Case Title: Futureselect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc. (Majority and Concurrence)

Citation: 

Docket Number: 89303-9

State: washington

Court: Washington Supreme Court

Date: 2014-07-17T00:00:00Z

Document:
oxre_JUL LT aM
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Supreme Cour: Gam

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

FUTURESELECT PORTFOLIO
MANAGEMENT, INC.;

FUTURI ‘CT PRIME ADVISOR
ILLLC; THE MERRIWELL FUND,

 

LP; and TELESIS IW, LLC, No. $9303-9
Respoitdents,
v 1
i
‘TREMONT GROUP HOLDINGS, En Bane

OPPENHEIMER ACQUISITION
CORPORATION; MASSACHUSETTS}
MUTUAL LIFE INSURANCE CO.;
and ERNST & YOUNG LLP,

 

Petitioners,
and

)

)

)

)

)

)

)

)

)

)

)

INC; TREMONT PARTNERS, INC; )

)

)

)

)

)

)

)

)

)

GOLDSTEIN GOLUB KESSLER LLP )

and KPMG LLP, )

) ited JUL 1 7 2016

Defendants. )
)
FutureSelect v. Tremont Group Holding, Inc. eta, No, 89303-9

GONZALEZ, J.— Between 1997 and 2008, FutureSelect, a Redmond based
financial company, invested nearly $200 million in Tremont’s Rye Funds, which
pooled and fed money into Bernie Madoff's fraudulent securities investment scheme.
‘These investments were lost when Madoff’s fraud unraveled. FutureSelect sued
‘Tremont, Oppenheimer Acquisition Corp. and MassMutual (Tremont’s parent
companies), and Ernst & Young and Tremont’s other auditors for their failure to
conduct due diligence on Madoff's operations. FutureSelect alleged violations of the
Washington state securities act (WSSA), chapter 21.20 RCW; negligence; and
negligent misrepresentation.

The trial court dismissed on the pleadings, finding Washington’ security law
did not apply and that Washington courts did not have jurisdiction over Oppenheimer.

‘The Court of Appeals reversed. Defendants seek to reinstate the

 

court’s findings.
‘Oppenheimer argues that it lacks the requisite minimum contacts with Washington for
personal jurisdiction. The defendants collectively argue that dismissing for failure to
state a claim is appropriate because New York law—which does not provide for a
private cause of action under its state securities act, rather than Washington law,
which does—applies. Ernst and Young also contends that itis nota “seller” under the
WSSA. We affirm the Court of Appeals.
FACTS

The lead plaintiff, FutureSelect Portfolio Management Inc., is headquartered in

Washington and manages a number of investment funds. ‘The first named defendant,

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FutureSelect v, Tremont Group Holding, Inc. et a., No. 89303-9

‘Tremont Partners Inc., is headquartered in New York and serves as the general partner
to the Rye Funds,’ whose status as feeder funds to Bemard L., Madoff Investment
Securities LLC (Madoff) is atthe heart of this dispute.

The relationship between FutureSelect and Tremont began when a Tremont
representative visited FutureSelect’s Redmond offices in 1997 to solicit
FutureSelect’s investment in the Rye Funds. This initiated a series of discussions
between FutureSelect and Tremont regarding the Rye Funds. Tremont claimed that
it was offering FutureSelect a rare, and potentially fleeting, opportunity to invest with
Madoff, ‘Tremont also made assurances about its oversight and understanding of
Madof?’s operation. Relying on these assurances and the audit opinions of the
accounting firm hired by Tremont, FutureSelect decided to invest in the Rye Funds in
1998, FutureSelect and Tremont had monthly ongoing communications about Madoff
and the performance of the Rye Funds, Tremont claimed that its ongoing oversight
and testing of Madoff proved satisfactory. Tremont also provided FutureSelect with
purported facts proving the health of the Rye Funds,

Between 1998 and late 2008, when Madoff's Ponzi scheme finally came to
light, FutureSelect continued to invest more funds in the Rye Funds as a result of the

represent

 

jons it regularly received from Tremont and its auditors. In all,

FutureSelect invested $195 mi

 

‘Tremont. But, Madoff never invested any of

"Fremont Partners serves as the geneal partner ofthe Rye Select Broad Market Fund, LP, the
Rye Seleot Broad Market Prime Fund LP, and the Rye Select Broad Market XL Fund LP
(collectively Rye Funds),

3
FutureSelectv. Tremont Group Holling, Inc. et al., No. 89303-9

the capital he received through the Rye Funds or any other feeder. FutureSelect lost
its entire investment, Believing that Tremont had significantly misled it, FutureSelect
sued Tremont; MassMutual and Oppenheimer (Tremont’s parent companies); and
Emst & Young, KPMG? and Goldstein Golub Kessler (Tremont’s auditors)>

In its complaint, FutureSelect alleged that the defendants are liable for (1)
violating RCW 21.20,010 and RCW 21.20.430, (2) negligence,’ and (3) negligent
mistepresentation.© According to the complaint, Tremont’s liability is based on the
direct misrepresentations made by Tremont to FutureSelect that FutureSelect relied on
in making, maintaining, and adding to its investment in the Rye Funds. It alleged that

‘Tremont acted as MassMutual and Oppenheimer’s agent or apparent agent.” It

2 KPMG and FutureSelect have since entered arbitration.

» Goldstein Golub Kesseler and FutureSelect have since settled,

* FutureSelect believes all the defendants are liable for violations ofthe WSSA. Under the
WSSA,

It is unlawful for any person, in connection with the offer, sale or purchase of any
security, directly or indirectly:

(1) To employ any device, scheme, or artifice to defraud;

2) To make any untrue statement of a material fact orto omit to state a material
{uct novessary in order to make the statements made, inthe light ofthe circumstances
under which they are made, not misleading; or

(3) To engage in any act, practice, or course of business which operates or would
‘operate asa fraud or deceit upon any person.

RCW 21.20.010.

5 FutureSelect brings the negligence claim against Tremont only.

® FutureSelect brings the negligent misrepresentation claim against Tremont and Ernst & Young,
‘ot Oppenheimer and MassMutual.

MassMutual and Oppenheimer purchased Tremont in 2001. FutureSelect believes that these
companies exerted sufficient direct control over Tremont thatthe subsidiary's liability should be

4
FutureSelect v. Tremont Group Holding, Inc. et a., No. 89303-9

alleged Emst & Young made direct misrepresentations* that FutureSelect relied on in

 

maintaining and adding to its investment in the Rye Funds. The defendants filed
separate motions to dismiss on the pleadings. Without stating the specific grounds for

dismissal, the trial court granted these motions in full after conducting a hearing and

 

considering a number of pleadings, declarations, and briefs. FutureSelect obtained a

CR 54(b) order granting final judgment on the dismissals allowing this appeal,

‘The Court of Appeals reversed in part and affirmed in part, finding that (1)
‘Washington has the most significant relationship to the state securities act claims,
negligent misrepresentation claims, and agency claims; (2) the complaint sufficiently
alleged personal jurisdiction over Oppenheimer; and (3) the trial court properly
dismissed the apparent agency claim against Oppenheimer and negligence claim
against Tremont, FutureSelect Portfolio Mgmt, Inc. v. Tremont Grp. Holdings, Inc.,
173 Wn. App. 840, 890-95, 309 P.3d 555 (2013). We granted review and now affirm

the Court of Appeals.

{imputed tothe parent companies. Further, FutureSelect alleges that both MassMutual and
Oppenheimer stood to gain profit from Tremont’s relationship with Madoff and were complicit
in the misrepresetations made to FutureSelect.

* Est & Young audited the Rye Funds from 2000 to 2003. During that ime, FutureSelet
continued and enkanced its investment in the Rye Funds in reliance on Est & Youngs alt
statements, FutureSelect believes that Emst & Young falsly claimed that it followed generally
accepted auditing standards and thet it improperly verified Madof'stades purportedly made on
behalf of the Rye Funds, FutureSelect also claims that Emst & Young omitted material facts
such as that it could not rely on Madof's auditor and that it had not actually audited Madof?'s
‘own books. Because of a required verifiation of investment in the Rye Funds and the way the
audit statements were addressed, FutureSelect alleges these misrepresenations were made
directly to it and the other partners ofthe Rye Funds

 

3
FutureSelectv. Tremont Group Holding, Inc, etal, No. 9303-9

ANALYSIS.
1. Standard of review

We review CR 12(b)(6) dismissals de novo. Kinney v. Cook, 159 Wn.2d 837,
842, 154 P.3d 206 (2007) (citing Tenore v. AT&T Wireless Servs., 136 Wn.2d 322,
329-30, 962 P.2d 104 (1998), “Dismissal is warranted only if the court concludes,
beyond a reasonable doubt, the plaintiff cannot prove ‘any set of facts which would

just

 

recovery."” Id. (quoting Tenore, 136 Wn.2d at 330). All facts alleged in the
complaint are taken as true, and we may consider hypothetical facts supporting the
plaintif?’s claim, Jd. “Therefore, a complaint survives a CR 12(b\(6) motion if any
set of facts could exist that would justify recovery.” Hoffer v, State, 110 Wn.24 415,
420, 755 P.2d 781 (1988) (citing Lawson v. State, 107 Wn.2d 444, 448, 730 P.2d 1308
(1986); Bowman v, John Doe Two, 104 Wn.2d 181, 183, 704 P.2d 140(1985)). But,
“{iJfa plaintiff's claim remains legelly insufficient even under his or her proffered
hypothetical facts, dismissal pursuant to CR 12(b\(6) is appropriate.” Gorman v.
Garlock, Inc., 155 Wn.2d 198, 215, 118 P.34 311 (2005). Similarly, we review a CR
12(b(2) dismissal de novo. In re Estate of Kordon, 157 Wn.2d 206, 209, 137 P.3d 16
(2006) (citing State v. Squally, 132 Wn.2d 333, 340, 937 P.2d 1069 (1997).

Il Personal jurisdiction

‘Oppenheimer argues that it lacks the requisite minimum contacts with

Was!

 

igton and our courts’ exercise of personal jurisdiction would offend due
process, See Suppl. Br. of Oppenheimer at 7. It is mistaken, At this stage of

6
FutureSelect v, Tremont Group Holding, Inc. et al, No, 89303

 

litigation, the allegations of the complaint establish sufficient minimum contacts to

 

survive a CR 12(b\2) motion, However, Oppenheimer may renew its jur
challenge after appropriate discovery has been conducted.

A. Specific jurisdiction

For the exercise of specific jurisdiction under Washington’s long arm statute to

be proper, the defendant's conduct must fall under RCW 4.28.185 and the exercise of

  

Jurisdiction must not violate constitutional principles. Grange Ins. Ass'n v. State, 110
Wn.2d 752, 756, 757 P.2d 933 (1988) (citing Werner v. Werner, 84 Wn.2d 360, 364,
526 P.2d 370 (1974). “In order to subject nonresident defendants and foreign
comporations to the in personam jurisdiction of this state under RCW 4.28.185(1)(a),”
Washington’s long arm statute, we must find the following factors:

“(1) The nonresident defendant or foreign corporation must purposefully do
some act or consummate some transaction in the forum state; (2) the cause of
action must arise from, or be connected with, such act or transaction; and

3) the assumption of jurisdiction by the forum state must not offend trai
notions of fair play and substantial justice, consideration being given to the
quality, nature, and extent of the activity in the forum state, the relative
convenience of the parties, the benefits and protection of the laws of the forum
state afforded the respective parties, and the basic equities of the situation.”

 

jonal

‘Shute v. Carnival Cruise Lines, 113 Wn.2d 763, 767, 783 P.2d 78 (1989) (quoting
Deutsch v. W. Coast Mach. Co., 80 Wn.24 707, 711, 497 P.24 1311 (1972)). This
inquiry encompasses both the statutory and due process concems of exercising

personal jurisdiction.
FutureSelectv, Tremont Group Holding, Ine, eta, No. 89303-9

FutureSelect alleges jurisdiction is proper under RCW 4.28.185(1)(a), which
extends jurisdiction arising out of “[t]he transaction of any business within this state,”
con the theory that Oppenheimer transacted business in Washington through Tremont,
its agent. RCW 4.28.185(1) explicitly permits Washington courts to exercise
Jurisdiction over a principal based on the actions of its agent.? We apply the Shute
{actors to the allegations contained in FutureSelect’s complaint, which we accept as
{true given the procedural posture of this case.

B, Shute factors

First, we find the complaint sufficiently establishes that Tremont acted as
Oppenheimer’s agent for purposes of the CR 12 motion. The complaint asserts that
Oppenheimer (1) owned, directed, influenced management, and provided support
services! to Tremont; (2) directed Tremont to change its auditor from Ernst & Young
to KPMG; (3) placed its own president and director, who was also a vice president at

‘MassMutual, on Tremont’s board of directors;"! and (4) actively managed and used its,

 

 

° In relevant part, the statute provi

 

that

(1) Any person, whether or nota citizen or resident of this state, who in person or
‘hrough an agent does any ofthe acts inthis section enumerated, thereby submits said
person, and, ifan individual, his or her personal representative, to the jurisdiction of the
courts ofthis state as to any cause of action arising from the doing of any of said acts

RCW 4.28.185 (emphasis added).
‘© These services consisted of compliance, audit, finance, and human resources,
"Specifically, FutureSelect alleges that “all five of Tremont’s board members became
‘MassMutual, Oppenheimer and/or Oppenheimer unds employees.” Clerk’s Papers at 18.
FutureSelect v. Tremont Group Holding, Inc. et al., No. 89303-9

image to help Tremont with marketing and soliciting investment activity. For the

 

purposes of the motion to dis

 

iss, we find agency.

Accepting the agency relationship, we find the complaint also adequately
alleges that Tremont's misrepresentations, which we presume without deciding were
made on Oppenheimer’s behalf and received in Washington, satisfy the first two
‘Shute factors, Tremont directed numerous representations at FutureSelect. As a result
of these representations, FutureSelect maintained and contributed millions of dollars
‘its initial investment in the Rye Funds. Much of this occurred after Oppenheimer’s
acquisition of Tremont, Accordingly, the allegations in the complaint sufficiently
establish that Oppenheimer transacted business with FutureSelect in Washington
through its agent.

We turn now to whether the assumption of jurisdiction offends traditional
notions of fair play and substantial justice. Weighing (1) the quality, nature, and
extent of Oppenheimer's activity in Washington, (2) the convenience of the parties,
(3) the benefits and protection of Washington aw, and (4) the basic equities of the
situation, we conclude it does not,

First, the quality, nature, and extent of Tremont’s activity in Washington were
significant, The business relationship with FutureSelect extended from 2001 until
2008; involved the solicitation, offer, and sale of securities; and resulted in ongoing
transfers of extremely large sums of money from Washington to Oppenheimer via

‘Tremont,
FutureSelect v. Tremont Group Holding, Inc. et a., No. 89303-9

‘Second, nothing in the record suggests that Washington courts exercising
Jurisdiction would pose an undue burden on Oppenheimer.

Finally, the benefits and protections of Washington law as well as the equities
of the situation cut squarely in favor of our courts exercising jurisdiction, Our law
explicitly protects investors from frauel and misrepresentations made by sellers of
securities. See RCW 21,20.010. Not allowing Washington courts to enforce our
statutes and regulations against nonresident companies thet solicit, offer, and sell
securities inthis state would undermine the efficacy of this regulatory regime and
create a perverse incentive for principals to insulate themselves from liability by
operating exclusively through agents.

Given these considerations, we reverse the trial court and remand for further

proceedings, Though we leave open Oppenheimers al

 

ty to renew its motion, we

{ind the trial court dismissed prematurely. Some limited discovery and a resolution of

 

<isputed jurisdictional facts are warranted, The trial court should determine whether
‘an agency relationship existed between Oppenheimer and Tremont at any point during,
the relevant time period and, if'so, whether jurisdiction is proper under the Shute
factors.
IIL. Choice of law

Next, we turn to whether Washington or New York law applies to this case.
Defendants argue that New York law applies because New York has the more

significant relationship to the dispute and that dismissal on the pleadings was

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FutureSelect v. Tremont Group Holding, Ine. et a., No, 89303-9

warranted because there is no private cause of action under New York’s state security
aw. On this record, we disagree, The allegations in the complaint are sufficient to
survive the defendants’ CR 12(b)(6) motion.

A. Actual conflict

Asa preliminary matter, when choice of law is disputed, “there must be an
actual conflict between the laws or interests of Washington and the laws or interests of
another state before Washington courts will engage in a conflict of laws analysis.”
Seizer v, Sessions, 132 Wn.2d 642, 648, 940 P.2d 261 (1997) (citing Burnside v.
‘Simpson Paper Co., 123 Wa.24 93, 100-01, 864 P.24 937 (1994)). Here, an actual
conflict exists between the WSSA, ch. 21.20 RCW, and New York’s Martin Act, N.Y.
GEN. BUS. LAW art, 23-A, §§ 352-359. Specifically, the WSSA provides for a private

right of action, see RCW 21.20.430, while New York's Martin Act does not, see N.Y.

 

GEN. BUS. LAW art, 23-A, §§ 352-359.
B. Significant relationship test.
To settle choice of law questions, Washington uses the most significant

relationship test as articulated by Restatement (Second) of Conflict of Laws § 145

(1971). Johnson v. Spider Staging Corp., 87 Wn.2d 577, 580-81, 555 P.2d 997

 1tis important to remember that for choice of law questions “the utimate outcome, in any
‘sven ease, depends upon the undeslying cts ofthat case.” Souchwell . Widing Transp, Inc,
101 Wn.2d 200,204, 676 P.24 477 (1984), This require «subjective analysis of objective
factors. Id. Though we hesitate to articulate any categorical rules, such an analysis doesnot lend
itself readily to disposition on a CR 12(0\6) motion.

? Inrelevant par, § 145 asks us to consider the fllowing contacts:
FutureSelect¥, Tremont Group Holding, ne, et a, No, 89303-9

(1976). FutureSelect argues we should also formally adopt § 148, which refines the §
145 factors for the fraud and misrepresentation context. See Suppl. Br. of Resp'ts at
6. Defendants, on the other hand, urge us to take an orthodox interpretation of
Haberman v. Washington Public Power Supply System, 109 Wn.2d 107, 135-36, 744
P.2d 1032 (1987),"* and apply § 145 exclusively. See Suppl. Br. of Tremont et al. at
5; Ernst & Young LLP’s Suppl. Br. at 2-3. We agree with FutureSelect.

Haberman and § 145 provide a basic framework for choice of law questions.'*

But we have not shied from applying a different, more specific section of the

 

Restatement when warranted by a particular tort. E.g., Williams v. Leone & Keeble,

Inc., 171 Wn.2d 726, 735 n.6, 254 P.3d 818 (2011) (“On remand the Court of Appeals
will have to review the trial court's choice of law ruling, giving application to the

Restatement (Second) of Conflict of Laws § 146 [Personal Injuries}"). Given the

(@) the place where the injury occurred,
() the place where the conduct causing the injury occured,
(©) the domicil, residence, nationality, place of incorpo
parties, and
(€) the place where the relationship, if any, between the parties is centered.
‘These contacts are to be evalusted according to thee relative importance wi respect to the
patiula issue

  

  

ResraTeMeNr § 145.
Tn Haberman, we were faced witha choice of law question involving the WSSA and we
resolved the issue by looking exclusively at § 145. 109 Wn.2d at 135-36.

"= Ttis worth noting that in Haberman “[nJo party contended] that another state's securities act
applie[dl.” 1d. at 135. ‘The question was whether the WSSA could apply to “an action brought
ina Washington forum where out-of-state parties are under {Washington's} jurisdiction,” 1d. at
134, This isa different dispute than the one we face today, where parties are disputing whether
‘Washington or New York law applies

 

2
FutureSelect v, Tremont Group Holding, Inc et al., No. 89303-9

nature of mistepresentation, we find the factors in § 148 to be more helpful than those
in § 145,

Previously, we developed a two-step analysis for the significant relationship
inquiry under § 145. Southwell v. Widing Transp., Inc., 101 Wn.2d 200, 204, 676
P.2d 477 (1984). Our adoption of § 148 does not alter this approach, Accordingly,
first, courts will continue to evaluate the contacts with each interested jurisdiction. Id.
‘The “approach is not merely to count contacts, but rather to consider which contacts
‘are most significant and to determine where these contacts are found.” Johnson, 87
Wn.2d at $81 (citing Baffin Land Corp. v. Monticello Motor Inn, Inc., 70 Wn.24 893,
900, 425 P.2d 623 (1967)), Second, courts will continue to evaluate the interests and
Public policies of potentially concermed jurisdictions. Southwell, 101 Wn.2d at 204.
“The extent of the interest of each potentially interested state should be determined on.
the basis, among other things, ofthe purpose souight to be achieved by their relevant
local law rules and the particular issue involved.” Id. (citing Johnson, 87 Wn.2d at
582),

1. Evaluation of contacts

Under § 148, to determine the jurisdiction with the most significant relationship
to the dispute, we must consider (1) the place where plaintiff acted in reliance on the
representations; (2) the place where the plaintiff received the representations; (3) the
place where the defendant made the representations; (4) the domicile, residence,
nationality, place of incorporation, and place of business of the parties; (5) the place

13
FutureSelect v. Tremont Group Holding, Inc. et al, No. 89303-9

where a tangible thing, which is the subject of the transaction between the parties, was
situated at the time; and (6) the place where the plaintiff is to render performance
under a contract that he has been induced to enter by the false representations of the
defendant, RESTATEMENT § 148.

Much like in Southwell, this case has “not presented this court with a record
that is sufficiently developed to enable us to undertake the factual analysis necessary
for proper resolution of the conflicts issue involved.” 101 Wn.2d at 205. But for
purposes of reviewing dismissal under a CR 12(b\(6) motion, we look to the
complaint and conclude that FutureSelect could show that (1) Washington was the
place where FutureSelect acted in reliance on the representations, (2) Washington was

the place where FutureSelect received the represent

 

ms, (3) Washington and New
York were the places where the defendants made the representations, (4) Washington
and New York were the primary places of business of the parties, and (5) it cannot be
determined either way where FutureSelect was to render performance under the
contract that it had been induced to enter by the false representations of the
defendant."

To complete this analysis, we must “consider which contacts are most

 

significant” in addition to finding out where they are found. Johnson, 87 Wn.24 at

‘© The remaining factor—"the place where a tangible thing which isthe subject ofthe transaction
‘between the parties was situated atthe time,” Restatement § 148—is inapplicable because this
‘transaction did not involve a tangible thing.

4
FutureSelect v. Tremont Group Holding, Inc. et a., No, 89303-9

581 (citing Baffin Land Corp.,70 Wn.24 at 900). ‘The record is insufficient to permit
us to engage in this inquiry, and so we leave it open,

In short, we find the contacts pleaded by FutureSelect to be sulficient to survive
the defendants’ CR 12(b)(6) motions on the choice of law issue, '7

2. Interests and public policies of jurisdictions

‘Next, we tum to the second step of our analysis, which asks us to evaluate the
interests and public policies of the jurisdictions, Southwell, 101 Wa.2d at 204. Here,
Washington has a more compelling interest in protecting its investors from fraud and
misrepresentation than New York does in regulating sellers of securities that may
have perpetrated fraud or mistepresentation in another state.

At ts core, this case does not involve a generalized regulation of securities
sales, but the weighing of specific representations and assurances that allegedly
targeted Washington investors. Washington has a strong interest in giving,
‘Washington investors the benefit of Washington law and in requiring the sellers of
securities to comply with it

We recognize the legislature's directive to interpret the WSSA to promote

uniformity with federal securities law and those of others states, RCW 21.20.900,

"7 Emst & Young encourages us to rina separate analysis forthe choice of laws issue. ‘This is
proper because the record may show different significant contacts forthe claims against Ernst &
‘Young than for the claims against Tremont, However, at this procedural stage, a single analysis
is sufficient because too many facts are in dispute and we must accept the allegations inthe
complaint as true, Accordingly, we accept that Ernst & Young can be established to be a seller
of securities under the WSSA, as discussed in the analysis below, and so, the claims against
[Emst & Young have many of the same contacts as Tremont.

1s

 
FutureSelect v. Tremont Group Holding, Inc. etal, No. 89303-9

But “[oJur examination does not end there.” Kinney, 159 Wn.2d at 844. “The
‘Washington Act is unique; special emphasis is placed on protecting investors from
fraudulent schemes.” Jd. at 844 (citing Hoffer v. State, 113 Wn.2d 148, 152, 776 P.2d
963 (1989) (Hoffer I)). Indeed, we have stated that “the ‘primary purpose’ of the Act
is “to protect investors from speculative or fraudulent schemes of promoters.”
Go2Net, Inc, v. Freeyellow.com, Inc., 158 Wn.24 247, 253, 143 P.3d $90 (2006)
(emphasis omitted) (quoting Cellular Eng'g, Ltd. v. O'Neill, 118 Wn.2d 16, 23, 820
P.2d 941 (1991)). “The Act “is remedial in nature and has as its purpose broad
protection of the public.” Id. (emphasis omitted) (quoting MeClellan v. Sundholm,
89 Wn.2d 527, 533, 574 P.2d 371 (1978)), Applying New York rather than
Washington law, which would deprive FutureSelect of a private cause of action,
would necessarily frustrate this purpose. We decline to do so without clear evidence
that New York has the more significant relationship to the dispute, which does not
necessarily follow from this record.
IV. Definition of “seller” under WSSA

‘The final question at issue involves whether Emst & Young can be considered

asseller under the WSSA. Ernst & Young argues that because FutureSelect refers only

 

to its audits and audit reports, which are purely professional services, and nothing,
related to the sale of securities, the trial court properly granted its motion to dismiss.

Emst & Young LLP’s Suppl. Br. at 17-18, We disagree.

16
FutureSelect v, Tremont Group Holding, Inc. eta, No. 89303-9

‘The WSSA imposes civil liability on anyone who sells a security in violation of
certain provisions of the act. RCW 21.20,430(1). A “seller” includes any party
whose acts were a “substantial contributive factor" to the sale. Haberman, 109 Wn.2d
at 131. This is meant to be an expansive definition, Even so, we do require plaintifts
to establish “something more™ in addition to the provision of routine professional
services, Hines v. Data Line Sys,, Inc., 114 Wn.2d 127, 149-50, 787 P.2d 8 (1990).
Because it is possible that FutureSelect can establish the requisite “something more,”
dismissal on the pleadings was inappropriate.

In Hines, we found that there was no evidence to indicate thatthe attorneys that
‘were being sued under the WSSA had any personal contact with any of the investors
‘or were in any way involved in the solicitation process. Id. at 149. There, we found
“{t}he advice given by Perkins Coie to Data Line was not a catalyst in the sales
‘transaction between Data Line and the investors.” /d. at 150. This meant that Perkins
Coie could not be held liable asa seller. Ia.

‘The situation here is different. Among other things, Hines was resolved on

summary judgment, not on a CR 12(b}(6) motion. Jd. at 148, Because the question of

 

whether someone was a substantial contributive factor is “necessarily a question of
fact,” Haberman, 109 Wn.2d at 132, itis not easily resolved on the pleadings as long
as the complaint contains sufficient allegations,

Here, FutureSelect has met this requirement. Its complaint alleges that

FutureSelect “would not hav

 

ested in the Rye Funds if the funds were not

7
FutureSeectv. Tremont Group Holding, Inc. etal, No. 89303

 

audited” by Est & Young. Clerk's Papers at 37. Moreover, FutureSelect has also
alleged that Emst & Young “knew that its audits would be used by Tremont to solicit
investors [and] also knew and intended that current investors would rely on the audits
when deciding to maintain and increase their investments in the Rye Funds.” Jd,
Finally, Emst & Young asked FutureSelect to verify its investment in the Rye Funds
and addressed its audits directly to the partners of the Rye Funds, which included
FutureSelect, Id. at 23.

FutureSelect is entitled to an opportunity to prove what it alleged. We reverse
the trial court's CR 12(b)(6) dismissal.

CONCLUSION

Because FutureSelect has met its initial burden of production, we reverse the
trial court’s dismissal on the pleadings, On remand, the trial court shall (1) allow
limited discovery on the jurisdictional issue and, if necessary, conduct a jurisdictional
hearing to resolve any contested material facts and (2) give the parties an opportunity
to fully develop the record surrounding the sale of securities to FutureSelect so that
the tral court can properly consider the Restatement § 148 factors as they apply to the

various defendants and determine whether Emst & Young's acts were a substantial

 

contributing factor to FutureSelect’s deci

 

to continue investing in the Rye Funds,
We affirm the Court of Appeals and remand to the trial court for further proceedings

consistent with this opinion.
FutureSelectv, Tremont Group Holding, Ine. etal, No. 89303-9

(aprelee L
WE CONCUR:

a ae

Tai teust .Q - Kulik, 5P.T,
FutureSetect v, Tremont Group Holding, Inc. eta, No, 89303-9
(Gordon McCloud, J., Concurring)

No. 89303-9

GORDON McCLOUD, J. (concurring)—1 fully agree with the
majority’s well-reasoned analysis and conclusions about jurisdiction and
choice of law. 1 write separately only to comment on how broadly that
opinion construes the word “sellfer]” in RCW 21.20.430(1)—so broadly that
it includes the nonseller accounting firm Ernst & Young.

‘The majority is correct that in 1987, this court imported into
Washington's securities law the majority rule in the federal circuits for
interpreting the word “sellfer]” under federal securities law; we held that
“seli[er]” must be construed broadly to include those whose actions were a
“substantial contributive factor” in the sale, Haberman v. Wash. Pub. Power
Supply Sys., 109 Wn.2d 107, 130-31, 744 P.2d 1032, 750 P.2d 254 (1987).
But one year after Haberman, the United States Supreme Court decided
Pinter v, Dahl, 486 U.S, 622, 653-54, 108 S. Ct. 2063, 100 L. Ed. 24 658

(1988). Pinter construed the word “sellfer]” in the related federal securities
FutureSelect v. Tremont Group Holding, Inc. et al., No, 89303-9
(Gordon McCloud, 5, Concurring)

law, and it expressly rejected the broad interpretation that most circuit courts
had adopted under federal law and that we had adopted under state law.
Predictably, in 1989, we considered a post-Pinter challenge to the
Haberman court's interpretation of our state’s securities law. In Hoffer v.
State, 113 Wn.2d 148, 152, 776 P.2d 963 (1989), we rejected the argument
that the Supreme Court’s analysis was more persuasive than our own and
adhered to the “substantial contributive factor” interpretation of “sellfer]” as
adopted in Haberman. The dissent in Hoffer, by contrast, asserted that
“RCW 21.20.430(1), by its plain language, requires privity of the seller and
the person buying the security.” Jd. at 153 (Pearson, J., dissenting). It also
noted that “[tJhe underpinnings of Haberman came from lower federal court
decisions which are no longer authoritative in light of the Pinter ruling,” Id.
The Hoffer dissent made good sense at the time it was written. The
very federal cases upon which the Haberman decision relied were expressly
disapproved by Pinter. In fact, that dissent makes even more sense now, 27
years later, as even more circuits that the Haberman majority relied on have
repudiated their earlier adoption of the nontextual “substantial contributive
factor” test. For example, the Haberman majority explicitly relied on a

Ninth Circuit case in adopting our test, Haberman, 109 Wn.2d at 127 (citing
FutureSelect v, Tremont Group Holding, Ine. et al., No. 89303-9
(Gordon McCloud, J., Concurring)

Anderson v. Aurotek, 774 F.24 927, 930 (9th Cir, 1985) (per curiam). In
2007, that case was repudiated by the Ninth Circuit in light of Pinter. See.
& Exch. Comm'n v. Phan, 500 F.3d 895, 906 n.13 (9th Cir. 2007).
Nevertheless, the majority is absolutely correct that Haberman is
controlling, not the Hoffer dissent. 1 therefore concur in the majority's
decision. In light of Haberman and Hoffer, FutureSelect has sufficiently
alleged that Emst & Young was a “sellfer|” to avoid dismissal on the

pleadings.
FutureSelect v. Tremont Group Holding, Ine. et al., No. 89303-9
(Gordon McCloud, J., Concurrence)

Hebe PAA.