IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

DAVID SHOREY and MARY JANE SHOREY, husband and wife; 

WESTCAP ENERGY, INC., an Arizona corporation dba Westcap Solar,

Plaintiffs/Appellants,

v.

ARIZONA CORPORATION COMMISSION, Defendant/Appellee.

No. 1 CA-CV 14-0471

Appeal from the Superior Court in Maricopa County

No. LC2013-000191-001

The Honorable Crane McClennen, Judge

AFFIRMED

COUNSEL

The Law Firm of Heurlin Sherlock, Tucson

By Bruce R. Heurlin, Catherine N. Hounfodji

Counsel for Plaintiffs/Appellants

Arizona Corporation Commission, Phoenix

By Phong Huynh

Counsel for Defendant/Appellee

OPINION

Judge Kenton D. Jones delivered the Opinion of the Court, in which 

Presiding Judge Margaret H. Downie and Judge Jon W. Thompson joined.
SHOREY et al. v. AZCC

Opinion of the Court

2

J O N E S, Judge:

¶1 Appellants challenge the superior court’s order affirming a 

decision of the Arizona Corporation Commission (Commission) finding 

David Shorey and Westcap Energy, Inc. (Westcap) violated Arizona 

Revised Statutes (A.R.S.) sections 44-1841,1 -1842, and -1991. We affirm 

the Commission’s determination and hold the enforcement of those 

statutes to be both constitutional and not preempted by federal law.

FACTS2 AND PROCEDURAL HISTORY

¶2 Westcap was incorporated in Arizona in 2008 for the 

primary purpose of installing solar panels. In 2009, Shorey, as Westcap’s 

CEO, agreed with Litchfield Enterprises, Inc. (Litchfield), a Colorado 

corporation, to have Litchfield “consult” with Westcap to raise $1,000,000 

through an offering of dividend-paying convertible preferred stock. 

Among the terms of the agreement, Litchfield agreed to identify potential 

investors and assist in preparing documents to present to them. In 

exchange, Litchfield would receive 10 percent of all monies received from 

the sale of securities as a “consulting fee.” Neither Shorey nor Litchfield 

were registered to sell securities within or from Arizona.

¶3 Litchfield and Westcap then engaged Intuition Capital 

(Intuition), a company from Spain also not registered to sell securities

within or from Arizona, to solicit foreign investors for the Westcap

offering. In exchange, Intuition would receive 65 percent of all investment

monies received. With Intuition on board, Litchfield lowered its own

commission rate to 7.5 percent. Thus, 72.5 percent of all Westcap security 

investments were contractually committed to the payment of

commissions, leaving only 27.5 percent available to Westcap to obtain a 

return for the investors. 

 

1 Absent material changes from the relevant date, we cite a statute’s 

current version.

2 We view the facts in the light most favorable to upholding the 

Commission’s decision. See Hirsch v. Ariz. Corp. Comm’n, 237 Ariz. 456, 

458 n.2, ¶ 1 (App. 2015) (citing Eaton v. Ariz. Health Care Cost Containment 

Sys., 206 Ariz. 430, 431, ¶ 2 (App. 2003), and State v. Barber, 133 Ariz. 572, 

578 (App. 1982)).
SHOREY et al. v. AZCC

Opinion of the Court

3

¶4 Pursuant to their agreement, Litchfield and Westcap created 

a subscription agreement and private placement memorandum to present 

to potential investors. The private placement memorandum reserved the 

right to pay commissions and finders’ fees as needed, specifically stating: 

The Company . . . reserves the right to pay commissions to 

registered brokers or dealers registered with the National 

Association of Securities Dealers (“NASD”) in connection 

with the sale of the Shares in which case the proceeds to the 

Company will be reduced. The Company may also pay 

finders’ fees for introduction to persons or entities that 

purchase Preferred Stock in this Offering. The amount of 

any commissions or finders’ fees will be within the range of 

amounts normally paid in similar situations, in which case, 

the proceeds to the Company will be reduced.

The documents did not specify the amount or percentage of the

investment that would actually be paid in commissions or finders’ fees. 

And according to Shorey, the stock offering was never available to U.S. 

investors, but instead exclusively targeted foreign investors pursuant to 

Regulation S of the Securities Act of 1933, 15 U.S.C. § 77.

3 

¶5 In March 2010, Intuition began soliciting investors in 

Europe. When Intuition found an interested investor, it notified Shorey.

Shorey then sent documents detailing the proposed transaction to the 

potential investor by regular mail, email, or Federal Express. The 

documents instructed the investor to sign and return all documents to 

Shorey by email or facsimile and to send money via wire transfer to a 

bank account in Tucson, Arizona under the name “Westcap Energy, Inc., 

David Shorey, CEO.” When an investor completed the transaction,

Shorey immediately transferred 72.5 percent of the funds to Litchfield and 

Intuition in accordance with their prior agreements.

¶6 By August 2010, twenty-four investors had contributed a 

total of $388,570, of which $281,714 was immediately paid to Litchfield 

and Intuition. On August 31, 2010, the securities sold were converted into

shares of a Nevada corporation, and the offering resumed in Nevada.

 

3 Regulation S provides a safe harbor from the federal registration 

requirements for offers and sales of securities occurring outside the 

United States. See 17 C.F.R. §§ 230.901-905 (2014); see, e.g., Zacharias v. 

SEC, 569 F.3d 458, 465 (D.C. Cir. 2009).
SHOREY et al. v. AZCC

Opinion of the Court

4

¶7 In March 2011, the Commission’s Securities Division 

initiated administrative proceedings against Appellants alleging 

violations of A.R.S. §§ 44-1841 (prohibiting the sale of unregistered 

securities), -1842 (prohibiting the sale of securities by unregistered dealers 

and salesmen), and -1991 (prohibiting fraud in the sale of securities). 

¶8 In March 2013, following an evidentiary hearing, the 

Commission found Westcap and Shorey offered and sold unregistered 

securities within or from Arizona in violation of A.R.S. § 44-1841, offered 

and sold securities from Arizona without being registered as dealers or 

salesmen in violation of A.R.S. § 44-1842, and made untrue statements and 

omitted material facts during securities transactions in violation of A.R.S. 

§ 44-1991. The Commission ordered Appellants to offer to rescind the 

$388,570 of stock sold to the twenty-four investors and held Appellants

jointly and severally liable for all monies owed.4 The Commission also

ordered Appellants to pay $10,000 in administrative penalties to the State 

of Arizona. Westcap and Shorey were ordered to cease and desist from 

future violations of A.R.S. §§ 44-1841, -1842, and -1991. 

¶9 Appellants timely appealed the Commission’s decision to 

the superior court, and the court affirmed. A notice of appeal to this 

Court was timely filed. We have jurisdiction pursuant to A.R.S. §§ 12-

120.21(A)(1), -913, and -2101(A)(1).

DISCUSSION

¶10 Appellants do not contest the Commission’s conclusion that 

Westcap and Shorey offered and sold unregistered securities, nor do they 

claim either Westcap or Shorey was registered to offer or sell securities 

within or from Arizona. Instead, Appellants argue: (1) A.R.S. §§ 44-1841, 

-1842, and -1991 do not apply to the Westcap securities offering because, 

they contend, neither Westcap nor Shorey actually sold the securities, the 

sales did not occur within or from Arizona, and the sales were not 

fraudulent; (2) even if the conduct of Westcap and Shorey is proscribed by 

 

4 Pursuant to Arizona Administrative Code (A.A.C.) R14-4-308, the 

Commission may order parties liable for violations of the Arizona 

Securities Act to make a rescission offer to investors. The offer affords 

investors the opportunity to sell back their securities for “cash equal to the 

fair market value of the consideration paid . . . with . . . [i]nterest at a rate 

pursuant to A.R.S. § 44-1201.” A.A.C. R14-4-308.
SHOREY et al. v. AZCC

Opinion of the Court

5

these statutes, the applicable provisions are preempted by federal law 

regulating securities sales outside the United States; and (3) application of 

these statutes to the Westcap offering imposes an unconstitutional burden 

on interstate commerce. 

¶11 On appeal from the judgment of the superior court, we

determine whether the underlying administrative decision of the 

Commission “was illegal, arbitrary, capricious, or involved an abuse of 

discretion.” Eaton, 206 Ariz. at 432, ¶ 7 (citing Samaritan Health Servs. v. 

Ariz. Health Care Cost Containment Sys., 178 Ariz. 534, 537 (App. 1994)).

Each of Appellants’ arguments presents a question of law, which we 

review de novo. Paczosa v. Cartwright Elementary Sch. Dist. No. 83, 222 Ariz. 

73, 77, ¶ 14 (App. 2009) (“On appeal, we review de novo the court’s 

application of law to th[e] facts.”); Hutto v. Francisco, 210 Ariz. 88, 90, ¶ 7 

(App. 2005) (“We review federal preemption issues de novo.”); Webb v. 

State ex rel. Ariz. Bd. of Med. Exam’rs, 202 Ariz. 555, 557, ¶ 7 (App. 2002)

(“We apply our independent judgment . . . to questions of law, including 

. . . constitutional claims.”).

I. Application of A.R.S. §§ 44-1841, -1842, and -1991

¶12 The Arizona Securities Act (ASA), A.R.S. §§ 44-1801 through 

-2055, constitutes Arizona’s “blue-sky laws.” Jennings v. Woods, 194 Ariz. 

314, 323, ¶ 40 (1999). Blue-sky laws “are designed to protect the public 

from fraud and deceit arising in [securities] transactions.”5 State v.

Baumann, 125 Ariz. 404, 411 (1980). Appellants first argue Westcap and 

Shorey did not engage in prohibited conduct under the ASA because they

 

5 Although it is clear that blue-sky laws are aimed at ridding the 

market of overly speculative and fraudulent securities transactions, there 

is some disagreement about the origin of the term. In SEC v. Edwards, the 

U.S. Supreme Court asserted blue-sky laws were so named because “they 

were ‘aimed at promoters who would sell building lots in the blue sky in 

fee simple.’” 540 U.S. 389, 394 (2004) (quoting 1 L. Loss & J. Seligman, 

Securities Regulation, at 36 (3d ed. 1998)). Much older Supreme Court 

authority, however, asserts the name derived from “the evil at which [the 

law] is aimed; . . . speculative schemes which have no more basis than so 

many feet of blue sky; or . . . to stop the sale of stock in fly-by-night 

concerns, visionary oil wells, distant gold mines, and other like fraudulent 

exploitations.” Hall v. Geiger-Jones Co., 242 U.S. 539, 550 (1917) (internal 

quotations omitted).
SHOREY et al. v. AZCC

Opinion of the Court

6

did not sell the securities, the sales did not occur within or from Arizona, 

and the sales were not fraudulent. We disagree.

A. Westcap and Shorey Were Unregistered Salespersons Who 

Sold Unregistered Securities Within or From Arizona.

¶13 Under the ASA, “[i]t is unlawful to sell or offer for sale 

within or from this state any securities unless the securities have been 

registered . . . or are federally covered securities.”6 A.R.S. § 44-1841. 

Appellants do not assert Westcap securities were “federal covered 

securities” but argue instead that because the offering was made to 

investors through Intuition, it was not made within or from Arizona. This 

contention is unpersuasive for two reasons. 

¶14 First, viewing the evidence in the light most favorable to 

upholding the Commission’s decision, Hirsch, 237 Ariz. at 458 n.2, ¶ 1 

(citation omitted), we find the offering was not made by Intuition; rather, 

the offering was created, offered, and sold by Westcap. Although 

Intuition sought out potential investors for Westcap, consistent with the 

offering, only Westcap had the authority to close the transaction. Intuition 

was therefore nothing more than a “go-between,” or intermediary, 

facilitating sales that ultimately occurred between Westcap and its 

investors. 

¶15 Second, the sale of securities to persons outside of Arizona 

does not require a finding that the sale, itself, was not made within or 

from Arizona. See Ariz. Corp. Comm’n v. Media Prods., Inc., 158 Ariz. 463, 

465-67 (App. 1988). In Media Products, the Commission brought an action 

against a Delaware corporation to enjoin the sale of unregistered 

 

6 “‘Federal covered security’ means any security described as a 

covered security in § 18 of the securities act of 1933.” A.R.S. § 44-1801(12). 

Although Appellants assert Westcap securities were sold under 

Regulation S of federal law, Regulation S securities are not included in the 

Security Act’s definition of “covered securities.” See 15 U.S.C. § 77r(b)(4); 

see also 17 C.F.R. § 230.901, Preliminary Note 4 (“Nothing in these rules 

obviates the need to comply with any applicable state law relating to the 

offer and sale of securities.”). Appellants argue Westcap securities were 

exempt from federal and state regulation requirements under Regulation 

S, but because Regulation S securities are not “covered securities,” the 

Westcap securities offering is subject to the ASA’s registration 

requirements. 
SHOREY et al. v. AZCC

Opinion of the Court

7

securities, alleging the sale would be made within or from Arizona in 

violation of A.R.S. § 44-1841. Id. at 464. The corporation asserted that, 

because it was incorporated in Delaware and did not offer the securities in 

Arizona or to Arizona residents, the sales were not made within or from 

the State of Arizona. Id. Therefore, it contended, the registration 

requirement of A.R.S. § 44-1841 was inapplicable to its offering. Id. at 464-

65. This Court found, however, the corporation’s principal place of 

business and base of operations were in Arizona, its officers and directors 

operated from and resided in Arizona, the stock certificates were prepared 

and issued by an agent in Arizona, the board meetings were held in 

Arizona, the escrow agreement designated an Arizona bank as the escrow 

agent, and the sale documents identified an Arizona address as the place 

for notices to be provided. Id. at 465-66. Noting the corporation’s Arizona 

activities were “more than ministerial,” this Court concluded the 

securities were sold within or from Arizona under A.R.S. § 44-1841. Id. at 

466-67.

7

¶16 The Arizona Attorney General addressed this issue more 

than sixty years ago, concluding “the words ‘within or from this state’ in 

A.R.S. § 44-1841 encompass the sale or offer for sale of unregistered 

securities within this state, and also the offering and selling of 

unregistered securities to purchasers without the state through a base of 

operations within this state.” Op. Ariz. Att’y Gen. 56-140, at 2-3 (1956). 

The Attorney General added that the words “within or from” do not 

“require the registration of an issue of stock by a corporation organized 

under the laws of Arizona merely because it is an Arizona corporation.” 

Id. at 3. However, if the corporation’s activities within Arizona are more 

than ministerial, the corporation is subject to the ASA’s registration 

requirements, even if the corporation is only selling securities to nonArizonans. Media Prods., 158 Ariz. at 466-67; Chrysler Capital Corp. v. 

Century Power Corp., 800 F. Supp. 1189, 1193 (S.D.N.Y. 1992) (applying 

Arizona law).

 

7 This Court ultimately held the application of A.R.S. § 44-1841 to the 

corporation was unconstitutional because it would have created a direct 

burden on interstate commerce. Id. at 469. Because the corporation sold 

securities registered in other states and with the Securities Exchange 

Commission (SEC) to non-Arizonans, we identified no Arizona interest 

justifying further regulation of the sale. Id. This aspect of Media Products

is discussed further in Part III.
SHOREY et al. v. AZCC

Opinion of the Court

8

¶17 Westcap’s actions in Arizona were “more than ministerial.” 

As in Media Products, Westcap’s principal place of business and base of 

operations were established in Arizona, its officers and directors resided 

in and operated from Arizona, the board meetings were held in Arizona, 

and payments were wire transferred to an Arizona bank. In addition, 

Westcap was incorporated in Arizona; the various sale documents, 

including the subscription agreement and private placement 

memorandum, were distributed to potential investors from Shorey in 

Arizona; and the subscription agreement specified Arizona law would 

govern the transaction designating Tucson, Arizona as the appropriate 

forum for any future disagreement. Under these circumstances, the 

transactions are overwhelmingly connected to Arizona, and we find no 

error in the conclusion that Westcap and Shorey sold unregistered 

securities within or from Arizona under A.R.S. § 44-1841. 

¶18 Similar language in A.R.S. § 44-1842 encompasses Westcap’s 

conduct. “It is unlawful for any dealer to sell or purchase or offer to sell 

or buy any securities, or for any salesman to sell or offer for sale any 

securities within or from this state unless the dealer or salesman is 

registered as such pursuant to the [ASA].” A.R.S. § 44-1842. Again, 

Westcap and Shorey acknowledge they were unregistered salesmen of the

securities. Having already concluded the sales took place within or from 

Arizona, we find no error in the determination Westcap and Shorey

violated A.R.S. § 44-1842.

B. Westcap and Shorey Made Misrepresentations to Investors 

and Omitted Material Facts in Connection with the Sale of 

Westcap Securities.

¶19 The ASA’s anti-fraud statute states, in relevant part:

It is a fraudulent practice and unlawful for a person, in 

connection with a transaction or transactions within or from 

this state involving an offer to sell or buy securities, or a sale 

or purchase of securities . . . directly or indirectly to do any 

of the following:

. . .

Make any untrue statement of material fact, or omit to state 

any material fact necessary in order to make the statements 

made, in the light of the circumstances under which they 

were made, not misleading. 
SHOREY et al. v. AZCC

Opinion of the Court

9

A.R.S. § 44-1991(A)(2). Appellants contend they did not violate A.R.S. 

§ 44-1991(A)(2) because information regarding the specific amount of 

commissions paid to Intuition and Litchfield was not material. We 

disagree.

¶20 “The requirement of materiality is satisfied by ‘a showing of 

substantial likelihood that, under all the circumstances, the misstated or 

omitted fact would have assumed actual significance in the deliberations

of a reasonable buyer.’” Hirsch, 237 Ariz. at 922, ¶ 27 (citing Trimble v. Am. 

Sav. Life Ins. Co., 152 Ariz. 548, 553 (App. 1986)) (internal quotations 

omitted). Although specific disclosures regarding commissions and 

finders’ fees are not per se required, omitted information that would have 

significance in a reasonable buyer’s deliberations is misleading and thus 

violates A.R.S. § 44-1991(A)(2). 

¶21 Here, the Commission found Westcap’s payment of 72.5

percent of invested funds to commissions and finders’ fees would have 

been a substantial factor in a reasonable buyer’s decision to invest. At 

least one other court has acknowledged that a 30 percent commission 

figure is, “as a matter of law, one that most reasonable investors would 

deem material in determining whether to invest,” and “failure to disclose 

this sum misrepresents the investor’s potential profit.” SEC v. Levine, 671 

F. Supp. 2d 14, 30 (D.D.C. 2009) (internal quotation and citation omitted). 

We therefore agree with the Commission’s conclusion that a 72.5 percent 

commission figure is material and should have been disclosed to potential 

Westcap investors. To be reasonably informed, the investor would need 

to know that nearly three-quarters of the total investment amount is 

unavailable to realize any return.

¶22 The private placement memorandum presented to investors 

also contains overt misrepresentations and misleading statements. For 

example, the “Use of Proceeds” section of the memorandum breaks down 

how Westcap would use the invested funds, specifically indicating that, of 

the $1,000,000 offering, only $100,000, or 10 percent, would be set aside for 

“offering expenses” — the expense category that investors could 

reasonably believe includes commissions.8 In actuality, the percentage of 

 

8 The “Use of Proceeds” indicates the rest of the funds would be 

used as follows: $225,000 for local advertising and branding of name; 

$36,000 for staff development and training expenses; $15,000 for 

warehouse and office equipment; $90,000 for acquisition of service and 

installation equipment and vehicles; $357,000 for funding growth in 
SHOREY et al. v. AZCC

Opinion of the Court

10

investment money siphoned off to “offering expenses” was substantially 

higher. This misrepresentation is material. Any reasonable potential 

buyer presented with the truth would carefully consider the likelihood of 

Westcap’s ability to obtain the projected return where 72.5 percent of the 

total invested funds were spent on commissions and finders’ fees.

¶23 Appellants lastly argue the Commission did not present any 

evidence of actual harm to investors or what a normal commission and 

finders’ fee would be for an overseas securities transaction. However, the 

Commission had no duty to do so; the Commission need only show 

Westcap’s statements and omissions were objectively material and 

misleading — a feat which it has clearly accomplished. Trimble, 152 Ariz. 

at 553 (“[D]efendants have an affirmative duty not to mislead potential 

investors. This requirement not only removes the burden of investigation 

from an investor, but places a heavy burden upon the offeror not to 

mislead potential investors in any way.”) (citation omitted). 

¶24 Appellants have not “show[n] by clear and satisfactory 

evidence that [the Commission’s decision] is unreasonable or unlawful.”

Reliable Transp., 86 Ariz. at 370-71 (quoting A.R.S. § 40-254(E)). We

therefore find no error in the conclusion that Westcap violated A.R.S. § 44-

1991(A)(2).9

II. Federal Preemption of A.R.S. §§ 44-1841, -1842, or -1991

¶25 Appellants argue Arizona’s regulation of securities sold 

exclusively to foreign investors is preempted by SEC Regulation S. Under 

the Supremacy Clause, U.S. Const. art. VI, cl. 2, federal law may preempt 

state law through express preemption, field preemption, or conflict 

preemption. Ting v. AT&T, 319 F.3d 1126, 1135 (9th Cir. 2003) (citing Int’l 

Paper Co. v. Ouellette, 479 U.S. 481, 491 (1987), and Pac. Gas & Elec. Co. v. 

 

accounts receivable and working capital; $125,000 for funding growth in 

inventories; $40,000 for patents and engineering expenses; and $12,000 for 

security deposits.

9 Although we hold a 72.5 percent commission payment was a 

material fact that should have been disclosed in this case, we need not 

determine what might constitute a reasonable commission for purposes of 

A.R.S. § 44-1991. “This Court’s review is limited to whether there is 

substantial evidence in the record to support the finding of the superior 

court.” Pac. Motor Trucking, 116 Ariz. at 467. 
SHOREY et al. v. AZCC

Opinion of the Court

11

Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190, 204 (1983)). We 

address each type of preemption in turn and, finding that none apply, 

conclude A.R.S. §§ 44-1841, -1842, and -1991 are not preempted by federal 

law. 

A. Express Preemption

¶26 Express preemption exists if Congress has “explicitly stated 

in [a federal] statute’s language” that a state law is preempted. See Morales 

v. Trans World Airlines, Inc., 504 U.S. 374, 383 (1992) (quoting FMC Corp. v. 

Holliday, 498 U.S. 52, 56-57 (1990)). Appellants, however, do not identify 

any congressional command within any provision of federal securities law 

which explicitly prohibits Arizona from regulating the sale of securities, 

and our search reveals none.

¶27 To the contrary, Congress recognized the validity of bluesky laws governing intrastate transactions by enacting 15 U.S.C. § 78bb(a),

“a provision ‘designed to save state blue-sky laws from pre-emption.’” 

Edgar v. MITE Corp., 457 U.S. 624, 641 (1982) (quoting Leroy v. Great W.

United Corp., 443 U.S. 173, 182 n.13 (1979)). Thus, the ASA is expressly 

permitted by congressional decree so long as its application is limited to 

securities transactions occurring within or from Arizona. See id.; 15 U.S.C. 

§ 78bb(a) (“Except as otherwise specifically provided in this chapter, 

nothing in [Title 15, Chapter 2B of the United States Code] shall affect the 

jurisdiction of the securities commission (or any agency or officer 

performing like functions) of any State over any security or any person 

insofar as it does not conflict with the provisions of this chapter or the 

rules and regulations under this chapter.”). Clearly, federal securities 

laws are intended to co-exist with state securities laws, and for these 

reasons, we find Appellants have not shown the ASA is expressly 

preempted.

B. Field Preemption

¶28 For the same reasons, Appellants have not shown field 

preemption of the ASA. Field preemption exists “where the scheme of 

federal regulation is sufficiently comprehensive to make reasonable the 

inference that Congress ‘left no room’ for supplementary state 

regulation.” Ting, 319 F.3d at 1136 (citing In re Cybernetic Servs., Inc., 252 

F.3d 1039, 1045-46 (9th Cir. 2001)) (internal quotation omitted). Although 

federal securities law is quite comprehensive, Appellants do not provide 

any indication that Congress left no room for supplementary state 
SHOREY et al. v. AZCC

Opinion of the Court

12

regulation. Indeed, as addressed above, federal law expressly permits

states to enact and enforce their own securities laws. See supra ¶ 27.

C. Conflict Preemption

¶29 Finally, conflict preemption may exist when application of 

state law conflicts with federal law, but only (1) “where compliance with 

both federal and state regulations is a physical impossibility,” or (2) where 

the state law “stands as an obstacle to the accomplishment and execution 

of the full purposes and objectives of Congress.” CTS Corp. v. Dynamics 

Corp. of Am., 481 U.S. 69, 78-79 (1987) (quoting Ray v. Atl. Richfield Co., 435 

U.S. 151, 158 (1978)) (internal quotations omitted). 

¶30 Appellants have not identified any impossibility in

complying with the requirements of both the ASA and federal securities 

laws, and we likewise find no impossibility exists. See N. Star Int’l v. Ariz. 

Corp. Comm’n, 720 F.2d 578, 583 (9th Cir. 1983) (finding no conflict 

preemption where, although “state standards are more stringent than the 

federal standards, it is possible to comply with both”). 

¶31 Appellants do argue the ASA is an obstacle to the 

accomplishment and execution of Regulation S, which they contend 

unequivocally exempts its overseas activity from registration and 

disclosure laws. This, however, does not demonstrate how the ASA 

stands as an obstacle to a congressional objective or purpose; even if 

Westcap’s offering were a valid Regulation S security offering — a 

determination we need not make for purposes of this appeal — the 

regulation only exempts security sales from federal registration and 

disclosure laws, not state registration and disclosure laws. See 17 C.F.R. 

§ 230.901 (exempting the sale of securities outside the United States from 

the federal registration requirements of 15 U.S.C. § 77e). 

¶32 Westcap’s argument is further undercut by Preliminary Note 

4 of the rules governing Regulation S security offerings, which states: 

“Nothing in these rules obviates the need to comply with any applicable 

state law relating to the offer and sale of securities.” 17 C.F.R. § 230.901, 

Preliminary Note 4.10 Moreover, the Ninth Circuit Court of Appeals 

 

10 Despite comprehensive revisions to Regulation S in 1997 and 1998, 

Congress did not change the text of Preliminary Note 4. See Offshore 

Offers and Sales, 63 Fed. Reg. 9632-01, 9642 (Feb. 25, 1998); Offshore Press 

Conferences, Meetings with Company Representatives Conducted 
SHOREY et al. v. AZCC

Opinion of the Court

13

rejected a similar argument that state regulatory efforts aimed at 

reviewing the merits of a securities offering “stand as obstacles to effective 

implementation of the federal regulatory scheme.” N. Star Int’l, 720 F.2d 

at 582-83.

¶33 It is clear Congress did not intend Regulation S to exempt 

the sale of securities from applicable state securities laws. We therefore

find A.R.S. §§ 44-1841, -1842, and -1991 do not conflict with federal 

securities laws and are thus not preempted. Having concluded these ASA

provisions are applicable, we next address the constitutionality of

applying these provisions to the Westcap securities offering.

III. Constitutionality of A.R.S. §§ 44-1841, -1842, and -1991 as Applied

¶34 Appellants argue that applying the ASA under the

circumstances presented violates the Commerce Clause of the U.S. 

Constitution. That the Commerce Clause limits a state’s power to regulate 

interstate commerce is a truism. U.S. Const. art. I, § 8, cl. 3 (reserving to 

Congress the right “[t]o regulate Commerce . . . among the several 

States”); Edgar, 457 U.S. at 640. However, not every state act that impacts

interstate commerce is invalid. Edgar, 457 U.S. at 641. A state statute must 

be upheld unless it directly burdens interstate commerce or imposes an 

incidental burden on interstate commerce that outweighs the state’s

legitimate local interest. Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). 

The Supreme Court has repeatedly upheld the constitutionality of bluesky laws against Commerce Clause challenges, finding the state’s purpose 

in enacting such legislation legitimate and the burden incidental. Edgar, 

457 U.S. at 641. 

¶35 Appellants nonetheless argue A.R.S. §§ 44-1841, -1842, and 

-1991 directly burden interstate commerce. In the alternative, Appellants 

contend Arizona has no legitimate interest in applying these ASA

provisions to securities sold to foreign investors, and therefore, even an 

incidental burden is excessive. We disagree. 

 

Offshore and Press-Related Materials Released Offshore, 62 Fed. Reg. 

53948-03, 53954 (Oct. 17, 1997).
SHOREY et al. v. AZCC

Opinion of the Court

14

A. The ASA’s Anti-Fraud Provisions Do Not, as a Matter of 

Law, Impose an Impermissible Burden on Interstate 

Commerce.

¶36 Appellants do not present a colorable argument that A.R.S. 

§ 44-1991, designed to prevent fraud in the offer and sale of securities, 

imposes a direct burden on interstate commerce. The statute imposes no

additional requirements on the sale of securities and does not impede 

interstate transactions. See Chrysler, 800 F. Supp. at 1195. To the contrary, 

we agree with the U.S. District Court for the Southern District of New 

York, which, in reviewing the constitutionality of A.R.S. § 44-1991, held,

“such legislation facilitates commerce far more than it can even be argued 

to ‘burden’ in any sense . . . because it provides a measure of assurance 

that commerce will be honestly transacted.” Id.

¶37 Furthermore, Congress expressly preserved state authority 

to regulate against fraud. See 15 U.S.C. 77r(c)(1) (stating “the securities 

commission (or any agency or office performing like functions) of any 

State shall retain jurisdiction under the laws of such State to investigate 

and bring enforcement actions, in connection with securities or securities 

transactions . . . with respect to (i) fraud or deceit”). Under this federal 

directive, the ASA’s provisions forbidding fraudulent activity within or 

from Arizona are expressly allowed and cannot be found burdensome 

under a Commerce Clause analysis. Therefore, we hold, as a matter of 

law, that A.R.S. § 44-1991 imposes no impermissible burden on interstate 

commerce and does not violate the Commerce Clause.

B. The Registration Requirements of A.R.S. §§ 44-1841 and 

-1842, as Applied, Do Not Directly Burden Interstate 

Commerce, and Any Incidental Burden is Outweighed by 

Arizona’s Legitimate Interest in Protecting its Business 

Reputation.

¶38 Appellants rely on Media Products in advancing their

argument that the registration requirements of A.R.S. §§ 44-1841 and -1842 

improperly burden interstate commerce. In Media Products, this Court

considered a Delaware corporation’s sale of securities registered with 

other states and the SEC to non-Arizonans. 158 Ariz. at 464-65. Under 

those facts, this Court held Arizona did not have a legitimate interest in 

protecting nonresident shareholders whose home states had already 

determined the offerings met their state standards, and that, although 

Arizona’s business reputation is a legitimate local public interest, the 

corporation’s security sales did not place Arizona’s business reputation at 
SHOREY et al. v. AZCC

Opinion of the Court

15

stake. Id. at 468-69 (citing CTS Corp., 481 U.S. at 1651-52, and Edgar, 457 

U.S. at 644). Additionally, because A.R.S. § 44-1841 was not 

“effectuat[ing] a legitimate local public interest,” we held it constituted a 

direct and unconstitutional burden on interstate commerce. Id. (quoting 

Edgar, 457 U.S. at 640). 

¶39 We find important distinctions between Media Products and 

the present case. Although the corporation in Media Products was selling 

securities within or from Arizona, it was not an Arizona corporation, and 

its securities were registered in other states and with the SEC. Id. at 469. 

The out-of-state purchasers’ interests were adequately addressed by the 

appropriate agencies in their home states and the SEC. See id. Moreover, 

the corporation advised purchasers it was based in Delaware and that the 

offerings were not approved by the Commission, effectively eliminating

any legitimate concern that, “if the sale was unfair, blame could be placed 

on Arizona, tarnishing its reputation.” Id. at 470.

¶40 This case, however, presents an entirely different scenario. 

Although Arizona may not have a legitimate interest in protecting 

nonresident shareholders, it does have “an important interest in keeping 

itself free of enterprises which offer questionable investment 

opportunities.” Id. at 469 (“A state has an interest in seeing that its 

territory is not used as a base of operations to conduct illegal sales in other 

states. Thus, the host state has an interest in protecting its reputation as 

not being a center for illegal or questionable securities activity.”)

(quotation and citation omitted); see also State ex rel. Corbin v. Goodrich, 151 

Ariz. 118, 122 (App. 1986) (“Arizona has a legitimate interest in regulating 

the conduct of Arizona residents engaged in the offer and sale of securities 

even though those ultimately victimized may not be Arizona residents.”) 

(citing State ex rel. Corbin v. Pickrell, 136 Ariz. 589, 597 (1983), and Ariz.

State Real Estate Dep’t v. Am. Standard Gas & Oil Leasing Serv., Inc., 119 Ariz. 

183, 186-87 (App. 1978)). Unlike in Media Products, Arizona’s interest in its 

business reputation is at stake here, where Westcap was incorporated in 

Arizona, actively operated from the state, and sold securities not 

registered anywhere. See Goodrich, 151 Ariz. at 122 (approving state 

exercise of police power “to regulate the conduct of persons residing in 

Arizona and using this state as a base for securities operations”).

¶41 Furthermore, there is no evidence these provisions of the

ASA apply more or less stringently to, or unfairly target, interstate 

commerce. See Pike, 397 U.S. at 142 (noting statute affecting interstate 

commerce must be applied “even-handedly”). Rather, the ASA

consistently addresses unlawful conduct occurring within or from 
SHOREY et al. v. AZCC

Opinion of the Court

16

Arizona by an Arizona corporation, something it is clearly entitled to do. 

Goodrich, 151 Ariz. at 122; see also Edgar, 457 U.S. at 641 (noting blue-sky 

laws that regulate transactions occurring within the regulating state have 

traditionally been upheld against Commerce Clause challenges). On these 

principles, we find no direct burden on interstate commerce by applying 

A.R.S. §§ 44-1841 and -1842 in this case.

¶42 Although A.R.S. §§ 44-1841 and -1842 impose an incidental

burden on the offer or sale of securities by requiring registration, 

Appellants do not illustrate how applying these ASA provisions in this 

case excessively burdens interstate commerce in relation to Arizona’s 

legitimate interest in protecting its business reputation. See Pike, 397 U.S. 

at 142 (establishing a balancing test to determine whether a state statute 

excessively burdens interstate commerce in relation to the local benefits) 

(citing Huron Portland Cement Co. v. City of Detroit, 362 U.S. 440, 443

(1960)).

¶43 Westcap’s security offering clearly implicates Arizona’s 

business reputation, and the registration requirements of A.R.S. §§ 44-1841 

and -1842 are no more burdensome on interstate securities transactions 

than on a securities transaction with Arizona residents. To hold that 

Arizona must apply different standards when an Arizona corporation 

sells securities to an Arizona resident than when it sells to a nonresident

would be absurd. Arizona’s interest in regulating the conduct of Arizona 

corporations selling unregistered, speculative, or misleading securities 

within or from Arizona — regardless of the purchaser’s place of residence

— far exceeds any incidental burden imposed by the registration 

requirements.

¶44 Appellants also suggest that, because this application of the 

ASA burdens foreign commerce, as opposed to interstate commerce, it 

warrants greater scrutiny under S.-Cent. Timber Dev., Inc. v. Wunnicke, 467 

U.S. 82, 96 (1984) (noting “‘Commerce Clause scrutiny may well be more 

rigorous when a restraint on foreign commerce is alleged’”) (quoting 

Reeves, Inc. v. Stake, 447 U.S. 429, 438 n.9 (1980)). Westcap has not, 

however, identified any foreign policy issues or federal directives 

implicated by applying these ASA provisions to an Arizona corporation

that would run afoul of the Commerce Clause. See Container Corp. of Am. 

v. Franchise Tax Bd., 463 U.S. 159, 194 (1983); Piazza’s Seafood World, L.L.C. 

v. Odom, 448 F.3d 744, 750 (5th Cir. 2006) (noting the Commerce Clause 

prohibits even nondiscriminatory state regulations if they “(1) create a 

substantial risk of conflicts with foreign governments; or (2) undermine 

the ability of the federal government to ‘speak with one voice’ in 
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Opinion of the Court

17

regulating commercial affairs with foreign states”) (quoting New Orleans 

S.S. Ass’n v. Plaquemines Port, Harbor & Terminal Dist., 874 F.2d 1018, 1022 

(5th Cir. 1989)). We therefore hold the application of A.R.S. §§ 44-1841

and -1842 to the offer or sale of securities made within or from Arizona to 

foreign investors does not improperly interfere with interstate or foreign 

commerce.

CONCLUSION

¶45 The superior court’s order upholding the Commission’s 

decision is affirmed.