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Adams v. American Western Securities Inc.

May 17, 1973

ADAMS, APPELLANT,
v.
AMERICAN WESTERN SECURITIES, INC. ET AL, DEFENDANTS, JOACHIMS, RESPONDENT



Appeal from Circuit Court, Multnomah County. Alfred T. Sulmonetti, Judge.

Frederick T. Smith, Portland, argued the cause for appellant. On the briefs with him were Dusenbery, Martin, Bischoff & Templeton and John L. Langslet, Portland.

Garr M. King, Portland, argued the cause for respondent. With him on the brief were Kennedy & King, Portland.

In Banc. Tongue, Justice. O'Connell, Chief Justice, and McAllister, Denecke,*fn* Holman, Howell and Bryson, Justices.

Tongue

This is an action for recovery of the amount paid by plaintiff for the purchase of unregistered securities sold in violation of the Oregon Blue Sky Law, ORS 59.115. Judgments were entered against all defendants except defendant Bert E. Joachims. The trial court granted an order of involuntary nonsuit on the motion of that defendant. Plaintiff appeals from that order, after entry of a verdict and judgment for plaintiff against the remaining defendants.

The allegations of plaintiff's complaint under which he seeks judgment against defendant Joachims are as follows:

"Defendant, BERT E. JOACHIMS, participated or materially aided the defendants American Western Securities, Inc., Fred Stanley Parsons and Imperial Equities Corporation as their common attorney

by his advice and counsel, negligently given, including * * * drawing up a variety of documents used by defendants to effectuate the sale of the debentures to plaintiff * * *."

ORS 59.115 (1) and (2) provide that "any person who offers or sells a security" in violation of the Oregon Security Law (including ORS 59.055, requiring the registration of all nonexempt securities) is liable to the person buying the security from him, upon tender of the security, for the amount paid for the security, plus interest, attorney fees and costs.

ORS 59.115 (3) then provides as follows:

"* * * every person who participates or materially aids in the sale is also liable jointly and severally with and to the same extent as the seller, unless the nonseller sustains the burden of proof that he did not know, and, in the exercise of reasonable care, could not have known, of the existence of the facts on which the liability is based. * * *"

The term "sale" is defined in ORS 59.015 (11) (a) as follows:

"'Sale' or 'sell' includes every disposition or attempt to dispose of, contract to sell, attempt or offer to sell, exchange of, option for the sale of, solicitation of an offer to purchase, or subscription for, a security or an interest in a security for a consideration, directly or by an agent, circular, letter, advertisement or otherwise, regardless of whether or not any person so acting has power to pass title to or control the disposition of the security or acts as a finder. * * *"

The question to be decided in this case is whether defendant Joachims, who was the attorney for the remaining defendants and was also an officer and director of the corporate defendants, "participate[d] or

materially aid[ed]" in the sale to plaintiff of an unregistered security.

The determination of this question requires a review of the evidence in some detail, bearing in mind that because this case comes to us upon an appeal from an order granting a motion for an involuntary nonsuit, it is not for us to consider the credibility of witnesses or to resolve conflicts in the testimony. Instead, our function is to consider only whether there was substantial evidence from which, if believed by the jury, it could properly find that defendant "participate[d] or materially aid[ed]" such a sale so as to require that this case be submitted to the jury for decision. In that event, it would have been for the defendant to establish any affirmative defense that he may have, including the possible defense that he "did not know, and, in the exercise of reasonable care, could not have known, of the existence of the facts on which the liability is based."

1. Summary of evidence.

Defendant Joachims was the personal attorney of defendant Parsons, the security salesman who sold the securities to plaintiff. He was also attorney for defendant American Western Securities, Inc. (American), an Oregon corporation licensed to sell securities and owned by Parsons as its principal stockholder, and attorney for defendant Imperial Equities Corporation (Imperial), another Oregon corporation owned by Parsons as its principal stockholder. Defendant Joachims was also an officer and director of American and Imperial. In addition, he performed legal services for Trails West, Inc., the corporation whose securities were the subject of the sale of plaintiff.

In May 1969, Trails West was in financial difficulty, with a "deficit figure" of $51,656.34 as of April 30, 1969, including some $25,000 for unpaid federal withholding taxes. Its president, Mr. Patterson, came in contact with defendant Parsons and discussed with him the possibility of raising needed funds by the sale of securities. In the course of these discussions defendant Joachims was also consulted and was furnished with statements showing its financial condition.

As the result of these consultations, a plan was developed in late May or early June 1969 under which Trails West would issue $100,000 in debentures, to be sold for it by Imperial, and 60 per cent of the outstanding Trails West common stock would be transferred to Imperial under a "management agreement."

There was evidence from which, if believed, a jury could have found that defendant Joachims was at least a participant in the formulation of this plan. There was no evidence that there was anything illegal at that time about that plan or its contemplated manner of execution.

There was evidence, however, from which a jury could have found that without waiting for the documents to be prepared, as required to make this plan effective, including any required registration of the debentures to be issued and sold under this plan, defendant Parsons proceeded in late May or early June to solicit plaintiff and four other persons to buy these debentures and secured commitments for the purchase of all of them, at a purchase price of $100,000.

There was testimony that in late May or early June 1969, plaintiff who knew that the securities were "speculative," not only agreed to pay $25,000 for such debentures, but delivered to Parsons his check, dated

June 11, 1969, payable to American for $20,500 in part payment for that purchase with the balance of $4,500 payable from the proceeds of the sale by American of other securities owned by plaintiff and held by American.

The debentures, however, were not delivered at that time because they were not yet in existence and plaintiff did not receive "anything in writing" at that time to confirm the transaction. Also, these debentures had not yet been registered with the Oregon Corporation Commission. Neither had notice been filed with the Corporation Commission, as required by ORS 59.035 (12) ...


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