Court Opinion

ID: 3512182
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:22:59.539746+00
Date Added: 2024-06-11T14:17:41.509173
License: Public Domain

I think that the service of process on the commissioner of securities was good upon the grounds that defendant is estopped to deny that it appointed the state officer as its agent for the service of process and that its withdrawal from the state did not render the appointment ineffective.
The purpose of the blue sky law (Mason St. 1927, §§ 3996-1 to 3996-28) is to suppress the fraudulent sale of securities. An elaborate administrative process is set up to prevent and to detect fraud by requiring registration of securities, licensing of dealers and agents, and revocations of registrations and licenses. The law imposes a duty on the securities commissioner to supervise the entire business. It applies equally to residents and nonresidents. Drastic criminal penalties for violations are imposed. Civil remedies for defrauded purchasers are provided. Notwithstanding all these provisions, the legislature was not naive enough to believe that it could prevent or had entirely prevented the fraudulent sale of securities. It took notice, as it could hardly avoid doing, of the very substantial extent to which migratory vendors of fraudulent securities carried on their traffic within our borders, entering the state to make fraudulent sales to our citizens and then withdrawing therefrom. Because our citizens had to pursue them in other forums, such dealers enjoyed substantial, if not total, immunity from all legal responsibility. See B.  O. R. Co. v. Harris, 12 Wall. (U.S.) 65, 20 L. ed. 354. Section 3996-11 was adopted to afford to our citizens a remedy in our courts against nonresident dealers in fraudulent securities by exacting from all nonresident dealers in securities as a condition precedent to any sale within the state the irrevocable appointment of the commissioner of securities as the seller's agent for service of process in cases arising out of transactions occurring within the state. *Page 437 
The legislature must be deemed to have enacted the provisions of § 3996-11 for the appointment of the securities commissioner by nonresidents as process agent with the rule in mind that where a nonresident withholds actual consent to jurisdiction by failing to file a required appointment he will be charged with the same consequences as if he had consented in case he enters the state and exercises the privilege of doing business for which such an appointment is a condition. Where the consent is given we have a true contract; where it is not given we have by operation of law the rights which the contract, if executed, would have given. See Bagdon v. Philadelphia  R. C.  I. Co. 217 N.Y. 432, 111 N.E. 1075, L.R.A. 1916F, 407, Ann. Cas. 1918A, 389. It would be a singular evidence of the state's impotency to execute its settled policy if the rule were otherwise.
The fact, stated in the majority opinion, that the statute "requires the nonresident party to appoint the securities commissioner his process agent before he is allowed to register any securities and before license is issued to deal in such securities" is all that is required, where such party enters the state and sells securities, to raise an estoppel on the part of the seller to deny the statutory appointment. A corporation "cannot migrate, but may exercise its authority in a foreign territory upon such conditions as may be prescribed by the law of the place. One of these conditions may be that it shall consent to be sued there. If it do business there itwill be presumed to have assented and will be boundaccordingly." (Italics supplied.) B.  O. R. Co. v. Harris, 12 Wall. (U.S.) 65, 81, 20 L. ed. 354, supra. In numerous decisions we have expressed adherence to that rule and held that where a foreign corporation entered the state and transacted business here, it in effect consented to the appointment of the statutory agent for service of process. The rule has been applied in numerous cases where foreign insurance companies did business here without filing a written appointment of the commissioner of insurance as agent to receive service of process. Massey S. S. Co. v. Norske Lloyd Ins. Co. Ltd. 153 Minn. 136, 189 N.W. 714; Braunstein *Page 438 
v. Fraternal Union of America, 133 Minn. 8, 157 N.W. 721; Kulberg v. Fraternal Union of America, 131 Minn. 131,154 N.W. 748, 750. In the Kulberg case, the defendant took over the business of another association and continued to do business in the state without complying with the statute. We said:
"Upon so assuming the liabilities of the older association, which necessitated the transaction of the business connected therewith in this state, defendant was under duty to comply with our statutes, and having failed to do so, is estopped from denying the jurisdiction of our courts if it continued the transaction of its business in this state."
The Kulberg case cites with approval Ehrman v. Teutonia Ins. Co. 1 F. 471, 476, 1 McCrary (D. Ct. Ark.) 123, where Caldwell, Cir. J., in speaking of the failure of a foreign insurance company to file with the state auditor an appointment of that officer as its process agent as required by the Arkansas statute, said: "That the stipulation was not, in fact, filed with the auditor, is of no consequence if the company has done those things which imposed upon it the obligation and duty to file it." The estoppel has the same effect as if a formal appointment of the securities commissioner had been made by defendant.
True, in each of our cases cited above the company was doing business in the state and had not withdrawn, as here, at the time of service upon the state officer; but that circumstance is entirely irrelevant, as will be shown later.
To sum up on this phase of the case, the rule is as stated in 23 Am. Jur., Foreign Corporations, § 495:
"The general rule is that a foreign corporation tacitly submits itself, when it voluntarily enters the state and engages in business there, to the valid laws of such state and to the jurisdiction and process of its courts to the extent required by such laws. Amenability of the corporation to suit and judicial process in respect of causes of action arising out of the business done in the state follows as a legal consequence of doing business therein, if the *Page 439 
law of the state makes provision therefor, either as an express condition upon which the corporation can legally transact its corporate business there or as a condition implied from provision made for service of process upon its agents in the state or upon an official designated for the purpose by statute."
If defendant had filed a formal appointment of the commissioner of securities as its process agent before it withdrew from the state, the appointment would have continued in effect after defendant's withdrawal from the state. Magoffin v. Mutual Res. Fund L. Assn. 87 Minn. 260, 91 N.W. 1115,94 A.S.R. 699. The rule is not different where the appointment arises from an estoppel rather than a writing. In Old Wayne Mut. L. Assn. v. McDonough, 204 U.S. 8, 27 S.Ct. 236, 240,51 L. ed. 345, a foreign insurance company which did business in Pennsylvania without complying with the statute by naming the designated state officer as its process agent for business done in that state was sued in Pennsylvania after it had withdrawn from that state on a policy issued in the state of Indiana and which was a transaction occurring in the last named state. Process was served on the state officer. While the service was held invalid, the court was very careful to bottom its decision upon the ground that jurisdiction failed not because the corporation had withdrawn from the state, but because the transaction sued on was not within the terms of the statute which limited jurisdiction to cases of transactions occurring within the state. With respect to the point of a noncomplying foreign corporation exercising the privilege of doing business in the state, Mr. Justice Harlan, speaking for the court, said:
"It is equally true that if an insurance corporation of another State transacts business in Pennsylvania without complying with its provisions it will be deemed to have assented to any valid terms prescribed by that Commonwealth as a condition of its right to do business there; and it will be estopped to say that it had not done what it should have done in order that it might *Page 440 
lawfully enter that Commonwealth and there exert its corporate powers."
This holding has been cited with approval in later cases. Minnesota Commercial Men's Assn. v. Benn, 261 U.S. 140,43 S. Ct. 293, 67 L. ed. 573; Pennsylvania F. Ins. Co. v. Gold Issue Min. Co. 243 U.S. 93, 37 S.Ct. 344, 61 L. ed. 610; Simon v. Southern R. Co. 236 U.S. 115, 35 S.Ct. 255, 59 L. ed. 492.
Where the rule is recognized that a noncomplying foreign corporation doing business in the state is estopped to deny the appointment of the statutory agent for service of process, service of process may be made on such agent and jurisdiction over the corporation acquired after it has withdrawn from the state. The withdrawal of the corporation from the state in such a case is just as ineffective to revoke the appointment of the statutory agent for service of process arising from estoppel as where the appointment was made in express terms by a writing. Darling Stores Corp. v. Young Realty Co. (8 Cir.)121 F.2d 112; Colorado Iron Works v. Sierra Grande Min. Co.15 Colo. 499, 25 P. 325, 22 A.S.R. 433; Ben Franklin Ins. Co. v. Gillett, 54 Md. 212; Yoder v. Nu-Enamel Corp. 140 Neb. 585,300 N.W. 840; Consolidated Flour Mills Co. v. Muegge,127 Okla. 295, 260 P. 745, reversed, 278 U.S. 559, 49 S.Ct. 17,73 L.ed. 505, on the ground only that the local statute did not provide for notice to the corporation; 18 Fletcher Cyc. Corp. § 8762. In 23 Am. Jur., Foreign Corporations, § 500, the text states the rule as follows:
"A foreign corporation which does business in a state the law of which provides that it shall be amenable to suit on causes of action arising out of the business done in the state, by service of process upon some person designated by statute, such as a state officer, cannot escape the jurisdiction of the local courts in such a suit by ceasing to do business in the state and withdrawing therefrom, and this is the general rule even though it was required to designate such person as its agent for the purpose and *Page 441 
failed to comply with the requirement or to consent in any manner to the statutory provisions."
In Proposed Final Draft, Restatement, Judgments (Part I, 3-31-42) § 219, d, states the rule:
"d. Ceasing to do business. A court may acquire jurisdiction over a non-resident who has done business within the State but has ceased to do business there at the time when the action is brought, as to causes of action arising out of the business done within the State, if at the time when the cause of action arose a statute of the State provided that non-residents by doing business there became subject to the jurisdiction of the State to that extent."
True, the statute of Iowa considered in the Darling Stores Corporation case provided that in case of failure to comply service might be made on the state officer as the statutory agent for service of process. But that circumstance was not a factor in decision. The court based its decision on estoppel to deny compliance and the binding effect of the estoppel as against the subsequent withdrawal from the state. The court said [121 F.2d 116]:
"In the case before us the fact of doing business in the state, and the necessity of compliance with the Iowa statute, was admitted by the application of Darling Shops, Inc., for, and its receipt and acceptance of, the permit granted. It could not absolve itself of the obligation assumed by withdrawal from the state after its breach of that obligation."
In the other cases cited the statute did not prescribe the effect of noncompliance.
The state's power to regulate the sale of securities, like that of regulating the use of highways, extends to residents and nonresidents, individual and corporate. An individual who enters the state and sells securities in violation of the state blue sky law thereby submits himself to the state's jurisdiction according to its *Page 442 
statutes. For example, where the statute so provided, service of process might be made on him by registered mail after he has left the state. Stevens v. Television, Inc. 111 N.J. Eq. 306,162 A. 248.
It is not important that our statute does not provide, as some statutes do, that doing business in the state by a foreign corporation shall be deemed a designation of the state officer as the statutory agent for service of process. Our decisions have supplied such a consequence in such cases without express statutory provision to that effect. Massey S. S. Co. v. Norske Lloyd Ins. Co. Ltd. 153 Minn. 136, 189 N.W. 714,supra; Braunstein v. Fraternal Union of America,133 Minn. 8, 157 N.W. 721, supra; Kulberg v. Fraternal Union of America, 131 Minn. 131, 154 N.W. 748, supra.
Decisions in other jurisdictions, where the statutes do not prescribe the consequence of noncompliance, like our own, attach such a consequence to doing business in the state without compliance. Morris  Co. v. Skandinavia Ins. Co. (7 Cir.) 81 F.2d 346; Diamond Plate Glass Co. v. Minneapolis Mut. F. Ins. Co. (C. C.) 55 F. 27; Ehrman v. Teutonia Ins. Co. (D.C.) 1 F. 471, supra; North American Union v. Oliphint, 141 Ark. 346, 217 S.W. 1, and the other cases citedsupra.
The majority relies principally on our decisions holding that, where jurisdiction is based upon presence of the corporation in the state, it must appear that the corporation was actually doing business in the state through its agents at the time of service. In this class are cases like American L. I. Co. v. Boraas, 156 Minn. 431, 195 N.W. 271, from which the majority quotes, and Louis F. Dow Co. v. First Nat. Bank,153 Minn. 19, 189 N.W. 653. There is a fundamental distinction, as we pointed out in Garber v. Bancamerica-Blair Corp. 205 Minn. 275, 285 N.W. 723, between service based on corporate presence in the state and service based on consent to be sued by service of process on a designated agent. In the former case, the presence of the corporation in the state by its officers and agents must exist as a fact at the time of service; otherwise there is no corporate presence. *Page 443 
In the case of consent the fact of consent at some time is all that is required. Once given, it remains effective regardless of whether or not the corporation afterwards withdraws from the state. Magoffin v. Mutual Res. Fund L. Assn. 87 Minn. 260,91 N.W. 1115, 94 A.S.R. 699, supra.
It is entirely unimportant whether or not a corporation which has consented to service of process on the statutory agent for service of process has withdrawn before service of process. In fact, the consent is exacted from the corporation as the condition of doing business here so that service may be had upon it after it has withdrawn from the state. Magoffin v. Mutual Res. Fund L. Assn. 87 Minn. 260, 91 N.W. 1115,94 A.S.R. 699, supra. Where the corporation is estopped to deny compliance, its subsequent withdrawal from the state does not prevent jurisdiction upon the ground of consent, as the authorities which have been cited demonstrate.
No serious question of due process is raised by the provisions of § 3996-11. The exaction, as a matter of law, of consent by a foreign corporation to the appointment of the commissioner of securities as agent for service of process as a condition of doing business within the state is a constitutional exercise of the state's police power. 23 Am.Jur., Foreign Corporations, § 495, note 9. Where the performance of an act within the state by a nonresident such as using of its highways or engaging in a business such as the sale of securities is subject to state regulation, the doing of such acts or the transaction of such business may be conditioned by the appointment by the nonresident of a state officer as process agent. Seitz v. Claybourne, 181 Minn. 4,231 N.W. 714; Schilling v. Odlebak, 177 Minn. 90, 224 N.W. 694; Stevens v. Television, Inc. 111 N.J. Eq. 306, 162 A. 248,supra. It makes no difference whether the appointment of the process agent designated by statute is by express consent, as by a writing, or is one resulting from doing of an act which by operation of law gives rise to such a result. "The difference between the formal and implied appointment is not substantial so far as concerns the application *Page 444 
of the due process clause of the Fourteenth Amendment." Hess v. Pawloski, 274 U.S. 352, 47 S.Ct. 632, 633, 71 L. ed. 1091. The procedural requirements of due process are satisfied by the provisions of the statute imposing the duty on the commissioner of securities to immediately forward by registered mail to the person served a duplicate of the papers served upon the commissioner. State of Washington ex rel. Bond  G.  T. Inc. v. Superior Ct. 289 U.S. 361, 53 S.Ct. 624, 77 L. ed. 1256, 89 A.L.R. 653. Parenthetically, it is in point to observe that the cited case sustains the view that where a corporation doing business in the state does not comply with the provisions for the appointment of a state officer as agent for the service of process, jurisdiction of the corporation may be acquired by service of process upon such officer after the corporation has withdrawn from the state, for in that case it was held that, since a corporation's entry into a state may be conditioned, its withdrawal therefrom may be conditioned also, and that, where the condition of withdrawal is the maintenance within the state of an agent for service of its choosing or the appointment of the secretary of state as the agent for service, the withdrawal of the corporation and its appointed agent estops it to deny the appointment of the secretary of state as its agent for service notwithstanding such estoppel did not arise until after the corporation has withdrawn from the state. Service of process on the secretary of state after the corporation's withdrawal from the state was held good. Here, the estoppel arose while defendant was present in the state.
According to my view, a nonresident's entry into the state and his selling of securities therein without having designated the commissioner of securities as his agent for service of process as required by § 3996-11 by operation of plain rules of law constitutes the commissioner the nonresident's agent for service of process. Such was the rule when L. 1941, c. 547, was enacted. Hence that statute did not change the existing law. If anything, it simply made more explicit what already was plain enough. The 1941 statute undoubtedly was occasioned by the decision of *Page 445 
the federal court in Sivertsen v. Bancamerica-Blair Corp. (D. C.) 43 F. Supp. 233, construing § 3996-11 contrary to the views expressed above. It is clear to me, and I say it with all due deference, that the federal court erred. The legislature evidently did not want the error repeated in subsequent cases. The purpose of the 1941 statute was to make the legislative intention more clear. There is no reason why a statute should not be so plain that no one can mistake its meaning.
Consequently, I think the court below erred and should be reversed.