Georgia Market Centers, Inc. v. Fortson

• Decision Date: 04 December 1969
• Docket Number: No. 25489,25489
• Parties: , Blue Sky L. Rep. P 70,836 GEORGIA MARKET CENTERS, INC., et al., v. Ben W. FORTSON, J., Commissioner of Securities.
• Court: Georgia Supreme Court

Page 620

171 S.E.2d 620

225 Ga. 854, Blue Sky L. Rep. P 70,836

GEORGIA MARKET CENTERS, INC., et al., v. Ben W. FORTSON, J., Commissioner of Securities.

No. 25489.

Supreme Court of Georgia.

Dec. 4, 1969.

Rehearing Denied Dec. 18, 1969.

Syllabus by the Court

The Founder Purchase Contracts of the appellants are not securities within the meaning of the Georgia Securities Act.

Johnston & Shores, James L. Shores, Jr., Birmingham, Ala., Adams, O'Neal, Steele, Thornton, Hemingway & McKenney, H. T. O'Neal, Jr., Macon, for appellants.

Arthur K. Bolton, Atty. Gen., Harold N. Hill, Jr., Exec. Asst. Atty. Gen., Courtney Wilder Stanton and Marion O. Gordon, Asst. Attys. Gen., Robert S. Reeves, Deputy Asst. Atty. Gen., Atlanta, for appellee.

MOBLEY, Presiding Justice.

Ben W. Fortson, Jr., as the Commissioner of Securities of Georgia, brought an action against Georgia Market Centers, Inc., a Georgia corporation, Alabama Market Centers, Inc., an Alabama corporation, Continental Marketing Associates, Inc., a Delaware corporation, having its principal place of business in Birmingham, Alabama, and two individuals, residents of Bibb County, Georgia, alleged to be agents of the corporate defendants. The Commissioner sought to enjoin the defendants from violating the Georgia Securities Act (Ga.L.1957, pp. 134-163, as amended; Code Ann.Chap. 97-1) by selling or offering to sell Founder Purchase Contracts, alledged to be securities subject to regulation under the Securities Act.

The appeal is from an order which adjudged that the contracts are securities within the meaning of the Georgia law; and ordered that the appellant's motion for summary judgment be denied, the Commissioner's motion for summary judgment be granted, and the appellants be restrained and enjoined from issuing or selling the contracts.

The case was decided on interrogatories and affidavits. In the answer of the appellants to the interrogatories of the Commissioner it was stated that Continental Marketing Associates, Inc., owns all of the capital stock of the other two corporations. Continental denied that it was offering for sale any type of contract in the State of Georgia, describing its plan as follows: 'Continental utilizes a unique plan for developing sales personnel and store customers for retail discount department stores called The Market Centers. This is done through the enrollment of Founders who are given plastic purchase authority cards to distribute. These cards entitle their holders to shop at the Market Center. Only cardholders may shop at a store. There are two types of Founders-the Founder Distributor and the Founder Supervisor. Each Founder executes a Founder Purchase Contract with Continental. The Distributor pays $150 and the Supervisor pays $750 for the selection of a product such as cookware, television set, or similar houseware. Each Founder is then schooled in the marketing program and paid stipulated commissions from sales made to other Founders and from store purchases made at The Market Center stores patronized by those persons to whom they distributed the purchase authority cards. Unlike an investment contract or other type of security, the Founders who enter into Founder Purchase contracts with Continental, receive no remuneration except as a result of their individual activities in bringing about sales to other Founders and holders of purchase authority cards.'

The Master Founder Purchase Contract appearing in the record shows further terms of the contract as follows: The contract may not be transferred except by devise or inheritance, or by designation of a beneficiary by a Founder. A distributor earns a commission of 4% of the retail price of merchandise each time a card distributed by him is used to purchase merchandise at a market center, less certain amounts, and receives additional purchase cards and earns commissions when other distributors and supervisors are enrolled by him. A supervisor earns a commission of 5% of the retail purchase price of merchandise sold to holders of cards distributed by him, less certain amounts, receives additional cards and commissions for distributors and supervisors enrolled by him, and earns a commission of 25% of the commissions earned by the distributors within his sales organization, and other commissions on enrollments within his sales organization. Founders will be given reports on purchases made by holders of the cards distributed by them, and will pay their own expenses. Limitations are placed on the number of Founders which may be enrolled in any market center area. Within 30 days following the enrollment of 60% of the Founders designated for a proposed market center, Continental will acquire land upon which to construct a market center. Founders haave no voice in the management of Continental, and do not share in its profits, or otherwise benefit from its activities, other than earning commissions due the Founders.

The answer to the interrogatories propounded by the Commissioner to the appellants stated that Continental plans seven stores in Georgia, and that there are 1057 Founders enrolled in Albany, 3764 in Atlanta, 2297 in Augusta, 807 in Columbus, 1817 in Macon,...