Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01810/USCOURTS-ca10-88-01810-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

'ted Stares vuU • 1' Um Tenth Circuit 

SEP 18 1991 

ROBERT L. HOECKER 

Clerk DILLON SECURITIES, INC., a 

Washington state corporation, 

Plaintiff-Appellant, 

v. 

FRANK J. BARTOLINI; and CHERYL 

BARTOLINI, 

Defendants-Appellees. 

ORDER AND JUDGMENT* 

No. 88-1810 

(D.C. No. 86-C-1097S) 

(Dist. of Utah) 

Before HOLLOWAY, Chief Judge, SETH, and BARRETT, Circuit Judges. 

After examining the briefs and the appellate record, this 

panel has determined unanimously that oral argument would not 

materially assist the determination of this appeal. See Fed. R. 

App. P. 34(a); Tenth Cir. R. 34.1.9. The cause is therefore 

ordered submitted without oral argument. 

Dillon Securities, Inc. (Dillon), a Washington corporation, 

appeals from an Order granting the defendants' Motion for Summary 

Judgment and dismissing Dillon's complaint with prejudice. 

Dillon filed this l0b-5 securities fraud action as a 

securities broker-dealer against its customer, the defendants 

* This Order and Judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 1 
' " 

Frank J. Bartolini and Cheryl Bartol ini (Bartolinis) for the value 

of shares of American Technology Corporation ordered by the 

Bartolinis via a toll-free telepho ne from their residence in 

California to Dillon's Salt Lake City , Utah, branch office. The 

Bartolinis subsequently refused t o make payment and this suit 

followed. 

The case was referred to Un ited States Magistrate Calvin 

Gould after the parties moved f o r summary judgment. The 

magistrate heard o ral arguments and on February 18, 1988, entered 

his Report and Recommendation, a copy of which is attached hereto, 

wherein the magistrate recommended that the Bartolinis be awarded 

summary judgment. Thereafter, the d istrict court on April 18, 

1988, adopted the recommendations o f the magistrate, granted 

summary judgment to the Bartolinis and dismissed Dillon's 

complaint with prejudice. A copy of the district court's order of 

April 18, 1988, is attached heret o . 

On appeal, Dillon contends tha t (1) California law does not 

exclusively apply to the transaction because the "offer," "sale" 

and/ or "acceptance" did not occur there; (2) even if California 

Blue Sky law applies, the district court erred in not applying 

Utah law to the transaction, which had it done so, would have 

required as a matter of law that summary judgment be granted to 

Dillon; (3) if California law does appl y and Utah law does not 

apply t o the transaction, the district court erred in not ruling 

as a matter of law that the transac ti on was "unsolicited" and 

therefore that Dillon was entitled to s ummary judgment against the 

Bartolinis; (4) alternatively, if onl y California law applies to 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 2 
the transaction and it was not "unsolicited" as a matter of law, 

there are sufficient issues of fact as to "solicitation" requiring 

reversal of the district court; (5) regardless of whether Dillon 

had an exemption from registration, the district court erred in 

excusing the Bartolinis' fraud and exempting them from state and 

federal anti-fraud provisions, including Dillon's common law and 

equitable defenses of estoppel, "unclean hands," in pari delicto, 

and bad faith; (6) the district court erred and Dillon is entitled 

to summary judgment based on the Bartolinis' abject failure to 

comply with U.C.C. § 8-319, Statute of Frauds, Investment 

Securities; ( 7) the district court erred in adopting the 

Magistrate's Report and Recommendation; and (8) it is against 

public policy to reward Bartolini for his "Heads I Win, Tails You 

Lose" scheme to defraud broker-dealer Dillon . 

Dillon argues, supra issue (4), for the first time, that the 

determination of whether there was a "solicitation" is an issue of 

fact precluding the grant of summary judgment. We shall not 

consider an issue raised for the first time on appeal unless it 

addresses a matter of plain error. K-B Trucking Co. v. Riss 

Intern. Corp., 761 F.2d 1148 (10th Cir. 1985). This contention 

does not meet that test. The material facts relative to the 

solicitation of the Bartolinis are not in dispute. 

In reviewing a grant of summary judgment , we must examine the 

record to determine whether any genuine issue of material fact 

remains, and, if not, whether the substantive law was correctly 

applied by the district court. Dayton Hudson Corp. v. Macerich 

Real Estate Co., 812 F.2d 1319 (10th Cir. 1987). Ruling on a 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 3 
motion for summary judgment involves purely legal determinations 

by the district court and our rev i ew i s de nova. Missouri Pacific 

Railroad Co. v. Kansas Gas & Electric Co., 862 F.2d 796 (10th Cir. 

1988). In this case, it is clear tha t there are no genuine issues 

of material fact and that the dist r i c t c ourt properly applied the 

relevant substantive law. Celotex Co rp. v. Catreit, 477 U.S. 317 

(1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). 

We affirm substantially for the reasons set forth in the 

Magistrate's Report and Recommenda ti on of February 18, 1988 and 

the district Court's Order of Apr i l 18 , 1988. 

AFFIRMED. The mandate shall issue forthwith. 

Judge Holloway may file a separa t e opinion. 

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Entered for the Court: 

James E. Barrett, 

Senior United States 

Circuit Judge 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 4 
FILED IN UNITED STATES D15TiiiCl 

COURT. DISTRICT OF UTAH 

FEB 181988 

IN THE UNITED STATES DISTRICT COURT FOR THE 

CENTRAL DIVISION 

DISTRICT OF UTAH~ 

DILLON SECURITIES, INC., a ) 

Washington State corporation, ) 

) 

Plaintiff, ) 

) 

V • ) 

) 

FRANK J. and CHERYL BARTOLINI, ) 

) 

Defendants. ) 

REPORT & RECOMMENDATION 

Civil No. 86C-1097S 

This matter is before the court on cross motions for 

summary judgment. The magistrate heard argument 011 the motions 

on January 26, 1987. John Michael Coombs represented the 

plaintiff: J. Michael Hansen and Charles P. Sampson represented 

the defendants. 

Factual background 

The defendants Bartolini are California residents who 

watched a television program about a Utah corporation, ATC. 

At the end of the program, a toll-free number for more information was broadcast. Mr. Bartolini dialed the number, which 

turned out to be the number of the plaintiff stock broker's 

Utah office. The details of their discussion cire disputed, 

but Bartolini admits that he agreed to purchase ATC stock. 

Later, he changed his mind and failed to wire money for the 

EXH12JT ______ "A" _ 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 5 
stock but ordered more ATC stock from another broker. 

The plaintiff allegedly resold the stock at a loss of 

$8,100 • Its claims are based on federal and state securities 

. law, breach of contract, promissory estoppel and common law 

fraud. 

Discussion 

The parties' first dispute is whether California or Utah 

securities law applies. 

The defendants argue that California law applies and that 

they could rescind any agreement to purchase because a "notice 

of exemption" had not been filed in California when the stock 

was sold. 1 

1under California law, "[i]t is unlawful for any person to offer 

or sell any security in [California] in any nonissuer 

transaction" unless the security is qualified for sale or 

exempted. Cal. Corp. Code S 25130. The ATC stock has not 

been qualified for sale in California. See, Cert if ica te of 

Search of the California Department of Corporations. 

The following securities are exempt: 

(a) Any security issued by a person which is the issuer 

of any security listed on a national securities exchange 

certified by rule or order of the commissioner. · 

(b) Any security exempt from registration ..• , if in 

any such case, there has been filed with the commissioner 

a notice in such form as the commissioner shall specify 

by rule .•• 

Cal. Corp. Code§ 25101 (emphasis added). 

The plaintiff does not argue that subsection (a) would apply. 

A "Notice of Exemption" under subsection (b) was filed on April 

16, 1986, but that not ice would not be effective for an offer 

made more than a month before, on March 6, 1986. See, 

Certificate of Search. 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 6 
" 

The plaintiff a .:gues that Utah securities law applies. 

Utah does not require 3uch a filing for stock to be exempt from 

registration. 

Utah has adopted a version of the Uniform Securities Act. 

The territoriality provisions of the Act 2 define when the 

s ta tu te of a particular state applies to any given securities 

transaction, without regard to whether the statute of some other 

state might also apply. See, Comments 2 & 3 to the Uniform 

Securities Act S 414, 7B U.L.A. 509 (1985). Professor Loss, 

who drafted the Act, found nothing illogical in applying the 

laws of more than one state to any given multi-statE! securities 

transaction. Loss, The Conflict of Laws and the Blue Sky Laws, 

2california has a similar territoriality provision, which 

states: 

(a) An offer or sale of a security is made in this state 

when an offer to sell is made in this state, or an offer 

to buy is accepted in this state ••• 

(b) An offer to sell or to buy is made in this state when 

the offer ••• originates from this state ..•• An offer 

to buy or sell is accepted in this state when acceptance 

is communicated to the offerer in this state •.• 

Calif. Corp. Code S 25008. 

California has an adequate nexus with this transaction either 

because Bartolini made an offer to buy that originated in 

California or because the plaintiff made an offer to sell that 

was accepted in California. 

Utah deleted the portion of the Uniform Act which includes 

an offer to buy or sell that "originates from this state." 

Utah Code Ann. S 61-1-26(3) (Supp. 1985). Arguably, Utah only 

intends to regulate securities sold within its borders. 

Mcclard, Local Securities Acts, infra, n. 25. 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 7 
71 Harv. L. Rev. 209, 225 n. 50 (1957), reprinted in 1 L. Loss, 

Securities Regulation 67 (2d Ed. 1961). 

Thus, a "choice of law" is not necessarily required when 

the two state's laws differ. " [ S] o long as there is some 

territorial nexus to a particular transaction, the laws of two 

or more states may simultaneously apply •.• There is nothing 

inconsistent in trying a securities case on multiple theories, 

and determining liability under each statute that is applicable, 

so long as the plaintiff is prevented from multiple recoveries." 

Lintz v. Carey Manor Ltd., 613 F.Supp. 543, 550-51 (D.Va. 1985). 

One commentator gives this hypothetical to show how two 

states' laws may be reconciled: 

"A security is issued from state X and purchased in state 

Y. This particular security transaction. is illegal in 

state Y but is not illegal in state X. Again, the failure 

of state X to outlaw this particular transaction should 

not be viewed as a statement of approval. State Y's 

determination to outlaw this transaction should not be 

frustrated through a conflict of laws analysis. The 

victimized investor in state Y should be afforded the 

remedy granted by state Y despite the fact that the issuer 

operated out of state X." 

Mcclard, The Applicability of Local Securities Acts to MultiState Securities Transactions, 20 u. Rich. L. Rev. 139 (1985). 

Courts have held that failure to register stock in a state 

where it is sold will allow the purchaser to rescind the sale 

under that state's law, even· if the security is registered 

elsewhere. ~. Kreis v. Mates Investment Fund, 473 F.2d 1308 

(8th Cir. 1973). Similarly, failure to obt,~in a notice of 

exemption in California will allow a purchaser there to rescind 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 8 
the sale, even though Utah does not require such a notice. 

The plaintiff's other state law claims must fail if the 

sale is- unlawful under California law. 

Of course, federal law governs the plaintiff's l0(b)-5 

claim. However, where the alleged fraud is a promise to buy 

stocks whose offer or sale in California was unlawful, that 

claim must likewise fail. 

Recommendation 

The magistrate recommends that the defendants be granted 

summary judgment. 

In view of this recommended disposition, we have not 

reached issues raised by the defendants I motion to strike or 

the plaintiff's motion to compel discovery. 

Copies of this Report and Recommendation are being mailed 

to the parties, who are hereby notified that they must file 

any objections within ten (10) days of receipt. 

DATED this~ day of February, 1988. 

BY THE COURT: 

Cal 

United 

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( 

Magistrate 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 9 
EXHIBIT 11 B11 

The District Court's April 

18, 1988 Summary Judgment 

Awarding Rescission to the 

Bartolinis 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 10 
FiL::., 

;. ~1T~D STAT:~ ~-. ! ~ ! q i ·.: i C ~ ~ R ~ 

: ·: -~. 1 P'f.~ nF) ~-~~ 

.

' if R i ·9 2 u6 P~ 'AR 

~ .\ ·, ~ U S ~- : : ~ H :: r: 

;7m:~nw~~ /j~ APR 1 8 1988 llil 

OFFICE OF JUDGE 

DAVID S.~~.t 

C!.. C~J 

~y _ ,.,_,.,. __ _ 

J. MICHAEL HANSEN, Esq. (#1339t.=PUT'<CLERK 

CHARLES P. SAMPSON, Esq. (#4658) / 

of and for 

SUITTER AXLAND ARMSTRotTG & HAN.ZON 

Attorneys for Defendants 

700 Clark Leaming Office Center 

175 South West Temple 

Salt Lake City, Utah 84101-1480 

Telephone: (801) 532-7300 

IN THE UNITED STATES DISTRICT COURT FOR THE DISTlUCT Or' UTAH 

CENTRAL DIVISION 

DILLON SECURITIES, INC., a 

Washington state corporation, 

Plaintiff, 

-vsFRANK J. and CHERYL BARTOLINI, 

Defendants. 

) ORDER GRANTING DEFENDANTS' 

) MOTION FOR SUMMARY JUDGMENT 

) AND DISMISSING PLAINTIFF'S 

) COMPLAINT WITH PREJUDICE 

) 

) 

) 

) Case No. C-86-1097S 

) 

) 

Plaintiff's Objection to the Report and Recomme:ndation 

of the Magistrate came on regularly for Hearing before the aboveentitled Court, the Honorable David Sam presiding, on Tuesday, 

April 5, 1988 at the hour of 1:00 p.m. Plaintiff was represented 

by and through its counsel of record, John Michael Coombs, Esq. 

Defendants were represented by and through their counsel of record, 

J. Michael Hansen, Esq. Based upon the Memoranda, Affidavits and 

arguments of counse 1, and being fully advised in the premises, 

The Court hereby finds: 

1. There exists a sufficient territorial nexus to apply 

"B" 

EXHIBIT ____ _ / 

• ✓- . 

Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 11 
the provisions of the California Corporations Code to this trans 

action. 

2. It is undisputed that Dillon Securities, Inc.' s sal 

of American Technology corporation stock to the defendants Bartol in 

is defined ''non-issuer transaction" under California Corporation 

Code Section 25011. 

3. California Corporations Code Section 25130 provide 

that "[i)t is unlawful for any person to offer or sell any securit 

in this state in any non-issuer transaction unless it is qualifie 

for such sale under this chapter .•. or unless such security o 

transaction is exempted under Chapter 1 (commencing with§ 25100 

of this part." 

4. The California Corporations Code defines "offer 

or "offer to sell" as including "every attempt or offer to dispos 

of, or solicitation of an offer to buy, a security or interest i 

a security for value. 11 See California Corporations Code § 25017 (b) 

5. As of March 6, 1986, the date of the transactic 

at issue in the casa at bar, American Technology Corporation commc 

stock had not been ''qualified" to be sold in California under th 

provisions of the California Corporations Code. 

6. The central issue before the Court on the Cross 

Motions for Summary Judgment was whether Dillon Securities, Inc 

is correct in its assertion ·that the sale of Junerican Technolog 

Corporation common stock was subject to the "unsolicited order o 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 12 
1s-

,le 

Lni 

ies 

Lty 

ied 

or 

)0) 

ar" 

ose 

in 

b) • 

ion 

men 

the 

ssnc. 

ogy 

or 

offer to buy" exemption provided by Californ:La Corporations Code 

Section 25104(b). 

7. The "You're On the Line" television program with its 

invitation to telephone Dillon Securities amounted to a solicitation 

as a matter of law for the following reasons: 

(a) The television program broadcast from a Los Angeles 

station and featuring Woody Norris, the President of American 

Technology Corproation, was not an independent broadcast but 

rather a paid television broadcast financed by American Technology Corporation. 

(b) Without informing the viewer he would be telephoning 

a broker or a market maker for American Tec:hnology Corporation, 

the program invited the viewer to call a toll-free number 

that resulted in his being subjected to a sale ot American 

Technology Corporation stock. 

(c) The sales pitch of Dillon Securities, made by Dillon's employee and agent, contained several representations 

upon which, in conjunction with the wyou're on the Lin~# television program information, defendant Frank Bartolini relied 

to make an immediate purchase of stock. 

8. Having concluded that the American Technology Corporation common stock was not properly registered for sale in California and did not come within any of the exemptions under the 

California Corporations Code, the Court concludes that the sale 

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Appellate Case: 88-1810 Document: 010110090158 Date Filed: 09/18/1991 Page: 13 
.. 

of the American Technology corporation common stock by Dillon Securities, Inc. to the defendants Bartolini was illegal and that the 

Bartolinis are entitled to rescind their offer to purchase. 

In view of the foregoing, IT IS HEREBY ORDERED, ADJUDGED 

AND DECREED: 

1. The recommendation of the Magistrate be, and the 

same hereby is, adopted. 

2. The Motion of defendants Frank J. and Cheryl Bartolini for Summary Judgment be, and the same hereby is, granted as 

to all Counts of plaintiff's Complaint. 

3. Plaintiff's Complaint be, and the same hereby is, 

dismissed with prejudice and on the merits. 

DATED this I' 1:- day of April, 1988. 

cc: attys 4/21/88:dp 

John Michael Cocmbs, Esq. 

J. Michael Hansen, Esq 

B'i THE COUR'l.': 

DAVID SAM 

District Judge 

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