State v. Tober
| Decision Date | 26 September 1991 |
| Docket Number | Nos. 1,CA-CR,s. 1 |
| Citation | 170 Ariz. 573,826 P.2d 1199 |
| Parties | STATE of Arizona, Appellee, v. Ronald Arthur TOBER and Garth Stevens Black, Appellants. 88-1458, 1 88-1459. |
| Court | Arizona Court of Appeals |
Appellants Ronald Arthur Tober and Garth Stevens Black (collectively, defendants) were convicted after a jury trial of four counts of sale of unregistered securities and four counts of sale of securities by an unregistered salesman, all class 4 felonies. See A.R.S. §§ 44-1841 and 44-1842. The trial court placed defendants on probation for four years, and further ordered them to pay $73,900.00 in restitution. The primary issue raised on appeal is whether a person can constitutionally be held strictly liable criminally for issuing a "note" that is subsequently determined to be a security. 1
In December 1980, Black bought 640 acres of land near St. George, Utah for $2.5 million. Pursuant to the purchase agreement, Black was to make yearly installment payments of $250,000 plus interest, with a balloon payment of $1.5 million due in December 1985. Black intended to improve the parcel as a residential and country club development, which came to be known as Paradise Canyon. In order to facilitate financing of the project, four limited partnerships covering 80 acres each were formed, with Spearex International, Black's corporation, serving as general partner of each limited partnership. One of these limited partnerships was named Diamond B Bar Investment Partnership.
Black drafted the one-page document that the state has alleged to be a security. Each document consisted of two parts--a promissory note and an "option agreement." The note provided that the unnamed lender agreed to pay an unspecified sum at an unspecified time to Spearex at an interest rate of 12% per annum. The note itself was non-negotiable. The "option agreement" informed the unnamed lender that Spearex held a 25% limited partnership interest in Diamond B Bar Investment Partnership, and granted the lender "the option of exchanging the above promissory note for an assignment of _____ Unit(s) at $2,500 per unit" in the Diamond B Bar limited partnership "in lieu of payment of the above promissory note." The option was to remain open "during the full term of the promissory note or as long as the obligation under the note remains unsatisfied."
Black, who was not a licensed securities salesman, showed the documents to his attorney. Counsel told Black that the note could be used to borrow money from non-commercial lenders without violating state or federal securities laws. However, counsel told Black that, if the option were exercised, "we would have to take another look at [the option] ... so that any securities issued to the lender under this option agreement would comply with the securities laws." Counsel testified that he understood the lenders were to be repaid out of a large construction development loan.
The document was never registered as a security. Black pre-signed about 60 documents as president of Spearex (signing the note and option portions separately), and gave them to Tober, who was involved in raising funds for the project. Tober conducted his own investment and tax counseling business out of his home, and had several hundred clients. He was licensed as a securities salesman in 1975, but let the license lapse after a year; he was licensed again in 1987. Tober was to receive a 5% finder's fee for each note that was executed.
Three of the four lenders involved in this litigation were clients of Tober's who had come to him seeking investment advice. Tober recommended that they lend money to Spearex, and all were "extremely excited" about the 12% interest rate. On December 1, 1984, Spearex sold note # 1 to Beverly Beyer in exchange for $10,000, payable on December 31, 1985. That same day, Spearex sold note # 2 to Robert Rice in exchange for $10,000, also payable on December 31, 1985. On August 4, 1986, Spearex sold note # 3 to Joan Collins in exchange for $30,000, payable on August 3, 1987. Finally, on October 23, 1986, Spearex sold note # 4 to Judy Wardle (aka Manning) in exchange for $5,000, payable on December 31, 1987. The money received pursuant to these four notes was used in connection with the Paradise Canyon project.
In the meantime, Black's ongoing efforts to obtain institutional financing for the project were, for the most part, unsuccessful. Spearex never repaid any of the four notes.
The jury was instructed to use a seven-factor test to determine whether the notes were securities. Defendants argued at trial that they were not. If the jury found the notes not to be securities, it was instructed that defendants had no duty to register the notes as securities or themselves as securities dealers. The jury found defendants guilty on all eight counts, 2 and defendants timely appealed.
Defendants argue that the trial court erred in failing to grant their Rule 20 motion for a judgment of acquittal because there was insufficient evidence to support the convictions.
A judgment of acquittal is appropriate when there is no substantial evidence to warrant a conviction. State v. Nunez, 167 Ariz. 272, 278, 806 P.2d 861, 867 (1991). Substantial evidence is such proof as reasonable persons could accept as adequate and sufficient to support a conclusion of guilt beyond a reasonable doubt. Id. On review, we must view the evidence in favor of upholding the jury's verdict. Id.; State v. Neal, 143 Ariz. 93, 98, 692 P.2d 272, 277 (1984).
A.R.S. § 44-1801(22) defines "security" as meaning, among other things, "any note." 3 The jury was instructed on the following seven factors used to determine whether the promissory notes in this case constituted a "security" pursuant to A.R.S. §§ 44-1841 and 44-1842: (1) whether the transaction was a commercial loan or an investment; (2) whether the rate of return was fixed or fluctuating; (3) duration of the note as short or long-term; (4) percentage of monies borrowed to borrower's total assets; (5) circumstances at time of issuance; (6) contemplated use of the funds; and (7) collateralization. See Amfac Mortgage Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426 (9th Cir.1978).
Sharon Fox, an attorney with the securities division of the Arizona Corporation Commission, testified regarding the characteristics of these notes as securities under the Amfac factors. She testified that the fact that the notes were non-negotiable and were accompanied by the option agreement tended to make them securities. Cf. Baurer v. Planning Group, Inc., 669 F.2d 770 (D.C.Cir.1981) (). Further, in her opinion, these were long-term, uncollateralized notes, had a high, fixed rate of return, and were used to generate funds for the purchase and development of real estate--characteristics that tended to make them securities. She also testified that courts tend to view as a security offerings made to more than one person, rather than a one-on-one transaction with one lender and one borrower. In her opinion, the notes involved here were "the classic form of a promissory note as a security." 4
We acknowledge that, as defendants argue, some of the Amfac factors can be resolved in favor of these notes as non-securities. For example, we agree that no evidence was presented as to the percentage of the funds involved here to Spearex's total assets, and in fact Fox specifically testified that she could render no opinion as to that factor because she had not been provided with that information. We need not prolong this opinion with an exhaustive review of the evidence presented on each and every Amfac factor, however, because it is their combined effect that is important. Amfac, 583 F.2d at 432. Given this, and given our limited role in reviewing the denial of a Rule 20 motion for acquittal, we find that sufficient evidence was presented to withstand defendants' motion. 5
Defendants argue that the statutory definition of "security" in A.R.S. § 44-1801(22) is unconstitutionally vague insofar as the issuance of "any note" is a criminal act under A.R.S. §§ 44-1841 and 44-1842. Section 44-1801(22) provides:
"Security" means any note, stock, treasury stock, bond, commodity investment contract, commodity option, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas or other mineral rights, real property investment contract or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
(Emphasis added). Defendants contend that although a security is clearly defined as "any note," it is universally accepted that not every note is in fact a security. Defendants contend that because no one could have known in advance under Arizona's statutory scheme whether the notes at issue here crossed that line from commercial transaction (non-security) to investment transaction (security), the statutes fail to specifically define the crime so as to give...
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State v. Tober
...a security is too uncertain to provide sufficient notice of criminal responsibility, the court of appeals reversed. State v. Tober, 170 Ariz. 573, 826 P.2d 1199 (App.1991). Because the court of appeals passed unfavorably on the constitutionality of an Arizona statute, we granted the state's......