S.E.C. v. Blazon Corp.
| Decision Date | 14 December 1979 |
| Docket Number | 77-2033,Nos. 77-1904,s. 77-1904 |
| Citation | 609 F.2d 960 |
| Parties | Fed. Sec. L. Rep. P 97,212 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. BLAZON CORPORATION; Arthur E. Lloyd; Gary B. Larson; Utah Capital Corporation; Glenn W. McMurray, Defendants-Appellees. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. BLAZON CORPORATION et al., Defendants, Utah Capital Corporation and Glenn W. McMurray, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard Harris, and Hancock, Rothert & Bunshoft, San Francisco, Cal., Thomas M. Burton, San Francisco, Cal., for defendants.
David Ferber, Securities & Exchange Comm., Washington, D. C., for plaintiff.
Appeal from the United States District Court for the Northern District of California.
Before DUNIWAY and KENNEDY, Circuit Judges, and KING, * District Judge.
These are appeals by the plaintiff Securities and Exchange Commission and by the defendants Utah Capital Corporation (Utah) and Glenn W. McMurray from portions of the judgment entered on cross motions for summary judgment.
The Commission's complaint is in two counts. Count I charges violations of the antifraud provisions of the Securities Act of 1933 (§ 17(a)), 15 U.S.C. § 77q(a), and the Securities Exchange Act (§ 10(b)), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated under it, 17 C.F.R. 240.10b-5, in the offer and sale of stock of Blazon Corporation. The district court granted summary judgment in favor of the Commission on Count I, and issued a permanent injunction. Count II charges violations of the registration provisions of the Securities Act (§ 5(a) and (c)), 15 U.S.C. § 77e(a) and (c). The district court denied an injunction on this count, granting summary judgment for Utah and McMurray, dismissing Count II.
In our No. 77-1904, the Commission appeals from the dismissal of Count II and from a provision of the injunction for review and possible dissolution at the request of Utah and McMurray after 18 months. In our No. 77-2033, Utah and McMurray cross-appeal from the summary judgment for the Commission and the injunction on Count I. They also assign as error interlocutory orders denying their motions to dismiss the action and for summary judgment and granting a motion of the Commission to strike certain affirmative defenses interposed by them. We affirm in both appeals.
Blazon Corporation was incorporated in Arizona on September 19, 1972, to engage in "the business of purchasing, developing and subdividing land and the construction and sale of residential homes thereon." It was conceived of and formed by McMurray and one Arthur G. Lloyd. McMurray was the president, general manager and a director of Utah, which was in the business of providing capital to new small businesses.
After initial success in Idaho, McMurray wanted to make investments in land in Arizona, through Utah. In Arizona, he met Lloyd, who later found an 80-acre parcel of land (Mesa-80) and four other investors each willing to invest $5,000 in Blazon to be used to purchase Mesa-80. Utah agreed to match the total investors' equity of $25,000.
On June 2, 1972, one Lloyd Webb, one of the investors, purchased Mesa-80 for $240,000. To provide the $100,000 downpayment on the purchase, Webb sold 16 acres of Mesa-80 to Blazon for $48,000 and 23 adjacent acres of Mesa-80 to Lloyd for $50,000, financed by a $50,000 loan from Utah to Lloyd. On February 9, 1973, Lloyd acquired Webb's remaining interest in Mesa-80 by assuming Webb's mortgage and borrowing $83,250 from Utah to meet the payment schedule.
In purchasing 16 acres of Mesa-80 Blazon spent nearly all of its cash. To obtain the capital necessary to establish its business, Blazon undertook to raise money by a public offering under the "small issues" exemption provided in Section 3(b) of the Securities Act, 15 U.S.C. § 77c(b) and Regulation A, 17 C.F.R. 203.251 Et seq. (Reg. A). 1 This was the method of attracting outside equity used in Utah's successful venture in Idaho. The stock offering circular and the notification form required by the Commission were prepared by Blazon vice-president and legal counsel, Gary Larson. On February 8, 1973, as required by Reg. A, Blazon filed with the Commission's San Francisco office documents covering the sale of 400,000 shares of Blazon common stock at $1.00 per share.
According to the offering circular, Blazon intended to engage in the business of purchasing, subdividing and developing land and arranging for the construction and sale of residential homes. The offering circular described the 16-acre plot of land which Blazon had purchased to begin its real estate development. It further stated that Blazon intended to purchase from Lloyd another 23 acres adjacent to the 16-acre plot for $80,000 $3,500 per acre which was stated to be Lloyd's cost of acquiring the property. This $80,000 was to come from the proceeds of the public offering. In addition, Blazon informed investors that it had allocated $230,000 of the offering proceeds to the development and construction of homes on its 16-acre plot.
The stock offering officially began on June 18, 1973. Larson was responsible for periodic progress reports to the Commission on stock sales. These were filed, and on March 25, 1974, he filed a Form 2-A letter with the Commission reporting the conclusion of Blazon's public offering.
Between the February 8, 1973, filing and the March 25, 1974, conclusion of the public offering, the nature of Blazon's business and the financial relationships between Blazon and its management and major stockholder dramatically changed.
The changes were these: On September 11, 1973, before any Blazon stock had been sold to the public, Blazon bought the lease of a trailer manufacturing factory, Western Leisure, Inc., assuming outstanding obligations on a deed of trust as partial payment for the lease, and creating $210,143 of long term indebtedness. To finance this transaction, Blazon borrowed $50,000 from AMR, Inc., the Idaho portfolio company of Utah, which had previously been negotiating to purchase Western Leisure. Later, Blazon borrowed $50,000 from Utah to repay AMR, Inc. In order to purchase Western Leisure, Blazon borrowed an additional $450,000 from Utah, giving Utah the right to receive 336,500 shares of Blazon common stock at its election, in lieu of repayment.
In January, 1974, Lloyd and Larson arranged for Blazon to pledge a $10,000 time certificate of deposit as collateral for a loan to Sunset Producers, Inc., an Arizona corporation, of which Larson was an incorporator. The loan was for the purpose of promoting a concert. Sunset defaulted on the loan, and the bank foreclosed on Blazon's pledged certificate of deposit.
In March, 1974, Blazon, AMR, Inc., and another corporation formed a joint venture to purchase the Flying H Farm, a 6,000 acre Idaho wheat farm being sold at a distress sale. AMR, Inc. had an option to purchase it. As part of this transaction, Blazon lent AMR, Inc. $225,000 out of the proceeds of Blazon's stock offering.
Just before the close of the Blazon stock offering, Lloyd and Larson arranged for personal bank loans of $50,000, to enable them to buy Blazon stock. As collateral for the loan, Lloyd and Larson pledged a $50,000 certificate of deposit purchased by Blazon with proceeds of the offering. The loan fell into default and the bank foreclosed on the pledged certificate. The Commission was not told about any of these changes; no amendments to the original filing were made, and the offering circular shown to prospective purchasers was not amended to show the changes.
Larson was replaced as Blazon's counsel on April 10, 1974. At the same time, the Blazon Directors replaced Lloyd as President. All of the foregoing facts are established in the record, without contradiction. Thus the trial judge could rely upon them in support of the Commission's motion for summary judgment.
On July 22, 1975, the Commission filed this action, naming as defendants Blazon, Lloyd, Larson, Utah and McMurray. The defendants raised the affirmative defenses of improper jurisdiction, lack of in personam jurisdiction, insufficiency of service of process and failure to state a claim of fraud with particularity. The district court overruled them.
The appeal of Utah and McMurray claiming lack of in personam jurisdiction is timely. The orders of the district court denying these defendants' motion to dismiss and motion for summary judgment and striking their affirmative defenses were not appealable before the entry of the final judgment. See, e. g., American Concrete Agricultural Pipe Association v. No-Joint Concrete Pipe Co., 9 Cir., 1964, 331 F.2d 706, 709; Oppenheimer v. Los Angeles County Flood Control District, 9 Cir., 1972, 453 F.2d 895; 2A Moore, Federal Practice, 2d ed., P P 12.14 n.11, 12.21 n.44.
Utah and McMurray argue that venue in the Northern District of California was improper. They say that, because venue is a statutory prerequisite to the nationwide service of process allowed by the securities acts, (Securities Exchange Act, § 27, (15 U.S.C. § 78aa), and Securities Act, § 22(a), (15 U.S.C. § 77v(a))) the court did not acquire jurisdiction over the persons of Utah or McMurray. They also argue that they did not acquiesce in the jurisdiction of the court by contesting the case on the merits because they properly asserted lack of jurisdiction in their answer to the Commission's complaint and in their motions to dismiss and for summary judgment. See Fed.R.Civ.Pro. 12(h); 2A Moore, Supra, P 12.23.
We find, however, that Utah and McMurray did acquiesce to the jurisdiction of the court by a stipulation. Because we find that the district court did have in personam jurisdiction over Utah and McMurray, and because their allegation of improper venue goes only to the issue of that jurisdiction, we need not consider...
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