4 N.W.2d 89 | Minn. | 1942
Lead Opinion
The action is to rescind the sale of securities purchased in 1929 by plaintiff through the defendant Delaware corporation, which is alleged to have been a sales agency and subsidiary of respondent, entirely controlled and directed by respondent. The complaint avers that plaintiff disposed of said securities on the market in 1930 without knowing that they had not been registered as required by the blue sky law of this state; and judgment is asked for the purchase price paid less the amount received from the sale. There are sweeping allegations of fraud, but the real ground of rescission is that the securities were not registered by the securities commission. These facts were stipulated for the purposes of the motion to set aside and quash the pretended service of summons on respondent (the service on the defendant Delaware corporation is not questioned): Between May 1929 and October 1931, respondent was transacting a securities business within this state; that it never applied for or received a license to do business as a foreign corporation within this state or appointed a resident *430 process agent within this state; that respondent never applied for or received a license to do business as a broker, dealer, agent, or otherwise under the Minnesota blue sky law, nor obtained a registration of securities thereunder, nor appointed the chairman of the securities commission, or his successor, as its process agent; that the securities referred to in the complaint as being sold to plaintiff, if the same required registration, were not registered for sale within this state by respondent or anyone else; and that respondent ceased to transact any business in this state in October 1931, and thereupon left the state without filing a certificate of withdrawal or designating the secretary of state as its statutory process agent; and respondent has not done business in Minnesota since October 1931.
In Garber v. Bancamerica-Blair Corp.
We may also eliminate the attempted service of the summons by handing to and leaving copies thereof with the secretary of state or his deputy, for Mason St. 1927, §§ 7493 and 7494, was expressly repealed by the foreign corporation act, L. 1935, c. 200. Section 27 thereof repeals said sections, "reserving to the state, however, all rights to recover fines for violations thereof occurring prior to the effective date of this section and reserving all rights of parties to any action pending in this state at the effective date of this section." By § 30 of that chapter, the effective date of the quoted § 27 was fixed as of March 1, 1936. (Mason St. 1940 Supp. §§ 7495-27 and 7495-30.) Thus almost one year was given plaintiff to come in under §§ 7493 and 7494. The action was not started until 1939. Kozisek v. Brigham,
"Any foreign corporation licensed to do business in this state may withdraw therefrom upon filing with the secretary of state a duly certified copy of a resolution duly passed by unanimous vote of its board of directors or corresponding board, or by majority vote of its stockholders, directing such withdrawal and irrevocably appointing the secretary of State of Minnesota and his successors in authority the agent of said withdrawing corporation for service of legal process and other notices upon it in any action or proceeding of any nature or kind arising out of or involving anything done or omitted by said foreign corporation in this state while licensed to do business here. Such appointment of said agent shall continue in force as long as any cause of action, right, or claim against said corporation survives in this state; and service upon such agent shall be deemed personal service upon the foreign corporation so appointing him."
It is to be noted that the appointment is permissive, not mandatory, and relates to foreign corporations licensed to do business in this state and whose board of directors unanimously resolve to withdraw, or whose stockholders by a majority vote so decide. It is also to be noted that there is no provision requiring the secretary of state to notify the corporation of service of process or notice. And, as above intimated, what to us appears more conclusive against the right of plaintiff to invoke the use of this repealed § 7494 to acquire jurisdiction is that no effort was made to do so under the provision mentioned in L. 1935, c. 200.
Plaintiff's appeal must therefore stand or fall upon the service of the summons by handing to and leaving copies thereof with the deputy commissioner of securities on June 8, 1939, under the provisions of Mason St. 1940 Supp. § 3996-11 (L. 1925, c. 192, § 11, as amended by L. 1933, c. 408, § 12), reading: *432
"Every non-resident person shall, before having any securities registered or being licensed as a broker, dealer, or agent, appoint the 'Commissioner of Securities,' and his successor in office, his attorney upon whom process may be served in any action or proceeding against such person or in which such person may be a party, in relation to or involving any transaction covered by this Act, which appointment shall be irrevocable. Service upon such attorney shall be as valid and binding as if due and personal service had been made upon such person. Such service shall be by duplicate copies, one of which shall be filed in the office of the commission and the other immediately forwarded by registered mail to the person so served at the address on file with the commission. Provided, that any such appointment shall become effective upon the registration of the securities or the issuance of the license in connection with which such appointment was filed."
The quoted section, to be sure, requires the nonresident party to appoint the securities commissioner his process agent before he is allowed to register any securities and before license is issued to deal in such securities, but it does not state that a sale of unregistered securities shall be deemed equivalent to appointing the commissioner as his process agent. This is emphasized by the last sentence of the section, that an appointment even if made shall become effective "upon the registration of securities or the issuance of the license in connection with which such appointment was filed." Respondent never filed an appointment, nor registered these or any securities, nor even applied for a license to deal in securities. In all statutory provisions for obtaining jurisdiction of foreign corporations not doing business in the state, consideration must be given to the due process requirement of U.S. Const. Amend.
We do not intend to refer to the many cases cited by plaintiff relating to insurance contracts where the foreign corporation, while its policy is in force, continues to come into the state of the insured's residence to collect the premiums as they fall due. Nor need we determine the merit of respondent's classification of the various statutes designed to obtain jurisdiction of foreign corporations. In the absence of a statute declaring that a foreign corporation by coming into the state to transact business thereby automatically appoints the statutory named process agent, jurisdiction may not be obtained of the foreign corporation which neither is transacting business in the state at the time of the attempted service of summons nor has appointed a process agent. Our decisions have thus construed the statutes enacted prior to 1941 for the purpose of obtaining jurisdiction of foreign corporations. Kulberg v. Fraternal Union of America,
"A different rule is applied where the foreign corporation enters the state for the transaction of business without a compliance with its laws, subsequently withdrawing altogether. In a case of that kind, the presence of the corporation being unlawful, we have held that a showing must be made that the company was *434
doing business in the state at the time of the commencement of the suit. Louis F. Dow Co. v. First Nat. Bank,
Plaintiff contends that since respondent entered this state and transacted business in unregistered securities in violation of the blue sky law it is estopped to deny the appointment of the securities commissioner its process agent. To support the contention, plaintiff cites and relies on Hess v. Pawloski,
"The auditor of this state shall be, and he is hereby constituted the attorney in fact for and on behalf of every foreign corporation *435 doing business in this state, and of every nonresident domestic corporation, with authority to accept service of process on behalf of and upon whom service of process may be made in this state for and against such corporation. No act of such corporation appointing the auditor such attorney in fact shall be necessary."
It is clear that every statute involved in the cited decisions, designated to secure jurisdiction over foreign corporations and of nonresidents, declares and states in no uncertain terms that by the fact of their mere entry into the state to transact business the process agent named in the statute becomes automatically their agent or attorney in fact to accept service of process in any action brought involving such business. It is obvious that there is quite a difference between those statutes and § 3996-11 of our code. Of course, the additions to § 3996-11 by L. 1941, c. 547, § 11, cannot in reason apply to respondent's entry to transact business in securities in 1929.
In Sivertsen v. Bancamerica-Blair Corp. (D.C.)
Plaintiff also claims support for the contention that, having entered this state to transact the business of dealing in securities without compliance with our blue sky law, it thereby appointed the process agent therein designated, in the decision of Yoder v. Nu-Enamel Corp.
The order is affirmed.
Dissenting Opinion
I think that the service of process on the commissioner of securities was good upon the grounds that defendant is estopped to deny that it appointed the state officer as its agent for the service of process and that its withdrawal from the state did not render the appointment ineffective.
The purpose of the blue sky law (Mason St. 1927, §§ 3996-1 to 3996-28) is to suppress the fraudulent sale of securities. An elaborate administrative process is set up to prevent and to detect fraud by requiring registration of securities, licensing of dealers and agents, and revocations of registrations and licenses. The law imposes a duty on the securities commissioner to supervise the entire business. It applies equally to residents and nonresidents. Drastic criminal penalties for violations are imposed. Civil remedies for defrauded purchasers are provided. Notwithstanding all these provisions, the legislature was not naive enough to believe that it could prevent or had entirely prevented the fraudulent sale of securities. It took notice, as it could hardly avoid doing, of the very substantial extent to which migratory vendors of fraudulent securities carried on their traffic within our borders, entering the state to make fraudulent sales to our citizens and then withdrawing therefrom. Because our citizens had to pursue them in other forums, such dealers enjoyed substantial, if not total, immunity from all legal responsibility. See B. O. R. Co. v. Harris, 12 Wall. (U.S.) 65,
The legislature must be deemed to have enacted the provisions of § 3996-11 for the appointment of the securities commissioner by nonresidents as process agent with the rule in mind that where a nonresident withholds actual consent to jurisdiction by failing to file a required appointment he will be charged with the same consequences as if he had consented in case he enters the state and exercises the privilege of doing business for which such an appointment is a condition. Where the consent is given we have a true contract; where it is not given we have by operation of law the rights which the contract, if executed, would have given. See Bagdon v. Philadelphia R. C. I. Co.
The fact, stated in the majority opinion, that the statute "requires the nonresident party to appoint the securities commissioner his process agent before he is allowed to register any securities and before license is issued to deal in such securities" is all that is required, where such party enters the state and sells securities, to raise an estoppel on the part of the seller to deny the statutory appointment. A corporation "cannot migrate, but may exercise its authority in a foreign territory upon such conditions as may be prescribed by the law of the place. One of these conditions may be that it shall consent to be sued there. If it do business there itwill be presumed to have assented and will be boundaccordingly." (Italics supplied.) B. O. R. Co. v. Harris, 12 Wall. (U.S.) 65, 81,
"Upon so assuming the liabilities of the older association, which necessitated the transaction of the business connected therewith in this state, defendant was under duty to comply with our statutes, and having failed to do so, is estopped from denying the jurisdiction of our courts if it continued the transaction of its business in this state."
The Kulberg case cites with approval Ehrman v. Teutonia Ins. Co. 1 F. 471, 476, 1 McCrary (D. Ct. Ark.) 123, where Caldwell, Cir. J., in speaking of the failure of a foreign insurance company to file with the state auditor an appointment of that officer as its process agent as required by the Arkansas statute, said: "That the stipulation was not, in fact, filed with the auditor, is of no consequence if the company has done those things which imposed upon it the obligation and duty to file it." The estoppel has the same effect as if a formal appointment of the securities commissioner had been made by defendant.
True, in each of our cases cited above the company was doing business in the state and had not withdrawn, as here, at the time of service upon the state officer; but that circumstance is entirely irrelevant, as will be shown later.
To sum up on this phase of the case, the rule is as stated in 23 Am. Jur., Foreign Corporations, § 495:
"The general rule is that a foreign corporation tacitly submits itself, when it voluntarily enters the state and engages in business there, to the valid laws of such state and to the jurisdiction and process of its courts to the extent required by such laws. Amenability of the corporation to suit and judicial process in respect of causes of action arising out of the business done in the state follows as a legal consequence of doing business therein, if the *439 law of the state makes provision therefor, either as an express condition upon which the corporation can legally transact its corporate business there or as a condition implied from provision made for service of process upon its agents in the state or upon an official designated for the purpose by statute."
If defendant had filed a formal appointment of the commissioner of securities as its process agent before it withdrew from the state, the appointment would have continued in effect after defendant's withdrawal from the state. Magoffin v. Mutual Res. Fund L. Assn.
"It is equally true that if an insurance corporation of another State transacts business in Pennsylvania without complying with its provisions it will be deemed to have assented to any valid terms prescribed by that Commonwealth as a condition of its right to do business there; and it will be estopped to say that it had not done what it should have done in order that it might *440 lawfully enter that Commonwealth and there exert its corporate powers."
This holding has been cited with approval in later cases. Minnesota Commercial Men's Assn. v. Benn,
Where the rule is recognized that a noncomplying foreign corporation doing business in the state is estopped to deny the appointment of the statutory agent for service of process, service of process may be made on such agent and jurisdiction over the corporation acquired after it has withdrawn from the state. The withdrawal of the corporation from the state in such a case is just as ineffective to revoke the appointment of the statutory agent for service of process arising from estoppel as where the appointment was made in express terms by a writing. Darling Stores Corp. v. Young Realty Co. (8 Cir.)
"A foreign corporation which does business in a state the law of which provides that it shall be amenable to suit on causes of action arising out of the business done in the state, by service of process upon some person designated by statute, such as a state officer, cannot escape the jurisdiction of the local courts in such a suit by ceasing to do business in the state and withdrawing therefrom, and this is the general rule even though it was required to designate such person as its agent for the purpose and *441 failed to comply with the requirement or to consent in any manner to the statutory provisions."
In Proposed Final Draft, Restatement, Judgments (Part I, 3-31-42) § 219, d, states the rule:
"d. Ceasing to do business. A court may acquire jurisdiction over a non-resident who has done business within the State but has ceased to do business there at the time when the action is brought, as to causes of action arising out of the business done within the State, if at the time when the cause of action arose a statute of the State provided that non-residents by doing business there became subject to the jurisdiction of the State to that extent."
True, the statute of Iowa considered in the Darling Stores Corporation case provided that in case of failure to comply service might be made on the state officer as the statutory agent for service of process. But that circumstance was not a factor in decision. The court based its decision on estoppel to deny compliance and the binding effect of the estoppel as against the subsequent withdrawal from the state. The court said [121 F.2d 116]:
"In the case before us the fact of doing business in the state, and the necessity of compliance with the Iowa statute, was admitted by the application of Darling Shops, Inc., for, and its receipt and acceptance of, the permit granted. It could not absolve itself of the obligation assumed by withdrawal from the state after its breach of that obligation."
In the other cases cited the statute did not prescribe the effect of noncompliance.
The state's power to regulate the sale of securities, like that of regulating the use of highways, extends to residents and nonresidents, individual and corporate. An individual who enters the state and sells securities in violation of the state blue sky law thereby submits himself to the state's jurisdiction according to its *442
statutes. For example, where the statute so provided, service of process might be made on him by registered mail after he has left the state. Stevens v. Television, Inc.
It is not important that our statute does not provide, as some statutes do, that doing business in the state by a foreign corporation shall be deemed a designation of the state officer as the statutory agent for service of process. Our decisions have supplied such a consequence in such cases without express statutory provision to that effect. Massey S. S. Co. v. Norske Lloyd Ins. Co. Ltd.
Decisions in other jurisdictions, where the statutes do not prescribe the consequence of noncompliance, like our own, attach such a consequence to doing business in the state without compliance. Morris Co. v. Skandinavia Ins. Co. (7 Cir.)
The majority relies principally on our decisions holding that, where jurisdiction is based upon presence of the corporation in the state, it must appear that the corporation was actually doing business in the state through its agents at the time of service. In this class are cases like American L. I. Co. v. Boraas,
It is entirely unimportant whether or not a corporation which has consented to service of process on the statutory agent for service of process has withdrawn before service of process. In fact, the consent is exacted from the corporation as the condition of doing business here so that service may be had upon it after it has withdrawn from the state. Magoffin v. Mutual Res. Fund L. Assn.
No serious question of due process is raised by the provisions of § 3996-11. The exaction, as a matter of law, of consent by a foreign corporation to the appointment of the commissioner of securities as agent for service of process as a condition of doing business within the state is a constitutional exercise of the state's police power. 23 Am.Jur., Foreign Corporations, § 495, note 9. Where the performance of an act within the state by a nonresident such as using of its highways or engaging in a business such as the sale of securities is subject to state regulation, the doing of such acts or the transaction of such business may be conditioned by the appointment by the nonresident of a state officer as process agent. Seitz v. Claybourne,
According to my view, a nonresident's entry into the state and his selling of securities therein without having designated the commissioner of securities as his agent for service of process as required by § 3996-11 by operation of plain rules of law constitutes the commissioner the nonresident's agent for service of process. Such was the rule when L. 1941, c. 547, was enacted. Hence that statute did not change the existing law. If anything, it simply made more explicit what already was plain enough. The 1941 statute undoubtedly was occasioned by the decision of *445
the federal court in Sivertsen v. Bancamerica-Blair Corp. (D. C.)
Consequently, I think the court below erred and should be reversed.
Dissenting Opinion
I concur in the dissent of Mr. Justice Peterson.
MR. CHIEF JUSTICE GALLAGHER, absent on account of illness, took no part in the consideration or decision of this case.
MR. JUSTICE STONE took no part in the consideration or decision of this case.