State v. Shade, s. 7731
| Decision Date | 24 July 1986 |
| Docket Number | Nos. 7731,7792,s. 7731 |
| Citation | 1986 NMCA 72,104 N.M. 710,726 P.2d 864 |
| Parties | , Blue Sky L. Rep. P 72,452 STATE of New Mexico, Plaintiff-Appellee, v. Dean SHADE, Defendant-Appellant. STATE of New Mexico, Plaintiff-Appellee, v. Jim VINCENT, Defendant-Appellant. |
| Court | Court of Appeals of New Mexico |
Defendants, Jim Vincent (Vincent) and Dean Shade (Shade), were tried in a single trial in district court in Lincoln County. Both defendants were named in a twenty-one-count indictment charging fraud, securities fraud, evasion of gross receipts tax, racketeering, conspiracy, embezzlement, criminal solicitation, tampering with evidence, sale of unregistered securities and attempted fraud. A jury convicted Vincent of the following: offer or sale of unregistered securities (one count); fraudulent practices with regard to offer to sell or the sale of securities (one count); criminal conspiracy (one count); criminal solicitation (two counts); and fraud over $2,500 (two counts). The same jury convicted Shade of the following: criminal conspiracy (one count); criminal solicitation (one count); and tampering with evidence (one count).
We affirm in part and reverse in part.
We will first address Vincent's claims. We will discuss the facts as they become necessary to the arguments of both defendants. The motion for oral argument, which is pending, is denied.
Vincent filed a pretrial motion to dismiss, asserting that the sale of memberships in Ruidoso Condo Shares (RCS) did not constitute the sale of securities. In addition, following the presentation of the state's case, Vincent moved for the dismissal of all counts on the ground of insufficient proof. The question of whether there were securities was specifically addressed by him at the time of his motion. The trial court ruled, at trial, after deferring a ruling on the motion to dismiss, that the issue of whether time-share memberships in RCS were securities should be submitted to the jury. Vincent argues that there was no evidence to establish that time-share memberships were securities. As a matter of law, contends Vincent, the evidence failed to prove the existence of a security.
RCS was organized by Vincent for the purpose of selling time-shares in condominium units in Ruidoso, New Mexico. RCS was financed by Sierra Santa, a partnership composed of two California dentists, Dr. James Monahan, the general partner, and Dr. Tom Aspell, the limited partner. Purchasers of time-shares in RCS automatically became members of Ruidoso Condo Shares Vacation Club (RCSVC), a non-profit organization which would eventually maintain and administer the condominiums. The purchase of a time-share entitled the purchaser to a minimum of one week's use of the condominium every year for forty years. Title in the condominium property never passed to the purchaser. The owner of the property was Dr. Monahan. Vincent was in charge of the sales operations of RCS.
Sales personnel at RCS were instructed to tell purchasers that the purchase of a time-share should not be considered an investment. The contract signed by purchasers of RCS time-shares contained a provision that the purchaser was buying a time-share for personal use and not investment for profit. The contract also contained an "acknowledgement of member" which stated that all of the terms of the agreement were contained in the agreement as written.
Despite the stated policy of RCS to sell time-shares for personal use only, the evidence indicated that purchasers of RCS time-shares were induced to do so based on representations, express and implied, that RCS time-shares were a good investment. Salespeople used a "pitch book" that contained newspaper articles indicating an optimistic future for the growth and development of Ruidoso as a recreational community. The newspaper clippings in the pitch book indicated that legalized gambling was a distinct possibility in Ruidoso. Other articles listed in the pitch book indicated that top golfers would compete in Ruidoso, that a Hilton hotel would be built there, and that the real estate market in Ruidoso was very healthy. The pitch book of saleswoman Carolyn Austin contained a "timeshares comparables" chart that showed how the purchase price of time-shares bought at other locations around the world had increased greatly over relatively short periods of time. Austin testified that she would use the chart in her presentations. Both Carolyn Austin and Bonnie Hentges testified that they used a "three house drawing" in their sales presentations. During that portion of the sales presentation, the purchaser was told that once a time-share was purchased, the purchaser had a right to rent, sell or will the time-share.
Customers testified that sales personnel at RCS led them to believe any one or more of the following: RCS planned to build forty-nine condominiums; negotiations were in progress whereby membership in RCS would include membership in the Sierra Swim and Racquet Club (SSRC), but that if those negotiations fell through, comparable facilities would be provided; time purchased through RCS could be exchanged for time selling for more than was paid for RCS time; time in RCS could be exchanged for time in any resort listed in catalogues made available through Resort Condominiums International (RCI) and Interval International (II); and the price of RCS time-shares would go up with time.
The former chief of the New Mexico Securities Bureau (Bureau), Bruce Kohl, testified that, in his opinion, the time-shares being sold by RCS were securities subject to regulation under state law. Kohl also testified that neither RCS nor any of its affiliated businesses ever registered with the Bureau. Two attorneys employed by Vincent during the initiation of RCS operations testified that Vincent was concerned that RCS operations in New Mexico conform to the law. On cross-examination, one such attorney, Charles Hawthorn, said that he did not believe that the time-shares sold by RCS were securities, and noted the lack of regulations specifically governing time-shares in New Mexico.
Vincent was found guilty, in part, under NMSA 1978, Section 58-13-4(A) (Repl.Pamp.1984), of the Securities Act of New Mexico.1 The section provides that it is a felony to fail to register a security, when offered or sold, as required by the Securities Act. Certain securities are exempted from the registration requirement, but no claim is made that the exceptions apply to this case. An "investment contract" is defined as a security under Section 58-13-2(H). No issue is presented that any alternate definition of security is involved. Therefore, the question becomes whether there was sufficient evidence to establish that time-shares were investment contracts. There is no dispute over Vincent's failure to formally register the time-shares with the Bureau. We point out, furthermore, that we did not address the securities issue in State v. Gardner, 103 N.M. 320, 706 P.2d 862 (Ct.App.1985), involving a co-defendant whose trial was severed from Vincent's and Shade's. We turn to a discussion of the legal test for an investment contract.
In State v. Sheets, 94 N.M. 356, 610 P.2d 760 (Ct.App.1980), this court recognized that Section 58-13-2(H) is of broad scope. This section provides that:
"[S]ecurity" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation, certificate of interest in oil, gas or other mineral rights, collateral trust certificate, preorganization certificate or subscription, transferable shares, investment contract, voting-trust certificate or beneficial interest in title to property, profits or earnings, or any other instrument commonly known as a security, including any guarantee of, temporary or interim certificate of interest or participation in, or warrant or right to subscribe to, convert into or purchase any of these. "Certificate of interest in oil, gas or other mineral rights" does not mean oil royalties [.]
We stated in Sheets that: (1) in the absence of ambiguity, statutory words are to be given effect as written, and (2) statutory words are to be given their usual, ordinary meaning, absent an expressed legislative intent to the contrary. We concluded that the statutory words "note" and "evidence of indebtedness" were to be given their ordinary and usual meanings because no legislative intent to the contrary appeared in the Act. We then held, under the facts of Sheets, that instruments entitled "promissory notes," which recited an amount of money to be returned to the person furnishing money to defendant, were notes and evidence of indebtedness. They were, therefore, securities under the Act.
While recognizing that the statutory definition of security does not require profit or profit sharing as a test of what is a security, this court, in Sheets, did not imply that these factors are to be read out of the term "investment contract," which is the term before us. The ordinary, usual legal meaning of investment contract is a "contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." Black's Law Dictionary 741 (5th ed. 1979). This definition is taken from Securities & Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). We cited the Howey definition, in Sheets, as a standard definition for "investment...
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