Opinion ID: 1865218
Heading Depth: 1
Heading Rank: 17

Heading: Applicability of the Minnesota Securities Act.

Text: A threshold issue in this case is whether the Minnesota Securities Act (Minn.Stat. §§ 80A.01-.31) applies to a directly negotiated sale of 100 percent of a company's stock. Appellant contends the trial court erred in finding a violation of the state securities act and awarding respondent interest, costs and attorney fees. The trial court found the 100 percent stock transfer from Dittmann to Specialized Tours was the sale of a security under the plain meaning of the statute. The definitional section of the Minnesota Securities Act, Minn.Stat. § 80A.14, subd. 1 (1984) provides: When used in sections 80A.01 to 80A.31, the terms defined in this section have the meanings given them unless the context otherwise requires. Subdivision 18 of the same section states: `Security' means any note; stock; [or] treasury stock. [9] Substantially the same definition of security is found in the Federal Securities Acts 15 U.S.C. § 77b(1) (Securities Act of 1933) and 15 U.S.C. § 78c(a)(10) (Securities Exchange Act of 1934). [10] The Minnesota Statutes provide that the Minnesota Securities Act is to be construed so as to coordinate the interpretation of sections 80A.01 to 80A.31 with the related federal regulation. Minn.Stat. § 80A.31 (1984). Thus, federal case law precedent on the issue is of considerable value. The precise issue is whether the Minnesota Securities Act applies to a sale of a corporate business when the purchaser acquires 100 percent of the stock to operate the business without relying on the efforts of the seller. Appellant Hagen urges us to hold that the Minnesota Security Act is inapplicable to the sale of a corporate business when the purchaser acquires 100 percent of the stock. This is known as the sale of business doctrine which does not consider a sale of a business through a stock transfer as a sale of a security within the meaning of the securities acts. The courts which have applied this doctrine in the past have focused on the economic realities underlying the transaction rather than rotely applying securities laws to transfers of instruments falling within the literal definition of security. [11] Strong legal arguments and sound policy considerations support application of the economic reality or sale of business test in Minnesota, [12] and were we writing on a clean slate, we would do so. However, since the time this case was briefed in this court, the United States Supreme Court has rejected the sale of business doctrine in Landreth Timber Co. v. Landreth, ___ U.S. ___, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985) and the companion case of Gould v. Ruefenacht, ___ U.S. ___, 105 S.Ct. 2308, 85 L.Ed.2d 708 (1985). Because of this state's statutory policy mandating coordination of interpretation of the Minnesota Securities Act with related federal regulations and interpretations (Minn.Stat. § 80A.31 (1984)), we now feel constrained to follow those federal cases. [13] In line with the analysis of the majority in Landreth and Gould, the Dittmann stock which was transferred to Specialized Tours possessed all of the characteristics associated with stock, and, thus, the sale of Dittmann was a securities transaction subject to the anti-fraud provisions under Minn.Stat. § 80A.01. In this case, we believe application of the act leads to an inequitable result. Although no intent to defraud was ever proven, nor found by the trial court, the total amount of costs, interest, and attorney fees awarded by the trial court under the act approaches punitive damages. [14]