STATE V. DANEK, 1994-NMSC-071, 118 N.M.
8, 878 P.2d 326 (S. Ct. 1994)
STATE OF NEW MEXICO,
Plaintiff-Petitioner,
vs.
ROBERT DANEK, Defendant-Respondent.
SUPREME COURT OF NEW MEXICO
1994-NMSC-071, 118 N.M. 8, 878 P.2d 326
June 23, 1994, Filed. As
Corrected August 1, 1994
ORIGINAL PROCEEDING ON CERTIORARI. W.C.
"Woody" Smith, District Judge
Motion for Rehearing Denied June 23,
1994
Tom Udall, Attorney General, Jerome
Marshak, Assistant Attorney General, Santa Fe, NM for Plaintiff-Petitioner.
Toulouse & Associates, P.A., James R.
Toulouse, John G. Travers, Albuquerque, NM, for Defendant-Respondent.
{1} Having considered the
State's motion for rehearing of our opinion filed June 2, 1994, we deny such
motion. In doing so, we withdraw our original opinion and substitute the
following.
{2} In an appeal by the
State, the Court of Appeals affirmed the trial court's grant of a new trial to
Robert Danek.
State v. Danek, 117 N.M. 471,
872 P.2d 889 (Ct. App.
1993). We issued our writ of certiorari to the Court of Appeals because of the
pendency on certiorari of
State v. Griffin, 117 N.M. 745,
877 P.2d 551
(1994), in which we have today filed an opinion. We consider whether the Court
of Appeals should have remanded the case to the trial court specifically to
decide if the new trial remains warranted in light of the holding on appeal
that only one, as opposed to three, evidentiary errors were made by the trial
court. We necessarily consider collateral issues and affirm with instructions.
{3} The full factual and
procedural background of this case is set forth in the opinion of the Court of
Appeals and will not be repeated. In essence, Danek was convicted on multiple
counts of fraudulent commodities practices and unlawfully selling a commodity
contract; he was acquitted on the alternative charges of fraudulently selling
securities and unlawfully selling security contracts. He also was convicted on
multiple counts of selling securities without a license and on one count of
operating an illegal pyramid promotional scheme.
{4} At the end of an
eight-day trial, the trial court denied Danek's motion for a judgment
notwithstanding the verdict but granted his motion for a new trial. The court
believed that it had committed several errors that resulted in prejudice to the
defendant: (1) it gave an incorrect statement of the law by instructing the
jury with a uniform jury instruction defining "security", (2) it erroneously
admitted evidence of Danek's prior conviction for fraud, (3) it erred in
allowing experts on both sides to testify to the correct definition of security
and then clothed the State's witness with a mantle of credibility by giving an
instruction that matched his definition, and (4) cumulative error resulted in
an unfair trial.
{5} The Court of Appeals held
that the trial court had committed only one error and, using the test set out
in
State v. Gonzales, 105 N.M. 238, 241,
731 P.2d 381, 384 (Ct. App.
1986),
cert. quashed, 105 N.M. 211,
730 P.2d 1193 (1987), determined
that the error was substantial enough to warrant the exercise of the trial
court's discretion in granting a new trial in the interests of justice. We
affirm the Court of Appeals with the exception that we instruct the trial court
to decide whether a new trial remains warranted based on any prejudice caused
by the single evidentiary error.
{6} Jury instruction defining
"security" was correct. The Court of Appeals determined
{*10} that the trial court could not grant a
new trial on the basis that it disagrees with a uniform jury instruction,
citing to
State v. Chavez, 101 N.M. 136, 139,
679 P.2d 804, 807 (1984)
(Chavez
II). The Court of Appeals rendered its opinion before we handed down our
opinion in
State v. Wilson, 116 N.M. 793,
867 P.2d 1175 (1994).
Wilson
clarifies
Alexander v. Delgado, 84 N.M. 717,
507 P.2d 778 (1973), and
holds that the Court of Appeals is not prohibited from considering error in
jury instructions unless this Court already has ruled on the propriety of such
instructions in cases and controversies that comprise controlling precedent.
116 N.M. at 795-96, 867 P.2d at 1177-78. Thus, the Court of Appeals did not
pass upon whether the instruction used (NMSA 1986, 14-4310 (Cum. Supp. 1992))
is a valid statement of the law.
Chavez II is today overruled on other
grounds by this Court in
Griffin.
{7} The holding in
Chavez
II regarding jury instructions was that because "in no event may an
elements
instruction be altered," 101 N.M. at 139, 679 P.2d at 807 (quoting the
general use note to the Uniform Jury Instructions)(emphasis added), the
district court "erred in finding [that the] approved instructions were
inadequate and confusing as a basis for the new trial."
Id. In this
case, the court was questioning an instruction defining "security",
not an instruction setting out the elements of a crime. Because a trial court
may otherwise alter an instruction to fit the circumstances of the case before
it,
see SCRA 1986, General Use Note to Judicial Pamphlet 14, the
principle expressed in
Chavez II is not applicable in this case.
{8} The jury was instructed,
over objection by Danek, that a "security" is
an investment contract, a participation in any
profit-sharing agreement or any guarantee of any of the foregoing. An
"investment contract" means a contract where an individual invests
his or her money . . . in an undertaking or venture of two or more people or
entities . . . with an expectation of profit . . . based primarily on the efforts
of others. An "investment" is the use of money to make more money.
The court believed that under State v. Shade, 104 N.M.
710, 716, 726 P.2d 864, 870 (Ct. App.), cert. quashed sub nom., Vincent v.
State, 104 N.M. 702, 726 P.2d 856 (1986), and New Mexico Life Insurance
Guaranty Ass'n v. Quinn & Co., 111 N.M. 750, 756, 809 P.2d 1278, 1284
(1991), the UJI was an incorrect statement of law in that "primarily"
should have been "solely".
{9} At the time
Shade
was decided, there was no uniform jury instruction defining "investment
contract," so the
Shade court adopted the definition from the
United States Supreme Court case of
SEC v. W.J. Howey Co., 328 U.S. 293,
298-99, 90 L. Ed. 1244, 66 S. Ct. 1100 (1946). In
Howey, the Court
stated that, to be considered a security, the profits garnered from an
investment contract must be garnered "solely from the efforts of the
promoter or a third party." 328 U.S. at 299. The
Howey Court noted,
however, that the term "security" "embodies a flexible rather
than a static principle, one that is capable of adaptation to meet the
countless and variable schemes devised by those who seek the use of the money
of others on the promise of profits."
Id. In applying the
Howey
"solely" test to a criminal prosecution, the
Shade Court
defined the critical inquiry as "whether the managerial efforts are
functionally
essential or undeniably significant to that profit." 104 N.M. at 716,
726 P.2d at 870 (quoting
Cameron v. Outdoor Resorts of Am., Inc., 608
F.2d 187, 193 (5th Cir. 1979)) (emphasis added). In
Quinn, a civil case,
this Court adopted the
Howey test but cautioned that "the 'economic
realities' must be examined to determine whether the transaction warrants
characterization as a security." 111 N.M. at 756, 809 P.2d at 1284.
{10} The UJI committee's use
of "primarily" instead of "solely" in the definition of
"investment contract" as a security is consistent with the
legislative intent expressed in NMSA 1978, Section
58-13B-2(V) (Repl. Pamp.
1991)(prefacing the definition of "security" under the New Mexico
Securities Act with "unless the context requires otherwise"), and
with the principle expressed in
State v. Sheets, 94 N.M. 356, 360-62,
610 P.2d 760, 764-66 (Ct. App.)(stating that neither
{*11}
the federal statutory definition nor the state definition of
"security" should be given a narrow application),
cert. denied,
94 N.M. 675,
615 P.2d 992 (1980),
modified on other grounds by White v.
Solomon, 105 N.M. 366, 368,
732 P.2d 1389, 1391 (Ct. App. 1986),
cert.
denied, 105 N.M. 290,
731 P.2d 1334 (1987). It further comports with the
statement in
Quinn that, in determining whether a contract is a
security, "the court must place substance before form and it must examine
in detail the nature of the transaction." 111 N.M. at 756, 809 P.2d at
1284. Considering the application of the
Howey test in New Mexico, we
hold that the uniform jury instruction defining "investment contract"
as one in which the profits must be garnered "primarily" by a third
party is a correct statement of the law.
{11} Court did not manifestly
abuse its discretion in granting a new trial based on legal error. Without
objection from Danek, the court allowed experts for both the State and Danek to
testify about the legal definition of a security. While it was legal error to
allow the experts to so testify,
see Beal v. Southern Union Gas Co., 66
N.M. 424, 437,
349 P.2d 337, 346 (1960), Danek failed to object to the
testimony and in fact invited it. The court felt, however, that Danek was
prejudiced when the jury was instructed with the same definition that the
State's expert had given. The court was concerned that the jury would give more
weight to that expert's other testimony, given the proof that he was correct in
defining "security". We agree with the Court of Appeals that the
trial court did not abuse its discretion by basing its grant of a new trial in
part on this error.
{12} Trial court should
decide whether a new trial is warranted based on single indicia of unfair
trial. We agree with the Court of Appeals that it was not error to admit
evidence of Danek's prior conviction for fraud.
See Danek, 117 N.M. at
475, 872 P.2d at 893. Because the trial court believed it had made several
errors that prevented Danek from receiving a fair trial when in fact it made
only one legal error, we agree with Judge Hartz that the trial court should now
decide if "this particular error in itself created sufficient prejudice to
require a new trial."
Id. at 478, 872 P.2d at 896. (Hartz, J.,
concurring in part, dissenting in part);
see also Griffin, 117 N.M. 745,
877 P.2d 551. The mandate on remand specifically should clarify that the single
error relative to expert testimony was not reversible as a matter of law and
that a new trial remains within the discretion of the trial court.
{13} Court must direct
verdict of acquittal on counts 23 through 29 and 31 if it decides it would not
grant a new trial on subjective basis of unfair prejudice alone. Because the
trial court may decide that a new trial is no longer warranted, we address Danek's
contention that the court erroneously refused to enter judgment notwithstanding
the verdict on certain verdicts. Danek was charged in the alternative with
fraudulently selling either securities or commodities in counts 5 through 11
and 13, and either unregistered securities or commodity contracts in counts 14
through 16 and 18 through 22. Instructions 14 and 17 charged the jury that it
could find Danek guilty of either one or the other, or not guilty, but that it
could not find Danek guilty of both. Those instructions, as to the State,
became the law of the case.
See Gerety v. Demers, 86 N.M. 141, 143,
520
P.2d 869, 871 (1974)(stating that unchallenged instructions become the law of
the case).
{14} The jury found Danek
guilty of only the commodities charges, thereby acquitting him of the
securities violations. The jury also found Danek guilty of "transacting
business as a broker dealer or sales representative without a license as
charged in Counts [23 through 29 and 31]." Instructions 18 and 19 charged
the jury that "for you to find . . . [Danek] guilty of transacting
business as a broker dealer or sales representative without a license as
charged in Counts [23 through 29 and 31], the State must prove beyond a
reasonable doubt . . . [that the] defendant transacted business as a
broker-dealer or sales representative in connection with [the offer to sell or
the sale of]
a security. " (Emphasis added.)
{15} Having found that Danek
sold only commodities and not securities in its previous verdicts, the jury could
not find Danek guilty of counts 23 through 29 and 31 because the
{*12} State failed to prove the essential
element for each count that Danek transacted business in connection with offers
to sell securities. On motion for rehearing, the State argues that "While
this Court construed the commodities convictions as an acquittal on the
securities violations, such a construction is not required. . . . Danek has not
contended there is any legal reason that he could not have been convicted of
both
securities and commodities violations for his acts assuming he had been charged
in such manner instead of in the alternative." However, in the settling of
the jury instructions, the State specifically agreed that "if they convict
. . . on securities, they can't convict as to commodities;" to which the
trial court responded, without objection: "What I will say as to each of
the counts involving alternatives, that if you determine that if, in fact, you
find, beyond a reasonable doubt, that there is securities violation, you cannot
then consider the commodities. If you don't find securities, then the
commodities may be considered." In closing argument, the State contended
that "if you decide that [securities] is not the case, then you go to the
commodities question and you decide that."
{16} In addressing the
postjudgment motions, the court observed that "based on the jury's verdict
and the instructions given to them by the Court, for them to have reached the
commodities means . . . not guilty as to anything as to securities." The
State objected, arguing that "I think that is not what the instructions
said." The court responded by stating "That is what we intended and
that is what you told me, that that would be the State's position as to
that." Therefore, under the law of the case, we are satisfied that, if a
new trial is not granted, the court must direct a verdict in favor of Danek on
counts 23 through 29 and 31.
RICHARD E. RANSOM, Justice
GENE E. FRANCHINI, Justice