Levitz v. Warrington

JACKSON, Judge: Plaintiff Gary Levitz appeals the trial court’s denial of attorney fees and treble damages sought under section 61-1-22 of the Utah Uniform Securities Act (Securities Act).1 Defendant Edward Warrington cross-appeals the trial court’s conclusion that there was a “purchase” of securities giving Levitz a cause of action under section 61-1-22. We vacate the trial court’s judgment and remand for additional findings. FACTS Warrington was chairman of the board and chief financial officer of Energex Corporation (Energex), a company which marketed, sold, and distributed a fuel additive called TK-7. Part of Warrington’s duties included approving all potential investors. Warrington knew that Energex was unable to meet its present contractual obligations without financial assistance. Thus, Warrington, through Robert Pinder, persuaded Levitz to consider investing $250,000 in Energex in exchange for stock, a board directorship, and a position as director of marketing. Pinder made several material misrepresentations about Energex’s financial condition and its real estate holdings in his proposal to Levitz. Warrington held a position in the company where he knew or at least should have known that the representations made to Levitz were false. During negotiations, Warrington demanded that Levitz commit to the purchase of securities or withdraw. L'evitz transferred $175,000 to Energex as a refundable deposit and “good faith gesture” with the understanding that after inspecting the plant operations, the deposit would be returned to him if he did not like what he saw. After visiting [1246] the plant and seeing the financial statement, Levitz did not approve and requested the return of his deposit. Warrington agreed on behalf of Energex to return all of Levitz’s money. Energex, however, had already used $64,650 and Levitz received only $110,350. No further negotiating took place. Levitz filed an action in district court against Energex, Warrington, Pinder, Richard Cropper, Donald Young, Norm Green-baum, and Fred Spindle seeking $64,650 in damages for conversion. On July 29, 1988, the court entered a default judgment against Cropper, Young, and Pinder and awarded Levitz $64,650 in damages, $7,750.43 in prejudgment interest, $1,471.22 in costs and disbursements, and postjudgment interest at the rate of twelve percent per annum. Cropper gave Levitz a promissory note for $64,-650 on April 12, 1989. On August 12,1988, the court allowed Lev-itz to amend his complaint adding a cause of action for securities fraud and praying for treble damages, costs, and attorney fees. The amended complaint named Energex and Warrington as defendants. Energex failed to answer the complaint and Levitz received a default judgment against it. Warrington motioned the court for summary judgment on both the conversion and securities fraud causes of action. The district court denied the motion as to the securities fraud claim and granted the motion with respect to the conversion claim. Levitz did not pursue his conversion claim further. The matter went to trial on the securities fraud claim only and the court found in favor of Levitz. The court held Warrington jointly liable with the defaulting defendants, but held that he was entitled to a $64,650 setoff. Thus the court held Warring-ton liable for prejudgment interest and costs pursuant to Rule 54 of the Utah Rules of Civil Procedure. ■ Levitz appealed the securities fraud claim asserting that the court should have granted him attorney fees and treble damages under section 61-1-22 of the Securities Act. Warrington cross-appealed claiming Levitz does not have a remedy under section 61-1-22. ANALYSIS The trial court held that Warrington was a “control person” under section 61— 1—22(4)(a) of the Securities Act, which holds him liable to the same extent as a seller or purchaser under section 61-1-22(1). See Utah Code Ann. § 61-l-22(4)(a) (1993). A person is liable under subsection (1)(a) for offering, buying, or selling a security by means of any untrue statement of a material fact. Id. at § 61-1-22(1)(a). The remedy under this section, however, is limited “to the person selling ... or buying the security.” Id. Potential purchasers or mere offerees do not have a cause of action under this section.2 See Interlake Porsche & Audi, Inc., v. Bucholz, 45 Wash.App. 502, 728 P.2d 597, 606 (1986) (interpreting statutory language substantially similar to our own); see also Marcus v. Shapiro, Abramson & Schwimmer, 620 So.2d 1284, 1285-86 (Fla.Ct.App. 4 Dist. 1993). The Interlake court noted that “this limitation is in uniformity with the law in other states which ... have adopted the Uniform Securities Act.”3 Interlake, 728 P.2d at 606. Reading the section to limit causes of action to actual buyers and sellers is also in accord with federal court application of the corresponding section of the federal Securities Act. In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 754-55, 95 S.Ct. 1917, 1934, 44 L.Ed.2d 539 (1975), the Supreme Court reaffirmed that a plaintiff must be an actual purchaser or seller and not merely a potential purchaser to have a cause of action under the Securities Act. Although the facts of that case differ from ours, the Blue Chip [1247] Court was asked to make an exception to the “buyer and seller only” rule4 and recognize a cause of action for plaintiffs that were more than offerees or potential purchasers, but not quite actual purchasers. Blue Chip, 421 U.S. at 755, 95 S.Ct. at 1934. The Court declined to dp so, finding the rule to be sound. Id. In so finding, the Court reasoned that it did not want to subject the rule to case-by-case erosion. Id. Thus, under the plain and unambiguous language of the Utah Uniform Securities Act, the seminal issue, one that affects Levitz’s standing on appeal, is whether he was an actual purchaser as opposed to a potential purchaser or mere offeree. The trial court concluded “there was an offer and sale of a security,” and that “Levitz [was] a ‘purchaser.’ ” A trial court’s conclusions of law must be supported by its findings of fact. See Reid v. Mutual of Omaha Ins. Co., 776 P.2d 896, 899 (Utah 1989); 9 Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure, § 2579 (1971). The trial court made the following findings concerning Levitz’s “purchaser” status: 41. Warrington demanded that Levitz commit to the purchase of securities or withdraw from the purchase. 42. Levitz wired $175,000.00 on or about April 20, 1987, to Warrington’s Birmingham, Alabama Energex Account. 43. Levitz transferred the $175,000.00 to Energex account as a refundable deposit toward the purchase of Energex stock with the understanding that after viewing the plant operations the funds would be returned to him if he did not like the operations. 44. On May 2, 1987, Levitz went to Oklahoma City with Warrington to inspect the facilities and operations of Energex. 45. After completing his investigation, Levitz requested the return of all of his funds. 46. Warrington, on behalf of Energex, agreed to return the money and returned $100,000.00 to Levitz within a week thereafter. The trial court’s findings that the purchase of stock was conditioned upon Lev-itz’s approval of Energex’s operations, and that he did not give his approval, do not support the conclusion that there was a sale or that Levitz was a purchaser. In fact, the findings support the opposite conclusion that there was no sale. The Utah Supreme Court has held: The importance of complete, accurate and consistent findings of fact in a case tried by a judge is essential to the resolution of dispute under the proper rule of law. To that end the findings should be sufficiently detailed and include enough subsidiary facts to disclose the steps by which the ultimate conclusion on each factual issue was reached. Rucker v. Dalton, 598 P.2d 1336, 1338 (Utah 1979). We cannot discern from the trial court’s findings how it reached the ultimate conclusions that there was a sale and that Levitz was a purchaser. The only conclusions the trial court’s findings can support are that Levitz was a potential purchaser and that Energex was a potential seller. Given that Levitz’s remedy rests on the trial court’s conclusion that he is an actual purchaser, not merely a potential purchaser, the trial court’s findings of fact are inadequate.5 [1248] The absence of adequate findings of fact “ordinarily requires remand for more detailed findings by the trial court.” Woodward v. Fazzio, 823 P.2d 474, 478 (Utah App.1991). Remand for adequate findings on a particular factual issue is unnecessary if the evidence eoncei’ning the issue is undisputed. Id.; State v. Lovegren, 798 P.2d 767, 771 n. 10 (Utah App.1990). We have canvassed the record on the issue of whether there was a sale and whether Levitz was a purchaser and “find disputed evidence, making affirmance as a matter of law impossible.” Woodward, 828 P.2d at 478. Accordingly we vacate the trial court’s judgment and remand the issue of whether Levitz was a purchaser to the trial court for further findings consistent with this opinion. As a final note, we point out that we do not necessarily agree with the trial court’s conclusion that Levitz is a purchaser. Thus, we do not intend our remand “to be merely an exercise in bolstering and supporting the conclusion already reached.” Id. at 479 (quoting Allred v. Allred, 797 P.2d 1108, 1112 (Utah 1990)). DAVIS, J., concurs. Footnotes [1] Utah Code Ann. §§ 61-1-1 to -30 (1993). We note that the parties rely on an earlier version of the Securities Act. However, the amendments, as far as this case is concerned, are stylistic only. [2] Other sections of the Utah Securities Act similarly limit the scope of those entitled to relief. Section 61—1—22(4)(a) makes a person liable only if buyers or sellers under his or her control are liable under section 61 — 1—22(1)(a). Section 61-1-22(4)(a) does not create liability for people who control offerors who are liable under section 61 — 1—22(l)(a), apparently for the rationale relied on in Interlake: unless there is an actual sale, there are no damages for which the statutory remedy of rescission is appropriate. See Interlake Porsche & Audi, Inc., v. Bucholz, 45 Wash. App. 502, 728 P.2d 597, 606 (1986). [3] Utah adopted the Uniform Securities Act in 1963. [4] This rule originated in Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.1952), and is usually referred to as the Birnbaum rule. [5] The dissent concedes that Levitz must be a purchaser in order to have a remedy under section 61-1-22. The dissent views the trial court's findings as indicating that Levitz parted with $64,650 without receiving consideration and thus, the findings support a determination that Levitz was a purchaser. This view obscures two critical observations made by the trial court in its findings. First, the trial court found that Levitz’s refundable deposit was delivered with the understanding that it would be returned if Levitz did not approve of Energex’s operations. The trial court found that after inspecting the operations, Levitz requested his deposit back and Warring-ton agreed to return all of Levitz’s money. These findings support a conclusion that no consideration was due Levitz because the parties agreed not to form a contract. Second, the dissent's summary of the findings hides the fact that Lev-itz's loss occurred when Warrington retained $64,650 of the refundable deposit after agreeing to return it. The dissent suggests that the existence of an executory contract provides an alternative basis for affirmance. However, the trial court made [1248] no findings concerning the formation of any contract, executory or final. Because the evidence in the record regarding contract formation is very much in dispute, we would be required to remand to the trial court for findings on the issue of whether a contract existed or was enforceable.