Opinion ID: 437476
Heading Depth: 3
Heading Rank: 3

Heading: The context clauses

Text: 41 Each of the definitional sections of the 1933 and 1934 Acts begins with the words, When used in this [sub]chapter, unless the context otherwise requires--. 15 U.S.C. Secs. 77b, 78c(a) (1982). These clauses, the defendants maintain, authorize us to narrow the definition of stock as the economic realities require. In considering this position, we turn to the history and function of the clauses. 42 Perhaps the most notable feature about the context clauses is that they do not appear in the paragraphs defining security at all. Instead, these clauses precede all fifteen definitions in the 1933 Act and all forty definitions in the 1934 Act. Plainly, the context clauses were not directed particularly at the definition of security. This lack of particular application is underscored by the legislative history of the definitions of security. In neither the House nor the Senate reports, for example, did the drafters allude to the clauses or indicate that particular kinds of stock, notes, or debentures are embraced by the Act only when the context requires. If the drafters had indeed intended that the context clause exempted certain named securities from coverage, they certainly made no mention of it. 43 The legislative evolution of the 1933 Act suggests even more strongly that the context clauses had no such purport. Section 2 of the Senate version of the 1933 Act provided, When used in this Act the following terms shall, unless the text otherwise indicates, include the following respective meanings. H.R. 5480, 73d Cong., 1st Sess. 39 (1933) (emphasis added) (as enacted by the Senate on May 10, 1933); S. 875, 73d Cong., 1st Sess. 1 (1933). This Senate bill tracked the language of an early House bill, H.R. 4314, which had also opened with the phrase unless the text otherwise indicates. H.R. 4314, 73 Cong., 1st Sess. 2 (1933). Early in the legislative process, however, the House Committee on Interstate and Foreign Commerce substituted the language unless the context otherwise requires for the phrase unless the text otherwise indicates. See H.R. 5480, 73d Cong., 1st Sess. 1 (1933) (as enacted by the House on May 5, 1933). Ultimately the Conference Committee adopted the House version. Although the Conference Committee Report discusses a number of significant distinctions between the House and Senate definitions, the Report makes no mention of the difference between these prefatory clauses. See H.Conf.Rep. No. 152, 73d Cong., 1st Sess. 24-25 (1933). 44 It seems evident that the drafters did not attribute particular significance to the distinction between these House and Senate phrases. The text to which the Senate had adverted was obviously the text of the statute itself. Similarly, the context to which the House referred was obviously the context in which the defined words appear in the statute itself. Both the House and Senate provisions were intended to direct that the ensuing definitions were to be used throughout the statute unless the text of the Act expressly, or another section of the statute implicitly, made them inapplicable to that section. 27 45 The defendants, however, would have us attribute a very different meaning to the context language. That language, they assert, refers not only to the statutory context but to the context of the underlying factual transaction. 28 Thus, they argue, the House and Senate versions of the 1933 Act had very different meanings. The Senate version, of course, would not have admitted of the defendants' interpretation, for it would have authorized exceptions as the text otherwise indicates, not as the factual circumstances seem to warrant. The House version, in contrast, as the defendants construe it, sanctioned a wide-ranging exemption power varying with the facts and circumstances. It strikes us that if the conferees had observed so considerable a distinction between the House and Senate bills and had selected the broader, House version, they would at least have remarked upon so important a subject. Moreover, a wide-ranging exemption power is inconsistent with the Act's conferral of exemption power on the SEC. Because the Act conferred a narrowly tailored exemption power on the Commission, it seems extraordinary that the conferees should not have remarked upon a decision to confer a potentially broader power through the context clause. 46 These considerations lead us to conclude that the context clauses themselves do not authorize judicial exclusions of securities from the scope of the Act when the factual circumstances seem to warrant it. Of course, we do not thereby adopt a wooden approach to statutory construction. The Supreme Court has often admonished that a thing may be within the letter of the statute and yet not within the statute. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 849, 95 S.Ct. 2051, 2059, 44 L.Ed.2d 621 (1975) (quoting Church of the Holy Trinity v. United States, 143 U.S. 457, 459, 12 S.Ct. 511, 512, 36 L.Ed. 226 (1892)). We simply observe that Congress did not intend the context clause as a font of authority to narrow the compass of the term stock when the underlying facts may seem to warrant. If that result is to obtain, it must devolve from some other indication in the language, structure, or legislative history of the Acts. The context clause alone is no such authority. 29 As Judge Friendly has written, [s]o long as the statutes remain as they have been for over forty years, courts had better not depart from their words without strong support for the conviction that, under the authority vested in them by the 'context' clause, they are doing what Congress wanted when they refuse to do what it said. Exchange National Bank, 544 F.2d at 1138.