Chapter 059

 

      Chapter 59

 

NOTES OF DECISIONS

 

      Public policy does not prohibit nonculpable corporate directors held liable under this chapter from seeking indemnification from persons actually responsible for the wrongful issuance of unregistered securities. Collins v. Fitzwater, 277 Or 401, 560 P2d 1074 (1977)

 

ATTY. GEN. OPINIONS: Additional real estate license not required where security sold is interest in limited partnership to invest in real estate, (1978) Vol 38, p 1971

 

      59.005

 

NOTES OF DECISIONS

 

      The seller franchisor’s sale of franchises for its initial capitalization was sale of security under this section. Stanley v. Commercial Courier Serv., Inc., 411 F Supp 818 (1975)

 

      59.015

 

NOTES OF DECISIONS

 

      Sale of “Dare to be Great” contracts, consisting of series of tapes and group sessions in addition to franchise under which buyer could sell contracts, is “investment contract” covered by Oregon Blue Sky Law. Hurst v. Dare to be Great, Inc., 474 F2d 483 (1973)

 

      Under the “risk capital” test, sales of memberships in a travel club did not constitute “investment contracts,” and were therefore not subject to registration requirements, since initial capital used to initiate club operations was not provided by memberships sold in Oregon. Jet Set Travel Club v. Corp. Commr., 21 Or App 362, 535 P2d 109 (1975)

 

      Sales and leaseback of an apartment complex was an investment contract within the meaning of paragraph (13) (a). Bergquist v. Intl. Realty, Ltd., 272 Or 416, 537 P2d 553 (1975)

 

      The sale of a “fractional interest” in a racehorse is an “investment contract” within the meaning of this section when the purchaser expects to derive a profit to be created solely through the efforts of other persons. Marshall v. Harris, 276 Or 447, 555 P2d 756 (1976)

 

      A limited partnership interest is a “security” subject to the anti-fraud provision of the Oregon Securities Law. Pratt v. Kross, 276 Or 483, 555 P2d 765 (1976)

 

      Transaction whereby plaintiff paid $6,000 to defendant and took back promissory note in defendant’s corporation, with agreement that plaintiff would have option to convert note to 50% interest in new corporation plus 25% interest in defendant’s corporation, constituted “option for the sale of ... a security.” Foelker v. Kwake, 279 Or 379, 568 P2d 1369 (1977)

 

      Transactions in investment scheme which involved Treasury bill “straddles” in which assets of scheme promoter and investors were intermingled, were investment contracts and therefore securities under this section. Black v. Corporation Division, 54 Or App 432, 634 P2d 1383 (1981)

 

      Where investors in land sale scheme did not anticipate playing any significant role in dividing land, recruiting other investors, rezoning or resubdividing the land or obtaining purchasers for resale of property and they executed agreement conferring general management powers on defendant, participatory undivided interests sold by defendant were “investment contracts.” State v. Jacobs, 55 Or App 406, 637 P2d 1377 (1981), Sup Ct review denied

 

      Where plaintiffs purchased gold and silver coins from defendant, coins could be picked up on demand and plaintiffs understood that any profit would depend upon market and not on efforts of defendant, there was neither common enterprise nor expectation of profit to be made through management and control of others and so there was no investment contract within the meaning of this section. Jost v. Locke, 65 Or App 704, 673 P2d 545 (1983), Sup Ct review denied

 

      Facts existed in record for jury to find that transaction in which plaintiff agreed to loan capital for production of film where loan would be repaid or, alternatively, plaintiff would have option to take equity in film was investment contract under this section. Computer Concepts Inc. v. Brandt, 310 Or 706, 801 P2d 800 (1990), Sup Ct review denied

 

      Sales-leaseback agreement providing for above-market rent did not intertwine profits and losses so as to place agreement in category of security. Almaden Plaza Assoc. v. United Trust Fund Ltd. Partnership, 123 Or App 372, 860 P2d 289 (1993), Sup Ct review denied

 

      Agreement in which shares of stock in newly formed company are apportioned among parties for value given is sale of securities. Towery v. Lucas, 128 Or App 555, 876 P2d 814 (1994)

 

      Buyer of securities is not under constructive notice of recorded lien on company assets. Towery v. Lucas, 128 Or App 555, 876 P2d 814 (1994)

 

LAW REVIEW CITATIONS: 68 OLR 890 (1989)

 

      59.025

 

NOTES OF DECISIONS

 

      Security issued by person organized and operated for religious, educational, benevolent, fraternal, charitable or reformatory purpose is exempt only if security is of type designated by director by rule as exempt. Rajneesh Foundation International v. Corporation Commissioner, 65 Or App 356, 671 P2d 1203 (1983)

 

      59.035

 

NOTES OF DECISIONS

 

      This exemption provision relates only to the registration requirements and does not exempt any security transaction from the fraud provisions of ORS 59.135. Chester v. McDaniel, 264 Or 303, 504 P2d 726 (1972)

 

      When checks were drawn on corporate account for purchase of supplies, later sale of securities was not made “before the commencement of any business activity.” Day v. Saunders, 270 Or 432, 528 P2d 513 (1974)

 

      When several defendants purchased securities at same time as plaintiff sale did not qualify as “isolated transaction.” Day v. Saunders, 270 Or 432, 528 P2d 513 (1974)

 

      Whether sales to different persons are repeated and successive transactions depends on whether transactions are made within reasonable time period as to indicate that one general purpose actuates vendor and that sales promote same aim and are not so detached and separate as to form no part of single plan. Marshall v. Harris, 276 Or 447, 555 P2d 756 (1976)

 

      Solicitation of transaction by purchaser does not exempt transaction from securities registration requirement. Marshall v. Harris, 276 Or 447, 555 P2d 756 (1976)

 

      Evidence, inter alia, that brokerage firm did not inform investor that securities were being sold by “insiders” of failing corporation, and that investor suffered loss, was sufficient to show that sale price was not “reasonably related” to market price within meaning of this section. Lewelling v. First California Co., 564 F2d 1277 (1977)

 

      Sale of unregistered security, made in context of two other solicitations of offers in Oregon, was not isolated transaction which, under this section, was exempt from registration requirement. Redhouse v. Preferred Properties, 87 Or App 673, 743 P2d 1125 (1987)

 

LAW REVIEW CITATIONS: 55 OLR 43-47 (1976); 68 OLR 921 (1989)

 

      59.049

 

LAW REVIEW CITATIONS: 34 WLR 31 (1998)

 

      59.055 to 59.155

 

LAW REVIEW CITATIONS: 56 OLR 473 (1977); 68 OLR 228 (1989)

 

      59.055

 

NOTES OF DECISIONS

 

      Sentence of suspended five-year prison term and fine of $5,000 for defendant convicted under this section exceeded maximum permissible sentence, for defendant’s conviction did not require proof of “culpable mental state” as defined in ORS 161.105. State v. Pierre, 30 Or App 81, 566 P2d 534 (1977)

 

      Unregistered sale of securities was not exempt from Oregon law where brokerage firm did not meet burden of proving exemption. Lewelling v. First California Co., 564 F2d 1277 (1977)

 

      State was not required to prove, as element of securities violations, that defendant knew he was selling “security” which had to be “registered.” State v. Jacobs, 55 Or App 406, 637 P2d 1377 (1981), Sup Ct review denied

 

      Sale of unregistered security, made in context of two other solicitations of offers in Oregon, was not isolated transaction which, under this section, was exempt from registration requirement. Redhouse v. Preferred Properties, 87 Or App 673, 743 P2d 1125 (1987)

 

      Where plaintiff partner in securities action arising out of partnership agreement claimed relief for unregistered security, even through partner may have been passive partner, where plaintiff retained significant managerial powers under partnership agreement, interest in general partnership not “security.” Casablanca Production v. Pace Intern. Research, 697 F Supp 1563 (D. Or. 1988)

 

LAW REVIEW CITATIONS: 68 OLR 890 (1989); 37 WLR 335 (2001)

 

      59.075

 

LAW REVIEW CITATIONS: 34 WLR 31 (1998)

 

      59.085

 

LAW REVIEW CITATIONS: 32 WLR 249 (1996)

 

      59.105

 

LAW REVIEW CITATIONS: 4 EL 197, 198 (1974); 32 WLR 249 (1996)

 

      59.115

 

NOTES OF DECISIONS

 

      Claim of indemnity is actionable against officers or directors of sellers or participants in sale of unregistered securities under Oregon Blue Sky Law. Black & Co. v. Nova-Tech, Inc., 333 F Supp 468 (1971)

 

      Although plaintiff has burden of proving knowledge of illegal securities transaction in order to establish liability, such knowledge is not relevant to question of participation. Black & Co. v. Nova-Tech, Inc., 333 F Supp 468 (1971)

 

      Person may be participant in illegal securities transaction without having communicated with purchaser. Black & Co. v. Nova-Tech, Inc., 333 F Supp 468 (1971)

 

      The three-year limitation of this statute will not apply to actions in federal court based on fraud or misrepresentation under S.E.C. Rule 10b-5. Hoffert v. E.F. Hinkle & Co., Inc., 56 FRD 395 (1972)

 

      When attorney prepares, attends to execution of, and personally delivers and files documents required for registration of security with knowledge that solicitation and sales of such security have already been made, he “participates or materially aids” in sale of unregistered security. Adams v. American Western, 265 Or 514, 510 P2d 838 (1973)

 

      Commencement of a class action suspended the limitation period as to members of the class who would have been parties had the suit been permitted to continue as a class action. Bergquist v. Intl. Realty, Ltd., 272 Or 416, 537 P2d 553 (1975)

 

      A failure to account and deliver under ORS 59.205 states a cause of action under this section. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      An action on the bond under ORS 59.175 is not subject to the three-year statute of limitations under this section. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      The Corporation Commissioner had capacity to bring an action on the bond in behalf of unnamed injured persons. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      A limited partnership interest is a “security” subject to the anti-fraud provision of the Oregon Securities Law. Pratt v. Kross, 276 Or 483, 555 P2d 765 (1976)

 

      Public policy does not prohibit nonculpable directors who have incurred liability under this section from seeking indemnity from those actually responsible for the wrongful issuance of unregistered securities. Collins v. Fitzwater, 277 Or 401, 560 P2d 1074 (1977)

 

      Transaction whereby plaintiff paid $6,000 to defendant and took back promissory note in defendant’s corporation, with agreement that plaintiff would have option to convert note to 50% interest in new corporation plus 25% interest in defendant’s corporation, constituted “option for the sale of ... a security.” Foelker v. Kwake, 279 Or 379, 568 P2d 1369 (1977)

 

      Purchaser defrauded under this section was entitled to recover, in addition to costs, only $6000 paid for security plus interest from date of purchase, and judgment awarding purchaser $9,162 was in error. Foelker v. Kwake, 279 Or 379, 568 P2d 1369 (1977)

 

      Where seller of securities was allegedly defrauded, this section expressly gave a remedy only to purchasers, and a remedy would not be implied in favor of sellers. Held v. Product Manufacturing Co., 286 Or 67, 592 P2d 1005 (1979)

 

      Where defendants, officers and directors of corporation, who controlled 94 percent of its stock voted to declare 100-for-1 reverse stock split and soon after corporation changed its stock repurchase policy so that it would buy back minority shareholders stock at 50 percent of book value rather than at full book value as previously done, plaintiffs were not forced to sell their stock solely to corporation, and were not purchasers or sellers within meaning of this section and had no standing to sue under this section. Shivers v. Amerco, 670 F2d 826 (1982)

 

      Liability for untrue statement or omission of material fact exists regardless of whether investor relied on statement or omission. Everts v. Holtmann, 64 Or App 145, 667 P2d 1028 (1983), Sup Ct review denied

 

      Persons who prepare and execute documents knowingly intending to defraud one party may be held liable under this section even though documents are used to defraud party other than one originally intended; allegations that defendants prepared and executed contract misrepresenting terms of agreement and that misrepresentation was for sole purpose of deceiving a third party were sufficient to withstand motion to dismiss complaint. Fakhrdai v. Mason, 72 Or App 681, 696 P2d 1164 (1985), Sup Ct review denied

 

      Attorney “participates or materially aids in the purchase” of securities under this section if attorney’s routine professional services are coupled with knowledge of violation of Oregon securities laws by seller; if accountant performs number of services and knew buyers were being defrauded accountant may be liable under this section. Ahern v. Gaussoin, 611 F Supp 1465 (1985)

 

      Where seller of unregistered securities alleges that purchaser had actual or constructive knowledge that securities were unregistered, equitable defenses are not available in action by purchaser under this section. Hall v. Johnston, 758 F2d 421 (1985)

 

      Where plaintiff received tax benefits from investment in unregistered securities, damages shall equal plaintiff’s losses exclusive of tax benefits and under tax benefit rule, prior tax credits will be disallowed. Hall v. Johnston, 758 F2d 421 (1985)

 

      In action for securities law violations, where plaintiff presented sufficient evidence for jury to find that defendant either controlled seller of stock within meaning of this section or that defendant sold stock through his agent in violation of this section, court did not err in admitting testimony of purported agent’s statements regarding defendant’s knowledge and approval of stock sale. Wicks v. O’Connell, 89 Or App 236, 748 P2d 551 (1988)

 

      Lawyer who prepared documents and performed other legal services for partnership could be held liable as one who “participates or materially aids” in unlawful sale of security (limited partnership units) under ORS 59.115 (3), unless he established lack of knowledge as affirmative defense. Prince v. Brydon, 307 Or 146, 764 P2d 1370 (1988)

 

      Where plaintiff partner in securities action arising out of partnership agreement filed Oregon Securities Fraud Claim and interest in general partnership found not to be “security,” defendants’ motion for summary judgment granted. Casablanca Productions v. Pace Intern. Research, 697 F Supp 1563 (D. Or. 1988)

 

      Investment companies’ failure to adequately supervise their officer or agent could impose liability for secondary violations of securities laws. Pincetich v. Jeanfreau, 699 F Supp 1469 (D. Or. 1988)

 

      This section applies only to buyer-seller relationship and may not be used as basis for award of damages or fees in dispute between parties with principal-agent relationship. Nesbit v. McNeil, 896 F2d 380 (9th Cir. 1990)

 

      Common law agency principles may be invoked to impose liability against principal for agent’s violation of this section. Badger v. Paulson Investment Co., Inc., 311 Or 14, 803 P2d 1178 (1991)

 

      Evidence of apparent agency relationship between principal and agent is sufficient to impose liability on principal under this section. Badger v. Paulson Investment Co., Inc., 311 Or 14, 803 P2d 1178 (1991)

 

      Where parent corporation transferred stock directly to landowners in partial payment for land purchased by subsidiary corporation, subsidiary corporation was not seller of stock. West Park Associates v. Butterfield Sav. & Loan, 814 F Supp 925 (1993)

 

      Securities law liability based solely on status as control person does not constitute criminal conduct that can serve as predicate offense for Oregon Racketeer Influenced and Corrupt Organization Act liability. Computer Concepts, Inc. v. Brandt, 137 Or App 572, 905 P2d 1177 (1995)

 

      Partial payments on judgment are applicable first to accumulated interest, then to principal. Ainslie v. Spolyar, 144 Or App 134, 926 P2d 822 (1996)

 

      Allegation of violation of ORS 59.135 is subject to alternative statute of limitations applicable to that section, even though liability for violation is allegedly created under this section. Anderson v. Carden, 146 Or App 675, 934 P2d 562 (1997), Sup Ct review denied

 

      Knowledge of illegality is not required for participant or provider of material aid to be liable. Ainslie v. First Interstate Bank, 148 Or App 162, 939 P2d 125 (1997)

 

LAW REVIEW CITATIONS: 53 OLR 170 (1974); 68 OLR 227, 891 (1989); 69 OLR 396 (1990); 34 WLR 31 (1998); 37 WLR 335 (2001); 50 WLR 195 (2014)

 

      59.125

 

LAW REVIEW CITATIONS: 34 WLR 31 (1998)

 

      59.127

 

NOTES OF DECISIONS

 

      This section will not be applied retroactively to allow a remedy to a seller of securities in absence of any legislative intent to do so. Held v. Product Manufacturing Co., 286 Or 67, 592 P2d 1005 (1979)

 

      For misrepresentation or nondisclosure of facts in proxy statement to be actionable, the misrepresentation or nondisclosure must be material under standard specified by Supreme Court in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). Beebe v. Pacific Realty Trust, 578 F Supp 1128 (1984)

 

      Statement by directors expressed as opinion can be basis of action for material untrue or misleading statement of fact. Loewen v. Galligan, 130 Or App 222, 882 P2d 104 (1994)

 

LAW REVIEW CITATIONS: 37 WLR 335 (2001)

 

      59.135

 

NOTES OF DECISIONS

 

      The fraud provisions of this section apply to all sales of securities, not merely those subject to the registration requirements. Chester v. McDaniel, 264 Or 303, 504 P2d 726 (1972)

 

      This section does not provide for a private right of action. Financial Programs, Inc. v. Falcon Financial Serv., Inc., 371 F Supp 770 (1974)

 

      There was no evidence from which the jury could find that the defendants violated this section. Berki v. Reynolds Securities, Inc., 277 Or 335, 560 P2d 282 (1977)

 

      Evidence was sufficient to show that brokerage firm did not engage in business so as to operate a fraud or deceit on investor, his guardian, or his spouse. Ryan v. Foster & Marshall, Inc., 556 F2d 460 (1977)

 

      Even though this section makes it illegal for any person to defraud another in connection with purchase or sale of any security, ORS 59.115 provides a civil remedy only to purchasers of securities. Held v. Product Manufacturing Co., 286 Or 67, 592 P2d 1005 (1979)

 

      For misrepresentation or nondisclosure of facts in proxy statement to be actionable, the misrepresentation or nondisclosure must be material under standard specified by Supreme Court in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). Beebe v. Pacific Realty Trust, 578 F Supp 1128 (1984)

 

      Where Oregon Supreme Court has refused to imply remedy for sellers under ORS 59.115, federal circuit court referred to imply remedy against brokers for violation of this section. Nesbit v. McNeil, 896 F2d 380 (9th Cir. 1990)

 

      Violations of subsections (1), (2) or (3) under this section refer to acts that are committed with “scienter,” that is, that defendants acted with guilty state of mind when defendants made misrepresentations on which plaintiff relied. State v. Marsh & McLennan Companies, Inc., 353 Or 1, 292 P3d 525 (2012)

 

LAW REVIEW CITATIONS: 68 OLR 895 (1989); 37 WLR 335 (2001)

 

      59.137

 

NOTES OF DECISIONS

 

      Where stock purchaser is required to establish reliance element under this section, plaintiff who purchases stock on efficient, open market may establish reliance element by means of rebuttable presumption available under fraud-on-market-doctrine which is incorporated in this section. State v. Marsh & McLennan Companies, Inc., 353 Or 1, 292 P3d 525 (2012)

 

      Because violations of ORS 59.135 subsections (1), (2) or (3) refer to acts that are committed with “scienter,” plaintiff that brings action under this section, must prove that defendants acted with guilty state of mind when defendants made misrepresentations on which plaintiff relied. State v. Marsh & McLennan Companies, Inc., 353 Or 1, 292 P3d 525 (2012)

 

      59.155

 

NOTES OF DECISIONS

 

      Once plaintiff purchaser of unregistered securities or one seeking contribution can establish that defendants are officers or directors of seller or participants in sale, claims are “actionable” under Oregon Blue Sky Law. Black & Co. v. Nova-Tech, Inc., 333 F Supp 468 (1971)

 

      59.165

 

NOTES OF DECISIONS

 

      Where plaintiff partner in securities action arising out of partnership agreement claimed relief for unregistered security, even through partner may have been passive partner, where plaintiff retained significant managerial powers under partnership agreement, interest in general partnership not “security.” Casablanca Production v. Pace Intern. Research, 697 F Supp 1563 (D. Or. 1988)

 

      59.175

 

NOTES OF DECISIONS

 

      An action on the bond under this section is not subject to the three-year statute of limitations under ORS 59.115. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      Successive bonds were correctly construed as cumulative where the bonds did not provide for limited or aggregate liability. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      59.205

 

NOTES OF DECISIONS

 

      A failure to account and deliver under this section states a cause of action under ORS 59.115. State ex rel Healy v. Maryland Cas. Co. and Deal, 27 Or App 735, 557 P2d 258 (1976), Sup Ct review denied

 

      59.265

 

NOTES OF DECISIONS

 

      Under this section, Corporation Commissioner was without authority to order bank (secured party) to sell stock (collateral) less than 60 days after Commissioner took possession of brokerage company (debtor). Lamb Brothers, Inc. v. First State Bank of Oregon, 285 Or 39, 589 P2d 1094 (1979)

 

      59.275

 

LAW REVIEW CITATIONS: 55 OLR 44 (1976)

 

      59.345

 

NOTES OF DECISIONS

 

      Evidence that defendant, California resident, was engaged in mutual agency with Oregon residents to sell interests in Oregon property, was sufficient to support jury finding that offers to sell interests in land originated in Oregon. State v. Jacobs, 55 Or App 406, 637 P2d 1377 (1981), Sup Ct review denied

 

      59.830

 

LAW REVIEW CITATIONS: 51 OLR 573 (1972)

 

      59.925

 

      See annotations under ORS 86A.151.

 

      59.991

 

NOTES OF DECISIONS

 

      Sentence of suspended 5-year prison term and fine of $5,000 for conviction under ORS 59.055 exceeded maximum permissible sentence, for conviction of defendant did not require proof of “culpable mental state” within meaning of ORS 161.105. State v. Pierre, 30 Or App 81, 566 P2d 534 (1977)

 

LAW REVIEW CITATIONS: 68 OLR 890 (1989)

 

      59.995

 

LAW REVIEW CITATIONS: 68 OLR 890 (1989)