Wolken v. Erck

HENDERSON, Justice

(specially concurring).

This appeal pertains to the sale of unregistered securities in the State of South Dakota and is governed by SDCL ch. 47-31 of the South Dakota Codified Laws.

This Court has heretofore ruled on the intent of this chapter, expressing in Hofer v. General Discount Corp., 86 S.D. 133, 139, 192 N.W.2d 718, 722 (1971), that “statutes governing the registration and sale of securities are remedial in nature and are designed to protect the unwary buyer and thus should be liberally construed to effect the purpose for which the statutes were adopted.” Here, plaintiffs/WoIkens, as father/son team, purchased ten and one-third shares of VMI stock (stock in a gold mine) in March 1982 for a total purchase price of $124,000. After hearing all of the evidence in a hotly contested trial, the jury determined that plaintiffs were entitled to recover for only their first purchase of two shares for $24,000 purchased on March 11, 1982. So this jury ferreted out the facts. It is obvious that the jury placed great emphasis on a commitment to two shares of stock at $12,000 each as distinguished from 8.33 additional shares purchased for the sum of $100,000. Activity and participation in the management of this corporation of the Wolkens and their serving as corporate directors and officers evidently influenced this jury. For the record, the court entered a judgment for $24,000 (less an off-set) and, additionally, $16,755.36 in prejudgment interest and $4,500 in attorney fees.

Appellant protected the record by these procedures: he made a motion for directed verdict (denied) and a motion for judgment notwithstanding the verdict (also denied).

As the majority opinion points out, in essence, the question before this appellate body is: Did the trial court err, to rule as a matter of law, that appellees should be estopped from recovering or acted in pari delicto with appellant? It is extremely important, in these type of actions, to mention that the defenses of estoppel or acting in pari delicto are available depending upon the facts of each case. This principle is announced by many authorities and quite aptly in Midwest Management Corp. v. Stephens, 291 N.W.2d 896, 908 (Iowa 1980). See also Winfred Farmers’ Co. v. Smith, 47 S.D. 498, 500, 199 N.W. 477, 477 (1924). I should mention that SDCL 47-31-133 had *67not been enacted at the time of the Winfred Farmers’ decision, but it is some general South Dakota authority on this subject.

Perhaps the “Wolkens were not sophisticated investors” as suggested by the majority opinion; nevertheless, I feel it incumbent to point out that the Wolken family made another appearance before us concerning the rescission of an offer and agreement to purchase a different gold mining operation. Wolken v. Wade, 406 N.W.2d 720 (S.D.1987).

In denying the motion for directed verdict on behalf of defendant Erck, the trial judge noted the conflicting evidence and spread upon the record his comments as to why he was denying the motion for directed verdict in most explicit and reasoned language, reflecting that the case boiled down to a credibility question and as to which witnesses the jurors were going to believe. This is the basic reason I have quoted the 1980 Iowa Supreme Court case. Instructing on the defenses of estoppel and in pari delicto, the trial judge gave the defendant a fair shot at his two major defenses, but, under the facts, the jury said they did not wash. Judge Grosshans’ basic instructions on these two defenses are found in Instructions 1 through 26. The Court, very thoroughly, explained the defense of estoppel, and I note that it was the Wolkens (who prevailed) who objected thereto — not Erck/appellant. Judge Gros-shans explained the doctrine of in pari de-licto in Instruction 25; and, in Instruction 26, the jury was instructed on factors which they could consider as guidelines, instructing them that they were not to emphasize any one particular factor, but, rather, to weigh all of the factors in relationship to the evidence presented. Furthermore, the trial judge explained the differences in these two defenses. See collection of cases under Annot., 84 A.L.R.2d 479 (1962). Erck/appellant seemed to have no doubt that the instructions were a proper statement of the law; hence, it was an old story unfolding in the courtroom, namely: The jury had to apply the facts to the trial judge’s instructions.

In sum, (1) this stock was not registered under SDCL ch. 47-31, (2) there was a sale under SDCL ch. 47-31, (3) Erck/appellant admits he participated and/or aided in the sale of the stock to Wolkens, and, finally, (4) SDCL 47-31-133 creates liability upon a broker who is actively involved in the purchase/sale of such unregistered securities.