Riffle v. Robert L. Parker Co.

• Decision Date: 11 January 1973
• Docket Number: CA-CIV,No. 1,1
• Citation: 505 P.2d 268,19 Ariz.App. 100
• Parties: , Blue Sky L. Rep. P 71,067 George K. RIFFLE, Appellant, v. ROBERT L. PARKER COMPANY, an Arizona corporation, et al., Appellees. ROBERT L. PARKER COMPANY, an Arizona corporation, et al., cross-Appellants, v. George K. RIFFLE and Patricia Ann Riffle, husband and wife, Cross-Appellees. 1736.
• Court: Arizona Court of Appeals

Page 268

505 P.2d 268

19 Ariz.App. 100, Blue Sky L. Rep. P 71,067

George K. RIFFLE, Appellant, v. ROBERT L. PARKER COMPANY, an Arizona corporation, et al., Appellees.

ROBERT L. PARKER COMPANY, an Arizona corporation, et al., cross-Appellants, v. George K. RIFFLE and Patricia Ann Riffle, husband and wife, Cross-Appellees.

No. 1 CA-CIV 1736.

Court of Appeals of Arizona, Division 1, Department B.

Jan. 11, 1973.

Rehearing Denied Feb. 9, 1973.

Review Denied March 13, 1973.

Treon, Warnicke & Dann by B. Michael Dann, Phoenix, for appellant and cross-appellees.

Kanne & Bickart, Lawrence, J. Marks, Phoenix, for appellees and cross-appellants.

JACOBSON, Chief Judge.

This appeal requires the court to determine, among other things, whether a transaction whereby the assets of a partnership were transferred to a corporation in exchange for stock of the corporation is in violation of Arizona's Blue Sky Laws.

This question arises out of litigation instituted by appellant-cross-appellee, George K. Riffle, against appellees-cross-appellants, Robert L. Parker Company, an Arizona corporation, and the marital community of Robert L. Parker and Zelda M. Parker, seeking rescission of the transfer of one-half of a partnership interest to Robert L. Parker Company (the corporation) in exchange for certain stock of the corporation.

The original complaint in this matter was in four counts. Count one sought a partnership accounting between George K. Riffle and his former partner. This count was settled and dismissed prior to trial. Count two sought rescission of the merger agreement between the partnership and the corporation based upon a breach of contract and alleged failure of consideration. The trial court directed a verdict in favor of appellees on this count and no appeal has been taken therefrom. Count three sought rescission of the merger agreement on the grounds that the sale of 1,000 shares of corporation stock to George K. Riffle was in violation of the Arizona Sale of Securities Act. A.R.S. § 44--1801 et seq. Prior to trial both parties moved for partial summary judgment as to this count. The trial court granted appellees' motion for partial summary judgment. George K. Riffle has appealed from this judgment. Count four sought damages from the appellees for an assault. The assault count and appellees' consolidated complaint for trespass against George K. Riffle were the only issues submitted to the jury which returned a verdict in favor of George K. Riffle in the sum of $1,000.00 on the assault count and denied appellees relief on the trespass action. Appellees have cross-appealed from the judgment entered on this verdict.

The facts giving rise to this litigation are as follows: In 1966 appellant George K. Riffle (Riffle) and his brother Eugene entered into a general partnership for the purpose of conducting a machine shop and welding business under the partnership name of Ram Industries. The partnership did business at 42 South 42nd Street in Phoenix, Arizona, and occupied the premises at this location under a lease executed by the two partners and their respective wives under the name of Ram Industries. This lease contained a provision prohibiting assignment without the prior written consent of the landlord.

In the summer of 1968, Robert L. Parker Company moved next door to Ram Industries. Robert L. Parker Company had originally been incorporated in Arizona in 1964 and immediately prior to the occurrences which gave rise to this litigation had 4,000 shares of outstanding stock. This stock was held by four different stockholders each having 1,000 shares, namely, Robert L. Parker, his wife, Zelda M. Parker, Ralph R. Beckett, and Taber Putnam, S.A., a South American corporation. Ralph R. Beckett had received his 1,000 shares of stock as a result of a 1967 special order of the Securities Division of the Arizona Corporation Commission exempting the issuance of these 1,000 shares from the operation of the Arizona Sale of Securities Act.

Prior to moving next door to Ram Industries the corporation had basically been inactive. Following the move, negotiations were entered into between Robert L. Parker, as president of the corporation, and the partners to merge the two operations. These negotiations resulted in an agreement whereby the assets and liabilities of the partnership would be transferred to the corporation in exchange for each of the partners receiving 1,000 shares of the corporation's stock. The agreement further provided that the partnership and the corporation each had assets valued at $20,000.00 and that therefore, the outstanding 4,000 shares of stock would have a value of $10.00 per share of $40,000.00. It was further agreed that after the merger Riffle would become vice-president, a member of the board of directors, and production manager of the corporation. Pursuant to this agreement on February 1, 1969, the partnership assets and liabilities were transferred to the corporation, and subsequently each of the partners received 1,000 shares of the corporation's stock and Riffle entered into his duties as director, officer and production manager of the corporation. Riffle received the 1,000 shares that had formerly been owned by Ralph R. Beckett. The transaction took the form of Robert L. Parker giving to Beckett a promissory note in the sum of $10,000.00 in consideration of Beckett relinquishing ownership of the stock thereby permitting the corporation to transfer ownership of the stock from Beckett to Riffle on its books.

Approximately six months after the merger, Parker and Riffle's brother, Eugene, voted to discharge Riffle from his position with the corporation as director, officer, and production manager. During this six-month period of time the corporation had paid the rental under the Ram Industries lease and had conducted its business from the leased premises, although there had never been a formal assignment of the lease from the partnership to the corporation.

Following his discharge, Riffle attempted to settle his differences with his brother and Parker to no avail. Thereafter, on September 4, 1969, at approximately 6:00 A.M., Riffle, without notice to other stockholders or officers, personally paid the September rent due under the Ram Industries lease, entered upon the leased premises and positioned his truck in the open doorway of a building housing the corporation's business. He then removed a tire from his truck, blocking this doorway, cut a dozen electrical wires and pulled out various conduits in the building thereby shutting down the machinery necessary for the operation of the corporation's business. Riffle remained on the premises all that day, although asked to leave. He returned to the premises the next morning on September 5, 1969, anf found the premises locked by a chain lock securing the gate to the premises. Riffle then climbed the seven or eight foot fence surrounding the premises and was almost immediately confronted by two guard dogs trained to restrain intruders and give alarm. In order to avoid these dogs, Riffle broke in a door and escaped into the building. He testified that this episode 'scared him to death'. Riffle's entering the premises on September 4 and 5, 1969, gave rise to appellees' cause of action for trespass and Rifle's confrontation with the guard gogs gave rise to the count in his complaint alleging assault. As previously indicated, these two issues were the only ones which were ultimately submitted to the jury for their consideration.

The only issue raised by Riffle on his appeal is whether the transfer of the 1,000 shares of the corporate stock to himself was in violation of the Arizona Sale of Securities Act thereby allowing him to rescind the transaction giving rise to the sale. The issues raised by the cross-appeal are:

(1) Did the trial court err in refusing to direct a verdict in favor of the corporation on its complaint for trespass?

(2) Was the jury's verdict denying any relief on the trespass action contrary to the evidence?

(3) Was the jury's verdict in awarding $1,000.00 damages to Riffle on his assault count the result of passion and prejudice?

Turning to Riffle's appeal first, it appears the trial court granted appellees' motion for partial summary judgment based upon the legal theory that the 1967 order of the Corporation Commission exempting the issuance of 1,000 shares of the corporate stock to Beckett was a 'blanket' exemption which forever exempted these specific shares from the operation of Arizona's Sale of Securities Act. While we may not specifically agree with the trial court's reasoning in this regard, it is the duty of an appellate court to affirm the trial court if the result reached was correct even though the reasoning underlying that result may be improper. City of Tucson v. Morgan, 13 Ariz.App. 193, 475 P.2d 285 (1970); Arnold v. Knettle, 10 Ariz.App. 509, 460 P.2d 45 (1969).

Riffle's argument that the Arizona Sale of Securities Act (also referred to as the 'Blue Sky' Law, A.R.S. § 44--1801 et seq.) voids the transaction whereby he acquired 1,000 shares of the corporation in exchange for his one-half interest in Ram Industries, a partnership, is based upon A.R.S. § 44--2001 ¹ which provides that:

'A sale or contract for sale of any securities to any purchaser in violation of any provision of §§ 44--1841, 44--1842 or article 13 of this chapter, is voidable at the election of the purchaser, who may bring an action in a court of competent jurisdiction to recover the consideration paid for the securities, with interest thereon, taxable court costs and reasonable attorneys' fees, less the amount of any income received by dividend or otherwise from ownership of the securities, upon tender of the securities purchased or the contract made, or for damages if he no longer owns the securities.'

The applicability of this statute, by its own terms, requires a violation of either A.R.S. § 44--1841 or § 44--1842. These two sectio...