State ex rel. Holloway v. First Am. Bank & Trust Co., 8693

• Citation: 186 N.W.2d 573
• Decision Date: 31 March 1971
• Docket Number: No. 8693,8693
• Court: United States State Supreme Court of North Dakota
• Parties: STATE ex rel. Donald R. HOLLOWAY, Securities Commissioner, and Gilbert W. Ellwein, State Examiner of the State of North Dakota, Plaintiffs and Appellants, v. FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation, and Robert M.Hart, a/k/a R. M. Hart, Harvey W. Boen, Albert W. Fetzer, Ruth M. Hart, BernardH. Hillyer, Jerry D. Pritchett, Arne J. Springan, John F. Sullivan, Charles L.Welch,Defendants and Respondents. Civ.

Page 573

186 N.W.2d 573

STATE ex rel. Donald R. HOLLOWAY, Securities Commissioner and Gilbert W. Ellwein, State Examiner of the State of North Dakota, Plaintiffs and Appellants, v. FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation and Robert M.Hart, a/k/a R. M. Hart, Harvey W. Boen, Albert W. Fetzer, Ruth M. Hart, BernardH. Hillyer, Jerry D Pritchett, Arne J. Springan, John F. Sullivan, Charles L.Welch,Defendants and Respondents.

Civ. No. 8693.

Supreme Court of North Dakota.

March 31, 1971.

Rehearing Denied May 21, 1971.

Syllabus by the Court

1. The granting of a temporary restraining order and a temporary injunction, when authorized, is a matter resting largely within the sound discretion of the trial court. It may modify, continue or dissolve the same and its action will not be disturbed unless it appears that, in doing so, there has been an abuse of discretion.

2. The appellant has the burden of showing error and establishing affirmatively on appeal that the district judge abused his discretion in dissolving an ex parte restraining order and refusing to issue a temporary injunction.

3. Securities issued by a trust company organized under Chapter 6-05, N.D.C.C., are exempt from registration under the Securities Act of 1951 (Chapter 10-04, N.D.C.C.).

4. It is not unlawful, under Section 10-04-04, N.D.C.C., to sell securities issued by a trust company which are exempt from registration under Section 10-04-05(2), N.D.C.C.

5. The exemption of the securities of a trust company from registration under the Securities Act does not exempt the trust company from being registered as a 'dealer' under the Act if it is to offer for sale or sell its exempt securities.

6. Where the trial court bases its order refusing to issue a temporary injunction on an erroneous interpretation of the law, the order is reversed and the case remanded to the trial court to reconsider the question in the exercise of its discretion as to whether it should issue a temporary injunction.

Helgi Johanneson, Atty. Gen., and Arley R. Bjella, Frank F. Jestrab, and John R. Gordon, Sp. Asst. Attys. Gen., Williston, for plaintiffs-appellants.

Frederick E. Saefke, Jr., and Thompson, Lundberg & Nodland, Bismarck, for defendants-respondents.

TEIGEN, Judge.

This is an appeal from an order of the district court denying a motion for a temporary injunction and vacating a temporary restraining order issued on an order to show cause.

The State, upon relation of its security commissioner and the commissioner of banking and financial institution, known as the state examiner (hereinafter referred to as the State), seeks a permanent injunction against the defendant First American Bank & Trust Company, a demestic corporation, and its president and directors (hereinafter referred to as the trust company), permanently enjoining the trust company from continuing certain alleged practices in the conduct of its business. The two State officers have joined in the State's action. Both seek the same relief, claiming injunction should issue either under the statute governing trust companies (Chapter 6-05, N.D.C.C.), or the Securities Act of 1951, as amended (Chapter 10-04, N.D.C.C.), whichever the court may find applicable and, therefore, pray in the alternative for injunctive relief under one or the other of these chapters.

Upon application of the State, the trial court issued an order directed to the trust company to show cause why a temporary injunction should not issue pending a decision on the merits, and it also issued its ex parte temporary restraining order. Following the hearing on the order to show cause, the order from which this appeal is taken was issued. This order vacates the temporary restraining order and denies the State's application for a temporary injunction. Concomitant with the appeal the State made application to this court ex parte for a temporary restraining order and a temporary injunction pending the decision on the appeal. This court issued an order directed to the trust company to show cause why it should not be enjoined and restrained during the pendency of the appeal from carrying on the business practices complained of in the complaint, and issued its ex parte restraining order. Following a hearing on the order to show cause, this court denied the application for a temporary injunction pending the appeal and vacated its temporary restraining order. In the order we recommended that the main case be expeditiously tried in order that all issues involved may be fully adjudicated. When the appeal had been perfected the matter was placed on the calendar and we heard arguments at the next term. At that time we were advised by counsel that the main case had not been set for trial nor tried as of that date.

The granting of a temporary restraining order and a temporary or final injunction, when authorized, is a matter resting largely within the sound discretion of the trial court and its judgment will not be disturbed except in case of a clear abuse of such discretion. Lindsay v. Teamsters Union, Local No. 74, 97 N.W.2d 686 (N.D.1959); Lee v. Jordan, 50 N.D. 365, 195 N.W. 660 (1923); Beiseker v. Svendsgaard, 28 N.D. 366, 149 N.W. 352 (1914). The district judge may modify, continue or dissolve an injunction, or refuse to do so, as well as grant or refuse to grant the injunction in the first instance. His action will not be disturbed unless it appears that there was an abuse of discretion. Lindsay v. Teamsters Union, Local No. 74, Supra; Larson v. Jacobson, 54 N.D. 69, 208 N.W. 833 (1926); Mevorah v. Goodman, 65 N.W.2d 278 (N.D.1954).

The State, as appellant, had the burden of showing error and establishing affirmatively that the trial court abused its discretion. Lindsay v. Teamsters Union, Local No. 74, Supra; First National Bank of Crary v. Bremseth, 60 N.D. 401, 234 N.W. 758 (1931); Mevorah v. Goodman, Supra. The record has been examined and we find that the State has failed to sustain the burden of proof.

The main case has not been tried. A suit for an injunction is an equitable proceeding which is designed to protect people by preventing unlawful acts which are against public policy and cause irreparable injury to civil or property rights or privileges of the people. State ex rel. Burgum v. Hooker, 87 N.W.2d 337 (N.D.1957).

It is admitted that the defendant trust company is organized and existing under Chapter 6-05, N.D.C.C. This chapter provides for the organization, powers, authority and regulation of annuity, safe deposit, surety, and trust companies. The terms used in Title 6, Banks and Banking, N.D.C.C., unless the context otherwise plainly requires, are defined in Section 6-01-02, N.D.C.C., as follows:

'1. * * *

'2. 'State banking association', any corporation organized under the laws of this state covering state banking associations or savings banks, and all corporations, partnerships, firms, or associations whose business in whole or in part consists of the taking of money on deposit, excepting national banks, trust companies, and the Bank of North Dakota;

'3. 'Banking institution', any bank, trust company, bank and trust company, stock savings bank, or mutual savings bank organized under the laws of this state;

'4. 'Trust company', any corporation formed for the purpose of transacting business as an annuity, safe deposit, surety, or trust company;'

Under these definitions the defendant is a 'trust company' and also a 'banking institution.' However, it is not a 'state banking association' as trust companies are specifically excepted from that definition. We held in Nelson v. Dakota Bankers Trust Company, 132 N.W.2d 903 (N.D.1965), that Section 6-01-02, N.D.C.C., expressly excludes 'trust companies' from the definition of 'banking associations,' but includes them in the definition of 'banking institutions.'

The principal issue in the main case is whether a 'trust company' is governed in the issue and sale of its securities by the Securities Act (Chapter 10-04, N.D.C.C.). The State alleges in its complaint that the defendant trust company advertises, offers for sale, and sells certain securities, to wit, notes or debentures, i.e., unsecured promises to repay money paid for the said securities, plus interest, which securities or debentures were described as 'guaranteed certificates of investment' and 'capital notes,' which have not been approved by the securities commissioner as required by Sections 10-04-07 and 10-04-08, N.D.C.C., and without the trust company being registered as a dealer under the provisions of Section 10-04-10, N.D.C.C. These allegations are admitted and the defendant trust company has interposed a defense that it and its securities are exempt from the Securities Act.

The complaint also alleges that the defendant trust company issued and sold the above described securities without having submitted them to or having secured the approval of the state examiner, as required by Section 6-03-41, N.D.C.C. The defendant trust company, by answer, alleges that it submitted its 'investigant program together with instrumentation' to the state examiner, but denies that the same is required by Section 6-03-41, N.D.C.C.

In addition, the complaint alleges that the defendant trust company has agreed to pay usurious interest rates on its investment securities; that it has sustained an accumulative operating deficit of over $215,000; that it is subject to civil liabilities in actions by creditors or stockholders because of its unlawful business practices; that the state examiner issued his order to cease and desist from selling any capital notes or to make or publish any book, prospectus, notice, reports, statement, exhibit, or other publication containing reference to capital notes as a part of the capital structure; and that the defendant trust company has failed the refuses to publish a statement of condition pursuant to the requirements of Section 6-03-70, N.D.C.C., and the orders of the state ...