Case Title: Birnholz v. 44 Wall Street Fund, Inc.

Citation: 559 So. 2d 1128

Docket Number: 74566

State: florida

Court: Florida Supreme Court

Date: 1990-04-12T00:00:00Z

Document:
559 So. 2d 1128 (1990)
Standford P. BIRNHOLZ, Etc., Plaintiff-Appellant,
v.
The 44 WALL STREET FUND, INC., Defendant-Appellee.
No. 74566.

Supreme Court of Florida.
April 12, 1990.
*1129 Richard A. Warren of Herbert A. Warren, P.A., Miami, for plaintiff-appellant.
Barry D. Hunter of Paul, Landy, Beiley & Harper, P.A., Miami, for defendant-appellee.
William G. Reeves, Gen. Counsel, and R. Michael Underwood, Deputy Gen. Counsel, Florida Dept. of Banking and Finance, Tallahassee, amicus curiae for State of Fla., ex rel. Gerald Lewis, Comptroller of Florida.
OVERTON, Justice.
The United States Court of Appeals for the Eleventh Circuit, in Birnholz v. 44 Wall Street Fund, Inc., 880 F.2d 335 (11th Cir.1989), has certified the following question to this Court:
Id. at 341-42. Additionally, that court stated: "[W]e invite the attention of the Florida Supreme Court [to the issues not certified] and emphasize that the court is free to decide them as it may see fit." Id. at 342. We have jurisdiction. Art. V, § 3(b)(6), Fla. Const. We find that the mutual fund company complied with all of the state regulatory requirements intended to protect the public in the sale of securities and that its failure to timely pay a renewal fee, pursuant to a subsequently enacted amendment, does not void the exemption in this case.
The United States Court of Appeals for the Eleventh Circuit set forth the facts as follows:
In 1979, the Florida Legislature amended the original statute, adding a requirement that issuers of securities registered with the SEC and exempt from Florida registration pay a $750.00 nonreturnable fee to the Division for each 36-consecutive-month period in which the securities are offered and sold in Florida. § 517.061(19), Fla. Stat. (1979) (the amended statute).[4] The amended statute became effective on September 1, 1979. The Fund did not pay any additional fees to the Division until after April 1, 1985. However, at all times relevant to this action, the Fund maintained the effectiveness of its SEC registration statement and delivered current prospectuses, as well as its semi-annual and annual reports and proxy statements, to Birnholz and every other prospective Florida purchaser of the Fund's shares.... Birnholz, 880 F.2d  at 336-38 (citation omitted). Birnholz seeks to void the mutual fund's registration under the state securities act in order to claim damages for the sale of "unregistered securities."
The federal district court determined that the 1979 amended statute, which required payment of a $750 fee every thirty-six months, should not be given retroactive effect. That court held that the amendment was inapplicable to securities in which proper documentation had been filed prior to the amendment's effective date and concluded that the fund had fully complied with the applicable statute. The district court also held that if the amended statute were to be given retroactive application, Birnholz still would not be entitled to recover since the fund had substantially complied with all of the statutory requirements.
On appeal, the United States Court of Appeals for the Eleventh Circuit approved the district court's result but held that the statute should be given retroactive effect. The court of appeals rejected, as did the district court, Birnholz's argument that rule 3E-500.09, Florida Administrative Code (1979),[*] required the fund to file additional documents along with the renewal fee, explaining:
880 F.2d  at 340-41 (footnote omitted; citations omitted). We fully agree with the court of appeals' construction.
This state's securities laws are intended to protect the public. To avoid duplication of work, the statute provides exceptions to registration when a company demonstrates that it has fully complied with the appropriate federal securities laws.
In the instant case, the fund paid a $750 filing fee and filed each of the required documents pursuant to section 517.061(19), Florida Statutes (1979). At all times subsequent to this initial filing, the fund remained in compliance with the Securities and Exchange Commission's requirements, which effectively placed the fund in full compliance with this state's requirements. The fund's only failure was not paying the $750 renewal fee required under the amended section, which became effective after the fund filed its initial application. In this regard, the state never gave the fund notice that a renewal fee was due. We note that the purpose of the fee was to increase the department's revenue and a justifiable issue existed as to whether the amendment should be retroactively applied to applications already approved. The amendment contains no provisions which require the filing of additional regulatory documents. We find, in this limited instance, that the fund's technical violation should be excused under the equitable doctrine of substantial compliance. The fund has complied with all of the provisions intended to protect the public.
We caution that this is a narrow holding and that it should not be construed to mean that the equitable defense of substantial compliance also applies when there is a partial failure to comply with regulatory requirements or the necessary documentation to obtain an exemption.
Having answered the questions presented, we remand this case to the United States Court of Appeals for the Eleventh Circuit for disposition.
It is so ordered.
EHRLICH, C.J., and McDONALD, SHAW, BARKETT and KOGAN, JJ., concur.
GRIMES, J., did not participate in this case.
[1]  Section 517.211 provides that every sale made in violation of the registration provisions may be rescinded at the election of the purchaser, and it makes sellers of unregistered securities liable to the purchaser for damages.
[2]  This section makes it unlawful to sell or offer for sale in Florida securities which have not been registered with the state, unless the securities belong to an exempt class or are sold in any exempt transaction.
[3]  The original statute provided:

"The registration provisions of s. 517.07 do not apply to any of the following transactions:
... .
(19) The sale of securities pursuant to a registration statement effective under the Securities Act of 1933, provided that the department has received, prior to the offer or sale:
(a) A notice of intention to sell which has been executed by the issuer, any other person on whose behalf the offering is to be made, a dealer registered under this part, or any duly authorized agent of any such person, and which sets forth the name and address of the applicant, the name and address of the issuer, and the title of the securities to be offered in this state;
(b) A copy of the initial registration statement and prospectus filed with the Securities and Exchange Commission; and
(c) Copies of such information or documents which the department may by rule require; and the person filing a registration statement shall at the time of filing pay the department a nonreturnable fee of 0.1 percent of the aggregate sales price of the securities offered or to be offered in this state, but not less than $20 nor more than $750; and there shall be filed with the registration statement or prospectus the irrevocable written consent as required by s. 517.101."
[4]  The amended statute exempted from the registration provisions the following transaction, among others:

"(19)(a) The offer or sale of securities pursuant to a registration statement filed under the Securities Act of 1933, provided that prior to *1131 the sale the registration statement has become effective and the department has received:
1. A notice of intention to sell which has been executed by the issuer... .
2. Copies of such documents filed with the Securities and Exchange Commission as the department may by rule require; and
3. The irrevocable written consent as required by s. 517.101.
(b) The person filing a notice of intention shall at the time of filing pay the department a nonreturnable fee of 0.1 percent of the aggregate sales price of the securities offered or to be offered in this state, but not less than $20 nor more than $750. The fee required by this paragraph shall be paid to the department for each 36-consecutive-month period in which the securities are offered and sold. The 36-consecutive-month period shall commence upon receipt by the department of the notice of intention to sell."
[*]  Rule 3E-500.09, Florida Administrative Code (1979), provided:

(1) Notices of Intention to Sell pursuant to Section 517.061(19), Florida Statutes, shall be filed on the forms prescribed by the Department and shall include:
(a) one (1) copy of the cover page of the initial registration statement as filed with the United States Securities and Exchange Commission, unless effective with the S.E.C. upon filing with this Department;
(b) an irrevocable written consent to service as required by Section 517.101, Florida Statutes;
(c) payment of the statutory fee as required by Section 517.061(19)(d), Florida Statutes.
(2) Exhibits which are required by the Notice of Intention to Sell form may not be incorporated by reference to previous filings.
(3) In addition to the requirements of subsection (1) of this rule, prior to the confirmation by the Department of a claim of exemption by the notifier pursuant to Section 517.061(19), Florida Statutes, the notifier shall provide the Department one (1) copy of the final definitive prospectus as per the effective registration with the United States Securities and Exchange Commission.