Civil Action No. 17075Court of Chancery of Delaware, New Castle CountySubmitted: December 8, 1999
Decided: May 19, 2000
Watson M. Horner, Cundys Harbor, Maine; Appellant Pro Se
Peter O. Jamison, III, Deputy Attorney General, Department of Justice, Wilmington, Delaware; Attorney for Appellee
MEMORANDUM OPINION
JACOBS, VICE CHANCELLOR
Pending are two motions that arise out of an appeal to this Court by appellants Watson Horner (“Horner”) and his corporation, Xcomp, Inc. (“Xcomp”),[1] from an order of the appellee James Ropp, the Delaware Securities Commissioner (“Commissioner”). The Commissioner found that Horner and his corporation, Xcomp, violated § 7303(2) of the Delaware Securities Act by knowingly selling stock in his insolvent corporation and issuing promissory notes to a third party without disclosing the corporation’s troubled financial condition. The Commissioner ordered Horner to pay a $15,000 fine, to make full restitution to the Noteholder, and to cease and desist from future Securities Act violations.
On this appeal Horner contends that the Commissioner violated his procedural due process rights in the proceedings before that agency. The Commissioner has moved to dismiss the appeal for lack of subject matter jurisdiction. Horner has moved to stay the Commissioner’s order pending the outcome of this appeal. This is the Opinion of the Court on both motions which, for the reasons discussed below, will be denied.
I. BACKGROUND[2]
Horner founded Xcomp as a Connecticut corporation in 1984. Beginning in 1991, Xcomp came upon financially hard times. During that year, Carter Moore, Esquire, a Florida attorney who was an acquaintance of Horner, introduced Horner to a potential investor, Robert Milligan (“Milligan”). Eventually, Horner and Milligan negotiated the terms of a $10,000 loan from Milligan to Horner. Over the next three months, Horner (i) executed three separate promissory notes to Milligan, (ii) on several occasions assured Milligan that he would be repaid, and (iii) issued Xcomp stock to Milligan as collateral security for the notes. Despite these assurances, Milligan never received any payment on the notes, from either Horner or Xcomp.
The first promissory note, which was for $15,000 and made payable within 45 days, was issued on October 3, 1991 in consideration for a $10,000 loan from Milligan. Horner delivered to Moore a stock certificate representing one share of stock in Xcomp, Inc. as collateral for that loan. The certificate recited on its face that the share was worth $15,000.
Horner was unable to pay that promissory note, and as a consequence he executed a second promissory note for $16, 250 in favor of Milligan on November 18, 1991. That note was to be repaid within fourteen days, but again Horner was unable to repay the second promissory note when it fell due. Accordingly, he executed a third promissory note in Milligan’s favor on December 2, 1991, this time for $17, 500. That note fell due within 29 days and also was not paid.
The Commissioner found that: (i) at the time Horner issued the three promissory notes to Milligan, Xcomp was financially insolvent; (ii) given Xcomp’s precarious financial condition at that time, the promissory notes issued to Milligan were exceedingly high risk, speculative instruments; (iii) Horner intentionally failed to disclose those facts, and (iv) Milligan relied upon those nondisclosures at the time he made his investment. The Commissioner further found that (v) Horner’s representations that he intended to repay Milligan (made in the promissory notes and Horner’s oral assurances) were knowingly false and that (vi) Horner relied upon these misrepresentations.
Based upon these findings, the Commissioner concluded that Horner violated 6 Del. C. § 7303 (2)[3] by executing and delivering to Milligan the three promissory notes and the stock certificate. The Commissioner also found that the delivery of each promissory note and of the stock certificate, and each subsequent assurance to Milligan, constituted separate violations of 6 Del. C. § 7303(3).[4] Based on those findings, the Commissioner ordered Horner to pay a $15,000 fine to the State of Delaware, to make full restitution to Milligan, and to cease and desist from further violations of the Delaware Securities Act. This appeal followed.
II. THE CONTENTIONS
Horner contends that he was deprived of due process of law during his hearing before the Commissioner, because the Commissioner refused to consider any evidence favorable to him. Specifically, Horner claims that before the hearing he requested procedural information about the hearing, and that most of his requests were ignored. The requests that were responded to, Horner contends, were answered ambiguously and in an untimely manner. Moreover, Horner claims that he did not receive written notice of the hearing until one day after the hearing had occurred, and that although he tried to make a voluntary appearance by telephone on August 26, 1998, he was told that his testimony would not be considered because he had not appeared. Lastly, Horner contends that the State “canceled” the testimony of J. Carter Moore, Esq., the person who originally arranged for the loan, without providing any reason.
Horner has moved to stay the judgment pending appeal. The basis for that motion is that the foregoing facts amount to due process violations, that he will succeed on the merits, and that he will suffer irreparable harm if a stay is not granted. The Commissioner responds that Horner’s motion to stay the order and judgment pending appeal should be denied, because Horner has failed to show that he will succeed on the merits or that inequities will result if a stay is not granted.
The Commissioner has also moved to dismiss the appeal for lack of subject matter jurisdiction. The basis for that motion is 6 Del. C. § 7324(a), which, the Commissioner urges, requires that for this Court’s appellate jurisdiction to attach, the costs of transcribing the administrative record must be paid within 60 days after the judgment has been entered. The Commissioner argues that Horner’s failure to pay the transcription costs within that sixty day window is jurisdictional and requires the dismissal of this appeal.
III. ANALYSISA. The Motion to Dismiss on Jurisdictional Grounds
The Commissioner argues that under 6 Del. C. § 7324(a), before this Court’s appellate jurisdiction can attach, the appellant must satisfy certain requirements within sixty days from the entry of the order being appealed from. One of those requirements, the Commissioner contends, is that the appellants pay the cost of transcribing the administrative record within the sixty day period — a requirement that (the Commissioner argues), was not satisfied.
It is undisputed that the transcription costs were paid after
the 60 day period expired, but Horner contends that that is of no consequence because § 7324(a) does not mandate any 60 day payment deadline. That statute provides:
Any person aggrieved by an order of the Commissioner may obtain a review of the order in the Court of Chancery by first paying the costs of transcribing the record and, upon completion of the record transcription, by filing in Court, within 60 days after the entry of the order, a written complaint praying that the order be modified or set aside in whole or in part. A copy of the complaint shall be forthwith served upon the Commissioner, and thereupon the Commissioner shall certify and file within 20 days in Court a copy of the filing and evidence upon which the order was entered. If, however, the complainant fails to pay the costs of transcription or the transcription is not completed, the Commissioner shall notify the Court and receive additional time in which to file and certify the record. A continued failure by a complainant to pay the costs of transcription shall result in dismissal of the complaint without any need for the Commissioner to file the record in Court.[5]
Regrettably, this statute is not a model of precise draftsmanship. The first sentence, if considered in isolation, can be read to require (as the Commissioner argues) two preconditions for an appeal to this Court, namely, that the complainant (i) pay the transcription costs and (ii) file a written complaint, both within 60 days after the Commissioner’s order is entered.
But that reading, if correct, brings the first sentence into irreconcilable conflict with the third and fourth sentences. The third sentence provides that if the complainant fails to pay the costs of transcription, then the Commissioner will receive additional time to file and certify the record. A provision granting the Commissioner additional time would be superfluous if the sixty day requirement (and the failure to satisfy it) were jurisdictional. Similarly, the Commissioner’s reading of the statute would be inconsistent with the fourth sentence of § 7329(a), because that sentence provides that a case will be dismissed only for a “continued failure by a complainant to pay the costs of transcription . . .”[6] That is, the fourth sentence provides that to warrant dismissal of the appeal, the failure to pay transcript costs must have continued to occur over a period of time. Thus, under these latter two sentences, the cost-payment obligation is not specifically cabined within the 60 day time window.
For these reasons I conclude that the Commissioner’s interpretation of the first sentence of § 7324(a) is incorrect. A statutory provision cannot be construed without regard to the statute’s remaining provisions, nor can it be interpreted in a maimer that would render the remaining provisions superfluous or ineffectual.[7] Reading the statute as a whole, I construe it to mean that although a written complaint must be filed within 60 days after the entry of the order, the transcription costs need not invariably be paid within that 60 day period; rather, the time for payment may be extended in the manner provided by the statute. Because the premise of appellee’s dismissal motion is incorrect, that motion must be denied.
B. The Motion to Stay
I next turn to Horner’s motion to stay the judgment pending appeal. When deciding a motion of that kind, the Court must consider four factors: (1) the likelihood of success on the merits of the appeal; (2) whether the applicant will suffer irreparable harm if the stay is denied; (3) whether any other interested party will suffer substantial harm if the stay is denied; and (4) whether the public interest will be harmed if the stay is denied.[8] The Court must balance all of these equitable factors.[9]
1. Likelihood of success on appeal
The issue raised by this factor is whether the appeal presents a substantial question that is a fair ground for litigation and more deliberative investigation.[10] In my opinion it does.
This appeal concerns whether Horner was denied due process in the administrative hearing because the Commissioner did not consider any evidence in his favor. In support of his position, Horner claims that before the hearing he requested information about the hearing, and that most of those requests went unanswered. Horner further claims that he received no written notice of the hearing until one day after the hearing had already occurred, and that he made a voluntary appearance by telephone on August 26, 1998, but was told that his testimony would not be allowed because he was in default. Lastly, Horner claims that the Commissioner canceled the testimony of J. Carter Moore, Esq., the person who originally arranged for the loan, without providing any reason for doing so.
Under Delaware law, the exclusion of relevant, material, and competent evidence by an administrative agency may constitute grounds for reversal if the exclusion is prejudicial.[11] Although an administrative agency is not bound by the formal rules of evidence, the agency may not disregard rules that are intended to ensure fundamental fairness. As the Delaware Supreme Court has stated:
In order to ensure the efficient adjudication of claims, the Board has the power to make its own rules. Pursuant to that power, the Board may relax the rules of evidence and allow the proceedings to be less formal than a trial… The Board may not, however, relax rules which are designed to ensure the fairness of the procedure.[12]
Fundamental due process rights must be observed unless they are validly waived, because they are designed to guarantee the substantial fairness of the proceedings.[13] Those rights include the right to confront, cross-examine, and refute witnesses, and to have a record of the witnesses’ testimony.[14]
Cutting against Horner’s likelihood of success on the merits is the fact that at this stage none of his allegations is supported by evidence. On the other hand, this is understandable given the nature of Horner’s claims that he was unable to create a record at the agency level, because he was not allowed to personally testify or to have others testify on his behalf. Although on their face Horner’s allegations appear to create a substantial legal question, that cannot be known with certainty unless and until competent evidence is introduced which supports Horner’s claim.
Thus, although I express no view about its ultimate merits, I do conclude that, at this stage, Horner’s due process claim facially presents a substantial question such as would warrant allowing this appeal to proceed.
2. Irreparable harm
The second factor is whether the appellant would be irreparably harmed if the stay is not granted. Here, Horner has not shown how he would be irreparably harmed if a stay is denied. If no stay is not granted and the Commissioner enforces his order, Horner will have to pay a fine and restitution, but the fines would be recoverable should this Court reverse the Commissioner’s judgment, and any restitution would be that which Horner was contractually obligated to pay in all events.
3. Harm to other interested parties if no stay is granted
Horner does not claim that some other interested party would be harmed if a stay is denied. But the record discloses that one interested party — Milligan — would be adversely affected if a stay is granted, if only because he will be delayed in receiving restitution in the event the Commissioner’s order is affirmed.
4. Harm to the public
The final factor is whether any harm to the public interest will result if the stay is not granted. The only identified public interest at stake here is the need to expeditiously vindicate and remedy violations of the Delaware Securities Act. This policy favors not staying the judgment.
Having considered and balanced all of the four relevant factors, I conclude that the motion to stay the judgment pending appeal must be denied. Although the first factor does (provisionally) favor Horner, the other three factors do not, and when considered in the balance, weigh against the grant of a stay.
IV. CONCLUSION
For the foregoing reasons, both the appellee’s motion to dismiss and the appellants’ motion to stay are denied. IT IS SO ORDERED.
(1995).