People by Mosk v. Lynam

• Decision Date: 29 August 1967
• Citation: 61 Cal.Rptr. 800,253 Cal.App.2d 959
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE of the State of California, by Stanley MOSK, Attorney General, and by John G. Sobieski, Commissioner of Corporations, Plaintiff and Respondent, v. George LYNAM and Estate Organization Service, an unincorporated association, Defendants and Appellants. Civ. 31452.

Page 800

61 Cal.Rptr. 800

253 Cal.App.2d 959

The PEOPLE of the State of California, by Stanley MOSK, Attorney General, and by John G. Sobieski, Commissioner of Corporations, Plaintiff and Respondent, v. George LYNAM and Estate Organization Service, an unincorporated association, Defendants and Appellants.

Civ. 31452.

Court of Appeal, Second District, Division 1, California.

Aug. 29, 1967.

Rehearing Denied Sept. 15, 1967.

Hearing Denied Oct. 25, 1967.

Jerrell Babb, Los Angeles, for defendants and appellants.

Thomas C. Lynch, Atty. Gen., H. Warren Siegel, Deputy Atty. Gen., for plaintiff and respondent.

WOOD, Presiding Justice.

This is an action by the People of the State of California for an injunction restraining defendants George Lynam and Estate Organization Service from engaging in untrue and misleading advertising practices (Bus. & Prof.Code, § 17500) in connection with the promotion of 'pure trust' plans for the management of personal assets. Upon plaintiff's motion, the court granted a summary judgment restraining defendants from engaging in several specified advertising practices. Defendants appeal from the judgment.

Appellants contend that the summary judgment procedure was not a proper means of determining the issues on the merits; that the court improperly considered certain 'documents' in ruling upon the motion; and that plaintiff's notice of motion was insufficient.

Plaintiff's complaint, which is for injunctive relief against several defendants, including George Lynam, Joseph R. Brauner, and Estate Organization Service, incorporates several exhibits and alleges in substance that the defendant distributed, in California, untrue and misleading advertising in connection with the use and sale of 'Pure Trust' indentures. There are also allegations with reference to agency and conspiracy among the defendants.

Depositions were taken of defendants Lynam and Brauner, and of Faith Field and Frederico Tamayo. Sworn answers of defendant Lynam to interrogatories were filed. A motion for a preliminary injunction restraining defendants from distributing certain untrue and misleading advertising, which motion was based upon several exhibits and upon the files in the action, was granted. A motion for summary judgment, based upon the files in the action and upon the deposition of defendant Lynam, and his answers to interrogatories, was granted in part as to defendants Lynam and Estate Organization Service.

Thereafter, plaintiff dismissed the action as to all defendants other than Lynam, Brauner, and Estate Organization Service, because such other defendants were 'no longer engaging in business in California' and that an injunction 'would serve no purpose as to them.'

Plaintiff then made a motion for summary judgment against Defendants Lynam, Brauner, and Estate Organization Service. The notice of motion states in substance that the motion will be based upon 'all documents' in the files of this action, including the preliminary injunction and the orders made with reference to partial summary judgment. A declaration by counsel for the plaintiff accompanied the notice of motion. Said declaration states in part that since the granting of the partial summary judgment, plaintiff has dismissed the action as to all defendants other than Lynam, Brauner, and Estate Organization Service; that plaintiff abandons all allegations of the complaint with reference to agency and conspiracy; and that with the abandonment of such allegations, the previous orders for partial summary judgment finally determine the controversy because all elements necessary to the right to injunctive relief against defendants Lynam, Brauner, and Estate Organization Service have been established. Summary judgment was entered against said defendants. Defendants Lynam and Estate Organization Service appealed from the judgment. (Braunder did not appeal.)

In his deposition (and in several declarations and in answers to interrogatories), defendant Lynam admitted that he is the manager, treasurer, and a beneficial owner (with Maurice and Josephine Offley) of Estate Organizations Service, a trust; that he and Estate Organization Service distributed to the public in California, by mail and by direct contact, various advertising materials (exhibits--part of deposition) for the promotion and sale of pure trusts; and that he obtains most of the advertising materials and obtains the forms for pure trust indentures from the American Family Foundation of Chicago.

Some of the statements and representations in the advertising materials are in substance as follows: A creator of a pure trust may be a trustee, and the sole beneficiary, of the trust. The creator may apply the income and principal of the trust for his own or his dependents' maintenance, may control the beneficial enjoyment of the income and corpus, and may operate and manage the trust as an income or profit activity and as a substitute for a voluntary association or corporation. Such a trust effectively protects the creator's assets from personal liabilities, effectively prevents the probate of all assets transferred to the trust, and avoids all estate and inheritance taxes upon the creator's death. If attorneys and banks are asked about the validity of a pure trust, they would either be uninformed or unable to give an opinion, or, if they believed that a pure trust indenture was valid, they would conceal such opinion because a pure trust obviates the necessity for wills and for corporate trustees. No state can regulate the operation of a pure trust because such action would contravene the United States Constitution. The American Family Foundation of Chicago created a trust for the family of President Kennedy. The issuance of beneficial certificates by a pure trust is not subject to corporate security regulation. The income which might accrue to the trust is not taxable to the trust entity. Pure trusts cannot be challenged in any state or federal court or regulated by the laws of any state for the reason that the pure trust is guaranteed by the United States Constitution.

In defendant Lynam's declarations in opposition to the motions for summary judgment and partial summary judgment he declares in substance that he did not make any of the statements. He does not declare therein that he did not distribute the advertising materials.

The judgment enjoins and restrains defendants Lynam, Brauner, and Estate Organization Service from making, or causing to be made, any of the following statements, or statements which convey the thought contained therein:

'(i) That a creator of a 'Pure Trust' might by his declaration of purpose be the sole beneficiary of a 'Pure Trust' or may retain for himself the powers, Inter alia, to apply income and principal for his own or his dependents' maintenance, to control beneficial enjoyment of income and corpus, to terminate the trust, to amend the terms of the trust, or to operate and manage the trust as an income or profit activity using the 'pure Trust' as a substitute for a voluntary association or corporation, and that such a trust would be effective to protect the creator's assets from personal liabilities to prevent probate of all assets transferred into the trust, and to avoid estate or inheritance taxes upon the creator's death.

'(ii) That if attorneys or banks were asked about the validity of a 'Pure Trust', they would either be uninformed and unable to give an opinion, or if they believed the 'Pure Trust' indenture to be valid, would conceal such opinion because a 'Pure Trust' obviates the necessity for wills and obviates the necessity for corporate trustees.

'(iii) That no state could regulate the operation of a 'Pure Trust' because such action would be in contravention of the provisions of the United States Constitution.

'(iv) That the American Family Foundation of Chicago created a trust for the family of the late President John F. Kennedy.

'(v) That the issuance of beneficial certificates by a 'Pure Trust' is not in violation of the Corporate Securities Law of this state.

'(vi) That any income which might accrue to the trust is not taxable to the trust entity.

'(vii) That a 'Pure Trust' purportedly formed pursuant to the documents sold and distributed by defendants cannot be challenged in any state or federal court or regulated by the laws of any state for the reason that the 'Pure Trust' is guaranteed or protected by the United States Constitution.'

The judgment also enjoins and restrains said defendants from distributing any documents containing such statements and from aiding in the issuance of certificates representing a beneficial interest in any real estate investment trust unless a permit for issuance of securities has been obtained from the Commissioner of Corporations as required by section 25500 of the Corporations Code.

Appellants contend that the summary judgment procedure was not a proper means of determining the issues on the merits and that the court improperly considered the depositions and other documents (in the files of the action) in ruling upon the motion.

'The purpose of the (summary judgment) procedure is to discover, through the media of affidavits, whether the parties possess evidence such demands the analysis of trial.' (Kramer v. Barnes, 212 Cal.App.2d 440, 445, 27 Cal.Rptr. 895, 898.) 'The use of depositions in support of, or in opposition to, a motion for summary judgment in conjunction with or in lieu of affidavits is, of course, proper.' (Ibid, p. 444, 27 Cal.Rptr. p. 897; see Estate of Nelson, 227 Cal.App.2d 42, 47, 38 Cal.Rptr. 459; cf. Hoston v. J. R. Watkins Co., (9th Cir.1962) 300 F.2d 869, 870.) It has also been said, in viewing the sufficiency of an affidavit made by a deputy city attorney in support of the city's motion for summary judgment, that the court 'must not only look to the face of the affidavit but * * * must also examine the documents in the file which it incorporates * * *.' (...