Lolkus v. Vander Wilt

• Decision Date: 05 April 1966
• Docket Number: No. 52024,52024
• Citation: 258 Iowa 1074,141 N.W.2d 600
• Parties: , Blue Sky L. Rep. P 70,709 Adrianius LOLKUS, Cornelius Lolkus, Leonard Vanden Bosch, Kerwin R. Hoffs, John Broek, Jr., and Cornie Broek, Appellees, v. Arnold J. VANDER WILT and Raymond E. Gunter, Appellants.
• Court: Iowa Supreme Court

Page 600

141 N.W.2d 600

258 Iowa 1074, Blue Sky L. Rep. P 70,709

Adrianius LOLKUS, Cornelius Lolkus, Leonard Vanden Bosch, Kerwin R. Hoffs, John Broek, Jr., and Cornie Broek, Appellees, v. Arnold J. VANDER WILT and Raymond E. Gunter, Appellants.

No. 52024.

Supreme Court of Iowa.

April 5, 1966.

Goldberg, Probasco & Berenstein, by Marvin S. Berenstein, Sioux City, for appellants.

Pendleton & Pendleton, by C. Wendell Pendleton, Storm Lake, and Daniel D. Sanderson, Estherville, for appellees.

SNELL, Justice.

This is a civil action at law under the Iowa Securities Law chapter 502, 1962 Code of Iowa, commonly called the 'Blue Sky Law.' Six plaintiffs, appellees herein, sought recovery of their purchase money paid for certificates of fractional interests in a Colorado mining venture referred to as Quickie Iron Mining Company. As the situation developed it appeared that the only thing quick about the mining company was the way in which the investors lost their money. The plaintiffs contended that the fractional interests were sold to them by the defendants-appellants in violation of the law. The cause of action is based on the civil remedy provided for in section 502.23, Code of Iowa. The defense was based upon the claim that the defendants did not know they were in violation of the law and also that four of the plaintiffs had in writing waived any right to recovery.

The case was tried to a jury and a verdict was returned in favor of the plaintiffs. From the judgments entered thereon the defendants appeal.

The situation disclosed by the record herein is fantastic. The desire for easy money and quick returns on speculative ventures inspired an almost unbelievable credulity and led otherwise careful and conservative people to substantial loss.

The State of Colorado granted to Hafen Leavitt, a resident of Colorado, two mining leases covering approximately 80 acres each for a consideration of $160. Quickie Mining Company was an unregistered trade name subsequently used for the promotion of Leavitt's interests.

In August 1961 Leavitt sold to Arnold J. Vander Wilt, one of the defendants herein, a twenty-five percent interest in the net profits to be realized from the production and marketing of minerals from the leased land. For his interests in this venture Vander Wilt made payments on a D--9 caterpillar tractor totaling $20,659.66.

Defendant Raymond E. Gunter bought into the venture paying $10,000 for a one percent interest. Gunter testified that Leavitt agreed to use his money to develop the mine but the check was cashed by Leavitt in Las Vegas, Nevada. Gunter's suspicions were alerted but he accepted a rather vague excuse.

Vander Wilt and Gunter are the defendants in this action.

No useful purpose would be served by recitation of the many detailed and sometimes intricate arrangements that followed. We summarize and refer only to such matters as are essential to the legal issues before us. Arrangements were made under which Vander Wilt and Gunter were to sell, in behalf of Leavitt, interests in the mining venture.

Vander Wilt and Gunter were enthused by the opportunity to gain quick wealth. They 'passed the word' and opened the door to others in the community. They acted as the agents and salesmen. Initially defendants and nine others invested over $80,000. Leavitt reported that more money was needed. Another group of investors was formed. Defendants were the active salesmen. Glowing reports as to the value of the mining property, the quality and extent of the ore to be easily produced and the quick profits to be realized were circulated. The selling price of interests was raised to $21,000 for a 1% Interest. The second group invested $116,752.50. All but $11.57 has been disbursed. Altogether it would appear that over $200,000 has been 'invested.' This case involves only six of the investors and part of this money.

It is not claimed that either Vander Wilt or Gunter took or kept for their own use any of this money. They would have under various arrangements received additional interests and have realized greater gains than the others if the venture had proved profitable.

There have been only superficial efforts at development of the mine, no production, no profits or returns on or of the several investments. We quote from the report of an experienced professional geological engineer:

'1. So far as the Iron Mining Lease is concerned, there is no indication that iron minerals and/or iron ores exist in sufficient quantity to sustain an operation. For practical purposes, therefore, the iron lease is worthless;

'2. So far as the Beryllium Mining Lease is concerned, it does not appear to be capable of sustaining an operation and its value is considered highly doubtful; and

'3. So far as the conduct of the operation to date is evinced by the physical work of whatever nature that has been accomplished, I find that it has been done without knowledge or regard of what is specifically required and without plans which would be derived from such knowledge.

'It is my carefully considered professional opinion that the current venture relating to mining and processing iron minerals or iron ores is foredoomed to failure. I further opine that no mining or milling venture for minerals other than iron is indicated therein.'

It was admitted that neither Quickie Iron Mining Company, Arnold J. Vander Wilt, Raymond E. Gunter, nor any other person interested in this project was licensed to engage in the sale of securities as defined by section 502.3(1) of the Code of Iowa (1962), and that Quickie Iron Mining Company was not authorized to do business in the State of Iowa.

Defendants also admitted that the instruments representing the 'net royalty interest' were not registered as securities with the State of Iowa as required by sections 502.6 and 502.7 of the Code of Iowa (1962), pertaining to the registration of securities.

Plaintiffs have severally served notice of rescission and demand for return of their money under chapter 502, Code of Iowa. Return of plaintiffs' certificates was tendered.

Defendants admitted that they knew there was neither license nor registration. They testified without contradiction that they did not know of the statutory requirements. Their first defense is based on their lack of knowledge.

I. As stated in appellants' brief 'The suppression of fraudulent practices and the protection of the public from their own gullibility are commonly accepted as the primary purposes of Blue Sky Laws.'

Our Blue Sky Law is found in chapter 502, Code of Iowa. The chapter provides for many things including administration by the commissioner of insurance, the meaning of terms used in the act, certain exemptions, the registration of securities, registration of dealers and salesmen, maintenance of injunctive proceedings, remedies and penalties for noncompliance.

Defendants admit in argument that the certificates of interest in the mining lease involved herein are securities as defined in section 502.3(1) and that defendants were agents as defined in section 502.3(8), Code of Iowa.

II. Section 502.23, Code of Iowa, provides:

'Remedies. Every sale or contract for sale made in violation of any of the provisions of this chapter shall be voidable at the election of the purchaser and the person making such sale or contract for sale and every director, officer, or agent of or for such seller who shall have personally participated in making such sales and At the time knew of such violations shall be jointly and severally liable to such purchaser in an action at law in any court of competent jurisdiction upon tender to the seller in person or in open court of the securities sold or of the contract made for the full amount paid by such purchaser * * *.' (Emphasis added)

Defendants argue with vigor, skill and resourcefulness that in the absence of proof that defendants knew they were in violation of the law there can be no recovery. They argue that there must be proof of a conscious awareness that they were violating the law.

Defendants cite numerous authorities from other jurisdictions but, except for an article in 14 Drake Law Review 131, none from or originating in Iowa. The cited article is informative and well written and although we disagree with the interpretation of the statute and the conclusion of the writer as indicated, infra, we quote excerpts therefrom:

'The heart of the Iowa Securities Law, so far as civil remedies are concerned, is section 502.23. The theory of this section is that a buyer of securities may at his election void the sale if the sale was made in violation of any provision of the Act. This, of course, resembles common-law rescission. Some of the pitfalls of common-law rescission have been eliminated in the statute, however. For instance the statute does not require a showing that the defendant made a material misrepresentation of fact upon which the plaintiff relied. The statute states that 'every sale or contract for sale made in violation of the provisions of this chapter shall be voidable at the election of the purchaser * * *.' Thus, rescission is available to the buyer not only when there has been a misrepresentation or fraud practiced on him, but also when the securities were not registered (and not exempt) and (in a nonexempt transaction) when the broker or dealer who sold them was not registered. As in common-law rescission, the buyer need not show any causal connection between the violation and his loss, nor need he be able to show a loss. The statute does, however, require that the seller when he participated in the sale knew that such was in violation of the Act. The inclusion of the knowledge requirement was, perhaps unwise. If the purpose of the statute is to protect the buyer and it does this by broadening the common law remedies already available to him this could have been much more effectively done by subjecting the seller to strict liability for any violation. ...