                          NOTICE: NOT FOR PUBLICATION.
   UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
          LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.




                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE


    DENVER ENERGY EXPLORATION, LLC, a Texas limited liability
   company; and MICHAEL LEE CHRISTOPHER, an unmarried man,
                      Plaintiffs/Appellants,

                                        v.

     ARIZONA CORPORATION COMMISSION, an administrative
                agency of the State of Arizona,
                     Defendant/Appellee.

                             No. 1 CA-CV 15-0553
                               FILED 9-15-2016


           Appeal from the Superior Court in Maricopa County
                        No. LC 2014-000359-001
            The Honorable Crane McClennen, Judge (Retired)

                                  AFFIRMED


                                   COUNSEL

Tiffany & Bosco, PA, Phoenix
By Robert D. Mitchell, Megan R. Jury, Sarah K. Deutsch
Counsel for Plaintiffs/Appellants

Arizona Corporation Commission Legal Division, Phoenix
By Paul Kitchin
Counsel for Defendant/Appellee
                         DENVER et al. v. AZCC
                          Decision of the Court



                      MEMORANDUM DECISION

Judge Margaret H. Downie delivered the decision of the Court, in which
Presiding Judge Patricia K. Norris and Judge Samuel A. Thumma joined.


D O W N I E, Judge:

¶1            Denver Energy Exploration, LLC (“DEE”) and Michael Lee
Christopher, DEE’s sole member and manager (collectively,
“Appellants”), appeal from an order by the superior court affirming a
final decision by the Arizona Corporation Commission (“Commission”).
For the following reasons, we affirm.

                FACTS AND PROCEDURAL HISTORY

¶2            In May 2011, the Securities Division of the Commission
(“Division”) filed a Temporary Order to Cease and Desist and Notice of
Opportunity for Hearing. The Division alleged Appellants had offered or
sold unregistered securities, failed to register as dealers or salesmen, and
committed fraud in connection with the offer or sale of securities, in
violation of Arizona Revised Statutes (“A.R.S.”) sections 44-1841, -1842,
and -1991. Appellants denied the alleged violations and requested an
evidentiary hearing.

¶3             At the evidentiary hearing, a Commission investigator
testified that the Division’s investigation began after he was contacted by
an Arizona resident who had been solicited to invest in DEE oil and gas
well projects. The investigator posed as a potential investor named
“Jackson Roberts” and called DEE’s independent contractor — Arizona
resident Craig Munsey — to inquire about DEE investment opportunities.
Munsey sent the investigator information about available investments and
offered him the “opportunity to become a joint venture partner.” The
investigator also spoke with and received email communications from
DEE’s sales/office manager.

¶4          As part of the Division’s investigation, the investigator
researched whether Appellants had committed past securities violations.
He discovered a regulatory action against DEE by the Pennsylvania




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                          DENVER et al. v. AZCC
                           Decision of the Court

Securities Commission.1 The investment at issue in the Pennsylvania
proceedings was one of the projects Munsey discussed with the
investigator when touting DEE’s experience in the oil and gas well
industry. The investigator was not informed of the Pennsylvania action,
nor was the Pennsylvania matter disclosed in offering materials
Appellants sent to the investigator.

¶5            The Commission concluded Appellants had: (1) offered and
sold unregistered securities in violation of A.R.S. § 44-1841; (2) offered and
sold securities “without being registered as a dealer and/or salesman” in
violation of A.R.S. § 44-1842; and (3) “committed fraud in the offer and
sale of unregistered securities” in violation of A.R.S. § 44-1991. Appellants
appealed the Commission’s decision to the superior court, which
affirmed. Appellants timely appealed to this Court. We have jurisdiction
pursuant to A.R.S. §§ 12-120.21(A)(1), 12-913, and 12-2101(A)(1).

                               DISCUSSION

¶6            “On appeal from the judgment of the superior court, we
determine whether the underlying administrative decision of the
Commission ‘was illegal, arbitrary, capricious, or involved an abuse of
discretion.’” Shorey v. Ariz. Corp. Comm’n, 238 Ariz. 253, 257, ¶ 11 (App.
2015) (citation omitted). The Arizona Securities Act (“ASA”), A.R.S.
§§ 44-1801, et seq., is to “be liberally construed to effect its remedial
purpose of protecting the public interest.” E. Vanguard Forex, Ltd. v. Ariz.
Corp. Comm’n, 206 Ariz. 399, 410, ¶ 36 (App. 2003).

¶7             Appellants have not challenged the determination that they
violated A.R.S. §§ 44-1841 and -1842 by offering or selling unregistered
securities and by failing to register as dealers or salesmen in Arizona. We
therefore do not address those violations. See MT Builders, L.L.C. v. Fisher
Roofing, Inc., 219 Ariz. 297, 304 n.7, ¶ 19 (App. 2008) (arguments not
developed on appeal are waived).

¶8            Regarding the securities fraud determination, the Division
alleged, in pertinent part:

       Unbeknownst to Unit offerees and purchasers, DEE was
       sanctioned by the Pennsylvania Securities Commission

1     The Pennsylvania orders relate to the “Koomey/Morrison #3
Prospect.” The named respondents in that matter are DEE, DEE
independent contractor Frank Duvall, and Duvall’s company.



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                          DENVER et al. v. AZCC
                           Decision of the Court

      (“PSC”) on or about July 13, 2010, for offering and/or selling
      the Units within or from Pennsylvania, in violation of
      Section 201 of the Pennsylvania Securities Act of 1972,
      because the Units were not registered as securities to be
      offered or sold within or from Pennsylvania. . . .

      In resolving the Pennsylvania Enforcement Action, DEE
      consented to the entry of the final July 13, 2010, “Findings of
      Fact, and Conclusions of Law, and Order” in that action that
      orders DEE to pay a fine of $1,500, to comply with the
      Pennsylvania Securities Act of 1972, and/or stop offering or
      selling the unregistered Units to Pennsylvania residents in
      violation of the act . . . .

Appellants do not contend they in fact disclosed the Pennsylvania
regulatory action. They instead argue non-disclosure of the matter neither
constituted a material omission nor made any “statements made”
misleading under the ASA.

¶9            The ASA is “designed to protect the public from fraud and
deceit arising in securities transactions.” Shorey, 238 Ariz. at 257, ¶ 12
(citation omitted). The ASA’s anti-fraud statute, A.R.S. § 44-1991(A)(2),
provides, in relevant part:

      A. It is a fraudulent practice and unlawful for a person, in
         connection with a transaction or transactions within or
         from this state involving an offer to sell or buy securities,
         or a sale or purchase of securities . . . directly or indirectly
         to do any of the following:

          ...

      2. Make any untrue statement of material fact, or omit to
         state any material fact necessary in order to make the
         statements made, in the light of the circumstances under
         which they were made, not misleading.

I.    Materiality

¶10           Appellants contend the Pennsylvania action was immaterial
to the offerings at issue here. They argue no reasonable investor would
have found the Pennsylvania action significant because: (1) it involved a
different independent contractor; (2) the investment offerings were
different; (3) no sales actually occurred in Pennsylvania; (4) the final


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                         DENVER et al. v. AZCC
                          Decision of the Court

Pennsylvania order “resulted in a nominal fine of $1,500;” and (5) an
earlier cease and desist order issued by the Pennsylvania Securities
Commission was prospectively rescinded by a later order.2         The
Commission, however, concluded:

      Although there were no complaints by any investors in this
      proceeding and the investor who was offered a refund chose
      not to accept it, the omission or misstatement of a material
      fact, the PSC Order, would be significant information to a
      reasonable investor. That is the relevant inquiry and not
      whether a particular investor would place any import in the
      statements by those in violation of the Act.[] Therefore,
      based on the record, we find that Respondents DEE and
      Mr. Christopher committed fraud in violation of A.R.S.
      § 44-1991.

¶11           The Commission properly applied an objective test to the
materiality determination:

      While A.R.S. § 44-1991(A)(2) expressly requires that the
      statement or omission be material, it is not necessary to
      show that the statement or omission was material to this
      particular buyer. Rather, a plaintiff must show that the
      statement or omission would have assumed actual
      significance in the deliberations of the reasonable buyer.

Aaron v. Fromkin, 196 Ariz. 224, 227, ¶ 14 (App. 2009). “Under this test,
there is no need to investigate whether an omission or misstatement was




2    The Amended Notice of Hearing demonstrates the Division’s reliance
on the July 2010 Pennsylvania order, rather than the earlier cease and
desist order. Moreover, although the July order prospectively rescinded
the cease and desist order, that order also found “wil[l]ful” violations of
the Pennsylvania Securities Act. The record does not support Appellants’
suggestion that the Commission impermissibly relied on the earlier cease
and desist order in reaching its conclusions. Instead, the record shows the
Commission discussed that cease and desist order in setting forth the
background of the Pennsylvania proceedings.



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                          DENVER et al. v. AZCC
                           Decision of the Court

actually significant to a particular buyer.” Trimble v. Am. Sav. Life Ins. Co.,
152 Ariz. 548, 553 (App. 1986).3

¶12           Materiality is typically a question of fact, “but may be
resolved as a matter of law where the information is so obviously
important or unimportant to an investor that reasonable minds could not
differ on the question of immateriality.” Caruthers v. Underhill, 230 Ariz.
513, 524, ¶ 43 (App. 2012). The omission at issue here does not clearly fall
at either end of the materiality/ immateriality spectrum and was thus
properly decided by the Commission as a question of fact.4 Viewing the
facts in the light most favorable to upholding the Commission’s
determination, Shorey, 238 Ariz. at 258, ¶ 14, the record supports the
conclusion that reasonable investors could be concerned that DEE’s failure
to abide by Pennsylvania securities laws in offering its oil and gas well
investments would adversely affect such offerings made elsewhere.

¶13            Assuming reasonable minds could differ about the
materiality of Appellants’ omission, we will not substitute our judgment
for that of the Commission, “even where the question is . . . debatable and
one in which we would have reached a different conclusion had we been
the original arbiter of the issues raised by the application.” Blake v. City of
Phoenix, 157 Ariz. 93, 96 (App. 1988). We give deference to the
Commission’s resolution of issues that draw on “the accumulated
experience and expertise of its members.” Croft v. Ariz. State Bd. of Dental
Exam’rs, 157 Ariz. 203, 208 (App. 1988); see also Vanguard Forex, 206 Ariz. at
409, ¶¶ 35–36 (appellate court gives “great deference” to Commission’s
interpretation of ASA).

II.    Misleading Statements

¶14         Appellants have an affirmative duty not to mislead potential
investors. See Trimble, 152 Ariz. at 553. “This requirement not only
removes the burden of investigation from an investor, but places a heavy
burden upon the offeror not to mislead potential investors in any way.” Id.


3      This well-established authority refutes Appellants’ contention that
the Commission acted “contrary to the purpose” of the ASA by finding
securities fraud “when there were no investor losses or complaints.”
4      Because materiality was a question of fact, we do not find the
parties’ cited authorities to be particularly helpful. Nor have Appellants
established that prior regulatory action is immaterial as a matter of law if
it does not involve identical securities and parties.



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                          DENVER et al. v. AZCC
                           Decision of the Court

(Emphasis added.) A material omission constitutes securities fraud if the
omission makes an underlying statement misleading. A.R.S.
§ 44-1991(A)(2).

¶15           Appellants contend we should remand for the Commission
to make factual findings regarding which specific statements were made
misleading by the material omission it found. They argue that because the
Commission made specific findings as to materiality, it was also required
to expressly identify the misleading statements. However, “[i]n the
absence of a statute or rule requiring an administrative board to make
detailed findings of fact, none are required.” Justice v. City of Casa Grande,
116 Ariz. 66, 68 (App. 1977). We instead consider the entire record to
determine whether substantial evidence supports the conclusion that
Appellants’ material omissions made underlying statements misleading.
“Substantial evidence exists if either of two inconsistent factual
conclusions are supported by the record.” Vanguard Forex, 206 Ariz. at
409, ¶ 35.

¶16           In promoting DEE’s investment offerings to the Division’s
investigator, Munsey discussed the Koomey/Morrison #3 project that was
the subject of the Pennsylvania proceedings, citing it as an example of
DEE’s experience in the oil and gas well industry and touting that
project’s high level of production. Although Munsey was apparently
unaware of the Pennsylvania order at the time, a “speaker’s knowledge of
the falsity of the statements is not a required element to proving fraud
under A.R.S. § 44-1991(A)(2).” Fromkin, 196 Ariz. at 227, ¶ 15.

¶17           Munsey also avowed to the investigator that DEE was
“extremely moral and ethical,” and repeatedly praised the company
during a telephone conversation, saying:

             “We have a great company.”

             “We are a great company.”

             “It’s an incredible business.”

             “The company is good, they’re reliable, they’re real.”

             “We’re a great company.”

             “It is an incredible company and it is an incredible
              opportunity.”



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                         DENVER et al. v. AZCC
                          Decision of the Court

            “It’s just an incredible company.”

            “There’s nothing bad about us. We’re a great company. We
             have an excellent reputation.”

            “We’re very transparent.”

¶18            Based on the record before it, the Commission reasonably
concluded that failure to disclose the Pennsylvania action could mislead
potential investors into believing DEE had never been sanctioned for
securities violations. In fact, it had, and avowing that there was “nothing
bad about” DEE and that the company enjoyed “an excellent reputation”
could reasonably be viewed as a misrepresentation within the meaning of
A.R.S. § 44-1991(A)(2).         Moreover, DEE’s investor questionnaires
emphasized its intent to fully comply with securities regulations and
could lead the Commission to conclude such statements were intended to
create confidence in the company, notwithstanding its past transgressions
and its failure to follow the ASA by registering its securities and dealers/
salespersons in Arizona.

                               CONCLUSION

¶19           For the foregoing reasons, we affirm the judgment of the
superior court. We deny Appellants’ request for an award of attorneys’
fees and costs incurred on appeal because they have not prevailed.




                         AMY M. WOOD • Clerk of the Court
                         FILED: AA




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