Brief Fact Summary. laimed by A.S. Goldmen& Co., Inc. (Goldmen) (Plaintiff), that the New Jersey Securities Act, N.J. S.A. Â§ 49:3-60 (Â§ 60) was in violation of the federal Constitution’s dormant Commerce Clause as it applied to securities that were exempt from registered or not registration in New Jersey and were sold by New Jersey brokers to out-of-state residents, where those securities meet the requirements for sale.
Synopsis of Rule of Law. The federal Constitution’s dormant Commerce Clause is not violated by a state statute to the extent that the statute allows the state securities authority to stop the sale of securities to buyers in a state other than the seller, where those securities are qualified for sale.
Issue. Is the federal Constitution’s dormant Commerce Clause violated by a state statute where the statute allows the state securities authority to stop the sale of securities to buyers in a state other than the sellers, where those securities are qualified for sale?
Held. (Garth, J.) No. The federal Constitution’s dormant Commerce Clause is not violated by a state statute to the extent that the statute allows the state securities authority to stop the sale of securities to buyers in a state other than the seller, where those securities are qualified for sale.
The Commerce Clause has been long interpreted by the United States Supreme Court as implying a judicial power to nullify state laws that impede unsuitably with interstate commerce. One consistent type of cases like this allows courts to nullify state regulations when their extraterritorial impact is so tremendous that their real effect is to influence and oversee conduct outside the state borders.Â A state is not to try to regulate commerce that commences wholly outside its borders, as per these â€œextraterritorial effectsâ€ cases, although states are allowed to police in-state elements of interstate commerce as long as the regulation expands legitimate in-state interests. So, the constitutionality of state regulations of interstate commerce mostly relies on the territorial range of the sale the state law wants to regulate. The question in this case being what is the territorial range of a contract enacted via telephone betwixt a broker from New Jersey soliciting sales from within the state and an out-of-state purchaser who consents to buying them out-of-state. The Bureau argues that Â§ 60regulates the selling of securities only within New Jersey while Goldmen purports that Â§ 60 allows New Jersey to stop eager buyers from finalizing sales permitted by their respective states. The contracts generated between out-of-state persons involve the interests of and are considered to occur in both states, therefore, Â§ 60 permits the Bureau to police its â€œhalfâ€ of the sale, and can result in effect one state â€œforcing its judgmentâ€ on the other. The next question is whether a â€œlegitimate interestâ€ is expanded by the regulation.Â It was contended by Goldmen that if it has any manipulative methods, only the out-of-state customers will be injured, so no legitimate interest exists on the part of New Jersey to protect within the state. Because New Jersey has two legitimate state interests that Â§ 60 defends: (1)protecting New Jersey citizens from suspicious securities that exist in the secondary market (no filing requirement for secondary transactions) and (2) protecting New Jersey’s legitimate securities issuers reputation. In closing, the fact the provision Goldmen is challenging is nearly universal emphasizes its constitutionality. Reversed.
Discussion. Conflict of laws provisions govern jurisdiction in interstate transactions, and as in this case, a state has jurisdiction over sellers in their state regardless of if they are only selling to out-of-state customers. Jurisdiction is given to the state where the offer was made under the Uniform Securities Act, which many states have adopted, however, if the sale is preceded by an offer to purchase then both the offer and acceptance have to occur within the same state for it to have jurisdiction.Â So, whenever the seller directs offers to sell from that state to individuals of another state, a state’s securities laws are applicable.