Porter v. Investors Syndicate

Decision Date23 May 1932
Docket NumberNo. 627,627
Citation286 U.S. 461,76 L.Ed. 1226,52 S.Ct. 617
PartiesPORTER, State Auditor, etc., v. INVESTORS' SYNDICATE
CourtU.S. Supreme Court

Messrs. T. H. MacDonald and L. A. Foot, both of Helena, Mont., and J. W. Freeman, of Great Falls, Mont., for appellant.

[Argument of Counsel from page 462 intentionally omitted] Mr. M. S. Gunn, of Helena, Mont., for appellee.

[Argument of Counsel from page 463 intentionally omitted] Mr. Justice ROBERTS delivered the opinion of the Court.

This is an appeal from the decree of a specially constituted district court enjoining the enforcement of an order of the state auditor, who is ex officio investment commissioner of Montana. Appellee is a Minnesota corporation engaged in the business of selling investment certificates for which the purchaser pays in installments and which entitle him at a date therein named to receive their face value. The assumption is that the installments of principal paid in will be augmented by interest thereon compounded at 5 1/2 per cent., so that the company will be able to pay the sum named in the certificate before the holder's payments reach that total.

Appellee was licensed in 1930 to do business in Montana pursuant to chapter 264, Revised Code of 1921, popularly known as the Blue Sky Law, which defines investment companies (section 4026), forbids their engaging in business without a permit from the state investment commissioner (section 4032), requires them to apply for such permit and to submit certain information with the application (section 4033), directs the commissioner to examine the data furnished and to issue or refuse a permit depending upon his determination that the applicant is solvent and its proposed plan of business fair, just, and equitable (section 4036), and to supervise and from time to time examine the affairs and business of all permittees (section 4043). Sec- tion 4045, which authorizes the revocation of permits, and section 4038 (as amended by chapter 194, Session Laws 1931), which gives an action against the commissioner by a party aggrieved by any finding or decision of that officer, are those which affect the present litigation. They are quoted in the margin.1

Operating under permit appellee has built up a large business in Montana in the sale of its certificates. One form of these provides that in case of default in current payments during the first eighteen months, the purchaser shall forfeit all sums theretofore paid; for default after eighteen months, where payment of $148 on a thousand dollar certificate has been made, the holder is entitled to withdraw $42; after four years and payment of $370, the refund is $254; and after five years he is entitled to re- payment, without interest, of the whole amount theretofore paid.

On May 7, 1931, the appellant notified the appellee and others similarly engaged to attend a hearing relative to the proposed adoption of a rule applicable to their business. Appellee appeared by an officer and counsel and stated objections. As a result of the hearing a rule made promulgated June 22, 1931, effective July 22, 1931, forbidding the issuance of certificates extending the privilege of withdrawal before maturity unless they should permit withdrawal at any time after the first year of their existence, on ninety days' notice in writing, and thereupon entitle the holder to receive the total amount of all installments paid in, less a penalty not exceeding 3 1/2 per cent. of the matured or face value of the certificate, plus interest compounded annually, at the rate at which the certificate was guaranteed to mature or represented to pay at maturity; and that the certificate and the application should have printed thereon the amount to be paid in, the withdrawal or surrender value, and the loan value, as of the end of each year after the date of issuance.

The commissioner claimed authority to promulgate this order under that portion of section 4045 which empowers him to revoke the permit of an investment company when it shall appear to him to be 'conducting its business in an unsafe, inequitable, or unauthorized manner.' He asserted his intention to revoke appellee's permit if it failed to obey the rule; whereupon the latter brought action in the District Court to enjoin the appellant from revoking or purporting or attempting to revoke its permit for failure to comply with the order. After the taking of evidence upon a motion for a temporary restraining order the case was by stipulation submitted as upon final hearing. The court granted an injunction, holding that the challenged statute was violative of the due process clause of the Fourteenth Amendment, as lacking any provision for notice or hearing before the revocation of a license, and also because no rule or standard is fixed for the determination of adequate cause for revocation; and further the act constituted a delegation of legislative power contrary to the mandate of section 1, article 5, of the Constitution of Montana. The appellant assigns these rulings as error, and in addition contends that there was no jurisdiction in a federal equity court to entertain the cause. If this position is sound we need not consider the other alleged errors.

We are of opinion that the appellee failed to exhaust its administrative remedy before applying to the District Court for injunctive relief. The granting and revocation of permits is an exercise by the appellant of delegated legislative power. Section 4038 of the Code (supra) confers on any interested person dissatisfied with a finding or decision by the commissioner, the right within thirty days to bring an action against him in a state district court to vacate his order and set it aside as unjust or unreasonable, and directs that on the hearing the judge 'may set aside, modify or confirm said * * * decision as the evidence and the rules or (sic) equity may require.' The section confers the right to appeal to the state Supreme Court from the judgment of the trial court. Clearly the function of the state district court under the statutory mandate is not solely judicial, that is, to set aside a decision of the commissioner if arbitrary or unreasonable and hence violative of constitutional rights. The duty is laid on the court to examine the evidence presented and either to set aside or to modify or to affirm the commissioner's order, as the proofs may require. The legislative process remains incomplete until the action of that court shall have become final. Prentis v. Atlantic Coast Line Co., 211 U. S. 210, 229, 230, 29 S. Ct. 67, 53 L. Ed. 150; Pacific Live Stock Co. v. Lewis, 241 U. S. 440, 444, 450, 451, 36 S. Ct. 637, 60 L. Ed. 1084. And the capacity in which the court acts is none the less administrative because the proceeding is designated as a suit in equity instead of by appeal. Keller v. Potomac Electric Power Co., 261 U. S. 428, 438-442, 43 S. Ct. 445, 67 L. Ed. 731. When the appellee was notified on June 22, 1931, that the rule adopted by the appellant would become effective July 22d of the same year, an action could have been filed in the state court and a hearing had upon all questions of fact and law touching the propriety and legality of the order.

But we are told that the commissioner asserted his intention to enforce the order, and that the statute forbids the state court to afford interlocutory relief. Thus, says the appellee, though trial might result in a decision vacating the commissioner's order, in the interval irreparable harm would have been done by the revocation of the company's permit, and its officers and agents rendered liable to criminal prosecution. Such a state of the law, it is insisted, amounts to a denial of due process to which one confronted with the possible loss of property is not bound to submit, but may at once, if there be the requisite diversity of citizenship and amount in controversy, apply to a federal court for relief. Conceding...

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