Reves v. Ernst & Young/Concurrence Stevens
Justice STEVENS, concurring.
While I join the Court's opinion, an important additional consideration supports my conclusion that these notes are securities notwithstanding the statute's exclusion for currency and commercial paper that has a maturity of no more than nine months. See 15 U.S.C. § 78c(a)(10) (§ 3(a)(10) of the Securities Exchange Act of 1934). The Courts of Appeals have been unanimous in rejecting a literal reading of that exclusion. They have instead concluded that "when Congress spoke of notes with a maturity not exceeding nine months, it meant commercial paper, not investment securities." Sanders v. John Nuveen & Co., 463 F.2d 1075, 1080 (CA7), cert. denied, 409 U.S. 1009, 93 S.Ct. 443, 34 L.Ed.2d 302 (1972). This view was first set out in an opinion by Judge Sprecher, and soon thereafter endorsed by Chief Judge Friendly. Zeller v. Bogue Electric Mfg. Corp., 476 F.2d 795, 800 (CA2), cert. denied, 414 U.S. 908, 94 S.Ct. 217, 38 L.Ed.2d 146 (1973). Others have adopted the same position since. See, e.g., McClure v. First Nat. Bank of Lubbock, Texas, 497 F.2d 490, 494-495 (CA5 1974), cert. denied, 420 U.S. 930, 95 S.Ct. 1132, 43 L.Ed.2d 402 (1975); Holloway v. Peat, Marwick, Mitchell & Co., 879 F.2d 772, 778 (CA10 1989); Baurer v. Planning Group, Inc., 215 U.S. App.D.C. 384, 389-391, 669 F.2d 770, 775-777 (1981).
In my view such a settled construction of an important federal statute should not be disturbed unless and until Congress so decides. "[A]fter a statute has been construed, either by this Court or by a consistent course of decision by other federal judges and agencies, it acquires a meaning that should be as clear as if the judicial gloss had been drafted by the Congress itself." Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 268, 107 S.Ct. 2332, 2359, 96 L.Ed.2d 185 (1987) (STEVENS, J., concurring in part and dissenting in part); see also Chesapeake & Ohio R. Co. v. Schwalb, 493 U.S. 40, 51, 110 S.Ct. 381, 387, 107 L.Ed.2d 278 (1989) (STEVENS, J., concurring in judgment). What I have said before of taxation applies equally to securities regulation: "there is a strong interest in enabling" those affected "to predict the legal consequences of their proposed actions, and there is an even stronger general interest in ensuring that the responsibility for making changes in settled law rests squarely on the shoulders of Congress." Commissioner v. Fink, 483 U.S. 89, 101, 107 S.Ct. 2729, 2736, 97 L.Ed.2d 74 (1987) (dissenting opinion). Past errors may in rare cases be "sufficiently blatant" to overcome the " 'strong presumption of continued validity that adheres in the judicial interpretation of a statute,' " but this is not such a case. Id., at 103, 107 S.Ct., at 2737 (quoting Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 424, 106 S.Ct. 1922, 1930, 90 L.Ed.2d 413 (1986)).
Indeed, the agreement among the Courts of Appeals is made all the more impressive in this case because it is buttressed by the views of the Securities and Exchange Commission. See Securities Act Release No. 33-4412, 26 Fed.Reg. 9158 (1961) (construing § 3(a)(3) of the Securities Act of 1933, the 1933 Act's counterpart to § 3(a)(10) of the 1934 Act). We have ourselves referred to the exclusion for notes with a maturity not exceeding nine months as an exclusion for "commercial paper." Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U.S. 137, 150-152, 104 S.Ct. 2979, 2986-87, 82 L.Ed.2d 107 (1984). Perhaps because the restriction of the exclusion to commercial paper is so well established, respondents admit that they did not even argue before the Court of Appeals that their notes were covered by the exclusion. A departure from this reliable consensus would upset the justified expectations of both the legal and investment communities.
Moreover, I am satisfied that the interpretation of the statute expounded by Judge Sprecher and Judge Friendly was entirely correct. As Judge Friendly has observed, the exclusion for short-term notes must be read in light of the prefatory language in § 2 of the 1933 Act and § 3 of the 1934 Act. See Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1131-1132, and nn. 7-10 (CA2 1976). Pursuant to that language, definitions specified by the Acts may not apply if the "context otherwise requires." Marine Bank v. Weaver, 455 U.S. 551, 556, 102 S.Ct. 1220, 1223, 71 L.Ed.2d 409 (1982) (the "broad statutory definition is preceded, however, by the statement that the terms mentioned are not to be considered securities if 'the context otherwise requires . . .' "); accord, Landreth Timber Co. v. Landreth, 471 U.S. 681, 697-698, 105 S.Ct. 2297, 2312-13, 85 L.Ed.2d 692 (1985) (STEVENS, J., dissenting). The context clause thus permits a judicial construction of the statute which harmonizes the facially rigid terms of the 9-month exclusion with the evident intent of Congress. Exchange Nat. Bank, 544 F.2d, at 1132-1133. The legislative history of § 3(a)(3) of the 1933 Act indicates that the exclusion was intended to cover only commercial paper, and the SEC has so construed it. Sanders, 463 F.2d, at 1079, and nn. 12-13; Zeller, 476 F.2d, at 799-800, and n. 6. As the Courts of Appeals have agreed, there is no apparent reason to construe § 3(a)(10) of the 1934 Act differently. Sanders, 463 F.2d, at 1079-1080, and n. 15; Zeller, 476 F.2d, at 800. See also Comment, The Commercial Paper Market and the Securities Acts, 39 U.Chi.L.Rev. 362, 398 (1972).
For these reasons and those stated in the opinion of the Court, I conclude that the notes issued by respondents are securities within the meaning of the 1934 Act.
Chief Justice REHNQUIST, with whom Justice WHITE, Justice O'CONNOR, and Justice SCALIA join, concurring in part and dissenting in part.
I join Part II of the Court's opinion, but dissent from Part III and the statements of the Court's judgment in Parts I and IV. In Part III, the Court holds that these notes were not covered by the statutory exemption for "any note . . . which has a maturity at the time of issuance of not exceeding nine months." Treating demand notes as if they were a recent development in the law of negotiable instruments, the Court says "if it is plausible to regard a demand note as having an immediate maturity because demand could be made immediately, it is also plausible to regard the maturity of a demand note as being in excess of nine months because demand could be made many years or decades into the future. Given this ambiguity, the exclusion must be interpreted in accordance with its purpose." Ante, at 72-73.
But the terms "note" and "maturity" did not spring full blown from the head of Congress in 1934. Neither are demand notes of recent vintage. "Note" and "maturity" have been terms of art in the legal profession for centuries, and a body of law concerning the characteristics of demand notes, including their maturity, was in existence at the time Congress passed the 1934 Act.
In construing any terms whose meanings are less than plain, we depend on the common understanding of those terms at the time of the statute's creation. See Gilbert v. United States, 370 U.S. 650, 655, 82 S.Ct. 1399, 1402, 8 L.Ed.2d 750 (1962) ("[I]n the absence of anything to the contrary it is fair to assume that Congress use[s a] word in [a] statute in its common-law sense"); Roadway Express, Inc. v. Piper, 447 U.S. 752, 759, 100 S.Ct. 2455, 2460, 65 L.Ed.2d 488 (1980) (in construing a word in a statute, "we may look to the contemporaneous understanding of the term"); Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 59, 31 S.Ct. 502, 516, 55 L.Ed. 619 (1911) (common-law meaning "presumed" to have been Congress' intent); see also Lorillard v. Pons, 434 U.S. 575, 583, 98 S.Ct. 866, 871, 55 L.Ed.2d 40 (1978); United States v. Spencer, 839 F.2d 1341, 1344 (CA9 1988). Contemporaneous editions of legal dictionaries defined "maturity" as "[t]he time when a . . . note becomes due." Black's Law Dictionary 1170 (3d ed. 1933); Cyclopedic Law Dictionary 649 (2d ed. 1922). Pursuant to the dominant consensus in the case law, instruments payable on demand were considered immediately "due" such that an action could be brought at any time without any other demand than the suit. See, e.g., M. Bigelow, Law of Bills, Notes, and Checks § 349, p. 265 (3d ed. W. Lile rev. 1928); 8 C.J., Bills and Notes § 602, p. 406, and n. 83 (1916). According to Bigelow:
"So far as maker and acceptor are concerned, paper payable . . . 'on demand' is due from the moment of its delivery, and payment may be required on any business day, including the day of its issue, within the statute of limitations. In other words, as to these parties the paper is at maturity all the time, and no demand of payment isnec essary before suit thereon." Bigelow, supra, § 349, at 265 (emphasis added; emphasis in original deleted; footnote omitted).
To be sure, demand instruments were considered to have "the peculiar quality of having two maturity dates-one for the purpose of holding to his obligation the party primarily liable (e.g. maker), and the other for enforcing the contracts of parties secondarily liable (e.g. drawer and indorsers)." Bigelow, supra, § 350, at 266 (emphasis omitted). But only the rule of immediate maturity respecting makers of demand notes has any bearing on our examination of the exemption; the language in the Act makes clear that it is the "maturity at time of issuance" with which we are concerned. 15 U.S.C. § 78c(a)(10). Accordingly, in the absence of some compelling indication to the contrary, the maturity date exemption must encompass demand notes because they possess "maturity at the time of issuance of not exceeding nine months." #fn-s 
Petitioners and the lower court decisions cited by Justice STEVENS rely, virtually exclusively, on the legislative history of § 3(a)(3) of the 1933 Act for the proposition that the term "any note" in the exemption in § 3(a)(10) of the 1934 Act encompass only notes having the character of short-term "commercial paper" exchanged among sophisticated traders. I am not altogether convinced that the legislative history of § 3(a)(3) supports that interpretation even with respect to the term "any note" in the exemption in § 3(a)(3), and to bodily transpose that legislative history to another statute has little to commend it as a method of statutory construction.
The legislative history of the 1934 Act-under which this case arises-contains nothing which would support a restrictive reading of the exemption in question. Nor does the legislative history of § 3(a)(3) of the 1933 Act support the asserted limited construction of the exemption in § 3(a)(10) of the 1934 Act. Though the two most pertinent sources of congressional commentary on § 3(a)(3)-H.R.Rep. No. 85, 73d Cong., 1st Sess., 15 (1933) and S.Rep. No. 47, 73d Cong., 1st Sess., 3-4 (1933)-do suggest an intent to limit § 3(a)(3)'s exemption to short-term commercial paper, the references in those Reports to commercial paper simply did not survive in the language of the enactment. Indeed, the Senate Report stated "[n]otes, drafts, bills of exchange, and bankers' acceptances which are commercial paper and arise out of current commercial, agricultural, or industrial transactions, and which are not intended to be marketed to the public, are exempted. . . ." S.Rep. No. 47, supra, at 3-4 (emphasis added). Yet the provision enacted in § 3(a)(3) of the 1933 Act exempts "[a]ny note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months. . . ." 15 U.S.C. § 77c(a)(3) (emphasis added).
Such broadening of the language in the enacted version of § 3(a)(3), relative to the prototype from which it sprang, cannot easily be dismissed in interpreting § 3(a)(3). A fortiori, the legislative history's restrictive meaning cannot be imputed to the facially broader language in a different provision of another Act. Although I do not doubt that both the 1933 and 1934 Act exemptions encompass short-term commercial paper, the expansive language in the statutory provisions is strong evidence that, in the end, Congress meant for commercial paper merely to be a subset of a larger class of exempted short-term instruments.
The plausibility of imputing a restrictive reading to § 3(a)(10) from the legislative history of § 3(a)(3) is further weakened by the imperfect analogy between the two provisions in terms of both phraseology and nature. Section 3(a)(10) lacks the cryptic phrase in § 3(a)(3) which qualifies the class of instruments eligible for exemption as those arising "out of . . . current transaction[s] or the proceeds of which have been or are to be used for current transactions. . . ." While that passage somehow may strengthen an argument for limiting the exemption in § 3(a)(3) to commercial paper, its absence in § 3(a)(10) conversely militates against placing the same limitation thereon.
The exemption in § 3(a)(3) excepts the short-term instruments it covers solely from the registration requirements of the 1933 Act. The same instruments are not exempted from the 1933 Act's antifraud provisions. Compare 15 U.S.C. § 77c(a)(3) with 15 U.S.C. §§ 77l (2) and 77q(c); see also Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U.S. 137, 151, 104 S.Ct. 2979, 2986-87, 82 L.Ed.2d 107 (1984). By contrast, the exemption in § 3(a)(10) of the 1934 Act exempts instruments encompassed thereunder from the entirety of the coverage of the 1934 Act including, conspicuously, the Act's antifraud provisions.
Justice STEVENS argues that the suggested limited reading of the exemption in § 3(a)(10) of the 1934 Act "harmonizes" the plain terms of that provision with the legislative history of the 1933 Act. Ante, at 76. In his view, such harmony is required by the "context clause" at the beginning of the 1934 Act's general definition of "security." It seems to me, instead, that harmony is called for primarily between § 3(a)(10)'s general definition and its specific exemption. The fairest reading of the exemption in light of the context clause is that the situation described in the exemption-notes with maturities at issue of less than nine months-is one contextual exception Congress especially wanted courts to recognize. Such a reading does not render the context clause superfluous; it merely leaves it to the judiciary to flesh out additional "context clause" exceptions.
Justice STEVENS also states that we have previously referred to the exemption in § 3(a)(10) as an exclusion for commercial paper. Ante, at 76 (citing Securities Industry Assn., supra, 468 U.S., at 150-152, 104 S.Ct., at 2986-87). In the Securities Industry Assn. dictum, however, we described the exemption in § 3(a)(10) merely as "encompass[ing]" commercial paper and in no way concluded that the exemption was limited to commercial paper. See 468 U.S., at 150-151, 104 S.Ct., at 2986. Indeed, in Securities Industry Assn., our purpose in referring to § 3(a)(10) was to assist our determination whether commercial paper was even included in the 73d Congress' use of the words "notes . . . or other securities" in the Glass-Steagall Banking Act of 1933.
In sum, there is no justification for looking beyond the plain terms of § 3(a)(10), save for ascertaining the meaning of "maturity" with respect to demand notes. That inquiry reveals that the Co-Op's demand notes come within the purview of the section's exemption for short-term securities. I would therefore affirm the judgment of the Court of Appeals, though on different reasoning.