# Appendix — A. S. Goldmen & Co. v. New Jersey Bureau of Securities

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1999
- **Citation:** 528 U.S. 868

## Text

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Index to Appendix

Page
Opinion of the United States Court of Appeals
for the Third Circuit dated Jan. 7, 1999....... la
Opinion of the United States District Court
(D.N.J.) (Debevoise, J.) dated Aug. 22, 1997 .. . 32a
Order to Show Cause dated Nov. 14, 1996. .... 4la
Transcript of Proceedings in the United States
District Court (D.N.J.) dated Nov. 20, 1996... . 44a
Order of the United States Court of Appeals
for the Third Circuit Sur Petition for Rehearing,
Re UO BP hose ae os eae biden s. 89a
Constitutional Provision and Statute Involved in
oi EET SET Te eee eee 9la
Consent Order Denying Specific Exemptions in
the matter of Imatec, Ltd. dated Oct. 23, 1996. . 93a
Order to Cease and Desist in the matter of A.S.
Goldmen & Co. et al. dated Nov. 12, 1996... .99a
Complaint in the United States District Court
(D.N.J.) dated Nov. 11,1996............ 105a

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Index to Appendix (continued)

Page
Notice of Motion in the United States District
Court (D.N.J.) dated January 17, 1997. ...... 118a
Notice of Cross-Motion in the United States
District Court (D.N.J.) dated April 7, 1997... .. 12la
Affidavit of Marlene Reed dated Nov. 18,
BOO «ao 0 on 0 8 oe eee ee 123a
Defendant’s Rule 12(g) Statement dated
Sh. Fy SRF vn 0b ba 0 ee ee ae 135a
Plaintiff's Rule 12(g) Statement and Response
to Defendant’s Rule 12(g) Statement, dated
Agta, TOOl sic ind eeeweaee caw 148a

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Filed January 7, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-5618

AS. GOLDMEN & COMPANY, INC.
v.

NEW JERSEY BUREAU OF SECURITIES,
Appellant

On Appeal] from the United States District Court
for the District of New Jersey
(D.C. Civil No. 96-cv-05280)

District Judge: Honorable Dickinson R. Debevoise

Argued Thursday, May 21, 1998
BEFORE: ROTH’, McKEE and GARTH, Circuit Judges .
Reargued Friday, December 4, 1998
BEFORE: ALITO, McKEE and GARTH, Circuit Judges

(Opinion filed January 7, 1999)

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1, Judge Roth was obliged to recuse herself afier argument but before
clearance of this Opinion. Judge Alito took Judge Roth's place upon
reconsUtution of the pane] and reargument

Peter Vernicro, Attorney General
Office of the Attorney General of
New Jersey

Andrea M. Silkowitz, Assistant

Attorney Gencral

Division of Law

Hughes Justice Complex

CN-112

Trenton, New Jersey 08625

Gail M. Cookson (argued)

Deputy Attorney Genera]

Tracy Thayer

Deputy Attorney Gencral)

Office of the Attorney Gencral of
New Jersey

124 Halsey Street

P.O. Box 45029

Newark, New Jersey 07101

Attomeys for Appellant
New Jersey Bureau of Securities

fartin Flumenbaum (argued)
Brad S. Karp

Paul, Weiss, Rifkind, Wharton &
Garrison

1285 Avenuc of the Amcricas
New York, New York 10019-6064

fichae] A. Lampert
Saul, Ewing. Remick & Saul
214 Carnegie Center, Suite 202
Princeton, New Jersey 08540

Attomeys for Appellee
A.S. Goldmen & Company, Inc.

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Karen M. O'Brien, Genera] Counsel
North American Securities
Administrators Association, Inc.

‘ 10G Street, NE
Suite 710
Washington, D.C. 20002

Attomeys for Amicus-Appellant
North American Securities
Administrators Association, Inc.

Richard E. Walker

Eric Summergrad

Luise de la Torre

Paul Gonson

Securities & Exchange Commission
450 Fifth Street, N.W.

Washington, D.C. 20549

Attomeys for Amicus -Appellant
Securities & Exchange Commission

OPINION OF THE COURT

GARTH, Circuit Judge.

This case raises a dormant commerce clause challenge to
one aspect of the New Jersey Uniform Securities Law. The
appellee, A.S. Goldmen & Co., Inc. (“Goldmen’), claims that

Clause insofar as it authorizes the appellant New Jersey
Bureau of Securities to prevent Goldmen from selling
Securities from New Jersey to buyers in other States where
purchase of the. securities was authorized by state
regulators. The dis’ .. -1t agreed, and granted summ
judgment in favor of Gol%imen. We hold that § 60 does not
run afoul of the dormant commerce clause, and therefore
reverse.

A.

Because of the noted potential for fraud and deception in
the buying and selling of securities, securities markets are
among the most heavily regulated markets in the United
States.’ Regulation of securities first flourished at the state
level in the 1910s, when states began enacting laws that
required the registration of a seCurities offering before the
sale of the security was permitted. The purpose of these so-
called “blue sky” laws was to allow state authorities to
prevent unknowing buyers from being defrauded into
buying securities that appeared valuable but in fact were
worthless.* By 1933, all but one state had passed blue sky
laws; today, all fifty states, the District of Columbia, Guam,
and Puerto Rico have blue sky laws in force. See Louis Loss
& Joe] Seligman, 1 Securities Regulation 40-4] (3d ed. Rev.
1998) (hereinafter, “Loss & Seligman’).

Aggressive federa] regulation of securities markets began
in the early 1930s with the passage of the Securities Act of
1933 and the Securities Exchange Act of 1934. Today, the
Securities and Exchange Commission ("SEC") administers
these and five other federa) statutes, which altogether form
a complex web of federa] regulations. See id at 224-8}.
Despite this complex federa] scheme, Congress, the courts,
and the SEC have made explicit that federal] regulation was
not designed to displace state blue sky laws that regulate
interstate securities transactions. See, eg. 15 U.S.C.
§ 77r(c) (1997) (preserving state jurisdiction “to investigate
and bring enforcement actions with respect to... unlawful
conduct by a broker or dealer”) (Nationa) Securities Markets
Improvement Act of 1996); Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Ware, 414 U.S. 117, 137 (1973) ("Congress
2. Securities are the collective term. used tu describe documents that
represent ownership in a company ¢. ~ 4ebt. Common examples include
stocks, bonds, notes, converUbie cebentures, snd warrants. See Black's
Law DicUonary 1215 (5th ed. 1979); Joseph ~. Long. 12 Blue Sky Law
§ 2.0) (1997).

3. See generally Jonathan R. Macey & Geoffrey P. Miller, Origin of the
Blue Sky Laws, 70 Tex. L. Rev. 347 (199)).

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intended to subject {securities} exchanges to state
regulation that is not inconsistent with the federal] [laws)].”);
Loss & Seligman at 275-281. Although the enactment of
the Nationa) Securities Markets Improvement Act of 1996
narrowed the role of-state blue sky laws by expanding the
range of federal preemption, federal and state regulations
each continue to play a vital role in eliminating securities
fraud and abuse. See Loss & Seligman at 60-62; Manning
G. Warren Ill, Reflections on Dual Regulation of Securities
Regulation: A Case Against Preemption, 25 B.C. L. Rev. 495,
497, 501-27 (1984) (describing how Congress, the courts,
and the SEC have expressly authorized the enforcement of
state blue sky laws).

B.

Among blue sky laws, the most common regulatory
approach is the mixed disclosure and merit regulation
scheme offered by the Uniform Securities Act (“Uniform Act*).‘
Drafted in large part by the late Professor Louis Loss, the
Uniform Act has been adopted with some modification in
nearly forty states, including New Jersey. See N.J.S.A.
§ 49:3-47 to 76. The Act contains three essentia) parts:
provisions requiring the registrations of securities sold
within the state; provisions requiring the registration of
persons involved in the securities industry; and various
antifraud provisions. See id; see also Joseph C. Long. 12
Blue Sky Law § 1.07 (1997) (hereinafter, “Long”).

This case raises a constitutiona] challenge to N.J.S.A.
§ 49:3-60 (“§ 60°), which is New Jersey's codification of the
portion of the Uniform Act that makes it “unlawful for any
security to be offered or sold in this State” unless the
security is either registered by state authorities, is exempt

4. The various state and federa) securities regulations reflect two broad
regulatory philosophies: merit regulation and disclosure. Regulations
based on disclosure principles. such as the federal] Securities Act of
1933, seek to provide investors with al) uw crial) and relevant
information about the securities and the company offer‘ng them. In
contrast, merit regulations seek to protect investors by prohibiting
transactions that authorities deem unfair or unjust. See Joseph C. Long.
12 Blue Sky Law § 1.05 (1997).

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‘@ os.” edned ad: nde about ad J3@

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under N.J.S.A § 49:3-50, or is a federally covered security.
When read in conjunction with N.J.S.A § 49:3-51(c), which
States that “an offer to sel] or buy is made in this State...
when the offer . . . originates in this State,” § 60 grants New
Jersey regulatory authorities the power to regulate the offer
or sale of all non-exempt, non-covered securities whenever
the offer is made within the state of New Jersey. Under
N.J.S.A. § 49:3-64 and the 1985 amendments to the New
Jersey statute, this authority permits the chief of the New
Jersey Bureau of Securities (“Bureau”) to exercise broad
powers to regulate sale of such securities in New Jersey
when it is deemed in the public interest and various
Statutory requirements have been met.

I].

A.

A.S. Goldmen & Co. is a securities broker-dealer with its
sole office located in Iselin, New Jersey.® At the time of
proceedings before the District Court, Goldmen’s sole office
was located in New Jersey. Since that time, it has opened
at least one other office out of state.

Goldmen specializes in underwriting the public offerings
of low priced, over-the-counter securities, and then selling
those securities in the secondary market. During the first
severa] months of 1996, Goldmen planned the initia] public

5. In its current form, N.J.SA. § 49:3-60 (1997) states:

Mt is unlawfu) for any security to be offered or sold in th's Atate
unless:

(a) The security or transaction is exempt under section 3 of
P.L.1967, c. 93 (C.49:3-50);

(ec) The security is registered under this act; or
() 11 is a federal covered secunty for which a nouce filing and fees
have been submitted as required by section 14 of this act (C.49:3-
60.)}).
6.A “broker-dealer” is defined by the Act as “any person engaged in the
business of eflecting or atlemptng to effect transactions in securities for
the accounts of others or for his own account.” N.J.SA § 49:3-49ic).

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offering of Imatec, Ltd. ("Imatec”). Imatec is a Delaware
corporation, located:in New York, that was formed in 1988
to develop, design, market, and license image enhancement
technologies. Goldmen planned for the Imatec securities to
be traded as a NASDAQ Small Cap stock because such
Stocks are exempt from initial federal registration
requirements, see 15 U.S.C. §77(d) (1997). The rimary
regulation of the Imatec security during the frst 25

endar days of the offering would occur at the state level.
See 17 C.F.R. §230.174(d) (1992). Accordingly, in May
1996, Goldmen concurrently filed registration statements
with the SEC, and also attempted to register the offering
“by qualification” with state regulatory authorities in over a
dozen states, including New Jersey.’

The prospectus filed by Goldmen with the New Jersey
Bureau of Securities (“the Bureau’) listed Goldmen as the
sole underwriter, and also indicated that Goldmen would
own the shares to be offered to the public. Reviewing
Goldmen's application, the Bureau expressed various
concems regarding the Imatec offering to Goldmen's
counsel. Although the Bureau was not prepared to make
allegations of fraud, it had already been investigating
Goldmen's business practices at that time, and was
concemed that the combination of Goldmen's practices and
the bleak financial prospects of Imatec made the Offering a
high-risk investment that was likely to be associated with
abusive and manipulative sales practices.

On August 7, 1996, the Bureau informed Goldmen's
counsel that it was considering the issuance of a stop order
that would block the Imatec offering from being: registered
in New Jersey. Goldmen's counsel and the Bureau then
entered into negotiations concerning the future of the
Imatec offering. On October 23, 1996, these negotiations

7. Registration “by qualification” is the most comprehensive form of blue
sky registration, and is generally necessary when the security ts exempt
from initia) federal registration requirements. The other types of
registralion, registration “by notification” and registration “by
coordinaion,” are much simpler and are reserved for securities that
carry a higher indicia of reliability than securities that must be
registered by qualification. See NJ.SA. §49:3-6) (describing
requirements for registration by qualification).

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resulted in a Consent Order signed by the CEO of Imatec
and the Bureau chief. According to the Consent Order,
Goldmen withdrew its application to register the Imatec
offering in New Jersey, and agreed that the Imatec offering
did not qualify for N.J.S.A. § 49:3-50(b) exemptions to the
registration rule of §60. Goldmen was permitted to make
unsolicited sales from New Jersey or to sell to certain
financia] institutions or to other broker-dealers. However,
the Consent Order specifically denied Goldmen exemptions
that would have allowed it to solicit members of the public
to purchase Imatec stock in the secondary market. App.
38-41; App. 156-57.

Five days after Goldmen entered into the Consent Order,
on October 28, 1996, the registration statement that
Goldmen had filed with the SEC became effective.* As of
that date, Goldmen had managed to register the Imatec
offering in sixteen states, but had been forced to withdraw
iis registration in severa] others, including New Jersey.

On the morming of October 29, 1996, Goldmen
commenced the initia] public offering from its office in
Iselin, New Jersey. By telephone, Goldmen solicited sales to
individuals outside of New Jersey, but did not solicit any
sales to individuals within New Jersey. By 3 p.m. of that
day, Goldmen had sold the entire public offering.®
Subsequently, Goldmen continued to buy and sel) Imatec
securities in the interdealer market from its New Jersey
office.

8. Registration with the SEC does not imply SEC approval of the offering.
See 15 U.S.C. § 77w (1997) ("[Thhe fact that the registration statement for
a security has been filed or is in effect . . . shal] [not] be deemed a
finding by the Commission that the registration statement fs true and
accurate on its face... , or be held to mean that the Commission has
in any way passed upon the merits of, or given approva) to, such
security.”)

9.We do noi regard this case as moot despite the fact that the Imatec
offerings are concluded. We are concerned that this kind of case
presents a problem that may be capable of repetition but avoiding review
with respect to Goldmen. Weinstein v. Bradford, 423 U.S. 147 (1975).
Due to the nature of Goldmen’s business. this same problem may be
confronted in the future.

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The Bureau learned of Goldmen’s sales on November 7,
1996. Because the window for state regulation of the
Imatec offering closed 25 days after the offering began.” the
Bureau acted immediately, notifying Goldmen that it
believed that the sales violated the Securities Act and the
Consent Order. Goldmen took the position that its sales
violated neither state law nor the consent order. and
informed the Bureau that it intended to continue to buy
and sel] securities from its New Jersey office. The Bureau
responded by issuing a Cease and Desist Order dated
November 12, 1996, which ordered Goldmen to “cease and
desist from the solicitation of customers, offer and sale of
Imatec in or from the State of New Jersey to any members
of the public.” App. 91.

B.

On the same day that the Bureau issued the Cease and
Desist Order, Goldmen filed this declaratory judgment
action against the Bureau in federal] district court.
Goldmen's complaint claimed that. “the New Jersey
Securities Act. as applied to securities that were not
registered or exempt from registration in New Jersey and
were sold by brokers located in New Jersey to residents of
states (other than New Jersey) in which the securities were
qualified for sale, violates the Commerce Clause of the
United States Constitution.” The complaint also alleged that
even if the Securities Act was constitutional, the Act and
the Consent Order did not apply to block Goldmen’s sales
of Imatec securities from New Jersey. According to
Goldmen, the sole legal effect of the Act and the Consent
Order was to prohibit Goldmen from selling the securities
to buyers located in New Jersey.

The district court issued an Order to Show Cause. and
held a hearing on November 20, 1996." The district court

10. Under 15 U.S.C. § 77r(b){4)(A) and 17 C.F.R. §230.174(d), the Imatec
security became a “covered security” 25 days after the initial public
offering. At that time. state regulation was preempted. See 15 U.S.C.
§ 77rla)(1 (A) (1997).

11.At the hearing. the Bureau argued that Goldmen’s federal action
should be stayed under the abstention principles enunciated in Younger

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issued a preliminary injunction the same day, enjoining the
Bureau from taking any action that would prohibit
Goldmen from “soliciting, offering or selling securities that
are not registered or exempt from registration in New Jersey
to residents of states (other than New Jersey) in which the
securities are qualified for sale.” App. 402-03.

The case then proceeded to cross-motions for summary
judgment. On August 21], 1997, the district court granted
Goldmen’s motion for summary judgment and denied the
Bureau's summary judgment motion. The sole issue
addressed was whether the New Jersey Uniform Securities
Law violated the dormant commerce clause by authorizing
the Bureau to block the sale of securities from New Jersey
to buyers in other states where the security was registered.
The district court concluded that it did. According to the
district court, the law directly regulated interstate
commerce because it effectively allowed the Bureau “to
impose New Jersey securities regulations onto other states.”
The district court argued that “[tlo allow the Bureau to
preclude consumers in other states from receiving
solicitations to purchase securities which their own state
regulators have deemed appropriate for purchase is, in
essence, to allow the Bureau to substitute its own
regulatory judgment for that of other states.” Further, the
district court argued that absent allegations of fraud, the
Bureau had no interest in regulating such transaction.
Accordingly, the New Jersey Uniform Securities Law
imposed an excessive burden on interstate commerce in
relation to New Jersey's loca] benefits. App. 581 (citing Pike
v. Bruce Church, 397 U.S. 137 (1970)).

The Bureau filed a timely appeal.

v. Harris, 401 U.S. 37, 9) S.Ct. 746 (197}). The district court rejected
this argument. App. 446. Because the Bureau has chosen not to raise
this issue On 2ppea), we will not address it further. Compare Ohio Bureau
of Employment Services v. Hodory, 43] U.S. 47), 477-80, 97 S.Ct 1898,
1904 (1977).

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Ill.

A. Legal Framework

The Supreme Court has long construed the Commerce
Clause as implying a judicial power to invalidate state laws
that interfere improperly with interstate commerce. See,
e.g., Cooley v. Board of Wardens, 53 U.S. (12 How.) 299
(1851). One consistent strain of these cases authorizes
courts to invalidate state regulations when their
extraterritorial impact is so great that their “practical effect
. - . fs to control conduct beyond the boundaries of the
state.” Healy v. The Beer Institute, 491 U.S. 324, AL. 109
S.Ct. 2491, 2499 (1989). As Justice Cardozo explained in
Baldwin v. G.A.F. Seelig, 294 U.S. 511, 523. 55 &.Ct. 497.

500 (1935), such a power is necessary to prevent states

from applying “parochia]” laws that can bring about “a
speedy end of our national solidarity.” “The Constitution.”
Justice Cardozo stated, “was framed upon the theory that
the peoples of the several states must sink or swim
together, and that in the long run prosperity and salvation
are in union and not division.” Id

According to these “extraterritorial effects” cases, a state
may not attempt to regulate commerce that takes place
“wholly outside” of its borders: such a “projection of one
State regulatory regime into the jurisdiction of another
State” is impermissible. Healy, 491 U.S. at 336-37: 109
S.Ct. at 2499. Under this rubric, the Supreme Court has
invalidated state laws that restricted interstate movement of
goods based on the price paid for them in out-of-state
transactions. See, e.g., Baldwin, 294 U.S. at 521, 55 S. Ct.
at 499 (invalidating New York law that banned the
importation of milk into New York when the price paid
outside of New York to the out-of-state producer was lower
than that permitted under then-existing laws regulating
milk purchases from New York producers): Lemke ov.
Farmers Grain Co., 258 U.S. 50, 61, 42 S.Ct. 244, 248
(1922) (invalidating North Dakota law requiring exported
wheat to be sold outside of North Dakota at price set by
North Dakota state inspector). Similarly, the Court has
struck down state laws that prohibited the importation of
out-of-state goods unless the importer guaranteed that its

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in-state prices were no higher than elsewhere. See, e.g.,
Healy, 491 U.S. at 337, 109 S.Ct. at 2499 [invalidating
Connecticut law prohibiting beer imports unless seller
guaranteed that prices offered in Connecticut were no
higher than in neighboring states); Brown-Forman Distillers
Corp. v. New York State Liquor Auth, 476 U.S. 573, 579,
106 S.Ct. 2080, 2084 (1986) (invalidating New York law
requiring liquor importers to affirm that prices offered to
New York wholesalers were lowest nationwide). Finally, the
Court has invalidated laws granting officials in one state
the authority to block multistate transactions that only
marginally involve in-state interests. See Edgar v. MITE
Corp., 457 U.S. 624, 643-46, 102 S.Ct. 2629, 2641-42
(1982) (invalidating Nlinois law that authorized Illinois
officials to block substantively unfair takeovers of
multistate companies that had connections to Illinois and
also other states).

Of course, these cases do not establish that the states
are forbidden categorically to regulate transactions that
involve interstate commerce. See H.P. Hood & Sons v. Du
Mond, 336 U.S. 525, 532-33, 69 S.Ct. 657, 662 (1949)
(Jackson, J.) (recognizing that States have “broad power...
to protect its inhabitants against... fraudulent traders...
even by use of measures which bear adversely upon
interstate commerce’). Rather, states are permitted to
regulate in-state components of interstate transactions so
long as the regulation furthers legitimate in-state interests.
A particularly relevant example of this is Hall v. Geiger-
Jones Co., 242 U.S. 539, 37 S.Ct 217 (1917), and its
companion cases, Caldwell v. Sioux Falls Stock Yards Co.,
242 U.S. 559, 37 S.Ct 224 (1917) and Merrick v. N.W.
Halsey & Co. 242 U.S. 568, 37 S.Ct. 227 (1917)
(collectively, the “Blue Sky Cases"). In the Blue Sky Cases,
the Court considered dormant commerce clause challenges
to then-recently enacted Blue Sky laws in Ohio, South
Dakota, and Michigan. Although the three statutes differed
somewhat, each granted state securities commissions the
authority to block the in-state sale or purchase of
unlicensed securities. The laws were challenged both by
unlicensed in-state securities sellers and the out-of-state
purchasers who had traveled in-state to make their
purchases, but the Court rejected their claims that the laws

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violated the dormant commerce clause. The key to the laws’
consututionality, the Court held, was that “[tjhe provisions
of the law . . . apply to dispositions of securities within the
State.” Hall, 242 U.S. at 557, 37 S.Ct. at 223 (emphasis in
original). By limiting the scope of the statute to dispositions
of securities “within the State,” the Court announced, the
States had merely enacted “police Tegulation|s),” that
“affect[ed] interstate commerce... only incidentally.” Jd at
558, 37 S.Ct. at 223; see also CTS Corp. v. Dynamics
Corp., 481 U.S. 69, 93, 107 S.Ct. 1637, 1651-52 (1987)
(rejecting challenge by out-of-state company to Indiana law
conditioning acquisition of corporate control of Indiana
corporation on approval of a majority of the pre-existing
disinterested shareholders, reasoning that law regulated in-
State corporations); cf. Shafer v. Farmers’ Grain Co, 268
U.S. 189, 200, 45 S. Ct. 481, 485 (1925) (invalidating North
Dakota law that regulated in-state handling of wheat
headed for interstate commerce that served no legitimate
in-state interests).

B. Territoriality

As these cases indicate, the constitutionality of state
regulations of interstate commerce depends largely on the
territoria] scope of the transaction that the state law seeks
to regulate. If the transaction to be regulated occurs “wholly
outside” the boundaries of the state. the regulation is
unconsututiona]l. MITE Corp, 457 U.S. at 642. If the
transaction: occurs “within” the boundaries of the state. it is
constitutional so long as the regulation furthers legitimate
in-state interests. See id at 643-46: CTS Corp, 481 U.S. at
93.

Therefore, the first issue we must address is the
ter torial scope of the transaction that New Jersey has
attempted to regulate. The question is, what is the
territorial basis of a contract entered into by telephone
between a New Jersey broker soliciting sales of Imatec
securities from New Jersey, and an out-of-state buyer who
agrees to purchase them outside of New Jersey? More
particularly, can it fairly be said that such a transaction
occurs “wholly outside” New Jersey? As this is a legal
question, our review is plenary. See Ciarlante v. Brown &.

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Williamson Tobacco Corp., 143 F.3d 139, 145 (3d Cir.
1998).

Goldmen and the Bureau offer divergent views of § 60's
territorial scope. Goldmen argues that §60 permits New
Jersey to reach out beyond its borders and block willing
buyers from completing transactions authorized by their
home states. According to Goldmen, “the effects of the
Bureau's application of Section 60 is not to regulate in-
state brokers, but to preclude out-of-state residents from
purchasing a product deemed appropriate for sale by their
own regulators.” Br. at 20. Goldmen suggests that the
Offers origin in New Jersey is not relevant to the
transaction's territoriality, because “the ‘practica] effect’ of
permitting New Jersey to bar the sale of securities from
New Jersey into states where those securities have been
qualified for sale is that those out-of-state residents will be
precluded altogether from receiving the opportunity to
purchase these securities.” Jd at 16.

The Bureau's position is that § 60 regulates the offering
of securities entirely within the state of New Jersey.
According to the Bureau,

Section 60 simply regulates how brokers located in
New Jersey conduct business from thcir New Jersey
offices. In this instance, these were Imatec securities
Offered for sale by the underwriter through
solicitations of the public from New Jersey. The offer
and sale arose in New Jersey. Goldmen chose to
ucmicile its highly-regulated business in New Jersey
and to_conduct that business from within the State.

Br. a’ 27.? The Bureau concedes that §60 may affect
interstate commerce, to the extent that sellers such as
Goldmen try to sell securities to buyers in other states.
However, the Bureau contends that this is merely an
indirect effect of what is essentially New Jersey's regulation
of New Jersey parties seeking to sel) securities in New
Jersey. .

12. Both amici. North American Securities Aministrators Association and
the Securities and Exchange Commission, support the position taken by
the New Jersey Bureau of Securities that §60 does not violate the
dormant commerce clause.

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In resolving this question, we begin by noting that
notions of the territorial scope of contracts between citizens
of different states have evolved in the past century. At one
time, it was fashionable to conceive of contracts between
diverse parties as being rooted in a single geographical
location, such as the place the offer was accepted. See, e.g.,
Joseph H. Beale, What Law Governs Validity of a Contract,
23 Harv. L. Rev. 260, 270-7] (1910). Under this traditional
approach, it was believed that when a contract offer made
in New Jersey was accepted in New York. the contract was
“made” in New York, and thus implicated New York's
sovereignty. See id: cf. Perrin v. Pearlstein, 314 F.2d 863,
867 (2d Cir. 1963).

The contrasting modern approach is to recognize that
contracts formed between citizens in different states
implicate the regulatory interests of both states. Thus,
when an offer is made in one state and accepted in another,
we now recognize that elements of the transaction have
occurred in each state, and that both states have an
interest in regulating the terms and performance of the
contract. See, e.g., General Ceramics Inc. v. Fireman's Fund
Ins. Co., 66 F.3d 647, 656-59 (3d Cir. 1995) (comparing the
regulatory interests of New Jersey and Pennsylvania to a

contract formed between a New Jersey company and a

Pennsylvania company in the course of determining
applicable law). See generally Joseph W. Singer, A
Pragmatic Guide to Conflicts, 70 B.U. L. Rev. 731, 785-802
(1990) (describing the regulatory interests of states in
contract disputes between : investors relating to
fraudulent sales practices. Plaintiff ...~.er states that the only
concern expressed by the Bureau at the time Imatec applied
for registration related to the financial condition of Imatec.

47. Plaintiff controverts paragraph 47 of
Defendant’s Rule 12(g) Statement to the extent it implies that
A.S. Goldmen engaged in fraudulent sales practices with
respect to Imatec securities.

48. Plaintiff controverts paragraph 48 of
Defendant’s Rule 12(g) Statement to the extent it implics that
A.S. Goldmen engaged in fraudulent sales practices with
respect to sales of Imatec securities. Furthermore, plaintiff
disputes that the proposed application of Section 60 to
prohibit the sale of securities to residents of states, other than
New Jersey, in which those securities are qualified for sale,
furthers New Jersey’s interest in preventing New Jersey
residents from becoming victims of fraud. The Bureau also
has failed to produce evidence to support its claim that the
hypothetical “three-step scheme” has occurred or that
registration of securities in New Jersey would protect New
Jersey residents from fraud, where the securities are sold to
residents of states (other than New Jersey) in which the
securities are qualified for sale.

1’ Because the Bureau submitted two “undisputed” statements of fact
under the number 46, A.S. Goldmen controverts these statements with two
responses numbered 46.

157a

STATEMENT OF FACTS ALLEGED
BY DEFENDANT TO BE DISPUTED

It is inappropriate for a party moving for summary
judgment to submit a Statement of Facts Alleged to be
Disputed. A party moving for summary judgment bears the
burden of demonstrating that it is entitled to judgment as a
matter of law and that there is mo genuine issue as to any
material fact. The Bureau’s purported justification for
including such a Statement — i.e., “it has put evidence in the
record to prevent Goldmen from gaining any advantage from
attempting to use these alleged facts to its advantage” — is
both incomprehensible and improper. A.S. Goldmen,
therefore, does not respond to the Bureau’ s Statement of Facts
Alleged to be Disputed.

PLAINTIFF’S STATEMENT OF UNDISPUTED FACTS

i. Imatec filed a registration statement with the
Securities and Exchange Commission (“SEC”) on May 13,
1996.

a: The registration statement filed with the SEC
became effective at 4:00 p.m., October 28, 1996.

3. Orrick, Herrington & Sutcliffe, counsel for
A.S. Goldmen, submitted a Final Blue Sky Memorandum on
October 29, 1996, stating that A.S. Goldmen could sell
Imatec securities, subject to certain conditions, to residents of
sixteen states, which states did not include New Jersey.

4 A.S. Goldmen began selling Imatec securities
to residents of states in which those securities were qualified
for sale at 9:30 a.m. on October 29, 1996.

De A.S. Goldmen programmed its trading
computers to block sales of Imatec securities to residents of
states in which Imatec securities were not qualified for sale,
which states included New Jersey.

6. After the Imatec offering was completely sold,
A.S. Goldmen began trading Imatec securities in the
aftermarket.

7. On November 8, 1996, the Bureau informed
A.S. Goldmen that it was considering issuing a Cease and
Desist Order.

8. On November 12, 1996, A.S. Goldmen filed a
declaratory judgment action seeking a finding that the
proposed application of Section 60 to prohibit brokers located
in New Jersey from soliciting, offering or selling securities
that are not registered or exempt from registration in New
Jersey to residents of states (other than New Jersey) in which
those securities are qualified for sale violates the Commerce
Clause of the United States Constitution.

9. On November 13, 1996, the Bureau served on
A.S. Goldmen a Cease and Desist Order demanding that A.S.
Goldmen immediately cease trading Imatec securities from its
New Jersey office.

10. On November 14, 1996, Judge Debevoise
entered a temporary restraining order against the Bureau

precluding the enforcement of Section 60 against A.S.
Goldmen.

11. On November 20, 1996, Judge Debevoise
conducted a hearing and entered a preliminary injunction
finding that A.S. Goldmen was likely to succeed on the merits
of its contention that the application of Section 60 to prohibit

159a

brokers located in New Jersey from soliciting, offering or
selling securities that are not registered or exempt from
registration in New Jersey to residents of states (other than
New Jersey) in which the securities are qualified for sale
violates the Commerce Clause of the United States
Constitution.

Dated: April 7, 1997

PAUL, WEISS, RIFKIND, WHARTON
& GARRISON

By:_/s/ Brad Karp
Martin Flumenbaum (MF-9067)
Brad S. Karp (BK-3702)

PAUL, WEISS, RIFKIND, WHARTON
& GARRISON

1285 Avenue of the Americas

New York, New York 10019-6064

(212) 373-3000

-and-

160a

SAUL, EWING, REMICK & SAUL

By: _/s/ Michael A. Lampert

Michael A. Lampert (ML-1064)

SAUL, EWING, REMICK & SAUL
214 Carnegie Center, Suite 202
Princeton, New Jersey 08540

(609) 452-3100

Attorneys for Plaintiff
A.S. Goldmen & Company, Inc.

16la

Exhibit A

ORRICK, HERRINGTON & SUTCLIFFE

August 8, 1996

(212) 506-5393

VIA FAX (201) 504-3601 &
FEDERAL EXPRESS

Mr. Joseph Allessie

Department of Law and Public Safety
Bureau of Securities

153 Halsey Street, 6th Floor
Newark, New Jersey 07101

Re: Imatec, Ltd.
File No. SR-9277

Dear Mr. Allessie:

Please be advised that we wish to withdraw without
prejudice the application filed on behalf of the above-
captioned issuer. There have been no offers or sales made in
your state, nor will there be any offers or sales made in your
state relating to this offering unless otherwise registered or an
exemption from registration is available.

162a

Furthermore, the Company will consent not to sell any
of its securities under any of the non-issuer exemptions
provided for under N.J.S.A. 49:3-50(b).

Very truly yours,

/s/ Marlene Reed
Marlene Reed

163a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_0492%3A2. Public record. Not legal advice.