People v. Clem

• Decision Date: 28 May 1974
• Docket Number: Cr. 12041
• Citation: 39 Cal.App.3d 539,114 Cal.Rptr. 359
• Court: California Court of Appeals Court of Appeals
• Parties: , Blue Sky L. Rep. P 71,140 PEOPLE of the State of California, Plaintiff and Respondent, v. Billy M. CLEM and Walter Mengel, Jr., Defendants and Appellants.

Page 359

114 Cal.Rptr. 359

39 Cal.App.3d 539, Blue Sky L. Rep. P 71,140

PEOPLE of the State of California, Plaintiff and Respondent, v. Billy M. CLEM and Walter Mengel, Jr., Defendants and Appellants.

Cr. 12041.

Court of Appeal, First District, Division 4, California.

May 28, 1974.

Trepel, Gingerich & Hoss, Sunnyvale, for defendants and appellants.

Evelle J. Younger, Atty. Gen. of Cal., Jack R. Winkler, Chief Asst. Atty., Gen., Crim. Div., S. Clark Moore, Asst. Atty. Gen., Robert F. Katz, William V. Ballough, Deputy Attys. Gen., Los Angeles, for plaintiff and respondent.

CHRISTIAN, Associate Justice.

After a non-jury trial, Billy M. Clem and Walter Mengel appeal from a judgment which fined each of them $50 for each of six counts of selling securities without first qualifying the securities with the Commissioner of Corporations (Corp.Code, §§ 25110, 25540).

Appellants formed three limited partnerships for the purpose of raising money to develop silver mines in Nevada. Without qualifying the securities with the Commissioner of Corporations as required by section 25110 of the Corporations Code, ¹ appellants sold interests in the limited partnerships to the public and capitalized their ventures in a total amount exceeding $300,000. Learning that they might be operating unlawfully, appellants arranged to buy back the interests of some of the investors; others consented to the conversion of their partnership interests into shares of stock in a new corporation. The trial court determined that the issuance of corporate stock did not violate California law because the transactions took place in Nevada. The ventures soon failed, and substantial losses were sustained by investors.

Appellants contend that they should not have been found guilty in the absence of evidence that they acted with criminal intent. The appeal turns on the construction of the penalty provisions of the Corporate Securities Law of 1968 (Stats.1968, ch. 88, operative Jan. 2, 1969). Section 25110 makes it 'unlawful for any person to offer or sell in this state any security in an issuer transaction . . . unless such sale has been qualified . . .' Criminal penalties are provided in section 25540: 'Any person who Willfully violates any provision of this law, or who Willfully violates any rule or order under this law, shall upon conviction be fined not more than ten thousand dollars ($10,000) or imprisoned in the state prison for not more than 10 years or in a county jail for not more than one year, or be punished by both such fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he proves that he had no knowledge of the rule or order.' (Emphasis added.)

Appellants assert that in condemning only 'willful' violations the Legislature exempted from prosecution any seller of unqualified securities who cannot be shown to have possessed some form of criminal intent, Mens rea, or other moral culpability.

Former section 26104, subdivision (a), repealed by the Corporate Securities Act of 1968, provided criminal penalties for any person who 'knowingly' dealt with securities in an unlawful manner. It was established under the prior statute that 'knowingly,' as used in the penalty provision, meant with 'knowledge of the essential facts' and that advice of counsel or other showing of good faith was not a defense to a charge of unlawful dealing in securities. (See, e.g., People v. Sidwell (1945) 27 Cal.2d 121, 126, 162 P.2d 913; People v. Acres (1959) 174 Cal.App.2d 42, 48, 344 P.2d 327.)

The question is whether the new statute, in punishing only 'willful' violations, creates a defense of good faith. That is to say, does 'the governing statute, by implication or otherwise, (express a) legislative intent or policy to be served by imposing strict liability.' (People v. Hernandez (1964) 61 Cal.2d 529, 533, 39 Cal.Rptr. 361, 363, 393 P.2d 673, 675; see also People v. Superior Court (1969) 70 Cal.2d 123, 132, 74 Cal.Rptr. 294, 449 P.2d 230.)

Among several connotations conveyed in common usage by the word 'willfully' the one most fitting to the statutory context is 'done deliberately: not accidental or without purpose.' (Webster's Third New International Dictionary (1967).) Similarly, in legal usage 'willful' has been defined as meaning 'proceeding from a conscious motion of the will; voluntary.' (Black's Law Dictionary (4th ed. 1968).) As used in the Penal Code the word 'willfully' has been defined by statute as implying 'simply a purpose or willingness to commit the act, . . . It does not require any intent to violate law, . . .' (Pen.Code, § 7, subd. 1.) It remains to be determined whether in the context of the Corporate Securities Law the word takes on a connotation different from its general...