Summary
holding that, if possible, statutes must be construed by the court so that they do not violate the Constitution
Summary of this case from State ex rel. Union Elec. Co. v. Pub. Serv. Comm'n of StateOpinion
December 31, 1930.
1. SECURITIES ACT: Investigation: Judicial in Nature. The proceeding under Section 23 of the Securities Act (Laws 1925, p. 343) is judicial in its nature.
2. ____: ____: Hearing: Reasonable Notice: Due Process. Section 23 of the Securities Act provides for a hearing and reasonable notice of the charges, and a hearing presupposes the existence of charges, and reasonable notice implies that the accused dealer in securities be previously and officially informed of the charges against him in a proceeding to revoke his license; otherwise, the section would be violative of the due-process clause of the Constitution.
3. ____: ____: Charges: Insufficient Notice. A notice directed to dealers in securities, charging that they have refused to cooperate with the Commissioner of Securities in the examination of their books, papers and records in order that it may be determined whether they have or are now violating the Securities Act, and commanding them to appear before the Commissioner and show cause why their registration as dealers in securities should not be revoked under the provisions of Section 23 of said act for the causes named in paragraphs numbered 1, 3 and 5 of said section, contains no charges, and the notice is not reasonable notice. The reference to certain paragraphs of Section 23 is not reasonable notice of the charges against the dealers, and is not sufficient information to the dealers of the charges they will be required to meet at the hearing.
4. SECURITIES ACT: Investigation: Charges: Insufficient Notice: Prohibition. A contemplated hearing before the Commissioner of Securities without reasonable notice to the accused dealers in securities is in excess of his authority, and will be prevented by the writ of prohibition.
PRELIMINARY RULE MADE ABSOLUTE.
Fordyce, Holliday White and Thompson, Mitchell, Thompson Young for relators.
(1) The proceeding contemplated by the notice of the Commissioner of Corporations is judicial in its nature. State to use v. Fry, 4 Mo. 121; State ex rel. Guaranty Co. v. Harty, 276 Mo. 597; Merlette v. State, 100 Ala. 44; Grider v. Tally, 77 Ala. 424; State ex rel. Brewen-Clark Syrup Co. v. Missouri Workmen's Compensation Commission, 320 Mo. 893, 8 S.W.2d 897; State ex rel. Gallagher v. Kansas City, 319 Mo. 705, 7 S.W.2d 357. (2) The proceeding contemplated by such order is in excess of the Commissioner's authority, because: (a) It seeks to deprive relators of a valuable property right without due process of law, in violation of relators' constitutional rights: Abrams v. Daugherty, 60 Cal.App. 798, 212 P. 942; In re Rosser, 101 F. 562; In re Wood, 210 U.S. 246; Michigan Trust Co. v. Ferry, 175 F. 667; State ex rel. Shackleford v. McElhinney, 241 Mo. 592; Ex parte Robinson, 19 Wall. 513, 22 L.Ed. 205; State ex rel. Hurwitz v. North, 304 Mo. 607; State v. Schultz, 11 Mont. 429, 28 P. 643; Dyment v. Board of Medical Examiners, 57 Cal.App. 260; Abrams v. Jones, 35 Ida. 532, 207 P. 724; Nothern Cedar Co. v. French, 131 Wn. 394, 230 P. 837; Brecheen v. Riley, 187 Cal. 116, 200 P. 1042; Braucher v. Board of Examiners, 209 Ill. App. 455. (b) It contemplates unreasonable search and seizure, in violation of relators' constitutional rights, and is so broad in its scope as to be beyond the jurisdiction of respondents: Ex parte Brown, 72 Mo. 83; State ex rel. v. Wurdeman, 176 Mo. App. 540; State ex inf. v. Continental Tobacco Co., 177 Mo. 1; State ex inf. v. Standard Oil Co., 194 Mo. 124; State ex rel. v. Trimble, 254 Mo. 542; Dowden v. Walrus Mfg. Co., 199 Mo. App. 657; State ex rel. Railroad v. Wood, 316 Mo. 1032. (3) Prohibition is the proper remedy, because: (a) Prohibition lies whenever any officer or body is attempting to exercise any judicial function in excess of the jurisdiction authorized by law: State ex rel. v. Elkins, 130 Mo. 90; State ex rel. Fidelity Guaranty Co. v. Harty, 276 Mo. 583; State ex rel. Gallagher v. Kansas City, 319 Mo. 705, 7 S.W.2d 357; State ex rel. Brewen-Clark Syrup Co. v. Missouri Workmen's Compensation Commission, 320 Mo. 893, 8 S.W.2d 897. (b) Relators are without proper or adequate remedy other than by prohibition: State ex rel. v. Elkins, 130 Mo. 90; State ex rel. v. Shelton, 238 Mo. 281; State ex rel. v. Terminal Railroad Assn., 237 Mo. 109; State ex rel. v. Workmen's Compensation Commission, 320 Mo. 893; State ex rel. v. Wood, 316 Mo. 1032.
Stratton Shartel, Attorney-General, and Walter E. Sloat, Assistant Attorney-General, for respondents; L. Cunningham of counsel.
(1) Respondents admit the principle of law as laid down under point one of relators' brief, and further admit that the authorities cited therein sustain the proposition that the proceeding contemplated by the Securities Commissioner is in fact judicial in its nature. (2) The proceeding contemplated however is not in excess of the Commissioner's authority if the law under which he is operating is constitutional. Relators were advised by written notice to appear before the Commissioner for an investigation of their books. The notice set out three reasons for the investigation. If relators could be heard to complain that the first two charges in the notice were uncertain and indefinite the same complaint could not be heard as to the third charge. The notice plainly stated one of the causes of the investigation was to ascertain whether or not the companies were insolvent. This notice complied with the due-process clause of the Constitution. (a) The word "insolvency" has a clear and well defined meaning. Trepp v. Glass Co., 297 S.W. 110; Evans v. Fire Brick Co., 204 S.W. 834; Gill v. Safe Co., 170 Mo. App. 486; Mitchell v. Bradstreet Co., 116 Mo. 240. "Due process" has always been defined as the law of the land. St. Louis v. Mo. Pacific Ry. Co., 211 S.W. 672; McManus v. Burrows, 217 S.W. 514; State v. Broaddus, 289 S.W. 795; Ivie v. Bailey, 5 S.W.2d 54. Due process of law is governed by the various states so long as the Federal Constitution is not involved. Walker v. Sauvinet, 92 U.S. 90. A hearing before a commission after notice has been served is not in violation of the due-process clause. State ex rel. Hurwitz v. North, 264 S.W. 681. (b) Relators' rights are not violated by unreasonable search and seizure when they are ordered to produce their records. A corporation stands in a vastly different position than does an individual. This rule should necessarily apply the same to a company doing business as a co-partnership. State ex inf. Hadley v. Standard Oil Co., 218 Mo. 375; Hammond Packing Co. v. Arkansas, 212 U.S. 347; Consolidated Rendering Co. v. Vermont, 207 U.S. 553; Hale v. Henkel, 201 U.S. 69. The constitutional provision relative to search and seizure relates to search and seizure in houses and among private papers under general and indefinite warrants. In re Conrades, 112 Mo. App. 41. Papers or books material to the issues can always be ordered produced by the questioning body. State ex rel. Railroad Co. v. Wood, 316 Mo. 1039. (3) The Supreme Court will not exercise jurisdiction in prohibition except on a clear showing of lack of jurisdiction in the inferior court or body as a matter of law as distinguished from a matter of fact, and when the ordinary remedies by appeal, writ of error or certiorari are absent. State ex rel. Warde v. McQuillin, 262 Mo. 256. Section 21 of the Securities Act, Laws 1929, p. 406, provides a complete and adequate appeal to the Circuit Court of Cole County, from all orders of the Commissioner of Securities. A writ of prohibition does not lie to restrain legislative, executive, or administrative action. State ex rel. McEntee v. Bright, 224 Mo. 527; State ex rel. v. Goodier, 195 Mo. 561.
Original proceeding in prohibition. Cause submitted on the pleadings. The Secretary of State, prior to May 10, 1930, directed the Commissioner of Securities to investigate all dealers in securities in St. Louis, to determine if they had been or were violating the Securities Act. They contend that relators refused to cooperate with the Commissioner and his agents in an examination of relators' books and papers.
Relators offered to furnish any material information the Commissioner desired, and offered to permit an examination of books and records material to any question arising under the Securities Act. However, there being no provision requiring them to pay the expense of an investigation, they refused to do so. To this extent they refused to cooperate.
Respondents proceeded by authority of Section 15 of the act, which in part follows:
"Commissioner may make investigations and hold public hearings. — In carrying out the provisions of this act the commissioner may make such investigations and hold such public hearings at such time and place and upon such reasonable notice as the commissioner may fix, and may appoint agents to make investigations, who shall have power to administer oaths, examine witness and take testimony. It shall be the duty of all officers of the State of Missouri charged with the enforcement of criminal law to render and furnish to the commissioner, when requested, all information and assistance in their possession or within their power. The commissioner may by summons require the attendance and testimony of witnesses and the production of books or papers before him relating to any matter of which he has jurisdiction under this act. Such summons may be issued by the commissioner. They shall be served in the same manner as summonses for witnesses in causes issued on behalf of the State of Missouri, and all provisions of law relative to summonses issued in such cases shall apply to summonses issued under this act, so far as applicable. The commissioner shall have power to administer oaths. In case of disobedience to a subpoena, the commissioner, or any party to a proceeding before the commissioner, may invoke the aid of the circuit court of any county of the state or the city of St. Louis, and such court may thereupon issue an order requiring the attendance, and testimony of witnesses and the production of books, papers, and documents under the provisions of this section. Any failure to obey such order of the court may be punished by such court as a contempt thereof."
Thus it appears that respondents could, by invoking the aid of the circuit court, compel the production of books and records tending to show the business condition and conduct of relators as investment bankers and brokers. Instead of so proceeding, respondents, no doubt for reasons satisfactory, treated relators' alleged refusal to cooperate as a contempt of the State Department, and proceeded to punish relators by attempting a proceeding against them under Section 23 of the act. In so doing, on May 10, 1930, they caused to be served on each of relators a notice, a copy of which follows:
"Whereas, it has been charged that you and your agents have violated and are violating the provisions of an act of the 55th General Assembly of Missouri, entitled `An act to repeal an act of the 52nd General Assembly, 1923, entitled "Finance Department of: Relating to sale or disposition of securities in state and providing penalty for violation of act," approved April 2, 1923, found at pages 200 and 218, inclusive, Laws of Missouri, 1923, as amended by an act of the 53rd General Assembly, 1925, entitled: "Secretary of State: Relating to sale or disposition of securities in state and providing penalty for violation of act," approved April 3, 1925, and found at pages 339 to 343, inclusive, Laws of Missouri 1925, and to enact in lieu thereof a new act, pertaining to the same subject,' approved by the Governor June 8, 1929, and commonly known as the Missouri Securities Act, pages 387 to 412, inclusive, Laws of Missouri. 1929, by the sale and disposition of securities in the State of Missouri contrary to and in violation of said act, and
"Whereas, you have refused to cooperate with the Commissioner of Securities of the State of Missouri and his agents and representatives in the examination of your books, papers and records in order to determine whether or not you have or are now violating the Missouri Securities Act.
"You are therefore notified and directed to be and appear before the undersigned Commissioner of Securities of the State of Missouri at room 204 in the State Capitol Building in the city of Jefferson, County of Cole and State of Missouri, at ten o'clock A.M. on Thursday, the 15th day of May, 1930, then and there to produce for examination and use in evidence all of your books, papers and records in regard to and concerning your transactions and sales of securities in the State of Missouri during the years 1929 and 1930 in order that it may be ascertained and determined by said Commissioner whether or not you have violated or are now violating said act, and to show cause why your registration as a dealer in securities in the State of Missouri should not be revoked under the provisions of Section 23 of said act for the causes named in paragraphs numbered 1, 3, and 5 of said section, as provided by law."
Thereafter, and on May 12, 1930, relators made written demand on the Commissioner of Securities to be informed as to the nature of the charges, that they might prepare their defense. He answered by referring them to the notice for such information. Respondents then indicated that a hearing under said notice would be held and they state in their return that they would have proceeded with a hearing to final determination but for our rule in prohibition.
Relators contend the proceeding under Section 23 is judicial in its nature. Respondents so admit, and the contention is sustained by authorities as follows: State to use v. Fry, 4 Mo. l.c. 121; State ex rel. Guaranty Co. etc. v. Harty, 276 Mo. 597; Merlette v. State, 100 Ala. l.c. 44; Grider v. Tally, 77 Ala. l.c. 424; State ex rel. Brewen-Clark Syrup Co. v. Missouri Workmen's Compensation Commission et al., 320 Mo. 893, 8 S.W.2d 897; State ex rel. Gallagher v. Kansas City et al., 319 Mo. 705, 7 S.W.2d 357.
The proceeding being judicial in its nature, relators contend the notice is not "reasonable notice" within the meaning of Section 23 of the Act. It is therein provided as follows:
"Registration of dealers and salesmen may be refused — revoked — what conditions. — Registration under Section 22 may be refused or any registration granted may be revoked by the commissioner if after a reasonable notice and a hearing the commissioner determines that such applicant or registrant so registered:
"(1) Has violated any provision of this act or any regulation made hereunder; or
"(2) Has made a material false statement in the application for registration; or
"(3) Has been guilty of a fraudulent act in connection with any sale of securities, or has been or is engaged or is about to engage in making fictitious or pretended sales or purchases of any of such securities or has been or is engaged or is about to engage in any practice or sale of securities which is fraudulent or in violation of the law; or
"(4) Has demonstrated his unworthiness to transact the business of dealer or salesman; or,
"(5) Is insolvent."
The notice is a double-barreled effort. It orders the production of books and papers and orders relators to show cause why their licenses should not be revoked under Section 23 for causes named in paragraphs 1, 3 and 5 of said section. It contains no charges, and the Commissioner did not furnish such information. How could they show cause without official information as to the charges? A hearing presupposes the existence of charges. There could be no hearing without charges. Therefore, it seems clear that the Legislature intended "reasonable notice" to include information as to the charges. If the words "reasonable notice" as used do not include such information, then the section is in violation of the due-process clause of the Constitution. [In re Rosser, 101 F. 562, l.c. 567; Dyment v. Board of Medical Examiners, 207 P. 409, l.c. 411, 412; Abrams v. Jones, 207 P. 724, l.c. 726; State v. Schultz, 28 P. 634; Ex parte Robinson, 86 U.S. 505; 6 R.C.L. 446; 12 C.J. 1232.] It must be presumed that the Legislature, by providing in Section 23 for a hearing on "reasonable notice," did not intend to violate the Constitution.
We understand respondents to concede that "reasonable notice" includes information as to the nature of the charges, but they contend that reference in the notice to certain paragraphs of Section 23 was "reasonable notice" within the meaning of the section. We do not think so. One proceeded against under the section must be advised of the charges by "reasonable notice." It could not have been the intention of the Legislature that persons who might be proceeded against should carry with them pocket editions of the act that they might be advised of the charges by referring to the statute. The contemplated hearing without "reasonable notice" is in excess of the Commissioner's authority, and our rule should be made absolute. It is so ordered. All concur.