IN THE SUPREME COURT OF OHIO

Perrysburg Township, Case No. 2008-0441

Appellant, On Appeal from the Sixth District Court of Appeals -vs- Court of Appeals Rossford Arena Amphitheater Authority, Case No. WD-07-008

Appellee/Cross-Appellant.

COMBINED MEMORANDUM IN OPPOSITION TO JURISDICTION FOR APPEAL AND IN SUPPORT OF JURISDICTION FOR CROSS-APPEAL OF APPELLEE/CROSS-APPELLANT, ROSSFORD ARENA AMPHITHEATER AUTHORITY

Michael G. Sanderson (0008521) John P. Donahue (0022745) (Counsel of Record) (Counsel of Record) Peter R. Silverman (0001579) Post Office Box 526 119 West Second Street Shumaker, Loop & Kendrick, LLP Perrysburg, Ohio 43551 North Courthouse Square Telephone: (419) 874-4604 1000 Jackson Street Facsimile: (419) 874-2399 Toledo, Ohio 43624 E-Mail: [email protected] Telephone: (419) 241-9000 Facsimile: (419) 241-6894 Counsel for Plaintiff-Appellant E-Mail: psilvermanC@,slk-1aw.com Perrysburg Township msandersonnaslk-law.com Counsel for Appellee/Cross-Appellant Rossford Arena and Aniphitheater Authority

SLK TOL: #1520052v1 TABLE OF CONTENTS

Issues Presented ...... 1

This Case Is Not Of Public And Great General Interest ...... 2

Statement Of The Case And Facts ...... 5

Response To Appellant's Proposition Of Law ...... 7

The Township Is A Separate Entity From Its Constituents ...... 9

The Sale Of The Note Was To Fewer Than 10 Persons ...... 10

The Sale To The Township Is Not An Indirect Sale To The Public ...... 14

The Legislative Regulatory History Demonstrates That R.C. § 1707.02(G) Was Properly Applied By The Court Of Appeals ...... 15

The Court Of Appeals Decision Upholds The Policies Of The Ohio Securities Act ...... 16

MEMORANDUM IN SUPPORT OF JURISDICTION ON CROSS-APPEAL ...... 17

Statement As To Why The Cross-Appeal Is Of Public And Great General Interest...... 17

PROPOSITION OF LAW ...... 19

The Application Of The Reves Factors Adopted In Perrysburg Township v. Rossford (2004), 103 Ohio St.3d 79, Requires That A Court Determine The Economic Realities Of The Transaction By Independently Considering Each Of The Four Factors hl The Family Resemblance Test And Balancing Those Factors In Determining Whether The Transaction As A Whole Constitutes A Sale Of A Security ...... 19

The Application Of The Reves Standard To The Note ...... 21

The Motivation Of The Parties ...... 22

The Plan Of Distribution ...... 26

Public Expectation ...... 26

Risk Reducing Factors ...... 28

The Overall Balancing Of The Factors ...... 28

SLK TOL: #1520052v1 APPENDICES

Opinion and Judgment Entry in Wood County Conlmon Pleas Court ...... A-1

Decision and Judgment Entry in Sixth District Court of Appeals ...... A-8

ii ISSUES PRESENTED

The present case involves a loan from Perrysburg Township (the "Township") to the Rossford Arena Amphitheater Authority ("RAAA"), a non-profit corporation formed for the purpose of developing a sports arena and amphitheater complex in Rossford, Ohio. This Court previously held that the Intergovernmental Agreement for the loan between the parties constituted a note. The undisputed facts demonstrate that the sale of the note was to one entity, the Township, which was integrally involved in the plans for the development and financing of the complex. As such, the sale clearly constituted a private sale and was exempt from any registration obligations with the Ohio Division of Securities.

The case has a litigious history, having been heard by this Court once, the Court of Appeals three times, and having been denied a second review by this Court in 2007. After this

Court initially held that the note could constitute a security based only upon the pleadings, the trial court properly held that sale of the note would still be exempt under R.C. § 1707.02(G), which was affirmed by the court of appeals. Appellant now seeks to have this Court once again consider this case on the narrow issue of whether a sale of a note to a public entity, such as a township, automatically requires registration with the Ohio Division of Securities even if the note was offered and sold to only that entity.

The trial court and court of appeals properly held that R.C. § 1707.02(G) would exempt the RAAA's sale of the note to the Township as not a sale directly or indirectly to the public. Any other interpretation would strain the language of the statute and the Ohio

Administrative Code and result in unexpected and detrimental results to public entities such as the Township. The court of appeals decision was correct and this Court should decline jurisdiction.

SLK TOL:#1520052v1 THIS CASE IS NOT OF PUBLIC AND GREAT GENERAL INTEREST

This Court should deny appellant's motion to accept jurisdiction for three reasons.

First, the trial court and court of appeals were correct in their holdings that the sale of a note to one entity, even if it is a public entity, is not a sale to the public. The intent of R.C. § 1707.02(G) is to exempt from the burdens of registration sales exactly like the one in this case. This was not a general sale advertised and offered to the public. It was the exact opposite: a private transaction between the RAAA and the Township. The loan provided limited interim funding until proposed permanent financing could be put in place for an economic development project to benefit both the Township and Rossford. It was discussed in depth between the parties, each represented by counsel. There was no offering circular, private placement memorandum, or advertisement, as the note was never offered to any party but the Township. The transaction squarely fits as a private sale exempt from registration. To hold otherwise would set Ohio securities law on end. As the court of appeals reached the right decision in a thoughtful analysis, its decision should be allowed to stand without consuming the limited time and resources of this

Court to review the issue.

Second, this case is not of great and general public interest because the factual

scenario in which the transaction arose is not likely to recur. Rossford, which formed the

RAAA, and the Township were working jointly on economic development. The long-term

financing for the project would be through bonds subject to the Ohio securities law. Because of

the delay in procuring the long-term financing, the Township and the RAAA entered into an

agreement for short-term interim financing through the Intergovernmental Agreement at issue in

this case. The note was presented to only one party and was not part of a broader offering to

raise capital as is the usual scenario for securities under Ohio Blue Sky law. The factual scenario

2 involved is thus limited and not likely to recur on a regular basis in other economic development projects in Ohio.

Appellant overstates the importance of this case in several respects in its motion.

The court of appeals decision does not "effectively sweep(ing) all governmental and other public bodies into an unregulated securities marketplace." (Appellant's Memorandum, p. 1.) To the contrary, the appellate court properly applied the private offering exemption. The offer to sell here was to one entity, the Township. This decision would not affect offers to sell to more than ten persons in a twelve-month period, the more likely scenario in most securities offerings.

Appellant's position would subject all loan transactions involving public entities to be registered without a sound legal or policy reason for doing so. As such, the decision will not have a widespread impact upon public bodies that invest public funds, but will do so only if this Court accepts the strained argument of appellant.

Nor does the court of appeals decision affect the enforcement of "scams" and other scandals, the specter of which appellant raises (Appellant's Memorandum, pp.2-3).

Appellant's proposition of law involves only the onus of registration. Whether a security is exempt from registration or not, the sale of that security still is subject to the provisions of R.C.

§§ 1707.41 and 1707.43 regarding misrepresentations in the sale of a security, as well as other civil or criminal sanctions under the Ohio Securities Act. In fact, the position urged by appellant would limit the rights of public entities to these important remedies. A right to seek damages under R.C. § 1707.41 is provided to "persons" who purchase the securities. If appellant's argument that townships are not "persons" were accepted, public entities who purchased a note would lose their rights to seek damages under R.C. § 1707.41.

3 The third reason why this Court should not entertain jurisdiction in this case is that the Township should not be rewarded for its tactical strategies. Appellant did not argue in the trial court' that public entities cannot be "persons," the issue which appellant now claims is of such paramount importance to the whole State of Ohio. In the trial court, appellant argued that a non-profit corporation could never obtain the benefit of the private offering exemption under R.C. § 1707,02(G) through a strained interpretation of a separate exemption for non-profit corporations, R.C. § 1707.02(I). Appellant first raised the current issue, that a sale to a public entity could never constitute a private offering under R.C. § 1707.02(G), in the court of appeals, buried as a tag-on argument to the primary focus on the interpretation of R.C. § 1707.02(I). The

RAAA argued in the court of appeals that this issue should not even be addressed as it had not been properly presented below. The court of appeals chose to address this issue while focusing on what was still then appellant's primary argument, the interpretation of R.C. § 1707.02(I). The issue now raised by appellant was never addressed in the trial court nor was it the principal argument in the court of appeals. This case is not the proper one for this Court to consider the scope of R.C. § 1707.02(G) and its application to public entities as purchasers.

The sole issue in this appeal is the registration of the security. The trial court and court of appeals properly held that a sale of a note between two sophisticated entities who were working jointly on an economic development project for their mutual benefit is not a sale to the public. Any other interpretation would violate rules of statutory construction for the exemption and the Ohio Administrative Code. It would also ultimately be detrimental to such entities as the

Township in unintentionally limiting other remedies under the securities law. The Township has been litigating this case for over seven years, beginning with two separate lawsuits asserting a

' The Trial Court Opinion is attached as Appendix A1-A7.

4 total of 19 separate claims for relief against the RAAA and Rossford, including conunon law claims of breach of contract, unjust enrichment, and negligent misrepresentation. This certainly is not a case in which the Township would be "deprived of a remedy" by allowing the court of appeals decision to stand. It is time for this case to end. This Court should decline to accept jurisdiction to hear the narrow issue that is presented by this appeal.

STATEMENT OF THE CASE AND FACTS2

The Township initiated this case on June 28, 2001 by filing its complaint against the RAAA and other entities 3 The initial complaint was amended twice, once on September 27,

2001 and a second time on May 24, 2002. The Township's claims centered around the

Crossroads of America project Intergovernmental Agreement among the Township,

Rossford/Perrysburg Township Joint Economic Development Authority/Port Authority (the

"Port Authority") and the RAAA dated as of June 29, 1999 (the "Note"). Pursuant to the Note, the Township loaned $5 million to be used for construction costs and related expenses for a sports arena and amphitheater. The second amended complaint asserted ten counts, the first seven counts making various claims under the Ohio Securities Act, and the final three counts under Ohio common law.

On October 22, 2001, the RAAA filed a motion to dismiss arguing, among other things, that the Note was not a security. The trial court granted the motion to dismiss. The court of appeals reversed the trial court on this issue. See Perrysburg Township v. Rossford (Wood

Cty., 2002), 149 Ohio App.3d 645 ("Perrysburg Township I"). This Court upheld the trial court's ruling that (i) the Intergovemmental Agreement is a note; (ii) the question of whether a

2 These other entities are also no longer parties to the case.

' Appellee/cross-appellant provides this statement of the case and facts for its opposition to appellant's appeal and in support of its cross-appeal.

5 note is a security under the Ohio Securities Act is determined by the family resemblance test set forth in Reves v. Ernst & Young, 494 U.S. 56 (1990); and (iii) under Reves, the trial court erred in finding as a matter of law that the Note is not a security. See Perrysburg Township v. Rossford

(2004), 103 Ohio St.3d 79 ("Perrysburg Township Ii').

After remand and fiuther discovery, the Township filed a motion for summary judgment, arguing that the Note was a security that was not exempt from registration. The

RAAA filed a cross-motion for partial sununary judgment and a memorandum in opposition.

The RAAA argued that the Note was not a security, but if the Note was a security, it was exempt from registration under the private sale exemption in R.C. § 1707.02(G).

On December 19, 2006, the trial court found that the Note was a security. In so holding, the trial court indicated that it was applying the "family resemblance test" adopted by this Court in Perrysburg Township II without any reference to the factors for the test or the evidence that was presented by the RAAA. The trial court then considered the exemption from registration under section 1707.02(G), rejecting the Township's arguments as to an asserted inconsistency or conflict between that section and R.C. § 1707.02(I). Notably, the Township never asserted the argument that it now makes before this Court that any sale to a public entity would automatically require registration under Ohio law.

On appeal,4 the Sixth District affirmed the trial court's holding that the Note constituted a "security," but was exempt from registration. See January 18, 2008 Decision and

° To obtain appellate review of what would otherwise be interim decisions, the Township again dismissed without prejudice the other claims asserted against the RAAA, making the trial court's December 19, 2006 decision a final appealable order, and has since re-filed certain claims in the Wood County Common Pleas Court.

6 Judgment Entry ("Perrysburg Township III").5 The Sixth District again acknowledged the family resemblance test from Reves adopted by this Court in Perrysburg Township II, but failed to expressly apply each of the four factors. The court of appeals, like the trial court, ignored the mandate of this Court to consider each of the four factors in determining whether the Note constituted a security under the Reves test.

The court of appeals held further that the Note was exempt from registration under R.C. § 1707.02(G). The bulk of the appellate court's opinion properly addressed the

Township's primary argument made in the trial court and in the court of appeals regarding the interpretation of R.C. § 1707.02(I), an exemption for certain securities issued by non-profit corporations.6 Although not an issue raised below, the Township also argued that any sale to a public entity would be a public sale, and thus not exempt from registration. The court of appeals properly held that the exemption under R.C. § 1707.02(G) still applied in this circumstance where there was a sale of a note to one entity and all the other conditions of OAC

§ 1301:6-3-02(D) were met.

RESPONSE TO APPELLANT'S PROPOSITION OF LAW

Appellant's sole proposition of law is premised on ignoring the plain language of the statute and the corresponding Ohio Administrative Code § 1301:6-3-02(D), including implicitly adding words to the provisions to reach appellant's interpretation and arguing a position that would be inconsistent with remaining portions of the statutory scheme. Ultimately, appellant's arguments are all premised on the conclusion that a sale to a public entity, such as the

The decision in Perrysburg Township III is attached as Appendix A8-A32.

6 See Perrysburg Township III Opinion, App. A-20 to A-25, ¶¶ 36-52.

7 Township, must be construed as a sale to all the Township's residents, thus being a sale to the public. Stating the proposition that undergirds all of appellant's arguments demonstrates its absurdity.

The statutory provision in question simply reads: "Commercial paper and promissory notes are exempt when they are not offered directly or indirectly for sale to the public." The intent of the statute, as demonstrated farther by the regulations promulgated by the

Ohio Securities Division, OAC § 1301:6-3-02(D),7 is to exempt from registration requirements offerings that that are limited in scope.

Appellant's first argument is that the offering of a note to a public entity is an offering to all the constituents of a public entity and, thus, automatically a sale to the public.

This argument is inconsistent with the intent of the exemption and denies the status of a township as a separate entity. Appellant's second argument is to challenge the regulation in the Ohio

Administrative Code, which in essence creates a "safe harbor" for meeting the exemption.8

Appellant has conceded here as it has in the two lower courts that the RAAA met the requirements of subsections (i)-(iv) of the regulation. Appellant's sole challenge to the regulation is that the Township does not constitute a "person." This is contrary to the definition of person under the statute. Even if correct, however, it still does not demonstrate that the offering was outside the express provisions of the exemption, which does not limit sales to persons, but only requires that the sale be to less than ten persons. Finally, appellant's argument here would have a detrimental effect upon public entities in their rights to receive damages for

' The regulation is quoted in full in appellant's memorandum at pp. 5, 6.

$ Contrary to appellant's comments, the OAC, however, cannot "restrict" the terms of the statute, but can only provide guidance in interpreting it. See, e.g., Central Ohio Joint Vocational School District Bd. OfEd. v. Ohio Bur. Of Emp. Serv. (1986), 21 Ohio St.3d 5, 10.

8 claimed misrepresentations under R.C. § 1707.41, which limits the remedy to persons who are purchasers.

The sale to the Township was not a direct or indirect sale to the public as the

Township was a separate entity from its constituents. This is supported by the express terms of

the statute and regulation, and upholds the policies of the Ohio Securities Act.

The Township Is A Separate Entity From Its Constituents

The Township's argument first creates a false premise on the purpose of the

exemption. The provision was intended to exempt sales of promissory notes or commercial

paper made to a limited number of individuals and not broadly offered or advertised to the

investing public. The exemption is thus based on the actions of the issuer of the security being

sold. It focuses on the number of offerees, not their identity. Where the issuer is not attempting

to market the note to the general public, but is selling it to a limited number of specific

individuals or entities, the exemption applies.

The Township then stands logic on its head through a false syllogism:

(1) 1707.02(G) prohibits the sale of promissory notes to the "public;" (2) public is generally

defined for other purposes as the whole body politic, or the aggregate of the citizens of a state,

nation or municipality;9 (3) the sale of a note then to a separate contracting entity, such as a

township, is a sale to the public, i.e., to all of the constituents members of the township. It is

clear when stated in this fashion that the third premise does not follow from the first two.

First, the argument ignores the fact that a township is a separate entity. R.C.

§ 503.01 expressly refers to a township as a body "politic and corporate," which can sue or be

sued, and buy and sell property in its own name as a separate corporate entity. The heading to

9 See Appellant's Memorandum, p. 7.

9 Section 503.01 refers to "incorporation of civil townships; corporate powers; ...." While the

Township has certain obligations to its constituents, much like a private corporation has certain obligations to its shareholders, it functions as a separate entity under the law.

Appellant's argument essentially wants to disregard the separate entity status of a township by equating it and all its constituents as one and the same. The ramifications of this argument are varied and ultimately ludicrous. For instance, if the Township is not a separate entity from its constituents, should each of the constituents be a party to this case? Would it be required that each of the constituents vote to rescind the transaction to assert a remedy under

R.C. § 1707.43? Should the Note then have been made payable to the constituents of the

Township, rather than the Township as a separate entity? The Township's argument thus can be seen as completely implausible if applied consistently because it requires for its premise that the

Township is not a separate entity apart from the public constituency.

The Sale Of The Note Was To Fewer Than 10 Persons

Having failed to offer any plausible argument on the face of the exemption itself, the Township then turns to OAC § 1301i6-3-02(D)(1)(d) for its second implausible argument.

Subsection (D) provides that commercial paper and promissory notes are not offered for sale directly or indirectly to the public if "sales by the issuer of the security (is) to not more than ten persons in the state during any 12-month period." The OAC provision then adds four additional limitations on the sale of the note requiring that: (1) there be no advertisement, article, notice or other communication published in connection with the sale other than an offering circular delivered by the issuer; (2) the commission, discount or other remuneration paid to any salesperson be less than 10% of the offering price; (3) the issuer believes that the person is purchasing for investment rather than resale; and (4) any commission is paid only to registered

10 dealers or licensed salesmen under the Ohio Securities Act. The Township has admitted that the

RAAA met the requirements of these four subsections.

The Township first argues that it is not a "person," within the meaning of the exemption. This initial conclusion is in error. R.C. § 1707.01(D), in defining "person," includes both an unincorporated association, and a corporation "organized under the laws of any state, any foreign government or any political subdivision of a state or foreign government." Clearly, the

Township is an entity that is organized under the laws of the State of Ohio. Under R.C. § 503.01 as found by the court of appeals, a township is treated as a body "politic and corporate" and given various corporate powers. Ohio case law also treats townships as "quasi-corporations."

See Perrysburg Township III Opinion, App. A-25, ¶ 55, and cases cited therein. If a township is not treated as a corporation, then it must be viewed as an unincorporated association, as it has a separate legal identity from its constituents. In either event, it would be an entity formed under the laws of the State of Ohio included within the definition of person in R.C. § 1707.01(D).

The Township relies on Smith v. Wait (1975), 46 Ohio App.2d 281, 284, and

Dove v. State (1975), 48 Ohio App.2d 311, 315, two court of appeals decisions that protected the

State of Ohio from being sued under R.C. § 1707.43 on claims that the Ohio Division of

Securities knew certain registered securities were part of a fraudulent scheme. While the

decisions may be correct in preventing what appear to be spurious claims against the State of

Ohio, there is no logical reason presented for this limitation to apply to associations or quasi-

public corporations fonned under the laws of the State of Ohio.

The recent decision in Ohio Bureau of Workers' Compensation v. MDL Active

Duration Fund, Ltd (S.D. Ohio 2007), 476 F.Supp.2d 809, supports the conclusion that public

entities, such as the Township, must be persons under the Securities Act. In Ohio Bureau, the

11 Bureau specifically brought claims under R.C. §§ 1707.41, 1707.42 and 1707.43 (the provision under which the Township currently seeks a rescission remedy). The federal district court denied motions to dismiss and held that the Bureau had properly stated a claim under each of these provisions. R.C. § 1707.41(A) provides:

In addition to the other liabilities imposed by law, any person that, by a written or printed circular, prospectus or advertisement, offers any security for sale, or receives the profits accruing from such sale, is liable, to any person that purchased the security relying on the circular, prospectus or advertisement.....

(Emphasis added). Thus, the court necessarily held that the Bureau was a person under the Act.

Does the Township truly want this Court to construe all of the provisions of the

Ohio Securities Act to exclude from the word person, wherever used, any public entity, and thus

bar any claims under R.C. § 1707.41, including those claims asserted by the Bureau for multi-

million dollar losses? This Court must consider the implications of its decision. Clearly, an

interpretation of R.C. § 1707.01(D) to preclude townships from the definition of person, as well

as any other political subdivision or public agency, would have catastrophic results.

R.C. § 1707.01(D) and prior cases interpreting that provision as not applying to

the state per se does not lead to appellant's position. A township is clearly organized under the

laws of the State of Ohio and it's an unincorporated association or a quasi-corporation, either of

which constitutes a person under this section. To interpret otherwise would be contrary to the

plain meaning of the words used. Furthermore, there is no logic or policy to conclude, as the

Township assumes, that because the State of Ohio may not be a person that all public entities

12 therefore should not be persons. In fact, such a conclusion would preclude public entities from important remedies such as suing for damages under R.C. § 1707.41.

Nor would the Township's argument that it is not a "person" necessarily lead to its conclusions. There is no question that the sale of the Note was solely to one party, the

Township. The Township then must assert language into the regulation, contrary to its acknowledgement of the rules of statutory construction (see Appellant's Memorandum, p. 7 and cited cases). The Township argues that since it could not be a "person" for purposes of the regulation, then the sale cannot be exempt under the regulation. Subsection (D), however, does not require that the sale be to a person, but that the note be sold to no more than ten persons during a 12-month period. What the Township's argument essentially requires is adding language to the regulation something like this: "Sales by the issuer of the security only to persons and to not more than ten persons in this state during a 12-month period." Assuming for

argument that the Township does not constitute a "person," the RAAA still would meet the

exemption requirement as the sale would then be to no persons, rather than one person. The

regulation in providing guidance to the interpretation of the exemption is not conditioned on

whether a Township is classified as a person or not, but whether the note has been sold to a

broader portion of the public. It has not and the exemption applies.

At this point, the arguments of the Township become even more strained and

tenuous. For instance, the Township misuses the Latin maxim "expressio unis est exclusion

alterius" by arguing that a description of issuers whose securities are exempt under R.C.

§ 1707.02(B)(1)(c), which expressly lists political subdivisions and other public bodies as

qualifying, means, somehow, that the lack of expressly listing those bodies as part of the persons

qualifying for an exemption in R.C. § 1707.02(G) means that they are excluded. The tortured

13 application of this Latin maxim is almost too strained to follow. First, R.C. § 1707.02(G) does not use the word "person," and the Administrative Code provision interpreting this section does not list any entities. Second, the definition of person, as demonstrated, would include a township. Third, the fact that a different section expressly itemizes those qualifying for a

security exemption as issuers has no impact on the failure to expressly list each and every entity

that may constitute a person for the application of the private offering exemption.

The court of appeals was correct. The purpose of R.C. § 1707.02(G) is to provide

an exemption for the sale of commercial paper or notes where it is sold to a limited number of

purchasers with limited commission on the sales and restricting the use of various advertising or

solicitation materials. The undisputed fact is that the RAAA sold the Note to one entity and only

one entity. As such, it constitutes a private offering exempt from registration. If for some reason

the Court holds that the Township doesn't qualify as a person, the sale was still to less than ten

persons as required by the regulation. Any other interpretation of the regulation would be

contrary to its intent and goal and make the continued viability of the private offering exemption

highly suspect. In addition, it would have potential devastating ramifications for public entities

for other aspects of securities law, including the right to seek damages under R.C. § 1707.41.

The Sale To The Township Is Not An Indirect Sale To The Public

The Township then argues that the sale to the Township must be an indirect sale

to its constituents. First, the Township wrongly applies the definition of sale in R.C.

§ 1707.01(C)(1). The language in this section refers to solicitations of sales directly or indirectly

by an agent. Indirect sales by agents do not equate to an "indirect" purchase by the Township for

its constituents. The Township's argument here is really a re-treading of its prior argument that

because the Township has some duties to its constituents, the sale must be indirectly to the

14 Township's constituents. The Township provides no further logic, citation of authority or other basis for its conclusions because none exists.

The Township's argument is also refuted by the express language of the regalation. OAC § 1301:6-3-02(D)(1)(e) provides guidance on the application of the regulation to sales to various representative parties. It expressly provides that sales to a partnership, association or other unincorporated entity should be treated as a sale to a single purchaser. Thus, the regulation in itself demonstrates that sales to entities representing others are not indirect sales to those whom they represent. The sale to the Township even as an unincorporated association is not indirectly a sale to its constituent members.

The Legislative Regulatory History Demonstrates That R.C. § 1707.02(G) Was Properly Applied By The Court Of Appeals

The Township then argues that its position is supported by the statutory history.

First, the Township argues that because the private offering exemption was narrower in the 1975

version of the Ohio Administrative Code, extending only to officers and directors of the issuer,

that somehow the modified rule issued in 1992 should be similarly limited. In making this

argument, the Township has made an egregious error by arguing that OAC

§ 1301:6-3-02(D)(1)(e) idenrifes the persons that may qualify for the exemption. To the

contrary, this express provision of the Administrative Code is for the purpose of determining

what constitutes ten purchasers by stating that certain groups of people or representatives, such

as listed in subsection (e), will constitute a single purchaser. This subsection thus provides

guidance to the issuer in counting the number of sales and giving it some greater leeway, rather

than restrictions. It is feckless to argue that this provision is intended to place some limit on who

may classify as a purchaser in the first place.

15 The Court Of Appeals Decision Upholds The Policies Of The Ohio Securities Act

The Township finally argues that because one of the primary purposes of the Act is to protect a gullible public, the court of appeals interpretation of the plain meaning of the exemption cannot stand. Of course, if this were the only policy to consider, then any exemptions would be barred by the policy. In fact, the Securities Act, while protecting the public, also attempts to take a balanced position by not imposing on single transactions between sophisticated antities the obligation of registration with the State of Ohio. Furthermore, the interpretation offered here does not expose public entities or others to greater potential risk, but ultimately may protect such entities. The issue for this appeal is one of exemption from registration. Separate and apart from registration is the issue of remedies for any misrepresentations under R.C. § 1707.41 and R.C. § 1707.43. As demonstrated previously, those rights are conditioned, at least for damage claims, upon the purchaser being a person. The interpretation of the court of appeals upholds and protects the rights of public entities in their purchase of securities by preserving their claims for misrepresentation.

16 MEMORANDUM IN SUPPORT OF JURISDICTION ON CROSS-APPEAL

Statement As To Why The Cross-Appeal Is Of Public And Great General Interest

The RAAA was ultimately successful in the court of appeals, which held that the

Note was exempt from the Ohio securities laws registration requirements. As the RAAA ultimately prevailed, it recognizes that it could not independently seek review of the court's determination that the Note constitutes a security under the Reves standards as this would essentially constitute an advisory opinion. See State v. Youngstown (1996), 75 Ohio St.3d 618,

620; Ohio Domestic Violence Network v. Public Utilities Commission (1992), 65 Ohio St.3d 438,

439. Yet, if this Court exercises its discretion to review the narrow issue asserted by the

appellant, the RAAA requests the Court also accept jurisdiction of its cross-appeal, to address the

lower courts' failure to properly apply the Reves standards announced in Perrysburg Township II.

The issue raised by appellant is clearly a narrow one, considering whether the sale

of notes that are otherwise exempt from registration are required to be registered if a public

entity is one of the purchasers. However, the lower court's application of the Reves standards is

of much broader interest and concern in the State of Ohio.

In Perrysburg Township II, this Court adopted the "family resemblance test" from

Reves, which includes a four-part test to determine and ascertain "the economic realities of the

instrument in question." 103 Ohio St.3d at ¶ 11. This Court held that the motion to dismiss had

been improperly granted because "Perrysburg Township may be able to prove that the Note in

this case is a security." 103 Ohio St.3d 79, ¶ 1(emphasis added). Perrysburg Township II, by

adopting the Reves standard, established a test which is factually laden involving the motivation

of the parties, the plan of distribution of the instrument, the reasonable expectation of the

investing public, and any other factors that would reduce the risk. Id. at ¶ 14.

17 On remand, the trial court recognized the adoption of the family resemblance test in Perrysburg Township II, but concluded that the RAAA "brought forth nothing which demonstrates any genuine issue of fact with respect to the determination that the Note is a security," without expressly considering any of the four factors or any of the evidence presented.

On appeal, the Sixth District Court of Appeals affirmed the trial court's holding that the Note was a security as a matter of law without ever expressly examining each of the separate four factors for the family resemblance test and applying the appropriate balancing test considering the transaction as whole.

This Court adopted a new standard for Ohio in detennining whether a note constitutes a security and is thus subject to the Blue Sky laws of Ohio, including registration requirements and potential civil and criminal liability. The application of the Reves standard adopted by this Court becomes critical to Ohio jurisprudence and the securities and finance markets. Currently, there is no other known application of the Reves standards, except by the court of appeals below. As such, the decision of the court of appeals now presents the best guidance to trial courts and courts of appeal in Ohio. Yet, the Sixth District's opinion in

Perrysburg Township III failed to conduct the analysis directed by this Court because it did not consider each of the separate four Reves factors. If this Court allows the court of appeals opinion to stand, the lower courts in Ohio may view this as endorsing the application of the Reves factors in the manner applied by Perrysburg Township W. Trial courts and other courts of appeal might then assume that the application of the Reves factors does not require balancing the evidence for each of the four factors or even express consideration of each factor, in essence emaciating the standards so recently established by this Court. If this Court accepts the appeal of the Township,

18 it should also accept jurisdiction of this issue to provide specific direction to the lower courts in

Ohio on the appropriate application of the Reves family resemblance test.

As demonstrated by this Court's prior decision, the application of the Reves standard requires that the Court consider the evidence on each of the separate four factors. See

103 Ohio St.3d at ¶¶ 15-18. However, it is unclear from this Court's prior determination in

Perrysburg Township II and, for that matter, from decisions applying the Reves test from other courts, whether this is a question of law to be determined by the court or a question of fact. For instance, the trial court below apparently treated it as a question of fact, stating "The RAAA has brought forth nothing which demonstrates any genuine issue of material fact." App. A-3. The court of appeals concluded that the Note was a security "as a matter of law." App. A-20, ¶ 34.

This Court should undertake jurisdiction for the cross-appeal to clarify the application of the

Reves standards and whether it involves a question of fact or law.

PROPOSITION OF LAW

The Application Of The Reves Factors Adopted In Perrysburg Township v. Rossford (2004), 103 Ohio St.3d 79, Requires That A Court Determine The Econonilc Realities Of The Transaction By Independently Considering Each Of The Four Factors In The Family Resemblance Test And Balancing Those Factors In Deterniining Whether The Transaction As A Whole Constitutes A Sale Of A Security

The trial court opinion held that the Note was a security as a matter of law. While it referenced the "family resemblance" test announced by this Court in Perrysburg Township II, it provided no analysis of any of the four factors nor referred to any of the facts presented by the

RAAA on the cross-motions for summary judgment. In affirming, the court of appeals again acknowledged the standards adopted by this Court in Perrysburg Township II and to the four- part "family resemblance test" from Reves (Perrysburg Township III, ¶ 32). Yet, in affirming,

19 the appellate court misinterpreted the first factor and ignored the second and third factor, only correctly referencing the fourth factor in its analysis. Id. at ¶ 34.

The Reves Court found that notes issued by a co-op were securities under the meaning of the Securities and Exchange Act of 1934. Over 1,600 people held the notes, which paid a variable interest rate adjusted monthly to keep the rate above those paid by local financial institutions. The co-op offered the notes to all of its 23,000 members and to non-members as well, and advertised the notes as investments. 494 U.S. at 58-59, 67-78. Applying the four factors that it had adopted, the Supreme Court held that the note was a security. In doing so, however, it specifically and independently addressed the evidence as to each of the four factors.

In Perrysburg Township II, this Court took the same approach. It reasoned that the family resemblance test was "designed to ascertain the economic realities of the instrument in question." 103 Ohio St.3d at ¶ 14. This Court then continued to discuss each of the four factors independently based solely upon the allegations contained in the complaint, as Perrysburg

Township II was before this Court on a motion to dismiss. The Court thus assumed that the facts pled by the Township were true and construed them most favorably to the Township.

In Perrysburg Township II, this Court found the first Reves factor was a "wash" because the RAAA had a commercial motivation, but, based on the Township's pleading, the

Township purchased the Note as an investment. Id. at ¶ 15. On the second factor, this Court found that this was a private agreement between two sophisticated parties, and that there was no evidence that it would be commonly traded. Hence, this supported the RAAA's position that the

Note was not a security. Id. at ¶ 16. Considering the third factor, this Court found that the Note could be a security because the public would consider the Note to be an investment, again based on the Township's pleading that the RAAA represented the Note as an investment. Id. at ¶ 17.

20 Finally, on the fourth factor, this Court found that it favored the Note being a security because no risk-reducing factors existed. Id. at ¶ 18. Based upon the pleadings alone, this Court found that the Township "may be able to prove the note in this case is a security." Id. at ¶ 1.

The initial issue which was not clarified by Perrysburg Township II and was also not directly addressed by the lower courts on remand is whether the question of whether a note is a security is a question of law or fact. Decisions from other jurisdictions also do not clearly resolve this question. See, e.g., Securities and Exchange Commission v. Life Partners, Inc. (D.C.

Cir. 1996), 87 F.M. 536, 541; Campbell v. C.D. Payne and Geldermann Securities, Inc. (Tx.

App. 1995), 894 S.W.2d 411, 417-418 (both stating that it is an issue of law); Bailey v. State of

Texas (Tx. App., Aug. 31, 2004), 2004 Tx. App. LEXIS 7988 at * 14 (stating that the determination is a question of fact). The standard obviously requires weighing of the facts, but could be either a question of law for the Court, or a question of fact for the jury. In either event, the lower courts misapplied the standard. If it is a question of fact, then the RAAA clearly created a material factual issue precluding summary judgment. lf it is a question of law, then the appellate court misconstrued the first factor and erred as a matter of law in the application of the

standard on the record presented. In either event, the Sixth District Court of Appeals decision

should not be allowed to stand.

The Application Of The Reves Standard To The Note

On remand following this Court's decision, the RAAA presented evidence on

each of the four factors that demonstrated that the Note should not be deemed a security. The

primary documents relied upon by both parties were the transcripts of two public meetings at

which the Township discussed lending the $5 million. The overwhelming conclusion from the

transcripts is that the Township's motive for the loan was commercial development. What was

21 most significant to the Township in building the arena and amphitheater was a hoped-for catalyst for hundreds of millions of dollars of additional private investment.

The Motivation Of The Parties

In Perrysburg Township II, this Court addressed the first factor based upon the pleadings alone and concluded: "In this case, RAAA entered into the agreement to fund the construction of the sports arena and amphitheater, so its motivations were convnercial. By contrast, Perrysburg Township entered into the agreement as an investment. Consequently, this

factor does not help us to determine whether the note is a security." 103 Ohio St.3d at ¶ 15. The reasoning in Perrysburg Township II was consistent with Reves where the Supreme Court in

discussing the first factor stated that if the note was given "to correct for the seller's cash-flow

difficulties, or to advance some other connnercial or consumer purpose, on the other hand, the

note is less sensibly described as a'security."' 494 U.S. at 66. The evidence presented to the

lower court in the summary judgment proceeding, however, proved that the Township's

pleadings regarding its motivation were inaccurate. Significant discussion at these two public

meetings concentrated on the following points:

(1) that the hotel tax from the development for hotels built in the area would increase the Township's tax revenue;

(2) that the project needed to move forward quickly to beat possible commercial competition from Toledo;

(3) that the economic development that was expected would put further strains on the roads, police and sewer systems;

(4) that the "number 1 benefit" to the Township would be tax money derived from the further developments;

(5) that the parties had agreed to a 50/50 sharing agreement on new net revenue from the expected economic development;

22 (6) that a detailed feasibility report provided various projections on tax growth and revenue from the development;

(7) that the project would spur economic development throughout the region;

(8) that the Township's existence was dependent on developing new sources of significant revenue.

Most notably, at these meetings, Phil Dombey, the Township's lawyer (incorrectly identified in the court of appeals as the Rt1AA's lawyer), stated as follows:

Well, we do anticipate the success of this project and the spin off that comes from it, the real estate tax that comes from it. In other words, my understanding is the township is looking for a new revenue source to replace those that have been annexed and to expand so that there's always a township. Sometimes you have to spend money to make money as the saying goes. This is the catalyst that brings the people. People make the retail stores want to be there because they sell stuff to the people that are here to see the hockey and the events at the arena. The hotels are built to house the people that come to those, and we get a 2% tax from those. So the concept of the study at Arthur Anderson, if the whole project is good, the other things should follow.

(Emphasis added.) Equally telling on the motivation for the Township's investment is the comment from Township trustee Miller:

And the reason we used that (the proposed $5 million loan) this time was to get the amphitheater or the arena, I should say, that project going, getting it some momentum to get it moving. And the reason we wanted the amphitheater and arena going, to spur on the growth and the Crossroads or Golden Triangle area, which we do have this revenue sharing off the property tax.

Thus, comments directly from one of the three trustees, as well as from the lawyer for the Township, clearly indicate that the most important factor to the Township was the tax and other revenues that can be generated through the subsequent economic development for which the arena and amphitheater was a catalyst. No evidence was presented to refute this Court's prior

23 finding that the RAAA's motivation was commercial. 103 Ohio St.3d at ¶ 15. Therefore, while the first factor may have been a "wash" on the pleadings, the evidence clearly shows that the motivation of both of the parties to the transaction was economic development.

While there is no other Ohio precedent, courts from other jurisdictions in applying the Reves standards have found that loans for the purpose of working capital or other commercial reasons were for commercial development rather than for passive investment and, therefore, did not constitute a security. See, e.g., Bass v. Janney Montgomery Scott, Inc. (6a' Cir. 2000), 210

F.3d 577, 585 (bridge loans were for commercial purposes for the borrower, but could be viewed as for investment purposes for the lender, constituting a wash on the first factor); Sunset

Management, LLC v. American Realty Investors, Inc. (D. Tx., Mar. 8, 2007), 2007 U.S. Dist.

LEXIS 16654, (loan for working capital was for commercial purposes rather than investment);

Robyn Meredith, Inc. v. Levy (D. N.J. 2006), 440 F.Supp.2d 378, 385-86 (note given as partial payment for a sale of a business was for commercial reasons and not an investment); Banco

Espanol de Credito v. Security Pacifc Nat. Bank (2d Cir. 1992), 973 F.2d 51, 55 (loan participation agreements resulted from an overall motivation of the parties to promote commercial purposes rather than investment in the business enterprise); Piaubert v. Sefrioui (9`h

Cir. 2000), 208 F.3d 221 (primary purpose of a loan to an affiliate was not for the interest return, but for advancement of affiliated company's business and potential future profit); Campbell v.

C.D. Payne and Geldermann Securities, Inc. (Tx. App. 1995), 894 S.W.2d 411, 418-19 (note was not a security).

However, this factor was improperly interpreted by the court of appeals. In its decision, the court of appeals recognized some of this testimony while improperly attributing statements by Dombey as those made on behalf of the RAAA (Perrysburg Township III,

24 App. A-19, ¶ 33). It further relied upon statements that the $5 million loan was an "investment" ignoring the context in which the term was used. It specifically referenced Zuchowski's statement that it was an investment "putting back into the community where you should get paid back in other ways" (referring to the economic development potential) (id., ¶ 22), and the comments of Dombey that "Sometimes you have to spend money to make money." These statements reflect "investment" in a broader context as investing in the economic development of the area. Certainly, the parties treated it as an investment in the community to spur future economic growth and tax revenue. The court of appeals recognized this but misapplied the standard when it concluded: "The loan was clearly intended by all parties as 'seed money' that would ultimately generate business development and more tax revenue for Perrysburg

Township." Perrysburg Township III, App. A-20, ¶ 34. This is not the same as "investment" in terms of passive interest income, as used by the Court in Reves and in Perrysburg Township 11.

It is anticipated that the Township, as it did in the court below, will make much of the fact that Zuchowski's affidavit submitted by the RAAA also referred to the Note as an

investment. This again is taken completely out of context. In order to establish the exemption

from registration, the RAAA presented Mayor Zuchowski's testimony that the RAAA believed

the Township was obtaining the Note "for purposes of investment." However, the word

investment as used in the exemption regulation refers to the fact that the ultimate purchaser

intends to hold the note, rather than to serve as a middleman for purposes of resale. The use of

the term investment in this context does not support the Township's claim.

There is nothing in the record to refute the fact that the RAAA wanted the loan to

continue the construction process while attempting to place permanent bond financing so that

time schedules could be met for opening the arena and amphitheater. While there was some

25 discussion at the public hearing on the rate of return on the Note, the overriding concern and motivation expressed by Miller, the Township trustee, Dombey, the Township's lawyer, and by the questions or comments from the audience related to the future economic development and potential tax revenue for the Township. A proper balancing of the evidence proves that the motive of both parties was commercial.

The Plan Of Distribution

This Court in Perrysburg Township II held that even under the pleadings, the plan of distribution favored holding the Note not to be a security. "Unique agreements, negotiated one-on-one between sophisticated entities, are not often securities. In this case, there is no evidence that the note was to be commonly traded, and it is clear that it was a private agreement between two sophisticated entities." 103 Ohio St.3d at ¶ 16 (citations omitted). No evidence was presented on remand contrary to this conclusion. The Note was only offered to the

Township and was presented to the Township as part of the other transactions by which the two parties were working to complete the project for sharing in the hoped-for economic development.

The second factor can be only determined in favor of the RAAA. For some inexplicable reason,

however, the court of appeals never made any determination on the second factor on the plan of

distribution.

Public Expectation

The third factor is an objective one looking to the public expectations and is

intended to be a determination of what a reasonable member of the public would have believed,

not necessarily the lender. Considering the third factor, this Court in Perrysburg Township II

concluded, "Taking the assertions of Perrysburg Township's complaint as true" this factor

favored the Note being a security. 103 Ohio St.3d at ¶ 17. Again, however, this was based

26 solely upon the pleadings presented before this Court in Perrysburg Township II on a motion to dismiss.

In considering the public expectations, one must begin with the fact that the Note was never offered to the public nor discussed with the public except by those attending the

Township meetings on May 17, 1999 and June 29, 1999. The purpose of the meetings at which the public's perception of the Note would be developed was clearly to discuss the use of the funds for economic development for the Township. It was not a meeting to discuss the financial investments, per se, of the Township. It is inconsistent with reality to assume the public would be looking at this discussion as centering on the Township's investment policies or investment returns. The public viewed this as a loan for economic development to benefit the Township.

Cf. Banco Espanol, 973 F.2d at 55 (considering the expectations of the investing public who would participate in the participation notes as the appropriate audience).

The record, as pointed out by the RAAA in the cross-motions for summary judgment, demonstrated that the primary focus for all involved, the trustees, the RAAA, and the public, related to the projected economic growth and tax benefits, altematives for economic growth, and the increased burden placed upon the services for the Township due to the economic growth. The public perception at that meeting could only be interpreted as two public entities working together for projected economic growth and commercial development. It was not nor would it be the perception of the public that this would be the type of transaction falling under the securities laws.

Again, inexplicably, the court of appeals never considered the third factor or the public perception, nor did it directly address the evidence presented on this issue.

27 Risk Reducing Factors

The only factor, in fact, which the court of appeals actually correctly applied, concerns other circumstances that would reduce the risk on the note. While it is true that there is no other regulatory scheme or collateral that protected the Township, the facts presented demonstrated that the Township weighed the risk of making the short-term loan against the possible loss in the economic development. In any event, even if the evidence could support this fourth factor in favor of the Note being a security, it is the sole factor which favors that conclusion and it is insufficient as a matter of law to support the court of appeals decision.

The Overall Balancing Of The Factors

In applying these standards, a Court must analyze each of the four factors independently and then determine, when considering these factors in balance, whether the transaction as a whole should be considered a security. "Failure to satisfy one of the factors is not dispositive since they are considered as a whole." Robyn Meredith, Inc. v. Levy, 440 F.Supp. at 384, citing McNabb v. SEC (9`h Cir. 2002), 298 F.3d 1126, 1132-33.

In balancing all the Reves factors, three discrete issues stand out. First, it is clear that the RAAA's motivation was commercial, not investment. It is also clear that the Note was a private transaction with no plan of distribution. Third, the evidence overwhelmingly shows that the Township was motivated to loan the funds for the same purpose of economic development,

and that motivation was made clear to the public at the meeting.

The first factor, and probably the most crucial one, demonstrates that both parties'

motivation was for the commercial development of the area. This factor was improperly applied

by the court of appeals. Even if this Court disagrees with the Ohio Plan's position on this issue,

it irrefutably was a wash and thus not determinative. The second and third factors strongly

28 weigh in favor of the RAAA's position that the Note was not a security. Only the fourth factor arguably supports the position that the Note should be deemed to be a security. The proper conclusion would be to find the Note was not a security. This is true whether the Court considers this an issue of law in which the lower court's decision should be reversed and judgment entered in favor of the RAAA, or as a question of fact, in which case the lower court's decision should be reversed and it should be remanded for further trial on the issue.

This Court announced a new standard in Penysburg Township W. It is incumbent upon this Court to give further direction to the courts of Ohio regarding whether this question is one of fact or law and how the trial court should apply this analysis. The trial court here essentially ignored the four factors and the court of appeals misapplied those factors by improperly construing one and ignoring two others. The decision of the court of appeals must be reversed.

Respectfully submitted,

znvn^/ / !/^- Michael d. ganon (0008521) Peter R. Silverman (0001579) Shumaker, Loop & Kendrick, LLP

On Behalf of Appellee/Cross-Appellant Rossford Arena and Amphitheater Authority

29 CERTIFICATE OF SERVICE

This is to certify that a copy of the foregoing Combined Memorandum in

Opposition to Jurisdiction For Appeal and In Support of Jurisdiction for Cross-Appeal of

Appellee/Cross-Appellant, Rossford Arena Amphitheater Authority was served by ordinary

United States mail upon John P. Donahue, Esq., P.O. Box 526, 119 West Second Street,

Perrysburg, Ohio 43551, co-counsel for Plaintiff-Appellee, this 25th day of March, 2008. 4=411^.-- N`lichael G. anderson (0008521) Peter R. Silverman (0001579) Shumaker, Loop & Kendrick, LLP

On Behalf of Appellee/Cross-Appellant Rossford Arena and Amphitheater Authority

30 IN THE COURT OF COMMON PLEAS OF WOOD COUNTY, OHIO

Perrysburg Township

Plaintiff : Case No. 01-CV-322

-vs-

Rossford Arena Amphitheater Authority, et,al.

Defendants OPINION and JUDGMENT ENTRY -vs- J`URNALIZE® Stifel, Nicolaus & Company, Inc„ etaL ^

Third-Party Defendants DEC 1:9 2006 {-^

^.^

^ Q -tiY This cause came on for consideration of the motion for summary judgment filed by Plaintiff, Perrysburg Township, against Defendant,

Rossford Arena Amphitheater Authority (RAAA), and the motion for partial summary judgment filed on behalf of the Rossford Arena Amphitheater

Authority against Plaintifif. The parties provided memoranda in support of their respective positions and Plaintiff filed a combined reply memoranda in support of its motion and in opposition to the motion of the RAAA, A similar memoranda in opposition to the Plaintiff's motion and in support of its cross-motion for partial summary judgment has been provided by the RAAA. The evidentiary material before the court include the affidavit of

Mark Zuchowski, former president of the RAAA.

This matter has an extensive history having previously attracted the attention of the Sixth District Court of Appeals on two occasions and the

Ohio Supreme Court. The court will not herein reiterate the entire history on the underlying facts. The cross-motions for summary judgment and partial summary judgment require that two discrete issues be determined.

The first issue is whether the Fifve million dollar note sold and issued by the

RAAA to Perrysburg Township is a security. Secondly, if the note is a security, is it exempt from registration under Section 1707.02 of the Ohio

Revised Code.

As to the first issue, whether the note is a security, while the RAAA does not admit that fact and contends that there exists some genuine issue of material fact on this point, it is nevertheless clear from the evidentiary materials before the court, even construed most strongly in favor of the RAAA, that the note at issue is a security and ihoi determination can bemade as a matter of law. This conclusion is

compelled by the un-rebutted legislative presumption that all notes are securities, as well as the application of the "family resemblance" test

announced as the law of Ohio by the Ohio Supreme Court in this very

case. While the RAAA correctly points out that the Supreme Court did not

2 A-2 already conclusively determine that the note at issue is a security, from the record now before this court, reasonable minds could only reach that conclusion. While Perrysburg Township relies on the legislative presumption and the application of the "family resemblance" factors, the

RAAA has brought forth nothing which demonstrates any genuine issue of material fact with respect to the determination tnat the note is a security.

The court therefore determines that as a matter of law, that the note sold and issued by the RAAA to the Perrysburg Township is a security under the law of Ohio.

Turning next to the issue of whether this security is exempt from registration under Section 1707.02 of the Ohio Revised Code, the statutory language is dispositive.

The statutory scheme is clear, All securities must be registered unless one of the enumerated exemptions applies. From the facts before the court, it is apparent that the security at issue is exempt from registration under Section 1707.02(G). The Ohio Administrative Code at 1303:6-3-02.

provides definitions to be used in determining the exemptions. Clearly, the factual circumstances herein bring the subject note within the

statutory exemption,

Plaintiff's efforts to avoid application of the exemption misconstrues,

probably intentionally, the statutory scheme. There is no basis to suggest

3 A-3 that merely because one exemption may not apply to a given set of facts, that no other subsection may provide an exemption.

The overall statutory structure is that all securities must be registered, subject to enumerated exemptions. If any of the exemptions apply, the security need not be registered. Subsection (I) of the statute creates an exemption for certain instruments issued by not-for-profit entities Th?s specific grant of exemption contains within its own terms a limitation on the availability of that exemption, (Emphasis added). The limitation on the availability of the Subsection (I) exemption does not, however, equate to a requirement that a security excluded by the exception must

necessarily be registered. The exception to the exemption set forth in

Subsection (I) of the statute only means that such a security is not exempt

under that specific Subsection, Where, as here, another exemption from

registration is available under a different statutory provision, i,e„ Section

1707,02(G), the security is still exempt. There is no conflict within the

statute, nor between the statute and the Ohio Administrative Code.

Clearly, as intended, all securities must be registered unless they are

exempt under any one of the enumerated exemptions. Here, although

Subsection (I) is not applicable, Subsection (G) of the statute makes the

security at issue exempt. There is no genuine issue as any material fact affecting the availability of the statutory exemption available to the Defendant issuer in the instant case. Defendant, RAAA, is therefore entitled to judgment as a matter of law dismissing those claims brought against it, premised upon violation of Ohio Securities Laws for the alleged sale of a non-registered security.

It is therefore the judgment of the court that Counts One, Two and

Five of the Second Amended Complaint must be, and the same, are

hereby dismissed as against Defendant, Rossford Arena Amphitheater

Authority. Conversely, the motion for summary judgment filed on behalf

of Plaintiff, Perrysburg Township, against Defendant, Rossford Arena

Amphitheater Authority, is without merit, and the same is hereby denied,

The foregoing disposes of less than all claims as to all parties and is

not a final appealable order, This cause is to be set for further pre-trial

conference for purposes of scheduling as to those claims which remain

viable.

,

^^ph N, Schmenk J'UDGE

cc: Roetzel & Andress CLf?RICTO FURT`IISi-ITOAi.LCOUISi:L By: Thomas S. Zamemba OF R6C'0(:D AND UNREI'IZCS:.NTHD Pt\RTIL•S One SeaGate, Suite 999 NO'r IN llGFAULTFOR FiULURLTO APl'-AR Toledo, Ohio 43604 Vv';'I'1-1 A COPY OF TI I1S ENTRY INCLUDING Ti I1i Dr\TE OF ENTRY ON TI IGJOURivA L

5 A-5 Attorney for Plaintiff, Perrysburg Township

John P. Donahue P.O. Box 526 119 West Second Street Perrysburg, Ohio 43551 Attorney for Plaintiff

Shumaker, Lop & Kendrick By: Peter R. Silverman & Michael G, Sanderson North Jackson Street Toledo, Ohio 43624-1573 Attorney for Defendants, and Third Party-Plaintiffs, City of Rossford & Mark Zuchowski

PauIJ,Kavanaugh P,O. Box 1687 Springfield, Ohio 45502 Attorney for Defendant, Richard E. Kavanaugh

David E. Cruikshank 8 North State Street Suite 376 Painesville, Ohio 44077 Attorney for Defendant, Recreational Development and Consuiting, Inc.

Richard M. Kerger 33 South Michigan Street ' Suite 201 Toledo, Ohio 43602 Attorney for Third-Party defendants

Harry B. Wilson & Leslie P. Wallace 190 Carondelet Plaza, Suite 600 St. Louis, Missouri 63105

6 A-6 Co-counsel for Third-Party Defendants, Stifel, Nicolaus & Co„ & James J. Lahay i HEREBY CERT IFY THAT THIS IS A TRUE AND CORRECT COPY OF THE ORIGINAL DOCUMENT FILED AT WOOD C0. COMMON PLEAS COURT, BOWLING GREEN, OHIO F1 L ED REB CCAE.BHA C RKOF URTS OL;I0 BY EPUTY CLERK THIS iR DAYOF GYI 10 ^I U` 44

COi., i ::' rrr=,=.LS REEt:Lk L. i.:.L.;. CLE ;K. :L IN THE COURT OF APPEALS OF OHIO SIXTH APPELLATE DISTRICT WOOD COUNTY

Perrysburg Township Court of Appeals No. WD-07-008

Appellant/Cross-Appellee Trial Court No. 0 1 -CV-322

V.

Rossford Arena Amphitheater Authority DECISION AND JUDGMENT ENTRY

Appellee/Cross-Appellant Decided: JAN 1 l200a

*^^r*

John P. Donahue, for appellant/cross-appellee. JOURNALIZED Peter R. Silverman, Michael G. Sanderson, and Michael J. COURT OF APPEALS Podolsky, for appellee/cross-appellant. JAN 13 2000 ^***+ FOI^ -2-q pg, ar,`i OSOWIK, J.

{¶ 1} This is an appeal from a judgment of the Wood County Court of Common

Pleas, in which the trial court granted summary judgment to appellee/cross-appellant, the

Rossford Arena Amphitheater Authority ("RAAA"), and dismissed a complaint filed by appellant/cross-appellee, Perrysburg Township ("Township"), in an action to collect an outstanding loan from the Township to the RAAA in the amount of $5 million. On

1. A-8 appeal, appellant/cross-appellee, the Township, sets forth the following three assignments of error:

{¶ 2) "I. The trial court's entry of summary judgment, in favor of appellee on the

June 29, 1999 note sale claim, was erroneous as a matter of law.

{¶ 3} "II. The trial court abused its discretion by prohibiting appellant from conducting discovery on the 'offer to sell' transaction.

{¶ 41 "III. The trial court erroneously dismissed claims that were not the subject- matter of summary judgment proceedings."

{¶ 5) In addition, appellee/cross-appellant, the RAAA, sets forth the following cross-assignment of error[:

{¶ 6} "The trial court erred in ruling on summary judgment that the

Intergovemmental Agreement is a security that the RAAA issued to Perrysburg

Township. Genuine issues of material fact exist as to whether the note is a security under the Reves test and as to which entity is the issuer of the Intergovernmental Agreement."

{¶ 7} The undisputed, relevant facts are as follows. The Township is a governmental entity formed pursuant to R.C. 503.01. Appellee/cross-appellant, the

RAAA, is a non-profit corporation authorized and formed by the city of Rossford, Ohio, for the express purpose of creating a Joint Economic Development Authority in conjunction with the Township. In the ordinance authorizing formation of the RAAA,

'A second cross-assignment of error was set forth in the RAAA's brief; however, it was withdrawn in the RAAA's reply on cross-appeal and, therefore, need not be considered by this court. JOURNAt`ZED CpURT OF APPEALS

JA.N 1 3 20O8 2. A-9 . ^I. ._..,_...... d. the city stated the purpose of the joint endeavor was "to promote economic growth and development in the City of Rossford."

{¶ 8} On May 17, 1999, Mark Zuchowski, who was, at the time, both a trustee of the RAAA and the mayor of Rossford, asked the Township trustees to approve a revenue

bond through which the RAAA would receive $5 million from the Township. The

request was made at a regularly scheduled trustees' meeting. The bond was to be

purchased with public funds and used to construct a sports arena and entertainment

amphitheater. As a result of that meeting, a "Bond Agreement" was drafted. However, at

their next meeting on June 29, 1999, the Township trustees and representatives of the

RAAA executed an "Intergovernmental Agreement" ("Agreement") instead of approving

and adopting the revenue bond.

[191 Pursuant to the terms of the Agreement, the Township agreed to loan

$5 million to the Port Authority which, in turn, assigned the money to the RAAA. The

RAAA was then obligated to repay the loan, at eight percent interest, back to the Port

Authority over the next two years. Ultimately, the Port Authority was to repay the loan

to the Township. In spite of the parties' good intentions, the facility was never built, and

the money was never repaid to the Township.

{¶ 10} On June 28, 2001, the Township filed a complaint against the RAAA and

several other "John Doe" defendants, in which they set forth claims of, among other

things, securities violations. Specifically, the Township alleged that it executed the

Agreement based on false and/or misleading statements as to both the viabil^^^4ALIZED COURT OF APPEALS JAN 18 2008 A-10 3. V01. ag Pa, g 9 to amphitheater project and the prospect of the RAAA repaying the $5 million loan. In addition, the complaint alleged that the promissory note, which was the subject of the

Agreement, constituted an unregistered security, in violation of various provisions of

R.C. Chapter 1707. On that same day, the Township made a request for the production of

"public records" by the RAAA, which the Township claimed were relevant to the allegations made in the complaint.

{¶ 11) On August 23, 2001, the RAAA filed a motion to dismiss the complaint pursuant to Civ.R. 12(B)(6). In support, the RAAA argued that the promissory note is not a security, since it was evidence of only a "simple loan," and not an investment for profit by the Township. The RAAA further argued that, even if the note is deemed to be a security, R.C. 1707.02(B) generally exempts securities issued by state and local governments and political subdivisions thereof from the registration process. The

Township filed a response and a first amended complaint on September 27, 2001, in which it added a claim for breach of contract. In response, the RAAA renewed its motion to dismiss all counts in the complaint except the breach of contract claim.

{¶ 121 On January 28, 2002, the Township filed a motion in which it asked the

trial court to compel the RAAA to produce the public records requested on June 28,

2001. In support, the Township stated that, without those records, it was unable to

conduct meaningful discovery. The Township also asked the trial court for an

expeditious determination of the motion to dismiss, so that the c,oi iRsA^ p^q^n a

timely manner. COl1RUT ONFAP`PEALSd

JAN 18 200p

4. Val, aq^^, sq-1s_11 {¶ 13) On February 14, 2002, the trial court filed a judgment entry in which it found that the promissory note is not a security. The trial court further found that, as to all counts in the complaint except the breach of contract claim, the Township could

"prove no set of facts that would entitle it to relief as a matter of law ***:' Accordingly, the motion to dismiss was granted.

{¶ 14) A timely notice of appeal was filed in this court ("first appeal"). On

October 11, 2002, we reversed the trial court's determination and remanded the case to

the trial court. See Perrysburg Township v. City of Rossford (2002), 149 Ohio App.3d

645. A timely appeal and cross-appeal were then filed in the Ohio Supreme Court.

{¶ 15} On May 24, 2002, while the first appeal was pending in this court, the

Township filed a second amended complaint, in which it substituted Recreational

Development & Consulting, Inc. ("RDC"), and Richard E. Kavanaugh, d/b/a Richard E.

Kavanaugh & Associates, for the "John Doe" defendants. On June 6, 2003, the RAAA

filed a third-party complaint against Stifel, Nicolaus & Company, Inc. ("Stifel") and

James J. Lahay. The third-party complaint stated that, as financial advisors to the RAAA

and Zuchowski, Stifel and Lahay were responsible for any misinformation that may have

been given to the Township by Zuchowski which induced the Township to enter into the

Agreement. In response, Stifel and Lahay filed a motion to dismiss the third-party

complaint, which the trial court denied on November 10, 2003.

{¶ 161 On September 8, 2004, the Ohio Supreme Court found that, in determining

whether a particular note is, in fact, a security, courts shouldsOw^^t^At1}qC^^e^mption CQURT QNF APPEALS ,1Ar1 18 2003) 5. A-12 that every note is a security. Perrysburg Township v. City ofRossford, 103 Ohio St.3d

79, 2004-Ohio-4362, ¶ 12 ("Perrysburg Township l'), citing Reves v. Ernst & Young

(1990), 494 U.S. 56, 66, 110 S.Ct. 945, 108 L.Ed.2d 57. After considering the record, which consisted only of the pleadings, the Ohio Supreme Court determined that the

RAAA presented insufficient evidence to overcome that presumption and, therefore, the

Civ.R. 12(B)(6) motion to dismiss should not have been granted by the trial court. Id.,

¶ 19. Ultimately, this cour['s decision on appeal was upheld, and the case was remanded

to the trial court. Id.

(117) On October 6, 2005, the Township filed a second motion to compel the

RAAA to answer its request for admissions and to provide "non-evasive" responses to its

interrogatories, to which the RAAA responded on October 19, 2005. On January 2,

2006, the trial court found that the Township's request for admissions related to the draft

bond considered by the Township trustees on May 19, 1999, and, therefore, was a "back-

door attempt to add claims not previously raised in the Complaint." Accordingly, the

trial court denied the Township's motion to compel. On January 9, 2006, the Township

filed a motion for reconsideration, which was eventually denied on December 29, 2006.

{¶ 181 On June 23, 2006, the Township filed a motion for summary judgment and

memorandum in support, in which it argued that, pursuant to R.C. 1707.01, the note was

presumptively a "security." The Township also argued that the Ohio Supreme Court

found that the Agreement was a security and, therefore, the issue became the "law of the

case." The Township further argued that the promissory note was soldlptfhikTp7^^® COttJiRT {QFFiAPPEALS

A-13 6. `+ Pq 8 9--- 9^ - in violation of R.C. 1707.44(C)(1), which states that all securities that are not exempt must be registered at the time of sale. The Township concluded that, since the note was an unregistered security, the Township is entitled to rescission of the sale and repayment of the $5 million loan by the RAAA as a matter of law.

{¶ 19} The Township's summary judgment motion was supported by the affidavit of John Hrosko, Perrysburg Township's Administrator; copies of the unexecuted bond and Bond Agreement approved on May 17, 1999, and the Resolution authorizing the purchase of the bond; a certificate issued by the Ohio Division of Securities showing that the promissory note was not registered with the state of Ohio; a copy of the Agreement authorizing the Township, Port Authority, city of Rossford, and the RAAA to execute the

$5 million promissory note; and transcripts of the Township meetings held on May 17 and June 29, 1999.

{¶ 20} In his affidavit, Hrosko stated that the Township approved the original bond measure on May 17, 1999; however, the bond was later exchanged for a $5 million promissory note. Hrosko further stated that the RAAA never repaid the $5 million either to the Port Authority or the Township.

{¶ 21) Transcripts of the Township's meetings show that at the May 17, 1999

Township meeting Phil Dombey, the RAAA's attorney, stated that the bond would be

repaid with eight percent interest - double the current interest rate for bank CDs.

Dombey further stated that the Township should invest in the amphitheater project

because "sometimes you have to spend money to make money,"s^dr" '^^Malyst COURT OF APPEALS

JAPJ I v ZDO.si 7 A-14 VQI, 2g Fg, ga^ t that brings the people," and that the biggest risk of the project lay in the possibility that it would not bring new businesses into the Township and/or Rossford. Zuchowski stated at the May 17 meeting that the arena/amphitheater would bring an estimated 1.7 million people per year to the area, increasing property values and relieving the property tax burden on homeowners.

{¶ 22) At the meeting on June 29, 1999, Zuchowski stated that "this whole transaction is an investment, and I think that's important." "It's a type of investment you're putting back into the community where you should get paid back in other ways."

Zuchowski also stated that the banks would continue to "roll over" the obligation on the

note if it was not paid. He said that "we're making it [the loan] under good terms [eight

percent] to make it a good investment for [the Township.]"

{¶ 23) Other participants at the June 29 meeting included Hrosko and Township

Trustee Richard Britten, who asked if the Township could potentially be liable for more

than the original $5 million if it invested in the project. Dombey replied that the

Township could be liable "in theory, but the risk is extremely small." Trustee Robert

Miller stated that the amphitheater project should spur growth in the surrounding area,

and the Township would benefit from sharing the increased tax revenues with Rossford.

1124) On June 30, 2006, the RAAA filed a response in opposition to the

Township's motion for summary judgment and a cross-motion for partial summary

judgment. In support of both its response to and cross-motion for summary judgment, the

RAAA argued that the Agreement is not a security, and was not dit^r^tp#^ep1by ca(t1^RT OF ALP^'^l.E^R.l.LS JA1diu200.ri 8 A-15 ^^^i. ag_F^. go the Ohio Supreme Court. Alternatively, the RAAA argued that, even if the Agreement is a. security, it is exempt from registration requirements pursuant to R.C. 1707.02(G), which provides an exemption from registration in cases where the security was "not

offered directly or indirectly for the sale to the public."

(1251 Attached to the RAAA's response and cross-motion for summary judgment

were a verified copy of the Agreement and a copy of the second amended complaint. In

addition, attached to the cross-motion was Zuchowski's affidavit, in which he stated that:

(1) the Township entered into the Agreement to fund the development of a sports arena

and amphitheater; (2) the Agreement was entered into "only with Perrysburg Township

and [was] not offered to any other third parties"; (3) the RAAA believed that the

Township entered into the Agreement as an "investment"; (4) the $5 million loan was

never repaid to the Township by the RAAA; and (5) the RAAA did not attempt to induce

any parties other than the Port Authority and the Township to enter into the Agreement.

{¶ 26} On August 1, 2006, the Township filed a response in support of its

summary judgment motion and in opposition to the RAAA's cross-motion for partial

summary judgment. On August 21, 2006, the RAAA filed a reply, in which it asserted

that the Agreement is exempt from registration pursuant to R.C. 1707.02(G), because it

was offered for sale to "fewer than ten people." In addition, the RAAA argued that the

issue of whether the Agreement is a security is a question of fact for a jury to determine

and, even if the Agreement is determined to be a security, it is exempt from registration

requirements. On November 25, 2006, the Township filed a sur-reply. URED49!fAW4ALS

!0a?nu zo0Ua 9. ^^^^:__ a G ^^6 qoa {¶ 27} On December 19, 2006, the trial court filed a judgment entry in which it found, as a matter of law, that "the note at issue is a security ***," based on the

"un-rebutted legislative presumption that all notes are securities" and the Ohio Supreme

Court's analysis of the "family resemblance test" in Perrysburg Township L However, the trial court further found that the note is exempt from registration pursuant to R.C.

1707.02(G). Accordingly, the trial court denied the Township's motion for summary judgment, granted partial summary judgment to the RAAA, and dismissed those counts

of the complaint that were "premised upon violation of Ohio Securities Laws for the

alleged sale of a non-registered security." Accordingly, the trial court dismissed Counts

1, 2 and 5 of the second amended complaint Z A timely notice of appeal was filed in this

court on February 7, 2007.

{¶ 28} In its cross-assignment of error, the RAAA asserts that the trial court erred

by finding that the $5 million promissory note was a security as a matter of law. In

support, the RAAA argues that it presented enough evidence to at least raise an issue of

fact as to whether the $5 million note is a security. Altematively, even if the note is a

security, it is nevertheless exempt from registration requirements pursuant to R.C.

1707.02(G). Finally, the RAAA asserts that an issue of fact remains as to whether the

RAAA or the Port Authority was the issuer of the promissory note.GOEIRT `^^`'j^`^^t"^^^^ OF APPEAl.S

JAra 1 ou 2909

. ^^^ ZThe remaining counts were voluntarily dismissed without prejudice on January 10, 2007, making the trial court's order final and appealable.

A-17 10. {¶ 29} We note initially that an appellate court reviews a trial court's granting of summary judgment de novo, applying the same standard used by the trial court. Lorain

Natl. Bank v. Saratoga Apts. (1989), 61 Ohio App.3d 127, 129; Graflon v. Ohio Edison

Co. (1996), 77 Ohio St.3d 102, 105. Accordingly, summary judgment will be granted when there remains no genuine issue of material fact and, when construing the evidence most strongly in favor of the non-moving party, reasonable minds can only conclude that the moving party is entitled to judgment as a matter of law. Civ.R. 56(C).

{¶ 30} As to the RAAA's first argument, the purpose of R.C. Chapter 1707,

otherwise known as the Ohio Securities Act, is "to prevent the fraudulent exploitation of

the investing public through the sale of securities." Perrysburg Township I, ¶ 9, citing In

re Columbus Skyling Securities, Inc. (1996), 74 Ohio St.3d 495. "[T]his goal is best

accomplished through a broad definition of'securities."' Id.; Reves v. Ernst & Young

(1990), 494 U.S. 56, 60-61, 110 S.Ct. 945, 108 L.Ed.2d 47. However, the determination

as to what debt instruments are securities is to be made on a case-by-case basis. State v.

Silberberg (1956), 166 Ohio St. 101, 104.

{¶ 31} In determining whether a particular note is, in fact, a security, courts should

start with the presumption that every note is a security. Perrysburg Township I, supra,

¶ 12, citing Reves v. Ernst & Young, supra. However, courts should also recognize "'that

certain instruments that are commonly called "notes" are not securities."' Id. Those

instruments are: "'the note delivered in consumer financing, the note secured by a

mortgage on a home, the short-term note secured by a lien on a small business or some of ,iOU^^ALlZEQ CO!!RIT OF AFrEALS 11. .;APJ 18 24518 ^^^, a9 J0, goy its assets, the note evidencing a'character' loan to a bank customer, short-term notes secured by an assignment of accounts receivable, or a note which simply formalizes an

open-account debt incurred in the ordinary course of business (particularly if, as in the

case of the customer of a broker, it is collateralized)."' Id., ¶ 12, quoting Reves, supra.

{¶ 32} In "determin[ing] whether the note in question closely resembles [any of]

the notes from the above list that are not securities," courts should employ the four-part

"family resemblance test" set forth in Reves. Id., ¶ 13. "First, the transaction is examined

to determine the motivations of the parties entering into the agreement. Second, the plan

of distribution of the instrument is examined. Third, the reasonable expectations of the

investing public are considered. And finally, it is determined whether there are any

factors that reduce the risk of the instrument, thereby rendering securities protections

unnecessary." Id., ¶ 14, citing Reves, supra, at 66-67.

(1331 A review of the record shows that testimony was presented at the Township

meetings on both May 17 and June 29, 1999, as to the benefits of the Township loaning

$5 million to the RAAA. At those times, the Trustees and representatives of the RAAA

referred to the $5 million loan as an "investment" that would earn eight percent interest

over two years' time. However, Zuchowski and Dombey both stated that the Township

also would benefit from the commercial growth generated by ihe project, in the form of

increased property and income taxes. When Township Trustee Britten expressed concern

over whether the loan would be repaid, Dombey stated that the risk was "extremely

small," and Zuchowski stated that banks were willing to "roll over" the obliga ti 0imodRhALIZE® CG+IRT {`]r APPEALS

.1^",td 1 ci 2^Q8 A-19 12. f "^. 9 pUs ^ ----^ necessary. Township Trustee Miller stated that any risk was offset by the tremendous potential for economic growth due to the arena/amphitheater project:

{¶ 34) Upon consideration of the entire record, we find that both parties referred to the $5 million loan as an "investment" and not a short-term, collateralized business loan.

The loan was clearly intended by all parties as "seed money" that would ultimately generate business development and more tax revenue for Perrysburg Township. In addition, the potential risk to the Township, while stated as unlikely at the time, was potentially great. Accordingly, we agree with the trial court that the evidence presented, even if construed most strongly in favor of the RAAA, demonstrates that the $5 million promissory note is a security as a matter of law. Accordingly, the first argument in the

RAAA's cross-assignment of error is without merit.

{¶ 35) The alternative argument presented in the RAAA's cross-assignment of

error is that, even if the note is a security, it is nevertheless exempt from registration.

Similarly, in its first assignment of error, the Township asserts that, although the trial

court correctly concluded that the note was a security, it erroneously determined that it

was exempt from the registration requirements of R.C. Chapter 1707.44(C). Because

these two issues are related, we will address them together.

{¶ 36) As set forth above, we must review the trial court's granting of summary

judgment de novo. Lorain Natl. Bank v. Saratoga Apts. (1989), 61 Ohio App.3d 127,

129; Grafton v. Ohio Edison Co. (1996), 77 Ohio St.3d 102, 105. In Ohio, the sale of

unregistered, non-exempt securities is prohibited by R.C. 1707.44(C)j 1 6 ' ir^^^AtTeD COURT OF APPEALS

J.4Pd ? u "c005 A-20 13. Svcs., Inc. v. Cross Tabernacle Deliverance Church, Inc., 10th Dist. No. 06AP-404,

2007-Ohio-4274, ¶ 23. Pursuant to R.C. 1707.43, the sale of an unregistered security, made "in violation of R.C. Chapter 1707, is voidable at election of the purchaser."

Pencheffv. Adams (1983), 5 Ohio St.3d 153, syllabus.

{¶ 37) R.C. 1707.02(1) states, in pertinent part, that "[a]ny security, except notes, bonds, debentures, or other evidence of indebtedness or of promises or agreements to pay

money, which is issued by a person, corporation, or association organized not for profit,

* * * is exempt [from registration] ***." (Emphasis added.) However, pursuant to R.C.

1707.02(G), "[c]ommercial paper and promissory notes are exempt [from registration]

when they are not offered directly or indirectly for sale to the public."

{¶ 381 It is undisputed that the RAAA is a not-for-profit corporation which issued

a promissory note in return for a $5 million loan from the Township. Accordingly, on

appeal, we must determine: (1) whether the exemption set forth in R.C. 1707.02(G) is

applicable to promissory notes issued by not-for-profit entities; and (2) if the exemption

is potentially applicable, whether reasonable minds can only conclude that the $5 million

promissory note at issue in this case is exempt from registration.

{¶ 39) In interpreting the language employed by the legislature in R.C. 1707.02(G)

and (I), we must keep in mind that "when the language of a statute is plain and

unambiguous, and conveys a clear and definite meaning, there is no need for an appellate

court to apply the rules of statutory interpretation." State v. Stanovich, 3d Dist. No. JOURNA•.l.IZEQ COURT Or AF=EA! S JAFJ 13 2008

14. '[^i- a 9 ^^ A^-1 6-06-10, 2007-Ohio-4234, ¶ 13, citing State v. Siferd, 151 Ohio App.3d 103, 117, 2002-

Ohio-6801. (Other citation omitted.) However, if a statute is subject to more than one interpretation, "a court * * * may invoke rules of statutory construction in order to arrive at the legislative intent."' Id. In so doing, courts are to "interpret statutory terms and phrases according to their common and ordinary, or, if applicable, technical, usage." Id.

Whenever possible, well-recognized principles of statutory construction requires us to read "all statutes pertaining to the same general subject matter * * * in pari materia," and to construe potentially conflicting statutory provisions so as to give effect to both.

Zweber v. Montgomery Cty. Bd. of Elections, 2d Dist. No. 19305, 2002-Ohio-2152.

(Other citation omitted.)

{¶ 40} After reviewing the language employed in R.C. 1707.02(G) and (I) according to their plain and ordinary meaning, and interpreting them in a way that gives effect to both statutory provisions, we conclude that the Ohio legislature intended to require registration of promissory notes issued by not-for-profit entities, unless the note fits into the exemption provided by R.C. 1707.02(G). Having found that the $5 million promissory note in this case is potentially exempt from the required registration for promissory notes that are issued by not-for-profit entities, we now turn to the issue of

whether the note qualifies for such an exemption.

{¶ 41} As set forth above, pursuant to R.C. 1707.02(G): "[c]ommercial paper and

promissory notes are exempt [from registration] when they are not offered directly or ^^URNALtZED COTRIT OF APPEALS

Ji^f1 ^ u 2G08

qPa2 15. u indirectly for sale to the public." The phrase "sold to the public" is farther addressed by

O.A.C. 1301:6-3-02(D), which provides, in relevant part, that:

{¶ 42} "(1) Pursuant to division (G) of section 1707.02 of the Revised Code, commercial paper and promissory notes are not offered for sale directly or indirectly to the public where their sale is restricted to:

43} "* * *

{¶ 44} "(d) Sales by the issuer of the security to not more than ten persons in this state during a twelve month period, provided that:

{¶ 45} "(i) The issuer reasonably believes after reasonable investigation that the person is purchasing for investment;

{¶ 46} "(ii) No advertisement, article, notice, or other communication shall be

published or broadcast or caused to be published or broadcast by the issuer in connection

with the sale other than an offering circular or other communication delivered by the

issuer to selected individuals;

{¶ 47} "(iii) The aggregate commission, discount, and other remuneration paid or

given directly or indirectly for sale of the commercial paper and promissory notes of the

issuer, excluding legal, accounting and printing costs, does not exceed ten percent of the

initial offering price of the commercial paper and promissory notes; and

{¶ 48} "(iv) Any commission, discount, or other remuneration for sales of

commercial paper and promissory notes in reliance on this exemption in this state is paid Jf^URNALIZEDC Cr!}RS OF APrEALCS

.IAH 1 8 2008

16. ^{^^, 9.epa, G o 23 or given only to dealers or salesmen licensed pursuant to Chapter 1707. of the Revised

Code; * * *."

{¶ 49} The Township admits, "for purposes of this appeal," that, assuming R.C.

1707.02(G) potentially applies, the RAAA "met the requirements of subsections (i), (ii),

(iii), and (iv) [of O.A.C. 1301:6-3-02(D)(1)(d)] in the summary judgment proceedings below." Nevertheless, the Township asserts that "R.C. 1707.02(G) does not provide an exemption to any issuer of any note that is sold to a public entity." Specifically, the

Township argues that: (1) the trial court erred by applying O.A.C. 1301:6-3-02(D)(1)(d), because the rule "is in absolute derogation of it [the statute's] express terms; and (2) the

Township is a "public entity" and, therefore, cannot be a "person" as contemplated by

O.A.C. 13 01:6-3-02(D)(1)(d).

{¶ 50} As to the Township's first argument, the primary purpose of administrative rules is "'to facilitate the implementation of legislative policy."' Knutty v. Wallace

(1992), 84 Ohio App.3d 623, 627, quoting Carroll v. Dept. ofAdm. Serv. (1983), 10 Ohio

App.3d 108, paragraph one of the syllabus. "[A] basic limitation on this authority is that

an administrative agency may not legislate by enacting rules which are in excess of

legislative policy, or which conflict with the enabling statute." Id., citing English v.

Koster (1980) 61 Ohio St.2d 17, 18. In this case, the promulgation of O.A.C. 1301:6-3-

02(D) was generally authorized by R.C. 1707.20(A), which provides that:

{¶ 51} "The division of securities may adopt, amend, and rescind such rules,

forms, and orders as are necessary to carry out sections 1707.01 to 1707.45 MqINA} IZEQ CUPT OF ^Pr"EALeu

ui^4^ ^ V ZU^J A-24 17. .^_ a^ PR, G jo Revised Code, including rules * * * defining any terms, *** insofar as the defmitions are not.inconsistent with these sections. * * * "

{¶ 52} On consideration of the foregoing, and our previous determination that the exemption set forth in R.C. 1707.02(G) is potentially available in this case, we find that

O.A.C. 1301:6-3-02(D), which merely amplifies and defines that exemption, is not in excess of either the policies behind the enabling statute under which it was promulgated, nor is it in conflict with the legislative scheme of which it is a part. Accordingly, the

Township's first argument is without merit.

{¶ 53) As to the Township's second argument, R.C. 1707.01(D) defines a "person"

as:

{¶ 54} "a natural person, firm, partnership, limited partnership, partnership

association, syndicate, joint-stock company, unincorporated association, trust or trustee

except where the trust was created or the trustee designated by law or judicial authority or

by a will, and a corporation or limited liability company organized under the laws of any

state, any foreign government, or any political subdivision of a state or foreign

government." Similarly, R.C. 1.59(C) states that, unless otherwise defined elsewhere in

the Ohio Revised Code, the term "person" includes "an individual, corporation, business

trust, estate, trust, partnership, and association."

{¶ 55) Ohio courts have long recognized that townships are, at least, "quasi-

corporations," which fall somewhere between a "corporation" and "association." Zents v.

Board of Commissioners of Summit Co. (1984), 9 Ohio St.3d 204, 206; Stats .^k.1, I^^t,^L I Z E D CD'.^RT OF ^FrEAL-S

a4F1^^ ^ V U 1O. % A- 5 Saxbe v. Alexander (1959), 168 Ohio St. 404, 406; Harrison TP. (TR) v. Harrison TP.

(Ohio Com.P1., June 1907), 18 Ohio Dec. 446. Finally, we note that R.C. 503.01 describes a township as "a body politic and corporate, for the purpose of enjoying and exercising the rights and privileges conferred upon it by law [which] may sue and be sued, plead and be impleaded, and receive and hold real estate by devise or deed, or receive and hold personal property for the benefit of the township for any useful purpose. * * *"

{¶ 56} On consideration of the foregoing, we find that the statutory definition of a

"person," as set forth in R.C. 1707.01(D), encompasses both "corporations" and

"associations" and is, therefore, broad enough to include the Township. The Township's

second argument is without merit.

{¶ 57} This court has reviewed the entire record that was before the trial court and,

upon consideration thereof, finds that, as a matter of law: ( 1) the $5 million note is a

security; (2) Perrysburg Township is a"person" within the scope of R.C. 1707.01(D); and

(3) the $5 million promissory note is therefore exempt from registration pursuant to R.C.

1707.02(G), as amplified by O.A.C. 1301:6-3-02(D)(1)(d). Accordingly, the Township's

first assignment of error is not well-taken.

{¶ 58} On consideration whereof, this court finds further that there remains no

other genuine issue of material fact and, after considering the evidence presented most

strongly in favor of the Township, the RAAA is entitled to partial summary judgment as

a matter of law. However, because the note is exempt from registrationj , 4^^^EI) Cr E, ? T OF h4PEALS

JAld 1 ^ 200a 19. A-26 .^.Pti, ^ whether or not it is a security, and regardless of which entity was the issuer, the RAAA's cross-assignment of error is moot and therefore not well-taken.

{¶ 59) In its second assignment of error, the Township asserts that the trial court abused its discretion when it refnsed to allow the Township to conduct discovery on the

"offer to sell" transactions set forth in Counts 1 and 2 of the second amended complaint.

In support, the Township argues that discovery should have been allowed, since an "offer to sell" qualifies as a "sale," and every "sale" of a non-registered, non-exempt security is voidable at the election of the purchaser.

{¶ 60} The granting or denial of a discovery motion will not be overturned on appeal absent a finding that the trial court abused its discretion. Schneider v. Schneider

(Mar. 29, 1999), 12th Dist. Nos. CA98-03-007, CA98-03-009, citing State ex rel Daggett v. Gessaman (1973), 34 Ohio St.2d 55, 57. An abuse of discretion connotes more than a mere error of law or judgment, instead requiring a finding that the trial court's decision was unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore (1983), 5 Ohio

St.3d 217, 219.

{¶ 61) A review of the record shows that the Township sought discovery as to

claims set forth in Counts 1 and 2 of the second amended complaint. Count I reads as

follows:

{¶ 62} "On May 17, 1999, and on June 29, 1999, Zuchowski attended regularly

scheduled meetings of the Township. Acting in his official capacity on behalf of the City

and or the RAAA, as a duly appointed agent, Zuchowski offered to sell, and on June 29, G^^^e AL^ ^AQS

20. JArd 1 G ^?z^ 1999 he did sell the Township a security. The RAAA issued the security or transaction described above, which was not exempt from registration under R.C. 1707.02, 1707.03,

1707.04 or 1707.34 and was not registered by any defendant as required by Ohio law."

{¶ 63} Similarly, Count 2 of the second amended complaint states:

{¶ 64} "Acting in his official capacity on behalf of the City and or the RAAA, as a duly appointed agent, Zuchowski, knowingly and intentionally, offered to sell, and on

June 29, 1999 did, knowingly and intentionally, sell the Township a security. The RAAA issued the security or transaction described above, which was not exempt from registration under R.C. 1707.02, 1707.03, 1707.04 or 1707.34 and was not registered by any defendant as required by Ohio law."

{¶ 65} The record shows that, in its motion to compel, the Township sought admissions from the RAAA relative to both the bond issue that was discussed at the

Trustees' meeting on May 17, 1999, and the "transaction" that occurred on June 19, 1999, when the bond was changed to a promissory note. In reviewing the Township's motion to compel, the trial court determined that the Township was, essentially, making a "back-

door attempt" to raise claims relative to the bond that were not set forth in the second

amended complaint. Accordingly, the discovery motion was denied.

{¶ 66} The version of R.C. 1707.44(C)(1) that was in effect in 1999, prohibited

any person from knowingly and intentionally selling or aiding in the sale of an

JOURNALEZED GOINl' Ct^ APPEALS

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21. unregistered, non-exempt security. 3 In its appellate brief, the Township claims that it was entitled to discovery on all issues leading up to the execution of the $5 million promissory note because the pleadings state that "appellee [the RAAA] 'offered to sell' appellant an unregistered, non-exempt security ***." This argument is flawed, for several reasons. First, as set forth above, we have already determined that the promissory note is a security which is exempt from registration pursuant to R.C. 1707.02(G). This determination prevents the rescission remedy sought by the Township pursuant to R.C.

1707.43. Second, having found that the promissory note was exempt from registration, the issue of whether preceding discussions of either the note or the bond issue constituted an "offer to sell" an unregistered, un-exempt security, as contemplated by R.C.

1707.44(C), has become moot.

{¶ 67} On consideration of the foregoing, we fmd that the trial court's refusal to grant the motion to compel discovery on matters related to the "offer to sell" was not arbitrary, unreasonable or unconscionable. Accordingly, the trial court did not abuse its discretion, and the Township's second assignment of error is not well-taken.

{¶ 68} In its third assignment of error, the Township asserts that the trial court

erred by completely dismissing Count 5 of the second amended complaint. In support,

the Township argues that the trial court's authority to dismiss Count 5 did not extend to

"the aiding and abetting claims as they related to Counts Three and Four [of the

3In 2002, R.C. 1707.44(C) was amended to provide that "[n]o person shall knowingly sell, cause to be sold, offer for sale, or cause to be offered for sale " any non- registered, non-exempt security. ^^URtNIA,I ,IM C^tl^ J 0r t,p,-'FALS I^iJ 1 u 2D0.si 22. A-29 e 1!e1^ ^, _ 99 ._._, -n C) vt> complaint], because these counts were not the subject matter of summary judgment proceedings."

{¶ 69} Count 3 of the second amended complaint set forth a claim against the

RAAA pursuant to R.C. 1707.44(B) and 1707.41. Pursuant to R.C. 1707.44(B), sellers of securities are forbidden to "knowingly make or cause to be made any false representation concerning a material and relevant fact ***." Pursuant to R.C. 1707.41, sellers who misrepresent securities are subject to civil remedies, including damages for losses incurred as a result of the seller's fraudulent conduct. Similarly, Count 4 set forth a claim

for violation of R.C. 1707.44(G), which states that: "[n]o person in purchasing or selling

securities shall knowingly engage in any act or practice that is, in this chapter, declared

illegal, defined as fraudulent, or prohibited."

{¶ 70} In Count 5 of the second amended complaint, the Township asserted that

the RAAA "participat[ed] in the sale and aid[ed] the issuer" of a security in violation of

RC. 1707.43.4 As set forth above, R.C. 1707.43(A) provides the remedy of rescission, at

the purchaser's election, for violations of R.C. Chapter 1707. In addition, R.C.

1707.43(B) sets forth a two year statute of limitation on such actions, and R.C.

1707.43(C) prohibits the bringing of an actioii for rescission in cases where the seller, or

a person who aided or abetted the seller, has made a timely offer to take back the

transaction and issue a refund.

4Count five does not state who, or what entity, is the actual "issuer" of the security. However, for the reasons stated herein, we find that issue to be moot. J^^RRIALIZED COURT OF A.FPERLS JAN ? 3 Zn0B 23 . A-30 ^^a^r 39_^ ^=;l .,. G t[o. {¶ 711 On consideration of the foregoing, we find that the broad language used in

R.C. 1707.43 is intended to provide remedies for all violations of R.C. Chapter 1707.

Accordingly, the trial court erred by dismissing Count 5, as it relates to the claims brought in the third and fourth counts of the second amended complaint. The Township's third assignment of error is well-taken in part and not well-taken in part.

{¶ 72) The judgment of the Wood County Court of Common Pleas is hereby affirmed in part and reversed in part. The case is remanded to the trial court for further proceedings consistent with this decision and judgment entry.

{¶ 73) Appellee, the RAAA, is ordered to pay the costs of this appeal pursuant to

App.R. 24. Judgment for the clerk's expense incurred in preparation of the record, fees allowed by law, and the fee for filing the appeal is awarded to Wood County.

JUDGMENT AFFIRMED IN PART AND REVERSED IN PART.

A certified copy of this entry shall constitute the mandate pursuant to App.R. 27. See, also, 6th Dist.Loc.App.R. 4. ^^^^^^^ tZ^^S^

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24. A-31 Perrysburg Twp. v. Rossford Arena Amphitheater Auth. C.A. No. WD-07-008

Peter M. Handwork 7.

Mark L. Pietrykowski, P.J.

Thomas J. Osowik, J. CONCUR.

This decision is subject to further editing by the Supreme Court of Ohio's Reporter of Decisions. Parties interested in viewing the fmal reported version are advised to visit the Ohio Supreme Court's web site at: http://www.sconet.state.oh.us/rod/newpdf/?source=6.

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25. A-32