Travelers Health Ass'n v. Commonwealth Ex Rel
| Decision Date | 10 January 1949 |
| Citation | 51 S.E.2d. 263,188 Va. 877 |
| Parties | TRAVELERS HEALTH ASS'N et al. v. COMMONWEALTH ex rel. |
| Court | Virginia Supreme Court |
Appeal from State Corporation Commission.
Proceeding by the State ex rel. against the Travelers Health Association and others. From a cease and desist order of the State Corporation Commission, enjoining the Travelers Health Association and others from offering, advertising, promoting, or selling certain membership certificates or contracts of indemnity or insurance in Virginia without a permit or authorization from the commission, the Travelers Health Association and others appeal.
Order affirmed.
Before HUDGINS, C. J., and GREGORY, EGGLESTON, SPRATLEY, BUCHANAN, STAPLES and MILLER, JJ.
Hunton, Williams, Anderson, Gay & Moore, H. Merrill Pasco, and James A. Weems, all of Richmond, for appellants.
J. Lindsay Almond, Jr., Atty. Gen., Walter E. Rogers, Asst. Atty. Gen., and Blake T. Newton, Jr., of Richmond, for appellee.
This is an appeal from a cease and desist order entered by the State Corporation Commission on May 3, 1948. The order enjoined and restrained the appellants from offering, advertising, promoting, or selling certain membership certificates or contracts of indemnity or insurance in Virginia, until a permit or authorization so to do has been secured from the Commission as required by the Virginia Securities Act Chapter 529 of the Acts of Assembly 1928, as amended, generally known as the Blue Sky Law. See Michie's 1942 Code of Virginia, sections 3848(47) to 3848(66) Inc.
Section 9 of the act, Code 1942, § 3848 (55), requires every person, association, or corporation, desiring to engage in the selling or offering for sale of securities of this type in Virginia to apply for a permit so to do. Certain conditions must be complied with before a permit can be granted. Irrevocable consent must be filed that action or suit may be commenced against the permittee by the service of process on the Secretary of the Commonwealth, who, in turn, is required to transmit same by mail to the permittee. The applicant is also required to provide detailed information with reference to the solvency of the issuer of the securities and with respect to various other matters relating to the propriety of permitting their sale. The Commission is authorized to conduct such investigations as it may deem appropriate, and also see to the proper application of the proceeds from the sales of the securities. There are numerous other provisions, but the foregoing are suf-ficient for our purposes. The appellants do not deny that their membership contracts constitute "securities" within the meaning of the law, or that they are lawfully and properly so classified. Nor do they claim to have applied for or secured the required permit to sell them in Virginia.
Section 15 of the act, Michie's Code, section 3848(61), provides that any person violating the act, or who shall fraudulently evade or attempt to evade the provisions thereof, shall be guilty of a misdemeanor, where not otherwise provided, and punished by a fine or confinement in jail, or both. Proceedings to enforce the penalties of suchviolations must be instituted by indictment or information in the appropriate courts of record of the State.
Section 6 of the act, Michie's Code, section 384S(52), authorizes the State Corporation Commission, upon its own motion, or upon complaint of any resident of the State of violation of the act, to issue a cease and desist order in the nature of a temporary injunction and restraining order against further violations, after at least ten days notice, by registered mail to persons, corporations, or associations upon whom personal service cannot be had because of absence from the State. Signed receipt of the registered notice is required to be returned by the postal authorities.
Section 17, Code 1942, § 3848(63), authorizes the Commission to impose a fine not exceeding five hundred dollars for failure or refusal to comply with any lawful order made under the act.
Pursuant to section 6, supra, this proceeding against the appellants was instituted by order of the Commission on May 5, 1947. They were charged with offering for sale and selling the securities in question without having procured the necessary permit or authorization and in contravention of the provisions of the Virginia Securities Act. Notices of the proceeding were sent to the appellants by registered mail, and the Post Office registry receipts, filed as exhibits, showed the delivery of same. The notice informed the appellants that at the time indicated they would be given an opportunity to be heard upon whether a cease and desist order would be entered against them.
The appellants appeared specially by their counsel "for the sole purpose of objecting to the alleged jurisdiction of the Commonwealth of Virginia and of its State Corporation Commission, and of moving to set aside and quash service of summons alleged to have been made upon said defendants, and for no other purpose." They challenged the jurisdiction of the State and of the State Corporation Commission upon two broad general grounds: first, that the appellants have conducted no business activities in Virginia, but have transacted their entire business outside the State through the mails; and, second, that, the order of the Commission being in its nature in personam, service of notice outside the State by registered mail is not sufficient to confer jurisdiction upon the Commission to take any action with respect to the appellants. The case was heard upon a stipulation of certain facts, and also upon exhibits introduced in evidence.
After the hearing the Commission entered the order complained of. It recited the finding by the Commission that the appellants had been engaging in the business of selling their securities in Virginia without complying with the Virginia Securities Act and enjoined them from continuing such activities without such compliance.
It is settled beyond controversy, and not disputed by the appellants, that the regulation of the promotion and sale of securities is a proper exercise of the police power of the States. Virginia Brewing Co, v. Webber, 167 Va. 67, '187 S.E. 447; Watters & Martin v. Homes Corporation, 136 Va. 114, 116 S.E. 366. The purpose of laws regulating such promotions and sales is to protect the public against the imposition of fraudulent or unsubstantial schemes or projects, or from being misled into the purchase of securities based upon them. Such statutes do not conflict with or violate any provisions of the Federal Constitution. Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct 217, 61 L.Ed. 480, L.R.A.1917F, 514, Ann Cas.l917C, 643. Therefore, our first inquiry is directed to whether the activities of the appellants in the Commonwealth of Virginia have been such as to subject them to the State's regulatory power.
It appears from the stipulation of facts that the appellant, Travelers Health Association, is a nonprofit membership association incorporated under the laws of Nebraska, with its home office in Omaha. Letters and other exhibits filed in the case show that the appellant, R. E. Pratt, is a resident of Omaha, is treasurer of said association, and conducts its correspondence soliciting new membership contracts. The association has not now nor has it ever had any office, officer, or agent, or any bank account or property located in Virginia. At the time of the hearing it had in force in Virginia approximately eight hundred member-ship certificates which provided health insurance protection in the form of sickness benefit payments. It also admitted that it has caused many claims asserted by its Virginia, members to be investigated in this State. The customary method of soliciting new memberships has been for the Virginia members of the association to recommend to it persons who they believe are likely prospects. The association then writes these persons inviting them to make application for membership. All such letters are transmitted by mail from the United States Post Office in Omaha. If upon the receipt of this letter the proposed applicant is so disposed, he fills out the application blank and sends it by mail to the home office of the association in Omaha, where it is received and acted upon.
The exhibits contained in the record include a letter from appellant Pratt, as treasurer of the association, addressed to a prospective member. The letter was accompanied by an application form containing twenty-six questions to be answered by the applicant, who is instructed after he has signed it to forward it "with membership fee to R. E. Pratt, Treasurer, " Omaha, Nebraska. The application contemplates reference to a named person as to the applicant's character and standing. There also appears upon the application the following:
In addition to the foregoing, there was also enclosed with the letter of solicitation a separate printed "Absolute Guarantee" slip containing a provision in conformity with the one above quoted. On the face of this slip appears the following:
"Note--It is not necessary to show the name of anyone as recommending you, as you have already been recommended to us by one of our members."
On the reverse side of said guarantee slip appears a printed copy of a letter from one of the members of the association residing at Baltimore, Maryland. In this letter the member in question expresses thanks for the promptness with which the association had paid benefits on account of his recent illness, and concludes with the following statement: "I am working on several of my friends to get them to join and expect to send you several applications real soon."
The appellants insist that the foregoing facts are...
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