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McIntyre v. Securities Commissioner of South Carolina

Court of Appeals of South Carolina

October 17, 2018

John M. McIntyre and Silver Oak Land Management, LLC, Appellants,
v.
Securities Commissioner of South Carolina, Respondent. Appellate Case No. 2015-001845

          Heard February 6, 2018

          Appeal From Richland County Tanya A. Gee, Circuit Court Judge

          Robert V. Mathison, Jr., of Mathison & Mathison, of Hilton Head Island; and Cory E. Manning, of Nelson Mullins Riley & Scarborough, LLP, of Columbia, both for Appellants.

          Attorney General Alan McCrory Wilson, Assistant Attorney General Ian Parks Weschler, and Assistant Deputy Attorney General Tracy A. Meyers, all of Columbia, for Respondent.

          HILL, J.:

         John M. McIntyre and Silver Oak Land Management, LLC (collectively Appellants) appeal the order of the circuit court affirming a $540, 000 civil penalty imposed upon them by the Securities Commissioner of South Carolina. Because the Commissioner's administrative enforcement action deprived Appellants procedural due process, we reverse and vacate.

         I.

         The Attorney General of South Carolina, acting as the Commissioner pursuant to S.C. Code Ann. § 35-1-601 (Supp. 2017), began this administrative enforcement action by serving Appellants with a Cease and Desist order on April 19, 2013, alleging thirty-nine acts of securities fraud related to Appellants' offer, sale, and management of interests in numerous limited liability companies (LLCs). Besides ordering Appellants to cease and desist from violating the S.C. Uniform Securities Act (the Act), the order reserved the right to levy a $10, 000 civil penalty for each violation of the Act, as well as the cost of "the investigation and proceedings," unless Appellants chose to let the order become effective "by operation of law," as provided by S.C. Code Ann. § 35-1-604(b) (Supp. 2017), in which case they would have to pay a $50, 000 civil penalty.

         Appellants chose not to let the order stand and instead requested a hearing. The Commissioner appointed an assistant attorney general as the Hearing Officer. After four days of hearings, the Hearing Officer issued a Report and Recommendation, concluding the LLC investments were not securities and the Cease and Desist order should be dismissed.

         The Commissioner disagreed, finding the LLC investments were securities covered by the Act and ordering the Hearing Officer to issue another Report and Recommendation as to whether Appellants had violated the Act.

         The Hearing Officer's second Report and Recommendation found Appellants had committed seventy-eight violations of the Act. After reviewing this Report and Recommendation, the Commissioner concurred in its findings but "reiterated" his own findings from the previous order and made new factual findings. The Commissioner reduced the number of violations to fifty-four and imposed the maximum civil penalty of $10, 000 for each violation, for a total penalty of $540, 000. This order also required Appellants to pay the costs of the investigation and proceedings, and there was no provision allowing Appellants to contest the amount of the costs or be heard in response.

         Appellants petitioned the circuit court for review of the Commissioner's decision, contending the administrative proceeding violated their due process rights, the LLC investments were not securities, and substantial evidence did not support the Commissioner's findings. The circuit court affirmed the Commissioner's decision.

          II.

         Appellants claim the Commissioner denied them procedural due process by not promulgating rules for the hearing procedure. As a result, Appellants had no notice of the availability, order, or scope of opening and closing arguments; the order or burden of proof; the standard for admissibility of evidence; the existence of subpoena rights; or any other fundamental aspects of the hearing. Appellants point to S.C. Code Ann. § 35-1-605(a)(1) (Supp. 2017), which states, "The Securities Commissioner may issue forms and orders and, after notice and comment, may adopt and amend rules necessary or appropriate to carry out [the Act] . . . ." Judicial review of the Commissioner's factual findings by the circuit court is discussed in § 35-1-609, but is silent as to our scope of review. Appellants' claims require us to interpret the legislative intent of the Act, and also decide whether the Commissioner's actions violated due process. We may decide these questions of law without deference to the rulings of the Commissioner or the circuit court. See Jeter v. S.C. Dep't of Transp., ...


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