Court Opinion

ID: 9850959
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:04:58.879762+00
Date Added: 2024-06-11T09:20:46.133896
License: Public Domain

CORCORAN, Judge,
dissenting:
I respectfully dissent from that portion of the opinion that concludes that Arizona’s interest in its business reputation is insufficient to justify the incidental burden imposed on interstate commerce by the Arizona Securities Act. I would uphold the trial court’s conclusion that “Arizona has a sufficient state interest in the issuance of securities by a company with a base of operations in the state, even though it was incorporated in the State of Delaware so that Arizona’s prohibition of the sale of Media Products stock in other states is not an impermissible burden on interstate commerce in contravention to the United States Constitution.”
The facts cited by the majority to conclude that the offering and sale of the stock were “from” Arizona within the meaning of A.R.S. § 44-1841 also support the legitimate state interest Arizona has in requiring registration under these facts. Arizona is not only the corporation’s principal place of business or “base of operations,” but is also the corporation’s only place of business. Media Products has no headquarters outside of Arizona. It is an “Arizona” enterprise.
Furthermore, all the important aspects of the transaction took place in Arizona: the terms of the sale were formed here; the escrow was set up and closed here; and all the stock was issued from Arizona. The corporation’s entire existence centers around Arizona; its formal incorporation in Delaware gives it only the most tenuous and fictional relationship with that state. The impression afforded the corporation’s nonresident investors under these circumstances is that they are investing in a de facto Arizona corporation. Additionally, if litigation results from this securities transaction, the courts of Arizona may be called upon to host the proceedings. Arizona will have redressive jurisdiction; it should also have preventive jurisdiction.
This is not a case where regulation is excessive because the state has no local interest in protecting nonresident investors. Cf. Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982). Here, the state’s legitimate local interest is in protecting its business reputation. The state’s interest in preventing its territory from being used as a base of operations for unregulated transactions has been widely recognized under federal securities law. See 12 J. Long, Blue Sky Law § 3.04[3][a] at 3-46 (rev. ed. 1987), and cases cited therein. Professor Long relates circumstances in the 1970s that gave Tennessee a “black eye” in the municipal bond industry, gave Oklahoma and Texas a bad name in the oil and gas lease market, and allowed Utah to become known as a “cesspool of securities fraud.” Id. Professor Long concludes that “the host state has an interest in protecting its reputation as not being a center for illegal or questionable securities activity.” Id.
Under the specific facts of this case, I would hold that Arizona had a sufficient *471interest in its business reputation among the nonresident purchasers of Media Products stock to justify its regulation of the offering and sale of that stock under the Securities Act. I would affirm on that basis.