Summary
In Buckeye, the State sought an order from the Trial Court declaring that the defendants were liable to the injured investors.
Summary of this case from State ex Rel. Day v. S.W. Min. EnergyOpinion
No. 77-598
Decided June 21, 1978.
Corporations — Sale of securities — Illegal practices — Director of Commerce — Authority — R.C. 1707.26.
R.C. 1707.26 does not authorize the Director of Commerce to sue to rescind purchases of securities on behalf of the purchasers, or to impose personal liability on the corporate directors for monetary damages which the purchasers may have sustained.
APPEAL from the Court of Appeals for Franklin County.
In October 1974, the Director of Commerce and the Division of Securities of the Department of Commerce sued the Buckeye Finance Corporation, two of its subsidiary corporations, and eight of its present and former directors, seeking two remedies. First, the plaintiffs asked for an injunction against certain illegal practices which the directors had allegedly used in selling debentures during July and August 1973. Second, they asked for a temporary restraining order and a permanent injunction to prevent the directors from carrying out a plan to liquidate Buckeye's assets. As grounds for this second claim, the complaint alleged that the defendants might not treat Buckeye's creditors impartially, since two of the directors were personally liable on promissory notes from Buckeye to the Ohio National Bank.
In July 1975, after long negotiations, the parties filed a consent order under which Buckeye would be liquidated according to express terms under the court's supervision; and in August 1975, the directors moved for summary judgment on grounds there was no longer any need for the relief originally requested.
In November 1975, the plaintiffs tendered an amended complaint alleging jurisdiction under R.C. 1707.26. Relying on the phrase in that statute which says that the court "may order such other relief as the facts warrant," the amended complaint prayed for an order that would accomplish three things: hold the individual defendants personally liable to pay money to all purchasers of the debentures which had allegedly been sold illegally in July and August 1973; establish a "plan of rescission" to allow all debenture holders to recover the purchase price, plus interest, from the individual defendants; and require the individual defendants to put the full amount of the purchase price of the debentures, plus interest, in escrow.
R.C. 1707.26 reads:
"Whenever it appears to the division of securities, upon complaint or otherwise, that any person has engaged in, is engaging in, or is about to engage in, any deceptive or fraudulent act, practice, or transaction, or in any act, practice, or transaction declared to be illegal, prohibited, or defined as fraudulent in sections 1707.01 to 1707.45, inclusive, of the Revised Code, the director of commerce may apply to a court of common pleas of any county in this state for, and upon proof of any such offenses such court may grant an injunction restraining such persons and its agents, employees, partners, officers, directors, and shareholders from continuing, engaging in, or doing any acts in furtherance of, such acts, practices, or transactions, and may order such other relief as the facts warrant."
The court held a hearing on the plaintiffs' motion for leave to file the amended complaint, on the defendants' motions for summary judgment, and on the defendants' defenses of lack of jurisdiction and failure to state a claim upon which relief could be granted. The court dismissed the original complaint with prejudice as to all eight individual defendants and denied leave for the plaintiffs to file their amended complaint.
Upon the court's express finding that there was no just reason for delay, it entered final judgment as to the eight individual defendants pursuant to Civ. R. 54(B).
The Court of Appeals affirmed.
The cause is before this court pursuant to the allowance of a motion to certify the record.
Mr. William J. Brown, attorney general, and Mr. Donald A. Antrim, for appellants.
Messrs. Alexander, Ebinger, Holschuh, Fisher McAlister and Mr. John D. Holschuh, for appellees William Earl, C. Carlton Hartly and Milton Lustnauer.
Messrs. Folkerth, Calhoun, Webster, Maurer O'Brien and Mr. Geoffrey Stern, for appellee William McMenamy, Jr.
Messrs. Lombardo DeVictor and Mr. Robert L. DeVictor, for appellee Angelo Dallas.
Messrs. Brownfield, Kosydar, Bowen, Bally and Sturtz and Mr. C. William Brownfield, for appellees Samuel N. Alford and Samuel C. Alford.
Messrs. Vorys, Sater, Seymour Pease and Mr. Robert W. Werth, for appellee Buckeye Finance Corp.
The issue before this court is whether the trial judge properly denied the plaintiffs' motion for leave to file the amended complaint.
Under Civ. R. 15, "a party may amend his pleading only by leave of court or by written consent of the adverse party," except in circumstances not relevant here. The rule further provides that "[l]eave of court shall be freely given when justice so requires."
The trial judge held that the statute on which the plaintiffs relied, R.C. 1707.26, did not authorize them to sue for the relief prayed for.
Thus, the issue here involves the proper interpretation of R.C. 1707.26.
The question is not whether certain remedies — rescission and restitution — lie within the equitable jurisdiction of the Court of Common Pleas. The question is whether the plaintiffs, as administrative agents of the state, have statutory authority to sue for those remedies on behalf of purchasers of securities. We hold that they do not.
It would be unreasonable to infer such authority from the general language of R.C. 1707.26, when, in other sections of the code, the General Assembly has taken pains to create similar causes of action in purchasers of securities explicity, rather than by implication. For example, under R.C. 1707.41, a purchaser has an action for damages against anyone who advertises securities by a prospectus which falsely represents the offering. Under R.C. 1707.42, the purchaser can sue for damages against anyone who, without disclosing his financial interest in the transaction, advises him to buy securities and receives a commission on the sale. Under R.C. 1707.43, any contract for the sale of securities which violates the Ohio Securities Act (R.C. 1707.01 to 1707.45) is voidable at the election of the purchaser, and under certain conditions the purchaser has an action for the purchase price, plus taxable court costs, against "every person who has participated in or aided the seller in any way" in making the sale.
By contrast with these specific provisions, R.C. 1707.26 says only that in addition to injunctions against deceptive or fraudulent acts, practices, or transactions, or acts in violation of the Ohio Securities Act, the Director of Commerce may obtain "such other relief as the facts warrant."
This court holds that if the General Assembly had meant "other relief" to include rescission and restitution, it would have said so in language as explicit as that used in R.C. 1707.41, 1707.42, and 1707.43.
R.C. 1707.40 supports this conclusion. It states, in part, that "[s]ections 1707.01 to 1707.45, inclusive, of the Revised Code create no new civil liabilities * * * other than as specified in sections 1707.41, 1707.42, and 1707.43 of the Revised Code * * *."
It is significant that H.B. No. 339, now pending in the General Assembly, would amend R.C. 1707.40 by removing the quoted provision. It would also enact R.C. 1707.23(J), which would expressly authorize the Division of Securities to sue for the type of relief prayed for in the amended complaint. The proposed enactment reads: "In any action authorized by Chapter 1707, of the Revised Code, [the Division of Securities may] make a claim for restitution, re[s]cission, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action."
H.B. No. 339, 112th Ohio General Assembly, Regular Session (1977-1978).
The fact that the supporters of H.B. No. 339 have thought it advisable to seek express legislative authority for the claims presented in the amended complaint suggests that the authority does not exist under the present statutes.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
HERBERT, CELEBREZZE, W. BROWN, P. BROWN, SWEENEY and LOCHER, JJ., concur.