Paulos v. Best Securities, Inc.

• Citation: 260 Minn. 283,109 N.W.2d 576
• Decision Date: 09 June 1961
• Docket Number: No. 38206,38206
• Parties: , Blue Sky L. Rep. P 70,551 James G. PAULOS, Appellant, v. BEST SECURITIES, INC., et al., Respondents.
• Court: Supreme Court of Minnesota (US)

Page 576

109 N.W.2d 576

260 Minn. 283, Blue Sky L. Rep. P 70,551

James G. PAULOS, Appellant, v. BEST SECURITIES, INC., et al., Respondents.

No. 38206.

Supreme Court of Minnesota.

June 9, 1961.

Syllabus by the Court

1. Under Minn.St. 80.14, subd. 1, state court acquired jurisdiction over nonresident defendants in action involving their violations of §§ 80.07, 80.12, subd. 1, and 80.18, where, pursuant thereto, plaintiff left copies of summons and complaint for them with commissioner of securities here as their attorney for such service of process.

2. Validity of statutes comparable to § 80.14, subd. 1, established by decisions of United States Supreme Court in McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223, and International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, on theory that to subject a nonresident of the forum to judgment in personam due process requires only that such nonresident have certain minimum contacts with the forum so that maintenance of suit shall not offend traditional notions of fair play and substantial justice.

3. Actions of nonresident defendants in offering for sale and selling to plaintiff through long distance telephone and mail communications shares of corporate common stocks not registered with commissioner of securities here in violation of §§ 80.07, 80.12, subd. 1, and 80.18, constituted their irrevocable appointment of commissioner of securities here as their attorney for service of process upon them in actions involving such violations. Minnesota held to have manifest interest in providing effective means of redress for residents against nonresidents selling securities to them in violation of legislation designed for their protection.

4. Under § 303.13, subd. 1(3), Best Securities Incorporated, a New York corporation, held 'doing business' in Minnesota by virtue of their actions in negotiating for and consummating series of sales of corporate common stocks to Minnesota resident through long distance telephone and mail communications.

James G. Paulos, St. Paul, pro se Thomas J. Burke, St. Paul, for appellant.

Ryan, Kain, Mangan, Westphal & Kressel, and James J. Moran, Minneapolis, for respondents.

THOMAS GALLAGHER, Justice.

Plaintiff, a Minnesota resident, instituted this action against Best Securities Incorporated, a New York corporation, not qualified to do business in Minnesota or having a place of business here, and certain of its officers and agents, none of whom were physically present here, for violation of Minn.St. 80.07, ¹ 80.12, subd. 1, ² and 80.18, ³ in the sale of certain common stocks to plaintiff.

Pursuant to § 80.14, subd. 1, ⁴ service of process upon the defendants was made by leaving a copy of the summons and complaint for each of them with the commissioner of securities for the State of Minnesota as defendants' attorney for such service. No answers were interposed and subsequently plaintiff entered a default judgment against all of the defendants in the sum of $6,399.58.

This is an appeal from an order quashing such service and vacating the judgment. In a memorandum attached to the order, the trial court stated:

'It appears conclusively that the defendant corporation is a New York corporation and that the other defendants named in said action also reside outside of the State of Minnesota, and that they have never been engaged within the State of Minnesota in the sale of securities. It appears conclusively that the defendants never registered nor attempted to register the stocks which they subsequently sold to the plaintiff in this case. It further appears that they never appointed the Commissioners of Securities as their agent for the service of summons in this State. It further appears that they never through any agents within the State of Minnesota * * * carried on their operations to sell stocks. It appears conclusively that the sales here involved were based almost entirely on and arose out of telephone communications had between the defendants in New York and the plaintiff in the State of Minnesota. There appears to have been a small amount of mail matter passed between the parties also. In the light of the foregoing facts it seems too clear for serious argument that the sales here in question were in fact New York sales and that the defendants did nothing to subject them to any penalties under Minnesota law.

'Under the factual situation here presented it is not possible to properly serve process upon the defendants through the Commissioner of Securities of the state of Minnesota * * *. Garber vs. Bancamerica-Blair Corp., 205 Minn. 275, 285 N.W. 723.'

Plaintiff contends that defendants' violations of §§ 80.07, 80.12, subd. 1, and 80.18 in effect constituted defendants' appointment of the Minnesota commissioner of securities as their attorney for the service of process ⁵ and subjected them to the jurisdiction of the Minnesota courts under § 80.14, subd. 1; and further that as to Best Securities its actions with reference to its sales to plaintiff of common stocks not registered here constituted 'doing business' here as defined in § 303.13, subd. 1(3), ⁶ so as to afford the Minnesota courts a valid basis for jurisdiction of both the subject matter of the action and of this defendant.

It is not disputed that none of the individual defendants ever maintained offices or were physically present in this state during the transactions described; that neither Best Securities nor any of its officers or agents were ever present here during such transactions; that Best Securities was not at any time qualified to do business here as a foreign corporation; that plaintiff, a St. Paul attorney, was at no time present in New York during the transactions described; and that all communications between plaintiff and defendants were either by mail or by telephone.

The facts upon which plaintiff claims Minnesota courts acquired jurisdiction are as follows: Initially defendants mailed plaintiff a letter entitled 'OUR INVITATION TO YOU' in which they proposed to send plaintiff a weekly periodical designated 'Best's News & Views,' which purported to analyze news stories relative to stock market action. In response thereto plaintiff mailed to defendants a printed card which defendants had enclosed in their communication to plaintiff requesting that defendants mail plaintiff the regular issues of the periodical described. These periodicals which plaintiff subsequently received contained descriptions and information relative to certain corporations whose shares, though unregistered here and unlisted on any exchange, could be purchased through defendants. Included therein was Alaska International Corporation, a company engaged in various oil and development activities, stock in which defendants were offering for sale as indicated.

Subsequently, numerous long distance telephone conversations ensued between the parties. As a result of these conversations and the correspondence between the parties, plaintiff at various times between June 2, 1959, and February 9, 1960, purchased from defendants as brokers a total of 3,495 shares of Alaska International Corporation's common stock for the sum of $5,791.25. To pay for this plaintiff mailed his checks from St. Paul to defendants in New York. There defendants credited plaintiff's account with the shares of stock thus purchased, all of which were delivered to plaintiff except 800 shares covered by the last order.

On March 24, 1960, defendants called plaintiff from New York and advised him to sell his shares of Alaska International Corporation which he had purchased through them, as it had fallen in value to .625 per share--plaintiff's shares accordingly then having a total value of but $2,266.50. At the same time, defendants urged him to authorize them to use the proceeds of the contemplated sale for the purchase of stock in some other corporation which they represented as brokers. Later this same day they reported to plaintiff that they had sold all of his stock in Alaska International Corporation and had credited his account with $2,183.50. This sum is still held by them.

1. We are of the opinion that plaintiff's substituted service of process upon the defendants under § 80.14, subd. 1, as above described, was valid and gave the district court jurisdiction of both the subject matter of the action described in the complaint and of the defendants named therein. The provisions of § 80.14, subd. 1, authorizing such service, were enacted by L.1941, c. 547, § 11, following decisions in Garber v. Bancamerica-Blair Corp., 205 Minn. 275, 285 N.W. 723, and Sivertsen v. Bancamerica-Blair Corp., D.C.D.Minn., 43 F.Supp. 233. ⁷ Prior to that time the governing statutes (Mason St.1927, §§ 3996--1 to 3996--28) contained no provision for the involuntary appointment of the commissioner of securities as attorney for service of process on nonresidents operating here in violation of Minnesota statutes relative to the sale of securities in Minnesota. Under § 80.14, subd. 1, as amended, a nonresident's violation of any of the provisions of §§ 80.05 to 80.27 is conclusively deemed an Irrevocable appointment of the commissioner of securities by such nonresident as his true and lawful attorney for service of legal process in any action involving such violation. Here plaintiff alleged that defendants were guilty of violation of §§ 80.07, 80.12, subd. 1, and 80.18, and accordingly it would follow that under § 80.14, subd. 1, they became subject to the jurisdiction of the Minnesota courts through service of process upon the commissioner of securities.

2. That provisions relative to substituted service upon nonresidents of a state similar to those included in § 80.14, subd. 1, are valid has been established by a number of decisions of the United States Supreme Court. McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223; International Shoe Co. v....