Latherizer Corp. v. Dep't of Pub. Utilities

• Decision Date: 16 March 1932
• Citation: 278 Mass. 454,180 N.E. 235
• Parties: LATHERIZER CORPORATION v. DEPARTMENT OF PUBLIC UTILITIES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

278 Mass. 454

180 N.E. 235

LATHERIZER CORPORATION

v.DEPARTMENT OF PUBLIC UTILITIES.

Supreme Judicial Court of Massachusetts, Suffolk.

March 16, 1932.

Case reserved and Report from Supreme Judicial Court, Suffolk County.

Bill by the Latherizer Corporation against the Department of Public Utilities to review an order of defendant. Defendant demurred. On reservation and report.

Demurrer sustained.

W. M. Silverman, of Boston, for plaintiff.

G. B. Lourie, of Boston, for defendant.

FIELD, J.

This bill in equity was brought in this court under G. L. c. 110A, § 7, inserted in General Laws by St. 1921, c. 499, § 1, against the commissioners of the department of public utilities and the director of the securities division of that department to review, modify, amend or annul rulings and an order of the commission. The defendant demurred generally. A single justice reserved the case on bill and demurrer for the determination of the full court.

The allegations of the bill are substantially as follow: The plaintiff is a foreign corporation doing no business in Massachusetts except as its products are sold here. On July 30, 1930, it ‘filed a certificate of intention to sell its securities in Massachusetts, and furnished the * * * [defendants] with all information requested by them as being in their judgment necessary to enable them to ascertain whether the sale of such securities would be fraudulent or would result in fraud.’ The plaintiff arranged for the sale of its securities through a qualified broker. At various times such securities were sold within the commonwealth to persons who, by the purchase thereof, became stockholders of the corporation. By a letter dated October 30, 1930, the director required from the plaintiff other information all of which has been furnished except ‘the names and addresses of all of * * * [its] stockholders in this Commonwealth, together with the number of shares, class and date appearing on each certificate issued to each of such stockholders,’ which information the plaintiff refused to furnish. It was stated in the letter that ‘the failure to submit the information * * * shall * * * be deemed prima facie evidence of fraud.’ Because of the plaintiff's failure to furnish this information the director ‘made a finding to the effect that the sale of such securities is fraudulent in Massachusetts, or would result in fraud, and that such securities shall not be sold or offered for sale in the Commonwealth of Massachusetts.’ The plaintiff appealed to the commission and was given a hearing. At this hearing the plaintiff requested rulings of law to the effect that the requirement that the plaintiff file a list of its stockholders resident in Massachusetts and their addresses was not authorized and that failure to furnish such information did not justify an order forbidding the sale of the plaintiff's securities. The commission affirmed the order of the director of the securities division and denied the requests for rulings. To review this order and, incidentally, the refusal of the commission to rule as requested, this suit is brought.

G. L. c. 110A, § 5, as finally amended by St. 1924, c. 487, § 2, provides that certain securities, which so far as alleged include the securities of the plaintiff, shall not be sold until a notice of intention to offer them for sale has been filed, provides for the filing with the commission of a statement containing information as to the names and addresses of the officers, the state of incorporation, the purpose of the corporation and its capitalization, and the purpose to which the proceeds of the proposed issue of securities are to be applied, and provides further that ‘upon and after the filing of such notice the said security may be sold and offered for sale * * * subject to the right of the commission in its discretion to forbid its sale until the information required by this and the following section is filed with it and the commission has revoked its action in forbidding its sale.’ The following section (section 6, as finally amended by St. 1924, c. 487, § 3) provides that if upon receipt and examination of such a notice or statement ‘the commission deems the information inadequate it shall make such further investigation as it shall deem necessary or advisable, and may require from the person filing such statement or from any person or persons issuing such security such further information * * * as may in its judgment be necessary to enable it to ascertain whether the sale of such security would be fraudulent or would result in fraud. The failure to submit the information required by the commission within such reasonable time as it may specify shall in the absence of satisfactory explanation or of extension by the commission of the time for filing such information, be deemed prima facie evidence of fraud.’ See also section 6A, added to G. L. c. 110A by St. 1929, c. 287, § 3.

The words ‘fraud’ or ‘fraudulent’ as used in G. L. c. 110A, as amended, ‘include any misrepresentation in any manner of a relevant fact, such misrepresentation being intentionally dishonest or due to gross negligence, and any promise or representation or prediction as to the future not made honestly and in good faith, or an intentional failure to disclose a material fact; the gaining directly or indirectly, through the sale of any security of an underwriting or promotion fee or profit, selling or managing commission or profit, so gross and exorbitant as to be unconscionable, and any scheme, device or artifice to obtain such a profit, fee or commission; provided, however, that nothing herein shall limit or diminish the full meaning of the terms ‘fraud’ and ‘fraudulent’ as applied or accepted in courts of law or equity.' G. L. c. 110A, § 2 (g), as amended by St. 1924, c. 487, § 1.

By sections 12A and 12B, added to G. L. c. 25, by St. 1929, c. 287, § 1, there is created in the department of public utilities a securities division under the charge of a director to perform functions imposed upon it by the commission and, for the purpose of G. L. c. 110A, § 7, ‘an order or finding by said director, or his failure or refusal to make an order or finding, shall be deemed an order, finding, failure or refusal by the commission.’ See, also, G. L. c. 110A, § 2 (a), as amended by St. 1929, c. 287, § 2. Said section 7, as amended by St. 1922, c. 435, § 2, provides for an appeal from any order of the commission by any interested person aggrieved thereby and for a public hearing thereon before a majority of its members. It provides that upon request ‘by any such person, the commission shall rule upon any question of law properly arising in the course of such hearing,’and that at the ‘conclusion of such hearing, the commission shall reconsider and review the subject matter of such appeal,’ and gives to this court and to the superior court ‘jurisdiction in...