Zochrison v. Redemption Gold Corp.

274 N.W. 536, 200 Minn. 383, 1937 Minn. LEXIS 784

• Court: Supreme Court of Minnesota
• Decided: July 2, 1937
• Docket: No. 31,121.
• Status: Published

Opinions

Julius J. Olson, Justice.

Redemption Gold Corporation appeals from an order denying its motion to set aside service of summons as to it on the ground that service thereof upon the chairman of the securities commission did not give the court jurisdiction of defendant in personam. We shall refer to appellant hereafter as the defendant unless otherwise specially designated.

The facts may be summarized, thus: Defendant is a corporation, created and existing under and by virtue of the laws of Colorado. Its general business is that of mining, milling, reduction, and development of ores; to acquire by purchase, lease, etc., title to mines and mining lands, and to develop the same. All of its operations have been carried on and conducted in Colorado, and there all of its directors and officers reside. It has never done any business in this state, and it does not now have nor has it ever had any property here, nor has it subjected itself to our jurisdiction in any manner except that in 1933, pursuant to its application for registration and the right to sell its stock here, our securities commission granted the required authority so to do, all in accordance with the requirements of our blue sky law. 1 Mason Minn. St. 1927, § 3996-1, et seq. Between April 12, 1933, and August 13, 1934, “some” of the plaintiffs, “although not necessarily all of them,” became the owners of a minority interest of its stock by virtue of sales made here pursuant to authority so granted. That authority was temporarily revoked August 13, 1934, and on September 11 the revocation was made permanent.

Plaintiffs’ cause is based upon certain alleged fraudulent acts and practices on the part of the individual defendants and one D. A. Odell, now deceased. It is claimed that when defendant made application to register its stock for sale in Minnesota it failed to disclose certain labor liens against its properties; that these liens were later reduced to judgment and the corporate properties sold at sheriff’s sale. Odell in May, 1934, acquired the certificate of sale which six months later ripened into a fee title.

It is averred that the individual defendants in November, 1933, conspired together to defraud defendant of all of its property. The Cliffords are said to have entered into an agreement with Odell for the purpose of organizing a syndicate to acquire and operate mining property. By the terms of this arrangement Odell became the representative of the syndicate and of the Cliffords. On November 13, 1933, defendant entered into a lease with Odell by the terms of which he Avas to take over and operate all of its property for a period of five years. Prior to the execution of the lease the Cliffords had acquired control of defendant by acquisition of a majority of its stock. The property of defendant originally had been procured from one Leach and his associates. They had obligated themselves to sell the property to defendant free of encumbrance. By reason of the outstanding labor claims, Leach and his associates deposited 75,000 shares with defendant as security against loss therefrom. Defendant foreclosed this collateral, and at the sale Odell purchased the entire block for $100. To make effective the fraudulent scheme, so it is alleged, defendants formed the other corporate defendant, Minnesota Mines, Inc., also a Colorado corporation. This enterprise is said to be wholly under the control of the individual defendants. As a consequence, all property of the Redemption company has been lost to it and is now being wrongfully held by Minnesota Mines, Inc. The properties thus wrongfully converted are alleged to be very valuable and “have produced approximately $250,000 worth of gold above operating expenses during the past year, all of which has been converted by” the defendants, i. e., the Cliffords and Minnesota Mines, Inc.

This suit is one brought by plaintiffs as minority stockholders in the Redemption corporation. They demand judgment as follows:

“1. That the individual defendants and said Minnesota Mines, Inc., be required to account fully for their acts and doings in said premises, including an accounting by the individual defendants for all of the property of the Redemption Gold Corporation used, acquired or converted by them, including all of the gold mined from said properties and the proceeds of the sale thereof, and that the said Minnesota Mines, Inc. be required to account for all of the property of Redemption Gold Corporation held by it or in its name for its own use or for the use and benefit of any individuals.

“2. That the said individual defendants and said Minnesota Mines, Inc. be adjudged and decreed to hold such property as they took from the said Redemption Gold Corporation as trustees for the said Redemption Gold Corporation, and be required to reconvey and transfer the same to the said Redemption Gold Corporation, if they are in a position so to do, or otherwise to account for the proceeds thereof, or be required to respond in damages for any damage done the Redemption Gold Corporation for which they cannot make amends by the return of specific property.

“3. That the lease hereinbefore referred to be declared void and of no effect.

“4. For such other and further relief as may be just and equitable.”

The only basis upon which jurisdiction rests is by virtue of 1 Mason Minn. St. 1927, § 3996-11, and the power of attorney executed and filed in conformity therewith. That section as far as here material reads:

“Every non-resident person shall, before having any securities registered * * * appoint the chairman of the commission, * * * 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.” (Italics supplied.)

At the outset it is well to bear in mind the universal concept of what is considered necessary to give a court jurisdiction. In Erickson v. Macy, 231 N. Y. 86, 90-91, 131 N. E. 744, 745, 16 A. L. R. 1322, 1324, 1325, the court states the rule:

“Whenever it is necessary to determine whether jurisdiction has been obtained over a defendant in an action by service of the summons in some way other than by personal service thereof, it must be remembered that the general rule in regard to the service of process established by centuries of precedent, is that process must be served personally Avithin the jurisdiction of the court upon the person to be affected thereby. Substituted service when provided by statute is in derogation of such general rule, and, consequently, the directions thereof must be strictly construed and fully carried out to confer any jurisdiction upon the court.”

That is also the rule here. Gilmore v. Lampman, 86 Minn. 493, 90 N. W. 1113, 91 A. S. R. 376. Of course the purpose and intent of the cited statute is to give the court jurisdiction of the person where service is made upon an attorney duly appointed, and to make such service as “binding as if due and personal service had been made upon” the person executing the power. This then leaves for consideration here the one and only question: Is this suit one “in relation to or involving any transaction covered by” the act? If this be answered in the affirmative, then clearly the court was right in denying defendant’s motion.

In determining that question it is necessary that careful consideration be given to the facts pleaded in the complaint. The transactions to which plaintiffs point as justification for the jurisdiction asserted are:

(1) Failure in the application to include the labor claims. These amounted to less than $1,300. The listed assets as therein shown amounted to more than $750,000, so that less than two-tenths of one per centum of the assets were represented thereby.

(2) The five-year lease concerning which much is said was an instrument executed in Colorado between parties there domiciled and there to be performed in its entirety. This was and is clearly a Colorado contract.

(3) The 75,000 shares pledged was obviously also a Colorado transaction. Nowhere is there any suggestion that these shares had any other situs than that of the domicile of the corporate enterprise. It was a Colorado pledge, nothing else, and was there enforced.

(1) The purchase by Odell of the sheriff’s certificate is also clearly a Colorado transaction. The labor claims upon which the certificate rested were claims arising within that state, reduced to judgment there, and the corporate property sold pursuant to execution was also there.

But, even so, plaintiffs say:

“The misrepresentation to the Securities Commission contained in the original application, upon the basis of which the corporation was ultimately denuded of its assets, was filed in Minnesota as a condition precedent to obtaining permission to sell the securities in Minnesota to these plaintiffs. The sales of the securities here involved were made in Minnesota by the appellant.”

Plaintiffs’ complaint bristles with charges of fraud and deceit. They place their right of recovery upon fraudulent and deceitful practices and a conspiracy to “denude” defendant of its assets. Yet they do not desire to rescind their purchase of stock in defendant company, nor is this an action to recover damages. The relief wanted has been stated. In accomplishing their expressed purpose they occupy no other or different position than would any other group of minority stockholders in any corporation who seek relief against official misconduct by the majority group of stockholders or other corporate mismanagement. If the present cause were one to recover money misappropriated by the corporate officers where the majority stockholders were opposed or perhaps were parties to the wrong, the original purchase of the stock would not be of any importance nor even material to the issues to be tried. Supposing this were a suit for disbursement of a cash or stock dividend because of large surpluses available thereto, would not their position be exactly the same, no matter in what manner or by what means their stock was acquired? Their rights and the remedies sought to enforce the same are exactly the same as if there were no fraud connected with the sale of the stock acquired by them.

It is elementary that fraud may be waived, confirmed, or ratified. 3 Dunnell, Minn. Dig. (2 ed. & Supps. 1932, 1934) § 3833b, and cases cited under notes. The “defrauded party may either rescind the contract, or he may affirm it and recover the damages sustained.” 12 R. C. L. p. 413, § 158. And it is his duty “on discovering the fraud to elect whether he will perform or rescind. If he elects to perform, he thereby, in effect, makes a new contract, and to permit him under those circumstances to recover for a fraud would be to do violence to every rule upon which compensatory damages are allowed. The rule is not changed by the fact that the person guilty of the fraud insists on performance, and that the defrauded party intends to perform and then sue to recover the loss growing out of performance.” 12 R. C. L. pp. 413-414, § 159. Clearly, then, upon this record, plaintiffs have confirmed and ratified the sale of the stock now held by them. Their present suit negates any other result.

From what has been said the conclusion necessarily follows that fraud as a basis for jurisdiction under our blue sky law has dis appeared. The purpose of the statute, as clearly defined in its title, “is to prevent.fraud in the sale and disposition of * * securities sold or offered for sale within the state * '* *. We find nothing in the language of the statute which clearly evinces a legislative intention to give the courts of this state jurisdiction in such a case as this.” Dragon Motor Car Co. Ltd. v. Storrow, 165 Minn. 95, 96-97, 205 N. W. 694; Ward v. Harris, 273 Mich. 576, 263 N. W. 744. We do not think Anderson v. Chase Securities Corp. 193 Minn. 443, 258 N. W. 743; Kaiser v. Butchart, 197 Minn. 28, 265 N. W. 826; or Streissguth v. Chase Securities Corp. 198 Minn. 17, 268 N. W. 638, hold contrary to the conclusion here reached. The cases are clearly distinguishable, as a reading thereof will abundantly prove.

There are practical reasons, too, why we should not by a forced construction of our blue sky law seek to stretch our jurisdiction so as to cover cases such as the one presented. To obtain complete adjudication of all rights of the parties it seems clear that the courts of defendant’s domicile can more adequately than ours provide needed remedies. Title to both real and personal property is involved, all within and subject to foreign jurisdiction. It may well be that receivership is essential to bring about finality. There are many other circumstances and ramifications involved as to which the courts there can and undoubtedly Avill give due and adequate consideration and grant full and complete relief when and as recourse to these tribunals is made. The construction of a statute must be reasonable and practical. “Broad and practical considerations should control.” 6 Dunnell, Minn. Dig. (2 ed. & Supps. 1932, 1934) § 8939, and cases cited under notes.

When defendant filed its application to register its stock this court had definitely determined that the act was not all-embracing but was of limited scope. Dragon Motor Car Co. Ltd. v. Storrow, 165 Minn. 95, 205 N. W. 694. The statute as there interpreted became a part of the law as fully as if therein written. 6 Dunnell, Minn. Dig. (2 ed.) § 8936b. The interpretation sought by plaintiffs might well lead to grave constitutional questions involving due process. Old Wayne Mut. L. Assn. v. McDonough, 204 U. S. 8, 27 S. Ct. 236, 51 L. ed. 345; Hunter v. Mutual Reserve L. Ins. Co. 218 U. S. 573, 31 S. Ct. 127, 54 L. ed. 1155, 30 L.R.A. (N.S.) 686; Simon v. Southern Ry. Co. 236 U. S. 115, 35 S. Ct. 255, 59 L. ed. 492.

The issues presented are simple and limited. Plaintiffs, whether considered individually or as a minority stockholders group, are not suing for rescission of their purchases nor for damages suffered by reason thereof. What they are seeking, all that is wanted, has been adequately stated heretofore. Obviously such relief has no connection with the means or the manner of their stock purchases. In this situation, our blue sky law necessarily disappears from the picture as a basis for jurisdiction.

Order reversed.