State ex rel. Corbin v. Goodrich, 2

• Citation: 151 Ariz. 118,726 P.2d 215
• Decision Date: 02 May 1986
• Docket Number: No. 2,CA-CIV,2
• Parties: , Blue Sky L. Rep. P 72,397 STATE of Arizona, ex rel. Robert K. CORBIN, Attorney General, and the Arizona Corporation Commission, Plaintiffs/Appellees, v. Jack GOODRICH, Defendant/Appellant. 5695.
• Court: Court of Appeals of Arizona

Page 215

726 P.2d 215

151 Ariz. 118, Blue Sky L. Rep. P 72,397

STATE of Arizona, ex rel. Robert K. CORBIN, Attorney General, and the Arizona Corporation Commission, Plaintiffs/Appellees, v. Jack GOODRICH, Defendant/Appellant.

No. 2 CA-CIV 5695.

Court of Appeals of Arizona,

Division 2, Department B.

May 2, 1986.

Review Denied Sept. 23, 1986.

Robert K. Corbin, Atty. Gen. by Patrick M. Murphy and W. Mark Sendrow, Phoenix, for plaintiffs/appellees.

Snyder and Robens, P.C. by Howard M. Snyder, Phoenix, for defendant/appellant.

LACAGNINA, Judge.

Jack Goodrich appeals an order granting a preliminary injunction pursuant to A.R.S. § 12-2101(F). The State of Arizona and the Corporation Commission filed a complaint alleging violations of the Arizona Security Act, A.R.S. §§ 44-1801 through 44-2066.11, and the Arizona Consumer Fraud Act, A.R.S. §§ 44-1521 through 44-1567, by the conduct of Goodrich and Precious Metals International of Arizona, Inc. and Precious Metals International, Inc. (PMI) offering and selling unregistered securities through unregistered dealers and salespersons within and from the State of Arizona. Following nine days of testimony on the state's application for preliminary injunction, the court made findings of fact and conclusions of law and entered its order granting the injunction.

Goodrich presents numerous issues on appeal including certain constitutional claims, the construction of certain provisions of the Consumer Fraud Act and Securities Act as applied to them, the extent of the court's jurisdiction over the parties and over acts committed outside this state, the extent of the court's discretion in ruling on a requested continuance, matters concerning the injunction itself and the admissibility of certain evidence.

CONSTITUTIONAL CLAIMS

A. The Arizona Corporation Commission has Authority to Regulate the Offer and Sale of Securities.

The Commission has constitutional authority to inspect and investigate corporations whose stock is offered for sale to the public. Ariz. Const. art. 15, § 4. Stocks are included in the definition of securities, A.R.S. § 44-1801(16) and, therefore, the commission has constitutional authority to regulate the sale of securities. See Commercial Life Insurance Co. v. Wright, 64 Ariz. 129, 140, 166 P.2d 943, 950 (1946); State, ex rel. Bullard v. Jones, 15 Ariz. 215, 226, 137 P. 544, 549 (1914). The trial court concluded that the offer and sale of gold and silver by Goodrich and PMI in the form of commodity investment contracts constituted the offer and sale of securities under A.R.S. § 44-1801(16). The legislature, by enacting the Securities Act, acknowledged the commissioner's authority to regulate the sale of securities. We find the commission acted within its constitutional authority in this case. B. The Arizona Securities Act Does Not Violate the Commerce Clause.

Congress has the power to regulate commerce among the several states by virtue of the United States Constitution, art. I, § 8, clause 3. The test for determining whether a regulation (in this case, defendants allege the Arizona Securities Act) places an unreasonable burden on interstate commerce in violation of the commerce clause depends upon whether the burden imposed on interstate commerce is excessive in relation to the local interest served by the statute or regulation in question. United States Constitution, art. VI; Pike v. Bruce Church, 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). The state, as an exercise of its police power, seeks to regulate the conduct of persons residing within Arizona and using this state as a base for securities operations. Arizona has a legitimate interest in regulating the conduct of Arizona residents engaged in the offer and sale of securities even though those ultimately victimized may not be Arizona residents. See State, ex rel. Corbin v. Pickrell, 136 Ariz. 589, 667 P.2d 1304 (1983); Arizona State Real Estate Department v. American Standard Gas, 119 Ariz. 183, 186-187, 580 P.2d 15, 18-19 (1978). The Arizona Securities Act does not impose an excessive burden.

Nor does Polaris Interm. Metals v. Ariz. Corp. Comm., 133 Ariz. 500, 652 P.2d 1023 (1982), require a different result. We agree with the supreme court that if the statute sought to regulate the sale of securities outside Arizona, it would conflict with the commerce clause and would be unconstitutional. Id. at 505, 652 P.2d at 1028. That is not the case here. The statute seeks to regulate offers and/or sales occurring in Arizona, and we find that the state has a legitimate interest in regulating offers and sales from within Arizona to residents of other states, as well as offers made to Arizona residents. See State, ex rel. Corbin v. Pickrell, supra.

Finally, applying the Securities Act to defendants in this case, we find the state "clearly rests on sure footing" to the extent that it forbids this fraudulent conduct, and that their transactions were "not the legitimate subject of trade or commerce, nor within the protection of the commerce clause of the constitution." Pike v. Bruce Church, 397 U.S. at 143-44, 90 S.Ct. at 848.

C. The State has Standing to Enforce the Securities Act and Consumer Fraud Act.

The Attorney General and the Arizona Corporation Commission are authorized by statute to enforce the state's consumer protection laws and the securities act respectively. See A.R.S. §§ 44-1528 and 44-2032. In addition, the Attorney General is authorized by statute to represent the Securities Division of the Commission in actions brought under the provisions of A.R.S. § 44-1801. A.R.S. § 41-192(E). Finally, the joinder of the two actions is permissible, the Consumer Fraud Act being a cumulative remedy. See A.R.S. § 44-1533(A); State, ex rel. Corbin v. Pickrell, supra; Madson v. Western American Mortgage Company, 143 Ariz. 614, 694 P.2d 1228 (App.1985).

D. The Consumer Fraud Act Does Not Violate the Arizona Constitution.

Article IV, part 2, § 13, of the Arizona Constitution requires the following: "Every act shall embrace but one subject and matters properly connected therewith which subject shall be expressed in the title...." The purpose of the constitutional provision is to allow notice of what subjects are included within the act in order to avoid surprise. Industrial Development Authority of Pinal County v. Nelson, 109 Ariz. 368, 509 P.2d 705 (1973). "Any provision having a natural connection with the title of the act is properly embraced in the act." White v. Kaibab Road Improvement District, 113 Ariz. 209, 211, 550 P.2d 80, 82 (1976), citing Taylor v. Frohmiller, 52 Ariz. 211, 79 P.2d 961 (1938). The broad legislation under the Consumer Fraud Act includes those subjects related to trade and commerce. We find the unlawful practices provision of that act is connected to trade

                [151 Ariz. 123] and commerce and fulfills the purpose of the above constitutional provision.   See State, ex rel. Corbin, supra
                

STATUTORY CLAIMS

A. PMI and Goodrich Offered and Sold Commodity Investment Contracts.

Included in the definition of a security is a commodity investment contract. A.R.S. § 44-1801(16). The statute further defines a commodity investment contract as "a contract for the sale or purchase of a commodity which does not require the delivery to the purchaser of such commodity within twenty-eight calendar days from payment of any portion of the purchase price." A.R.S. § 44-1801(3). Gold and silver are commodities "whenever bought and sold upon the basis of the public market quotation of prices made on any board of trade or exchange upon which commodities or commodity investment contracts are dealt...." A.R.S. § 44-1801(2). PMI sold gold and silver contracts with a 30% down payment and a deferred delivery date not requiring delivery before one year and a day of purchase. The evidence at the hearing showed PMI's sales price was based on public market quotations of prices made on boards of trade and exchange which dealt in commodities and commodity investment contracts including Comex and New York Metals Exchange. That a particular selling price exceeded or was less than public market quotations, based on PMI's administrative costs and commissions, does not change the bases for their quotations. The statute does not require proof that PMI itself is a board of trade or an exchange.

B. The State Alleges Securities Fraud with Sufficient Particularity.

The state in its complaint names four specific defendants including two corporate officers and two separate corporations, and alleges defendants' conduct with their investors, including representations made to the investors concerning their contracts. Additionally, the state alleged the following:

Defendants, directly or indirectly, through prospectuses, offering materials and/or oral statements of sales agents, omit to state material facts to offerees and purchasers concerning the precious metals investments which they offer, including but not limited to the following:

a. That telephone salesmen hired by Defendants have little or no training or expertise in the commodities markets upon which to base predictions of future gold and silver price fluctuations;

b. The financial condition or business history of Defendants PRECIOUS METALS INTERNATIONAL OF ARIZONA, INC. and PRECIOUS METALS INTERNATIONAL, INC.;

c. Information concerning the officers and/or directors of Defendants PRECIOUS METALS INTERNATIONAL OF ARIZONA, INC. and PRECIOUS METALS INTERNATIONAL, INC. or the business backgrounds and experience of said persons in commodities investments;

d. That a Cease and Desist Order was issued on November 1, 1982 by the Securities Division of the Iowa Insurance Department, against Defendant JACK GOODRICH, in the matter of U.S. Western Oil & Gas Corp. which involved the sale of unregistered securities and fraud in the offer and sale of securities.

e. Failed to disclose to purchasers the location where purchaser's gold or silver would be stored.

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