PEOPLE v. WALDEN (1986)

A jury convicted David M. Walden of two counts of sale of a security without proper qualification (Corp.Code, § 25110) ¹ and two counts of sale of a security by use of material misstatement or omission (§ 25401).   He makes four contentions:  (1) the court deprived him of a jury trial on one element of these offenses by instructing the jury the instruments at issue were securities;  (2) each conviction must be reversed because the trial court failed to give CALJIC No. 17.01 concerning unanimous agreement on the acts constituting each offense;  (3) section 25110 violates due process by creating a strict liability offense;  and (4) the trial court erred by not stating its reasons for denying probation.

In light of a recent California Supreme Court decision, we agree with Walden's first contention and reverse.   Consequently, we need only address one other contention—Walden's claim section 25110 violates due process.   If Walden were correct, he could not be prosecuted for violations of that section.   However, we conclude he is not correct.

3

Walden was involved in two investment schemes:  the Descanso Medical Building and a television film venture (Four-Way Motor Sports) designed to produce a movie (“On Any Sunday II”) and a weekly sports series (“Weekend World”).   Each venture was apparently designed to be a limited partnership offered to a small number of investors known to the moving forces behind each project.   This arrangement would hopefully keep the projects from running afoul of the California securities laws.   The moving forces behind these projects included Walden, who ran a tax service.

In reality, interests in the projects (limited partnership shares) were indiscriminately sold to casual acquaintances of the principals.   These included several people who were acquainted with Walden through his tax service.   The investors were misled about several aspects of the projects:  the number of other investors, the prospects for success, and their ownership interest (either the percentage or status).

With respect to the television film project, in August 1978 Walden had expressed an intention to raise about $725,000.   He later raised the estimate to about $1,000,000.   However, partnership records demonstrated he collected $3,097,100 and the general ledger showed $2,412,000.85 collected.   Walden explained the discrepancy at trial by maintaining some money had gone into other accounts.   In short, the indiscriminate sale of limited partnerships decimated their value, particularly because the viability of the project was also misrepresented.

The pattern with the Descanso Medical Building project was similar, although it does not appear to have been as speculative a venture.   Walden and his cohorts raised money by selling interests in a limited partnership.   They did not reveal to the investors the true (smaller) value of the limited partnership ownership interest in the building.   In this manner Walden and his cohorts raised far more money than otherwise feasible or prudent for the project.   Thus, the value of the partnership interests sold was severely diluted.

Walden's defense was primarily one of good faith.²  There was a significant amount of evidence about discussions concerning whether the principals of the television film venture were aware they were selling a security that had to be registered.   Much of the evidence went to the size and composition of the pool of investors.   Walden maintained this was a limited offering.   Walden also claimed to rely on the advice of an attorney the project did not have to be registered.   Walden also believed he had done nothing wrong as long as he fully disclosed what he was doing and gave additional rights to the investors for diluting the value of their investments.   He also felt the financial arrangement permitted him to raise as much money as he desired.   He believed he had not misrepresented anything to the investors.

With respect to the Descanso Medical Building, Walden largely pleaded ignorance.   He claimed he did not know it was overfunded during the time most of the limited partnership shares were being sold.   He again believed this was a limited offering and thus need not be registered as a security.

I

The jury was “instructed that the Limited Partnerships of Desconso [sic ] Associates and the Weekend World Limited Partnerships ․ are securities as a matter of law.”   Walden claims this instruction deprived him of the right to a jury trial on this element of the four offenses for which he stands convicted.   We agree and conclude the error was prejudicial.³

Recently, our Supreme Court reversed a conviction for sale of unqualified securities in part because the trial court instructed the jury the instruments at issue were securities as a matter of law.  (People v. Figueroa (1986) 41 Cal.3d 714, 224 Cal.Rptr. 719, 715 P.2d 680.)   The court held this instruction deprived the defendants of the right to a jury trial on a crucial element of the prosecution's case.  (Id., at pp. 723–741, 224 Cal.Rptr. 719, 715 P.2d 680.)

Before we discuss Figueroa as it applies to this case, we must address two threshold questions:  Is Figueroa retroactive?   And did Walden waive the right to complain about the error on appeal?   We conclude Figueroa is retroactive and Walden may assert the error.

 Under the standards enunciated by our Supreme Court in People v. Guerra (1984) 37 Cal.3d 385, 208 Cal.Rptr. 162, 690 P.2d 635 (see also Donaldson v. Superior Court (1983) 35 Cal.3d 24, 196 Cal.Rptr. 704, 672 P.2d 110), we conclude Figueroa is retroactive, at least to all decisions not yet final.   First, in Figueroa the court was skeptical of the notion it was departing from an established proper rule (see People v. Figueroa, supra, 41 Cal.3d 714, 731–734, 224 Cal.Rptr. 719, 715 P.2d 680), hence there was no justifiable reliance on an old rule.  (See People v. Guerra, supra, 37 Cal.3d at p. 399–400, 208 Cal.Rptr. 162, 690 P.2d 635;  see also People v. Croy (1985) 41 Cal.3d 1, 12, 221 Cal.Rptr. 592, 710 P.2d 392;  Donaldson v. Superior Court, supra, 35 Cal.3d at pp. 37–38, 196 Cal.Rptr. 704, 672 P.2d 110.)   Second, even where a new rule is established it may be applied retroactively depending primarily on the purpose to be served by the new rule.  (People v. Guerra, supra, 37 Cal.3d at pp. 401–402, 208 Cal.Rptr. 162, 690 P.2d 635.)   The court in Figueroa made it clear the decision served to vindicate a defendant's right to a jury trial, among our oldest and most staunchly defended constitutional liberties.  (See People v. Figueroa, supra, 41 Cal.3d at pp. 724–734, 224 Cal.Rptr. 719, 715 P.2d 680;  see also Sandstrom v. Montana (1979) 442 U.S. 510, 99 S.Ct. 2450, 61 L.Ed.2d 39.)   This calls for retroactive application of Figueroa, even assuming it establishes a new rule.

The prosecution contends Walden's counsel agreed to permit the trial court to determine whether the limited partnerships were securities.   In other words, the prosecution argues the error was invited by Walden.   For two reasons, we disagree.

 First, the doctrine of invited error concerning jury instructions is extremely limited.  (See generally Pen.Code, §§ 1259, 1469.)   The applicable law is stated in People v. Wickersham (1982) 32 Cal.3d 307, 185 Cal.Rptr. 436, 650 P.2d 311:  “ ‘As the court forcefully stated in People v. Keelin (1955) 136 Cal.App.2d 860, 874, 289 P.2d 520, “Nevertheless, error is nonetheless error and is no less operative on deliberations of the jury because the erroneous instruction may have been requested by counsel for the defense.   After all, it is the life and liberty of the defendant in a case such as this that is at hazard in the trial and there is a continuing duty upon the part of the trial court to see to it that the jury are properly instructed upon all matters pertinent to their decision of the cause.”   Accordingly, if defense counsel suggests or accedes to the erroneous instruction because of neglect or mistake we do not find “invited error”;  only if counsel expresses a deliberate tactical purpose in suggesting, resisting, or acceding to an instruction, do we deem it to nullify the trial court's obligation to instruct in the cause.’  [Citation.]”  (People v. Wickersham, supra, 32 Cal.3d at pp. 331–332, 185 Cal.Rptr. 436, 650 P.2d 311, emphasis added.)

 The record contains no expression of a deliberate tactical purpose on the part of Walden's counsel.   Neglect or mistake on this point also was understandable.   As Figueroa points out, several previous cases suggested the question of what constitutes a security is a question of law for the trial court.   However, Figueroa also severely criticizes these cases.

Moreover, “[e]ven if this court were able to conclude that counsel had remained silent because of a tactical decision, invited error would not be found.   Since the trial court's duty to instruct fully on the relevant legal theories is not dependent upon counsel, error in omitting required instructions cannot be waived by a party simply by the failure of its counsel to demand the instructions.   The issue centers on whether counsel deliberately caused the court to fail to fully instruct, not whether counsel subjectively desired a certain result.   The error, in other words, must be ‘invited.’ ”  (People v. Wickersham, supra, 32 Cal.3d 307, 334–335, 185 Cal.Rptr. 436, 650 P.2d 311.)

Our decision in People v. Garewal (1985) 173 Cal.App.3d 285, 218 Cal.Rptr. 690 is instructive on this point.   There defense counsel requested aiding and abetting instructions held inadequate in People v. Beeman (1984) 35 Cal.3d 547, 199 Cal.Rptr. 60, 674 P.2d 1318 and People v. Caldwell (1984) 36 Cal.3d 210, 203 Cal.Rptr. 433, 681 P.2d 274 before those cases had been decided, but after the instructions had been questioned in appellate opinions (see, e.g., People v. Yarber (1979) 90 Cal.App.3d 895, 153 Cal.Rptr. 875).  (People v. Garewal, supra, 173 Cal.App.3d 285, at p. 297, 218 Cal.Rptr. 690.)

Nevertheless, even there we held there was no invited error, albeit in a “rare instance.”  (Ibid.)  There were several reasons:  (1) counsel would have been remiss in not requesting, at a minimum, standard CALJIC instructions on the issue;  (2) defense counsel was not solely to blame;  the prosecution and probably most courts believed the instructions were proper;  and (3) Garewal's substantial rights were affected (Pen.Code, § 1259).  (People v. Garewal, supra, 173 Cal.App.3d 285, 297–299, 218 Cal.Rptr. 690.)

The situation here is distinguishable but nonetheless comparable.   There was substantial, but erroneous, authority holding the issue is one of law for the judge.   Beyond that, the entire “fact/law” distinction, as Figueroa points out (People v. Figueroa, supra, 41 Cal.3d 714, 731–734, 224 Cal.Rptr. 719, 715 P.2d 680) is a muddled and largely faulty concept at best creating further confusion.   Certainly defense counsel was not accountable for that.   Finally, as we shall develop, post, Walden's substantial rights were affected.   For all the foregoing reasons, we conclude the instructional error was not invited.

 And there is an additional reason the doctrine of invited error cannot apply in this particular instance.   As Figueroa makes abundantly clear, this error deprives a defendant of the right to a jury trial on a pivotal issue.   Were the error here deemed “invited,” it would be tantamount to saying Walden waived his right to a jury trial on the issue.   But a waiver of the right to a jury trial must be made personally on the record by the defendant.  (See In re Tahl (1969) 1 Cal.3d 122, 131, 81 Cal.Rptr. 577, 460 P.2d 449;  Cal. Const., art. I, § 16.)   We see no reason this would not apply to a partial waiver as well as a full waiver.   No waiver by Walden appears on the record.   For this reason as well, it cannot be said the issue was waived.

 That leaves the issue of prejudice.   Not all Figueroa error is reversible per se.  (People v. Figueroa, supra, 41 Cal.3d 714, 734, fn. 24, 224 Cal.Rptr. 719, 715 P.2d 680.)   The court specifically declined to enunciate a standard of prejudice, because reversal was required in any event on other grounds.  (Ibid.)  Nevertheless, the decision points the reader in the direction of People v. Garcia (1984) 36 Cal.3d 539, 205 Cal.Rptr. 265, 684 P.2d 826.  (People v. Figueroa, supra, 41 Cal.3d at p. 734, fn. 24, 224 Cal.Rptr. 719, 715 P.2d 680.)   We conclude Garcia establishes here a “floor,” so to speak, regarding the appropriate standard of prejudice.   In other words, if the error does not survive under the exceptions to reversal established in Garcia, appropriately adapted, reversal is required.

The prosecution suggests we employ the additional exception to reversal adopted in People v. Croy, supra, 41 Cal.3d 1, 14–15, 221 Cal.Rptr. 592, 710 P.2d 392 for Beeman error.   But it cannot apply here.   That exception to reversal in essence permits affirmance if the case would have been tried no differently with correct aiding and abetting instructions, because the defective instruction did not entirely remove the issue of intent from the jury.   However, as Figueroa makes clear, the instruction at issue there and here does entirely remove an issue from the jury's consideration.

The Chief Justice explained the Garcia exceptions in People v. Whitt (1984) 36 Cal.3d 724, 205 Cal.Rptr. 810, 685 P.2d 1161:  “Garcia recognizes four exceptions to [the Carlos ⁴ ] holding.   Two are based on Connecticut v. Johnson (1983) 460 U.S. 73, 87 [103 S.Ct. 969, 977, 74 L.Ed.2d 823] and would allow affirmance ‘if the erroneous instruction was given in connection with an offense for which the defendant was acquitted and if the instruction had no bearing on the offense for which he was convicted’ or ‘if the defendant conceded the issue of intent.’  [Citation.]  [¶] The third exception is based on People v. Sedeno (1974) 10 Cal.3d 703, 721 [112 Cal.Rptr. 1, 518 P.2d 913], and provides that the failure to give a Carlos instruction is harmless error where ‘ “the factual question posed by the omitted instruction was necessarily resolved adversely to the defendant under other, properly given instructions.” ’  [Citations.]  [¶] The fourth exception is fashioned after People v. Cantrell (1973) 8 Cal.3d 672, 685 [105 Cal.Rptr. 792, 504 P.2d 1256] and People v. Thornton (1974) 11 Cal.3d 738, 768–769, footnote 20 [114 Cal.Rptr. 465, 523 P.2d 267].  Thus, ‘there may ․ be cases where the parties recognized that intent to kill was in issue, presented all evidence at their command on that issue, and in which the record not only establishes the necessary intent as a matter of law but shows the contrary evidence not worthy of consideration.’  [Citation.]”  (People v. Whitt, supra, at pp. 734–735, 205 Cal.Rptr. 810, 685 P.2d 1161.)   Adapted to the issue before us, we conclude none of the exceptions to reversal applies.

 Clearly, the first exception does not apply.   The instruction was given only in connection with offenses for which Walden stands convicted.⁵

Walden did not concede the instruments at issue were securities.   Much of the discussion regarding invited error, ante, applies here as well.   Moreover, Walden argued his conduct demonstrated these were not securities.

The prosecution argues Walden's position is really a concession the instruments were securities, the instruments just did not come within the ambit of the securities law due to the limited market of the offering.   But the prosecution's rigid definition of “securities” is untenable in light of the discussion in People v. Figueroa, supra, 41 Cal.3d 714, 734–740, 224 Cal.Rptr. 719, 715 P.2d 680.  “The list of instruments which come within the statutory definition of a ‘security’ [citation] is an expansive one.   However, the cases have adhered to the principle that substance governs over form.  ‘[A] literal interpretation [of the statute] has been uniformly eschewed when to do so would appear to exceed any legitimate legislative purpose.’  [Citations.].  [¶] Thus, the ‘critical question’ the courts have sought to resolve in these cases is whether a transaction falls within the regulatory purpose of the law regardless of whether it involves an instrument which comes within the literal language of the definition.”  (Id., at pp. 734–735, 224 Cal.Rptr. 719, 715 P.2d 680.)

“[T]he corporate securities laws do not contain an ‘all-inclusive formula by which to test the facts in every case.   And the courts have refrained from attempting to formulate such a test.   Whether a particular instrument is to be considered a security within the meaning of the statute is a question to be determined in each case.   In arriving at a determination the courts have been mindful that the general purpose of the law is to protect the public against the imposition of unsubstantial, unlawful and fraudulent stock and investment schemes and the securities based thereon.  [Citation.]’  [Citation.]”   (Id., at p. 736, 224 Cal.Rptr. 719, 715 P.2d 680.)

Particularly bearing in mind the flexible definition to be given to the term “security,” it cannot be said Walden conceded this issue.   Thus, the second so-called Garcia exception to reversal does not apply.

It clearly cannot be said the jury resolved this issue against Walden under other properly given instructions.   The jury was told the instruments were securities.   It was never called upon to decide the issue.   The third exception to reversal does not apply.

Finally, we cannot say the fourth Garcia exception to reversal applies either.   Even if we assume Walden presented all the evidence at his command, we cannot say the record establishes both:  (1) the instruments were securities as a matter of law and (2) Walden's evidence was unworthy of consideration.   In particular we must bear in mind the foregoing passages in Figueroa at pages 735 and 736 discussing proper application of the securities law.   This is a factual matter inherently bound to the peculiar circumstances of each case.   We would have to say “properly instructed, no reasonable juror could fail to find ․” the instruments were securities.  (See People v. Croy, supra, 41 Cal.3d 1, 16, 221 Cal.Rptr. 592, 710 P.2d 392.)   We must also bear in mind Walden was only required to raise a reasonable doubt on the issue.  (Id., at p. 15, 221 Cal.Rptr. 592, 710 P.2d 392;  see also People v. Figueroa, supra, 41 Cal.3d 714, 720–722, 224 Cal.Rptr. 719, 715 P.2d 680.)

Walden offered a great deal of evidence in an attempt to show the instruments at issue were not indiscriminate offerings to the public at large.  (See Silver Hills Country Club v. Sobieski (1961) 55 Cal.2d 811, 815, 13 Cal.Rptr. 186, 361 P.2d 906.)   It is clear Walden attempted to show his innocence at least in part by establishing only select investors were involved.   We cannot deem the evidence unworthy of consideration.   The prosecution's suggestion this issue could only be resolved one way is unconvincing, in no small part because the suggestion reflects a rigid application of the securities laws rejected in Figueroa.   It is also troubling because it appears to be a product of the rejected notion this issue is one of law.

Moreover, “[i]f a judge were permitted to instruct the jury on the basis of assertedly ‘undisputed’ evidence that a particular element had been established as a matter of law, the right to a jury trial would become a hollow guarantee.”  (People v. Figueroa, supra, 41 Cal.3d 714, 730, 224 Cal.Rptr. 719, 715 P.2d 680.)   The circumstances of this case cannot justify application of the fourth Garcia exception.   Consequently, we conclude Walden was prejudiced.   Reversal is required.

II ***

Judgment reversed.⁷

FOOTNOTES

1.   All statutory references are to the Corporations Code unless otherwise specified.

2.   Walden was also charged with two counts of grand theft (Pen.Code, § 487, subd. 1), each including an allegation of taking in excess of $100,000 (Pen.Code, § 12022.6).   The jury acquitted Walden on one count and was unable to reach a verdict on the other, which the court dismissed.

3.   The error infects all four counts.   Two counts made it “unlawful for any person to offer or sell in this state any security ․” without proper qualification.  (§ 25110.)   The other two counts made it “unlawful for any person to offer or sell a security in this state ․” by use of a material misstatement or omission.  (§ 25401.)   It is apparent the question of whether the instrument at issue was a security was crucial to a determination of guilt on each count.

4.   Carlos v. Superior Court (1983) 35 Cal.3d 131, 197 Cal.Rptr. 79, 672 P.2d 862.

5.   The instruction at issue said:  “You are instructed that the Limited Partnership of Desconso [sic ] Associates and the Weekend World Limited Partnerships 78 No. 1 through 80 No. 6 are securities as a matter of law.”The jury was later instructed on the elements of each offense:  “Any person who willfully sells or offers to sell a security in an issuer transaction without having obtained a qualification or permit from the Commissioner of Corporations, is guilty of violating Corporations Code Section 25110, made punishable by Sect. 25540 of The Corp.Code.  [¶] Any person who willfully offers or sells a security by means of any written or oral communication which includes an untrue statement of a material fact or which omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading is guilty of violating Corporations Code Sections 25401 and 25540.  [¶ ] An untrue statement includes:  [¶ ] 1. A statement made with knowledge of its falsity, or [¶ ] 2. A statement made by one who has no reasonable ground for believing it to be true.”Interestingly, in Figueroa the instruction concerning the elements of the offense, which followed the erroneous instruction at issue, did include establishing the instrument was a security as an element of the offense on which the prosecution had the burden of proof.  (People v. Figueroa, supra, 41 Cal.3d 714, 723, 224 Cal.Rptr. 719, 715 P.2d 680.)   Here, of course, the instructions did not, so in that sense the error here was at least marginally more prejudicial than that in Figueroa.

FOOTNOTE.   See footnote *, ante.

7.   As noted, we need not reach the other two issues raised by Walden.   He argues CALJIC No. 17.01, or a similar instruction, should have been given.   It is pointless to determine whether it should have been given in this trial.   If Walden is tried again, we do not know what evidence will be presented;  hence, we cannot determine whether or not such an instruction might be necessary.Similarly, we need not address the propriety of Walden's sentence, i.e., whether probation was properly denied.   However, we do note our concern in one respect—Walden's opening brief indicates he has served his 16-month prison sentence and the record before us contains no indication bail on appeal was sought for Walden.  (See generally In re Pipinos (1982) 33 Cal.3d 189, 187 Cal.Rptr. 730, 654 P.2d 1257.)

SONENSHINE, Associate Justice.

TROTTER, P.J., and WALLIN, J., concur.