So Many Feet of Blue Sky

Spring semester classes begin on Monday, and as a newbie professor, I’ve been spending a lot of my break preparing to teach Securities Regulation for the first time. While all my pals hang out at AALS in New York (hi, guys! Hope you’re having a good time!), I’ve chosen to remain at home, with multiple casebooks spread out over my living room floor.

Though the casebooks naturally focus on federal regulation, most have at least some discussion of regulation at the state level, including a brief explanation of the term “blue sky law.”  This is a phrase whose etymology has long been shrouded in mystery; Professors Macey and Miller traced it as far back as 1910, but could not find its origins.  See Jonathan R. Macey & Geoffrey P. Miller, Origin of the Blue Sky Laws, 70 Tex. L. Rev. 347 (1991).  As a result, the casebooks I’ve seen simply quote the Supreme Court’s opinion in Hall v. Geiger-Jones Co., 242 U.S. 539 (1917), describing such laws as designed to prevent “speculative schemes which have no more basis than so many feet of ‘blue sky.’”

I mention this because a few years ago, Rick Fleming, who was then General Counsel to the Kansas Securities Commissioner, offered an alternative origin story, one both credible and colorful.  According to Mr. Fleming, J.N. Dolley – the Kansas Bank Commissioner who authored the original blue sky law in 1911 – published an article in the Topeka State Journal in 1935, where he set forth the following explanation:

I have been given credit for naming the “Blue Sky” law. That name goes back to the drouth of the nineties. We had them then, just the same as now, altho they were not so well dramatized and advertised and we had learned less about feeling sorry for ourselves.

Crops were burning up. Stock water and even water for domestic use was disappearing. It was the day of professional rain makers and some of our people felt we should make every effort to get rain. So we raised the necessary money and contracted with some Chicago slicker to supply us with the necessary quantity of moisture.

They arrived at Maple Hill with two barrels of chemicals, a string of iron pipe and some mysterious mechanical doo-dad. They set up their equipment on a platform within an enclosure to which no one was admitted. Their iron pipe pointed toward the sky. At length it began to emit a light milk colored spray. The machinery was set it (sic) motion.

The milky spray was cast up for four days and four nights. But there was no sign of rain. The fifth day our committee visited the rain makers plant, to discover that the rain makers had disappeared, leaving their equipment behind.

Some of our folks had prepared against overflow damage from rains expected, moving valuables to uper (sic) stories and other property to high grounds. Not only did we have no flood but we saved others from such a fate because the rain making equipment was left with us.

When I appeared before the judiciary committee of the Kansas house and senate with the bill to protect our people against fraudulent stock schemes, one of the senators asked me what to call the law. Remembering our experience with the blue sky artists in trying to make rain, I suggested “the blue sky law.” The name stuck.

Mr. Fleming concludes, “After all these years, let the record reflect that the term ‘blue sky’ does not refer to an investment scheme that is worth no more than air. More accurately, it refers to an investment opportunity in which the promoter promises rain but delivers blue sky.”  See Rick A. Fleming, 100 Years of Securities Law: Examining a Foundation Laid in the Kansas Blue Sky, 50 Washburn L.J. 583 (2011).

So noted!