Polaris Intern. Metals Corp. v. Arizona Corp. Com'n, 15830

• Citation: 652 P.2d 1023,133 Ariz. 500
• Decision Date: 27 September 1982
• Docket Number: No. 15830,15830
• Parties: , Blue Sky L. Rep. P 71,764 POLARIS INTERNATIONAL METALS CORPORATION, a corporation; James Concannon, Plaintiffs-Appellants, v. The ARIZONA CORPORATION COMMISSION; Bud Tims, Stan Akers and Jim Weeks, individually and as members of the Arizona Corporation Commission; and Matthew J. Zale, individually and in his capacity as Director of Securities of the Arizona Corporation Commission, Defendants-Appellees.
• Court: Supreme Court of Arizona

Page 1023

652 P.2d 1023

133 Ariz. 500, Blue Sky L. Rep. P 71,764

POLARIS INTERNATIONAL METALS CORPORATION, a corporation; James Concannon, Plaintiffs-Appellants, v. The ARIZONA CORPORATION COMMISSION; Bud Tims, Stan Akers and Jim Weeks, individually and as members of the Arizona Corporation Commission; and Matthew J. Zale, individually and in his capacity as Director of Securities of the Arizona Corporation Commission, Defendants-Appellees.

No. 15830.

Supreme Court of Arizona,

In Division.

Sept. 27, 1982.

Rehearing Denied Nov. 2, 1982.

Richard L. Keefe, Walter J. Grace, III, Norris L. Ganson, Tucson, for plaintiffs-appellants

Robert K. Corbin, Atty. Gen., Patrick M. Murphy, Chief Counsel, John C. Dutton, Jr., Asst. Atty. Gen., Financial Fraud Div., Phoenix, for defendants-appellees.

GORDON, Vice Chief Justice:

Polaris International Metals Corporation [Polaris] and James Concannon, President of Polaris, filed a declaratory judgment action against appellees. The purpose of the action was to: (1) void the Arizona Corporation Commission's [the Commission] Cease and Desist Order with Docket No. S-1343-I issued March 26, 1971; (2) hold A.R.S. § 44-1841 unconstitutional to the extent it applies to interstate commerce; (3) rule that Polaris' stock sales from January 1, 1973 to the time the complaint was filed were within the exemptions of A.R.S. § 44-1844; and (4) find the Commission's investigation of Polaris unreasonable and order it restrained. From the trial court's order of April 21, 1980 granting appellees' Motion to Dismiss, appellants appeal. The thrust of the motion was that appellants had failed to state a claim for which relief could be granted, Ariz.R.Civ.P. 12(b)(6). Taking jurisdiction pursuant to Ariz. Const. Art. 6, § 5(3) and Ariz.R.Civ.App.P. 19(e), we affirm in part and reverse in part the trial court's order and remand for further proceedings consistent with this opinion.

FACTS

In reviewing an order granting a motion to dismiss under Ariz.R.Civ.P. 12(b)(6), it is well-settled that the facts pleaded by the plaintiff are considered true. Therefore, for the purposes of this appeal, we rely only on appellants' version of what transpired before the complaint was filed.

Correspondence in the record indicates that the Commission first became involved with Polaris in 1961. The present controversy did not begin, however, until 1971. On March 26, 1971, the Commission entered a cease and desist order against Polaris. Polaris had been selling unregistered securities through unregistered salespeople to finance the development of a pilot plant that would test a new steel making process. The Commission ordered Polaris to stop engaging in any act related to the sale of securities until the company registered its securities, sales personnel, and advertising material pursuant to the appropriate Arizona statutes and rules.

On April 7, 1971, Polaris' attorney sent a letter requesting the Commission to clarify its order and to retract allegedly false statements made by Commission representatives to a Polaris stockholder and to Tucson security brokers. Having received no response to the letter, the attorney telephoned the Commission on April 25 and was promised an answer to his letter. No answer was ever received.

Polaris obtained the help of an Arizona state senator who arranged a meeting between the Commission and Polaris on December 15, 1971. Polaris claims that at that time a Commission representative made more false statements about Polaris (concerning alleged investigations by federal and Louisiana securities agencies) and refused to clarify or vacate the cease and desist order.

The Arizona Legislature amended A.R.S. § 44-1844(1) in 1972 to exempt private offerings of securities from the securities registration requirements. Polaris believed that its prior security offerings had been private, and on June 1, 1973 again began to issue and sell stocks in what it contends were private offerings.

In July, 1974, Polaris scheduled two meetings with a corporation commissioner who Polaris was attempting throughout this period to have the 1971 cease and desist order vacated. The company asserted that the order was "needless" because recission offers had been made to all shareholders who bought stock before the 1971 order was entered and all stock sold thereafter was within the A.R.S. § 44-1844(1) exception. Vacation of the order was requested because stock reports on Polaris listed the order as being in force which damaged Polaris' business reputation. Polaris claimed that problems in its negotiations with other companies and investors were directly linked to the continued existence of the cease and desist order.

cancelled one meeting after Polaris' representatives had arrived in Phoenix from Tucson and ended the other meeting after fifteen minutes so that he could make a prior engagement. The same state senator who had previously interceded on Polaris' behalf then wrote a letter to the Commission requesting a prompt resolution of the Polaris matter. The Commission responded but said that the matters concerning Polaris were still under investigation and requested Polaris to turn over records to the Commission.

In August or September of 1975, the Tucson Police Department and Pima County Attorney's Office began to investigate Polaris in earnest. The record is replete with affidavits of Polaris shareholders who state that they were dragged away from their jobs by investigators but told the investigators that they were not dissatisfied with their investments in Polaris which were made with the knowledge that they were high risk investments.

On May 21, 1976, a search warrant was executed against Polaris and all of its business records were seized. The warrant was based in part on an affidavit by a Commission agent that Polaris alleges contained false statements. A deputy county attorney took the case to a grand jury in October, 1976, but the grand jury was dismissed before it could vote on whether to return an indictment. In November, 1976, a criminal complaint was filed against appellants charging them with violating Arizona's securities laws and the Commission's 1971 order. On appellants' motion, the complaint was dismissed without prejudice on June 2, 1977 for failure to sufficiently specify the time during which the alleged offenses took place.

Polaris and sixty shareholders then filed a civil suit in Pima County in the summer of 1977 to enjoin the City of Tucson and the Pima County Attorney from further investigating Polaris. Apparently, the suit was settled when the defendants in that suit agreed to cease the investigation. The defendants, however, sent all the material acquired during the investigation to the Commission for further action.

During the fall of 1975, Polaris and various persons on its behalf attempted informally and formally to have the Commission hold a hearing on the Polaris controversy. Polaris attempted again to obtain hearings in 1977 (informally) and in 1978 (formally). These requests were also in vain. The 1978 request was denied by a formal Commission order dated October 13, 1978 and also bearing Docket No. S-1343-I. Polaris' attorneys have avowed that the first time anyone associated with the company saw this order was when appellees attached it as an exhibit to their Motion to Dismiss in this case.

During 1978 and 1979, the Commission had issued several subpoenas duces tecum to gather information from Polaris and its bank. Polaris continued its contacts with the Commission in 1979 and 1980 and offered to give the Commission the information it requested and have Polaris' officers testify before the Commission if the Commission would grant Polaris a hearing and promptly (within six months) conclude the investigation. ¹

Polaris filed a civil complaint against the Commission on September 28, 1978. The The instant case was commenced by civil complaint filed May 14, 1979. From a grant of appellees' Motion to Dismiss, appellants brought this appeal to raise the issues whether their complaint states a proper claim for declaratory judgment and whether Polaris was denied due process in the sense of the right to appeal when the Commission failed to send Polaris a copy of its October 13, 1978 order denying Polaris a hearing. These issues are considered separately below.

complaint requested that a subpoena issued by the Commission on September 14, 1978 be quashed, that any further investigation of Polaris by the Commission be enjoined until the Commission could show a need for further inquiry, that the Commission be ordered to grant a formal hearing on whether to vacate the 1971 order, and that certain statutes be declared unconstitutional. The trial court entered judgment which denied Polaris any relief except that the Commission's further investigation under the subpoena in issue was ordered to be for a reasonable time only.

DECLARATORY JUDGMENT

Parties may bring actions under A.R.S. § 12-1831 et seq. to obtain a declaration of their rights or status vis-a-vis a statute or administrative order. A.R.S. § 12-1842 states that the declaratory judgment article is remedial and should be liberally construed and administered.

"But even though the act is remedial and is to be liberally construed, it is well settled that a declaratory judgment must be based on an actual controversy which must be real and not theoretical. * * * A 'justiciable controversy' arises where adverse claims are asserted upon present existing facts, which have ripened for judicial determination."

Planned Parenthood Center of Tucson, Inc. v. Marks, 17 Ariz.App. 308, 310, 497 P.2d 534, 536 (1972) (citations omitted).

Appellees have argued here and below that appellants are not entitled to declaratory judgment relief because appellants do not allege a present, actual controversy but rather seek an advisory opinion. Appellees also assert that appellants have failed to exhaust their administrative remedies. We must...