SEC v. W. J. Howey Co.

328 U.S. 293 (1946)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

D and Howey-in-the-Hills Service, Inc., are Florida corporations under direct common control and management. D owns large tracts of citrus acreage in Lake County, Florida. It plants about 500 acres annually. It keeps half of the groves itself and offers the other half to the public 'to help us finance additional development.' Howey-in-the-Hills Service, Inc., is a service company engaged in cultivating and developing many of these groves, including the harvesting and marketing of the crops. Customers e offered both a land sales contract and a service contract, after having been told that it is not feasible to invest in a grove unless service arrangements are made. The superiority of Howey-in-the-Hills Service, Inc., is stressed. Eighty-five percent of the acreage sold during the 3-year period ending May 31, 1943, was covered by service contracts with Howey-in-the-Hills Service, Inc. Upon full payment of the purchase price, the land is conveyed to the purchaser by warranty deed. Purchases are usually made in narrow strips of land arranged so that an acre consists of a row of 48 trees. The average holding per purchaser is 1.33 acres. The tracts are not separately fenced, and the sole indication of several ownership is found in small landmarks intelligible only through a plat book record. The 10-year service contract gives Howey-in-the-Hills Service, Inc., a leasehold interest and 'full and complete' possession of the acreage. It has full discretion and authority over the cultivation of the groves and the harvest and marketing of the crops. The company is well established in the citrus business and maintains a large force of skilled personnel and a great deal of equipment, including 75 tractors, sprayer wagons, fertilizer trucks and the like. The landowner or purchaser has no right of entry to market the crop, and there is ordinarily no right to specific fruit. The company is accountable only for an allocation of the net profits based upon a check made at the time of picking. All the produce is pooled. Purchasers are attracted by the expectation of substantial profits. Profits during the 1943-1944 season amounted to 20% and that even greater profits might be expected during the 1944-1945 season, although only a 10% annual return was to be expected over a 10-year period. Most of the purchasers are patrons of a resort hotel owned and operated by D in a scenic section adjacent to the groves. The hotel's advertising mentions the fine groves and patrons are told that the groves are for sale; if they indicate an interest in the matter they are then given a sales talk. The mails and instrumentalities of interstate commerce are used in the sale of the land and service contracts and that no registration statement or letter of notification that has been filed with the SEC. The SEC went after D for using interstate commerce to offer and sell unregistered securities in violation of § 5(a) of the Securities Act of 1933 (SEA). D claimed it was not offering a security. The district court and the Appeals Court agreed with D. The Supreme Court granted certiorari.