Olympic Capital Corporation v. Newman
| Decision Date | 14 November 1967 |
| Docket Number | Civ. No. 67-46. |
| Citation | 276 F. Supp. 646 |
| Court | U.S. District Court — Central District of California |
| Parties | OLYMPIC CAPITAL CORPORATION, a Texas Corporation, Plaintiff, v. Joseph E. NEWMAN and Newman Capital Corporation, a Colorado Corporation, Defendants. |
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Schoichet & Rifkind and Howard D. Sterling, Beverly Hills, Cal., for plaintiff.
James L. Hoxie, Los Angeles, Cal., Robert E. Holland, Denver, Colo., and Munger, Tolles, Hills & Rickershauser, Carla A. Hills, Los Angeles, Cal., for defendants.
The Small Business Administration as the receiver of defendant, NEWMAN CAPITAL CORPORATION, a Colorado corporation moves: (1) to dismiss the action as to defendant NEWMAN CAPITAL CORPORATION on the ground that this court is not the proper forum in that defendant NEWMAN CAPITAL CORPORATION is not properly found in this District; (2) to dismiss as to defendant NEWMAN CAPITAL CORPORATION on the ground that the complaint does not state a claim upon which relief can be granted against defendant NEWMAN CAPITAL CORPORATION; and (3) in the alternative, for Summary Judgment since the pleadings and affidavits show that there is no genuine issue as to any material fact; and (4) for release and delivery to the Small Business Administration of any and all sums which have been paid into court for the account of defendant NEWMAN CAPITAL CORPORATION.
Defendant JOSEPH E. NEWMAN moves: (1) to dismiss the Second and Third Counts of the Amended Complaint pursuant to Rule 12(b) (1) of the Federal Rules of Civil Procedure as to defendant JOSEPH E. NEWMAN on the ground that this court lacks jurisdiction over the subject matter under the provisions of §§ 17(a), 22 of the Securities Act of 1933, 15 U.S.C.A. §§ 77q, 77v; (2) to dismiss the Second and Third Counts of the Amended Complaint pursuant to Rule 12(b) (3) of the Federal Rules of Civil Procedure as to defendant JOSEPH E. NEWMAN on the ground that venue is improper under the provisions of § 22 of the Securities Exchange Act of 1933 and § 27 of the Securities Exchange Act of 1934, 15 U.S.C.A. §§ 77v, 78aa; (3) to Quash Service of Summons and dismiss the First, Fourth, and Fifth Counts of the Amended Complaint for Money Judgment pursuant to Rule 12(b) (2) and 12(b) (5) of the Federal Rules of Civil Procedure on the ground the court lacks jurisdiction over the person of defendant JOSEPH E. NEWMAN and insufficiency of service of process upon defendant JOSEPH E. NEWMAN pursuant to Rule 4(f) of the Federal Rules of Civil Procedure; (4) to dismiss the Fourth Count of the Amended Complaint pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure on the ground of failure to state a claim upon which relief can be granted against defendant in that plaintiff has no standing to enforce Title 18 U.S.C.A. § 1014 on behalf of the United States; and (5) alternatively to transfer the Amended Complaint pursuant to Title 28 § 1404(a) for the convenience of the parties and witnesses in the interest of justice.
Plaintiff OLYMPIC CAPITAL CORPORATION has filed separate memoranda of Points and Authorities and affidavits as to each of the motions of defendants. Since all present common questions, they will be considered as though presented in one pleading.
This is an action commenced by plaintiff OLYMPIC CAPITAL CORPORATION, a Texas Corporation, with its principal place of business in California against defendants JOSEPH E. NEWMAN, a citizen and resident of Colorado, and NEWMAN CAPITAL CORPORATION, a Colorado Corporation, with its principal place of business in Colorado.
The claim of plaintiff is in five counts, arising out of basically a single transaction, i. e., a debt evidenced by a Promissory Note executed by defendant JOSEPH E. NEWMAN, individually, on or about May 1, 1963. The First Count alleges a suit upon the promissory note executed by defendant JOSEPH E. NEWMAN May 1, 1963, and alleges that defendant JOSEPH E. NEWMAN and defendant NEWMAN CAPITAL CORPORATION have such a unity of interest that the "individuality and separateness of defendant NEWMAN and defendant CAPITAL has ceased" (alter ego).
Counts Two and Three purport to allege causes of action under the Securities Act of 1933 (15 U.S.C.A. § 77v) and the Securities Exchange Act of 1934 (15 U.S. C.A. § 78aa).
Count Four purports to allege a cause of action pursuant to Title 18 U.S.C.A. § 1014.
The Fifth Count purports to allege a common law suit for fraud.
Jurisdiction of Counts One, Four and Five is predicated upon diversity of citizenship. Counts Two and Three ground their jurisdiction in the respective Securities Acts of 1933 and 1934.
Defendant NEWMAN CAPITAL CORPORATION has been placed in receivership by the United States District Court for the District of Colorado and the Small Business Administration is the duly appointed receiver.
Defendant NEWMAN CAPITAL CORPORATION questions the right of plaintiff to bring this suit because of alleged violations of the Small Business Investment Company Act of 1958. These alleged violations are that plaintiff changed its name and principal place of business without the prior approval of the Administrator.
Plaintiff denies any violation on the ground that application was made for change of name and principal place of business and though no express approval of the Administrator has been forthcoming, approval can be found in the Regulations of the Small Business Administration by the failure of notification to the contrary within sixty (60) days after receipt of an application.
Title 15 U.S.C.A. § 681 provides in its pertinent part:
At the outset it appears that the statute contemplates licensing of a corporation which must first find its existence under State law. Clearly the provisions of Title 15 § 681 do not contemplate the creation and maintenance of the corporate entity but only the licensing of a corporate entity created under State law as a small business investment company. It is State law that governs its creation and existence as the corporate entity with the capacity to sue and be sued.
Provisions for forfeiture of the license to do business as a Small Business Investment Company, once granted by the Administration, are found in Title 15 § 687 not fully quoted by counsel for the Small Business Administration herein. From the quoted language however it can be seen that violation or failure of compliance of the Act or regulations promulgated thereunder may, but does not necessarily, cause the forfeiture of the license. What is important is: How is that done? It is not automatic!
Title 15 U.S.C.A. § 687 provides in its pertinent part:
The Administration has neither the power, nor the right to forfeit any license of a small business investment company licensed pursuant to the Small Business Investment Act of 1958, Title 15 U.S.C.A. §§ 661-696. That power is reserved specifically to "a court of the United States of competent jurisdiction." The Administration can, after hearing, suspend a license or issue a cease and desist order pursuant to Title 15 U.S.C.A. § 687a. None of the procedures which could in any manner affect plaintiff in the prosecution of its suit here have been instituted.
Further, the position of plaintiff appears well taken with reference to the regulations of the Small Business Administration itself. Under the circumstances the raising of an issue so clearly erroneous on behalf of defendant NEWMAN CAPITAL CORPORATION is completely without merit and frivolous.
Defendant, NEWMAN CAPITAL CORPORATION, (hereinafter referred to as CAPITAL) was incorporated as a Small Business Investment Company under the laws of the State of Colorado on May 2, 1963, and licensed by the Small Business Administration on June 28, 1963. CAPITAL has at all times maintained its principal place of business in the State of Colorado.
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