Segal v. Goodman

• Decision Date: 31 March 1993
• Docket Number: No. 20505,20505
• Citation: 115 N.M. 349,1993 NMSC 18,851 P.2d 471
• Parties: Nora SEGAL, Plaintiff-Appellee and Cross-Appellant, v. Len GOODMAN, Defendant-Appellant and Cross-Appellee.
• Court: New Mexico Supreme Court

Page 471

851 P.2d 471

115 N.M. 349

Nora SEGAL, Plaintiff-Appellee and Cross-Appellant, v. Len GOODMAN, Defendant-Appellant and Cross-Appellee.

No. 20505.

Supreme Court of New Mexico.

March 31, 1993.

[115 N.M. 350] Sutin, Thayer & Browne, Saul Cohen, Santa Fe, for defendant-appellant.

Rose, Kohl & Davenport, Ltd., Bruce R. Kohl, Sue A. Herrman, Santa Fe, for plaintiff-appellee.

OPINION

MONTGOMERY, Justice.

Defendant-appellant Len Goodman appeals from a judgment awarded to plaintiff-appellee Nora Segal, holding that Goodman was liable for damages suffered by Segal as a result of an investment in an unregistered security. Segal cross-appeals from the court's order granting Goodman a stay of execution of the judgment. We affirm the judgment on the ground that substantial evidence supports the trial court's finding that Goodman was a salesman or agent of a seller of an unregistered security, affirm the court's stay of execution on the ground that the court did not abuse its discretion in ordering it, and remand for reconsideration of the duration of the stay.

I.

In 1984 Segal sold an apartment building she owned in New York. In the late summer or early fall of that year, Segal discussed with her friend Gerald Goodman, Len Goodman's father, her desire to shelter the income, for tax purposes, from the sale of the building. Shortly thereafter, Gerald Goodman introduced Segal and Goodman in the hope that Goodman could advise Segal on how to reduce her tax burden.

At Segal's behest, but without any promise of compensation or remuneration, Goodman acquired materials on various tax shelters, which he presented to Segal. When Segal expressed interest in a brochure shown to her by Goodman for a particular tax shelter, the Schultz Individual Cattle Feeding Program ("the Program") offered by Schultz Cattle Company, Incorporated ("SCCI"), Goodman contacted SCCI for further information. He then met with Segal and gave her information on what the representatives of SCCI had said about the Program and how it could be used as a tax deferral plan. Segal eventually decided to invest in the Program and in December 1984 completed all the documents necessary for her investment.

As a participant in the Program, Segal entered into a contract with the Schultz Feedyard and SCCI for purchasing, boarding, and feeding five hundred head of cattle, and another contract requiring SCCI to provide consulting services on future purchases and sale of cattle and on "hedging" practices appropriate in the cattle feeding industry. Segal agreed to pay SCCI for consulting services at the rate of $25.00 per head of cattle purchased, thereby incurring expenses in 1984 that could be used to offset her tax liability in that year. Funding for the Program was supplied by Segal's $20,000 initial payment and a revolving recourse note in the amount of $400,000 arranged by SCCI and funded by the Anadarko Bank and Trust Company ("Anadarko") of Anadarko, Oklahoma. The recourse note was collateralized by a $70,000 letter of credit from Banquest/First National Bank of Santa Fe, New Mexico ("Banquest").

Goodman introduced Segal to commercial lending officers at Banquest so that she could obtain the letter of credit necessary for her investment in the Program. Goodman helped Segal fill out a financial statement to present to the Banquest officers and then returned with Segal to Banquest a second time to present information he had acquired from SCCI explaining exactly what was needed to effectuate the investment. At the closing near the end of December 1984, Banquest requested that Segal pledge, as collateral for the letter of credit, securities held by her stockbroker in Florida. When the broker expressed reluctance to provide the securities, Goodman interceded and explained the purpose for pledging the securities. The broker then acquiesced in the transaction.

Goodman was Segal's sole contact with SCCI during the course of negotiations in November and December 1984. During that time, Goodman had between four and six phone conversations with SCCI representatives. During the second of these conversations, Goodman was told that he would receive $5.00 per head of cattle sold for any referrals to SCCI's consulting service. Before the closing of Segal's investment in the Program, Goodman entered into a written agreement with SCCI confirming that he would receive a referral fee of $5.00 per head of cattle sold to any investor he referred to SCCI. A few months after Segal contracted to invest in the Program, SCCI paid Goodman $2,500 for the sale to Segal of her interest in five hundred cattle. Goodman testified at trial that he had been concerned that if he were paid by SCCI he would owe them an obligation and that he therefore had encouraged Segal to pay him an hourly fee so that he could advise her "in good conscience." Segal, however, never provided Goodman any compensation for his services.

The price of slaughter-weight cattle dropped precipitously in 1985, and Segal lost her $20,000 initial investment plus an additional $53,078.43 forwarded to Schultz Feedyard by Anadarko for the loss resulting from the sale of cattle in the Program.

On September 22, 1987, Segal commenced this action against SCCI, Schultz Corporation, Schultz Feedyard, their officers and directors (collectively, "the Schultz defendants"), and Goodman. The complaint alleged violations of the Securities Act of New Mexico, NMSA 1978, Secs. 58-13-1 to -46 (Repl.Pamp.1984, repealed by N.M.Laws 1986, ch. 7, Secs. 1 to 56, effective July 1, 1986) ("the Securities Act"), violations of the Unfair Practices Act, NMSA 1978, Secs. 57-12-1 to -21 (Repl.Pamp.1984), common law fraud, and intentional and negligent misrepresentation. Segal moved for partial summary judgment against all defendants in March 1991, requesting an adjudication that her interest in the Program was a security under the Securities Act, that the sale of the security to her violated the Securities Act, and that Segal was entitled to rescind her contract and recover damages. Partial summary judgment was entered on these grounds in July 1991 against all defendants except Goodman.

The remaining counts against the Schultz defendants, the damages to which Segal might be entitled, and all counts against Goodman were tried to the court in October 1991. At the conclusion of the trial, the court found that Goodman had acted as a salesman and agent for a seller of an unregistered security and as an unregistered investment adviser in violation of Sections 58-13-42 and 58-13-23 of the Securities Act. The court also found that Goodman had been negligent and that his negligence was a proximate cause of the damage caused to Segal. In the court's judgment, entered December 4, 1991, Segal was awarded damages against Goodman for $73,078.43, plus prejudgment interest, costs, and attorney's fees. Judgment was also entered against the Schultz defendants for violations of the Securities Act, the Unfair Practices Act, common law fraud, and misrepresentation in the amount of $219,235.39 (representing treble damages under Section 57-12-10(B) of the Unfair Practices Act for willful participation in unconscionable trade practices), plus prejudgment interest, costs, and attorney's fees.

After announcing its findings from the bench, the court requested the parties to file memoranda on the court's power to stay execution of the judgment. On December 10, 1991, Goodman filed a motion for new trial, for relief from judgment, to alter or amend the judgment, and for a stay of enforcement of the judgment. A hearing was held on these motions on January 7, 1992. The trial court issued an order denying the motions for a new trial and for relief from judgment on January 22, but issued a second order on that date granting Goodman's motion for a stay of enforcement. Goodman filed his notice of appeal from the judgment on February 14, 1992.

As ordered, the stay of enforcement was effective for a period of six months, in order to permit Segal to attempt to collect the judgment from the Schultz defendants. The order of stay provided that Goodman could petition for an extension of the stay after the initial six-month period had expired. The order stated that should Segal show at that time that she had made a good-faith effort to collect the judgment from the Schultz defendants, no further stay of enforcement would be granted. Goodman was not required, as a condition of the stay, to post a bond or any other security to ensure enforcement of the judgment. Segal filed a motion in this Court on March 2, 1992, to vacate or modify the stay; the motion was denied on April 29, 1992.

The court's grant of stay expired on July 7, 1992. On August 20, 1992, the court heard a motion by Goodman to extend the stay. The court ruled on September 30, 1992, that Goodman was to submit to a deposition to aid the court in determining whether to terminate or continue the stay, by establishing, inter alia, whether Goodman had concealed or transferred assets, and ordered that the stay was to continue until further order of the court.

Goodman seeks to reverse the trial court's judgment, arguing that there is no substantial evidence to support the court's findings that: (1) Goodman was a salesman or agent of SCCI; (2) Goodman was an unregistered investment adviser; and (3) Goodman was negligent and his negligence proximately caused Segal's damages. We find it necessary to decide only the first issue in disposing of Goodman's appeal.

Segal cross-appeals, seeking to set aside the stay of enforcement of the judgment. Segal asserts that the court abused its discretion in granting the stay absent a showing by Goodman of objective factors providing a factual basis for the stay, and erred as a matter of law in granting the stay without requiring a bond or other security for payment of the judgment.

II.

We first address the issue of whether Goodman acted as a salesman or agent of SCCI in the sale of...