Date: 06-30-2003

Case Style: Edward L. Lehn III, et al. v. Michael Dailey, et al.

Case Number: AC 22863

Judge: West

Court: Court of Appeals of Connecticut

Plaintiff's Attorney:

Robert A. DeMarco, West Hartford, Connecticut filed a brief for the appellees
(plaintiffs).

Defendant's Attorney:

Leslie S. Hollo filed a brief for the appellant (defendant
Michael Dailey).

Description:

The defendant Michael Dailey1 appeals from
the judgment of the trial court awarding the plaintiffs,
Edward L. Lehn III and his wife, Barbara A. Lehn,
$34,205.68 in damages arising from the defendant's sale
of a certain security to the plaintiffs. The defendant
claims that the court improperly concluded that he violated
(1) General Statutes § 36b-16 and (2) General Statutes
§ 36b-5 (a) (2). We affirm the judgment of the
trial court.

The following facts are necessary for our resolution
of the defendant's appeal. The plaintiffs inherited some
funds that they wanted to invest. Because they had
little knowledge of potential suitable investments, the
plaintiffs attended several investment seminars. In the
autumn of 1997, the plaintiffs met the defendant at a
seminar on applying for financial aid for college. The
defendant assisted the plaintiffs in evaluating the financial
aid packages. He also made some recommendations
for investments that would help the plaintiffs pay for
college expenses. Pursuant to those recommendations,
the plaintiffs took advantage of one such investment
opportunity. The plaintiffs made a profit on that
investment.

In April or May, 1998, the defendant approached the
plaintiffs with a promissory note issued by South Mountain
Resort and Spa, Inc. (South Mountain). By its terms,
the note was payable at the end of nine months, bearing
an interest rate of 10.9 percent. The defendant represented
that the note was fully insured and that the
plaintiffs' investment would be returned even if South
Mountain went out of business. In July, 1998, the plaintiffs
purchased that promissory note for $18,000. The
plaintiffs' understanding was that interest payments in
the amount of $164 were to be sent monthly during the
lifetime of the note. The plaintiffs, however, received
only three interest payments, those for September,
October and December, 1998. In March, 1999, South
Mountain offered to renew the note, which was due to
mature the following month. The plaintiffs declined that
offer and demanded payment of the principal and
accrued interest. South Mountain failed to remit the
demanded payment. Instead, the plaintiffs were notified
that South Mountain was filing a petition for relief pursuant
to chapter 7 of the United States Bankruptcy
Code.

The plaintiffs then contacted Global Insurance Company,
the guarantor of the note, requesting that the
principal and accrued interest be paid. Global did not
respond to that request. The plaintiffs then commenced
the present action.

Following a one day court trial, the court rendered
judgment in favor of the plaintiffs.2 This appeal followed.
Additional facts will be set forth as necessary.

The defendant's first claim is that the court improperly
concluded that because the promissory note was
due and payable in a full nine months, it qualifies as a
security that should have been registered pursuant to
§ 36b-16 prior to being offered or sold within the state.
The defendant concedes that the promissory note was
not registered, but he argues that pursuant to General
Statutes § 36b-21 (a), the security is specifically exempt
from the registration requirement of § 36b-16. We
disagree.

Because the issue presented to us is one of statutory
construction, our review is plenary. Spears v. Garcia,
263 Conn. 22, 27, 818 A.2d 37 (2003). We begin our
analysis by noting that it is fundamental that statutory
construction requires us to ascertain the intent of the
legislature and to construe the statute in a manner that
effectuates that intent. ‘‘The process of statutory interpretation
involves a reasoned search for the intention
of the legislature. . . . In other words, we seek to
determine, in a reasoned manner, the meaning of the
statutory language as applied to the facts of [the] case,
including the question of whether the language actually
does apply. In seeking to determine that meaning, we
look to the words of the statute itself, to the legislative
history and circumstances surrounding its enactment,
to the legislative policy it was designed to implement,
and to its relationship to existing legislation and common
law principles governing the same general subject
matter. . . . Thus, this process requires us to consider
all relevant sources of the meaning of the language at
issue . . . .'' (Citations omitted; internal quotation
marks omitted.) State v. Courchesne, 262 Conn. 537,
577, 816 A.2d 562 (2003) (en banc).

General Statutes § 36b-16 provides: ‘‘No person shall
offer or sell any security in this state unless (1) it is
registered under sections 36b-2 to 36b-33, inclusive, (2)
the security or transaction is exempted under section
36b-21, or (3) the security is a covered security provided
such person complies with any applicable requirements
in subsections (c), (d) and (e) of section 36b-21.'' General
Statutes § 36b-21 (a) provides in relevant part: ‘‘The
following securities are exempted from sections 36b-
16 and 36b-22 . . . (10) any commercial paper which
arises out of a current transaction or the proceeds of
which have been or are to be used for current transactions,
and which evidences an obligation to pay cash
within nine months of the date of issuance, exclusive
of days of grace, or any renewal of such paper which
is likewise limited, or any guarantee of such paper or
of any such renewal . . . .''

The plain language of § 36b-21 exempts from the registration
requirements those securities that are due and
payable within nine months. The statute does not provide
a definition of the term ‘‘within.'' Where the legislature
has not provided a specific definition of a word in a statute, ‘‘we look to the common understanding of
[that word] as expressed in a dictionary.'' (Internal quotation
marks omitted.) State v. Russo, 259 Conn. 436,
449, 790 A.2d 1132, cert. denied, U.S. , 123 S.
Ct. 79, 154 L. Ed. 2d 134 (2002); see General Statutes
§ 1-1 (a) (‘‘[i]n the construction of the statutes, words
and phrases shall be construed according to the commonly
approved usage of the language; and technical
words and phrases, and such as have acquired a peculiar
and appropriate meaning in the law, shall be construed
and understood accordingly'').

‘‘Within'' is defined as ‘‘a function word to indicate
situation or circumstance in the limits or compass of:
as . . . not beyond the quantity, degree, or limitations
of . . . .'' Merriam-Webster's Collegiate Dictionary
(10th Ed. 1999). The New College Edition of the American
Heritage Dictionary (1983) defines the word
‘‘within'' as ‘‘[i]nside the limits or extent of.''

In the present case, the subject promissory note, by
its own terms, came due at the end of a full nine months
from the date of issuance. No payment, therefore, was
required until that nine month period had expired.
Because the maturity of the note in question falls
beyond the statutory limit, we conclude that it is not
exempt under § 36b-21 (a) and that, consequently, it
should have been registered.

II

We next consider the defendant's claim that the court
improperly concluded that he violated § 36b-5 (a) (2).
The defendant argues that liability pursuant to § 36b-5
(a) (2) requires a finding that a defendant acted with
scienter. We disagree.

General Statutes § 36b-5 (a) provides in relevant part:
‘‘No person who directly or indirectly receives compensation
or other remuneration for advising another person
as to the value of securities or their purchase or sale,
whether through the issuance of analyses or reports or
otherwise, shall . . . (2) make any untrue statement
of a material fact or omit to state a material fact necessary
in order to make the statements made, in light
of the circumstances under which they are made, not
misleading . . . .''

The court found the following relevant facts. The
defendant's only knowledge about the soundness of the
investment came from James P. Carpenter, a licensed
broker and principal of the Investors Capital Corporation.
According to the defendant, Carpenter's knowledge
regarding the investment was gained from a
personal visit to the site and personal knowledge of the
financial situation of South Mountain. Carpenter told
the defendant that the investment was safe and that it
was secured by a bonding company. In addition, Carpenter
provided the defendant with some of the resort's
promotional material. On the basis of those promotional materials and his conversations with Carpenter, the
defendant advised the plaintiffs that the investment was
safe because it was secured by a bond, and he assured
the plaintiffs that the investment was guaranteed ‘‘no
matter what.''

The court concluded that the defendant ‘‘had an obligation
in his capacity as a financial adviser to make a
reasonable attempt to verify on his own the statements
made by South Mountain in [its] brochures and commercials,
and representations made by Carpenter before
suggesting to the plaintiffs his own opinion as to the
wisdom of the contemplated investment, which he promoted.''
We agree.

* * *

Click the case caption above for the full text of the Court's opinion.

Outcome: Affirmed

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: Digested by Kent Morlan