# Reply Brief of Petitioner — Bentsen v. Blackwell > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0663%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief of Petitioner - **Published:** January 1, 1954 - **Citation:** 347 U.S. 925 ## Text 1 Supreme Court of The United States OcToBEeR TERM, 1953 No. 423 LiLoyD M. BENTSEN;SR., et al., Petitioners, EMERY C. BLACKWELL, et al., Respondents. RESPONDENTS BRIEF IN OPPOSITION TO PETITION FOR WRIT OF CERTIORARI To THE HONORABLE, THE CHIEF JUSTICE OF THE UNITED STATES, AND TO THE ASSOCIATE JUSTICES OF THE SUPREME COURT OF THE UNITED STATES: Come now the respondents, Emery C. Blackwell, Boyd Construction Company, Claude E. Blackwell, Clyde W. Weatherly, Arie K. Smith, Dudley Smith, W. H. Ham, Herbert Clark and Frank L. Danner, and respectfully present their brief in opposition to the petition for writ of certiorari. The trial court sustained petitioners motion to dismiss for lack of jurisdiction on two points. First, that respondents failed to plead the sale of an “in- vestment contract” as defined by the Securities Act of 1933; and Second, that no use of the mails was made sufficient to constitute a violation of Sec. 12(2) of the Act, 15 U.S.C.A. 771(2). On appeal, the Fifth Circuit reversed and remand- ed on both points. No evidence has been received, and both the appeal and the petition for certiorari are based solely on the pleadings. icant iy og gr thy or SBOP S AOR Ug ea RRC eae 4 the United States Mails) and increasing the size of their investments. All of these facts will be fully developed on the trial of this case. We do not believe that this Court should be required to decide a ques- tion of the importance involved, without having a full development of the facts. It is true that some of these facts are alleged in a general manner, but the petitioners are fully on no- tice of what they will need to meet on the trial, and we say that this manner of pleading is contemplated by the Federal Rules of Civil Procedure. In any event, a full presentation of the facts involved will result in the point being decided fairly to all con- cerned. 2. Petitioners stress in their argument that the present case is local in nature. While it is true that the respondents all reside within the State of Texas, the local nature of this transaction does not involve next door neighbors as petitioners would have this Court believe. Four of the purchasers live approxi- mately 900 miles from their investment, two of them approximately 600 miles, one was an engineer from Wisconsin who moved to Texas after the purchase, with the nearest purchaser residing at least 400 miles from the scene of this operation.* 2 Judge Allred referred (R. 57) to five similar cases filed against the same principal Defendants and stated that they were grounded on practically the same allegations of con- spiracy and fraud. In fact, the cases did not involve the Securities Act of 1933, but were based on the common law and statute of the State of Texas. It is worthy of note as to the extensive nature of the operations of the principal defendants that the 5 plaintiffs in the five consolidated cases were from 5 different states, California, lowa, Ohio, Indiana and Minnesota. Alarm is expressed by petitioners, that if the de- cision below is allowed to stand that the overworked Federal District Courts will be flooded by local land fraud suits. We agree that all of our District Judges are greatly overworked and evidence of this is the fact that the present suit was filed in June, 1951 and the memorandum opinion of the trial court was not filed until April of 1952, some 10 months later. However, there is no basis for the argument that the Federal Courts will be flooded by local land fraud suits. The decision of this Court in S.E.C. v. W. J. Howey Company, 328 U. S. 293, has been on the books seven years, and the decision in Schil!ner v. H. Vaughan Clarke & Co., 134 F. 2d 875 (C. A. 2, 1943) for 10 years, and the predicted flood of suits has not as yet developed. It is equally open to specu- lation that the correct decision stopped the fraudu- lent operators rather than started a flood of lita- gation. 3. Petitioners point out that the purpose of the Securities Act was to remedy the ineffective reliet available to purchasers of securities who were being fleeced by unscrupulous operators. Congress, in the Securities Act of 1933. enacted a very comprehensive statute providing for both civil and criminal liabili- ty. The section involved here covers civil liability and is section 12 (2). The comparable section in- volving criminal liability is 17 (a). The court rul- ings involving the jurisdictional language under 17 (a) have not required that the misrepresentations or half-truths be transmitted through the mails.* Therefore, if sec. 12 (2) is restricted to the narrow view of Kemper v. Lohnes 173 F (2) 44, then it is possible that a sale might be in violation of the criminal section and yet the purchaser would have no civil remedy under sec. 12 (2). Sec. 12 (2) is un- questionably a remedial provision and, as such, is entitled to liberal construction. This was recognized by the Court in Schillner v. H. Vaughan Clarke & Co., 134 F. (2) 875 at 877: “We do not think that this is the inevitable, or even the most natural, meaning of the statutory language. Liability to repay the consideration re- ceived is imposed upon any person who ‘sells a se- curity ***** by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication’ of the untrue or misleading character described in the section. To accept ap- pellant’s constructioi: would render the phrase ‘oral communication’ of most limited application because the section would then reach only interstate tele- phone calls or conversations where the parties might 3 The following are examples of mailings which have been held sufficient: Mailings by wren ey to the Defendants con- taining reports of the success of meetings held to obtain from victims, ard remitting cash statements and drafts, U. S. vs. Monjar, 47 Federal Supplement 421 Aff’d, 147 Federal 2nd, (C. A. 3, 1944) cert. Delivery by Mail of a stock certificate after the contract of Sale was concluded orally and the stock paid for. S.E.C. vs. Wimer 75 Federal Supplement 955. Mailings of Warranty between Defendants, and to the County Clerk for recording and subsequent delivery to the investors. Mansfield vs. U. S. 155 Federal 2nd 952 (C. A. 5, 1946) cert. denied, 329 U. S. 792, 1946. 7 be talking across a state line. It would seem much more likely that Congress intended to make the statute applicable if one sells a security by use of the mails, even though the seller’s untrue or misleading statement is communicated orally and intrastate.” We have alleged, and will show on the trial that the plan and scheme involved in the sale of the cit- rus groves and management contracts, was depend- ent on the use of the United States Mails, and that without the facilities provided by the mails, none of the sales could have been completed. The manage- ment contracts were completed and delivered to the purchasers through the mails after they returned to their homes in distant parts of Texas. The Man- agement Contracts are an integral part of the in- vestment, and the sales were not completed in face to face negotiations as stated by petitioners. The instant transactions are the type transactions at which Congress was aiming, and the opinion of the Circuit Court below is in keeping with the intention of Congress. For the above reasons, the Petition should be denied. Respectfully submitted, GARLAND F. SMITH E. H. McILHERAN 516 Texas Blvd. Weslaco, Texas Attorneys for Petitioners. 4 Petitioners further argue that the Federal Court should not take jurisdiction of this case because the local courts are | able to grant relief, and that Sec. 22 (a) prohibits removal of such actions to the Federal Courts. We respect- fully submit that unless there has been a use of the mails cient to constitute a violation of Sec. 12 (2), the local courts would have no more jurisdiction than the Federal FPR open ae ee ee FTL ANE MLE NAOT AM VEEN TEMES A LINES TP IN THE Hupreme Court of the United States Ocroser Term, 1953 No. 423 Luovp M. Bentsen, Sa., er av., Petitioners, v. Emery C. Biackwe.t, et a., Respondents. PETITIONERS REPLY BRIEF IN SUPPORT OF PETITION 1. The SEC in its memorandum has clearly conceded both the conflict between the Circuits in the present case and the importance of this question. 2. Respondents likewise have conceded that ‘‘the point involved in this suit is of great importance .. .’’ (Opposi- tion Memo, zp. 3). 3. The only point made by respondents in opposition is that the question presented is of such importance that it should not be decided on the pleadings but only after trial. But no trial is necessary, the issue of law being clearly presented on the face of the complaint. That issue is whether a civil action under the Securities Act of 1933 may 2 be brought where a sale is completed without use of the mails or interstate commerce, but the securities are deliv- ered by mail after the sale. The Securities and Exchange Commission made no suggestion that additional evidence would be necessary to clarify the question. Nor did the Court of Appeals. The issue is the same admittedly decided to the contrary by the Seventh Circuit in Kemper v. Lohnes, 173 F. 2d 44. (Opposition Memo, p. 6.) 4. The argument that certain facts developed on deposi- tion might alter the Court’s conclusion is without founda- tion. Those facts appear from the complaint itself. 5. The fact that the mails were used to collect subsequent payments for care of the trees also appears in the complaint. The court below apparently regarded it as too remote in time to have any connection with the sale of the alleged investment contract. But if these mailings have any rele- vance they are fully alleged in the complaint and can be availed of in this Court. No testimony is necessary to determine the legal question. @ 6. Since the legal issue is clear from the complaint and no testimony whatsoever is necessary to clarify it, it is an unconscionable suggestion that the District Court should be required to go through an extensive trial. The trial would be devoted primarily to the question of fact concern- ing whether certain representations were made and whether they were true or false. Such a trial would be unnecessary 1 For example, the fact that dates inserted in management con- tracts were subsequent to the dates of the deeds to the property appears clearly in the complaint. This, of course, resulted from th» cireumstance that care for the trees was not needed until the trees were planted. The facts are that all the arrangements for the sale of the property, for the planting of the trees and for their eare were made in face-‘o-face conversations in the State of Texas and that mere mechanical and ministerial acts took place thereafter, such as the recording of the deeds, the filing in of the blanks in the management contracts, and the mailing of both documents to the purchasers. This, both the District Court and the Court of Appeals understood in arriving at their respective conclusions. 3 if this Court should rule that as a matter of law no juris- diction exists in the federal court. 7. The issue is clear now. It is ripe for decision and the decision is concededly important. Delay is unnecessary and would result in lengthy and expensive litigation which might otherwise be avoided. 8. As to the merits, we have set forth in our petition the reasons why the Congress did not intend to exercise the full limit of its constitutional power. Both respondent and the SEC urge that it is inconceivable that the civil remedy provisions should be placed on a more limited jurisdictional base than the criminal provisions of the Act. But there is good reason for such a difference. Criminal provisions are applied only when government officials, the SEC, and the Attorney General decide that recourse to the federal courts is appropriate in the pvhlic interest. In such cases broadening the area of such dis- cretion cannot be expected to flood the federal courts with purely local matters. On the other hand, a civil action may be commenced by anybody who feels himself aggrieved. For example, the ordinary bond and mortgage, like the ordinary promissory note, is a security under the Securities Act, Section 2(1), 15 USC § 77b(1). Bonds and mortgages are normally recorded and thereafter delivered by mail. Under the decision below, private individuals who might prefer the federal courts could bring disputes involving real estate mortgages into the federal courts under the Securities Act. Surely no such intention should be attrib- uted to the Congress when the language it used plainly indicates the contrary. 4 CONCLUSION On the basis of all the memoranda, it is clear that the issue is important; that it involves conflict between two circuits; that it is ripe for decision now; and that the question presented is substantial. The petition should be granted. Respectfully submitted, Pavut A. Porter, Mizton V. Freeman, 1229 19th Street, N.W., Washington 6, D. C. Jackson LITTLETON, Swwvey L. Farr, Woodroof Building, Edinburg, Texas, Attorneys for Petitioners. ArnoLp, Fortas & Porter, 1229 19th Street, N. W., Washington 6, D. C. Kewiey, Loonty, McLean & Littieton, Woodroof Building, Edinburg, Texas, Of Counsel. December, 1953. 2 ; Fi ve iLaD / FEB 1 7@ 1954 ee , Clerk Supreme Court of the Anited States Octoser Term, 1953 No. 423 Lioyp M. Bentsen, Sr., et al., Petitioners, Vv. Emery C. BLackwe.L, et al., Respondents. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit BRIEF FOR PETITIONER Pau A. Porter Mitton V. Freeman 1229 19th Street, N.W. Washington 6, D. C. Jackson LITTLETON Siwvey L. Farr Woodroof Building Edinburg, Texas Attorneys for Petitioners ARNOLD, Fortras & Porter 1229 19th Street, N.W. Washington 6, D. C. Ketuey, Looney, McLean & Littteton Woodroof Building Edinburg, Texas Of Counsel February, 1954 Press or Byron S. Apams, Wasurincton, D.C. INDEX ND SUITE 6dr 5 0 cn a Hoan Sacveseqescesecgerawns EP PEO, POETS EEE Pe ye tine bl i COE danse bicevaresws ehewevenshe seus a dee ieee thneenes Or ee! i oe ele nnaedals ee ED i GS dss do cneaaawsecasvauas EY GE BOE no c.n.vccedisncbe ieevesdcece sa OIE 5 ib 6 ne ee rn 0 ok 6065008800 ceenensees due I. The Statutory Language Cannot Apply to the io OR Re Pe ee (1) The securities were not sold ‘‘by the use of the matie’’ £6 FORWITOD .....ccccecccsesvens (2) The securities were not sold ‘‘by the use of the mails, by means of a prospectus or oral communication’’ as required ............... II. Investors Will Be Adequately Protected Under the Petitioner’s Construction of the Statute ..... Ill. To Sustain the Ruling Below Will Extend Fed- IV. en ee eee eoatebatedavendrtents eral Jurisdiction to a Hust of Cases Having No Relation to the Objective of the Securities Act .. The Congressional Purpose Is Not Served by the Construction Adopted by the Court Below ...... 1. The Law Was Intended Primarily to Deal With the Area of Interstate Commerce Beyond the Power of the States to Control .............. 2. The Purpose and Effect of the Partial Reliance Oe Tie POO FOG. veccnsevecinecesveseses ii Index Continued TaBLe oF AUTHORITIES CasEs: Page Deckert v. Independence Shares Corporation, 311 U.S. DN. etnvensddd denn cecescnedebous es teeatocebas 17 Federal Trade Commission y. Bunte Bros., Inc., 312 WN SE sa doves dadedewdadedediccencéosuabates 19 Hall v. Geiger-J ones, 242 U.S. 539 .... 0... cee eee ees 21 Hollywood State Bank v. Wilde, 70 Cal. App. 2d 103, Be os UIE evicnddvesexcesonsvecceeseee Kann v. United States, 323 U.S. 88 ...........0..6-- 15 Kemper v. Lohnes, 173 F. 2d 44 (CA 7 1949) ...... 6, 12, 14 Kirschbaum v. Walling, 316 U.S. 517 ..........00005 i9 Llanos v. United States, 206 F. 2d 852 (CA 91953) .... 16 Murphy v. Cady, 30 F. Supp. 466 (D. Me. 1939) ...... 14 Paul v. Virginia, 8 Wall. 168 ............. cc eceeeees 23 Schillner v. H. Vaughan Clarke & Co., 134 F. 2d 875 25 lope Pr er re 12, 14, 19 Securities and Exchange Commission v. W. J. Howey i TEE dS dé pence etes caveeesesescacidci 4, 6 Securities and Exchange Commission v. Payne, 35 F. Bee CES SOOO co cverccevcevcesoncececes 16 Stevens v. Liberty Packing Corp., 111 N.J. Eq. 61, 161 EE ED 6x 6dver ves encesvabsdanrectesetds 16 MISCELLANEOUS: Annual Report of Director of Administrative Office of the Federal Courts to the Judicial Conference of the United States, September 1953 .............. 17 Loss, Securities Regulation PREM soneb sswsetedcdccconseusvéousdecdeens 21 Pi PE civades sacvensisrevetwneeveeneseper 15 i EG didn d dine txesubecess qeseesvernen 16 ET. 24 bene Junesesedesessovceganvneséntna 18 The Securities Act of 1933, 15 U.S.C. § 77 ...... 15, 16, 17, 20, 24 i nD ovcocctyeesdeesseaves 3, 10, 27 eS eer errr errr rs 11, 12 § 3(10), 15 U.S.C. § T7B(10) .... 2... ce cceceecee 14, 15, 27 $ 3(a)(11), 15 U.S.C. § 77e(a)(11) ................ 23 Se Sco ite cenehds cvecdecous owes 3, 11, 26 § 5(a)(2), 15 U.S.C. § 77e(a) (2) ....- 2. cece eee eees 11 Index Continued Page § 5(b)(2), 15 U.S.C. § 77e(b) (2) .... cee eee eee ee ees 11 § 12(2), 15 U.S.C. § 771(2) ........ 2, 6, 7, 8, 9, 11, 12, 14, 15, 16, 18, 24 616 15 UB.O. § TTp . cece ccvcccvcccccccccceccess 21 $17(a), 15 U.S.C. § Tiq(a) ....cccccccccccsevcees 14 OTR, BS OBS. OTEF 6 cc cccccctecconccccvsseneses 21 §20(b), 15 U.B.C. § T7t(b) .. 0. cc cccccccccccccess 18 § 22(a), 15 U.S.C. § 77v(a) ..... cece eee reece eeeeee 3, 26 § 26, 15 U.B.C. § 77S 2... ccc ccccccccccccerveceses The Securities Act of 1934, 15 U.S.C. § 78 § 10(b), 15 UBC. § TBD) .. ccccccccccccccccccccvccceccees 2B U.L.C. § ISBT) . cc cccccccesccccccccveescececes 1 Texas Revised Statutes: GERn GC UUR) . cccccccccesevescedevccescesencepes 15 DEES ccvccccvcccicsonesexcceseeteceesesns 15 Hearings Before the Committee on Interstate and Foreign Commerce, House of Representatives, 73rd Cong., First Sess., on H. R. 4314, p.10...... Hearings Before Senate Committee on Banking and Currency, 73rd Cong., First Sess., p. 214-215 .... 22 H. Rep. 85, 73d Cong., Ist Sess. ............- 19, 20, 23, 24 S. Rep. 47, 73d Cong., Ist Sess. ........--eeeeeeeeeee 23 77 Cong. Ree. a a ee Pe ee ee ee ee ee eee eee sree seers eeeseereseeereseeseees eee eee eee eee eee eer eee eer eeeeeeeee Pe ee ee a a ee ee Pe ee ee --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385610_0663%3A3. Public record. Not legal advice.