Court Opinion

ID: 9728386
Source: CourtListenerOpinion
Date Created: 2023-08-26 14:06:37.394086+00
Date Added: 2024-06-11T18:25:48.250451
License: Public Domain

SCOTT, Justice
(dissenting).
I respectfully dissent. The adoption of an equitable estoppel defense in the context of the instant cases severely undermines the legislation regulating the sale of securities.
The purpose of our Blue Sky Law is to prevent sale to the public of various types of securities until authorities with particular expertise are able to review the proposed offering and determine whether it presents a fair opportunity of investment. Such a system protects the public against money-making schemes which are downright unscrupulous as well as plans of investment which, although not fraudulent, may be unsound. See, e. g., State v. Hofacre, 206 Minn. 167, 288 N.W. 13 (1939); State v. Gopher Tire and Rubber Co., 146 Minn. 52, 177 N.W. 937 (1920); Perlman, A Critical Analysis of the Registration Provisions of the Minnesota Securities Act, 56 Minn.L.Rev. 523 (1972). To effectuate this policy, the legislature has provided for penalties against those who violate the Blue Sky Law. In addition to being subject to criminal sanctions, see, Minn.St. 80A.22, a seller who fails to comply with the securities legislation is liable to an innocent purchaser for recission or damages. Minn.St. 80A.23, subd. 1; McCauley v. Michael 256 N.W.2d 491 (Minn.1977).
The majority, by fashioning an exception to this statutory liability in the form of an estoppel defense, subverts the legislature’s purpose in this entire field. The very person sought to be protected, the investor, is denied recovery while the individual violating the law escapes liability. This result neither serves to compensate the innocent purchaser nor does it deter future violations of the Blue Sky Law. In fact, the majority decision could prompt clever promoters of questionable investments to ignore the Blue Sky regulations and, instead, encourage an investor to participate in the management of the company so that an estoppel defense could later be established. Clearly, use of estoppel as a defense in the instant actions is inconsistent with the express terms of the statute, as well as the policy underlying our Blue Sky Law. This law should be strictly enforced, and legal exceptions kept to a bare minimum.
A similar conclusion was reached in Covert v. Cross, 331 S.W.2d 576 (Mo.1960). In that case, an action was brought under the Missouri Blue Sky Law. The trial court refused to instruct the jury on the basis of estoppel and the Missouri Supreme Court affirmed by reasoning as follows:
“We think it is clear that the theory of estoppel sought to be presented by defendants-appellants would tend to nullify *365and defeat the very purpose of the statute, which is clearly penal in nature. It is immaterial whether or not there was evidence to support [an estoppel instruction]. The Act was passed to protect investors against their own weaknesses and to prevent the happening of such losses as are shown by this record. If plaintiffs’ evidence brings their case within the provisions of the statute, they are entitled to recover. The acts relied upon constitute no defense to this action.” 331 S.W.2d 585 (citations omitted).
See, also, Schvaneveldt v. Noy-Burn Milling & Processing Corp., 10 Utah 2d 1, 347 P.2d 553 (1959); Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704, 59 A.L.R.2d 1011 (1956).
The majority indicates that an estoppel defense should be adopted “to ease the sometimes harsh effects of the blue sky laws in situations where no actual fraud is present.” This argument should not prevail. As mentioned previously, Minnesota’s Blue Sky Law is not only intended to protect the public against fraudulent moneymaking schemes, but also to shield an investor against unsound plans of investment. See, e. g., State v. Gopher Tire and Rubber Co., supra. Indeed, for a purchaser to recover under § 80A.23, subd. 1, he need not show a fraudulent intent on the part of the seller. Thus, the absence of a showing of fraud is not a proper consideration for giving relief to one who violates the Blue Sky Law.
Based on the foregoing, I believe that estoppel should not be recognized as a defense to an action brought under our securities legislation. Even assuming, arguendo, that such a defense were proper as a matter of law, it is difficult to see how the facts of the instant cases support invocation of the doctrine. Panuska can by no means be considered as having “clean hands.” He was actively involved in the solicitation and sale of the stock to the investors in question. At the time, the company was experiencing financial difficulties of which he was undoubtedly aware. The record discloses that at least some of the investors were not informed of these financial problems prior to the time they invested. Panuska retained complete control over the operation of the restaurant and any input from the other partners was, according to Panuska, merely “advisory.” The evidence also indicates that any participation by the investors in the management of the restaurant was undertaken out of a desire to safeguard their investments. Consequently, on balance the equities weigh in favor of the investors and thus, as a factual matter, no basis seems to exist for an estoppel defense in these cases.
For the above reasons, and since there is no merit to the other issues raised by Pa-nuska, I would affirm Logan v. Panuska and reverse Krueger v. Panuska.