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Ridlon v. New Hampshire Bureau of Securities Regulation

Supreme Court of New Hampshire, Merrimack

July 24, 2019

CURTIS S. RIDLON
v.
NEW HAMPSHIRE BUREAU OF SECURITIES REGULATION

          Argued: October 24, 2018

          Preti Flaherty, PLLP, of Concord (Brian M. Quirk and Nathan R. Fennessy on the brief, and Mr. Quirk orally), for the plaintiff.

          Gordon J. MacDonald, attorney general (K. Allen Brooks, senior assistant attorney general, and Scott E. Sakowski, assistant attorney general, on the brief, and Mr. Brooks orally), for the defendant.

          LYNN, C.J.

         In this appeal we are asked to determine whether Part I, Article 20 of the New Hampshire Constitution guarantees that a party subject to an administrative enforcement action undertaken by the defendant, the New Hampshire Bureau of Securities Regulation (Bureau), be afforded a jury trial. The Superior Court (McNamara, J.) answered the question in the affirmative. We disagree and therefore reverse.

         The following relevant facts are derived from the record. The plaintiff, Curtis S. Ridlon, was formerly employed as an investment adviser. In April 2017, the Bureau brought an administrative enforcement action against Ridlon, alleging that he charged clients approximately $2.8 million in improper fees. The relief sought by the Bureau included civil penalties of up to $3, 235, 000, restitution in the amount of $1, 343, 427.20, and disgorgement of up to $1, 513, 711.09. See RSA 421-B:6-604(d)-(e) (2015) (amended 2018).[1] By agreement of the parties, Ridlon filed a declaratory judgment petition in the trial court asserting that he was constitutionally entitled to a jury trial and seeking to enjoin the administrative proceedings from continuing. In response, the Bureau filed a motion to dismiss. The trial court denied the Bureau's motion, ruling that Part I, Article 20 of the State Constitution affords Ridlon the right to a jury trial, and enjoining any further administrative proceedings by the Bureau. This appeal followed.

         Ridlon argues that the trial court correctly ruled that he has a constitutional right to a jury trial because the Bureau seeks penalties in excess of $6 million and, in the alternative, because the action against him "amounts to an action for common law fraud." Because we are the final arbiter of the meaning of both statutes, Appeal of Laconia Patrolman Assoc., 164 N.H. 552, 555 (2013), and the State Constitution, Petition of Below, 151 N.H. 135, 139 (2004), we review the trial court's decision de novo, Linehan v. Rockingham County Comm'rs, 151 N.H. 276, 278 (2004).

         Part I, Article 20 of the New Hampshire Constitution governs jury trials in civil cases. It provides:

In all controversies concerning property, and in all suits between two or more persons except those in which another practice is and has been customary and except those in which the value in controversy does not exceed $1, 500 and no title to real estate is involved, the parties have a right to a trial by jury. This method of procedure shall be held sacred, unless, in cases arising on the high seas and in cases relating to mariners' wages, the legislature shall think it necessary hereafter to alter it.

N.H. CONST. pt. I, art. 20. Although "[i]t is beyond dispute that the right to a jury trial is a fundamental one under our State Constitution in both the civil and the criminal contexts," State v. Morrill, 123 N.H. 707, 711 (1983), it is equally irrefutable that in civil cases the right is considerably more limited than it is in criminal cases, State v. Bilc, 158 N.H. 651, 653 (2009). Specifically, in civil cases the right "extends only to those cases for which the jury trial right existed when the constitution was adopted in 1784." Morrill, 123 N.H. at 712. As we have explained, "Part I, Article 20 did not create or establish a right to a jury trial not before existing." Hair Excitement v. L'Oreal U.S.A., 158 N.H. 363, 368 (2009) (quotation and brackets omitted). Rather, "[i]t was a recognition of an existing right, guaranteeing it as it then stood and was practiced, guarding it against repeal, infringement, or undue trammel by legislative action, but not extending it so as to include what had not before been within its benefits." Id. (quotation omitted).

         "To resolve whether a party has a right to trial by jury in a particular action, we generally look to both the nature of the case and the relief sought, and ascertain whether the customary practice included a trial by jury before 1784." Id. (quotation omitted). "Partly as a result of this test, and at times independently thereof, it has been decided that a guaranty of trial by jury cannot be invoked in special, statutory or summary proceedings unknown to the common law." Hallahan v. Riley, 94 N.H. 338, 339-40 (1947); accord In re Sandra H., 150 N.H. 634, 636 (2004).

         Relying on state and federal case law, the trial court concluded that the Bureau "cannot seek a fine of $2, 500 for a violation of RSA 421-B without a jury determination of liability." At the outset of our analysis, we observe that, to the extent the trial court relied on federal precedent interpreting the Seventh Amendment to the United States Constitution, such reliance was misplaced. The jury trial guaranty enshrined in the Seventh Amendment is not among the federal rights that have been held to be encompassed within the Fourteenth Amendment's due process clause and thus binding in state court actions. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 432 (1996) (recognizing that the Seventh Amendment "governs proceedings in federal court, but not in state court"); Opinion of the Justices, 121 N.H. 480, 482-83 (1981) (noting that "the Seventh Amendment is one of the few remaining provisions in the Bill of Rights which has not been held to be applicable to the states through the Fourteenth Amendment" (quotation omitted)); see also 47 Am. Jur. 2d Jury § 5, at 630 (2006). More importantly, as the Bureau points out, the analysis we use in determining whether the jury trial right conferred by Part I, Article 20 applies in a given case differs from that employed by federal courts in making similar determinations under the Seventh Amendment. Compare, e.g., Tull v. United States, 481 U.S. 412, 420-21 (1987) (cautioning that the Seventh Amendment may require "trial by jury in actions unheard of at common law," and noting that "characterizing the relief sought is more important than finding a precisely analogous common-law cause of action in determining whether the Seventh Amendment guarantees a jury trial" (quotation and brackets omitted)), with Franklin Lodge of Elks v. Marcoux, 149 N.H. 581, 592 (2003) (explaining that focusing solely upon the nature of damages "fails to address whether . . . the right remedied in this case . . . was recognized at common law in 1784 and customarily resolved by jury trial," and "makes no effort to appraise the seemingly comprehensive nature of the" statutory scheme). In light of this divergence, and because neither party has asked us to eschew our traditional methodology in favor of the federal approach, we decline to give controlling weight to Seventh Amendment jurisprudence when determining whether Part I, Article 20 affords a state court litigant the right to a jury trial.

         Moreover, the cases cited by the trial court, and relied upon by Ridlon on appeal for the proposition that claims involving statutory penalties above the constitutional limit obligate a trial by jury, do not address the applicability of the jury trial right under the State Constitution to what we have described as "purely statutory" causes of action. See Pomponio v. State, 106 N.H. 273, 274 (1965). When assessing the right to a jury trial in such circumstances, we have explained that we must "consider the comprehensive nature of the statutory framework to determine whether the jury trial right extends to the action." Hair Excitement, 158 N.H. at 368 (quotation omitted). State securities laws, commonly referred to as "Blue Sky Laws," are designed to prevent fraud and protect the public. 79A C.J.S. Securities Regulation § 482, at 534-36 (2009). They seek to create "a balanced regulatory scheme to cope with the problems of modern securities markets" in a given state. Id. at 534. "The first legislative attempts to regulate securities transactions were effected on the state level, with the first general securities law being said to have been enacted by the State of Kansas in 1911, and with 48 jurisdictions having enacted such statutes by 1933." Brenner v. Oppenheimer & Co. Inc., 44 P.3d 364, 371 (Kan. 2002) (quotation omitted). New Hampshire enacted its first blue sky law in 1917. See Laws 1917, ch. 202. In its original form, the statute made violations of its terms "punishable upon conviction . . . by a fine of not more than two thousand dollars, or by imprisonment for not more than six months, or by both such fine and imprisonment," and also provided that "such false or misleading statements or information so furnished shall be evidence in court . . . in a suit to recover damages on account of loss sustained . . . ." Laws 1917, ch. 202, at 762-63. The statute was amended in 1981 to include a provision that gave the attorney general the authority to seek "civil penalties for violations of" the statute. See Laws 1981, ch. 214, at 214. The amendments further granted the commissioner of insurance the authority to impose an administrative fine of not more than $2, 500 for knowing violations of "any rule or order" issued by the commissioner. Laws 1981, ch. 214, at 216.[2] In 2015, amendments to the statute as a whole created the current statutory scheme. See Laws 2015, 273:1.

         In its current form, the Uniform Securities Act is comprised of 55 sections contained in seven separate articles. See RSA 421-B:1-101 to B:7-701 (2015) (amended 2017, 2018). The Act specifies detailed requirements for the registration of securities, see RSA 421-B:3-301 to -307, and those who sell them, see RSA 421-B:4-401 to -412. It charges the secretary of state with administering the Act, and confers upon the secretary "all powers specifically granted or reasonably implied in order to perform the substantive responsibilities imposed by this chapter," RSA 421-B:6-601(d), including the power to "bring administrative actions to enforce the securities law" and "investigate and impose penalties for violations of" said laws, RSA 421-B:6-601(b)(4)-(5). When the secretary of state believes provisions of the Act have been, or are about to be, violated, the secretary may bring an administrative enforcement action under RSA 421-B:6-604. See RSA 421-B:6-604. The hearings procedures at the administrative level are governed by RSA 421-B:6-613. See RSA 421-B:6-613(a). These "[a]dministrative hearings shall not be bound by common law or statutory rules of evidence, nor by technical or formal rules of procedure," and "[a]ll relevant, material, and reliable evidence shall be admissible." RSA 421-B:6-613(u). Following a hearing, the presiding officer "shall issue a written decision stating the action to be taken by the department," which "shall be reached upon the basis of a preponderance of the evidence." RSA 421-B:6-613(v). The actions may include the imposition of "a civil penalty up to a maximum of $2, 500 for a single violation," RSA 421-B:6-604(d), as well as "an order of rescission, restitution, or disgorgement," RSA 421-B:6-604(e). All "[f]inal orders issued by the secretary of state under this chapter are subject to judicial review in accordance with RSA 541," RSA 421-B:6-609, meaning that upon satisfying the statutory rehearing procedures, an aggrieved party may appeal directly to this court, see RSA 541:6 (2007).

         As the above recitation demonstrates, the statutory procedures established by the legislature for the regulation of securities "militate[ ] against any implication of a trial by jury." Hallahan, 94 N.H. at 340. The rights and obligations that govern "depend entirely upon the statute." Pomponio, 106 N.H. at 274. They are comprehensive in their scope, see Hair Excitement, 158 N.H. at 368, and "designed to facilitate a simple and speedy determination" of the claims brought by the secretary, Hallahan, 94 N.H. at 340; see, e.g., RSA 421-B:6-613(o) (outlining informal conference procedures intended to simplify the issues, reach agreements or stipulations which "avoid unnecessary proof," and consider "[a]ny other matters which might contribute to the prompt, orderly, and fair conduct of the proceeding"). Thus, even if we were to assume, as Ridlon posits, that the types of relief that may be sought by the secretary under the statute - i.e., civil penalties, fines, restitution, and disgorgement (all of which remedies the statute describes as "penalties," see RSA 421-B:6-601(b)(5), :6-604(d)-(e)) - bear certain similarities to a common law claim in debt as to which a right to trial by jury would have existed in 1784, see Tull, 481 U.S. at 420, consideration of the overall statutory scheme fashioned by the Securities Act persuades us that the administrative enforcement mechanism it created was unknown to the common law in 1784 and is not compatible with trial by jury.

         The trial court acknowledged our precedents as cited above, but reasoned that they were not controlling because, in its view: (1) Part I, Article 20 applies differently when the State seeks to recover a penalty from a private party; and (2) the action against Ridlon is akin to common law fraud. With respect to the first point, it is true that there are certain circumstances in which the State is treated differently from a private party when it comes to the availability of a jury trial under Part I, Article 20. For example, the constitutional right to a jury trial is not available to the State at all, whether it be a plaintiff or defendant in litigation. See Wooster v. Plymouth, 62 N.H. 193, 201 (1882). We have also explained that there is "no right under article 20 to a trial by jury in an action [brought] against the State." Newell v. N.H. Div. of Welfare, 131 N.H. 88, 90 (1988) (emphasis added). But the differential treatment described in Newell stems from the "established principle of jurisprudence in all civilized nations that the sovereign cannot be sued in its own courts, or in any other, without its consent and permission," and where it does waive this privilege, "it may prescribe the terms and conditions on which it consents to be sued, and the manner in which the suit shall be conducted." Wooster, 62 N.H. at 204; see 47 Am. Jur. 2d Jury § 43, at 661-62. However, our case law offers no support for the view that a person's right to a jury trial enjoys an enhanced status when it is the State, rather than a private party, that brings the claim.[3] The authorities relied upon by the trial court in so holding are readily distinguishable from the case at hand.

         For example, in Morrill we were asked to determine whether the sanctions, including a fine of up to $1, 000, "attached to [driving while intoxicated, first offense] take it outside the realm of petty offenses not requiring trial by jury" under Part I, Article 15. Morrill, 123 N.H. at 712 (quotation and brackets omitted). We held that they did, explaining "that the framers of our constitution did not intend that individual criminal defendants be denied a jury trial in cases where fines may be levied which are greater than the amount constitutionally entitling civil litigants to a jury determination." Id. (emphasis added). In our view, it was illogical to believe that a civil litigant would be entitled to a jury trial pursuant to Part I, Article 20 when the amount in controversy exceeded $500, [4] but a criminal litigant would not be afforded that same right when "charged with offenses under our penal code." Id. at 713 (emphasis added). Thus, although the offense at issue in Morrill was classified as a violation, which does not constitute a crime, see RSA 625:9, II(b) (2016), our analysis referenced Part I, Article 20, not because it was substantively applicable to the case, but merely for comparison purposes, in determining whether the fine called for by the statute was sufficiently severe to confer the right to a jury trial applicable to criminal cases under Part I, Article 15.

         Nor does our decision in Town of Henniker v. Homo, 136 N.H. 88 (1992), compel a different conclusion. There, the defendants were fined by the superior court "for maintaining a junk yard on their property without a license, in violation of RSA 236:114 and the Henniker Zoning Ordinance." Town of Henniker, 136 N.H. at 88. Based on the language of the relevant statutes, we concluded that the defendants had committed a separate violation on each day they continued to operate the junk yard without a license, resulting in 606 separate violations. See id. at 89-90. We assumed, without deciding, that the defendants would be constitutionally entitled to a jury trial if the maximum fine per violation exceeded the threshold of Part I, Article 20. See id. at 89. Because the ordinance limited the maximum fine per violation to $100, we held that the defendants did not have a right to a jury trial on any of their violations, id. at 90, even though the superior court "imposed fines which totalled in excess of the amount that constitutionally entitles civil litigants to a jury trial," id. at 89 (emphasis added). Consequently, neither Morrill nor Town of Henniker stand for the proposition that the State Constitution affords the right to a jury trial to a person facing a governmental action to collect a civil penalty that exceeds the $1, 500 threshold specified in the current version of Part I, Article 20.[5]

         Likewise, we disagree with Ridlon's argument, as well as the trial court's conclusion, that the statutory claim against him can be considered equivalent to a common law cause of action for fraud. In Hair Excitement, we compared a statutory claim brought under the Consumer Protection Act with a common law claim for fraud or deceit. See Hair Excitement, 158 N.H. at 369-70. After comparing the elements and proofs of the two claims, we concluded that the two actions were dissimilar. Id. Here also, the secretary's action against Ridlon is dissimilar to common law fraud in significant respects. To start, the Act specifically states in its definitional section that the terms "'[f]raud,' 'deceit,' and 'defraud' are not limited to common law deceit." RSA 421-B:1-102(17). Thus, the Act is designed to encompass a broader class of claims than the common law tort.

         Furthermore, the claims brought against Ridlon are readily distinguishable from a common law action for fraud or deceit. The claims are brought by the secretary to enforce compliance with the statute, see RSA 421-B:6-604(a), in response to financial injuries sustained by third-party clients of Ridlon. The secretary alleges that Ridlon violated RSA 421-B:5-502(a), which provides:

It is unlawful for any person that advises others for compensation, either directly or indirectly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing, or selling securities or that, for compensation and as part of a regular business, issues or promulgates analyses or reports relating to securities:
(1) to employ a device, scheme, or artifice to defraud another person; or
(2) to engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

RSA 421-B:5-502(a). Therefore, the Act first requires that the offending party be a "person that advises others for compensation," and that the conduct specifically relate to the purchase and sale of securities. Id. It must then be established that the party employed "a device, scheme, or artifice," or engaged "in an act, practice, or course of business" designed to defraud another. RSA 421-B:5-502(a)(1) to (2). The above requirements must be established by a preponderance of the evidence. RSA 421-B:6-613(v).

         By contrast, in order to prove common law fraud or deceit, a plaintiff must prove that a defendant intentionally made materially false statements to the plaintiff, which the defendant knew to be false or which he had no knowledge or belief to be true, for the purpose of causing, and which did cause, the plaintiff reasonably to rely to his detriment. See Hair Excitement, 158 N.H. at 369. Thus, in a common law fraud action, the party bringing the claim must establish that it was personally harmed by the defendant's conduct, prove justifiable reliance, and "specifically allege the essential details of the fraud and the facts of the defendants' fraudulent conduct." Snierson v. Scruton, 145 N.H. 73, 77 (2000). In addition, to prevail, the plaintiff must meet the more demanding burden of proving fraud by clear and convincing evidence. Snow v. American Morgan Horse Assoc., 141 N.H. 467, 468 (1996). In short, like the Consumer Protection Act claim at issue in Hair Excitement, the administrative[6] proceeding brought against Ridlon by the secretary under the Securities Act is not analogous to common ...


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