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Matched Legal Cases: ['§ 25000', '§ 2901', '§ 10', '§ 77', '§ 2311', '§ 16', '§ 25000', '§ 118']

People v. Figueroa (1986) :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
Justia › US Law › Case Law › California Case Law › Cal. 3d › Volume 41 › People v. Figueroa (1986)
People v. Figueroa (1986)
The principal question presented by this appeal is whether the trial court, in a prosecution for the sale of unqualified securities, erred [41 Cal. 3d 718] in instructing the jury that certain "Corporation Promissory Notes" were "securities" within the meaning of the Corporate Securities Law. (Corp. Code, § 25000 et seq. fn. 1)
A few days later, Kurrle called Joseph and agreed to lend the company $10,000. There was no discussion about what form Kurrle's investment [41 Cal. 3d 719] would take, but Kurrle "was thinking in terms of a loan ... that would be documented." During the conversation, Joseph told Kurrle that he would be an officer in one of the Figueroa corporations.
[1a] The first claim raised by appellants is that the trial court committed reversible error by failing to specify in its instructions what burden of proof [41 Cal. 3d 720] must be met to establish that the sale was exempted from qualification. Since Justice King's opinion in the Court of Appeal correctly analyzes and resolves this issue, this court adopts that part of his opinion as its own.
* Brackets together, in this manner [], are used to indicate deletions from the opinion of the Court of Appeal; brackets enclosing material (other than the editor's parallel citations) are, unless otherwise indicated, used to denote insertions or additions by this court. (Conservatorship of Early (1983) 35 Cal. 3d 244, 247 [197 Cal. Rptr. 539, 673 P.2d 209].)
[¶] Section 25163 provides "[i]n any proceeding under [the Corporate Securities Law], the burden of proving an exemption or an exception from a definition is upon the person claiming it." Since appellants claimed they came within a private offering exemption to section 25110, they bore the burden of proving [that fact]. (See People v. Park (1978) 87 Cal. App. 3d 550, 566-567 [151 Cal. Rptr. 146] [state did not bear burden of proving lack of private offering exemption in prosecution under section 25110]; People v. Murphy (1936) 17 Cal. App. 2d 575, 585-586 [62 P.2d 592].) Joseph's proposed instruction therefore was partially erroneous, as it placed the burden on the state to disprove any exemptions. fn. 4 [The trial court properly placed] this burden of proof on the Figueroas, but [did] not define the quantum or degree of that burden. [41 Cal. 3d 721]
The issue of the defendant's precise burden of proving he or she comes within an exemption to the securities registration law is one of first impression in California. fn. 6 In People v. Tewksbury (1976) 15 Cal. 3d 953 [127 Cal. Rptr. 135, 544 P.2d 1335], [this] court discussed the degrees of burdens of proof which may be placed on a defendant in a criminal case. [3] "[W]hen there is placed upon an accused the burden of interjecting a factual contention which, if established would tend to overcome or negate proof of any element of the crime charged as otherwise established by the People, the accused need only raise a reasonable doubt as to the existence or nonexistence of the fact in issue." (Id., at p. 963.) Examples of such instances include unconsciousness and alibi defenses. ([Ibid.]) On the other hand, defendants may be required to prove by a preponderance of the evidence defenses "which raise factual issues collateral to the question of the accused's guilt or innocence and do not bear directly on any link in the chain of proof of any element of the crime." (Id., at p. 964.) Among such instances are entrapment defenses and challenges to testimony as being hearsay or that of an accomplice. (Id., at pp. 964-968.) [41 Cal. 3d 722]
The jury deliberated two days and deadlocked on three related charges [involving Kurrle] where the only defense [permitted to go to the jury] was a private offering exemption. fn. 8 During deliberations, the jury requested copies of the instructions on exemptions. This was a close case and it is reasonably probable that a result more favorable to the defendants would have occurred had appropriate instructions been given. (See People v. Watson (1956) 46 Cal. 2d 818, 836 [299 P.2d 243].) [End of excerpt from Court of Appeal opinion.] As the Attorney General concedes, reversal of the conviction is required on this basis. [41 Cal. 3d 723]
The district attorney relied fully on the court's charge. During the first of her two closing arguments, she stated: "With respect to the issue of securities. Again, that's another issue that's going to be taken out of your hands. You don't have to make the determination about whether those limited partnerships involved in counts one, two and three in Figueroa Diversified Investments was a security or not. His honor is going to instruct you that as [41 Cal. 3d 724] a matter of law those are securities. [¶] His honor will also instruct you that the limited partnerships involved in counts four and five ... are securities. But that's another matter that's not within your purview, you don't have to decide that, it's been decided for you. [¶] With respect to counts six, seven, eight and nine the promissory notes that were received by Mr. Kurrle, his honor will also instruct you that those are securities, as a matter of law. The law says and you have to accept it."
[6] It has long been recognized that a trial judge "may not direct a verdict of guilty no matter how conclusive the evidence." (Brotherhood of Carpenters v. United States (1947) 330 U.S. 395, 408 [91 L. Ed. 973, 985, 67 S. Ct. 775]; accord United States v. Martin Linen Supply Co. (1977) 430 U.S. 564, 572-573 [51 L. Ed. 2d 642, 651-652, 97 S. Ct. 1349]; Sparf and Hansen v. United States (1895) 156 U.S. 51, 105 [39 L. Ed. 343, 362, 15 S. Ct. 273]; cf. Sandstrom v. Montana (1979) 442 U.S. 510, 524 [61 L. Ed. 2d 39, 51, 99 S. Ct. 2450]; Bollenbach v. United States (1946) 326 U.S. 607, 615 [90 L. Ed. 350, 355-356, 66 S. Ct. 402].) Only recently, a plurality of the Supreme Court reaffirmed this principle, observing that "[t]he Court consistently has held that 'a trial judge is prohibited from entering a judgment of conviction or directing the jury to come forward with such a verdict ... regardless of how overwhelmingly the evidence may point in that direction.'" (Connecticut v. Johnson (1983) 460 U.S. 73, 84 [74 L. Ed. 2d 823, 832, 103 S. Ct. 969], quoting Martin Linen Supply, supra, 430 U.S. at pp. 572-573 [51 L.Ed.2d at p. 652].)
The prohibition against directed verdicts "includes perforce situations in which the judge's instructions fall short of directing a guilty verdict but which nevertheless have the effect of so doing by eliminating other relevant considerations if the jury finds one fact to be true." (United States v. Hayward (D.C. Cir. 1969) 420 F.2d 142, 144.) As one panel of the Fifth Circuit has stated, "[N]o fact, not even an undisputed fact, may be determined by the judge." (Roe v. United States (5th Cir. 1961) 287 F.2d 435, 440, cert. den. (1961) 368 U.S. 824 [7 L. Ed. 2d 29, 82 S. Ct. 43]; accord United States v. Musgrave (5th Cir. 1971) 444 F.2d 755, 762.)
Johnson and Sandstrom illustrate these principles well. In Sandstrom the jury was instructed that "'[t]he law presumes that a person intends the ordinary consequences of his voluntary acts.'" (442 U.S. at p. 517 [61 L.Ed.2d at p. 46].) The court held, by a seven-to-two vote, that the jurors "could reasonably have concluded that they were directed to find against [41 Cal. 3d 725] defendant on the element of intent." (442 U.S. at p. 523 [61 L.Ed.2d at p. 50].)
In Johnson the instruction was that "'every person is conclusively presumed to intend the natural and necessary consequences of his act.'" (460 U.S. at p. 78 [74 L.Ed.2d at p. 829].) The high court unanimously condemned this instruction as error of constitutional magnitude. Four justices expressed the view that it was the "functional equivalent of a directed verdict" on the issue of intent (460 U.S. at p. 84 [74 L.Ed.2d at p. 832] (plur. opn.)), while four others believed that any instruction which "remove[d] an issue completely from the jury's consideration" would require reversal (id., at p. 95 [74 L.Ed.2d at p. 839] (dis. opn.)). fn. 11 This court has read Johnson as standing for the proposition "that at least eight justices of the United States Supreme Court ... agree that a jury instruction which ... take[s] an issue completely from the jury" is reversible error. (People v. Garcia (1984) 36 Cal. 3d 539, 554.)
The rule prohibiting verdicts directed against an accused emanates from the guarantee of due process and the right to a jury trial. Due process "protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged" (In re Winship (1970) 397 U.S. 358, 364 [25 L. Ed. 2d 368, 375, 90 S.Ct. 1068]). It requires the state to prove "'every ingredient of an offense beyond a reasonable doubt ....'" (Sandstrom v. Montana, supra, 442 U.S. at p. 524 [61 L.Ed.2d at p. 51], quoting Patterson v. New York (1977) 432 U.S. 197, 215 [53 L. Ed. 2d 281, 295, 97 S. Ct. 2319].)
The right to a jury trial reflects the framers' "fundamental decision about the exercise of official power -- a reluctance to entrust plenary powers over the life and liberty of the citizen to one judge or to a group of judges." (Duncan v. Louisiana (1968) 391 U.S. 145, 156 [20 L. Ed. 2d 491, 500, 88 S. Ct. 1444].) As Chief Judge Aldrich of the First Circuit has observed, "the jury, as the conscience of the community, must be permitted to look at more than logic. ... If it were otherwise there would be no more reason why a verdict should not be directed against a defendant in a criminal case than in a civil one. The constitutional guarantees of due process and trial by jury require that a criminal defendant be afforded the full protection of [41 Cal. 3d 726] a jury unfettered, directly or indirectly. [Citation.]" (United States v. Spock (1st Cir. 1969) 416 F.2d 165, 182; see also Cabana v. Bullock (1986) 474 U.S. ___, ___ [88 L. Ed. 2d 704, 715, 106 S. Ct. 689, 696]: "[A] jury's verdict cannot stand if the instructions provided the jury do not require it to find each element of the crime under the proper standard of proof, [citation]. Findings made by a judge cannot cure deficiencies in the jury's finding as to the guilt or innocence of a defendant resulting from the court's failure to instruct it to find an element of the crime. [Citation.]") fn. 12
The California cases are generally in accord with these explanations. For example, in People v. Shavers (1969) 269 Cal. App. 2d 886 [75 Cal. Rptr. 334], the court found reversible error in an instruction which charged that if the jury found the accused guilty of robbery "it is robbery in the first degree." (Id., at p. 888.) "Where a plea of not guilty has been entered, the trial judge may not direct a verdict of guilty even though the prosecution's case is strong and the defense does not present a substantial evidentiary case. [Citation.] The judge may comment on the evidence [citation] but may not instruct the jury that as a matter of law some element of the crime charged has been adequately proved." (Id., at pp. 888-889, italics in original.) fn. 13
This court, relying on the foregoing United States Supreme Court authority, has also condemned procedural devices which are analogous to a directed verdict. (See, e.g., People v. Garcia, supra, 36 Cal.3d at p. 551 [failure to instruct on element of intent]; cf. People v. Roder (1983) 33 Cal. 3d 491, 496 [189 Cal. Rptr. 501, 658 P.2d 1302] [instruction on presumption of guilty knowledge in receiving stolen property prosecution].) As the Garcia court observed, "[t]he reasoning of the [high court] opinions ... would invalidate any instruction ... which would permit the state to circumvent the requirement that it prove every fact necessary for conviction [41 Cal. 3d 727] beyond a reasonable doubt. [Citation]." (36 Cal.3d at p. 551; cf. People v. Miller (1962) 57 Cal. 2d 821, 828 [22 Cal. Rptr. 465, 372 P.2d 297] [error to instruct that "evidence in this case" is such that defendant is either guilty of first degree murder or innocent altogether since such an instruction removes possibility of conviction on lesser included offenses].)
United States v. Johnson, supra, 718 F.2d 1317, is particularly instructive not only because it contains an extensive discussion of the issue, but because it is an en banc decision which was preceded by an opinion by a three-judge panel which had reached a contrary result. (700 F.2d 163, rehg. granted 700 F.2d at p. 181.) For these reasons, it is discussed in some detail. [41 Cal. 3d 728]
Although Johnson was a case in which the "security" element of the charge was hotly contested, the court frankly acknowledged the necessity of submitting that question to the jury even when it was not seriously open to dispute. "[W]hether a tangible document or thing meets a statutory definition ... depends upon the probative value of evidence even when the evidence seems so clear as to leave no room for fool's questions." (Id., at p. 1324, italics added.) fn. 16 [41 Cal. 3d 729]
Several other circuit court decisions hold that it is error to instruct the jury that an essential element of the offense has been established. fn. 17 On the other hand, as the Johnson majority frankly conceded (718 F.2d at p. 1323, fn. 17), there is also a substantial body of federal authority to the contrary. fn. 18 [41 Cal. 3d 730]
"'There is considerable misunderstanding in the minds of the general public regarding provisions making a jury the judge of fact and not of law. This misunderstanding is attributable in large part to the inaccuracy of the general rule that juries decide only the facts. This is an inaccurate expression because it leaves the impression that juries are not judges of the law at any time or in any sense. Juries are always judges of the law in the sense that juries must pass on the manner and the extent in which the law expounded by the judge fits the facts brought out in the evidence. This process requires juries to perform the legal function of interpretation and application. In the absence of express authority, however, juries are not judges of the law in determining what principle of law is applicable to the evidence.' [41 Cal. 3d 731] [¶] S. McCart, Trial by Jury 116-17 (1965) (emphasis in original). Hence, although attempting to separate 'fact' from 'law' may sometimes be useful, particularly when a statute or a federal rule turns on the differentiation, it is not the issue here. The issue is the role of the jury in the trial guaranteed to the accused." (718 F.2d at p. 1321, second italics added, fns. omitted.)
The Attorney General, seizing on this "law/fact" distinction, points to a "lengthy and settled" body of case law which assertedly holds that the question of what constitutes a security is one of law reserved exclusively to the trial court. (See People v. Skelton (1980) 109 Cal. App. 3d 691, 712-713 [167 Cal. Rptr. 636], cert. den. (1981) 450 U.S. 917 [67 L. Ed. 2d 343, 101 S. Ct. 1361]; People v. Miller (1961) 192 Cal. App. 2d 414, 418 [13 Cal. Rptr. 260]; People v. Rankin (1959) 169 Cal. App. 2d 150, 160 [337 P.2d 182], cert. den. (1960) 362 U.S. 905 [4 L. Ed. 2d 556, 80 S. Ct. 616]; People v. Marvin (1941) 48 Cal. App. 2d 180, 193 [119 P.2d 413]; People v. Dutton (1940) 41 Cal. App. 2d 866, 872-873 [107 P.2d 937]; People v. Rubens (1936) 11 Cal. App. 2d 576, 587 [54 P.2d 98]; People v. McCalla (1923) 63 Cal. App. 783, 789 [220 P. 436], disapproved on other grounds in People v. Elliot (1960) 54 Cal. 2d 498, 503 [6 Cal. Rptr. 753, 354 P.2d 225], but see People v. Pompa-Ortiz (1980) 27 Cal. 3d 519, [165 Cal. Rptr. 851, 612 P.2d 941] [Elliot disapproved]; S.E.C. v. Howey Co. (1946) 328 U.S. 293, 299-300 [90 L. Ed. 1244, 1249-1250, 66 S. Ct. 1100, 163 A.L.R. 1043].) However, only four cases, McCalla, Dutton, Marvin and Skelton, squarely hold that the court may instruct the jury that a particular instrument is a security within the meaning of the state corporate securities laws. fn. 19 Moreover, as will become apparent, none of these holdings withstands scrutiny under more modern concepts of due process and the right to a jury trial.
The origins of the holding appear in McCalla. There, the appellant argued that the trial court erroneously prevented him from demonstrating that his counsel had advised him that an investment certificate issued to an investor [41 Cal. 3d 732] was not a "security" within the meaning of the Corporate Securities Act. The appellate court rejected this argument, adhering to the rule that ignorance of the law is no excuse. (63 Cal.App. at pp. 793-796.) In so doing, the court approved the trial court's instruction that the certificate was a "security" within the meaning of the state securities law. The court cited no authority for its conclusion and did not appear to recognize the constitutional implications of its holding. fn. 20
Though it came nearly four decades after Marvin, Skelton merely repeated the "rules" which its predecessors had enunciated. Relying on Dutton and on the principle that whether a particular document is a security is to be determined on a case-by-case basis (People v. Syde (1951) 37 Cal. 2d 765, 768 [235 P.2d 601]), the court held that there had been no error in the giving of such an instruction. (109 Cal.App.3d at pp. 713-714.)
Inexplicably, none of these cases addressed the due process and jury trial rights which are arguably violated by such an instruction. That omission is [41 Cal. 3d 733] particularly surprising in view of the fact that the rule prohibiting directed verdicts was enunciated as early as 1895 by the Supreme Court in Sparf and Hansen v. United States, supra, 156 U.S. 51. Perhaps the courts in McCalla, Marvin, and Dutton may be forgiven for failing to address the issue because of the relative age and/or obscurity of that case. However, the Skelton court could not rely on this excuse. By 1980, when that case was decided, the rule had been soundly reaffirmed by the high court two times -- in Brotherhood of Carpenters and Martin Linen Supply Co. -- and the basis for the rule reaffirmed twice more in Winship and Sandstrom. fn. 21
In addition, if the "law/fact" distinction that the foregoing cases espouse is at all valid, it can only be in a very limited sense. [8] As the Johnson majority observed, "The definition of a security is a matter of law. It is the [41 Cal. 3d 734] judge's duty to instruct the jury concerning that definition: the way in which a security is identified. Whether a particular piece of paper meets that definition, however, is for the jury to decide. Of course, the question whether a generic type of document, such as a traveler's check or an equipment lease, may come within the reach of the statute's prohibition is one of law. [Citations.]" (718 F.2d at p. 1321, fn. 13.) fn. 23
[9a] The list of instruments which come within the statutory definition of a "security" (ante, fn. 9) is an expansive one. However, the cases have adhered to the principle that substance governs over form. "[A] literal interpretation [of the statute] has been uniformly eschewed when to do so would appear to exceed any legitimate legislative purpose." (People v. Schock (1984) 152 Cal. App. 3d 379, 384-385 [199 Cal. Rptr. 327]; Leyva v. Superior Court (1985) 164 Cal. App. 3d 462, 473 [210 Cal. Rptr. 545].) [41 Cal. 3d 735]
Thus, the "critical question" the courts have sought to resolve in these cases is whether a transaction falls within the regulatory purpose of the law regardless of whether it involves an instrument which comes within the literal language of the definition. In Silver Hills Country Club v. Sobieski (1961) 55 Cal. 2d 811, 813-816 [13 Cal. Rptr. 186, 361 P.2d 906, 87 A.L.R.2d 1135], for example, the court pursued that inquiry with respect to the sale of country club memberships even though the transaction involved a "beneficial interest in title to property" which was listed in the statute. fn. 25
The court engaged in a similar analysis in Fox v. Ehrmantraut (1980) 28 Cal. 3d 127, 139 [167 Cal. Rptr. 595, 615 P.2d 1383], which involved the sale of the stock of an executive placement firm, even though "stock" is one of the instruments listed in section 25019. (28 Cal.3d at pp. 132-133, 137-138; see also id., at p. 139 ["Bona fide agreements for the sale of services providing for profit sharing have been held not to come within the act, although profit sharing agreements, like stock, are included in the broad definition of security in section 25019"].) fn. 26
The California decisions involving instruments designated as "notes" are consistent with this principle. [10] Over 40 years ago, in People v. Davenport (1939) 13 Cal. 2d 681 [91 P.2d 892], this court observed that "it plainly was not the legislative intent that 'every' note or evidence of indebtedness, regardless of its nature and of the circumstances surrounding its execution, should be considered as included within the meaning and purpose of the act." (Id., at p. 686.) fn. 27 [41 Cal. 3d 736]
In at least two cases, notes have been held to qualify as securities because the transaction falls within the regulatory purpose of the law. For example, in People v. Leach (1930) 106 Cal. App. 442 [290 P. 131], upheld in In re Leach (1932) 215 Cal. 536, 546 [12 P.2d 3], the Court of Appeal held that undersecured notes on real property were "securities" on the ground that they were "unload[ed] upon a trusting public ... for a consideration far in excess of their reasonable value" and, therefore, did not "protect the public against the imposition of [an] unsubstantial scheme ...." (106 Cal.App. at p. 450.)
Similarly, in People v. Walberg (1968) 263 Cal. App. 2d 286 [69 Cal. Rptr. 457], the court found that unsecured, interest-bearing promissory notes which were issued for loans solicited to refurbish a hotel were "securities." The court relied in part on the fact that the scheme "was quite as dangerous to investors as the typical blue-sky promotion of mining stocks and royalties." (Id., at p. 291.)
Some 25 years ago, this court in Silver Hills Country Club v. Sobieski, supra, 55 Cal. 2d 811 introduced the concept of "risk capital" as a way to determine whether a transaction involves a "security." "Section 25008 defines a security broadly to protect the public against spurious schemes, however ingeniously devised, to attract risk capital. ... [¶] ... [The] objective [of the Corporate Securities Law] is to afford those who risk their capital at least a fair chance of realizing their objectives." (Silver Hills, supra, 55 [41 Cal. 3d 737] Cal.2d at pp. 814-815; accord Fox v. Ehrmantraut, supra, 28 Cal.3d at p. 139.) fn. 28
This factor was the focus of this court's analysis in People v. Syde, supra, 37 Cal. 2d 765. Syde involved agreements between a promoter and parents for the production of films featuring their children. The contracts called for the payment of specified sums over the period of rehearsals and guaranteed the cast members a percentage of the gross receipts upon the sale or distribution of the film.
In analyzing whether the film contracts were "securities," the court explained, "[i]t is settled that the Corporate Securities Law was not intended to afford supervision and regulation of instruments which constitute agreements with persons who expect to reap a profit from their own services or other active participation in a business venture. Such contracts are clearly distinguished from instruments issued to persons who, for a consideration paid, stipulate for a right to share in the profits or proceeds of a business enterprise to be conducted by others; and the court will look through form to substance to discover whether in fact the transaction contemplates the conduct of a business enterprise by others than the purchasers, in the profits [41 Cal. 3d 738] or proceeds of which the purchasers are to share. [Citations.]" (People v. Syde, supra, 37 Cal.2d at pp. 768-769.) fn. 29
The court in People v. Coster (1984) 151 Cal. App. 3d 1188 [199 Cal. Rptr. 253], employed a similar analysis, reaching a contrary conclusion on its facts. There, the notes given the investors provided both a fixed return and a percentage of the gross company income. The court found that the transaction came within the purpose of the securities law since "the latter payment obviously depended on the success of the business" - (151 Cal.App.3d at p. 1195), which "defendant managed, controlled and operated. ..." (Id., at p. 1194.) "[T]he investors had no authority in its conduct; the profit on their investments depended solely on defendant's expertise, skill, and honesty. ... [T]hey may be described as 'relatively uninformed' regarding the operation of defendant's business." (Ibid.)
This argument is without merit. The return on any investment which has not been secured with adequate collateral depends on the success of the business. This is true whether the investment contemplates a percentage of the profits or a fixed return. When an investor entrusts money or other [41 Cal. 3d 739] consideration to a promoter through any arrangement but retains substantial power to affect the success of the enterprise, he has not "risked capital" within the meaning of the Corporate Securities Law. In such transactions, that law should not govern.
Finally, at least one case involving a promissory note has looked to investor participation in determining whether a note was a "security." People v. Schock, supra, 152 Cal. App. 3d 379 involved fractional interests in promissory notes and related deeds of trust. In concluding that the notes were "securities," the court relied on the fact that the "investors possessed no real knowledge or control over the [business]. The passive role occupied by the investors compelled full reliance on [defendant's company] for the success or failure of the common enterprise." (Id., at p. 388, fn. 6, italics added; fn. 30 accord Leyva v. Superior Court, supra, 164 Cal.App.3d at pp. 472-475.) [41 Cal. 3d 740]
However, resolution of this question was for the jury in the first instance, not for the trial court. That resolution was further complicated by the court's ruling excluding evidence regarding Kurrle's contemplated participation in the business. Thus, in the event of a retrial, the trial court should permit such evidence. It should also, at a minimum, instruct the jury in the statutory definition of a "security." Should appellant request additional instructions [41 Cal. 3d 741] on the "investor passivity" factor, the trial court should give an appropriate instruction to conform to the evidence presented. fn. 32
On that state of the record it is wholly unnecessary to decide whether, as the majority holds, an instruction that the notes were securities would be [41 Cal. 3d 742] erroneous no matter how convincing the evidence was on this issue (ante, pp. 733-734). The complexities involved are demonstrated by the sharp divisions in the federal and California decisions and the extended analysis the majority finds necessary to undertake before arriving at a conclusion. (See ante, pp. 727-734.) From that analysis the majority distills an absolute rule that apparently would prohibit in criminal trials, regardless of the state of the evidence, such instructions as one that a particular automobile is a motor vehicle or one that a particular gun is a firearm. (See United States v. Johnson (5th Cir. 1983) 718 F.2d 1317, 1324.) I would eschew such judicial rule-making until the need arises.
FN 1. All further statutory references are to the Corporations Code unless otherwise indicated.
FN 2. It is not clear in which of the companies Kurrle believed he was investing.
FN 3. Four of the additional charges against Joseph and three of the additional charges against Dennis involved loans made by Kurrle. The remaining charges involved limited partnership purchases by other investors.
FN 4. [Joseph's proposed instruction stated in relevant part: [¶] "the defendants have asserted that they were exempted from such qualification with the Commissioner of Corporations because of the [']private exemption['] offering. [¶] In this regard, you are instructed that if the proved circumstances or evidence raise a reasonable doubt that registration was required by law, then you must give the defendant or defendants the benefit of that doubt and acquit him/them of those charges. In view of the defense raised, before you can convict any defendant of any charge of offering and selling securities without a permit, the evidence must show beyond a reasonable doubt that such offers and sales were not exempted." [(Italics added.)]
FN 5. Evidence Code section 522 places the burden of proof on the defendant to prove his insanity by a preponderance of the evidence. Penal Code section 1096 states the presumption of innocence and the prosecution's burden of proving guilt beyond a reasonable doubt.
FN 6. Several cases from other jurisdictions require defendants to prove their presence within an exemption by a preponderance of the evidence. (See State v. Goetz (N.D. 1981) 312 N.W.2d 1, 9-10; United States v. Tehan (6th Cir. 1966) 365 F.2d 191, 194-196, cert. den. (1967) 385 U.S. 1012 [17 L. Ed. 2d 548, 87 S. Ct. 716].) These cases do not explain the choice of that degree of burden of proof. Other cases require a lesser degree of proof. (See Commonwealth v. David (1974) 365 Mass. 47 [309 N.E.2d 484, 488] [an exemption defense "requires the defendant to satisfy a burden of production of evidence before the Commonwealth must meet its burden of persuasion."][.]) The State of Ohio amended its securities statute to clearly set its burden of proof. (See State v. Frost (1979) 57 Ohio St.2d 121 [387 N.E.2d 235, 237[,] fn. 1 [Ohio Rev[.] Code, § 2901.05(A) was amended to read "[t]he burden of going forward with the evidence of an affirmative defense, and the burden of proof, by a preponderance of the evidence, for an affirmative defense is upon the accused." (Italics omitted)][.])
FN 7. [The prosecutor's closing argument did nothing to clarify the specific burden of proof required. During her comments, she noted only that "this whole issue of a private exemption, that burden falls on the defense. It is their burden to establish and prove to you that there's a private offer, an exemption to them in this case .... [¶] ... Did the defendants prove ... that a private offering exists?"]
FN 8. [Appellants' principal claim was that although Kurrle was initially attracted to the businesses through an ad in the newspaper, the actual offer and sale of securities -- if indeed the notes were securities -- was made and accepted after Kurrle started working for the company. The jury was given a list of several factors to consider in deciding this question.]
FN 9. With exceptions not here relevant, the text of section 25019 in effect at the time of the Kurrle transactions provided: "'Security' means any note; stock; treasury stock; membership in an incorporated or unincorporated association; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; any beneficial interest or other security issued in connection with a funded employees' pension, profit sharing, stock bonus, or similar benefit plan; or, in general, any interest or instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. All of the foregoing are securities whether or not evidenced by a written document. ..."
FN 10. That instruction stated: "As to each count of the information, the state must prove that the individual charged in that particular count did the following: [¶] One, offered and sold; [¶] Two, a security in an issuer transaction; [¶] Three, without a permit from the commissioner of corporations; [¶] Four, that the charged individual did those acts willfully. [¶] Each of these elements of the charge must be proved beyond a reasonable doubt as to the specific individual charged in that count, before the jury can return a verdict of guilty." (Italics added.)
FN 11. The division in Johnson was on the standard for assessing the prejudicial effect of the instructional error. (Id., at pp. 87-88 [74 L.Ed.2d at pp. 834-835] (plur. opn.); 90-99 [ 74 L.Ed.2d at pp. 836-842] (dis. opn.).) Justice Stevens, who would have cast the tie-breaking vote on that question, believed it unnecessary to address the issue because the prosecutor's request that the Connecticut Supreme Court declare the error harmless "does not even raise a federal question." (Id., at p. 89 [74 L.Ed.2d at p. 836].) He nevertheless joined the plurality's disposition which affirmed the Connecticut court's reversal of the conviction. (Id., at pp. 89-90 [74 L.Ed.2d at pp. 836-837].)
FN 12. Other courts have explained that the directed verdict prohibition arises out of the jury's absolute power to acquit the accused. In such instances, "the judge, no matter how contrary to the evidence he may think the verdict is, cannot set it aside .... [S]ince the judge is without power to review and overturn a verdict of not guilty, there is no basis on which to claim the power to direct a verdict of guilty." (Konda v. United States (7th Cir. 1908) 166 Fed. 91, 93; accord Sparf and Hansen v. United States, supra, 156 U.S. at p. 106 [39 L.Ed. at pp. 362-363].)
FN 13. Several similar statements are found in this court's cases involving the court's power to comment on the evidence. (Cal. Const., art. VI, § 10.) In People v. Dail (1943) 22 Cal. 2d 642, 658 [140 P.2d 828], this court noted that "[t]he trial court, under the guise of comment, may not properly control the verdicts by a direction either directly or impliedly made." (Italics in original; accord People v. Cook (1983) 33 Cal. 3d 400, 408 [189 Cal. Rptr. 159, 658 P.2d 86]; People v. Brock (1967) 66 Cal. 2d 645, 650 [58 Cal. Rptr. 321, 426 P.2d 889], overruled in part on other grounds in Cook, supra, 33 Cal.3d at p. 413, fn. 13; People v. De Moss (1935) 4 Cal. 2d 469, 477 [50 P.2d 1031]; People v. Ottey (1936) 5 Cal. 2d 714, 728-729 [56 P.2d 193].)
FN 14. The definition of "security" under federal law (15 U.S.C. § 77b(1); 18 U.S.C. § 2311) served as the model for the definition in Corporations Code section 25019 (ante, fn. 9). (Marsh & Volk, Practice Under the Cal. Corporate Securities Law of 1968 (1969) ch. 5, § 16, p. 178, and Draftsmen's Commentary to § 25000 et seq., Appen. A, p. 512.) As such, decisions interpreting the federal definition are helpful in resolving issues presented under the state law. (Hamilton Jewelers v. Department of Corporations (1974) 37 Cal. App. 3d 330, 333 [112 Cal. Rptr. 387].)
FN 15. At least one sister state court has reached a similar conclusion, relying heavily on a lengthy quotation from Roe. (Miller v. State (Fla.App. 1973) 285 So. 2d 41, 42; see also Hentzner v. State (Alaska 1980) 613 P.2d 821, 829 [suggestion that on retrial issue should be determined by jury].)
FN 16. Judge Albin's majority opinion was joined in by seven other circuit judges. Judge Garwood, concurring specially, opined that the instruction was error because the gold contract was "vague and ambiguous" as to whether it fit the definition of a security under the federal statute. While he would have condemned an instruction which completely removed the issue from the jury, he would have permitted a carefully worded one which in essence only commented on the evidence. (718 F.2d at pp. 1325-1326.)
FN 17. Examples include instructions charging the jury that the accused violated one of two gasoline price fixing rules (United States v. Heller (T.E.C.A. 1980) 635 F.2d 848, 856-857); that a statement to a governmental agency was "material" (United States v. Valdez (9th Cir. 1979) 594 F.2d 725, 729); that a particular loan was a "loanshark loan" (United States v. Benedetto (3d Cir. 1977) 558 F.2d 171, 176-177); that activities of a particular paid informant could be disregarded in assessing an entrapment defense (United States v. Sheldon (5th Cir. 1976) 544 F.2d 213, 219-221); that the evidence showed attempted robbery as a matter of law (Mims v. United States (5th Cir. 1967) 375 F.2d 135, 147-149); that a particular firearm was subject to registration (Bryan v. United States (5th Cir. 1967) 373 F.2d 403, 407); that certain assessments made by the Internal Revenue Service against the accused were valid (United States v. England (7th Cir. 1965) 347 F.2d 425, 429-436); that a "pop bottle" was a dangerous weapon (Greenfield v. United States (D.C.Cir. 1964) 341 F.2d 411, 412-413); that the accused's failure to pay a "wagering tax" was "undisputed" (DeCecco v. United States (1st Cir. 1964) 338 F.2d 797, 798); and that a particular vehicle had moved in interstate commerce (United States v. Gollin (3d Cir. 1948) 166 F.2d 123, 125-126; accord Schwachter v. United States (6th Cir. 1956) 237 F.2d 640, 644). (See also United States v. Goetz (11th Cir. 1984) 746 F.2d 705, 707-708 [instruction that tax forms filed with Internal Revenue Service were not "forms"]; United States v. Hayward, supra, 420 F.2d at pp. 143-144; Brown v. United States (9th Cir. 1964) 334 F.2d 488, 498-501 (conc. opn. of Duniway, J.), affd. on other grounds (1965) 381 U.S. 437 [instruction that a particular union executive board is an "executive board or similar governing body" under Labor-Management and Reporting Act]; United States v. McKenzie (6th Cir. 1962) 301 F.2d 880, 881-882 [instructions that only issue was the identification of the accused]; United States v. Manuszak (3d Cir. 1956) 234 F.2d 421, 424-425 [instructions conveyed message that theft was implicitly or explicitly established]; United States v. Raub (7th Cir. 1949) 177 F.2d 312, 315-316 [instructions assumed true issues of falsity and fraud in income tax evasion case]; see generally cases cited in United States v. England, supra, 347 F.2d at p. 433, fn. 12.)
FN 18. Thus, courts have upheld instructions charging that a particular declaration or statement is a "material" one in prosecutions for making a materially false customs declaration (United States v. Ackerman (5th Cir. 1983) 704 F.2d 1344) or a materially false statement to a governmental agency (Sinclair v. United States (1927) 279 U.S. 263 [73 L. Ed. 692, 49 S. Ct. 268], but see United States v. Hausmann (5th Cir. 1983) 711 F.2d 615 [questioning correctness of Sinclair]; United States v. Adler (8th Cir. 1980) 623 F.2d 1287, 1292 & fn. 8 [expressing view jury should be so instructed]); that certain Federal Reserve notes were "obligations of the United States" in a counterfeiting prosecution (United States v. Guy (8th Cir. 1972) 456 F.2d 1157, 1163); that an escapee's custody constituted "federal custody" under the federal escape statute (United States v. Morris (8th Cir. 1971) 451 F.2d 969); that certain property was "property of the United States" or "government property" in prosecutions for damaging or stealing government property (United States v. Briddle (8th Cir. 1971) 443 F.2d 443, 447-448; United States v. Jackson (9th Cir. 1970) 436 F.2d 39, 41-42); that a warehouse was "bonded" in a prosecution for removal of property from "bonded area" within governmental control (United States v. Parisi (6th Cir. 1966) 365 F.2d 601, 605, vacated on other grounds sub nom. O'Brien v. UNited States (1967 386 U.S. 345 [18 L. Ed. 2d 94, 87 S.Ct. 1158]); and that a certain apparatus constituted a "still" in a prosecution for unlawfully setting up a still (Guy v. United States (4th Cir. 1964) 336 F.2d 595, 597).
FN 19. In both Miller and Rankin the lower court proceedings were tried before a judge sitting as a trier of fact. (Miller, supra, 192 Cal.App.2d at p. 415; Rankin, supra, 169 Cal.App.2d at p. 153.) Thus, no instructional errors were at issue.
FN 20. The entirety of the court's "analysis" is as follows: "The trial court ... charged the jury that the certificate which appellants caused to be issued ... is a 'security' within the meaning of the Corporate Securities Act, and refused to give an abstract definition of the word 'security' in the language of the statute. This was the proper course to pursue. Whether the certificate constituted a 'security' under the conceded facts of the case was a question of law for the court and did not involve any question of fact whatever. The requested instruction would have left it to the jury to determine as a question of fact what the court rightfully disposed of as a question of law for its sole determination." (63 Cal.App. at pp. 792-793.)
FN 21. Although the Attorney General does not mention it, the recent appearance of People v. Feno (1984) 154 Cal. App. 3d 719 [201 Cal. Rptr. 513] on the scene is significant. There, the Court of Appeal reversed a section 25110 conviction on the ground that the instructions erroneously gave the jury the impression that the accused had the burden of proof to show that the transaction did not involve a security. "By characterizing all joint ventures as 'exempt' the court necessarily assumed the joint venture interests ... were securities. The court erred in so assuming rather than instructing the jury to decide whether those interests were securities within the meaning of section 25019." (Id., at p. 728, second italics added.)
FN 22. As the United States v. Johnson majority notes, there are two "historical exceptions" to this principle. (718 F.2d at p. 1324.) The first is that an accused facing a prosecution for contempt of Congress for refusing to answer questions is not entitled to have the jury decide whether the questions were "pertinent" to the congressional inquiry. (Sinclair v. United States, supra, 279 U.S. at p. 298 [73 L.Ed. at p. 700].) Sinclair has been both criticized and limited to its facts in recent times. (See ante, fn. 18.)
The second exception is that an accused facing a perjury charge for testifying falsely as to a "material" matter (cf. Pen. Code, § 118) is not entitled to have the question of "materiality" decided by the jury. (See Sinclair, supra, 279 U.S. at pp. 298-299 [73 L.Ed. at p. 700]; People v. Sagehorn (1956) 140 Cal. App. 2d 138, 153 [294 P.2d 1062].)
FN 23. The Attorney General's final argument is that an instruction like the one given here is essentially a proper comment on the evidence, since it does not tell the jury "what facts it should find, but only states the legal characterization of the particular undisputed state of facts." In the context of this case, the argument lacks merit.
FN 24. Justice Reynoso's concurrence is critical of the "extended analysis" which we undertake in reaching this conclusion. He would prefer that today's holding be based on the premise that the instruction in issue "depended on questions of fact ...." (Conc. opn., post, at p. 741.)
FN 25. Silver Hills arose under the 1949 version of the Corporate Securities Law (Stats. 1949, ch. 384) which had codified the many amendments to the 1917 Corporate Securities Act (Stats. 1917, ch. 532). In 1968, the 1949 law was repealed and replaced by the present law. (Stats. 1968, ch. 88). The definition of "security" presently in section 25019 was previously found in section 25008.
FN 26. The federal decisions -- to which this court looks for guidance on the issue (see ante, fn. 14) -- also hold that it is not the label affixed to a particular instrument which determines whether it constitutes a "security." "[I]n searching for the meaning and scope of the word 'security' in the Act, form should be disregarded for substance and the emphasis should be on economic reality." (Tcherepnin v. Knight (1967) 389 U.S. 332, 336 [19 L. Ed. 2d 564, 569, 88 S. Ct. 548]; accord United Housing Foundation, Inc. v. Forman (1975) 421 U.S. 837, 848-852 [44 L. Ed. 2d 621, 629-632, 95 S. Ct. 2051].)
The high court has recently reaffirmed its commitment to the principle that substance governs over form. (Landreth Timber Co. v. Landreth (1985) 471 U.S. 681, 686-687 [85 L. Ed. 2d 692, 697-698, 702-703, 105 S. Ct. 2297, 2302, 2306].)
FN 27. At oral argument, the Attorney General contended that this statement is no longer good law. He is in error.
FN 28. The federal cases have focused on "whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others." (S.E.C. v. Howey, supra, 328 U.S. at p. 301 [90 L.Ed. at p. 1251].) "The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others." (United Housing, supra, 421 U.S. at p. 852 [44 L.Ed.2d at p. 632].)
FN 29. Other courts have expressed similar views. "If the transaction is one in which the assignee is merely an investor who for consideration is given the right to share in the profits or proceeds of an enterprise to be conducted by others, the instrument representing such interest is a security," but where the investor "is to share in the conduct of the enterprise, the instrument ... is not a security within the act." (Austin v. Hallmark Oil Co. (1943) 21 Cal. 2d 718, 727 [134 P.2d 777]; accord Tomei v. Fairline Feeding Corp. (1977) 67 Cal. App. 3d 394, 399 [137 Cal. Rptr. 656] ["cattle feeding arrangement" held to be a security since investor was passive].)
FN 30. Schock also relied on a federal case which had concluded that certain promissory notes were "securities" in part because of the passive role assumed by the investor. (Id., at p. 388; United States v. Farris (9th Cir. 1979) 614 F.2d 634, 641 [noteholders were unsophisticated "widows, widowers, and the elderly; moreover, there was no access to [the defendant's] books for anyone but those in a small inner circle of the company. ... [¶] ... [T]he noteholders ... placed substantial trust in the management skill and solvency of [the defendant]"]; see also United States v. Carman (9th Cir. 1978) 577 F.2d 556, 563 [crucial factor was that investors in school loan packages were placed "in a totally passive role"].)
FN 31. The record contains several suggestions that Kurrle's participation was pursuant to an employment contract under which he was to obtain a specified percentage of the sales of the company. The trial court, however, sustained objections to all but a few questions regarding this agreement, finding that it was not relevant to the charged offenses. This ruling was in error, since the details of Kurrle's employment relationship might have indicated whether he was expected to have a significant role in the management of the business and, therefore, in the success of his investment.
FN 32. A similar procedure was employed in United States v. Carman, supra, 577 F.2d at page 563, in a prosecution for securities fraud under the federal securities laws.