State of Utah v. BURKINSHAW

• Decision Date: 10 September 2010
• Docket Number: No. 20090055-CA.,20090055-CA.
• Citation: 239 P.3d 1052,2010 UT App 245
• Parties: STATE of Utah, Plaintiff and Appellee, v. Jennifer Robyn BURKINSHAW, Defendant and Appellant.
• Court: Utah Court of Appeals

239 P.3d 1052

2010 UT App 245

STATE of Utah, Plaintiff and Appellee, v. Jennifer Robyn BURKINSHAW, Defendant and Appellant.

No. 20090055-CA.

Court of Appeals of Utah.

Sept. 10, 2010.

Scott C. Williams, Salt Lake City, for Appellant.

Mark L. Shurtleff and Marian Decker, Salt Lake City, for Appellee.

Before Judges DAVIS, THORNE, and ROTH.

OPINION

THORNE, Judge:

¶ 1 Defendant Jennifer Robyn Burkinshaw appeals from her conviction for securitiesfraud, see Utah Code Ann. § 61-1-1 (2006). Defendant argues that the evidence at trial was insufficient to support her conviction. We affirm.

BACKGROUND ¹

¶ 2 In early 2004, Defendant was attempting to open a bar in Salt Lake County. She had a financial partner who was expected to provide the necessary capital for the business but failed to timely keep his commitments. As a result, the business was frequently in need of financial assistance.

¶ 3 In April 2004, Tyler Filby was looking for work as a disc jockey and approached Defendant in his search for employment. Defendant hired Filby to assist in the opening of the bar and ultimately continue employment as a disc jockey. Filby knew of the business's financial difficulties and offered to give Defendant a personal, short-term loan of $10,000 for thirty days at 30% interest. Defendant accepted Filby's offer, Filby memorialized the debt in writing, and Defendant signed the document. Defendant never repaid the loan.

¶ 4 Rosemary Stafford, a patron of Dimitri's, the bar previous to Defendant's at the same address, spoke with Defendant about the new bar. At some point in the discussion, the subject turned to the bar's finances. On July 7, 2004, Stafford personally loaned $30,000 to Defendant for thirty days at 30% interest. The loan agreement was formalized by a promissory note Stafford and Defendant executed. Defendant was not able to repay the loan, and Stafford filed a civil suit and obtained a default judgment on November 4, 2004.

¶ 5 Danny Hall, a business owner in Salt Lake City, learned about a potential business opportunity with Defendant from his landlord, who operated an adjacent shop. In mid-July 2004, Hall met with Defendant in front of Hall's shop. Defendant told Hall that she was trying to open a bar and needed funding. A few days later, Hall visited the location of Defendant's bar. Defendant showed Hall around the club and Hall observed that the bar needed a lot of repairs. Shortly after, Hall called Defendant and informed her that he was interested in giving her a short term loan for her business. Hall loaned Defendant $20,000 in two installments of $10,000 to be repaid in two months at 15% interest. The first portion of the loan was formalized by a note Defendant signed on July 19, 2004. The second was formalized by a note Defendant signed on July 23, 2004. In the second note Defendant “agree[d] to personally guarantee this sum along with the note I signed on the nineteenth of July.” Defendant defaulted on the $20,000 loan. Hall filed suit and obtained a default judgment.

¶ 6 In July 2004, Gail Sweeny met Defendant. Sweeny's son worked for Defendant, and Sweeny knew that Defendant needed money to make repairs to the club and for various other things. In late September 2004, Sweeny decided to loan Defendant $50,000 to be repaid with minimal monthly payments for a twenty-four month period at 10% interest. The debt was collateralized by real property and memorialized in writing. Defendant was not able to repay the loan.

¶ 7 On July 17, 2006, the State charged Defendant by criminal information with six counts of securities fraud. An amended information was later filed reducing the counts to five: count I regarded the Filby loan; count II the Stafford loan; counts III and IV the Hall loans; and count V the Sweeny loan. A two-day bench trial was held. After closing arguments, the trial court consolidated counts III and IV involving Hall. The trial court found Defendant guilty of one count of securities fraud regarding Hall and acquitted Defendant of the remaining charges.

¶ 8 At sentencing, the trial court imposed the statutory indeterminate prison term of one-to-fifteen years, suspended the prison term, and placed Defendant on a three-year term of probation. Defendant timely filed a notice of appeal.

ISSUE AND STANDARDS OF REVIEW

¶ 9 Defendant argues that the evidence at trial was insufficient to sustain a guilty verdict on the single count of securities fraud. Although Defendant frames the issue as insufficiency of the evidence, Defendant essentially argues that the trial court erred in determining that the promissory notes executed by the parties were a security within the definition contained in Utah Code section 61-1-13, see Utah Code Ann. § 61-1-13 (Supp.2010), and the meaning of the term “security” as interpreted in Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990).

¶ 10 “When reviewing a bench trial for sufficiency of the evidence, we must sustain the trial court's judgment unless it is against the clear weight of the evidence, or if the appellate court otherwise reaches a definite and firm conviction that a mistake has been made.” State v. Nichols, 2003 UT App 287, ¶ 24, 76 P.3d 1173 (internal quotation marks omitted). To the extent that Defendant's arguments implicate the trial court's application and interpretation of Reves, we review the trial court's interpretation of case law as presenting a question of law that we review for correctness. See State v. Richardson, 843 P.2d 517, 518 (Utah Ct.App.1992).

ANALYSIS

¶ 11 Defendant challenges the sufficiency of the evidence supporting her securities fraud conviction. Defendant argues that the evidence at trial was insufficient to show that the loan transaction memorialized by two promissory notes entered into between Defendant and Hall was a security. ² Defendant acknowledges that the Utah Uniform Securities Act (the Utah Securities Act) presumes that notes are securities, see Utah Code Ann. § 61-1-13(1)(ee)(i)(A) (Supp. 2010), but argues that this presumption is rebutted according to the family resemblance test of Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990). ³

¶ 12 The family resemblance test begins with the presumption that every note is a security. See id. at 67, 110 S.Ct. 945. This presumption may be rebutted if the note bears a strong resemblance to one of the following: (1) a note delivered in consumer financing, (2) a note secured by a home mortgage, (3) a short-term note secured by a lien on a small business or its assets, (4) a note evidencing a character loan to a bank customer, (5) a short-term note secured by an assignment of accounts receivable, (6) a note that formalizes an open-account debt incurred in the ordinary course of business,or (7) a note evidencing loans by commercial banks for current operations. See id. at 65, 110 S.Ct. 945; see also State v. Pedersen, 122 Wash.App. 759, 95 P.3d 385, 388 (2004). To determine whether a note bears a strong resemblance to one of these instruments, courts consider four factors: “(1) the motivations that would prompt reasonable parties to enter into the transaction; (2) the plan of distribution of the instrument; (3) the reasonable expectations of the investing public; and (4) whether some factor, such as the existence of another regulatory scheme, significantly reduces the instrument's risk.” Pedersen, 95 P.3d at 389 (citing Reves, 494 U.S. at 66-67, 110 S.Ct. 945). “If an instrument is not sufficiently similar to an item on the list, the decision whether another category should be added is to be made by examining the same factors.” Reves, 494 U.S. at 67, 110 S.Ct. 945.

I. Trial Court's Application of the Reves Family Resemblance Test

¶ 13 In applying the Reves test to the promissory notes at issue in this case, the trial court considered the four factors of the family resemblance test and determined that Hall was an investor and the notes were securities. The trial court found that “Defendant's purpose in obtaining the funds solicited was for general business use; however, the witnesses' motivation for loaning [D]efendant money varied.” The trial court also found that the interests of three of the witnesses were not solely for the profit the note was intended to generate but for other reasons such as obtaining employment as in Filby's and Sweeny's case or assisting Defendant in opening the club as in Stafford's case. In contrast, the trial court found that Hall gave Defendant money under dissimilar circumstances that demonstrated Hall's purpose for loaning the money was primarily as an investment. The trial court noted that

a. Hall's landlord told him about an opportunity to invest in [D]efendant's business enterprise.

b. Hall appraised the opportunity in connection with expecting a return on his investment.

c. Hall was not loaning the money for payroll or equipment but, instead, for a general business purpose.

d. Hall had no control over the use of the funds.

e. There was no regulatory scheme or other risk-reducing factor to protect Hall's investment.

f. Hall's investment sounds like a security and would appear so to the investing public.

¶ 14 Applying the second and third factors, the trial court determined that the “factor about plan distribution did not apply in this case” and the “factor about expectations of the investing public was also of minor significance in this case.” Applying the fourth factor, the trial court determined that “[t]here were no risk-reducing factors for the notes issued in this case; there was no regulatory scheme or mortgage, etc. which reduced the risk of the loss of the monies given to [D]efendant.”

II. Appellate Review of the Trial Court's Application and Interpretation of the Reves Family Resemblance Test

¶ 15 The next step involves reviewing the trial court's application of the facts to the law regarding Defendant's sufficiency of the evidence claim and, to the extent necessary, the court's...