and Nellie Haberman, Appellees (Plaintiffs).
• Court: Wyoming Supreme Court

Page 159

644 P.2d 159

Blue Sky L. Rep. P 71,733

Jan H. GAUDINA, Appellant (Defendant), v.Richard F. HABERMAN and Nellie Haberman, Appellees (Plaintiffs).

No. 5581.

Supreme Court of Wyoming.

April 16, 1982.

George L. Simonton of Simonton & Simonton, Cody, signed the brief and appeared in oral argument on behalf of appellant.

Fredric B. Butler, Vail, Colo., signed the brief and appeared in oral argument on behalf of appellees.

Before ROSE, C. J., and RAPER, THOMAS, ROONEY and BROWN, JJ.

RAPER, Justice.

The district judge, following a nonjury trial, entered a joint and several judgment in favor of plaintiffs-appellees Habermans against the defendants(Heritage)(Bromley)(Gaudina).The judgment awarded damages of $54,591.48 and interest computed at the rate of 6% per annum for the period of time from September 26, 1973 to February 25, 1981-this amounted to $24,281.49.The total award was shown as $78,873.27; however our computation indicates that it should have been for $78,872.97-there was a minor 30cents error.¹In his Findings the trial judge based recovery on the standards of duty set out in the provisions of the Uniform Securities Act of the State of Wyoming, § 17-117.1, et seq., W.S.1957, as amended(now § 17-4-101, W.S.1977, et seq.).Only Gaudina has perfected an appeal.²He raises as issues:

"1.Did the transaction between Heritage Trust Company and Habermans involve a 'security?'If so, was it exempt under W.S. 17-117.14(a)(3)(W.S.1957)?(Now§ 17-4-114(a)(iii). ³)

"2.Did Gaudina sustain the burden of proof that he did not know, in the exercise of reasonable care, of the untruth or omission of material facts?

"3.Did the Court properly set off the value of the property still held by Habermans in the award of judgment?

"4.Was there sufficient evidence to support the Judgment against Gaudina?

"5.Did the District Court abuse its discretion in failing to dismiss the Complaint pursuant to Gaudina's Motion to Dismiss after the first appeal was remanded?"

We will affirm except direct reduction of the judgment by $1,000.00.

Heritage was a corporation organized under the laws of Arizona to engage in the trust business in that state.Bromley was its principal officer, holding a controlling interest and directing its extensive operations.Gaudina was engaged on a commission basis by Bromley to sell its trust instruments in Wyoming.

Gaudina was a Colorado resident with a sales background in movie cameras, vacuum cleaners and insurance.He had two years of college business training.Any knowledge of trusts which he had was gathered during his experience as an insurance salesman and at seminars and conferences in connection with estate planning instruction.Through friends, he came into contact with Heritage and was employed by that company in April 1973.He was furnished with various sales materials and business cards showing him to be a "trust consultant."

Gaudina's father had been in the business of selling insurance and mutual funds out of Billings, Montana, but died in 1972.His territory had extended into Wyoming.Gaudina "inherited" all of his father's business records which included a "black book" which contained the names of various Wyoming customers, prospects and contacts.With the aid of the little black book, he began contacting various persons in Wyoming there named.Included were the Habermans, who he contacted and offered the services of Heritage.They had purchased mutual funds from Gaudina's father or his associate, a Ted Schuman.

In his sales pitch to the Habermans he represented that if they placed their money into a trust account with Heritage, it would be invested in top quality-first quality-high quality investments, such as loans to third parties secured to the extent of 125% by first mortgages on real estate and that they would receive 14% interest in return.Gaudina readily admitted that he had so represented but he took the position that this was the information he had been given by Bromley and that he did not know the information to be false.

In addition, he left various printed materials with the Habermans, some in elaborate format which glowingly set out the "IMPORTANT BENEFITS YOU ENJOY WHEN YOU CREATE A LIVING TRUST WITH HERITAGE TRUST COMPANY" by which "We design, install and take full responsibility for the administration of each plan and trust."It was lavish in emphasizing:

"1.You add a margin of safety and protection for your investment because, as your trustee, Heritage Trust Company is responsible to you and the banking authorities who regulate us.

"2.Heritage Trust Company is licensed under the State of Arizona Banking Department, and, as such, conducts itself in the same manner as banks who maintain trust activities, and our only business is Trust.

"3.We have F.D.I.C. protection on cash in our depositary bank (Arizona Bank).

"4.We have a million dollar fidelity bond on each employee.

"5.We have liability, and errors and omissions insurance.

"6.We are regularly examined by the State of Arizona bank examiners."(Emphasis in original.)

The biography of Bromley, the company's leader, which was included in the sales material and brochures set out an extensive and impressive banking and trust experience.

The Habermans warmed up to all this exposure.Having been persuaded, on September 26, 1973, they eagerly executed and delivered to Gaudina an impressive-appearing document entitled "REVOCABLE DECLARATION OF TRUST."This form had been provided by Heritage and was referred to as an "inter vivos trust."They concurrently paid over to Gaudina $18,615.00 by check payable to Heritage Trust Company.They also, at a later time, transferred stock valued at about $36,000.00 to Heritage for their trust account.The last of the stock transfers was in November 1973.The Habermans received Heritage Trust receipts in acknowledgment of these deposits.

The bubble began to rupture on December 9, 1974, when the Secretary of State for Wyoming issued and served a Cease and Desist Order upon Heritage Trust and Gaudina ordering them to immediately discontinue the offer and sale of securities of Heritage until they conformed to the requirements of the Wyoming Uniform Securities Act.⁴As pointed out by the trial judge in his Findings and Conclusions, this action was filed in 1975 and it "has ebbed and flowed in the backwaters of judicial administration and the shelves and files of attorney's offices for more than 5 years and 5 months" at the district court level.We would add that the record presented a paper chase down a tortuous path with obstacles thrown up at every turn by the defendants.

The trial judge found, amongst other things, that the trust contracts were "securities" within the meaning of Wyoming's Uniform Securities Act⁵ and were not "exempted securities"; that Gaudina was an agent of Heritage and Bromley, with Bromley the sole shareholder, owner and person in control of Heritage; that neither Gaudina nor Bromley were registered as agents ⁶ as required by the Wyoming Uniform Securities Act; that while neither Bromley or Gaudina committed common law fraud or conversion; "(t)hedefendants have specifically violated the provisions of § 17.117.1 now § 17-4-101, W.S.;§ 17.117.3 now (s) 17-4-103; and § 17.117.22 now § 17-4-112(sic, should be 17-4-122), W.S."⁷

The trial judge went on to find and conclude that Gaudina in connection with the sale of securities to the Habermans "made untrue statements of material facts, although he did not know they were untrue at the time, but he did fail to state material facts with reference to the sale of the securities so as to make the totality of the statements made at that time misleading to the plaintiffs"; and that "Gaudina did not sustain the burden of proof that he did not know in the exercise of reasonable care of the untruth or omission of facts to the plaintiffs and Bromley, acting through his 'agent' Gaudina, is liable to the plaintiffs for the reason that he cannot hide behind the acts or omissions of Gaudina in this instance."

We will add to this scenario as we pick our way through the issues.

I

There is no doubt that the investment document was a security.As explained in Securities and Exchange Commission v. Heritage Trust Company, supra fn. 4, in the late 1960's and early 1970's notes and mortgages taken by promoters in the sale of Arizona lots at high prices were peddled to unsuspecting and unworldly buyers.They were declared nonexempt securities early in the 1970's.Bromley contrived the "inter vivos trust" document as a device to obtain funds which he in turn used to purchase such notes and mortgages.It was only a scheme to do indirectly what could not be done directly.Blue sky laws have as their primary purpose the suppression of fraudulent practices and the protection of the public from their own gullibility.Lolkus v. Vander Wilt, 258 Iowa 1074, 141 N.W.2d 600(1966).

Included in the exhibits is the Second Account and Report of the Receiver appointed by the Supreme Court of Arizona to take possession of the assets of the Heritage Trust Company, which set out how Bromley "invested" the money of trustors such as the Habermans.It was a devilish scheme that expanded into not only Arizona but also Indiana, Mexico, Minnesota, Missouri, New Mexico, South Carolina, Texas, and probably other places.What is referred to as the Southwest Venture is particularly interesting and demonstrates the Heritage operation, as described by the Receiver:

"This 'wraparound' transaction occurred on February 27, 1974 and involved a series of sales of a parcel of property known as the W. G. Sawyer Tract located in Fort Bend County, Texas.The subject property was originally owned by one W. G. Sawyer, who sold his interests to John M. Stevenson, Jr., Trustee, for the sum of $811,543.34.Mr. Stevenson then immediately resold the same property to REACT Corporation, a Texas corporation, for $899,216.00.REACT Corporation...