Reves v. Ernst & Young (494 U.S. 56)/Concurrence Stevens

by John Paul Stevens

Justice Stevens, concurring.

While I join the Court's opinion, an important additional consideration supports my conclusion that these notes are securities [p74] notwithstanding the statute's exclusion for currency and commercial paper that has a maturity of no more than nine months. See 15 U.S.C. § 78c(a)(10) (§ 3(a)(10) of the Securities Exchange Act of 1934). The Courts of Appeals have been unanimous in rejecting a literal reading of that exclusion. They have instead concluded that "when Congress spoke of notes with a maturity not exceeding nine months, it meant commercial paper, not investment securities." Sanders v. John Nuveen & Co., 463 F.2d 1075, 1080 (CA7), cert. denied, 409 U.S. 1009 (1972). This view was first set out in an opinion by Judge Sprecher, and soon thereafter endorsed by Chief Judge Friendly. Zeller v. Bogue Electric Mfg. Corp., 476 F.2d 795, 800 (CA2), cert. denied, 414 U.S. 908 (1973). Others have adopted the same position since. See, e.g., McClure v. First Nat. Bank of Lubbock, Texas, 497 F.2d 490, 494–495 (CA5 1974), cert. denied, 420 U.S. 930 (1975); Holloway v. Peat, Marwick, Mitchell & Co., 879 F.2d 772, 778 (CA10 1989); Baurer v. Planning Group, Inc., 215 U.S. App. D.C. 384, 389–391, 669 F.2d 770, 775–777 (1981).

In my view such a settled construction of an important federal statute should not be disturbed unless and until Congress so decides. "[A]fter a statute has been construed, either by this Court or by a consistent course of decision by other federal judges and agencies, it acquires a meaning that should be as clear as if the judicial gloss had been drafted by the Congress itself." Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 268 (1987) (Stevens, J., concurring in part and dissenting in part); see also Chesapeake & Ohio R. Co. v. Schwalb, 493 U.S. 40, 51 (1989) (Stevens, J., concurring in judgment). What I have said before of taxation applies equally to securities regulation: "there is a strong interest in enabling" those affected "to predict the legal consequences of their proposed actions, and there is an even stronger general interest in ensuring that the responsibility for making changes in settled law rests squarely on [p75] the shoulders of Congress." Commissioner v. Fink, 483 U.S. 89, 101 (1987) (dissenting opinion). Past errors may in rare cases be "sufficiently blatant" to overcome the "'strong presumption of continued validity that adheres in the judicial interpretation of a statute,'" but this is not such a case. Id., at 103 (quoting Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 424 (1986)).

Indeed, the agreement among the Courts of Appeals is made all the more impressive in this case because it is buttressed by the views of the Securities and Exchange Commission. See Securities Act Release No. 33-4412, 26 Fed. Reg. 9158 (1961) (construing § 3(a)(3) of the Securities Act of 1933, the 1933 Act's counterpart to § 3(a)(10) of the 1934 Act). We have ourselves referred to the exclusion for notes with a maturity not exceeding nine months as an exclusion for "commercial paper." Securities Industry Assn. v. Board of Governors of Federal Reserve System, 468 U.S. 137, 150–152 (1984). Perhaps because the restriction of the exclusion to commercial paper is so well established, respondents admit that they did not even argue before the Court of Appeals that their notes were covered by the exclusion. A departure from this reliable consensus would upset the justified expectations of both the legal and investment communities.

Moreover, I am satisfied that the interpretation of the statute expounded by Judge Sprecher and Judge Friendly was entirely correct. As Judge Friendly has observed, the exclusion for short-term notes must be read in light of the prefatory language in § 2 of the 1933 Act and § 3 of the 1934 Act. See Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1131–1132, and nn. 7–10 (CA2 1976). Pursuant to that language, definitions specified by the Acts may not apply if the "context otherwise requires." Marine Bank v. Weaver, 455 U.S. 551, 556, 102 S.Ct. 1220, 1223, 71 L.Ed.2d 409 (1982) (the "broad statutory definition is preceded, however, by the statement that the terms mentioned are not to be considered securities if 'the context otherwise requires . . .'"); accord, [p76] Landreth Timber Co. v. Landreth, 471 U.S. 681, 697–698 (1985) (Stevens, J., dissenting). The context clause thus permits a judicial construction of the statute which harmonizes the facially rigid terms of the 9-month exclusion with the evident intent of Congress. Exchange Nat. Bank, 544 F.2d, at 1132–1133. The legislative history of § 3(a)(3) of the 1933 Act indicates that the exclusion was intended to cover only commercial paper, and the SEC has so construed it. Sanders, 463 F.2d, at 1079, and nn. 12–13; Zeller, 476 F.2d, at 799–800, and n. 6. As the Courts of Appeals have agreed, there is no apparent reason to construe § 3(a)(10) of the 1934 Act differently. Sanders, 463 F.2d, at 1079–1080, and n. 15; Zeller, 476 F.2d, at 800. See also Comment, The Commercial Paper Market and the Securities Acts, 39 U. Chi. L. Rev. 362, 398 (1972).

For these reasons and those stated in the opinion of the Court, I conclude that the notes issued by respondents are securities within the meaning of the 1934 Act.