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Benjamin v. Cablevision Prog. Invest.

OPINION FILED SEPTEMBER 17, 1986.

SAMUEL BENJAMIN, APPELLANT,

v.

CABLEVISION PROGRAMMING INVESTMENTS ET AL., APPELLEES.



Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Richard L. Curry, Judge, presiding.

JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:

Rehearing denied December 1, 1986.

The plaintiff, Samuel Benjamin, M.D., brought this action under the Illinois Securities Law of 1953, as amended (the Illinois Securities Act or the Act) (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.1 et seq.) to void the sale of one limited partnership unit in Cablevision Programming Investments (Cablevision) and to recover the purchase price, plus interest and attorney fees. In a two-count complaint filed in the circuit court of Cook County, the plaintiff alleged that the limited-partnership interest in Cablevision was a security within the meaning of the Illinois Securities Act (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.2-1) and that Cablevision and its general partners, Communications Management Corporation, Cable Equity, Inc., and Charles F. Dolan, sold the security to him in violation of the Act either by failing to register the security with the Secretary of State prior to the sale thereof in this State (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.5) (count I) or, in the alternative, by failing to file a report with the Secretary of State after the sale was consummated (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.4(G)) (count II). The circuit court dismissed the complaint for failure to state a cause of action. The appellate court affirmed the circuit court (132 Ill. App.3d 943), and we allowed the plaintiff's petition for leave to appeal (94 Ill.2d R. 315). Richard P. Donnellan and the ENI Exploration Program 1981-II et al. were granted leave to file amicus curiae briefs in support of the plaintiff and the defendants respectively.

Cablevision, established as a limited partnership under the laws of the State of Illinois, with its principal place of business in Chicago, invests in and/or loans monies to companies engaged in the business of acquiring, owning, producing and distributing television programming to cable-television systems. In August of 1980, the plaintiff, a resident of Torrence, California, purchased one limited-partnership unit in Cablevision for $200,000. The relevant facts surrounding this transaction are not in dispute. The plaintiff was never physically present in Illinois in connection with this sale. The plaintiff was solicited in California for the purchase of a limited-partnership interest. The plaintiff received, in California, an investment letter, a selling circular, and a subscription agreement. These documents were sent by the defendants from Chicago. The plaintiff signed the subscription agreement in California and returned it to Cablevision's Chicago office with a check for $40,000. Upon receipt of the check and the subscription agreement, Charles F. Dolan, and Linda Kreer Witt, president of Communications Management Corporation, executed the agreement on behalf of Cablevision. Confirmation of the sale and evidence of ownership of his interest in Cablevision were prepared by the defendants in Chicago and mailed to the plaintiff in California.

In September of 1982, the Securities Division of the Illinois Secretary of State's Office, in response to the plaintiff's inquiry, advised the plaintiff that a registration statement had not been filed in connection with the sale of limited-partnership interests in Cablevision and that the defendants had failed to file the prescribed "report of sale" necessary to preserve a limited-offering exemption. In December of 1982, the plaintiff sent the defendants a notice of election to rescind the sale of his limited-partnership unit. The notice, which was sent within six months after the plaintiff acquired knowledge that the sale was voidable, stated that the plaintiff's right to rescind was premised either on the defendants' failure to duly register the security with the Secretary of State as required by section 5 of the Illinois Securities Act or their failure to properly qualify for any exemption therefrom, specifically the limited-offering exemption under section 4(G). The plaintiff thereafter tendered his interest in Cablevision and demanded the return of the purchase price, plus interest and attorney fees. The defendants, however, refused to rescind the sale.

On March 2, 1983, the plaintiff filed a two-count complaint in the circuit court of Cook County seeking to void the sale of his interest in Cablevision and to recover the purchase price, together with interest and attorney fees. Count I alleged that the defendants violated section 5 of the Illinois Securities Act by selling limited-partnership interests to more than 35 persons in Illinois without filing a formal registration statement with the Secretary of State. As an alternative grounds for rescission, count II alleged that if the defendants sold limited-partnership units to less than 35 persons in Illinois, then the defendants failed to properly qualify the sale to the plaintiff under the limited-offering exemption of section 4(G) due to their neglect to file the requisite post-sale report. The complaint contained no allegations of fraud, material misrepresentation, material omission, or other deceptive practices in connection with the plaintiff's purchase.

Pursuant to sections 2-615 and 2-619 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, pars. 2-615, 2-619), the defendants moved to dismiss the complaint for failure to state a cause of action. The defendants alleged that neither count of the plaintiff's complaint contained sufficient allegations of fact establishing that the sale of the limited-partnership unit to the plaintiff was a "sale in this State" (count I) or a sale made to "a person in this State" (count II). The circuit court agreed and granted the motion to dismiss for failure to state a cause of action for rescission.

Section 5 of the Illinois Securities Act (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.5) requires, in pertinent part, that all securities except those exempt under section 3 or those sold in transactions exempt under section 4 shall be registered with the Secretary of State prior to sale in this State. Section 4(G), which is the method for exempting a limited offering securities transaction from registration, provided at the time of the transaction in question that the registration provisions of section 5 shall not apply to a sale of securities if, within the 12-month period preceding the last sale in reliance on this exemption, (1) sales are made to not more than 35 persons in this State or the aggregate selling price of the securities does not exceed $50,000 and (2) the aggregate number of offerees in this State does not exceed 70 in that 12-month period, provided further that (c) the issuer files with the Secretary of State a report of sale within 30 days after the sale, setting forth the name and address of the issuer, the total amount and the price of the securities sold, the commission paid, and the name and address of the purchaser. (Emphasis added.) (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.4(G).) Section 12 of that act states that it is a violation of Illinois law to "sell any security except in accordance with the provisions of this Act" or to "fail to file with the Secretary of State any application, report or document required to be filed under the provisions of this Act." (Ill. Rev. Stat. 1979, ch. 121 1/2, pars. 137.12(A), (D).) Under section 13 of the Act, a purchaser may rescind a sale of securities made in violation of the provisions of the Illinois Securities Act within three years from the date of the sale. Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.13.

This case involves the construction and interpretation of two provisions of the Illinois Securities Act. Interpretation and construction of statutory provisions are governed by the fundamental principle that the intention of the legislature should be ascertained and given effect. (Interlake, Inc. v. Industrial Com. (1983), 95 Ill.2d 181, 192; City of East Peoria v. Group Five Development Co. (1981), 87 Ill.2d 42, 46.) In determining legislative intent, consideration must be given to the entire statute, its nature, object, and purpose to be attained, and the evil to be remedied. (City of Springfield v. Board of Election Commissioners (1985), 105 Ill.2d 336, 340-41; Mid-South Chemical Corp. v. Carpentier (1958), 14 Ill.2d 514, 517.) However, if the intent of the legislature can be ascertained from the language of the statute itself, then that intent will prevail without resort to extrinsic aids for construction. In re Marriage of Logston (1984), 103 Ill.2d 266, 277; Louis A. Weiss Memorial Hospital v. Kroncke (1957), 12 Ill.2d 98, 105.

Count I of the complaint alleged that the defendants violated section 5 of the Illinois Securities Act by failing to register with the Secretary of State the limited-partnership unit prior to the sale to the plaintiff. Unless the securities fall within the exemptions of sections 3 or 4, section 5 mandates the registration of securities "prior to sale in this State." (Ill. Rev. Stat. 1979, ch. 121 1/2, par. 137.5.) Accordingly, if the sale of a security occurs outside of Illinois, then the registration requirements of section 5 are not applicable. A purchaser seeking rescission based upon the seller's violation of the registration provisions of section 5 must therefore allege ultimate facts establishing that the complained-of sale was a "sale in this State." See McBreen v. Iceco, Inc. (1956), 12 Ill. App.2d 372, 379.

In affirming the circuit court's dismissal of the plaintiff's complaint, the appellate court in this case held that count I failed to sufficiently allege a "sale in this State." Relying on Green v. Weis, Voisin, Cannon, Inc. (7th Cir. 1973), 479 F.2d 462, the appellate court concluded that because the Illinois Securities Act is primarily intended to protect Illinois residents and those within Illinois' borders, the purchaser's location and actions in connection with the sale, not the seller's, determines whether a sale of a security is "a sale in this State."

Section 2 of the Illinois Securities Act in effect at the time of the transaction in question provided:

"Definitions. As used in this Act, the terms defined in Sections 2.1 through 2.18 shall have the meanings therein ascribed." (Ill. Rev. ...


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