The opinion
WOODS, Circuit Judge
(dissenting). The question to be decided under this application for a temporary injunction is whether the enforcement of the statute of West Virginia approved February 11, 1913, known as the “Blue Sky Daw,” will violate the rights of the plaintiffs under the Constitution of the United States. The plaintiff Howie Mining Company is an Arizona corporation with an authorized capital in preferred stock of 300,000 shares and common stock of 1,700,-000 shares, all of the par value of one dollar each. Its property consists of mining property in North Carolina alleged to be of great value, conveyed to the company by Smith H. Bracey in consideration of the issue to him of all the stock both common and preferred, except four shares. The plaintiff Bracey sold some of his holdings to the other individual plaintiffs, with an undertaking on the part of .Bracey and his wife to take the stock back at an advance of 10 per cent., if so requested at the end of a year. Bracey and these purchasers from him having offered stock of the company for sale in West Virginia, prosecutions were commenced and others theatened against them under the statute making a criminal offense the offering for sale of such stock without having filed a statement of its affairs with the State Auditor as required by the statute, and without having obtained from him the certificate provided for by section 5 of the act, to the effect that the company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business, and proposed contract or securities contain and provide for a fair, just, and equitable plan for the transaction of business, and in h'is judgment promises a fair return on the stocks, bonds, debentures, and other securities by it offered for sale.
Thereupon this action was brought to enjoin the prosecution on the ground that the statute is unconstitutional for these reasons:
(1) By its enforcement the plaintiffs and others in like situation will be deprived of liberty and property without due process of law.
(2) The attempt is made to confer on the auditor legislative power.
*497 (3) The attempt is made to confer on the auditor both legislative and judicial powers in violation of the Constitution of West Virginia.
(4) It denies to the plaintiffs and other citizens the equal protection of the laws.
(5) It materially and directly burdens interstate commerce.
The force of these objections depends chiefly on the construction of the statute. If it means that no corporation, copartnership, or individual, a citizen of West Virginia or other state, can give his or its note or other obligation or sell any security he or it may have acquired in the course of business, without a certificate of solvency, of fair transaction of business, and promise of a fair return on the paper, it would be so obviously subversive of the right to acquire and sell property that its validity would hardly be asserted in any court. Indeed, nothing but language which admitted of no other construction should induce a court to impute to the Legislature the intention to do a thing so arbitrary and unreasonable. When the language of this statute is considered in view of the evil which the Legislature intended to prevent, I think the objections to it will fail. The principle that courts must reject construction of a statute, which would malee it inconsistent with the Constitution if consistency with the Constitution can be found in any other reasonable construction, applies with especial force in the consideration of statutes which are intended to protect the public from prevalent frauds or to remedy evil conditions affecting the public. Courts must also recognize in such an issue the civic aspiration of enlightened people of our land, as it is expressed in legislative action by providing laws which will protect the community by holding back the evil-minded from crime, rather than by mere provision for punishment after its commission. The laudable desire and effort to this end has resulted in the enactment of many laws which seem to be novel in their scope. But novelty does not argue unconstitutionality. The power of the courts to declare such statutes invalid should be exercised with great caution, and the presumption is always in favor of the validity of the regulations they prescribe. They should not be declared void unless they clearly go beyond the evil to be remedied and so constitute a clear invasion of the rights of the citizen. What business is effected with a public interest, and therefore the proper subject of police regulation, is primarily a matter for legislative determination. Giozza v Tiernan, 148 U. S. 657 , 13 Sup. Ct. 721, 37 L. Ed. 599 , Rippey v. Texas, 193 U. S. 504 , 24 Sup. Ct. 516, 48 L. Ed. 767 .
The statute here involved was intended to prevent, or at least check, one of the most generally recognized and harmful evils of economic life. With increasing facilities of communication all sorts of fraudulent and visionary schemes are imposed on the public by selling stocks, bonds, and other papers, in form of securities, calling for returns on the investment. Nothing seems plainer than the right of the Legislature under the police power to provide by statute a reasonable method of having these schemes examined into by some public authority and requiring those who would sell to the public securities based on them to make a showing of good faith, solvency, and a reasonable chance *498 of return on the investment. This I think is all that the Legislature of West Virginia has undertaken to do. The validity of similar legislation has been so often sustained that citation of authority seems hardly necessary. On the same principle rests the regulation of railroads by commissions, the inspection of meat, the condemnation .of impure food, examination and inspection of cattle and fertilizers, examination and regulation of insurance companies and their contracts, the inspection and regulation of markets and mines, and the regulation of the business of labor agents, and of certain classes of banks. The police power of a state extends to all regulations of its internal commerce designed to promote the public convenience or to prevent imposition or fraud, as well as those designed to promote public health, public morals, or public safety; and this, too, though the regulations described may incidentally affect interstate commerce provided Congress has not acted in the particular matter. Savage v. Jones, State Chemist of State of Indiana, 225 U. S. 501 , 32 Sup. Ct. 715, 56 L. Ed. 1182 ; Lemieux v. Young, Trustee, 211 U. S. 489 , 29 Sup. Ct. 174, 53 L. Ed. 295 ; Booth v. Illinois, 184 U. S. 425 , 22 Sup. Ct. 425, 46 L. Ed. 623 ; Chicago, etc., Ry. Co. v. Drainage Commissioners, 200 U. S. 562 , 26 Sup. Ct. 341, 50 L. Ed. 596 , 4 Ann. Cas. 1175; Wilmington Star Mining Co. v. Fulton, 205 U. S. 60 , 27 Sup. Ct. 412, 51 L. Ed. 708 ; Bacon v. Walker, 204 U. S. 311 , 27 Sup. Ct. 289, 51 L. Ed. 499 ; Williams v. Fears, 179 U. S. 270 , 21 Sup. Ct. 128, 45 L. Ed. 186 ; Broadnax v. State of Missouri, 219 U. S. 285 , 31 Sup. Ct. 238, 55 L. Ed. 219 ; Natal v. Louisiana, 139 U. S. 621 , 11 Sup. Ct. 636, 35 L. Ed. 288 ; Slaughter House Cases, 16 Wall. 36 , 21 L. Ed. 394 ; Assaria State Bank v. Dolley, 219 U. S. 121 , 31 Sup. Ct. 189, 55 L. Ed. 123 ; Savage v. Jones, 225 U. S. 501 , 32 Sup. Ct. 715, 56 L. Ed. 1182 ; Simpson v. Kennedy, 230 U. S. 352 , 33 Sup. Ct. 729, 57 L. Ed. 1511 , 48 L. R. A. (N. S.) 1151. In Patapsco Guano Co. v. North Carolina, 171 U. S. 345 , 18 Sup. Ct. 862, 43 L. Ed. 191 , the court says:
“Where the subject is of wide importance to the community, the consequences of fraudulent practices generally injurious, and the suppression of such frauds matter of public concern, it is within the protective power of the state to intervene.”
The statute is to be analyzed and tested by these principles.
The first section provides:
“Every corporation, every copartnership, every company, every individual and every association * * * organized in this state, whether incorporated or unincorporated, which sell or negotiate for the sale of any stocks, bonds, debentures or other securities of any kind or character other than the bonds of the United States; or of some county, district or municipality of the state of West. Virginia, and notes secured by mortgage on real estate located in this state. * * -* shall be known for the purpose of this act as a domestic investment company. Every such investment company organized in any other state * * * shall be known for the purpose of this act, as foreign investment company.”
Section 2 requires that before offering or attempting to sell any stocks, bonds, debentures, or other securities of any kind or character, other than those specifically exempted in section 1 of this act, to *499 any person or persons, or transacting any business in this state, the investment company shall file a statement of its condition and affairs with the auditor of the state.
Section 5 provides:
“It shall be the duty of the auditor to examine the statement and documents so filed, and if said auditor shall deem it advisable he shall have made a detailed examination of such investment company’s affairs, which examination shall be made under the supervision of said auditor, and such examination shall be at the expense of such investment company, as hereinafter provided. And if the said auditor, upon his investigation, finds that such investment company is solvent, that its articles of incorporation or association, its constitution and by-laws, its proposed plan of business and proposed contract or securities contain and provide for a fair, just and equitable plan for the transaction of business, and in his judgment promises a fair return on the stocks, bonds, debentures and other securities by it offered for sale, said auditor shall issue to such investment company a statement reciting that such company has complied with the provisions of this act; that detailed information in regard to the company and its securities is on file in the auditor's office for public inspection and information; that such investment company is permitted to do business in this state; and such statement shall also recite in bold type that such auditor in no wise recommends the securities to be offered for sale by such investment or security company.”
It is then provided that if the auditor shall make an adverse finding on the matters of solvency, fairness, or the plan of business and the promise of a fair return on the stocks, etc.., it shall be unlawful for the investment company to do business in the state until it makes such changes as shall satisfy the auditor that it meets the requirement of the law. The act then provides a penalty against—
“any person or persons, agent or agents, who shall sell or attempt to sell, or who shall offer for sale In this state any of the stocks, bonds, debentures or any other securities of any investment company, domestic or foreign, which has not obtained the statement provided for in section five, or the stocks, bonds or other securities of other concerns by it offered for sale, who have not complied with the provisions of this act, or any investment company, domestic or foreign, which shall do any business, or offer or attempt to do any business,” without complying with its requirements.
In the first place, it seems quite clear that the statute is limited in its application to corporations, and to individuals acting in concert by organization — that is, by making a whole of interdependent parts — ■ and was not intended to apply to a single individual conducting his own business. This is apparent from the use of the limiting adjective “organized,” used in the first section of the act. Neither the absurdity of calling a single individual a company, nor the impossible thing of legislating against his doing acts when “organized,” could have been intended. Not only do the words of the first section exclude the individual, but the text of the entire statute indicates an intention to apply and limit the legislation to business organizations or combinations of a number of persons. -By sections 3 and 5 the application of the law is clearly limited to those who are associated together under some sort of articles or agreement of association. It is true that the first section of the statute in designating those to be subject to its provisions uses the singular “individual”; but under the well-known rule the court should hold the plural to have been intended when that construction is required by the context as in this instance, and especial *500 ly where it will aid in sustaining the validity of the statute. People v. Aurora, 84 Ill. 157 ; Ellis v. Whitlock, 10 Mo. 781 .
It is next to be observed that the statute does not restrict the borrowing of money or even relate to the borrowing or lending of money, but regulates, for the protection of the public, the business of those organized combinations of individuals “which sell or negotiate for the sale of any stocks, bonds, debentures, or other securities.” It is vital to consider that this language cannot be construed to fetter a corporation, or partnership, or other association of individuals engaged in other business by forbidding it to sell a security acquired in the regular course of such other business; on the contrary, by its meaning appearing from the context, it limits the organizations or combinations to which it applies to those which sell or negotiate securities as the whole or a constituent part of their business either as a temporary measure or as á permanent enterprise. Thus construed, the statute meets a very important public purpose, without undue restraint of personal liberty. Frauds or impositions in the sale of securities are not usually effected by sale to the public of the obligation of a single individual. Usually an organization is effected of two or more persons under an organization name to give the appearance of greater responsibility and to make such responsibility more illusory. When the whole' or a constituent part of the business either as a temporary measure or a permanent enterprise is to raise money by the sale of the securities of such an organization to the public — that is, to any one who will buy, I am unable to find any ground for holding that the state may not in the exercise of its police power provide for such examination into the business of the organization as is reasonably necessary to protect its citizens against imposition. The case on this point comes distinctly within the scope of the police power as defined and illustrated in the decisions of the Supreme Court of the United States above cited.
It is argued, however, that the powers conferred on the auditor are so broad and vague as to be arbitrary, in that they require him to refuse a license or certificate unless he finds that the investment company (1) is solvent, (2) that its plan of business and proposed contracts or securities contain and proyide for a fair, just, and equitable plan for the transaction of business, and (3) in his judgment promises a fair return on the securities by it offered for sale. Received standards of solvency, of fairness, of the prospect of fair returns on investment are sufficiently definite for a conclusion to be reached with reasonable certainty, after investigation, that a business enterprise falls above or below them; and therefore reaching such a conclusion after investigation does not denote the exercise of arbitrary power. Certainly no objection can be made to the ascertainment of solvency, for that is now intrusted by law, without objection, to public officials in the examination of banks and other institutions. It is true that no. exact standard of what is a fair plan of business and what is a promise or prospect of a fair return on a bond or other security can be laid down with accuracy. But in many ways the affairs of men depend on the ascertainment by public authority of fair valuation, fair sale, fair value, fair return on investment. Such ascertainment is re *501 quired in passing on rates and management of railroads and other public service corporations by commissions; in deciding on the sufficiency of sanitation and fire protection, and on the fitness of men to practice medicine and other professions; and in passing on many other matters in which the public has a special concern. Indeed, the necessity and legality of intrusting to men the power and duty to ascertain and determine what is reasonable or fair between citizens or between the citizen and the public enters of necessity into the whole fabric of the law, not only in its judicial, but in its executive and legislative department.
The distinction between this power to determine the fairness or reasonableness of a matter or the fitness of a person which may be conferred, and mere arbitrary power which cannot be conferred, is set out and illustrated in Yick Wo v. Hopkins, Sheriff, 118 U. S. 356 , 6 Sup. Ct. 1064, 30 L. Ed. 220 , and numerous other cases.
In Gundling v. Chicago, 177 U. S. 183 , 20 Sup. Ct. 633, 44 L. Ed. 725 , the court says:
“Regulations respecting the pursuit of a lawful trade or business are of very' frequent occurrence in the various cities of the country, and what such regulations shall be and to what particular trade, business, or occupation they shall apply, are questions for the state to determine, and their determination comes within the proper exercise of the police power by the state, and unless the regulations are so utterly unreasonable and extravagant in their na ture and purpose that the property and personal rights of the citizen are unnecessarily, and in a manner wholly arbitrary, interfered with, or destroyed without due process of law, they do not extend beyond the power of the state to pass, and they form no subject for Federal interference.”
It is no objection to the discretionary power conferred on the auditor that he may exercise it arbitrarily; for the presumption is that he will not, and the citizen is protected from arbitrary action by the judicial power. Chicago v. Wellman, 143 U. S. 339 , 12 Sup. Ct. 400, 36 L. Ed. 176 .
Discussion of the position that the statute undertakes to confer on the auditor legislative and judicial power is unnecessary, since the point was recently decided against the contention of the plaintiff in Manufacturers’ Light & Heat Co. et al. v. Lee Ott et al., Public Service Commission of West Virginia (D. C.) 215 Fed. 940 , on the authority of Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194 , 32 Sup. Ct. 436, 56 L. Ed. 729 .
The statute only indirectly affects interstate commerce in the correction of an evil upon which Congress has not legislated. It relates to commercial transactions within the state, and places the citizens of other states on an equal footing with the citizens of West Virginia. It is not therefore a regulation of interstate commerce within the exclusive power of Congress. Minnesota Rate Case, 230 U. S. 352 , 33 Sup. Ct. 729, 57 L. Ed. 1511 , 48 L. R. A. (N. S.) 1151; Brimmer v. Rebman, 130 U. S. 78 , 11 Sup. Ct. 213, 35 L. Ed. 862 .
The plaintiffs have no ground to complain that the statute exempts state and national banks, surety or guaranty companies, trust companies, duly authorized insurance companies, real estate mortgage companies, dealing exclusively in real estate mortgage notes, building and *502 loan associations, and corporations not organized for profit. The classification was not arbitrary and was within the power of the Legislature. Engel v. O’Malley, 219 U. S. 128 , 31 Sup. Ct. 190, 55 L. Ed. 128 ; Broadnax v. State of Missouri, 219 U. S. 285 , 31 Sup. Ct. 238, 55 L. Ed. 219 .
In Compton v. Allen, Circuit Judge Smith and District Judges McPherson and Pollock decided on July 6, 1914, a statute of Iowa, similar in terms to be unconstitutional; and the same result was reached in Alabama & N. O. T. Co. et al. v. Doyle (D. C.) 210 Fed. 173 , as to a statute of the state of Michigan. The statutes as construed in these opinions are more restrictive of the sale of securities than we find the West Virginia statutes to be. On the other hand, the Supreme Court of Florida, in Ex parte Taylor, decided June, 1914, has held a similar statute constitutional. No case has been found which passes upon a statute precisely like that here involved. Section 4 of the act must be declared unconstitutional, in that it imposes a burden on the individual citizens of other states not imposed on citizens of West Virginia by requiring them to file an irrevocable consent that an action may be commenced against them by service of process on the state auditor. This deprives the citizens of the state of West Virginia and denies to them the equal protection of the laws. Guy v. Baltimore, 100 U. S. 434 , 25 L. Ed. 743 . But the elimination of this section does not materially affect the remainder of the statute and does not destroy the validity of its other provisions.
In my opinion the statute should be held constitutional and the injunction refused. If the plaintiffs do not fall within the terms of the statute, the fact may be proved in their defense to the indictment; but it is not available in an action to enjoin the enforcement of the statute as a nullity. Fitts v. McGhee, 172 U. S. 516 , 19 Sup. Ct. 269, 43 L. Ed. 535 ; Davis & Farnum Mfg. Co. v. Los Angeles, 189 U. S. 207 , 23 Sup. Ct. 498, 47 L. Ed. 778 .