Case Title: Gutmann v. Feldman

Citation: 2002-Ohio-6721

Docket Number: 

State: ohio

Court: Ohio Supreme Court

Date: 2002-12-18T00:00:00Z

Document:
[Cite as Gutmann v. Feldman, 97 Ohio St.3d 473, 2002-Ohio-6721.] 
 
 
GUTMANN ET AL., RESPONDENTS, v. FELDMAN ET AL., PETITIONERS. 
[Cite as Gutmann v. Feldman, 97 Ohio St.3d 473, 2002-Ohio-6721.] 
Securities — Oral contract cannot constitute a “security” as that term is defined 
in R.C. 1707.01(B). 
(No. 2002-0146 — Submitted September 25, 2002 — Decided December 18, 
2002.) 
ON ORDER from the United States District Court for the Southern District of Ohio, 
Western Division, Certifying a Question of State Law, No. C-3-01-049. 
__________________ 
SYLLABUS OF THE COURT 
An oral contract cannot constitute a “security” as the General Assembly has 
defined that term in R.C. 1707.01(B). 
__________________ 
 
COOK, J. 
{¶1} 
Pursuant to S.Ct.Prac.R. XVIII, the United States District Court for 
the Southern District of Ohio, Western Division, has certified to this court the 
following question of state law: 
{¶2} 
“Can an oral contract constitute a ‘security’ as that term is defined 
in Ohio Revised Code § 1707.01(B)?”   
{¶3} 
This court answers “no.” 
I 
{¶4} 
In its certification order, the district court set forth the following 
description of the federal action: 
{¶5} 
“The plaintiffs [respondents here] allege that the defendants 
[petitioners here] induced them to invest funds in a series of business 
opportunities, in which the defendants would advance the plaintiffs’ funds to a 
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certain third party who would use the funds to purchase goods at a discount and 
then resell the goods at a profit.  This profit would be used to pay back to the 
plaintiffs their principal plus profit.  The plaintiffs allege that, contrary to the 
defendants’ representations to them, there were no such business opportunities, 
the defendants had not performed adequate due diligence on any such 
opportunities, the defendants did not monitor the investment transactions, and the 
third party was not conducting a prospering and expanding business.  The 
plaintiffs allege that they suffered significant financial losses as a result of the 
defendants’ conduct. 
{¶6} 
“* * * 
{¶7} 
“The plaintiffs filed the instant proceeding in the certifying Court 
on January 31, 2001.  They seek to recover compensatory and punitive damages 
for the allegedly unlawful conduct of the defendants. 
{¶8} 
“* * * 
{¶9} 
“Counts Five, Six, and Seven of the plaintiffs’ complaint allege 
that the defendants’ conduct violated Ohio securities law.  The defendants have 
moved to dismiss those counts, arguing that they never sold any written 
certificates or instruments to the plaintiffs and therefore did not sell ‘securities’ 
within the meaning of Ohio’s securities laws. 
{¶10} “The certified question appears to be one for which there is no 
controlling precedent in the decisions of the Ohio Supreme Court.  It is a question 
of determinative importance in this litigation.  It is not fact-specific.” 
II 
{¶11} We look to the text of R.C. 1707.01(B) that defines “security” to 
decide whether an oral agreement can qualify as one.  The petitioners point us to 
the clause “ ‘[s]ecurity’ means any certificate or instrument” in the first sentence 
of the text as excluding oral contracts.  The respondents counter that because the 
January Term, 2002 
3 
General Assembly listed “any investment contract” among examples of securities 
in the second sentence of the text, oral contracts qualify as securities. 
{¶12} The entire subsection reads as follows: 
{¶13} “ ‘Security’ means any certificate or instrument that represents title 
to or interest in, or is secured by any lien or charge upon, the capital, assets, 
profits, property, or credit of any person or of any public or governmental body, 
subdivision, or agency.  It includes shares of stock, certificates for shares of stock, 
membership interests in limited liability companies, voting-trust certificates, 
warrants and options to purchase securities, subscription rights, interim receipts, 
interim certificates, promissory notes, all forms of commercial paper, evidences 
of indebtedness, bonds, debentures, land trust certificates, fee certificates, 
leasehold certificates, syndicate certificates, endowment certificates, certificates 
or written instruments in or under profit-sharing or participation agreements or in 
or under oil, gas, or mining leases, or certificates or written instruments of any 
interest in or under the same, receipts evidencing preorganization or 
reorganization 
subscriptions, 
preorganization 
certificates, 
reorganization 
certificates, certificates evidencing an interest in any trust or pretended trust, any 
investment contract, any life settlement interest, any instrument evidencing a 
promise or an agreement to pay money, warehouse receipts for intoxicating 
liquor, and the currency of any government other than those of the United States 
and Canada, but sections 1707.01 to 1707.45 of the Revised Code do not apply to 
the sale of real estate.”  (Emphasis added.)  Id. 
{¶14} In past decisions we have explained that when addressing issues of 
statutory meaning, “[l]egislative intent is the preeminent consideration in 
construing a statute.  To determine the legislative intent, we first review the 
statutory language.  In reviewing the statutory language, we accord the words 
used their usual, normal, or customary meaning.”   (Citations omitted.)  State ex 
rel. Wolfe v. Delaware Cty. Bd. of Elections (2000), 88 Ohio St.3d 182, 184, 724 
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N.E.2d 771.  See, also, State ex rel. Purdy v. Clermont Cty. Bd. of Elections 
(1997), 77 Ohio St.3d 338, 340, 673 N.E.2d 1351; State ex rel. Hawkins v. 
Pickaway Cty. Bd. of Elections (1996), 75 Ohio St.3d 275, 277, 662 N.E.2d 17; 
R.C. 1.42.   Both “certificate” and “instrument” usually and customarily mean 
some form of writing. A “certificate” is “[a] document in which a fact is formally 
attested” or “[a] document certifying the bearer’s status or authorization to act in a 
specified way.”  (Emphasis added.)  Black’s Law Dictionary (7th Ed.1999) 218.  
An “instrument” is “[a] written legal document that defines rights, duties, 
entitlements, or liabilities.”  (Emphasis added.)  Id. at 801.  And a “document” is 
“[s]omething tangible on which words, symbols, or marks are recorded.” 
(Emphasis added.)  Id. at 498. 
{¶15} The respondents argue, however, that because the General 
Assembly employed examples in the second sentence to elaborate on the 
definition in the first sentence, the “certificate or instrument” requirement does 
not constrain the broad range of securities embraced by the phrase “any 
investment contract.”  But the structure and wording of the statute belie this 
argument.  We adopt instead the rationale of the petitioners that the first clause of 
the first sentence establishes the core definition of “security” and that the 
succeeding list of examples cannot be read to expand that core definition.  See, 
e.g., Emery v. So-Soft of Ohio, Inc. (1964), 94 Ohio Law Abs. 357, 366, 199 
N.E.2d 120, 124-125 (“In determining whether a certificate or instrument 
comprises one or more of the various classifications of securities set out in the 
latter provisions of Section 1707.01(B), Revised Code, that portion must be 
interpreted with an eye to the first sentence”). We interpret the list of examples in 
the second sentence as providing specific examples of what forms such securities, 
as defined by the first sentence, may take.  Accordingly, the inclusion of the 
example “any investment contract” merely confirms that the definition includes 
“any certificate or instrument that represents” “any investment contract.” 
January Term, 2002 
5 
{¶16} The respondents also argue that petitioners’ view fails to account 
for the repeated use of “written,” “certificate,” and “instruments” in the list of 
examples.  If the drafters intended the first sentence to overlay the examples, the 
respondents argue, it is redundant to include those words again in the list of 
examples itself.  We reject this position because it reads the list of examples as 
taking no meaning from the first sentence. 
{¶17} Further, the respondents’ reading of R.C. 1707.01(B) gains no 
additional traction with their argument that because federal law does not limit 
securities to written certificates and instruments, Ohio’s “broader” securities law 
follows suit.  The statutes upon which the respondents rely for the federal 
definitions of “security”1 do not include Ohio’s core definition.  And that core 
                                            
1. 
{¶a} 
Both federal statutes contain a broader definition of a security that, unlike 
Ohio’s statute, does not confine a security to a written document.  Section 77b(a)(1), Title 15, U.S. 
Code provides: 
 
{¶b} 
“The term ‘security’ means any note, stock, treasury stock, security future, bond, 
debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing 
agreement, collateral-trust certificate, preorganization certificate or subscription, transferable 
share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional 
undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on 
any security, certificate of deposit, or group or index of securities (including any interest therein or 
based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national 
securities exchange relating to foreign currency, or, in general, any interest or instrument 
commonly known as a ‘security’, or any certificate of interest or participation in, temporary or 
interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any 
of the foregoing.” 
 
{¶c} 
Section 78c(a)(10), Title 15, U.S. Code provides: 
 
{¶d} 
“The term ‘security’ means any note, stock, treasury stock, security future, bond, 
debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, 
or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit 
for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or 
group or index of securities (including any interest therein or based on the value thereof), or any 
put, call, straddle, option, or privilege entered into on a national securities exchange relating to 
foreign currency, or in general, any instrument commonly known as a ‘security’; or any certificate 
of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to 
subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, 
bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not 
exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is 
likewise limited.” 
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definition is what decides this issue.  Compare R.C. 1707.01(B) with Sections 
77b(a)(1) and 78c(a)(10), Title 15, U.S.Code.  Although federal securities law can 
inform Ohio securities law, see In re Columbus Skyline Securities, Inc. (1996), 74 
Ohio St.3d 495, 498, 660 N.E.2d 427, we do not consult federal law in the 
absence of ambiguity and analogous statutes or statutory reference to federal law. 
{¶18} Likewise, we discount the respondents’ third argument, which 
urges the court to weigh the public policy in favor of treating oral contracts as 
securities.  Given that we view the statutory language and the structure of R.C.  
1707.01(B) as dictating our decision, the statute is not ambiguous and we have no 
cause to consider the consequences of a particular construction.  See R.C. 1.49. 
III 
{¶19} For the foregoing reasons, we advise the federal district court that 
an oral contract cannot constitute a “security” as the General Assembly has 
defined that term in R.C. 1707.01(B). 
Decision accordingly. 
 
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY and PFEIFER, JJ., concur. 
 
LUNDBERG STRATTON, J., dissents. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting. 
{¶20} I believe that an oral investment contract is a security as that term 
is defined in R.C. 1707.01(B).  Therefore, I respectfully dissent. 
{¶21} The majority holds that the first sentence of R.C. 1707.01(B) — “ 
‘Security’ means any certificate or instrument that represents title to or interest in, 
or is secured by any lien or charge upon, the capital, assets, profits, property, or 
credit of any person or of any public or governmental body, subdivision, or 
agency”—indicates that all securities listed in R.C. 1707.01(B) must be in 
writing.  (Emphasis added.)  The language of R.C. 1707.01(B) belies that 
conclusion.  For example, the list includes “shares of stock” and “certificates for 
January Term, 2002 
7 
shares of stock,” “subscription rights” and “receipts evidencing * * * 
subscriptions,” and “membership in limited liability companies” and “certificates 
or written instruments in or under profit-sharing or participation agreements.”  
The General Assembly’s use of the words “written,” “certificates,” and 
“instruments” to describe certain securities while not using them to describe 
others indicates its deliberate inclusion of some securities that are required to be 
in writing and some that are not.  If the opening definition required all items to be 
in writing, there would be no need to modify certain examples as needing to be 
written.  Specifically, there is no indication that “investment contracts” must be in 
writing.  On the contrary, R.C. 1707.01(B) includes “any investment contract.” 
(Emphasis added.) 
{¶22} The majority’s interpretation of R.C. 1707.01(B) ignores the word 
“any” as it is used to describe the term “investment contract” therein.  In matters 
of construction “it is the duty of this court to give effect to the words used [in a 
statute], not to delete words used or to insert words not used.”  Cleveland Elec. 
Illum. Co. v. Cleveland (1988), 37 Ohio St.3d 50, 524 N.E.2d 441, paragraph 
three of the syllabus.  The word “any” is defined as “one indifferently out of more 
than two.”  Webster’s Third International Dictionary (1986) 97; see, also, Motor 
Cargo, Inc. v. Richfield Twp. Bd. of Trustees (1953), 52 O.O. 257, 259, 117 
N.E.2d 224 (the word “any” means “every” or “all”).  Thus, I believe that the 
General Assembly’s use of the word “any” to modify the term “investment 
contract” indicates that the term “investment contract” is not limited to written 
contracts only, but includes oral contracts as well. 
{¶23} Finally, I believe that the purpose of the General Assembly also 
indicates that it intended the term “any investment contract” to include oral 
investment contracts.  The purpose of the Ohio Securities Act is to protect the 
public from fraudulent investments.  In re Columbus Skyline Securities, Inc. 
(1996), 74 Ohio St.3d 495, 498, 660 N.E.2d 427.  To hold that an oral investment 
SUPREME COURT OF OHIO 
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transaction is not a security and thus not covered by the Securities Act merely 
because of its form defeats the purpose of protecting the public.  I do not believe 
that the General Assembly meant to permit scam artists to circumvent the 
securities law by keeping their offer in oral form only. 
{¶24} Accordingly, I believe that an oral investment contract is a security 
within the definition of R.C. 1707.01(B).  Therefore, I respectfully dissent. 
__________________ 
 
Squire, Sanders & Dempsey, L.L.P., Mark J. Ruehlmann, Gregory A. 
Ruehlmann and Pierre H. Bergeron, for respondents. 
 
Vorys, Sater, Seymour & Pease, L.L.P., Glenn V. Whitaker and Phillip J. 
Smith; and Coolidge, Wall, Womsley & Lombard and Roger J. Makley, for 
petitioners. 
 
Betty D. Montgomery, Attorney General, David M. Gormley, State 
Solicitor, Michael R. Gladman and Robert L. Strayer, Assistant Solicitors, as 
amicus curiae in favor of respondents. 
__________________