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State v. Darby

Decided: March 13, 1991.


On appeal from the Superior Court, Law Division, Bergen County.

King, R.s. Cohen and Stern. The opinion of the court was delivered by R.s. Cohen, J.A.D. Stern, J.A.D. (concurring).


Defendants were indicted by the State Grand Jury for conspiracy to commit theft (N.J.S.A. 2C:5-2; 2C:20-4; 2C:20-9), and theft of over $3 million by failing to make required disposition (N.J.S.A. 2C:20-9).*fn1 They moved to dismiss the indictment on double jeopardy grounds, citing the punitive effects of the Chancery Division judgment rendered against them for securities fraud for the same conduct alleged against them in the indictment. The Law Division granted defendants' motion and dismissed the indictment. The State appealed; we reverse.

Defendants Robert J. Darby and Kathleen C. Darby are husband and wife. Defendant Kim Handy is their daughter. Robert J. Darby was once a registered stockbroker and securities dealer. In 1975, the Darbys formed Premium Resources, Inc., to conduct the business of financing payment of insurance premiums for businesses and persons. They attempted to raise capital through a public stock offering, but were unsuccessful. As an alternative, they began in 1977 to sell interest-bearing "thrift certificates." From 1977 to 1986, there were over 200 buyers, mostly unsophisticated people. The State charged, in both civil and criminal proceedings, that the "thrift certificates" were nonexempt securities under the Uniform Securities Law (1967), N.J.S.A. 49:3-47 et seq., and thus should have been registered; that the proceeds of the sales of the certificates

were improperly commingled with other corporate funds and misused, and that the sales of the certificates were based upon material misrepresentations as to their nature and value.

Premium Resources, Inc. was an unsuccessful business, and ultimately collapsed. The "thrift certificates" became worthless. In May 1986, the Attorney General filed a complaint in the Chancery Division on behalf of the Chief, Bureau of Securities, naming the corporation, the Darbys, Handy and others as defendants. The complaint charged defendants with violations of the Uniform Securities Law (1967) ("the Law") and sought a declaratory judgment that defendants had violated the Law, a preliminary and permanent injunction against unlawful practices and any sale of securities by defendants, appointment of a receiver, monetary penalties, and "such other relief as the Court deems equitable and just."

The indictment was rendered in December 1986. As already mentioned, it targeted the same activities charged in the civil complaint, except that it covered a somewhat shorter time.

Defendants then moved to stay the proceedings in the Chancery Division until disposition of the indictment. The thesis of the motion was that the defendants' rights to avoid self-incrimination would be violated by requiring them to participate in the Chancery litigation. The motion was denied, and both this court and the New Jersey Supreme Court denied interlocutory relief. See State v. Kobrin Securities, Inc., 111 N.J. 307, 544 A.2d 833 (1988).

The Chancery suit was then pretried. The pretrial order recited the State's damage claims, as required by R. 4:25-1(b)(5).*fn2 First was the claim for "civil penalties," pursuant to N.J.S.A. 49:3-70(b), in the amount of $200 times the number of investors. Second was "[d]isgorgement of all monies acquired, including profits, in connection with the unlawful for sale [sic]

and sale of Premium's securities in an aggregate amount of at least $3.4 million." Third was a permanent injunction against "any securities related activities." Attached to the pretrial order was a portion of the Attorney General's pretrial memorandum, which stated his damage claims in essentially the same words.

We have very little of the record of the Chancery suit. It appears, however, that there was an interlocutory order pursuant to which defendants' assets worth some $.5 million were seized, a custodian was appointed to hold the seized assets, and preliminary injunctions were entered against securities-related actions by defendants. The final judgment was entered on July 6, 1988, after a 20-day trial. It declared that defendants had violated the Uniform Securities Law (1967), permanently enjoined them from any securities-related activities in New Jersey, entered judgment against defendant Handy for $12,500, entered judgment against defendant Handy for civil penalties of $128,600 ($200 X 643), entered judgment against the Darbys together for civil penalties of $163,400 ($200 X 817), entered judgment against Handy and the Darbys "individually, jointly and severally" for $3.1 million "representing the restoration of money unlawfully acquired from investors in Premium Resources, Inc. . . .," and ordered the previously appointed custodian to retain the assets he held "for the benefit of the investors . . . ." No appeal was taken from this judgment.*fn3

Defendants Darby and Handy then moved to dismiss the indictment on the thesis that they had been punished by the

judgment entered against them in the Chancery action, and that prosecution of the indictment put them again in jeopardy for the same offenses. The Law Division judge granted defendants' motions. He reasoned that the effect and purpose of the Chancery Division judgment was punitive; that the "fine was so large that it can only be considered punishment"; and that the injunctions against securities activities, the retention of defendants' assets and the $3.1 million disgorgement order were grounded in deterrence and retribution, the two purposes of punishment. The judge concluded that the Chancery judgment exhausted the State's ability to constitutionally punish defendants, and thus he dismissed the indictment.

No person may be "subject for the same offense to be twice put in jeopardy of life or limb, . . ." by the federal government, U.S. Const., amend. V, or any state, Benton v. Maryland, 395 U.S. 784, 794, 89 S. Ct. 2056, 2062, 23 L. Ed. 2d 707, 716 (1969). New Jersey's constitution expresses a coextensive guarantee, in different words. N.J. Const. of 1947, art. 1, para. 11. State v. Farmer, 48 N.J. 145, 168, 224 A.2d 481, cert. denied, 386 U.S. 991, 87 S. Ct. 1305, 18 L. Ed. 2d 335 (1967).

The double jeopardy guarantees protect against a second prosecution for the same offense after acquittal or after conviction, and against multiple punishments for the same offense. North Carolina v. Pearce, 395 U.S. 711, 717, 89 S. Ct. 2072, 2076, 23 L. Ed. 2d 656, 665 (1969). They protect against a second proceeding only if its essence is criminal. They do not prohibit the imposition of civil sanctions and criminal penalties for the same act or course of conduct. Helvering v. Mitchell, 303 U.S. 391, 399, 58 S. Ct. 630, 633, 82 L. Ed. 917, 922 (1938); In re Garay, 89 N.J. 104, 111, 444 A.2d 1107 (1982). Thus, the dispositive question is whether the sanctions imposed on defendants in the Chancery proceedings should be considered criminal or civil.

The penalties were imposed in proceedings brought by the Attorney General under the Uniform Securities Law (1967),

N.J.S.A. 49:3-47 et seq. The Law was modeled after a statute approved by the National Conference of Commissioners on Uniform State Laws in 1956, which has been adopted in thirty-six states. See 7B U.L.A. 509 (1988).*fn4 Our Law departs from the Uniform Securities Act in a number of respects. Data Access Sys., Inc. v. State, 63 N.J. 158, 162, 305 A.2d 427 (1973).

Like the uniform act, our Law provides for criminal penalties for wilful violations. N.J.S.A. 49:3-70(a); 7B U.L.A. 631-632 (§ 409(a)). It also provides for suspension or revocation of the registration of a broker-dealer, agent or investment advisor for wilful violations. N.J.S.A. 49:3-58(a)(ii); 7B U.L.A. 542 (§ 204(a)(B)). It permits the Superior Court to issue orders at the instance of the Chief, Bureau of Securities, to enjoin illegal activities, to enjoin all securities-related activities by violators, and to appoint a receiver of illegal gains of a violator and a receiver of all of the assets of a business firm which is a violator. N.J.S.A. 49:3-69; 7B U.L.A. 628 (§ 408).

New Jersey's Law provides yet another sanction, not contained in the uniform act, of monetary penalties for wilful or non-wilful violations of the Law or any rule or order of the Bureau of Securities, to be sued for by the Chief, Bureau of Securities, in summary proceedings under the penalty enforcement law. N.J.S.A. 49:3-70(b); 2A:58-1 et seq. The § 70(b) monetary penalties are apparently unique additions to the uniform act, made only by New Jersey. See Mayflower Securities Co. v. Bureau of Securities, 64 N.J. 85, 90, 312 A.2d 497 (1973).

In ruling on the extent of the procedural guarantees to which defendants were entitled, the Chancery Division Judge characterized the § 70(b) monetary penalties as civil. The State argues that defendants' failure to appeal from the Chancery

Division judgment collaterally estops them from contesting that characterization in the present proceedings.

We disagree. The issue is purely one of law, and the Chancery Division ruling was not made in the context of the constitutional guarantees against double jeopardy. The issue is one of public importance, and, finally, we decline to estop defendants because they decided to devote their litigation resources to a plausible attack on the indictment instead of a long-shot appeal from the Chancery Division judgment. Cf. City of Plainfield v. Public Serv. Elec. & Gas Co., 82 N.J. 245, 257-259, 412 A.2d 759 (1980).*fn5

Whether a penalty should be generally characterized as civil or criminal is primarily a matter of statutory construction. United States v. Ward, 448 U.S. 242, 248, 100 S. Ct. 2636, 2641, 65 L. Ed. 2d 742, 749, reh'g denied, 448 U.S. 916, 101 S. Ct. 37, 65 L. Ed. 2d 1179 (1980); Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 132, 527 A.2d 1368 (1987). The legislative labeling of a penalty as civil is accorded substantial weight. Id.*fn6

The Legislature did not expressly label the § 70(b) penalties at all. The section of the enacted Senate bill (S. 327) that became L. 1967, c. 93, § 23 had no heading.*fn7 Section 23, as printed in the Public Laws of New Jersey, is headed "Violations; penalty." The label "criminal penalties" ...

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