## Facts

- Sonic Petroleum, Inc. was incorporated in Utah in October 1980 and had no operating history.
- Sonic’s officers/directors included Craig Carpenter (president then director/officer through June 26, 1981), George R. Jensen (vice-president/director through June 26, 1981), and Ronald D. Burnett (secretary/director until May 1981).
- In October–November 1980, Sonic publicly offered and sold stock to Utah residents through a broker, complying with Utah registration but not filing a federal registration statement, claiming the Securities Act intrastate offering exemption.
- Sonic maintained an office and corporate records in Utah but had not begun the natural-resource business for which it was formed.
- In May 1981, Sonic agreed to merge with an Illinois company, and most offering proceeds were deposited in Illinois after the merger.
- Paul and Linda Busch, California residents, purchased Sonic stock on June 26, 1981 through a later transaction involving Norbil Investments.
- The Busches sued Sonic’s officers/directors under Securities Act § 12(1), alleging an unregistered sale in violation of § 5 and that the intrastate exemption did not apply; they also asserted a pendent claim under California securities law.
- The district court granted defendants summary judgment, finding the offering exempt and rejecting the federal and state claims.

## Issues

1. Whether Sonic satisfied the Securities Act § 3(a)(11) intrastate offering exemption despite later resales to nonresidents, including whether the securities had “come to rest” with in-state purchasers before interstate redistribution.
2. Whether Sonic was “doing business” in Utah, as required for the intrastate offering exemption.
3. Whether Carpenter could be liable under Securities Act § 12(1) as a statutory “seller” based on solicitation or being a substantial factor in the Busches’ purchase.
4. Whether the district court properly disposed of the pendent California securities law claim at summary judgment.

## Decision

- The court affirmed in part, reversed in part, and remanded.
- The court held summary judgment was improper because a genuine dispute of material fact existed as to whether Sonic was “doing business” in Utah for purposes of § 3(a)(11).
- The court held unresolved factual questions about Carpenter’s participation in the sale precluded summary judgment on his potential § 12(1) seller liability.
- The court rejected a per se rule that later resales to nonresidents automatically defeat the intrastate exemption and treated the “come to rest” inquiry as fact dependent.
- The court directed further proceedings on remand, including reconsideration of the pendent California claim in light of the remaining federal issues.

## Legal Principles

- The intrastate offering exemption in Securities Act § 3(a)(11) is narrowly construed against exemption because it is an exception to the Act’s registration regime.
- For § 3(a)(11), an issuer must be incorporated in the state and “doing business” there; formal in-state presence (incorporation, office, records) alone is insufficient absent evidence of actual in-state operations.
- Later resales to nonresidents do not necessarily destroy § 3(a)(11) if the original in-state distribution was completed and the securities had “come to rest” with resident investors before interstate resales.
- Under Securities Act § 12(1), an officer/director may be a statutory “seller” if the evidence supports that the person solicited the purchase or was a substantial factor in causing the transaction; title alone is insufficient.
- Summary judgment is inappropriate where fact disputes exist regarding exemption elements or an individual defendant’s role in the sale.

## Conclusion

The Tenth Circuit partially reversed summary judgment because the record left triable fact questions about whether the issuer was genuinely doing business in Utah for the intrastate exemption and whether an officer’s conduct made him a § 12(1) seller, requiring remand for further proceedings and renewed consideration of the pendent state claim.


Busch v. Carpenter, 827 F.2d 653 (10th Cir. 1987)