PEOPLE v. RUBENS

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District Court of Appeal, Third District, California.

PEOPLE v. RUBENS et al.*

Cr. 1448.

Decided: November 20, 1935

Frank G. Warren, of Stockton, and Lester R. Godward, of Los Angeles, for appellants. U. S. Webb, Atty. Gen., and Ralph H. Cowing, Deputy Atty. Gen., for the People.

The defendants have appealed from judgments of conviction of five counts of an indictment for grand theft, two counts of conspiracy to commit a crime under section 182 of the Penal Code, and fourteen counts for violation of the Corporate Securities Act (St. 1917, p. 673, as amended) in issuing and selling to various named individuals certificates of interests in an oil and gas lease without securing from the corporation commissioner of California a license therefor. These defendants also purport to have appealed from an order denying their motion in arrest of judgment.

It is asserted each of the counts of the indictment fails to specifically allege facts sufficient to constitute a public offense; that the evidence fails to support the verdict and judgment chiefly because the documents upon which the prosecution relies in support of the judgment are mere options for the purchase of an interest in real property and on the contrary that they are not certificates of interests in an oil and gas lease; that the court erred in excluding evidence intended to rebut a showing of fraudulent representations respecting the condition of the oil wells which are involved in the transaction; that the court erred in giving and refusing certain instructions and in pronouncing sentence in less than two days after the rendering of the verdict contrary to the provisions of section 1191 of the Penal Code.

The statute does not authorize an appeal from an order denying an arrest of judgment. Section 1237, Pen. Code; People v. McCalla, 63 Cal.App. 783, 220 P. 436; People v. Jackson, 138 Cal. 462, 71 P. 566. Section 1237, supra, provides that a defendant may appeal, only, from a final judgment of conviction, from an order denying a motion for new trial, and from an order made after judgment. It is obvious that an order denying a motion in arrest of judgment is necessarily made before and not after judgment is rendered. The purported appeal from the order denying defendants' motion to arrest the judgment is therefore dismissed.

We are of the opinion each count of the indictment states facts sufficient to constitute the offense with which it purports to charge the defendants. People v. Ratliff, 131 Cal.App. 763, 22 P.(2d) 245; People v. Main, 75 Cal.App. 471, 242 P. 1078. Each count is couched in clear and concise language describing the public offense with which the defendants are charged. Each count conforms to the provisions of sections 950, 951, and 952 of the Penal Code. The chief challenge to the sufficiency of the allegations of the indictment refers to an alleged failure to specify facts constituting the particular charges of issuing and selling certificates of interest in the oil lease contrary to the inhibition of the Corporate Securities Act so as to enable the defendants to plead former conviction of such transactions in any subsequent prosecution therefor. The indictment, as amended, alleges in each count that the defendants, on a specified date “did willfully, unlawfully and knowingly authorize, direct and aid in the issue and sale of, and did issue, execute and sell, and cause, and assist in causing to be issued, executed and sold for value to” individuals who are named therein, “a security of their own issue, as defined in said Corporate Securities Act, to-wit: A certain certificate of interest in an oil and gas lease” on specifically described real property in Sacramento county, “without first having applied for and secured from the Commissioner of Corporations of the State of California a permit authorizing them so to do.” This is a sufficient allegation of facts constituting the public offense prohibited by the provisions of section 18 of that act. St. 1917, p. 673, 2 Deering's Gen. Laws, 1931, p. 1924, Act 3814, and amendments thereto. There is no merit in the contention that the indictment fails to state facts sufficient to constitute the public offenses against the defendants which are sought to be charged therein.

There appears to be nothing in the cases of People v. Mahony, 145 Cal. 104, 78 P. 354, People v. McKenna, 81 Cal. 158, 22 P. 488, or People v. Lamanuzzi, 77 Cal. App. 301, 246 P. 557, upon which the appellants rely, in conflict with the preceding determination as to the sufficiency of the allegations of the indictment.

We are also of the opinion the evidence amply supports the verdict and judgment of conviction of each appellant upon each challenged count of the indictment. While there is a conflict of evidence regarding many issues of the case, the evidence satisfactorily shows that the defendant Si Rubens owned an oil lease on 1,283 acres of land in Sacramento county, which land is described in the indictment, authorizing him to prospect for, sink wells, and produce oil and gas from the property upon terms which are expressed therein; that he sold the interests in the enterprise under the fictitious name of Capitol Lease Development Company and operated the oil producing business in the name of the Great American Petroleum Company, a corporation having 25,000 shares, of which he was president and manager and owned all but 2 shares thereof; that the other appellants, Appleton and Linder, were agents and salesmen of the enterprise who knowingly participated in the illegal sales of the certificates of interests complained of; the defendants solicited customers and for a consideration sold interests in the oil-producing project; upon payment to the defendants of the sum of $17.50 by the respective purchasers named in the indictment, a document was executed and issued to each by the Capitol Lease Development Company, as seller. This document is termed an “option to purchase oil and gas lease assignment.” It purports to give to the vendees an “option to purchase oil and gas lease assignments of [an undivided] five sixty-fourths (5/64) of an acre” of the 1,283-acre tract of land, but failed to describe the allotted portion thereof. It contains a provision that within thirty days from the “bringing in” of the first well on the entire tract of land, the purchaser shall pay an additional sum of $30, entitling him to a community lease for his proportionate interest in the entire project. A copy of the proposed community lease was set out in full and attached to the so-called option. This option provides for the drilling of five oil wells on each purchaser's property by the Great American Petroleum Company, under specified terms and conditions, which procedure is designated therein as “a part of a proposed drilling program that calls for the drilling of a well to each ten (10) acres on the above-described property, until the total of one hundred and twenty-eight (128) wells shall have been completed” on the entire property. The so-called option then stipulates that the Great American Petroleum Company will, upon completion of the contracts to purchase the assigned interests, execute to each of the purchasers a “community lease” for his proportionate interest in the entire project on a participating basis in the profits of the enterprise as follows: 121/212 per cent. thereof “to landowners”; 15 per cent. “to the sublessors”; 221/212 per cent. “to the Great American Petroleum Company”; and 50 per cent. “divided among the separate lease holders entering into the community lease agreement, in the same proportion as each leaseholder's holding bears to the full number of lease parcels contained in the community lease.” A bank was then named as trustee to receive and distribute to the shareholders the funds derived from the enterprise in accordance with the provisions of the contract.

Attached to the so-called option above referred to was the detailed form for the proposed community lease to be issued by the Great American Petroleum Company, which, in effect, is a contract making each purchaser a pro rata shareholder in the oil-producing enterprise in the entire 1,283-acre tract of land. It provides that all interests in the project “shall nevertheless be developed and operated as one lease”; that “the assignee and separate assignors herein are to bear production and marketing costs of entire production in proportion that the interest bears to the entire lease”; that a designated bank shall act as trustee to receive and distribute to the respective shareholders the proceeds of the enterprise in the proportions heretofore specified. The Great American Petroleum Company covenanted to operate the enterprise and sink a maximum number of 128 wells pursuant to the agreement and to promptly account for all proceeds therefrom.

We are satisfied the transaction above related amounts to sales or offers of sales of pro rata participating interests in an oil and gas-producing enterprise to be operated by the lessor, evidenced by written instruments in the nature of certificates of participating interests or securities therefor, in direct violation of the Corporate Securities Act of California. Each unit or share represents a 5/64 undivided portion of an acre and upon completion of the first well and the payment of the total sum of $47.50 the purchaser is entitled to his stipulated pro rata proportion of the net proceeds derived from sales of all the oil and gas produced from all the wells on the entire tract of 1,283 acres of land.

Section 18 of the Corporate Securities Act (St. 1917, p. 682, as amended by St. 1931, p. 950) provides that:

“Every officer, agent, or employee of any company and every other person, who knowingly authorizes, directs, or aids in the issue or sale of, or issues or executes, or sells, or causes or assists in causing to be issued, executed, or sold, any security, * * * contrary to the provisions of this act, * * * or who, with knowledge that any security has been issued or executed, in violation of any of the provisions of this act, sells, or offers the same for sale, * * * or who, in any respect, wilfully violates or fails to comply with any of the provisions of this act, * * * or who with one or more other persons conspires to violate * * * any of the provisions of this act, is guilty of a public offense and shall be punished.”

The term “security” is defined in section 2(a), subd. 7, of the same act (St. 1917, p. 673, as amended by St. 1931, p. 938), as follows:

“The word ‘security’ shall include any stock, bond, note, treasury stock, debenture, evidence of indebtedness, certificate of interest or participation, certificate of interest in a profit-sharing agreement, certificate of interest in an oil, gas or mining title or lease, collateral trust certificate, any transferable share, investment contract, or beneficial interest in title to property, profits or earnings.”

Under circumstances very similar to those which exist in the present case, it was determined in the recent cases of People v. Craven, 219 Cal. 522, 27 P.(2d) 906, and Domestic & Foreign Petroleum Co., Ltd., v. Long (Cal.Sup.) 51 P.(2d) 73, that contracts which were called “grant deeds” assigning undivided interests in oil and gas leases entitling the holders thereof to participate in the proceeds of the petroleum produced by the vendor from the land were in fact “securities” within the meaning of the Corporate Securities Act which are prohibited from being transferred or sold without first procuring a permit therefor from the corporation commissioner. In the last-mentioned case it was contended, as it is in this case, that the challenged instrument was called a deed and was in the nature of a deed containing the significant language that the leasehold interest in land was thereby “granted and conveyed” and, on the contrary, that it was therefore not a “security” for an interest in an oil enterprise. The court said in that regard:

“It is the contention of defendants that the lessees herein did not issue a security, but granted undivided interests in the leasehold estate, which leasehold is an estate in real property, or in the oil to be produced therefrom; that the instruments of transfer are entitled ‘grant deed,’ and use the words ‘grant’ and ‘convey,’ which are appropriate to a deed rather than to a certificate of interest or a security. The contention that the interests are not securities is fully answered by our decision in People v. Craven, 219 Cal. 522, 27 P. (2d) 906, 907. * * * The decision fully sustains the constitutionality of the provisions of the Corporate Securities Act which require an individual to obtain a permit to issue securities as applied to an individual oil lessee who assigns oil interests such as those in the Craven Case and in the case now before us. * * *

“Instruments such as those in the Craven Case and the instant case are not issued to persons who expect to reap a profit from their own services and efforts exerted in the management and operation of oil-bearing property, but to those in the category of investors, who, for a consideration paid, stipulate for a right to share in the profits or proceeds of a business enterprise or venture to be conducted by others. * * *

“In decisions in this state and in other jurisdictions where it has been contended that a transaction under attack did not come within the Corporate Securities Act because it constituted only a sale of specific real or personal property or an interest therein, the courts have looked through form to substance and found that in fact the transaction contemplated the conduct of a business enterprise by others than the purchasers, in the profits or proceeds of which the purchasers were to share.”

The preceding language of the Supreme Court is peculiarly applicable to the facts of the present case and conclusively answers adversely to them the very contentions made by the defendants on this appeal.

Assuming that the assignments of interests or securities which were sold in this case were all actually owned by the defendant Rubens and that they were therefore securities “of his own issue,” as the indictment alleges, the other defendants, Appleton and Linder, who aided, assisted, and conspired to unlawfully sell and transfer these interests contrary to the Corporate Securities Act would also be guilty as principals in the transaction. Section 31 and 971, Pen. Code. Moreover, the Corporate Securities Act specifically makes an agent or employee guilty as a principal who unlawfully solicits sales or sells securities without a license so to do. Section 2 (a), subdivisions 8 and 9 of the act (St. 1917, p. 673, as amended by St. 1931, p. 938), provide that:

“‘Sale’ or ‘sell’ shall also include a contract of sale, * * * an option of sale, a solicitation of a sale, * * * directly or by an agent. * * *

“9. The word ‘agent’ means and includes every person or company employed or appointed by a company or broker or any other person who shall, within this state, either as an employee or otherwise, for a compensation, sell, offer for sale, negotiate for the sale of or take subscriptions for any security.”

Upon the authorities of People v. Craven and Domestic & Foreign Petroleum Co. v. Long, above cited, it is clear that the so-called options or assignments of interests in the oil enterprise to be conducted by the Great American Petroleum Company, which was managed, controlled, and almost exclusively owned by the defendant Si Rubens were in effect securities or certificates of interests in the oil enterprise, the issuing and sales of which are prohibited by the Corporate Securities Act until a license to do so has been first procured. These securities were therefore sold and transferred in violation of the act. The evidence adequately supports the verdict and judgment of conviction of each of the appellants.

It was not error for the court to admit in evidence true copies of the written instrument representing the assignment of interests complained of, for the reason that the defendant Rubens admitted that they were exact copies of the original documents. In response to the following question: “I will show you an instrument marked ‘Assignment and Agreement, East Coyote Hills', and ask you if that is a duplicate form used in this development, with the exception of the words ‘Coyote Hills'?” he replied: “A. And with the exception of ‘Coyote Hills.”’ Mr. Atherton, one of the defendants' attorneys, also stipulated that the copy of the community lease which was attached to the option for assignment was a true copy of the original. It was conclusively proved that the original documents were in the possession of the defendants. Mr. Bailey testified that the original instruments were taken by the defendants and remained in their possession. The language of these instruments was not disputed at the trial. Having shown that the original instruments were not available, but, on the contrary, that they were in the possession of the defendants, the true copies thereof were competent evidence. People v. Chapman, 55 Cal.App. 192, 203 P. 126, 130; People v. Jarvis, 135 Cal.App. 288, 311, 27 P.(2d) 77; 16 C.J. p. 616, § 1219. In the Chapman Case, supra, it is said in that regard:

“It is axiomatic that the court cannot compel the defendant in a criminal case to produce any incriminating writing. It is for this reason that, ordinarily, the prosecution may give secondary evidence of the contents of an incriminating document whenever it appears prima facie that it is in the possession of the accused.”

Nor is it reversible error for the court to have excluded testimony to the effect that the land in question was good prospective oil land upon which they had found evidence of the presence of petroleum, in rebuttal of the testimony adduced by the prosecution that one of the defendants had stated to a purchaser of oil interests that “this formation resembled the formation in the Kettleman Hills,” and that it was stated that in the drilling of the well gas pressure was encountered “which was a very good indication of oil,” and that “they were now in the oil sand,” and similar assertions regarding representations to the effect that there were good prospects of striking oil on the land in question. An objection was sustained to the following question which was propounded to defendants' witness Grabel: “Q. Do you know whether or not * * * any oil was ever encountered in the well at Clay?” Defendants' witness Furber, an expert geologist, was asked: “From your inspection * * * could you state whether or not the location of the well * * * is a probable place for the finding of oil?” To this question an objection was also sustained. The court stated that the question of alleged misrepresentations or fraud with respect to the nature of the oil land or the prospect of producing petroleum therefrom was collateral to the issues involved in this case, for the reason that the defendants were not charged with fraudulently misrepresenting the nature of the soil, but, on the contrary, they were indicted for illegally selling and transferring securities for interests in an oil enterprise contrary to the provisions of the Corporate Securities Act.

It is true that the defendants were not charged with fraudulently misrepresenting the character of the oil land or the prospects of producing petroleum in paying quantities. The evidence of such alleged misrepresentations regarding the nature of the soil was collateral to the issues of this case and incompetent, but it was harmless. It did not tend to prove another crime. There was no attempt to impeach the prosecution's witnesses in that regard by calling the defendants to testify they had not so stated, but, on the contrary, the defense attempted to prove by expert witnesses that the tract was in fact good oil land, and that there was a good prospect of producing petroleum therefrom. This proffered evidence was collateral and incompetent. Irrelevant testimony adduced by one party does not justify the admission of irrelevant evidence by the other party to contradict it. People v. Dye, 75 Cal. 108, 16 P. 537.

Even though it be deemed the evidence of alleged misrepresentations regarding the nature of the oil land was prejudicial, it is not reversible error under the circumstances of this case for the reason that it does not appear the conviction of the appellants resulted in a miscarriage of justice. The judgment may nevertheless be sustained under the provisions of article 6, § 4 1/212, of the Constitution.

The court did not err in refusing to give an instruction which was offered by the defendants to the effect that although the purchaser of a lease of land may expect thereby to derive a profit from his investment, the instrument may not be deemed to constitute a security or certificate of interest in an oil enterprise in contemplation of the Corporate Securities Act, the issuing or sale of which is prohibited, until a license therefor has been first procured. Nor did the court err in refusing to give the following instruction:

“You are instructed that a deed to, a lease of, an assignment of interest in or an option to purchase a lease or an interest in oil land is not in itself a security as defined in the act of the Legislature of the State of California, approved May 18, 1917, Statutes of 1917, page 673, as amended and known as Corporate Securities Act.”

It is contended these instructions are proper and should have been given to the jury on the authority of People v. Steele, 2 Cal.App. (2d) 370, 36 P. (2d) 40, 42, Callahan v. Martin (Cal.Sup.) 43 P.(2d) 788, and Domestic & Foreign Petroleum Co., Ltd., v. Long (Cal.App.) 42 P.(2d) 1085. We think not. They have no application to the facts of the present case. They are misleading and were properly rejected. The distinction between the facts of the Steele Case, supra, and the present action is very clear and vital. In that case, Steele was the owner of a certain placer mining claim and machinery. The prosecuting witness Dunn leased this claim and machinery for a period of two years in consideration of the sum of $250 for the purpose of operating the claim as a mining enterprise solely by his own efforts. He agreed to pay the owner of the claim a large percentage of whatever proceeds he derived from the mining enterprise. The lessor had no part in or obligation to perform any service in connection with the proposed enterprise. The court clearly says in that regard:

“In the case now before us, the agreement contemplates no return on the money invested, other than the right to use certain property, and any anticipated profits could come only through the proceeds of operations to be conducted by the appellant himself.”

Under such circumstances there could be no violation of the Corporate Securities Act by merely leasing the land for the lessee to conduct his own independent enterprise thereon. This distinction is also recognized in the recent case of Domestic & Foreign Petroleum Co. v. Long, supra, from which we have heretofore quoted. In the present case the challenged instrument does create an interest by assignment in an oil-producing enterprise to be operated and conducted by the defendants alone. Nor are the facts of the Callahan Case applicable to this case. The question of a violation of the Corporate Securities Act was not involved therein. Since the submission of this case, the Domestic & Foreign Petroleum Co. Case, upon which the appellants rely, has been decided by the Supreme Court on hearing from the District Court of Appeal, 42 P.(2d) 1085, and regardless of whether it be deemed that such a lease creates an interest in real property or not, it has been definitely determined that the transfer of such a document creating an interest in the proceeds of an oil enterprise to be conducted by the lessor or assignor, is deemed to be in the nature of a security or certificate of oil interest within the meaning of those terms as they are used in the Corporate Securities Act.

The jury was clearly and properly charged in several instructions regarding the essential elements constituting the terms of “a security” and “a certificate of oil interest” as they are used in the Corporate Securities Act. The court was authorized to determine as a matter of law and to instruct the jury regarding the legal effect of the terms of the challenged “option to purchase oil and gas lease assignment.” People v. McCalla, 63 Cal.App. 783, 789, 220 P. 436. But the court did not do so. It was very cautious, very clear, and very fair in instructing the jury regarding the effect of the instruments which are involved on this appeal. We are satisfied there was no error committed in giving to the jury or refusing instructions.

Finally it is contended that the court erred in pronouncing sentence upon the defendants in less than two days after the rendering of the verdict of conviction, contrary to the provisions of section 1191 of the Penal Code. It is true the verdict of the jury was rendered in this case on June 11, 1935. Judgment was inadvertently pronounced on June 13, 1935. The defendants, with their counsel, were present in court and were asked if they had any reason to suggest why judgment should not then be pronounced against them. No reason for delay was then suggested. Neither the defendants nor their attorneys replied to the inquiry of the court. No objection was made to the pronouncing of sentence at that time. The defendants waived their right to object to the failure to pronounce sentence within the time prescribed by statute. The time for pronouncing sentence in a criminal case is not jurisdictional. No prejudice resulted from the premature sentence. It has been uniformly held that in the absence of a showing of prejudice therefrom the failure to strictly comply with the provisions of section 1191 of the Penal Code with respect to the time for pronouncing sentence is not reversible error. People v. Zuvela, 191 Cal. 223, 215 P. 907; People v. Stroff, 134 Cal.App. 670, 26 P.(2d) 315; People v. Kloss, 130 Cal.App. 194, 19 P.(2d) 822; People v. Powell, 83 Cal.App. 62, 256 P. 561; People v. Haines, 64 Cal.App. 628, 222 P. 183. The time for pronouncing sentence in a criminal case is merely procedural in its nature. Under the provisions of article 6, § 41/212, of the Constitution, a failure to comply strictly with the provisions of section 1191 of the Penal Code in imposing sentence is not reversible error unless it results in a miscarriage of justice. In the present case there is no miscarriage of justice.

The judgments are affirmed.

Mr. Justice THOMPSON delivered the opinion of the court.

We concur: PULLEN, P. J.; PLUMMER, J.