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IN THE SUPREME COURT OF THE STATE OF OREGON
_______________
STATE OF OREGON, acting by andthrough the Oregon State Treasurer,
and the Oregon Public EmployeeRetirement Board, on behalf of theOregon Public Employee RetirementFund,
Plaintiff-Appellant,Petitioner on Review,
v.
MARSH & MCLENNANCOMPANIES, INC. and MARSH,INC.,
Defendants-Respondents,Respondent on Review,
and
JEFFREY GREENBERG and RAYGROVES,
Defendants.
Multnomah County CircuitCourt No. 050808454
CA A139453
SC S059386
_______________
BRIEF ON THE MERITS OFPETITIONER ON REVIEW, STATE OF OREGON
_______________
Review of the Decision of the Court of Appealson Appeal from a Judgment
of the Circuit Court for Multnomah CountyHonorable FRANK L. BEARDEN, Judge
_______________
Opinion Filed: February 23, 2011Before: Schuman, P.J.; Wollheim, J.; and Rosenblum, J.
_______________
Continued
August 31, 2011 04:14 PM
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JAMES T. MCDERMOTT #933594DWAIN M. CLIFFORD #025074Ball Janik LLP101 SW Main St., Suite 1100
Portland, OR 97204Telephone: (503) 228-2525Email: [email protected]
Attorneys for Defendants-
Respondents,
Respondents on Review
Marsh & McLennan Co., Inc. &
Marsh Inc.
JOHN R. KROGER #077207
Attorney General
MARY H. WILLIAMS #911241
Solicitor GeneralKEITH S. DUBANEVICH #975200
Chief of Staff and Special CounselDENISE G. FJORDBECK #822578Attorney-in-Charge,Civil/Administrative Appeals1162 Court St. NESalem, Oregon 97301-4096Telephone: (503) 378-4402
Email:
Email:[email protected]
and
SCOTT SHORR #961873Stoll Berne Lokting & Schlachter PC
209 SW Oak Street, Suite 500
Portland, OR 97204Telephone: (503) 227-1600
Email: [email protected]
Attorneys for Plaintiff-Appellant,
Petitioner on Review
State of Oregon
8/11
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TABLE OF CONTENTS
STATEMENT OF THE CASE ........................................................................... 1
First Question Presented.............................................................................2
First Proposed Rule of Law ........................................................................2
Second Question Presented ........................................................................3
Second Proposed Rule of Law ...................................................................3
Third Question Presented ...........................................................................3
Third Proposed Rule of Law ......................................................................3
Summary of Facts Material to Review.......................................................4
Summary of Argument ...............................................................................6
ARGUMENT....................................................................................................... 9
A. ORS 59.137(1) does not require proof of reliance to obtain
damages resulting from unlawful securities practices. ....................9
1. The text of ORS 59.137(1) is unambiguous and does
not contain a reliance requirement...................................... 11
2. Contextual provisions confirm the absence of any
reliance requirement in a cause of action underORS 59.137(1). ................................................................... 14
a. Reliance is unnecessary to violate
ORS 59.135(2), which triggers liability under
ORS 59.137(1).......................................................... 15
b. ORS 59.115(1)(b), a closely-related statute that
creates a cause of action for securities law
violations arising in direct sales of a security,
does not require proof of reliance............................. 19
c. Had the legislature intended to add a reliance
requirement, it would have expressly done so. ........ 21
2. The legislative history suggests that the legislature
intended to expand and not constrict the Oregon
Securities Law..................................................................... 22
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3. Applicable maxims of statutory construction confirm
that any ambiguity in ORS 59.137 should be
construed against adopting a reliance requirement............. 26
B. If ORS 59.137 requires proof of reliance, reliance may be
presumed under the fraud-on-the-market doctrine.....................27
1. The text of ORS 59.135 is similar to federal Rule 10b-
5 under which reliance may be presumed under the
fraud-on-the-market doctrine. ......................................... 28
2. The legislative history supports incorporating the
fraud-on-the-market doctrine into the Oregon
Securities Law..................................................................... 30
3. Maxims of statutory construction favor inclusion ofthe fraud-on-the-market doctrine. ................................... 31
4. The state proved reliance under the fraud-on-the-
market doctrine. ................................................................ 32
C. This Is an Omission Case for Which Reliance Is Not an
Element of the Claim. ....................................................................32
CONCLUSION.................................................................................................. 37
TABLE OF AUTHORITIES
Cases Cited
Affiliated Ute Citizens of Utah v. United States ,
406 US 128, 92 S Ct 1456, 31 L Ed 2d 741 (1972) .................................35
Anderson v. Transglobe Energy Corp.,
35 F Supp 2d 1363 (M D Fla 1999) .........................................................30
Basic Inc. v. Levinson,
485 US 224, 108 S Ct 978, 99 L Ed 2d 194 (1988) .................... 29, 30, 32
Bergquist v. International Realty, Ltd.,
272 Or 416, 537 P2d 553 (1975)....................................................... 26, 31
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Black v. Finantra Capital, Inc.,
418 F3d 203 (2nd Cir 2005) .....................................................................30
Brewer v. Erwin,
287 Or 435, 600 P2d 398 (1979),
overruled on other grounds in McGanty v. Staudenraus,321 Or 532, 901 P2d 841 (1995)..............................................................13
Computer Concepts, Inc. v. Brandt,
310 Or 706, 801 P2d 800 (1990)..............................................................29
Conzelmann v. Northwest P. & D. Prod. Co.,
190 Or 332, 225 P2d 757 (1950)....................................................... 13, 17
Denton and Denton,
326 Or 236, 951 P2d 693 (1998)..............................................................19Dura Pharmaceuticals, Inc. v. Broudo,
544 US 336, 125 S Ct 1627, 161 L Ed 2d 577 (2005) .............................13
Emerald PUD v. PP & L,
302 Or 256, 729 P2d 552 (1986)..............................................................18
Erica P. John Fund, Inc. v. Halliburton Co.,
___ US ___, 131 S Ct 2179, 180 L Ed 2d 24 (2011) ...............................29
Everts v. Holtmann,64 Or App 145, 667 P2d 1028,
rev den, 296 Or 120 (1983) ............................................................... 20, 24
Fleming v. United Services Automobile Assn.,
329 Or 449, 988 P2d 378 (1999)..............................................................12
In Re Weber,
337 Or 55, 91 P3d 706 (2004)........................................................... 20, 24
Karsun v. Kelley,
258 Or 155, 482 P2d 533 (1971)..............................................................29
Leonard v. Stuart-James Co., Inc.,
742 F Supp 653 (N D Ga 1990) ...............................................................30
Lesser v. Great Lakes Casualty Co.,
171 Or 174, 135 P2d 810 (1943)..............................................................12
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Musgrave v. Lucas,
193 Or 401, 238 P2d 780 (1951)..............................................................17
Patton v. Target Corp.,
349 Or 230, 242 P3d 611 (2010)..............................................................25
PGE v. Bureau of Labor & Industries,
317 Or 606, 859 P2d 1143 (1993)................................... 10, 11, 22, 26, 27
Sanders v. Francis,
277 Or 593, 561 P2d 1003 (1977)............................................... 33, 34, 35
State ex rel. Dept. of Human Services v. Rardin,
338 Or 399, 110 P3d 580 (2005)..............................................................19
State Treasurer v. Marsh & McLennan Companies, Inc.,
241 Or App 107, 250 P3d 371 (2011)................................................. 6, 18
State v. Cunningham,
337 Or 528, 99 P3d 271 (2004) ................................................................27
State v. Gaines,
346 Or 160, 206 P3d 1042 (2009)............................................... 10, 22, 27
Sunshine Dairy v. Peterson,
183 Or 305, 193 P2d 543 (1948)....................................................... 26, 31
Teamsters Local 282 Pension Trust Fund v. Angelos,762 F2d 522 (7th Cir 1985) ......................................................................30
U. S. Nat. Bank of Oregon v. Fought,
291 Or 201, 630 P2d 337 (1981)..............................................................17
U. S. Soil, Inc. v. Oregon State Dept. of Agriculture,
276 Or 377, 554 P2d 1008 (1976) ............................................................15
Constitutional & Statutory Provisions
15 USC 78bb(f)(1) ...........................................................................................23
15 USC 78bb(f)(3)(B)......................................................................................23
ORS 174.010.......................................................................................... 10, 14, 22
ORS 30.750.........................................................................................................21
ORS 59.005.........................................................................................................17
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ORS 59.005-59.451 ............................................................................................17
ORS 59.015.........................................................................................................17
ORS 59.115.............................................................................................. 7, 23, 25
ORS 59.115(1) (2001) ........................................................................................22
ORS 59.115(1)(b) ............................................................................ 19, 21, 23, 24
ORS 59.115(1)(b) (1983)....................................................................................20
ORS 59.115(1)(b) (2003)....................................................................................20
ORS 59.135................................................................................................. passim
ORS 59.135(1)............................................................................................ passim
ORS 59.135(2)............................................................................................ passim
ORS 59.135(3)............................................................................................ passim
ORS 59.137................................................................................................. passim
ORS 59.137(1)............................................................................................ passim
ORS 59.365.........................................................................................................17
ORS 59.370.........................................................................................................21
ORS 59.991- 59.995 ...........................................................................................17
ORS 646.608(1) ..................................................................................................34
ORS 646.608(1)(i) ..............................................................................................33
ORS 646.608(1)(j) ..............................................................................................33
ORS 646.608(2) ..................................................................................................34
ORS 70.105.........................................................................................................21
ORS 70.230.........................................................................................................21
US Const Art I, 8 .............................................................................................37
US Const, Art I, 3, cl 3 ......................................................................................5
Administrative Rules
17 CFR 240.10b-5................................................................................. 1, 28, 30
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Other Authorities
Blacks Law Dictionary 394 (7th ed 2002) ................................................. 12, 13
Minutes,
Senate Business and Labor Committee Minutes, SB 609, Apr 28, 2003 23
Senate Bill (SB) 609 (2003)................................................. 22, 23, 24, 28, 30, 31
Staff Measure Summary,
House Committee on Judiciary, SB 609, Jul 2, 2003.................. 23, 28, 31
Staff Measure Summary,
Senate Committee on Business and Labor,
SB 609, April 7, 2003.................................................................. 23, 28, 31
Tape Recording,
House Floor, SB 609, Jul 16, 2003,
Tape 145 (statement by Rep. Greg Macpherson).....................................23
Testimony,
House Judiciary Committee, May 16, 2003, Ex J (statement of Floyd G.
Lanter) ......................................................................................................25
Testimony,
Senate Committee on Business and Labor, Apr 7, 2003,
Ex K (statement of Floyd G. Lanter)........................................................25Testimony,
Senate Committee on Business and Labor, April 7, 2003,
Ex I (statement by Sen. Kate Brown........................................... 23, 28, 30
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BRIEF ON THE MERITS OF
PETITIONER ON REVIEW ON REVIEW, STATE OF OREGON
_______________
STATEMENT OF THE CASE
The primary issue for this court to decide is whether a plaintiff in an
action under ORS 59.137(1) must prove the element of reliance.
ORS 59.137(1) provides a cause of action for security purchasers against any
person who violates ORS 59.135(2) by making an untrue or misleading
statement in connection with the purchase of the security. Neither
ORS 59.137(1) nor ORS 59.135(2) expressly require proof of reliance in a
cause of action under ORS 59.137(1). And as will be explained below, the text,
context, and legislative history of ORS 59.137(1) all confirm that the statutory
provision does not require proof of reliance.
Should this court conclude otherwise, a second issue may arise with
respect to whethera plaintiff may prove reliance indirectlyin an action under
ORS 59.137(1) for an alleged violation of ORS 59.135(2), that is, making an
untrue or misleading statement. ORS 59.137(1) and ORS 59.135(2) are silent
as to that issue. However, the text of ORS 59.135(2) is closely similar in form
to the text of Rule 10b-5 of the Securities and Exchange Commission (SEC),
17 CFR 240.10b-5and the legislature likely intended that actions under
state law would be consistent with fraud-on-the-market actions under federal
law. In a cause of action arising under Rule 10b-5, a plaintiff may prove
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reliance under the fraud-on-the-market doctrine, by proving that the
defendant made public and material misstatements, the defendants shares were
traded in an efficient market, and that the plaintiff purchased its shares before
the truth was disclosed.
In addition, if this court concludes that reliance is generally required
under state law, this court may also consider whether a plaintiff must prove
reliance when alleging a violation of ORS 59.137(1) due to the omission of
material facts about a security. In cases involving omitted facts, a plaintiff
cannot readily show actual reliance on facts of which it was unaware. Thus,
this court should consider whether a plaintiff may satisfy any reliance
requirement in ORS 59.137(1) by showing that had the withheld information
been known, a reasonable investor would not have purchased or sold the
securities at the prices he or she did.
First Question Presented
To prevail on a claim under ORS 59.137(1) against a person who makes
an untrue or misleading statement about a security, must the plaintiff plead and
prove that he or she actually relied on the statement?
First Proposed Rule of Law
No. In order to establish a claim under ORS 59.137(1) against a person
who makes an untrue or misleading statement about a security, a plaintiff need
not prove that he or she relied on the statement.
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Second Question Presented
If reliance is an element of a cause of action under ORS 59.137(1), can a
plaintiff prove reliance through the fraud-on-the-market doctrine?
Second Proposed Rule of Law
Yes. If a plaintiff must prove reliance in a claim under ORS 59.137(1), a
plaintiff may prove reliance under the fraud-on-the-market doctrine
recognized under federal law, which provides that a fact-finder may presume
reliance if the plaintiff can show that the defendant made public and material
misstatements, the defendants shares were traded in an efficient market, and
that the plaintiff purchased its shares before the truth was disclosed.
Third Question Presented
If reliance is an element of a cause of action under ORS 59.137(1), may a
plaintiff establish that element, in a claim involving omitted statements of
material fact, by showing that a reasonable investor would not have purchased
the security had he or she known about the facts omitted in the defendants
statements about the security?
Third Proposed Rule of Law
Yes. If a plaintiff must prove reliance in a claim under ORS 59.137(1), a
plaintiff may prove reliance by showing that a reasonable investor would have
taken other action had it been aware of all of the withheld material facts about
the security at the time of the purchase of the security.
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Summary of Facts Material to Review
Marsh & McLennan Companies, Inc. (MMC), through its subsidiary
defendant Marsh, Inc., (MI), is the largest provider of insurance and brokerage
services in the world. (TCF 1306, First Amended Complaint (FAC), 2). In
2003 and 2004, investment managers for the state purchased approximately $15
million of the common stock of MMC on the New York Stock Exchange. (TCF
1305, FAC, 1).
Unbeknownst to the investment market and the states investment
managers, MMC engaged in an unlawful bid-rigging scheme in which it would
steer insurance business to insurers on a non-competitive basis and to the
detriment of MMCs business clients. (TCF 1307, FAC, 6). During this time,
defendants represented to the investment market that MMC was collecting
hundreds of millions of dollars in revenue from insurance companies based on
contingent commission agreements (or market service agreements) that it
had entered into with the insurers. Defendants did not disclose that $845
millionand more than half of MMCs 2003 publicly reported incomewere
payments for services not provided and were used to facilitate defendants
unlawful business practices. (TCF 1307, FAC, 7).
On October 14, 2004, the New York Attorney General exposed
defendants unethical and illegal business practices. (TCF 1307-08, FAC, 8).
As a result of the exposure and resulting press reports, the value of MMCs
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common stock declined from $46.13 per share on October 13, 2004, to $29.20
per share on October 15, 2004, and later to as low as $22.75 per share. (Id.;
TCF 3367-68, Declaration of Scott Shorr (Shorr Dec), 7). The state, which
purchased 354,000 shares of MMC stock during the relevant period, suffered
approximately $10 million in damages as a result of defendants illegal
practices. (TCF 1307-08, FAC, 8-9). Two of the states investment
managers who purchased MMC stock, Steven Gorham and Richard Rubinstein,
testified that had they been aware of defendants unlawful bid-rigging practices,
they would not have purchased shares of MMC at the prices they paid. (TCF
3409-10, Shorr Dec, Ex 12; Deposition of Steven Gorham, 71-72; TCF 4626,
Declaration of Richard Rubinstein (Rubinstein Dec), 2).
The state filed this civil action against defendants under ORS 59.137 for
several violations of ORS 59.135(1), (2), and (3). (TCF 1338, FAC, 101).
However, the trial court granted summary judgment in favor of defendants on
the grounds that ORS 59.137 required proof of reliance, that the state had not
proven reliance, that ORS 59.137 did not allow the state to create a presumption
of reliance pursuant to the fraud-on-the-market doctrine, and that
ORS 59.137(1) violated the dormant commerce clause of the United States
Constitution (US Const Art I, 3, cl 3). (App Br, ER 10-22, 6/11/08 Opinion
and Order).
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The Court of Appeals affirmed the trial courts judgment. Construing
ORS 59.137, the court held that a plaintiff must show reliance. The court
rejected the states claims that it could prove reliance under the fraud-on-the-
market doctrine or by showing that the case involved an omission of material
fact and that the state would not have purchased MMC stock had defendants
disclosed their unlawful insurance practices. State Treasurer v. Marsh &
McLennan Companies, Inc., 241 Or App 107, 115-16, 250 P3d 371 (2011).
And because the court affirmed the trial courts ruling on statutory grounds, the
court did not consider whether ORS 59.137(1) was constitutional.
Id. at 123 n 9.
Summary of Argument
ORS 59.137(1) is unambiguous and does not require a plaintiff to prove
that he or she relied on untrue or misleading statements made in connection
with the purchase of a security. The text of ORS 59.137(1) confirms that a
plaintiff may obtain damages from a defendant if the plaintiff can show (1) that
the defendant violated ORS 59.135(2) by making a false or misleading
statement; and (2) that the defendants false or misleading statements caused
actual damages to plaintiff. There is no further requirement that the plaintiff
prove reliance.
Contextual statutory provisions confirm that ORS 59.137(1) does not
contain a reliance requirement. In particular, a person becomes liable under
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ORS 59.137(1) by violating ORS 59.135(2) by making an untrue or misleading
statementand that violation does not require proof of reliance. Thus, the
plain text of ORS 59.137(1)when considered in context with
ORS 59.135(2)does not impose a reliance requirement. Moreover, the lack
of any reliance requirement is consistent with ORS 59.115, which creates a
cause of action for false and misleading statements made in connection with a
direct purchase and sale of a security, and which does not require reliance under
long-standing Court of Appeals precedent.
The legislative history of the 2003 enactment of ORS 59.137(1) bolsters
the conclusion that the statute does not require proof of reliance. The
legislature enacted ORS 59.137 to provide a cause of action for securities law
violations that occur in purchase and sale transactions that occur in the
secondary market. That is, the legislature sought to expand an investors
existing ability under ORS 59.115 to pursue a similar cause of action arising
from the direct sale of a securityand a cause of action that did not require
proof of reliance under Court of Appeals case law. In the absence of evidence
that the legislature intended to add a reliance requirement and overrule existing
law applicable to causes of action under ORS 59.115, it is likely the legislature
intended the elements of a cause of action under ORS 59.137 to be the same as
the elements in a cause of action under ORS 59.115, and that a plaintiff would
not need to prove reliance.
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If the legislatures intent is unclear after considering the text and
legislative history of ORS 59.137(1), applicable maxims of statutory
construction warrant against inserting a reliance requirement into
ORS 59.137(1). Maxims of statutory construction provide that remedial
statutes and statutes within the Oregon Securities Law should be construed
liberally in favor of investors. Because ORS 59.137(1) is such a remedial
statute, this court should construe it as not requiring proof of reliance because
such a construction would better protect investors and advance the legislatures
well-recognized intent to protect investors from unlawful securities practices.
Thus, this court should not insert a reliance requirement into ORS 59.137(1).
But if this court concludes that ORS 59.137(1) contains an implied
reliance requirement, then it is likely that the legislature intended to allow
investors to prove reliance under the fraud-on-the-market doctrine. The text
of ORS 59.135(2) parallels the text of analogous federal securities laws, and the
legislative history of ORS 59.137(1) demonstrates that the legislature intended
ORS 59.137(1) to have consistency with federal securities laws that apply for
claims involving securities law violations in transactions occurring in
secondary markets. Under federal law, reliance may be presumed under the
fraud-on-the-market doctrine if a plaintiff proves that the defendant made
public and material misstatements, defendants shares traded in an efficient
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market, and plaintiff purchased those shares before the truth was disclosed.
Here, the state presented such evidence.
Lastly, if this court concludes that ORS 59.137(1) requires proof of
reliance, and that the fraud-on-the-market doctrine does not apply under state
law, a plaintiff nevertheless should not have to prove reliance in claims in
which a defendant omitted to state material facts about a security. Under
Oregon law and the federal securities laws, a plaintiff does not have to prove
direct reliance on information that was never supplied. Instead, a plaintiff may
prove reliance by showing a reasonable investor would not have purchased the
stock at the price it did had it been aware of all of the material information. The
state made that showing in this case. Accordingly, the trial court erred when it
granted summary judgment in favor of defendants.
ARGUMENT
A. ORS 59.137(1) does not require proof of reliance to obtain damages
resulting from unlawful securities practices.
The initial issue in this case concerns whether the cause of action created
in ORS 59.137(1) contains a reliance requirement, that is, a requirement that
a plaintiff prove he or she relied on a defendants actions or statements that
violated ORS 59.135(1), (2), or (3). ORS 59.135 provides:
It is unlawful for any person * * *:
(1) To employ any device, scheme or artifice to defraud;
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(2) To make any untrue statement of a material fact or toomit to state a material fact necessary in order to make thestatements made, in the light of the circumstances under whichthey are made, not misleading;
(3) To engage in any act, practice or course of businesswhich operates or would operate as a fraud or deceit upon anyperson * * *.
In turn, ORS 59.137(1) creates the following cause of action for violations of
ORS 59.135: [a]ny person who violates or materially aids in a violation of
ORS 59.135(1), (2), or (3) is liable to any purchaser or seller of the security for
the actual damages caused by the violation * * *. Importantly, neither
ORS 59.137(1) nor ORS 59.135 contain any express language referring to
reliance, rely, or any functional equivalent. At the outset, imputing a
reliance requirement in the absence of express language would violate the
requirement that this court is not to insert what has been omitted into
ORS 59.137(1). ORS 174.010. Thus, this court must construe ORS 59.137(1)
to determine whether the legislature otherwise imposed such a requirement in
ORS 59.137(1).
To resolve that issue, this court will apply the familiar three-level
methodology for interpreting a statute set out in PGE v. Bureau of Labor &
Industries, 317 Or 606, 610, 859 P2d 1143 (1993), and modified in State v.
Gaines, 346 Or 160, 171, 206 P3d 1042 (2009). In the first level of analysis,
this court will first consider the text of the statutory provision, which is the
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best evidence of the legislatures intent, and apply any pertinent rules of
construction provided by statute or case law that bear directly on how to read
the text, including the rule that words of common usage typically should be
given their plain, natural, and ordinary meaning. PGE, 317 Or at 611. This
court will also consider the context of the statutory provision, including other
provisions and related statutes, and apply rules of construction that bear
directly on the interpretation of the statutory provision in context. PGE, 317
Or at 611.
1. The text of ORS 59.137(1) is unambiguous and does not
contain a reliance requirement.
To begin, the text of ORS 59.137(1) plainly creates a cause of action, and
provides instruction about (1) who may bring such an action, (2) who an action
may be brought against, and (3) what damages may be recovered. Those
instructions come from the following three successive phrases in
ORS 59.137(1): a person who violates or materially aids in a violation of
ORS 59.135(1), (2), or (3) is liable; to any purchaser or seller of the security;
and for actual damages caused by the violation. The state will discuss each
phrase in turn and whether the phrases singularly or collectively impose a
reliance requirement.
The first phrase, a person who violates or materially aids in a violation
of ORS 59.135(1), (2), or (3) is liable plainly defines the type of person that
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may be subject to liabilityand does not impute a reliance requirement. To the
contrary, the text of this phrase bases liability merely upon occurrence of a
violation of ORS 59.135(1), (2), or (3).1
Likewise, the second phrase, to any purchaser or seller of the security,
does not contain a reliance requirement. The use of the modifier any
demonstrates that the cause of action under ORS 59.137(1) applies broadly
and is not available only to security purchasers and sellers on the basis of
reliance. See Fleming v. United Services Automobile Assn., 329 Or 449, 456,
988 P2d 378 (1999) (any is typically synonymous with every);Lesser v.
Great Lakes Casualty Co., 171 Or 174, 184, 135 P2d 810 (1943) (The words
any person or persons are most comprehensive and unambiguous). Thus,
this phrase provides no textual support for a reliance requirement.
Lastly, the third phrase, for actual damages caused by the violation,
does not contain a reliance requirement. This phrase defines the scope of
liability for an action under ORS 59.137, and restricts liability in two ways.
First, liability is limited to actual damages (i.e., compensatory damages), and
would by definition include damages incurred withoutreliance. See Blacks
Law Dictionary 394 (7th ed 2002) (defining actual damages as [a]n amount
1 As will be discussed below, reliance is not necessary for a personto violate ORS 59.135(1), (2), or (3).
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awarded to a complainant to compensate for a proven injury or loss);Brewer
v. Erwin, 287 Or 435, 448, 600 P2d 398 (1979), overruled on other grounds in
McGanty v. Staudenraus,321 Or 532, 549, 901 P2d 841 (1995) (recognizing
that as used in the context of Oregons Residential Landlord-Tenant Act, the
term actual damages refer[s] to compensation for tangible harm resulting
from the statutory violation, though it need not be economic harm. The harm
must be of a kind within the contemplation of the protective provision that was
breached). Second, liability is limited to those actual damages caused by (or
brought about by) the defendants conduct, i.e. a violation of ORS 59.135(1)-
(3), and is not expressly or necessarily limited to damages as a result of a
plaintiffs reliance. See Blacks Law Dictionary 213 (7th ed 2002) (defining
cause as [t]o bring about or effect); cf. Conzelmann v. Northwest P. & D.
Prod. Co., 190 Or 332, 350, 225 P2d 757 (1950) (explaining that in a claim for
common-law fraud or deceit, that causation is a separate element from the
requirements to prove reliance and the right to rely).2 Again, there is no
2Under federal securities law, a plaintiff proves loss causation by
showing that the companys stock price was initially inflated based on falseinformation unknown to the market and the price later dropped when the trueinformation was disclosed to the market. See Dura Pharmaceuticals, Inc. v.
Broudo, 544 US 336, 345-47, 125 S Ct 1627, 161 L Ed 2d 577 (2005).
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textual restriction on the scope of liability with respect to the existence or non-
existence of reliance.
In sum, the three phrases that define the cause of action in
ORS 59.137(1), when considered singularly or collectively, do not require proof
of reliance. Rather, the text of ORS 59.137(1) establishes a cause of action for
a statutory tort that allows any purchaser to recover actual damages caused by
a violation of ORS 59.135(1)-(3). Because the text omits any reliance
requirement, ORS 174.010 precludes this court from inserting that requirement
into ORS 59.137(1).
2. Contextual provisions confirm the absence of any reliance
requirement in a cause of action under ORS 59.137(1).
In addition to the absence of an express reliance requirement in
ORS 59.137(1), contextual statutory provisions confirm that ORS 59.137(1)
does not include a reliance requirement. This court should first consider
ORS 59.135(2), the statutory provision that proscribes making untrue or
misleading statements in connection with the purchase or sale of any security, a
violation that triggers liability under ORS 59.137(1), and the violation of which
is at issue in this case.
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a. Reliance is unnecessary to violate ORS 59.135(2), which
triggers liability under ORS 59.137(1).
ORS 59.135(2) supports the conclusion that ORS 59.137(1) does not
contain a reliance requirement. Briefly restated, ORS 59.135 provides that it is
unlawful:
(1) To employ any device, scheme or artifice to defraud;
(2) To make any untrue statement of a material fact or toomit to state a material fact necessary in order to make thestatements made, in the light of the circumstances under whichthey are made, not misleading;
(3) To engage in any act, practice or course of business whichoperates or would operate as a fraud or deceit upon any person * * *.
What is apparent from ORS 59.135(2) is that a violation occurs at the moment
the person make[s] any untrue statement of a material factand does not
condition a violation on whether reliance has occurred. Likewise, a violation of
ORS 59.135(2) also occurs at the moment a person omit[s] to state a material
fact that makes the statement misleadingand does not depend on whether
reliance has occurred.3 Thus, when ORS 59.137(1) is considered in context
with ORS 59.135(2), a plaintiff need not prove that a defendants violation
3 Indeed, a statement that is misleading must only have atendency to mislead. See, e.g., U. S. Soil, Inc. v. Oregon State Dept. of
Agriculture, 276 Or 377, 380-81, 554 P2d 1008 (1976) (determining whether aword was misleading in a false advertising context depended on whether theword would tend to mislead consumers).
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triggered reliance by the plaintiff. Instead, ORS 59.137(1) requires only that a
plaintiff prove that the defendant violated ORS 59.135(2).
To be sure, other provisions in ORS 59.135, namely, ORS 59.135(1) and
(3), include terms that imply that a violation might induce reliance. For
example, ORS 59.135(1) prohibits the use of devices to defraud, while
ORS 59.135(3) also prohibits any act that operates or would operate as a fraud
or deceit. But even those provisions do not require proof that actual reliance
has occurred. To the contrary, a plaintiff may prove a violation of
ORS 59.135(1) or (3) merely by proving that the person committed an unlawful
action, that is, the defendant employ[ed] a device to defraud, or engage[d]
in any act that operates or would operate as a fraud or deceita plaintiff need
not prove that fraud or deceit occurred. In any event, ORS 59.135(1) and (3) do
not change the fact that a violation of ORS 59.135(2) can occur without
reliance. Thus, ORS 59.135(1) and (3) do not implicitly require a plaintiff to
prove reliance in order to prevail on a claim under ORS 59.137(1).
The state also anticipates that defendants may argue that the terms
fraud and deceit in ORS 59.135(1) and (3) evince a legislative intent to
incorporate the elements of common-law fraud and deceit (including the
element of reliance) into ORS 59.135 and ORS 59.137(1). However, such a
construction of ORS 59.135 or ORS 59.137 is unreasonable for at least two
reasons.
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First, the terms fraud and deceit, as used in ORS 59.135, do not refer
to common-law causes of action for fraud and deceit. ORS 59.015 provides
that, [a]s used in the Oregon Securities Law[4] * * * (6) Fraud, deceit and
defraud are not limited to common-law deceit unless the context otherwise
requires * * *. (Emphasis added). In a claim for common-law fraud or deceit,
there are nine elements:
(1) a representation; (2) its falsity; (3) its materiality; (4) thespeakers knowledge of its falsity of ignorance of its truth; (5) hisintent that it should be acted on by the person and in the mannerreasonably contemplated; (6) the hearers ignorance of its falsity;(7) his reliance on its truth; (8) his right to rely thereon; (9) and hisconsequent and proximate injury. Conzelmann v. Northwest P. &
D. Prod. Co., 190 Or 332, 350, 225 P2d 757 (1950).
Musgrave v. Lucas, 193 Or 401, 410, 238 P2d 780 (1951) (stating elements for
common-law fraud claim); see also U. S. Nat. Bank of Oregon v. Fought,291
Or 201, 220-21, 630 P2d 337 (1981) (stating same elements for common-law
deceit claim) (citing Conzelmann). In contrast to common-law fraud and deceit
under Conzelmann,a person may violate ORS 59.135(1), and (3), without proof
of the elements of (1) knowledge, (2) intent, (3) reliance, or (4) a right to rely.5
4The Oregon Securities Law includes ORS 59.005-59.451 and
ORS 59.991- 59.995. See ORS 59.005 (defining the Oregon Securities Law).
5 The legislature expressly recognizes that remedies under theOregon Securities Law would complement (and not replace) remedies availableunder common law such as fraud and deceit. See ORS 59.365 ([n]othing in
Footnote continued
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See generally, Marsh & McLennan, 241 Or App at 123 n 9 (defendants do not
dispute on appeal that a plaintiff must prove knowledge or intent to prevail on a
claim under ORS 59.137(1)). Thus, as the terms fraud and deceit are used
in context, the legislature did not intend to incorporate the common-law
definitions of fraud and deceit into ORS 59.135, or to require a plaintiff to
prove reliance in a cause of action under ORS 59.137(1).
Second, unlike ORS 59.135(1) or (3), ORS 59.135(2) does notcontain
the terms fraud or deceit. When the legislature includes a term in one
statute but omits it in another, we infer that its omission is purposeful.
Emerald PUD v. PP & L, 302 Or 256, 269, 729 P2d 552 (1986). Thus, even if
defendants argued that the terms fraud and deceit reflect an intent to require
reliance in a cause of action for violations of ORS 59.135(1), or (3), the
omission of those terms in ORS 59.135(2) warrants against the conclusion that
reliance would be required in a cause of action involving a violation of
ORS 59.135(2). Instead, ORS 59.137(1) requires a plaintiff to prove that the
defendant violated ORS 59.135(2) by making an untrue statement of material
fact or omitting to state a material fact. And in this case, the state provided
(continued)
the Oregon Securities Law limits any statutory or common-law right of a personto bring an action in any court for an act involved in the sale of securities, or theright of the state to punish a person for a violation of any law).
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sufficient evidence to raise a question of fact as to whether defendant violated
ORS 59.135(2) by making untrue statements of material fact and by omitting to
state material facts about MMCs business practices.
In sum, ORS 59.135 further supports the conclusion that when the
legislature enacted ORS 59.137, it did not require reliance as a necessary
element for a cause of action for violations of ORS 59.135.
b. ORS 59.115(1)(b), a closely-related statute that creates a
cause of action for securities law violations arising in
direct sales of a security, does not require proof of
reliance.
Other contextual statutory provisions support the conclusion that
ORS 59.137(1) does not require proof of reliance. ORS 59.137(1) is one of
several investor-protection provisions in the Oregon Securities Law, and other
statutory provisions in that law provide context for discerning the underlying
purpose of the text of ORS 59.137(1) and how it should be construed. SeeState
ex rel. Dept. of Human Services v. Rardin, 338 Or 399, 407, 110 P3d
580 (2005) ([s]tatutory context includes other provisions of the same statute
and other related statutes, as well as the preexisting common law and the
statutory framework within which the [statute] was enacted (quotingDenton
and Denton, 326 Or 236, 241, 951 P2d 693 (1998)).
A highly-instructive contextual provision in the Oregon Securities Law is
ORS 59.115(1)(b), which provides a cause of action for violations of
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ORS 59.135(1) and (3), and further provides a cause of action for untrue
statements and material omissions that parallels ORS 59.135(2). ORS
59.115(1)(b) applies in directtransactions between a security purchaser and
seller. The text of ORS 59.135(2) is functionally identical to the text of
ORS 59.115(1)(b) (1983), which the Court of Appeals held does notcontain a
reliance requirement. See Everts v. Holtmann, 64 Or App 145, 152, 667 P2d
1028, rev den, 296 Or 120 (1983).6 Thus, this court may presume that when the
legislature enacted ORS 59.137(1), that proof of a violation of ORS 59.135(2)
would not require reliance in light of the long-established construction of a
functionally identical statutory provision inEverts. See In Re Weber, 337 Or
55, 67, 91 P3d 706 (2004) ([t]his court presumes that the legislature enacts
statutes in light of existing judicial decisions that have a direct bearing upon
6 ORS 59.115(1)(b) (1983) (the statutory provision interpreted inEverts) and ORS 59.115(1)(b) (2003), which was in effect at the timeORS 59.137(1) was enacted, both contained the following text:
by means of an untrue statement of a material fact or an omissionto state a material fact necessary in order to make the statementsmade, in light of the circumstances under which they are made, notmisleading (the buyer not knowing of the untruth or
omission) * * *.
Thus, sinceEverts, ORS 59.115 has permitted a cause of action for misleadingstatements and the Court of Appeals conclusion that ORS 59.115 did notincorporate, or refer to the term[] * * * misleading was incorrect. Marsh &
McLennan, 241 Or App at 116.
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those statutes). Accordingly, this court should conclude that the legislature did
not intend a cause of action under ORS 59.137(1) would require proof of
reliance when analogous causes of action under ORS 59.115(1)(b) would not.
c. Had the legislature intended to add a reliance
requirement, it would have expressly done so.
As a final matter, had the legislature intended to add a reliance element
into ORS 59.137(1), it could have inserted the term rely or reliance into the text.
In fact, the legislature regularly includes the terms rely or reliance to
impose reliance requirements in a number of other statutory provisions that
concern false statements on financial and property documents. See, e.g.,
ORS 70.105 (creating a cause of action for one who suffers a loss by a
reliance on a false material statement in a limited partnership certificate);
ORS 70.230 (allowing enforcement of a contribution obligation to a partnership
if the creditor * * * acted in reliance on that obligation); ORS 30.750
(creating liability for a person that certifies an abstract of title for all damages
sustained by any person who, in reliance on the correctness thereof, acts thereon
with reference to the title of such land, and is damaged in consequence of any
errors, omissions or defects therein); ORS 59.370 (discharging liability of
registering entity that transfers security registration in good faith reliance on
the registration application). Thus, these provisions demonstrate that the
legislatures omission of the terms rely or reliance, was likely intentional,
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and this court should not insert an omitted reliance requirement into the text of
ORS 59.137(1). ORS 174.010.
2. The legislative history suggests that the legislature intended to
expand and not constrict the Oregon Securities Law.
Although the text of ORS 59.137(1) is unambiguous in that it contains no
reliance requirement, the legislative history of Senate Bill (SB) 609 (2003), the
legislation that created ORS 59.137(1), removes any doubt that might remain.
SeeGaines, 346 Or at 172 (this court may consider legislative history in the
absence of ambiguity); PGE, 317 Or at 612 (this court may consider legislative
history in the second-level of statutory analysis, to resolve any ambiguity in the
text).
Before the 2003 enactment of ORS 59.137(1), a security purchaser could
only bring a cause of action for violations of ORS 59.135(1)-(3) that occurred
in the context of a direct transaction between a purchaser and seller. See
generally ORS 59.115(1) (2001) (providing a cause of action for securities law
violations in direct transactions). The bulk of the legislative history shows that
the legislature intended to expand state law remedies, especially to state pension
funds,7 to reach transactions that occur in the secondary market (i.e.
7 Most private investors cannot use ORS 59.137 to raise claimsagainst issuers of nationally traded securities because of federal laws thatpreempt such claims. However, state pension funds are excepted from federal
Footnote continued
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transactions occurring on national stock exchanges). See Tape Recording,
House Floor, SB 609, Jul 16, 2003, Tape 145 (statement by Rep. Greg
Macpherson) (explaining that although investors may bring securities actions
under federal law, SB 609 would allow an Oregon remedy to bring an action in
state court); Testimony, Senate Committee on Business and Labor, April 7,
2003, Ex I (statement by Sen. Kate Brown8) (stating that SB 609 allows
investors to recover damages when investors purchase stock in the open
market); Staff Measure Summary, Senate Committee on Business and Labor,
SB 609, April 7, 2003 (explaining that existing law allows claims when
securities were purchased in the open market); Staff Measure Summary,
House Committee on Judiciary, SB 609, July 2, 2003 (same). Thus, the
legislative history confirms that the legislature intended ORS 59.137(1) to serve
as a complementary cause of action to ORS 59.115to allow a similar cause of
action for securities law violations occurring in secondary markets.
The significance of that intent is that under ORS 59.115(1)(b), a plaintiff
did not need to prove reliance to prevail on a claim that a defendant made
(continued)
preemption and may bring state law claims. 15 USC 78bb(f)(1), (f)(3)(B)(Securities Litigation Uniform Standards Act (or SLUSA)).
8Senator Brown carried the bill in the Senate. Minutes, Senate
Business and Labor Committee Minutes, SB 609, Apr 28, 2003.
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untrue or misleading statements in a direct sale of securities, as discussed
above. See Everts, 64 Or App at 152. Nothing in the legislative history of SB
609 suggests that the legislature intended to legislatively overruleEverts or
fundamentally adopt new elements that were not required under an existing
cause of action under ORS 59.115(1)(b). See In Re Weber, 337 Or at 67 (this
court will presume the legislature enacts statutes in light of existing judicial
decisions that have a direct bearing upon those statutes). It is unlikely that the
legislature would have intended to create a complementary cause of action for
securities law violations that occur in transactions in the secondary market yet
fundamentally alter the elements of that action by using text that the Court of
Appeals had long held did not impose a reliance requirement. At the very least,
the legislature would have done so only if there had been substantial discussion
of such an intent.
However, the legislative history of SB 609 contains no discussion of
overrulingEverts or imposing a new reliance requirement to causes of action
under ORS 59.137(1). The only reference to the term reliance came from
Floyd Lanter, a single non-legislator witness from the Department of Consumer
and Business Services. Lanter stated:
We also believe investors should have the right to bring so-called fraud on the market lawsuits when they buy stock on theopen market in reliance on financial statements and similarinformation that turn out to be fraudulent.
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Testimony, Senate Committee on Business and Labor, Apr 7, 2003, Ex K
(statement of Floyd G. Lanter); Testimony, House Judiciary Committee,
May 16, 2003, Ex J (statement of Floyd G. Lanter) (stating the same). But
Lanters passing reference to the term reliance is of little use for showing that
the legislature intended to include a novel reliance requirement into
ORS 59.137(1).9 See generally, Patton v. Target Corp., 349 Or 230, 243, 243 n
9, 242 P3d 611 (2010) (a legislators comment at a committee hearing is of
dubious utility in determining the intent of the legislature, and a non-
legislators comment is even less helpful) (citations omitted). Instead, the
greater weight of the legislative history confirms that the legislature likely
intended to create a new cause of action that would function similarly to the
then-existing cause of action under ORS 59.115and that the legislature did
not intend to fundamentally alter the elements contained in that new cause of
action.
9As discussed below, Lanters remark, even if persuasive as to the
legislatures intent, would not ultimately aid defendants because Lantersremark arose in a discussion about a fraud-on-the-market lawsuit underfederal law, a lawsuit in which reliance is presumed and indirectly proved basedon the entire markets reliance on an untrue or misleading statement.
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3. Applicable maxims of statutory construction confirm that any
ambiguity in ORS 59.137 should be construed against adopting
a reliance requirement.
Lastly, should this court conclude after considering the text and history of
ORS 59.137 that the legislatures intent is unclear, this court should apply
applicable maxims of statutory construction to determine how the legislature
would have intended the statute to be applied had it considered the issue. PGE,
317 Or at 612. In this case, two maxims of statutory construction are pertinent.
First, ORS 59.137(1) should be construed liberally in light of the legislative
purpose of the Oregon Securities Law to afford the greatest possible
protection to the publicBergquist v. International Realty, Ltd., 272 Or 416,
423, 537 P2d 553 (1975) (citations omitted). Second, ORS 59.137(1) should be
liberally construed because it is a remedial statute. Sunshine Dairy v.
Peterson, 183 Or 305, 317, 193 P2d 543 (1948) ([a] remedial statute should
receive liberal construction so as to afford all the relief within the power of the
court which the language of the act indicates that the legislature intended to
grant). As explained above, ORS 59.137 was created to provide relief to
investors who were harmed by unlawful securities practices in the open market.
Imposing a reliance requirement would substantially defeat the legislatures
effort to protect investors from serious misconduct that harms the public. In the
absence of clear and unambiguous proof that the legislature intended to impose
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such a reliance requirement in ORS 59.137(1), this court should conclude the
contrary.
In sum, the text, context, legislative history, and applicable maxims of
statutory construction all lead to the same conclusion: the legislature did not
intend and would not have intended to add a reliance requirement to
ORS 59.137(1). The Court of Appeals erred when it concluded otherwise.
Accordingly, the decision of the Court of Appeals should be reversed, and this
case should be remanded to the Court of Appeals to consider the states
remaining assignments of error concerning the trial courts ruling that
ORS 59.137(1) was unconstitutional. See State v. Cunningham, 337 Or 528,
546, 99 P3d 271 (2004) (the proper remedy in this court is to reverse the Court
of Appeals decision and remand for further proceedings to consider any
unresolved assignments of error).
B. If ORS 59.137 requires proof of reliance, reliance may be presumed
under the fraud-on-the-market doctrine.
If this court concludes that ORS 59.137 requires proof of reliance, an
issue that follows concerns determining how a plaintiff may prove reliance.
Again, resort to the rules for statutory construction set out in PGEand Gaines
may resolve this issue.
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1. The text of ORS 59.135 is similar to federal Rule 10b-5 under
which reliance may be presumed under the fraud-on-the-
market doctrine.
The text of ORS 59.137(1) does not incorporate a reliance requirement
let alone provide direct guidance as to how a plaintiff might prove it. However,
the legislative history and text of ORS 59.137(1) suggest that if the legislature
created a reliance requirement, the legislature intended that a plaintiff could
prove reliance in a manner provided under related federal securities laws. The
legislative history confirms that SB 609 was intended to create consistency
between Oregon and federal law. Testimony, Senate Committee on Business
and Labor, SB 609, Apr 7, 2003 (statement of Sen. Kate Brown) ; see also Staff
Measure Summary, Senate Committee on Business and Labor, SB 609, Apr 7,
2003 (explaining that SB 609 creates consistency between Oregon law and
corresponding federal laws); Staff Measure Summary, House Committee on
Judiciary, SB 609, Jul 2, 2003 (same). Moreover, the text of ORS 59.135(1)-(3)
is functionally identical to the text of SEC Rule 10b-5, 17 CFR 240.10b-510.
10 17 CFR 240.10b-5 provides that it is unlawful:
To employ any device, scheme, or artifice to defraud,
To make any untrue statement of a material fact or to omit tostate a material fact necessary in order to make the statementsmade, in the light of the circumstances under which they weremade, not misleading, or
Footnote continued
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Thus, both the legislative history and textual similarity between state and
federal law strongly suggest that federal securities law will be highly instructive
in interpreting ORS 59.137(1). See e.g., Karsun v. Kelley, 258 Or 155, 161, 482
P2d 533 (1971) (noting that where state statute adopt[ed] substantially the
same terms as set forth in [a federal act] the legislative history of that act, as
well as decisions construing its provisions, are of significant interest);
Computer Concepts, Inc. v. Brandt, 310 Or 706, 714 n 7, 801 P2d 800, 805
(1990) (recognizing the same) (citing Karsun).
The significance of federal law, which does include a reliance
requirement,11 is that a plaintiff may establish a presumption of reliance
pursuant to the fraud-on-the-market doctrine. Basic Inc. v. Levinson, 485 US
224, 243, 247, 108 S Ct 978, 99 L Ed 2d 194 (1988); Erica P. John Fund, Inc.
v. Halliburton Co., ___ US ___, 131 S Ct 2179, 2185, 180 L Ed 2d 24 (2011).
Under that doctrine:
(continued)
To engage in any act, practice, or course of business whichoperates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
11 Federal law includes a reliance requirement because SEC Rule10b-5 is an implied cause of action and federal courts borrowed common-lawelements into that implied cause of action. Dura Pharmaceuticals, 544 US at341.
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An investor who buys or sells stock at the price set by the marketdoes so in reliance on the integrity of that price. Because mostpublicly available information is reflected in market price, aninvestors reliance on any public material misrepresentations,therefore, may be presumed for purposes of a Rule 10b-5 action.
Basic, 485 US at 247.12
Here, if this court concludes that reliance is required under
ORS 59.137(1), given the similarity between ORS 59.135(2) and SEC Rule
10b-5, this court should conclude that the legislature also intended to allow
proof of reliance under the fraud-on-the-market doctrine.
2. The legislative history supports incorporating the fraud-on-
the-market doctrine into the Oregon Securities Law.
The legislative history supports the conclusion that if the legislature
incorporated a reliance requirement, it also intended to incorporate the federal
fraud-on-the-market doctrine. As discussed above, the legislative history
contained repeated references that SB 609 would create consistency between
state and federal securities laws. Testimony, Senate Committee on Business
and Labor, SB 609, Apr 7, 2003, Ex I (statement of Sen. Kate Brown) ; Staff
12 Although inBasic the fraud-on-the-market doctrine was
discussed within the context of a class action, it arises from the efficient markettheory and has been applied to individual cases. Black v. Finantra Capital,
Inc., 418 F3d 203, 209-10 (2nd Cir 2005); Teamsters Local 282 Pension TrustFund v. Angelos, 762 F2d 522, 529 (7th Cir 1985);Anderson v. Transglobe
Energy Corp., 35 F Supp 2d 1363, 1369 (M D Fla 1999); Leonard v. Stuart-James Co., Inc., 742 F Supp 653, 659-60 (N D Ga 1990).
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Measure Summary, Senate Committee on Business and Labor, SB 609, Apr 7,
2003; Staff Measure Summary, House Committee on Judiciary, SB 609, Jul 2,
2003. Moreover, witnesses clarified that SB 609, if enacted, would allow
plaintiffs to pursue fraud-on-the-market claims. Testimony, Senate
Committee on Business and Labor, SB 609, Apr 7, 2003, Ex I (statement of
Sen. Kate Brown). Thus, the legislative history shows that if the legislature
added a reliance requirement in ORS 59.137(1), the legislature intended state
securities law to follow federal securities law and include the fraud-on-the-
market doctrine as a means of proving reliance.
3. Maxims of statutory construction favor inclusion of the fraud-
on-the-market doctrine.
As a final matter, should this court conclude that the legislative history is
unclear as to how a plaintiff may prove reliance under ORS 59.137(1), then
maxims of statutory construction should be considered. Again, in this case, the
applicable maxims require this court to construe ORS 59.137(1) liberally in
favor or protecting the public. Bergquist, 272 Or at 423; Sunshine Dairy, 183
Or at 317. Here, including a fraud-on-the-market doctrine into state law
would significantly protect and promote the legislatures interests in protecting
the public from the unlawful securities practices set out in ORS 59.135(1), (2),
and (3) .
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4. The state proved reliance under the fraud-on-the-market
doctrine.
In sum, even if this court concludes that reliance is required under
ORS 59.137(1), the state could prove reliance under the fraud-on-the-market
doctrine and did so in this case. To trigger a presumption of reliance under that
doctrine, the state needed to prove that there was a material public
misrepresentation or omission (meaning the information would be material to a
reasonable investor), the companys shares are traded on an efficient market,
and the plaintiff traded the relevant shares before the information was publicly
disclosed. Basic, 485 US at 248 n 27. In this case, the state met its burden by
presenting evidence that (1) defendants made material misstatements and
omissions, (2) the states managers purchased shares in the market during this
time period, and (3) the state had an expert who would testify that MMC was
traded in an efficient market, and the subsequent revelations about MMCs
practices substantially negatively impacted the price of Oregons MMC
securities. (TCF 4626, Rubinstein Dec., 2; TCF 3367-68, Shorr Dec, 3-6,
7). Accordingly, the trial court erred when it granted summary judgment on the
ground that the state failed to prove reliance.
C. This Is an Omission Case for Which Reliance Is Not an Element of
the Claim.
As a final matter, if this court concludes that ORS 59.137(1) contains a
reliance requirement and that the fraud-on-the-market doctrine is not
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available under state law, this court must consider whether reliance is necessary
when a person violates ORS 59.135(2) by omitting material facts in a statement
about a security. Generally, when a statute proscribes the omission of material
factsand that omission triggers statutory liabilitya plaintiff need not prove
direct reliance.
The case that illustrates this point is Sanders v. Francis, 277 Or 593, 598,
561 P2d 1003 (1977). In Sanders, a plaintiff filed a complaint alleging that
defendants violated ORS 646.608(1)(i) and (j)13 by selling a vehicle at a price
$800 higher than the price advertised in a local newspaper. 277 Or at 595. The
defendants argued that plaintiff failed to state a claim for relief because she
failed to allege that she relied on two undisclosed facts such that her losses
were the result of defendants violations of ORS 646.608(1)(i) and (j): (1)
that the vehicle had been advertised at a lower price; and (2) that the defendants
13 ORS 646.608(1)(i) and (j) provide that it is unlawful to:
(i) Advertise[] real estate, goods or services with intent notto sell them as advertised, or with intent not to supply reasonably
expectable public demand, unless the advertisement discloses alimitation of quantity;
(j) Make[] false or misleading representations of factconcerning the reasons for, existence of, or amounts of pricereductions[.]
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never intended to sell the vehicle at the advertised price. However, this court
rejected the defendants reliance arguments. This court explained:
In many cases plaintiffs reliance may indeed be a requisite cause
of any loss, i.e. when plaintiff claims to have acted upon a sellersexpress representations. But an examination of the possible formsof unlawful practices shows that this cannot invariably be the case.Especially when the representation takes the form of a failure todisclose under subsection (2)14, as in this case, it would beartificial to require a pleading that plaintiff had relied on thatnon-disclosure. Similarly, if the particular violation of paragraph(i) is a sale made in willful disregard of the advertised price, andintended at the time of the advertisement, then plaintiffs damageresults precisely from defendants reliance on her ignorance, notfrom plaintiffs reliance on defendants advertisement.
Sanders, 277 Or at 598. Thus, this court recognizes that in cases in which a
person violates a statute by omitting to state material facts, reliance need not be
proven.
A similar result should occur in cases in which a person violates
ORS 59.135(2) by omitting material facts in a statement about a security. For
the same reasons discussed in Sanders, the state cannot practicably prove that it
relied on the omission of information. Instead, a proper means of proof
would be to require the state to show that the misstatement was material and
14 ORS 646.608(2) provides that [a] representation under[ORS 646.608(1)] may be any manifestation of any assertion by words orconduct, including, but not limited to, a failure to disclose a fact. (Quoted inSanders, 277 Or at 596).
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that it would have influenced a reasonable investor to not purchase MMC
securities at the prices they did.
Moreover, such a rule would keep ORS 59.137(1) consistent with federal
securities law, a stated goal of the legislature in enacting ORS 59.137(1).
Under federal securities law, a plaintiff need not provide direct evidence of
reliance where the defendant has made statements with material omissions of
fact. Affiliated Ute Citizens of Utah v. United States, 406 US 128, 153-54, 92
S Ct 1456, 31 L Ed 2d 741 (1972). The Court explained:
Positive proof of reliance is not a prerequisite for recovery. Allthat is necessary is that the facts withheld be material in the sensethat a reasonable investor might have considered them important inthe making of this decision.
Id. Thus, construing ORS 59.137(1) to exclude reliance in claims involving the
omission of material facts would be consistent both with federal law and this
courts precedent concerning whether a plaintiff may prove that an omission
induced reliance.
If this court concludes that a plaintiff may establish reliance in the
manner recognized in Sanders andAffiliated Ute, then this court should further
conclude that the trial court erred when it granted summary judgment in favor
of defendants. Here, the state alleged that defendants failed to disclose the
nature of their contingent commission revenues and their illegal bid rigging and
other unlawful business practices. The state presented evidence that had its
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investment managers been fully aware of defendants illegal bid rigging and
improper business practices, they would not have invested in MMC securities at
the prices they did. (TCF 3408-10, Shorr Dec., Exh. 12; TCF 4626, Rubinstein
Dec., 2). Thus, at the very least, the state created an issue of fact as to
whether defendants should be liable under ORS 59.137(1) for violating
ORS 59.135(2). Accordingly, the trial court erred when it granted summary
judgment on the ground that the state failed to prove reliance.
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CONCLUSION
For the reasons state above, the state requests that this Court reverse the
decision of the Court of Appeals and remand this case for further proceedings,
including a determination as to whether ORS 59.137(1) violates the Dormant
Commerce Clause of Article I, section 8, of the United States Constitution.
Respectfully submitted,
JOHN R. KROGER
Attorney GeneralMARY H. WILLIAMSSolicitor General
/s/ Keith S. Dubanevich________________________________KEITH S. DUBANEVICH #975200Chief of Staff and Special [email protected]
DENISE G. FJORDBECK #822578Attorney-in-Charge,Civil/Administrative [email protected]
Attorney for Petitioner on ReviewState of Oregon
MJL:bmg/2990786
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NOTICE OF FILING AND PROOF OF SERVICE
I certify that on August 31, 2011, I directed the original Brief on the
Merits of Petitioner on Review, State of Oregon to be electronically filed with
the Appellate Court Administrator, Appellate Records Section, and
electronically served upon Scott Shorr, attorney for petitioner on review State
of Oregon, and James T. McDermott and Dwain M. Clifford, attorneys for
respondents on review Marsh & McLennan Co. Inc. & Marsh Inc., by using the
court's electronic filing system.
I further certify that on August 31, 2011, I directed the Brief on the
Merits of Petitioner on Review, State of Oregon to be served upon Kim T.
Buckley and John W. Stephens, Attorneys for Amicus Curiae Oregon Trial
Lawyers Association and Economic Fairness Oregon, Robert S. Banks, Jr. and
Joe Opron, III, attorneys forAmicus Curiae North American Securities
Administrators Association, Franklin Jason Seibert and Meyer Eisenberg,
Attorneys forAmicus Curiae Meyer Eisenberg and F. Jason Seibert, by mailing
two copies, with postage prepaid, in an envelope addressed to:
Kim T. Buckley #781589
John W. Stephens #773583Esler Stephens & Buckley888 SW 5th Avenue, Suite 700Portland, OR 97204Telephone: (503) 223-1510Email: [email protected]
Attorneys for Amicus Curiae OregonTrial Lawyers Association andEconomic Fairness Oregon
Robert S. Banks, Jr., OSB 821862
Joe Opron, III (admittedpro hac vice)Banks Law Office, PC1300 SW 5th Ave., Ste. 2135Portland, OR 97201Telephone: (503) 222-7475Email: [email protected]
Attorneys forAmicus Curiae NorthAmerican Securities AdministratorsAssociation
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Franklin Jason Seibert, OSB 095009F.J. Seibert, LLC A Law Office100 High Street SE, Suite 202Salem, OR 97301Telephone: (971) 235-5764
Email: [email protected]
Meyer Eisenberg(Oregonpro hac vice order pending)Visiting Professor of LawWillamette University College of Law245 Winter Street SESalem, OR 97301Telephone: (503) 370-6642Email: [email protected]
Attorneys forAmicus Curiae MeyerEisenberg and F. Jason Seibert
CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d)
I certify that (1) this brief complies with the word-count limitation in
ORAP 5.05(2)(b) and (2) the word-count of this brief (as described in ORAP
5.05(2)(a)) is 8,377 words. I further certify that the size of the type in this brief
is not smaller than 14 point for both the text of the brief and footnotes as
required by ORAP 5.05(4)(f).
/s/ Keith S. Dubanevich________________________________
KEITH S. DUBANEVICH #975200Chief of Staff and Special [email protected]
Attorney for Petitioner on Review