author: Bradley D. Jesson, Special Justice.

text:
    Glenn R. SCHULTZ and C. Murrelle WATKINS v. RECTOR-PHILLIPS-MORSE, INC. et al
    76-264
    552 S.W. 2d 4
    Opinion delivered June 6, 1977
    (In Banc)

      Moses, McClellan, Arnold, Owen & McDermott, by: Wayne W. Owen, for appellants.

      Rose, Nash, Williamson, Carroll, Clay & Giroir, for appellees.

      Harvey L. Bell, Securities Comm’r, for State of Arkansas Securities Dept., Amicus Curiae.
   Bradley D. Jesson, Special Justice.

This appeal involves two separate lawsuits, one by Glenn R. Schultz and one by C. Murrelle Watkins, each filed in separate divisions of the Pulaski Chancery Court on the same date, for the recovery of $47,000.00 each, against the sellers of alleged unregistered securities. The sellers of the alleged securities were the Defendants and Appellees, Rector-Phillips-Morse, Inc., W. F. Rector and Byron R. Morse. The $47,000.00 amount represents the purchase price of joint venture interests which the Appellants purchased in an apartment complex. The Appellants contend that these interests constitute unregistered securities. In the suit they seek recovery of the amount of the purchase price, together with interest from the date of the purchase, less amounts received as dividends therefrom, plus attorneys’ fees, all in accordance with Ark. Stat. Ann. § 67-1256 (Repl. 1966).

The two lawsuits arose out of basically the same transaction. The Appellants each purchased an interest in a joint venture, promulgated by Rector-Phillips-Morse, Inc., to construct a garden-type apartment complex at Stuttgart, Arkansas. The project was referred to as “Stuttgart 221 ”, the “221 ” being the designation assigned this type of project pursuant to the Federal Housing Administration Act. The general scheme of the operation was that the sponsor of the project would raise the equity capital, and the Federal Housing Administration would guarantee a loan to supplement that equity toward financing the entire project. The plan of this operation was set forth by Rector-Phillips-Morse, in a “confidential information”, which constituted an offer to certain individuals interested in taking advantage of defined tax losses under what is commonly referred to as a “tax shelter” investment. This particular project was severed into 10% interest “units”.

Rector-Phillips-Morse was a substantial real estate concern headed by the late Billy Rector. Rector and Byron Morse, principals in Rector-Phillips-Morse, Inc., and its affiliated companies, through their employees, delivered the “confidential information” which was in the nature of an offer to sell the 10% units to certain individuals. The Appellants herein were informed of the offer to sell by Vernon Giss, who had received a “confidential information”. The Appellants indicated interest in the investment and they contacted representatives of Rector-Phillips-Morse. The Appellant Watkins met with representatives of Rector-Phillips-Morse, and the nature of the project was discussed with him. Watkins, in turn, conveyed this information to Schultz. Thereafter, each of the Appellants subscribed to two units, being 20% participation each in the project. A 50% participation was sold to Central Distribution Centers, Inc. and a 10% interest, or one unit, was sold to E. DeMatt Henderson. All of the percentage ownerships were subject to a 1% ownership interest retained by a Rector-Phillips-Morse subsidiary, and a 1% interest retained by a Pickens-Bond Construction Company subsidiary, known as Apartment Developers Corporation. The cost of the two units to each of the Appellants was $47,000.00.

In the “confidential information” there was a computation provided by Rector-Phillips-Morse which showed the approximate loss deductions each one of the investors might anticipate taking for the next 40 years. The “confidential information” also stated that the books of the joint venture would be audited by an independent certified public accountant who would furnish annually a partnership income tax return showing the amounts which each investor was entitled to take as a deduction from his income for tax purposes.

Both of the Appellants are Vice-Presidents of Stephens, Inc., an investment firm headquartered in Little Rock. Both are licensed as stockbrokers by the National Association of Securities Dealers, and have long experience in the brokerage of securities. They sought this investment primarily as a tax shelter, because each was in a high, personal income tax bracket.

The “Stuttgart 221 ” project initially was to be a joint venture between a subsidiary of Rector-Phillips-Morse and a subsidiary of Pickens-Bond Construction Company. However, after the arrangements for the construction were made, and some time after the project was under way, Phillips-Morse Construction Company, a subsidiary of Rector-Phillips-Morse, withdrew from the active construction of the project, and Apartment Developers Corporation, the Pickens-Bond Subsidiary, completed the project.

In November of 1972, the four investors, Schultz, Watkins, Central Distribution and Henderson, together with Apartment Developers Corporation, the Pickens-Bond subsidiary, and Phillips-Morse Construction Company, executed a “joint venture” agreement, undertaking this project and outlining the rights, duties and obligations of all of the owners of it. The corporation known as Stuttgart Apartments, Inc. had been formed in August of 1972, for the purpose of taking title to the apartment project. Stuttgart Apartments, Inc. still own title to the land, but has executed a trust agreement acknowledging that it holds title as trustee for the benefit of the four investors and Apartment Developers Corporation and Phillips-Morse Construction Company. The Board of Directors of Stuttgart Apartments, Inc. consists entirely of employees of Rector-Phillips-Morse, with the exception of one representative who was an officer of Pickens-Bond. Under the terms of the Trust Agreement, Stuttgart Apartments, Inc., as Trustee, was given full power to develop, manage, mortgage or sell the property of the joint venture and to enter into contracts with third parties upon such terms as the Trustee deemed reasonable. In this connection, Stuttgart Apartments, Inc. executed the mortgage to the Federal Housing Administration and received all of the draws from the company temporarily financing the project, and in turn, disbursed all of such funds. The Trustee also contracted to manage the apartments, which, when fully rented, would pay to the Trustee a management fee of $1200.00 per month.

After the Appellants and the other two “investors” had paid the full amount of their investment, Rector-Phillips paid to itself from the investment funds a “consultation fee” of approximately $28,000.00. In addition it was to receive an annual consultation fee of $100.00. Other remunerations were received by Rector-Phillips-Morse indirectly through commissions paid to Rector-Means and Roland, an insurance agency having overlapping ownership with Rector-Phillips-Morse.

After the first year’s operation of the apartments, the Appellants were furnished a partnership return in accordance with the “confidential information”, which showed that each of them was entitled to take some $15,000.00 loss deduction. They took this loss on their individual tax returns and the Internal Revenue Service, on audit, disallowed a substantial amount of the claimed loss. While it is not clear in the record, it appears that the Appellants and the IRS are still in a dispute concerning the validity and amount of the claimed loss. In any event, the IRS did make a deficiency assessment against both of the Appellants, and it again appears from the record that this was based largely upon the IRS contention that many of the “start up” expenses should have been capitalized and deducted over a period of years, rather than taken the first year. The Appellants have likewise taken tax deductions based on their ownership interest in the apartment complex for each of the tax years thereafter. They have each received income from the investment, including some $3,100.00 in income from the operation of the apartments during the pendency of this action. The apartment complex has had a successful operation and has a ninety-seven percent (97%) occupancy rate.

After learning of the deficiency assessments by the Internal Revenue Service, the Appellants tendered their interest in the joint venture back to the Appellees as provided by statute, and asked for a rescission of the sale, which was refused. These actions were then commenced.

The Appellants contend that the interest in the joint venture in the Stuttgart 221 project is a security within the meaning of the Arkansas Securities Act, and that these securities were not registered and were not exempt from registration. There is no allegation of any fraud or misrepresentation in connection with the Appellants’ purchase of the joint venture interest.

In the trial below, the learned Chancellor held that the interest in the joint venture purchased by the Appellants constituted securities. He found, however, that the private offering exemption, Ark. Stat. Ann. § 67-1248(b)(9) (Supp. 1975) and Rule 8, F(3) of the Arkansas Securities Division, were applicable to the transaction, and that, therefore, there was no violation of the Securities Act. The Chancellor further found that the Appellants were trained, knowledgeable and experienced in the field of securities, and that their claims for rescission were, in any event, barred by laches and waiver. In determining the outcome of this case on appeal, this Court must review each of these findings.

I. DID THE JOINT VENTURE INTERESTS PURCHASED BY APPELLANTS CONSTITUTE SECURITIES WITHIN THE MEANING OF THE ARKANSAS SECURITIES ACT?

The term “security” is defined in the Arkansas Securities Act, Ark. Stat. Ann. § 67-1247(1), (Repl. 1966) as:

“ ‘Security’ means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; variable annuity contract; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as a ‘security’ or any certificate of interest or participation in, temporary or interim certificate for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. ‘Security’ does not include any insurance or endowment policy or annuity contract or variable annuity contract issued by any insurance company.”

The Appellants’ contention is that the joint venture interest which they purchase constituted an “investment contract” or a “certificate of interest or participation in a profit-sharing agreement” within the definition quoted above.

This Court recognizes that regardless of labels, the Arkansas Securities Act was designed to protect both investors in common stock and those persons who in substance are the investors in the disguised business venture of another. This investor protection is accomplished through the definition of security. The definition should be flexible enough to encompass the endless succession of new and innovative or old and tried promotional schemes, where the promoters, by design, seek to risk the money or property of others in their venture. Recent stock market trends, coupled with the existing income tax structure, and other elements, including inflation, have had a material effect on the attitude of Arkansas citizens as to where to place their investment capital. As is graphically illustrated in the facts of the case before us, tax consequences of any investment have become, in the eyes of many, the predominant factor for gauging the success or failure of any venture. Investment schemes are now promoted perhaps more on what the tax losses to be generated by an investment will be rather than the income derived from the investment. It is paradoxical that because of the income tax structure, an investment which generates profit can be a bad investment, while a venture which generates a substantial paper loss becomes a good investment. With such shifting attitudes, there has been a rise in what initially appear to be new and innovative financing methods, for the creation of “tax sheltered” investments. Co-partnerships with public investors have recently been revitalized as a vehicle of conducting a business venture. The sale of limited partnership units in ventures ranging from oil and gas leases to herds of cattle, has come into vogue. Accordingly, if the Arkansas Securities Act is to protect the citizens of this state, then our definition of what constitutes a security must necessarily depend upon an analysis of all of the factors involved in any given transaction.

The “investment contract” and “certificate of interest or participation in any profit-sharing agreement” security, frequently encompasses those unconventional means used by promoters to finance their ventures. This Court has not previously defined these terms. Arkansas adopted essentially the Uniform Securities Act as the Arkansas Securities Act in 1959, Ark. Stat. Ann. § 67-1235, (Repl. 1966) et seq. Thirty-three other states have likewise adopted, in essence, the Uniform Securities Act. The Arkansas Securities Act of 1959 is remedial, and remedial legislation should be liberally construed. Chicago Mill & Lumber Co. v. Smith, 228 Ark. 876, 310 S.W. 2d 803 (1958).

The federal view of what constitutes an investment contract was first cited by the United States Supreme Court in Securities and Exchange Commission v. C. M. Joiner Leasing Corporation, 320 U.S. 344, 64 S. Ct. 120, 88 L. Ed. 88 (1943). There the promoters engaged in a campaign to sell assignments of oil leases covering some 4,700 acres. Leasehold subdivisions offered never exceeded 28 acres, and all buyers were given an opportunity to pay for their leasehold interest in installments. The driller agreed to drill a test well, financed primarily from the resale to the public of small parcels of lease acreage. The United States Supreme Court held that this scheme did not constitute simply sales and assignments of legal and legitimate oil and gas leases, which were only sales of interests in land. The Court noted that it was an economic interest in the well-drilling undertaking that produced the instruments that the promoters were selling, and gave to them most of their value and all of their lure. In reversing the case, the Supreme Court of the United States stated:

“Nor can we agree with the court below that defendants’ offerings were beyond the scope of the Act because they offered leases and assignments which under Texas law conveyed interests in real estate. In applying acts of this general purpose, the courts have not been guided by the nature of the assets back of a particular document or offering. The test rather is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect. In the enforcement of an act such as that it is not inappropriate that promoters’ offerings be judged as being what they tvere represented to be. [Emphasis added].”

The next United States Supreme Court case defining an unconventional security as an investment contract, evolved from Securities and Exchange Commission v. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946). In that case the promoter owned large tracts of citrus acreage in Florida. The prospective customer was offered both a land sales contract and a service contract, after having been told that it was not feasible for the prospective customer to invest in a grove unless service arrangements were made. The purchases were usually made in narrow strips of land, so that an acre consisted of one row of 48 trees. The service contract was generally of a ten year duration, without the option of cancellation, and gave the service company full and complete possession of the acreage, with full direction over what crops to plant, etc. In the finding of the term “investment contract” in the Howey case, the United States Supreme Court said:

“. . . an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the . physical assets employed in the enterprise. ...”

In the years following Howey, some courts have placed a literal emphasis on the Howey formula, while others recognized the remedial purpose of the Federal Securities Laws, and refused to give a mechanical value to Howey. For example, the Ninth Circuit Court of Appeals, in SEC v. Glenn W. Turner Enterprises, Inc., 474 F. 2d 476 (9th Cir. 1973), found an investment contract to exist even though the investors were contributing some effort in a pyramiding investment program.

The Hawaiian View

Hawaii, like Arkansas, has adopted the Uniform Securities Act. In State of Hawaii v. Hawaii Market Center, Inc., 52 Hawaii 642, 485 P. 2d 105 (1971), the Supreme Court of Hawaii was called upon to define the term “investment contract”. In so doing, the Hawaiian court went further than the United States Supreme Court in interpreting its Act, as follows:

“The salient feature of securities sales is the public solicitation of venture capital to be used in a business enterprise. . . . This subjection of the investor’s money to the risks of an enterprise over which he exercises no managerial control is the basic economic reality of a security transaction. . . . Any formula which purports to guide courts in determining whether a security exists should recognize this essential reality and be broad enough to fulfill the remedial purposes of the Securities Act. Those purposes are (1) to prevent fraud, and (2) to protect the public against the imposition of unsubstantial schemes by regulating the transactions by which promoters go to the public for risk capital. HRS § 485-10(3). Therefore, we hold that for the purposes of the Hawaii Uniform Securities Act (Modified) an investment contract is created whenever:
“(1) An offeree furnishes initial value to an offer- or, and
“(2) a portion of this initial value is subjected to the risks of the enterprise, and
“(3) the furnishing of the initial value is induced by the offeror’s promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind, over and above the initial value, will accrue to the offeree as a result of the operation of the enterprise, and
“(4) the offeree does not receive the right to exercise practical and actual control over the managerial decision of the enterprise.
“The above test provides, we believe, the necessary broad coverage to protect the public from the novel as well as the conventional forms of financing enterprises. Its utility is best demonstrated by its application to the facts in the instant case.”

The Minnesota View

The Supreme Court of Minnesota recently declined to adopt the Federal view set forth in Howey, as being exclusive under its securities laws. See State of Minnesota v. Investors Security Corporation, 297 Minn. 1, 209 N.W. 2d 405 (1973). Perhaps the pioneer case of what constitutes an investment contract is set forth in State v. Gopher Tire & Rubber Co., 146 Minn. 52, 177 N.W. 937 (1920). There the Minnesota Supreme Court stated:

“The purpose of the statute is to protect the public against imposition. It is a new form of regulatory law which, in the course of a few years, has swept over 33 states. It has been said that its popular name indicates the evil at which it is aimed, that is, speculative schemes having no more basis than so many feet of blue sky, . . . and that it is intended to put a stop to the sales of shares in visionary oil wells, non-existent gold mines, and other ‘get-rich-quick’ schemes, calculated to despoil credulous individuals of their savings. It is a proper and needful exercise of the police power of the state and should not be given a narrow construction; for it was the evident purpose of the Legislature to bring within the statute the sale of all securities not specifically exempted.”

The Minnesota Court then went on to say:

“It is better to determine in each instance whether a security is in fact of such a character as fairly to fall within the scope of the statute. ...”

We agree with the general approach taken by the Minnesota Supreme Court that the definition of a security within the meaning of the Arkansas Securities Act should not be given a narrow construction, and that it is better to determine in each instance from a review of all of the facts, whether an investment scheme or plan constitutes an investment contract, or a certificate of interest or participation in a profit-sharing agreement, within the scope of the statute.

In applying these principles to the facts in the case at bar, we are convinced that the so-called joint venture interests purchased by the Appellants constituted securities within the meaning of the Arkansas Securities Act. This transaction simply cannot be characterized as the sale of an interest in real estate. The entire scheme for marketing and managing the apartment complex was put together in one single package by Rector-Phillips-Morse. That corporation and its affiliates organized, constructed, managed and controlled the properties of the joint venture. The “units” were sold to investors as a “tax shelter” and upon the basis that the entire project would be constructed, managed and controlled by Rector-Phillips-Morse or its affiliated companies. However, the risk of loss of money actually invested was placed squarely on the investors, not only for their capital contributions, but also for any additional cash that would be required to make the payments to keep the property from going into foreclosure. In no sense was this a partnership in which a number of person s expected to pool their talents and capital and reap the benefits from their own expertise and abilities. The Stuttgart 221 investors were mere passive contributors of risk capital who placed their money in an investment program labeled a “joint venture”. However, the wording of the Trust Agreement and the Joint Venture Agreement, set forth a clear wall of difference between the promoters and the investors.

Legal scholars whose expertise is in security matters have opined that certain general partnership and joint venture units may be securities. See 1 LOSS, SECURITIES REGULATIONS 503-506 (2d ed. 1961); Soward, Fed. Sec. Act in 11 BUSINESS ORGANIZATIONS-SECURITIES REGULATION § 2.01 [12] (1971), and Long, Partnership, Limited Partnership, and Joint Venture Interests as Securities, 37 Mo. L. Rev. 581 (1972).

By this holding, we hasten to add that by no means are all general partnerships or joint venture units securities within the meaning of the Arkansas Securities Act. It is not the label that determines whether these units are securities, but the economic substance of the financing of the venture. Here, Rector-Phillips-Morse put the entire transaction together in a package. That package included the FHA commitment, the land, the construction of the apartments, the management of the apartments, the collecting of the rent, the making of the payment, and even granting to the trustee the authority to sell the entire complex. The investors were strictly passive investors who were buying an interest in a tax shelter with apparently a long-term hope of realizing capital gains on their investments. In short, when the transaction is examined as a whole, it constitutes the sale of securities within the meaning of the Arkansas Securities Act.

II. DID THE SECURITIES QUALIFY FOR AN EXEMPTION FROM REGISTRATION PURSUANT TO THE ARKANSAS SECURITIES ACT?

Section 7 of the Arkansas Securities Act, Ark. Stat. Ann. § 67-1241 (Repl. 1966) provides that it is unlawful for any person to offer or sell any security in this state unless (1) it is registered under the Act, or (2) the security or transaction is exempted pursuant to Section 14 of the Act, Ark. Stat. Ann. § 67-1248 (Supp. 1975). It is admitted by all concerned that the Stuttgart 221 joint venture investment program was not registered under the Act, and it is likewise admitted that the Appellees did not file for an exemption from registration as required by Section 14(f), Ark. Stat. Ann. § 67-1248(f) (Supp. 1975).

The Appellees contend that the transactions involving the Stuttgart 221 units were exempt from registration requirements as being one involving a private offering. Ark. Stat. Ann. § 67-1248(b)(9) describes this exemption as follows:

“(9) any transaction pursuant to an offer directed by the offeror to not more than twenty-five (25) persons (other than those designated in paragraph (8) of this State during any period of twelve (12) consecutive months, whether or not the offeror or any of the offerees is then present in this State, if (A) the seller reasonably believes that all the buyers in this State are purchasing for investment, and (B) no commission or other remuneration is paid or given directly or indirectly for soliciting any prospective buyer in this State; ...”

Ark. Stat. Ann. § 67-1248(f) provides:

“(f) Before any transaction shall be executed as an exempted transaction under Section 14(b)(9), (10) or (11) a proof of exemption must be filed with the Commissioner. The proof of exemption shall contain a statement of the grounds upon which the exemptidn is claimed and a declaration of which subsection of Section 14 [this section] the exemption is claimed under. For every such proof of exemption filed with the Commissioner there shall be paid to the Commissioner a filing fee of ten dollars ($10.00).”

As heretofore stated, no proof of exemption was filed by Rector-Phillips-Morse, and therefore, the Appellees rely upon Rule 8(f)(3) of the Securities Commissioner of the State of Arkansas, effective September 1, 1972, which provides:

“The filing requirements of Section 14(f) [§ 67-1248(f)] are not applicable where five persons or less form a corporation or limited partnership, or enter into a trust agreement and receive the securities which are issued pursuant to the incorporation, where the requirements of Section 14(b)(9) are otherwise complied with.”

If this Rule is to apply here, the Appellees must first prove that they did not receive any commission or other remuneration for soliciting prospective buyers of the joint venture units which we have determined to be securities. Admittedly, Rector-Phillips-Morse put together the package which comprised the Stuttgart 221 project. It then contacted individuals by means of the “confidential information” and solicited the purchase by those individuals of units in this project. In the “confidential information” it was stated that Rector-Phillips-Morse intended to receive a profit of approximately $48,000.00. Because of cost overruns, it appears that the actual amount received was approximately $28,-000.00. This includes a fee in the sum of $20,306.00 for “consulting services” received from the proceeds of the joint venture units sold to the investors. In addition, provisions were made for an additional payment of $100.00 per year for “consulting relationship”. It was admitted that $20,000.00 of the “consulting” fee was paid when liquid assets in the form of payment for these “units” first became available.

Upon the showing of a sale of a security, the burden of proof shifts to the seller to show that the security was either registered, or was not required to be registered under the terms of the Arkansas Securities Act. A necessary ingredient in this showing is that no commission was paid, either directly or indirectly, for the solicitation for the sale of the security. We find from the evidence that the Appellees have not met this burden. Indeed, the record is silent as to whether or not any employees of Rector-Phillips-Morse actually received commissions based solely upon the sale of these joint venture units, but the record is clear that Rector-Phillips-Morse itself did receive over $20,000.00 in cash for “consulting fees”. When all of the evidence is viewed even in a light most favorable to the Appellees, we cannot escape the conclusion that Rector-Phillips-Morse did, in fact, receive remuneration, both direct and indirect, for the solicitation and sale of the joint venture units. Therefore, the Appellees’ contention that the securities were exempt from registration pursuant to Rule 8(f)(3) of the Arkansas Secur ities Commissioner must fail.

Because of the finding that such remuneration was paid, the question of whether or not more than five persons received securities becomes moot. Moreover, in this connection we would note that Rule 8(f)(3) is designed to permit the formation of small numbers of investors into their own designed business venture, such as a family store, without the filing of other documents to perfect an exemption under the Arkansas Securities Act. Rule 8(f)(3) was not designed for use by a promoter to create a venture in which the promoter was to receive direct or indirect commissions, fees, or other remunerations in connection with the organization, development and operation of the enterprise.

III. WERE THE KNOWLEDGE AND BACKGROUND OF THE APPELLANTS AND THEIR ACTIONS AND INACTIONS SUFFICIENT TO CONSTITUTE LACHES, WAIVER OR ESTOPPEL SO AS TO BAR THEIR RIGHT OF RESCISSION?

The Appellants are knowledgeable, experienced businessmen, and are registered stock brokers. Both are college graduates, and have maintained personal investments in securities of up to $100,000.00. The Appellees did not contact the Appellants to sell them joint venture interests in the Stuttgart 221 project. Rather, both were seeking “income tax shelters” and upon hearing of this project, they took the initiative and contacted the Appellees. The Appellants do not seek rescission of the purchase based upon any fraud or misrepresentations. In fact, they candidly admit that the project is doing extremely well. Their primary reason for seeking rescission is apparently that the Internal Revenue Service has not granted them the income tax deductions which they claimed. However, the Appellants have taken personal tax deductions during the years they have owned an interest in this project, in an amount in excess of their capital contribution. After enjoying the benefits of such income tax deductions, they now seek a court of equity to refund their purchase price and pay them interest and attorneys’ fees, not because of any fraud or misrepresentation, but rather because of noncompliance with technical registration requirements. In Lane v. Midwest Bank Shares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972) District Judge, and now Circuit Judge, Henley held that the sophistication and relative knowledge of the buyer were relevant considerations in determining his reliance upon representations. Judge Henley found it difficult, even unrealistic, to apply conventional “blue sky laws” concepts to the aggressive investor in the Lane litigation. He concluded the Federal Rule 10b-5 and the Arkansas Securities Act should not be applied to rescue the buyer from the results of his own improvidence. Security laws are aimed at qualifying “the doctrine of caveat emptor — not to establish a scheme of investors’ insurance.” List v. Fashion Park, Inc., 340 F. 2d 457, 463 (2nd Cir. 1965).

Certainly it is not the intention of the Arkansas Securities Act to grant knowledgeable buyers of securities an undue advantage over sellers who are substantially less informed in the field. It was never intended that the securities laws be used as a tool of sophisticated investors to invest in projects or promotional schemes and reap the tax benefits accruing from such ownership, and then have the option several years later to determine whether they want to retain the investment or get their money back with interest while presumably retaining the tax benefits.

Likewise, a party to a contract for the purchase of stock may, of course, be barred from maintenance of an action for rescission by laches, unless he acts promptly to repudiate the contract within a reasonable time after discovery of the facts entitling him to rescind. 12A FLETCHER CYC. CORP § 5610.

When a statute of limitations applies to equitable as well as legal actions, it is clear that laches may still bar a plaintiff in equity before the expiration of the state statute — at least where the state statute does not provide otherwise — and perhaps (since laches is a matter of equity jurisprudence) even when it does. Ill LOSS, SECURITIES REGULATIONS 1777.

Here the Appellants purchased their interest in November of 1972. At the time of the purchase, the Appellant Schultz considered that the interest he was purchasing could be subject to securities registration requirements, but did not discuss this with the seller. No one ever represented to the Appellants either personally or in the “confidential information” that the interests were securities, either registered or exempt from registration. In fact, according to the testimony of the Appellees’ officers, the possibility that the interests which they were selling might be securities or might need to be registered had not occurred to them. Each of the Appellants deducted a total of $30,000.00 on their 1972 and 1973 personal income tax returns. Even after suit was filed in January 1975, the Appellants reported an additional tax deduction of $21,400.00 on each of their 1974 returns. Likewise, after the filing of the suit, they each accepted $3,-100.00 in income from the project during 1975.

In applying the doctrine of laches, delay is measured from date of constructive knowledge, not just actual knowledge of the facts entitling the plaintiffs to bring suit. It is well settled that when the question of laches is in issue, the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known to him were such as to put the duty of inquiry upon a man of ordinary intelligence. Johnston v. Standard Mining Co., 148 U.S. 360, 13 S. Ct. 585, 37 L. Ed. 480 (1897); Smith v. Olin In dustries, Inc., 224 Ark. 606, 612, 275 S.W. 2d 439 (1955). If this doctrine fails upon men of ordinary intelligence, it certainly would apply a fortiori in this situation, where two well-educated and highly experienced and knowledgeable stock brokers are concerned. A simple inquiry to Rector-Phillips-Morse would have revealed this information at the time of the sale in 1972.

The delay of the Appellants in bringing this matter to the attention of the Appellees, worked to the prejudice of the Appellees, not only in that had it been brought to their attention before the sale, then for a payment of a $10.00 filing fee an exemption presumably could have been obtained, but also prejudiced the present marketability of the Schultz and Watkins interest. In “tax shelter investments” the attractiveness of the investment is based in large measure upon the front-end tax deductions which can be taken during the first few years after construction. These front-end deductions of over $100,000.00 for the interests owned by the Appellants have now been exhausted.

When all of these factors are considered, we agree with the Chancellor below that the conduct of the Appellants, particularly in light of their training and experience, did not constitute the exercise of good faith and reasonable diligence, and that based upon the doctrines of laches and estoppel the doors of the equity court were justifiably closed to them.

In making this finding of estoppel and laches, we are not in any way opening the door to schemes of promoters of unregistered and non-exempt securities whereby they can trap investors into waiving their rights by receiving dividends or taking tax benefits from their investments. Rather, it should be emphasized that these findings are made solely on the basis of the particular circumstances presented by this case.

The judgment of the Chancery Court is affirmed.

George Rose Smith and Byrd, JJ., dissent.

Fogleman, J., not participating.

Conley Byrd, Justice, dissenting. I would reverse the judgment.

The civil liability contained in the Arkansas Securities Act, Ark. Stat. Ann. § 67-1256 (Repl. 1966), provides:

“(a) Any person who (1) offers or sells a security in violation of Section 3, 7, or 17(b), or of any rule or order under Section 15 which requires the affirmative approval of sales literature before it is used, or of any condition imposed under Section 10(d), 11(g), or 11(h) .. . is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at six per cent [6%] per year from the date of payment, costs, and reasonable attorneys’ fees, less the amount of any income received on the security ... .”

The record shows, and the proof is not controverted, that appellants did not receive the income tax deductions represented to them in the prospectus that appellees put out. The record also shows that appellants were not versed in real estate investments and that this information was conveyed to appellees, who were experts in real estate investments. The record also shows that appellants ceased their inquiries into the legal and business ramifications of the tax shelters after appellees told appellants that the law firm of Smith, Williams, Friday and Bowen would handle the legal work and Russell Brown and Company would handle the accounting. The same law firm and accounting firm also handled the legal work and accounting work for appellants’ employer, Stephens, Inc. The record also shows that appellants did not know that the Trust Agreement had not been registered with the Securities Commissioner until August of 1974. Appellants in October, 1974 had a formal meeting with appellees, with counsel present, and demanded a return of their money. This suit was commenced in January, 1975.

Appellants, as registered security dealers under the Arkansas Securities Act, are now in the peculiar position of having to eat and devour their investment. The Arkansas Security Act prohibits appellants from selling or assigning the security for value. A violation thereof is a felony and in addition would result in the revocation of their security license. Consequently, appellants, each with an investment of $47,000 in the Trust Agreement, cannot even pledge their interests to a bank for security. Yet appellees who violated the Arkansas Securities Act are permitted to enjoy the fees and profits received from their violation of the law.

Thus the majority permits appellees to enjoy the fruits of their illegal gains while telling the appellants that as registered and experienced security dealers they have no protection under the Arkansas Securities Act. Of course, as I have pointed out, the Securities Act applies alike to everyone who violates it, however, this Court has decided to make an exception in this case. In doing so the majority ignores the fact that the tax shelter did not live up to the prospectus by which the securities were sold.

For the reasons stated, I respectfully dissent.


source: Caselaw Access Project

author: PER CURIAM

license: Public Domain

text:
    DYKE INDUSTRIES, INC. v. E. W. JOHNSON CONSTRUCTION CO, INC., HIGHLANDS INSURANCE CO., and INSURANCE CO. OF NORTH AMERICA
    76-311
    551 S.W. 2d 217
    June 6, 1977
    (Division I)

      Hubbard, Patton, Peek, Haltom & Roberts, by: William L. Peek Jr., for appellant.

      Potter ¿s? Potter, by: David J. Potter, for appellees.
   PER CURIAM

Appellant brought this action to recover an alleged balance due from appellee construction company (appellee insurance companies are sureties) based on a contract to furnish mill work on a construction project. A jury awarded appellant most of the asserted balance, denied the appellee construction company’s counterclaim and its demand for punitive damages. Thereupon, appellees filed a motion for dismissal of appellant’s action, a sanction provided by Ark. Stat. Ann. § 28-359 (b) (2) (Repl. 1962). Appellees also filed a separate motion asking for a new trial pursuant to Ark. Stat. Ann. § 27-1901 (Repl. 1962). The court rendered an order finding, inter alia, that appellant’s answers to the interrogatories were incorrect and prejudicial to the appellees; the uncontroverted evidence at trial proved the documents, supplied by the appellant in response to appellees’ motion and the court’s order to produce the original documents, were not authentic; and the appellant had failed and refused to obey the court’s pretrial order with respect to the production of the original price bulletin documents and price ceiling information in effect at the inception of the contract. The court set the jury verdict aside, ordered a new trial and, also, the production of the original documents, which the court had previously ordered produced, within 20 days. When the appellant did not produce the documents, insisting it was unable to do so, the court dismissed its action.

We must affirm the trial court, as urged by the appellees, because appellant’s abstract of the record is in noncompliance with Supreme Court Rule 9 (d), Ark. Stat. Ann. Vol. 3A (Supp. 1975), and, as amended, Hirrill v. L. R. Civil Service Comm’n, 259 Ark. 226 (1976). The rule requires the abstract of the record to be a condensation of the pleadings, proceedings, facts and documents in the record “as [is] necessary to an understanding of all questions” presented on appeal. In numerous cases we have found it necessary to affirm for noncompliance with Rule 9 (d). For example, the failure to abstract the pleadings and exhibits, Financial Security Life Insurance Co. v. Powell, 247 Ark. 609, 447 S.W. 2d 64 (1969); Tucker v. Haskins, 243 Ark. 826, 422 S.W. 2d 696 (1968); exhibits — Umholtz v. Allen, Ex’x, 254 Ark. 722, 495 S.W. 2d 874 (1973); Webb v. City of Little Rock, 253 Ark. 385, 486 S.W. 2d 29 (1972); Baker v. Trotter, 253 Ark. 247, 486 S.W. 2d 7 (1972); documentary evidence — Wells v. Paragon Printing Co., 249 Ark.950, 462 S.W. 2d 471 (1971); affidavits and contravening affidavits — Rowe v. Druyvesteyn Const. Co., 253 Ark. 67, 484 S.W. 2d 512 (1972).

Here the transcript and record consists of 877 pages and numerous exhibits. It is true that the appellees supplied certain deficiencies in appellant’s abstract with reference to the testimony. However, we do not have the benefit of an abstract of the complaint, the answer, and the counterclaim (pleadings totaling 24 pages) which would enable us to determine exactly what issues were joined. Also unabstracted are certain documents relating to the inception of the contract, the appellees’ motion and the court’s order granting their motion to compel answers to interrogatories, the court’s letter urging the appellant to comply with its orders, the answers to appellees’ interrogatories, which were supplied in a summary form, representing the answers as being true and correct. None of the numerous exhibits are abstracted, as required by Rule 9 (d), as amended. The appellees contend they are not the originals and questioned them as being fraudulent and, at least, inaccurate. These exhibits appear to be the crux of the controversy between the parties.

Of course, the burden was on appellant to demonstrate error by the court and, as abstracted, we would also affirm for failure to meet that burden had we reached the merits of the case.

Affirmed.

Harris, C.J., not participating.


author: PER CURIAM Darrell Hickman, Justice,

text:
    James MANES v. M.O.V.E., Inc. and NEW HAMPSHIRE INSURANCE Company
    77-4
    552 S.W. 2d 211
    June 6, 1977
    (In Banc)
    [Rehearing denied July 11, 1977.]

      John T. Lavey and Melva Kozinsky, for appellant.

      Lowber Hendricks Jr., for appellees.
   PER CURIAM

Appellant requests this Court to hold that “the award of the Arkansas Worker’s Compensation Commission is not supported by substantial evidence on the record considered as a whole.” However, appellant has not abstracted the opinion or award of the Workmen’s Compensation Commission nor the judgment or decree of the circuit court approving the Commission’s award, if any. Supreme Court Rule 9(d) provides:

“The appellant’s abstract or abridgment of the record should consist of an impartial condensation.. . of only such material parts of the pleadings, proceedings, facts, documents, and other matters in the record as are necessary to an understanding of all questions presented to this court for decision ... .”

Supreme Court Rule 9(e)(2) points out that where “the court finds the abstract to be flagrantly deficient . . . the judgment or decree may be affirmed for noncompliance with the Rule.” We have consistently held that the failure of the appellant to abstract a decree or judgment containing findings of fact or findings of mixed law and fact which are necessary to an understanding of the questions presented to this Court is such a flagrant deficiency as to require an affirmance for failure to comply with Rule 9(d). See Reliable Finance Company v. Rhodes, 252 Ark. 1077, 483 S.W. 2d 187 (1972). Since the issue presented here depends upon a review of the findings and conclusions of the Commission, we must affirm for the deficiency in abstracting.

Affirmed.

Harris, C.J., and Hickman, J., dissent.

Darrell Hickman, Justice,

dissenting.

The majority are affirming this case because the appellant failed to abstract in the briefs the findings of the referee and the commission.

Our Rule 9 provides that we may affirm an appeal if we find a violation of the requirement that the record be abstracted in the brief. The rule does, however, have several other provisions.

First, the failure must be flagrant. In view of our decision in a case overlooking a similar violation, I would not affirm this case on the basis of Rule 9. See Goodloe v. Goodloe, 253 Ark. 550, 487 S.W. 2d 593 (1972).

Second, our rule provides that we may give the attorney an opportunity to supply the deficiency. In this case I would grant that permission and then decide the case on the merits. Necessarily, we must look to the type of lawsuit and the parties involved in enforcing this rule. Also, it is a matter of judgment and I feel that the judgment of the majority in this case is wrong because we have all the facts necessary to make a decision and the severe penalties authorized by Rule 9 should be reserved for obviously flagrant violations which cannot be overlooked. I might add that the appellee in this case has not requested dismissal of this case because of the violation of Rule 9.

Therefore, I respectfully dissent from the majority.

I am authorized to state Harris, C.J., joins in this dissent.


text:
    DAIRYLAND INSURANCE COMPANY v. Louise W. CARTER
    77-14
    551 S.W. 2d 211
    June 6, 1977
    (Division II)

      George L. McWilliams, Donald W. Capshaw and Hubbard, Patton, Peek, Hallom & Roberts, for appellant.

      Williams & Kemp, by: Karlton H. Kemp Jr., for appellee.
   PER CURIAM

Appellant contends that the trial court erred in granting judgment in favor of appellee based on appellant’s waiver of, or estoppel to assert, the right to avoid or forfeit an insurance policy because appellee failed to plead waiver or estoppel as an affirmative ground for relief; in concluding as a matter of law that a payment by appellee prior to a loss by her was sufficient to keep the policy in force; and in awarding $1,000 as reasonable attorney’s fees.

The judgment is affirmed under Rule 9 (e) (2) of the Rules of the Supreme Court of Arkansas [Vol. 3A, Ark. Stat. Ann. (Supp. 1975 p. 118)]. Appellant did not abstract any of the pleadings in the case or the judgment of the court. The case may well turn upon the content of a letter dated April 8, 1976. Appellant states, without record support, as the record is abstracted, that the circuit court’s holding on waiver was based on this letter. We are referred to the record, not the abstract, for support of very broad, general statements made by appellant in its argument in at least three instances, but even in these instances there is no transcript reference. Consequently, we consider the abstract flagrantly deficient.

The judgment is affirmed.


author: John A. Fogleman, Justice.

text:
    AMERICAN SAVINGS & LOAN ASSOCIATION v. W. H. ENFIELD, Judge, Benton Circuit Court
    77-42
    551 S.W. 2d 552
    Opinion delivered June 13, 1977
    (Division 2)

      Crouch, Blair, Cypert & Waters, for petitioner.

      Adams & Wilson, by: Douglas L. Wilson, for respondent.
   John A. Fogleman, Justice.

American Savings & Loan Association asks us to prohibit the Circuit Court of Benton County from proceeding further in a tort action brought against the association in that court by Michael A. Mangione, a resident of Carroll County. The action was for alleged interference with a contractual agreement between Mangione and Mr. and Mrs. Charles Farley for the construction of a dwelling house for them in Eureka Springs. Summons was issued by the Clerk of the Circuit Court of Benton County and was served in that county on the manager of a branch of petitioner American Savings & Loan Association in Rogers. Petitioner appeared specially and moved to quash the summons, contending that the court had no jurisdiction over its person and that the venue was improper. The court denied the motion to quash and gave petitioner 15 days to plead further. Petitioner then commenced this proceeding, questioning the venue. We find that the venue is not improper and deny the writ.

American Savings & Loan Association is a savings and loan association with its principal office or place of business in Springdale, Washington County, and branch offices in Eureka Springs, Carroll County, and Rogers. No act upon which Mangione’s cause of action is based is alleged to have taken place in either Washington or Benton Counties. Petitioner contends that the venue of the cause of action is governed solely by Ark. Stat. Ann. § 27-605 (Repl. 1962) and thus lies in Washington County only. The circuit court, in finding venue in Benton County, held that the section relied upon by petitioner was supplemented by Ark. Stat. Ann. § 27-347 (Repl. 1962), which is Act 98 of 1909. We agree.

The pertinent part of § 27-605 reads:

An action other than those in §§ 84, 85 and 90 [Ark. Stat. Ann. §§ 27-601 - 27-603 (Repl. 1962)] against a corporation created by the laws of this state may be brought in the county in which it is situated or has its principal office or place of business or in which its chief officer resides . . .

Petitioner contended that the words, “may be brought” have been construed to mean “shall be brought.” Perhaps so, prior to the enactment of Act 98 of 1909. But we have not so considered these words since that act was adopted. InBeal-Doyle Dry Goods Co. v. Odd Fellows Bldg. Co., 109 Ark. 77, 158 S.W. 955 (overruled on another point in Anheuser-Busch, Inc. v. Manion, 193 Ark. 405, 100 S.W. 2d 672), we rejected a contention that service, in the county in which the defendant corporation had its principal place of business, issued from a county where the corporation might have had a branch office should not be quashed. The plaintiff in that case relied upon, and we recognized the applicability of, the act now in question, but said that, in order to obtain service upon a defendant under that act the record should show that service of summons was had in compliance with that act. But the record did not show that the corporate defendant had a branch office in the county from which the process was issued or that service was had in that county.

In Ft. Smith Lumber Co. v. Shackleford, 115 Ark. 272, 171 S.W. 99, the act was applied. The corporate defendant had a commissary in Perry County as an adjunct to a logging operation. Process out of the Circuit Court of Perry County was served on the employee in charge. The corporation appeared specially and moved to suppress the service. We affirmed the denial of this motion on the basis of Act 98 of 1909.

In Duncan Lumber Co. v. Blaylock, 171 Ark. 397, 284 S.W. 15, (overruled on another point in Anheuser-Busch, Inc. v. Manion, 193 Ark. 405, 100 S.W. 2d 672), we reversed a judgment of the Circuit Court of Scott County against a corporation, whose principal place of business was in Polk County, because the process was served on the general manager of the corporation in Polk County and not upon the manager of its operation in Scott County. The motion to quash in the trial court was based upon the fact that the corporation was domiciled and had its principal place of business in Polk County. In that case, citing §§27-347 and 27-605 and the two cases above treated, we said:

Under our statutes a domestic corporation must be sued in the county in which it is situated or has its principal office or business, or in which its chief officer resides, or in a county where it has a branch office or other place of business, by service of process upon the agent or employee in charge thereof.

Petitioner casts these cases aside as dicta, insofar as the question of venue is concerned, probably because the word “venue” is not mentioned in any of the opinions. Even if we should agree with appellant’s classification, we adhere to the language of Duncan, for reasons we will state.

We first note, however, that we have, in later cases read the act as we did in Duncan and its two predecessors. We reversed a refusal to quash service of summons in Chevrolet Motor Co. v. Landers Chevrolet Co., 183 Ark. 669, 37 S.W. 2d 873, on the basis that service of process from Fulton County in Pulaski County, where the defendant corporation had its principal office and its chief officers resided, was insufficient basis for jurisdiction of the Fulton County court, emphasizing the fact that the corporation did not keep or maintain a branch office or any other place of business in Fulton County when service was attempted. In Concrete, Inc. v. Arkhola Sand & Gravel Co., 228 Ark. 1016, 311 S.W. 2d 770, we affirmed a circuit court order sustaining a demurrer to venue and jurisdiction in Benton County, where the appellant-plaintiff urged here that the trial court’s action was contrary to our venue statutes. We there said:

*** Since the act contains no venue provisions the action against defendant is governed by Ark. Stats. § 27-605 which fixes venue for actions against domestic corporations. In construing this statute along with Ark. Stats. § 27-347 we have consistently held that a domestic corporation must be sued in the county in which it is situated or has its principal office or business, or in which its chief officer resides, or in a county where it has a branch office or other place of business, by service of process upon the agent or employee in charge thereof. ***

We held that the action was not maintainable against the defendant in Benton County, and that service on the corporation in Sebastian County where its principal place of business was located was properly quashed, becuse it had no place of business in Benton County and none of its officers resided there.

Petitioner argues that, by reason of this statute and the construction given it, the cause of action was not transitory, but that it could only be brought in a county in which its principal office was located or in which its chief officer resided, which, of course, could have been two different counties. Petitioner does not ignore § 27-347. It contends, however, that this staute is one providing for service of summons only, and is not a venue statute or a statute for service of process applying in transitory causes of action. Petitioner’s argument rests only upon the title of the act and its second section dealing with the effect of the act, overlooking the plain language of the act’s first section, the substantive part of the act. That section reads:

That from and after the passage of this Act any and all foreign and domestic corporations who keep or maintain in any of the counties of this State a branch office or other place of business, shall be subject to suits in any of the courts in any of said counties where said corporation so keeps or maintains such office or place of business, and that service of summons or other process of law from any of the said courts held in said counties upon the agent, servant or employee in charge of said office or place of business shall be deemed good and sufficient service upon said corporations and shall be sufficient to give jurisdiction to any of the courts of this State held in the Counties where said service of summons or other process of law is had upon said agent, servant or employee of said corporations.

It does not seem to us that the language of this section could any more clearly state that venue in an action against a domestic corporation can be laid in any county where the corporation maintains a branch office and that service of summons from any court held in such a county upon the person in charge of that office is sufficient to give that court jurisdiction.

The title of an act does not limit its application in Arkansas. See Berry v. Gordon, 237 Ark. 547, 865, 376 S.W. 2d 279; Huff v. Udey, 173 Ark. 464, 292 S.W. 693. Resort is not had to the title for construction of an act, unless the language of the act, unlike the act here, is ambiguous. Commercial National Bank v. Arkansas Children’s Hospital, 256 Ark. 1028, 511 S.W. 2d 640; McMahan v. Board of Trustees of the University of Arkansas, 255 Ark. 108, 499 S.W. 2d 56.

Petitioner says that the second section of the act limits the act to a statute governing service of process only, because to read it as a venue statute would repeal a prohibition against suing a domestic corporation in any county except that in which it maintains its principal office or in which its chief officer resides and that, somehow, the statute would not then be cumulative. Section 2 reads:

This Act shall not be taken and held by the courts of this State as repealing any of the laws of this State now in force and governing and regulating the service of process or summons upon corporations of this State, but shall be by the courts of this State construed and held as cumulative and in aid of the laws of this State now in force.

Petitioner’s misconstruction of this section is best illustrated by petitioner’s analysis of it in its brief, in these words:

The statute, on its face, clearly provides that it did not repeal any other statutes relating to service of process and the act was merely cumulative in the method of service in aid of the above methods.

The statute does not repeal any statute relating to the service of process, but nothing is said to limit its effect upon venue. Providing venue in additional counties is certainly “cumulative” in effect. The section cannot be read to be cumulative only (or merely) to statutes governing the method of service.

Petitioner says that it is inconceivable that a resident of County A (Carroll) can bring an action for tortious interference in County B (Benton), in which it can be served with process, when it has its principal place of business (residence) in County C (Washington). A similar result could be reached if the defendant were an individual residing in County C who was served with process in County B at a branch office of a business maintained by him. This accounts for the great care taken by petitioner to correctly point out that the provisions of Ark. Stat. Ann. § 27-613 (Repl. 1962) are not applicable. Why it should be unthinkable in the case of a corporation, but not an individual, to say the least, is unclear.

The writ is denied.

We agree. Harris, C.J., and Byrd and Hickman, JJ.


author: John A. Fogleman, Justice. Conley Byrd, Justice,

text:
    Phillip Wayne LOOMIS v. STATE of Arkansas
    CR 77-30
    551 S.W. 2d 546
    Opinion delivered June 13, 1977
    (In Banc)

      Don Langston and Hubert Graves, for appellant.

      Bill Clinton, Atty. Gen., by: Jackson Jones, Asst. Atty. Gen., for appellee.
   John A. Fogleman, Justice.

Appellant Loomis was found guilty of the crimes of rape and burglary alleged to have been committed on 3 March, 1976. He alleges three points for reversal, but concedes that one of them depends entirely upon the other two. Since that is so, we will discuss only two points, i.e., alleged error in denying his motions to suppress evidence, first, of fingerprint identification, and then, of his confession. We find merit in neither point and affirm.

Appellant first contends that his fingerprints were taken by illegal detention and the resulting evidence incriminating him was the fruit of the tree thus poisoned, relying entirely on Davis v. Mississippi, 394 U.S. 721, 89 S. Ct. 1394, 22 L. Ed. 2d 676 (1969). He argues that this action is in violation of the Fourth and Fifth Amendments to the U.S. Constitution and Art. 2 §§ 8 and 15 of the Arkansas Constitution. We find no violation of either constitutional provision of either constitution and find this case outside the orbit of Davis. The questioning of Loomis and the taking of his fingerprints were not a part of a “dragnet” operation of the type conducted in Davis, and there was no detention of Loomis for the sole purpose of obtaining fingerprints. The distinctions here outnumber the similarities.

In this case, a well organized investigation, which consumed some 2400 man-hours, was being conducted in the southwestern part of Fort Smith because a series of rapes had taken place in the area in late 1975 and early 1976. The crimes, as reported, fell into a pattern and identifying features given by victims were of considerable similarity. They described a white male, approximately 5’7" to 5'10" (or not over 6’) tall, of medium build, 25 to 30 years of age, weighing 160 to 180 pounds, with short curly hair, and a noticeable body odor, who smelled strongly of cigarettes. A composite drawing of the suspect was made and released to the news media in early March. This drawing was published in a local newspaper. In response, the Fort Smith police department received a number of calls giving the names and addresses of possible suspects. A field investigator went out to locate and interview each such suspect. In all, 177 were interviewed. Of these, 55 were brought to the police department, interviewed and photographed. Only seven of these, one of which was appellant, were fingerprinted. Appellant’s prints matched latent prints which had been taken at the dwelling of the victim in this case. The charge on which appellant was convicted was filed on the day the Fort Smith police department was advised by teletype message from the Federal Bureau of Investigation that comparison of the Loomis fingerprints with those taken at the scene of the crime here charged were “positive for identification.”

The investigation of Loomis came about as a result of the rape of a different victim that was reported at about 4:00 a.m. on March 23, 1976. Detective Sgt. Hatfield arrived at the scene at 4:19. Officer William Champion, in answering the call, stopped a motor vehicle driven by Loomis at high rate of speed approximately 11 blocks from the scene of this alleged rape. Champion stopped the vehicle and asked for the driver’s license. Loomis told Champion he was going to Jenny Lind and Phoenix to meet his brother and take him to work at Southern Steel & Wire Company. Loomis was barefoot, and had a noticeable body odor, described by Champion as a “sweaty, unwashed” type body odor. Champion said that Loomis fit the description of the rapist given police. He noted two things to which he had been alerted in department briefings — Kool cigarettes in Loomis’s car and a lisp in his voice. When Loomis left, he went in the wrong direction for the mission he had indicated. Champion proceeded to the address of the reported rape without passing any other vehicles. He wrote up an interview report.

When Sgt. Hatfield learned of Champion’s encounter with Loomis and Champion expressed the opinion that Loomis was a prime sucpect in the incident that had occurred that morning, Hatfield and Officer Hammond went to the address Loomis had given, attempting to locate Loomis. Hatfield had learned from other officers that Loomis was staying at his mother’s apartment there with a man named James Anderson, but overlooked the fact that one half of a pair of tweezers bearing the initials “J.A.” had been found at the scene of one of the rapes.

When Hatfield and Hammond did not see the vehicle Loomis had been driving at the address he had given, they did not stop, but returned at 8:30 a.m., and, having then seen the vehicle there, went to the door and asked for Loomis. His mother had come to the door. She said that she would get him. When Loomis came to the door a few minutes later, Hatfield asked if he would mind coming to the police department and talking to the officers. Appellant agreed to do so, and, after he went back into the house to dress, was taken there in an unmarked police vehicle, without having been placed under any type of physical restraint, searched or even frisked.

He was taken into an interview room, advised of his rights, told that he was a suspect, and interviewed for 2Vi hours. The officers said that Loomis was nervous, vague and evasive during this interview. Toward the end of this session, he was asked to submit to the taking of photographs and fingerprints. He consented and the prints then taken were forwarded to the FBI. Loomis was asked by Hatfield if he would take a polygraph test, who said he would “cut him loose if he passed it.” Loomis had not previously requested an attorney, but at this point said that he did not want to take this test until he talked with an attorney. The officers then took Loomis to the public defender’s office, and advised Mr. Graves, Deputy Public Defender, of the situation. After Loomis emerged from the office of Graves, where there had been a private consultation between him and Graves, Loomis told the officers that he had been advised to stay away from the polygraph if he was guilty but to take it if he was innocent. He agreed to return to the police department for this test at 2:00 p.m. and was taken home by Officer Hammond. Before Loomis was taken home, James Anderson, who had been waiting at the police department and who accompanied Loomis and the officers to the Loomis residence, was allowed to talk with Loomis. When Loomis did not appear for the polygraph test, the officers did not investigate until the following day, when they learned that Loomis “had packed up everything and left” after he returned from the police department.

None of the testimony of the officers was refuted. Loomis did not testify at the in camera hearing on the motions to suppress. The evidence in this case simply does not show the “investigatory seizure” or detention that characterized the Davis situation. Furthermore, even though the officers did not feel that they had probable cause to arrest Loomis at the time of the interview during which the fingerprints were taken, Loomis, unlike Davis, had become the primary focus of the investigation.

The police procedures in this instance were far different from those employed in Davis. The only description the officers had of the rapist in that case was that he was a negro youth. The suspect there was only 14 years of age. The only reason for his being a suspect was the fact that he had occasionally been employed by the victim as a yard boy. He was exhibited to her on several occasions but she never identified him as her assailant. The state there not only conceded that the police had no probable cause for the detention of the accused, but never contended that the accused voluntarily accompanied the police to headquarters or willingly submitted to the taking of his fingerprints. The state only contended that the detention was during the investigatory, not the accusatory, stage and that probable cause is not required for detention for the sole purpose of taking fingerprints. Here, the testimony that Loomis voluntarily accompanied the police officers to the police department and voluntarily submitted to the taking of his fingerprints is uncontradicted. The reasons for police questioning of Loomis and being interested in taking his fingerprints at least approached probable cause for his arrest; but, at this stage, the police officers were properly acting cautiously and with admirable restraint. We find Davis wholly inapplicable.

When we view the totality of the circumstances surrounding the confession of Loomis, we cannot say that the finding of the circuit judge that it was voluntarily given was clearly against the preponderance of the evidence. Appellant contends that it resulted from his illegal detention on March 23, 1976, and that, when it was given, he was denied the assistance of counsel and was promised psychiatric help if he made a statement.

After the charge was filed and a warrant issued, Loomis was taken into custody in Hot Springs. Detective Sgt. Brooks was dispatched, along with Sgt. Roscoe Smith, to return Loomis to Fort Smith. As soon as Brooks saw Loomis, he advised Loomis of his constitutional rights and received an affirmative answer when he asked whether Loomis understood those rights. Loomis was advised of the crime with which he was charged and asked if he wanted an attorney. He did not request an attorney at that time. Loomis asked Brooks what kind of evidence they had against him, but Brooks told him they were not at liberty to explain that to him at the time.

The Fort Smith officers took custody of Loomis at 1:05 p.m. They arrived at the Fort Smith police department at approximately 3:30 p.m. During the trip from Hot Springs, Loomis was in handcuffs and leg irons. After the officers and Loomis got into the police automobile, he was again advised by Brooks of his rights. In addition, during the trip he was advised of his rights by Sgt. Smith, who specifically told Loomis that anything he said could and would be used against him. The officers did discuss the case with Loomis during the trip, but he wouldn’t talk about it. They also asked questions about some of the offenses, but he would not discuss them, saying that he didn’t want to talk about it. He would not answer any questions about anything and told the officers he wanted to talk to an attorney. He said he didn’t think he’d better say anything without an attorney. He was told that the officers could get an attorney for him. Thereafter, the officers did talk to him about the case and did ask him some questions. No statements pertaining to any crime were made by Loomis and no evidence of an incriminating nature was obtained from him during this trip.

After arrival at Fort Smith, Sgt. Hartman took charge of the interrogation of Loomis. Neither Brooks nor Smith advised anyone that Loomis had said that he thought he had better talk to an attorney. Smith took a few minutes making out reports and then assisted Hartman in the interrogation. The first thing Hartman did was to explain to Loomis his constitutional rights, after which he handed Loomis a form on which these rights were explained. Loomis read it and signed a waiver of his rights. This waiver was on a printed form on which there was a concise but complete statement of waiver in bold capital letter type, which included the statement, “I DO NOT WANT A LAWYER AT THIS TIME.” Otherwise, it was an acknowledgment by Loomis that he had read the annexed statement of his rights, that he understood what his rights were, that he was willing to make a statement and answer questions, that he knew what he was doing and that no promises or threats had been made to him and no pressure or coercion used against him. This was signed in the presence of Hartman and Smith.

The advice by Hartman to Loomis concerning his constitutional rights started at 3:39 p.m. and ended at 3:43 p.m. There is no evidence to indicate that Loomis did not understand his constitutional rights or that his waiver was not freely, understandingly, knowingly and voluntarily given and executed. After some interrogation, during which Loomis was told about the FBI report on his fingerprints and the finding of a cigarette butt of the type of cigarette he smoked, no incriminating information was obtained from Loomis. He then stated that he would like to see either an attorney or the prosecuting attorney. He was asked if he would like for the officers to call the public defender, but he expressed a lack of confidence in this attorney. He had already indicated his inability to employ an attorney. The officers explained the difference between a defense lawyer and the prosecuting attorney. They said that, since it was approaching 5:30 p.m., the public defender had probably left his office, but they advised him that they could get a public defender and would try to reach a deputy public defender at his home. The officers again asked whether he wanted to apeak to a public defender and he said that the prosecuting attorney would be “okay.”

According to Sgt. Smith, Ron Fields, a deputy prosecuting attorney, was called about 5:25 p.m., and arrived five to ten minutes thereafter. Fields thought the call came at about 4:00 p.m. Fields was introduced to Loomis and immediately explained his position, the duties of the prosecuting attorney and the difference between his position and a defense attorney’s. Fields asked Loomis if he was certain he did not want an attorney present, gave him a synopsis of his rights and told him that, if he could not afford a lawyer, the court would appoint one, and that, even though the court had the power to appoint any member of the Sebastian County bar, it was probable that either the public defender or his deputy would be appointed. Fields said that Loomis was not eager to have the public defender appointed. Loomis stated that the prosecuting attorney’s office had been real fair with him on a previous occasion. After Fields made certain that Loomis was fully aware of his rights and knew the difference between an attorney and the prosecuting attorney, Hartman again interrogated Loomis about the alleged offenses over a period of about 15 minutes, but every time anything that might tend to link him to the offense was mentioned, Loomis stated that he was not ready to talk about the matter. There was some discussion about the fact that making a statement might make matters easier for him, or that he could be helping himself by making a statement. Loomis had asked Fields if he thought that Loomis needed an attorney and Fields thought he had told Loomis on each occasion that he would get a lawyer if Loomis wanted one, after which Loomis would drop the matter. Loomis had stated that he thought he might have a mental problem and was having difficulty facing the situation and that it might help if he admitted to himself, to Fields and to the officers exactly what had occurred. When Loomis said that he thought he might need mental treatment, Fields told him that the prosecuting attorney’s office would do what they could to see that he was examined by competent medical authorities in the event he went to trial. He told Loomis that the prosecuting attorney’s office would not oppose psychiatric help or his seeing a doctor, if this was what he wanted. No “deal” was made but it was indicated by Fields that Loomis could go to the State Hospital for examination.

Fields talked to Loomis three to four minutes in the absence of the police officers and then asked Hartman and Smith to return to the room when Fields indicated that he was willing to talk about the incident on which the charge in this case was based. Loomis made a statement or two relating to some details connected with this and another offense (where fingerprints had matched) and then stated, “I think I may need an attorney.” At this time Fields arose to leave the room. When Loomis asked where he was going, Fields replied that he was going to get an attorney for Loomis. Loomis then told Fields to come on back, that he had something he thought Fields needed to hear. He then commenced admitting the offense of which he was convicted and that which occurred on the evening he was stopped by Officer Champion. Loomis then made a statement admitting several rapes. It was recorded on eight typewritten pages, was rather detailed, and contained revelations of facts not known to the general public. According to Sgt. Smith it was about 5:30 when Loomis called Fields back and commenced giving his statement. Fields left shortly thereafter, at some time between 5:30 and 6:30 p.m. Two or three breaks were taken during the course of the statement which was concluded about 1:00 a.m. While it was still daylight, Sgts. Hartman and Smith and Loomis had gone to the different places where the offenses had taken place.

During the course of the interrogation, someone, probably Fields, had told Loomis it would make him feel better “to get this off your chest.” Fields testified that he had said that this was strictly up to Loomis. Psychiatric treatment or examination had been a topic of conversation before Fields arrived, but Fields was not told this. Fields, in answering an inquiry by Loomis, told him that he ought to tell the truth, that Fields didn’t think it could hurt him, and that being honest with himself could not hurt him. Fields said that at some time he had told Loomis that he would have to have an attorney before the matter was concluded.

There is no doubt about appellant’s right to the assistance of counsel at the time he requested it. But it cannot be doubted that this right can be waived. See Brewer v. Williams, 430 U.S. 387, 97 S. Ct. 1232, 51 L. Ed. 2d 424 (1977). It would be absurd to say that Loomis was not fully aware of this right and his right to remain silent after the numerous occasions on which advice of these rights was given over a period of four or five hours and the repeated explanation of the difference in the functions of a prosecuting attorney and a defending one. There could hardly have been a more thorough waiver of that right than took place when Loomis recalled Fields from his attempt to obtain counsel for Loomis. There is not even a remote suggestion that this action was not both deliberate and voluntary. It is true that the state had the burden of showing that Loomis’s relinquishment or abandonment of his known right to counsel was intentional [Johnson v. Zerbst, 304 U.S. 458, 58 S. Ct. 1019, 82 L. Ed. 1461, 146 ALR 357 (1938)]; but the only evidence before the trial court clearly indicated that it was. Even though he had previously expressed his desire for the assistance of counsel, there was nothing to prevent this adult, whose lack of intelligence is not suggested, from changing his mind. What stronger evidence could there be that the action of Loomis was intentional than his recalling the person who was undertaking to see that his known right to counsel was implemented? Loomis did not say that it was not intentional. There is no evidence that this waiver was coerced. It would not be reasonable to say that his will was overborne at the very time his request was being honored. At the very least, the conclusion that the waiver was intentional and voluntary could fairly and reasonably be reached by the trial judge, and we are in no position to say that this finding was clearly against the preponderance of the evidence. To hold any statement taken after the accused invokes his right to counsel, or right to remain silent must be excluded from evidence under the rule of Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694, 10 ALR 3d 974, as.the product of compulsion would lead to absurd and unintended results. Michigan v. Mosley, 423 U.S. 96, 96 S. Ct. 321, 46 L. Ed. 2d 313 (1975). There is no other basis for excluding the confession of Loomis, which did not result from interrogation, but followed his own election to tell the officers of his guilt of the crime that his fingerprint so strongly indicated.

The judgment is affirmed.

George Rose Smith and Byrd, JJ., dissent.

Conley Byrd, Justice,

dissenting.

When I view the totality of the evidence surrounding the confession of Loomis — i.e. the numerous times that the officers violated the Miranda rights which they read to appellant by continuing to question him after he indicated he did not wish to talk and needed the services of an attorney — I cannot say that the State has sustained its burden of showing that it was voluntary.

For the reasons stated, I respectfully dissent.

George Rose Smith, J., joins in this dissent.

       A police officer had found two fresh Kool cigarette butts outside the residence where the crime charged in this case was committed.


author: Conley Byrd, Justice.

text:
    PREPAKT CONCRETE COMPANY v. WHITEHURST BROS., INC.
    77-31
    552 S.W. 2d 212
    Opinion delivered June 13, 1977
    (Division I)
    | Rehearing denied July 18, 1977.]

      Wright, Lindsey & Jennings, for appellant.

      Plegge, Lowe & Whitmore, for appellee.
   Conley Byrd, Justice.

Appellee Whitehurst Bros., Inc. was the General Contractor for the construction of the Central Fire Station for the City of Little Rock. At the time of letting the bids, appellant Prepakt Concrete Co. had submitted a proposal for a subcontract “To furnish equipment, material and labor to install 231 — 14 [inch] Diameter Cast-in-Place augered pile in accordance with plans and specifications by Wilkins, Griffin, Sims, Architects.” After appellant had been approved by the owner and architect, appellee accepted appellant’s subcontract proposal in Arkansas. Appellant subsequently caused the contract to be marked “Accepted by Prepakt: F. B. Akers, Jr., Executive Vice-President” at its home office in Ohio. The work has been performed in Arkansas. The issue now between the parties arises over wheher the parties shall arbitrate the dispute in question in Ohio as contended by appellant or in Arkansas as contended by appellee. Appellee denies any liability to appellant but in the alternative makes demands against the City of Little Rock.

The arbitration agreement in the subcontract proposal submitted to appellee at the time of its bids on the General Contract provides:

“Any controversy or claim arising out of or relating to this agreement, or any alleged breach thereof shall be settled by arbitration under the rules and regulations of the American Arbitration Association. Any arbitration shall be held, and any award shall be made and judgment upon any such award may be entered in the county of the State wherein this agreement is finally consummated. Upon mutual agreement, arbitration may be held, award made and judgment entered elsewhere.”

The plans and specifications submitted by the architects provided for the settlement of claims and disputes “by arbitration in accordance with the Uniform Arbitration Act of Arkansas.”

The trial court restrained appellant from demanding that the arbitration be held in Ohio and concluded “that the parties hereto must proceed in accordance with the Uniform Arbitration Act of Arkansas. . . .” We agree with the trial court but not necessarily for the same reasons.

In the first place, appellant has shown no prejudice because it has not shown that the arbitration procedure under the rules and regulations of the American Arbitration Association is any different than the procedure outlined in the Uniform Arbitration Act of Arkansas (assuming that the Uniform Arbitration Act of Arkansas would permit a different procedure). In the next place, we cannot agree with appellant that the subcontract arising out of a proposal submitted in Arkansus, accepted by the General Contractor in Arkansas and performed in Arkansas should be construed as “an agreement . . . finally consummated” at any place other than Arkansas. Since appellant prepared the language upon which it relies to take the arbitration proceedings to Ohio, we must apply the well-known rule of contract construction that if there is any ambiguity in the contract, it must be construed most strongly against the preparer. Leslie v. Bell, 73 Ark. 338, 84 S.W. 491 (1904).

Affirmed.

We agree: Harris, C.J., and Fogleman and Hickman, lb


author: Darrell Hickman, Justice.

text:
    Isaac Milton SHELTON v. STATE of Arkansas
    CR 77-20
    552 S.W. 2d 216
    Opinion delivered June 13, 1977
    (Division II)
    | Rohcarini? denied July 18, 1977.]

      Christopher C. Mercer Jr., for appellant.

      Bill Clinton, Atty. Gen., by: Terry R. Kirkpatrick, Asst. Atty. Gen., for appellee.
   Darrell Hickman, Justice.

On the afternoon of January the 17th, 1976, Clermon Eugene Acklin was drinking gin with some of his friends and betting on a pool game at the Pine Street Recreation Center in Little Rock. Acklin felt that some of the players had teamed up on him to cheat him. He had words with Isaac Milton Shelton and some of the other players and bettors. He left the pool hall, returned shortly thereafter and said something like, “Are you ready to use your forty-five? I am ready now”. Apparently he said this to no particular individual. He left the pool hall again and went to his four-door Cadillac parked outside, got a rifle and started back in. One of his friends, Odell “Blackjack” Hatchett, talked him out of using the gun; Acklin put the gun back in the car and walked back in the pool room. Shelton killed him when he opened the door.

In the meantime, inside the pool room, after Acklin left to go to his car, somebody said, “Here he comes back in the door with a shotgun”, or words to that effect. Shelton looked out a window, saw Acklin getting a gun out of his car, went to the counter of the pool hall where he had left his .22 pistol, and got it. As soon as Acklin opened the door, Shelton killed him with one shot. It is not disputed that Acklin did not have a gun as he entered the pool hall.

Shelton was charged with second degree murder, convicted of manslaughter and sentenced to five years in the penitentiary apd a ten thousand dollar fine. On appeal from the Pulaski Circuit Court, he alleges two errors: the trial court refused to instruct the jury on the lesser included offenses; and the jury’s verdict was contrary to the instructions of the court and should have been set aside.

We find that the evidence in this case did not warrant an instruction on negligent homicide or any lesser charge than what the court gave. The court gave an instruction to the jury that it could return a finding on manslaughter. Counsel for the appellant was apparently under the impression that all included offenses to second degree murder must be given by the court. Shelton’s defense was self defense. He testified he knew that Acklin was upset, talking about guns, had been drinking, and heard that he was coming back in the pool room with a shot gun. He looked out the window, saw Acklin with a gun and immediately got his gun. Obviously he did not know that Acklin had put the gun up, and, apparently, he did not wait for anything before he shot his pistol. When the door opened, he fired. There was no testimony on which Shelton might have been found guilty of negligent homicide or a lesser charge than manslaughter. Therefore, the court did not improperly instruct the jury. See Caton and Headley v. State, 252 Ark. 420, 479 S.W. 2d 537 (1972).

Shelton’s second argument has merit. The trial court did not instruct the jury that it could levy a fine against the appellant if he was found guilty of either second degree murder or manslaughter. The court only instructed the jury that a prison sentence could be imposed. However, a verdict form given to the jury had a blank space for a prison term followed by the phrase “ . . . and/or a fine of_ dollars”. At the side of the form, in print running vertical to the jury findings, were references to a prison sentence and/or a fine. For example, if a finding were returned on manslaughter, the vertical language read:

(One yr. to five yrs., and/or a fine not exceeding ten thousand dollars)

The jury in this case returned a verdict finding Shelton guilty of manslaughter and fixed his punishment at five years in prison and a ten thousand dollar fine. We cannot say from the record, in view of a conflict in the written instructions authorizing only a prison sentence and the printed verdict form referring to a fine, the jury acted according to the law. See Brown v. State, May 23, 1977. Under these circumstances, it was error for the jury to impose a fine, and an error is presumed to be prejudicial unless the contrary affirmatively appears. Osborne v. State, 237 Ark. 170, 371 S.W. 2d 518 (1963). There is no evidence in this case that overcomes that presumption. Therefore, we will modify the judgment to reduce the sentence to five years imprisonment only.

We feel it necessary to elaborate on the better practice of using a verdict form so as to avoid error. The use of “and/or” can be misleading. A jury could decide that a sentence to a prison term and a fine could only be in the alternative. The better practice is to use a form, together with consistent instructions, which would read, in the case of manslaughter, for example, as follows:

We, the jury, find the defendant, John Doe, guilty of manslaughter and fix his punishment as follows:

(1) A sentence of_years imprisonment in the (one year to five years) state penitentiary,
OR
(2) A fine of_dollars (A fine not to exceed $10,000)
OR
(3) BOTH a sentence of__years imprisonment (one year to five years)
in the state penitentiary, and a fine of-dollars (A fine not to exceed $10,000)
Foreman
We, the jury, find the defendant, John Doe, not guilty.
Foreman

Affirmed as modified.

We agree: Harris, C.J., and Fogleman and Byrd, JJ.