State v. Sheets

• Decision Date: 11 March 1980
• Docket Number: No. 4032,4032
• Citation: 94 N.M. 356,1980 NMCA 41,610 P.2d 760
• Parties: , Blue Sky L. Rep. P 71,559 STATE of New Mexico, Plaintiff-Appellee, v. Donald R. SHEETS, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

Page 760

610 P.2d 760

94 N.M. 356, Blue Sky L. Rep. P 71,559

STATE of New Mexico, Plaintiff-Appellee, v. Donald R. SHEETS, Defendant-Appellant.

No. 4032.

Court of Appeals of New Mexico.

March 11, 1980.

Writ of Certiorari Denied April 9, 1980.

James L. Brandenburg, Albuquerque, for defendant-appellant

Jeff Bingaman, Atty. Gen., Bruce R. Kohl, Don Klein, Asst. Attys. Gen., Santa Fe, for plaintiff-appellee.

OPINION

WOOD, Chief Judge.

Convicted of seven counts of selling unregistered securities, defendant appeals. Issues listed in the docketing statement, but not briefed, were abandoned. State v. Gallegos, 92 N.M. 336, 587 P.2d 1347 (Ct.App.1978). We (1) answer three issues summarily and discuss (2) the meaning of "security", (3) promissory notes as exempt from registration, (4) isolated transactions, and (5) instructions given and refused.

Issues Answered Summarily

(a) In lieu of a statement of facts, defendant was provided the grand jury transcript in advance of trial. This was sufficient. State v. Mosley, 75 N.M. 348, 404 P.2d 304 (1965) and State v. Archuleta, 82 N.M. 378, 482 P.2d 242 (Ct.App.1970).

(b) The indictment was not legally deficient. State v. Gurule, 90 N.M. 87, 559 P.2d 1214 (Ct.App.1977) and State v. Lindsey, 81 N.M. 173, 464 P.2d 903 (Ct.App.1969), cert. denied, 398 U.S. 904, 90 S.Ct. 1692, 26 L.Ed.2d 62 (1970).

(c) Defendant could not have been prejudiced by the trial court's refusal to sever the seven charges. Evidence involving other charges would have been admissible on each charge to negate the isolated transaction exemption, discussed hereafter. See State v. Weisser, 161 N.W.2d 360 (N.D.1968). The trial court did not abuse its discretion in denying the motion to sever. State v. McGill, 89 N.M. 631, 556 P.2d 39 (Ct.App.1976).

The Meaning of "Security"

The evidence as to six of the seven charges is that the person furnishing money to defendant would receive in return an instrument entitled "promissory note". The note did not reflect the amount of money furnished to defendant and did not state that any interest was to be paid. Rather, the note would recite an amount to be returned to the person furnishing the money. According to the briefs, the difference between the money furnished and the money to be returned amounted to 36 percent "interest" over the life of the note. The evidence in the count involving Avery is illustrative. Avery supplied $2,000 to defendant. The note that defendant gave in return promised to pay to Avery, or his order, a "loan principal" of $3,280. This "principal" was to be paid in 21 monthly installments. The first 2 monthly payments were to be in the amount of $100, the next 18 monthly payments were to be in the amount of $60, and the 21st payment was to be for $2,000.

Defendant's transaction with Gold was shown by a written "agreement". This document recites that Gold "hereby invests" $13,000 with defendant, that defendant is to invest this sum at his discretion, that defendant is to pay Gold a monthly sum equal to the earnings received by defendant from the investment. The document authorizes defendant to deduct a reasonable profit for himself at defendant's "sole discretion". However on or before one year from the date of the agreement, defendant is to return the $13,000 investment to Gold, "together with undistributed earnings".

Defendant contends that none of the seven transactions came within the meaning of "security". He asserts that "security" was intended to apply only to investments and none of the transactions were investments. He claims an investment requires profit sharing and only the Gold transaction involved profit sharing. He claims an investment requires some risk taking and inasmuch as there was an unconditional promise to pay in each instance, the risk element was lacking. He claims an investment refers to a transaction in which stock is often issued and none of the seven transactions were of that type. He claims that each of the seven transactions were commercial notes which were not intended to be considered a "security". He also claims that not to agree with these arguments would be a perversion of our Securities Act and "create unmanageable congestion and arbitrary administration" in the registration of securities.

Most of defendant's arguments bottom on the view that to be a "security", the instrument involved must be an "investment" of the type that involves profit sharing or risk. This ignores New Mexico's definition of "security". Section 58-13-2(H), N.M.S.A.1978 states:

H. "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation, certificate of interest in oil, gas or other mineral rights, collateral trust certificate, preorganization certification (certificate) or subscription, transferable shares, investment contract, voting-trust certificate or beneficial interest in title to property, profits or earnings, or any other instrument commonly known as a security, including any guarantee of, temporary or interim certificate of interest or participation in, or warrant or right to subscribe to, convert into a (or) purchase any of these. "Certificate of interest in oil, gas or other mineral rights" does not mean oil royalties(.)

Defendant does not concern himself with the broad scope of this definition; his approach is that the federal statutory definition of security has been given a narrow application and a similar narrow application should be given to the New Mexico definition. Defendant's approach is incorrect. "Congress did not intend to adopt a narrow or restrictive concept of security in defining that term." Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). Defendant's approach also ignores the New Mexico rules that (1) in the absence of ambiguity, statutes are to be given effect as written, State v. Elliott, 89 N.M. 756, 557 P.2d 1105 (1977); and (2) statutory words are to be given their usual, ordinary meaning absent a clearly expressed legislative intent requiring otherwise, Tafoya v. New Mexico State Police Board, 81 N.M. 710, 472 P.2d 973 (1970). There is no ambiguity in the statutory words "note" and "evidence of indebtedness"; their usual, ordinary meanings apply because there is no legislative intent to the contrary. The documents issued by defendant were notes and were evidence of indebtedness; they were securities as defined by § 58-13-2(H), supra.

In urging adoption of a narrow meaning to "security", defendant points out that the definitions of security in the federal statutes, ¹ 15 U.S.C. §§ 77b(1) and 78c(a)(10) (1971) are similar to the definition in § 58-13-2(H), supra. We agree there are similarities, but there is also an important difference to which we will refer later.

Defendant cites Securities and Exchange Com'n v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) as holding that the test for a security "is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others." The quoted phrase does not purport to be a test for "security"; rather, the quoted phrase pertains only to "investment contract", which is only one of the meanings of "security". Howey, supra, recognizes that a statutory definition of "security" is inclusive rather than exclusive; Howey, supra, was concerned with only one part of the inclusive definition. Defendant cites Securities & E. Com'n v. C. M. Joiner L. Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943) as holding that the test for security "is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect." Again, defendant has taken the quoted phrase out of context. The quoted phrase refers to investment contracts. More appropriate to this case, Joiner states:

In the Securities Act the term "security" was defined to include by name or description many documents in which there is common trading for speculation or investment. Some, such as notes, bonds, and stocks, are pretty much standardized and the name alone carries well settled meaning. Others are of more variable character and were necessarily designated by more descriptive terms, such as "transferable share," "investment contract," and "in general any interest or instrument commonly known as a security." We cannot read out of the statute these general descriptive designations merely because more specific ones have been used to reach some kinds of documents. Instruments may be included within any of these definitions, as matter of law, if on their face they answer to the name or description. (Our emphasis.)

Notwithstanding the recognition in Joiner, supra, of the variety of instruments coming within the statutory definition of "security", defendant relies on a law review article which argued that ordinary commercial notes were not securities under the Securities Exchange Act of 1934. Abrahams, Commercial Notes and Definition of "Security" Under Securities Exchange Act of 1934: A Note is a Note is a Note?, 52 Neb.L.Rev. 478 at 486 (1973) states: "The position taken by this article, that ordinary commercial notes are not securities, essentially is based on the premise that the context does require non-security treatment for such notes." This position is based on an important difference between the federal and the New Mexico statutes. Compare State v. Barela, 93 N.M. 700, 604 P.2d 838 (Ct.App.1979).

Both federal statutes define "security" similarly to the New Mexico definition "unless the context otherwise requires". See 15 U.S.C. §§ 77b and 78c, supra. The New Mexico statute, § 58-13-2(H), supra, does not contain the "context" clause. Because of this statutory difference, the Nebraska Law Review article does not support defendant's contention that "security" in our statute excludes commercial notes.

A distinction between commercial...