State v. Herbert
| Decision Date | 30 December 1976 |
| Docket Number | No. 76-311,76-311 |
| Citation | 358 N.E.2d 1090,3 O.O.3d 51,49 Ohio St.2d 88 |
| Parties | , 3 O.O.3d 51 The STATE of Ohio, Appellant, v. HERBERT et al., Appellees. |
| Court | Ohio Supreme Court |
Syllabus by the Court
Treasurer of State-Investment of interim moneys-R.C. 135.14-Limitation exceeded -Liability of public officials for losses.
R.C. 135.14 which allows the Treasurer of State to invest interim moneys in the commercial paper of certain private corporations, does not alter the common-law standard of liability for loss of public funds by public officials where the investment is in violation of the maximum investment limitation embodied in the statute.
This cause arises out of an action by appellant, the state of Ohio, against appellees, John D. Herbert, former Treasurer of the state of Ohio Robert F. Gardner, former Deputy Treasurer of the state of Ohio, and six sureties, 1 to recover interim funds of the state which were invested by Gardner on behalf of Herbert in two unsecured rpomissory notes of the King Resources Company. The first note, purchased on April 17, 1970, was for $3,000,000; the second, worth $5,000,000, was purchased on May 1, 1970. The company subsequently defaulted on all the principal and on all but part of the interest due on both notes after Herbert and Gardner were no longer in office.
The King Resources notes were purchased by Gardner, who had been in charge of the treasurer's day-to-day investment responsibilities since 1964, under the authority of R.C. 135.14, which allows the treasurer to invest interim Shortly after the purchase of the second King Resources note on May 1, 1970, Herbert, prompted by newspaper stories, asked Gardner whether the amount of interim funds invested in commercial paper exceeded the R.C. 135.14 $50,000,000 limitation. Although Gardner prevaricated at first, on May 12, 1970, he admitted to Herbert that interim funds invested in commercial paper exceeded the statutory limit. He was then asked for, and gave, his resignation.
moneys of the state in commercial paper notes issued by certain qualified corporations 'provided that the aggregate total amount of interim moneys invested in commercial paper at any time shall not exceed fifty million dollars.' Both Herbert and Gardner were familiar with the commercial paper provision of R.C. 135.14 and its $50,000,000 limitation.
Records of the Treasurer of State's office, findings of an investigation by the Bureau of Inspection and Supervision of Public Offices and Gardner's admissions at trial established that Gardner, who received a daily computer print out indicating the balance outstanding in the commercial paper account, had been, and knew he had been, in excess of the $50,000,000 limitation when he brought the two King Resources notes.
An action to recover the principal and interest due on the King Resources notes purchased after the $50,000,000 limit of R.C. 135.14 was exceeded was brought by the state of Ohio against Herbert, Gardner and their sureties in March of 1972. (Although a suit was brought against them for the investment loss on notes purchased in violation of the monetary limit of R.C. 135.14, at no time has the state alleged that Herbert or Gardner was guilty of fraud or self-dealing with respect to the King Resources Company notes or other funds handled by them during their tenures in office.)
The trial court entered judgment for the appellees in December of 1974, concluding that the notes drawn in excess of the statutory $50,000,000 limit were legal investments and that neither Herbert nor Gardner was liable to The Court of Appeals for Franklin County rejected the argument 'that the legality of the investment is not dependent upon compliance with the $50,000,000 aggregate provision at the time of purchase,' ruled the spending limitation of R.C. 135.14 to be mandatory, and found that the trial court erred in its finding that the $50,000,000 provision of R.C. 135.14 was inapplicable. However, it upheld the trial court's judgment that neither Herbert nor Gardner was liable for the investment money lost in the King Resources notes as insurers or trustees of public funds because, in essence (1) the insurer standard of liability does not apply given 'the broadening of the area of allowable investment by the legislature' evidenced in the main portions and the exculpatory clause of R.C. 135.14, and (2) the trustee standard of liability does not apply given the 'discretionary' duty of the treasurer to invest funds in commercial paper or not under R.C. 135.14. The Court of Appeals further ruled that the bankruptcy of the King Resources Company was the proximate cause of the investment loss.
the state for the King Resources investment loss as insurers or trustees of public funds. The trial court also found that 'Herbert and Gardner were not guilty of wilful negligence or grossly negligent behavior, and Gardner faithfully performed his duties.'
The cause is not before this court upon allowance of appellant's motion to certify the record.
William J. Brown, Atty. Gen., Stephen C. Fitch, Portsmouth, and Eugene F. McShane, South Euclid, for appellant.
Addison & Smith and Richard C. Addison, Columbus, for appellee Buckeye Union Ins. Co.
Robert F. Gardner, pro se.
McNamara & McNamara, William H. Woods, Paul Tague, Jr., and J. Paul McNamara, Columbus, for appellees John D. Herbert, Aetna Cas. & Sur. Co., American States Ins. Co., Celina Ins. Co., Cincinnati Ins. Co., and Travelers Ins. Co. WILLIAM B. BROWN, Justice.
The main issue raised by this cause is whether R.C. 135.14, which allows the treasurer to invest interim moneys in the commercial paper of certain private corporations, alters the common-law standard of liability for loss of public funds by public officials where the investment is in violation of the maximum investment limitation embodied in the statute.
Appellees argue that they are not liable for the investment losses on the King Resources notes for the following reasons: (1) the purchase of notes when the interim funds invested in commercial paper exceed the statutory limit is not illegal (and therefore noncompliance at the time of purchase may be cured if the total amount invested drops below the statutory limit) because the statutory limitation 'is upon the aggregate,' and the 'last investment is no more improper than the first investment or the middle investment'; (2) an examination of R.C. 135.14 shows that the General Assembly intended both 'to grant the Treasurer of State authority to invest public funds,' and 'to change the principles governing the liability of the treasurer for loss of funds invested under the statute'; and (3) 'the Treasurer of State is not liable for decrease in value of an investment in commercial paper notes in the absence of proof that the decrease in value was proximately caused by a violation of (R.C. 135.14).'
Appellees' argument that a purchase of the commercial paper notes is not illegal even though it is made in violation of the statutory limitation is not well taken. R.C. 135.14 provides that the treasurer may invest in commercial paper notes '* * * provided that the aggregate total amount of interim moneys invested in commercial paper at any time shall not exceed fifty million dollars.' (Emphasis added.)
The appellate court did not find that argument persuasive because the statute employs the word 'shall' which is 'usually mandatory.' We agree with the appellate court's conclusion.
Although the word 'shall' is sometimes construed Appellees contend that R.C. 135.14 evidences legislative intent to 'change the principles governing the liability of the treasurer for loss of funds invested under the statute,' because it grants him authority to invest state funds in commercial paper notes of private corporations and holds him not to be accountable, under certain circumstances for losses due to the unprofitable sale of those notes.
not to be mandatory, it is only given that meaning when the intention that it be permissive 'clearly' appears. Dennison v. Dennison (1956), 165 Ohio St. 146, 149, 134 N.E.2d 574. Nothing in the $50,000,000 limitation provision of R.C. 135.14 shows such a 'clear' legislative intent to make the limitation permissive. On the contrary, the provision not only prohibits aggregate investments in excess of $50,000,000, it also prohibits such investments 'at any time.' The additional emphasis provided by that phrase makes it clear that the General Assembly intended the provision to be mandatory. In light of the legislative intent to make the provision mandatory, appellees' argument that the statutory limitation is only on the 'aggregate' and that, in effect, individual investments not in themselves exceeding $50,000,000 do not violate the provision, is without merit. To so interpret the $50,000,000 limitation of R.C. 135.14 would be to render the limitation meaningless. We therefore reject appellees' contention that the purchase of the King Resources notes was not illegal.
R.C. 135.14, as it read in 1971, provided as follows:
'The treasurer or governing board may invest or deposit any part or all of the interim moneys, provided that such investments will mature or are redeemable within two years from the date of purchase. The following classifications of obligations shall be eligible for such investment or deposit:
'(A) Bonds, notes, or other obligations of or guaranteed by the United States, or those for which the faith of the United States is pledged for the payment of principal and interest thereon;
'(B) Bonds, notes, debentures, or other obligations or '(C) Interim deposits in the eligible institutions applying for interim moneys as provided in section 135.08 of the Revised Code. The award of interim deposits shall be made in accordance with section 135.09 of the Revised Code and the treasurer or the governing board shall determine the periods for which such interim deposits are to be made and shall award such interim deposits for such...
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