Opinion ID: 1941797
Heading Depth: 1
Heading Rank: 3

Heading: Certification of Determinative State Law Questions

Text: We turn therefore to the various state law claims against Jesup & Lamont since we have concluded that the firm is not subject to liability as a § 12(2) seller under federal law. As noted, Counts I and II remained against Jesup & Lamont in Foster's amended complaint, and Foster alleged violations of Alabama law in each of these counts. In Count I, Foster claimed damages for the sale of an unregistered security, which is made unlawful by § 8-6-4 of the Alabama Code,20 and which is made actionable by § 8-6-1921 (`Section 19' or `§ 19'). Section 19 extends liability to one who `sells or offers to sell' a security, and also to `every broker-dealer or agent who materially aids in the sale.' Ala.Code § 8-6-19(a), (b) ([Michie] 1984). The district court instructed the jury that `materially aided' is equivalent to `substantial factor.' 4 Rec. at 489. At trial, Foster objected to this instruction. Because the jury returned a verdict in favor of Foster, that objection is moot. However, with respect to the issue of exactly how much evidence is legally sufficient to support the jury verdict, Foster contends on appeal that less participation is needed to meet Alabama's `materially aided' standard than is needed to show that a defendant was a `substantial factor' in a sale and thus a `seller' under federal law. Apparently, Foster bases his argument on the language of § 19, which refers to `the nonseller who is [also] liable.'22 Unlike federal § 12, which limits liability to sellers, the Alabama provision imposes liability on a broader range of participants in securities transactions. In this respect, § 19 is similar to § 11 of the 1933 Act, which also lists specific participants who are subject to liability. We have found no Alabama case discussing the level of participation required for secondary liability under § 19. Because this point has become determinative in the present case, we certify the following question to the Alabama Supreme Court for instruction pursuant to Ala.R. App.P. 18: Question One: Has a securities firm `materially aided' an unlawful sale of a security within the meaning of Alabama Code § 8-6-19(b) under the following circumstances: (a) The firm's name was displayed prominently on an offering document used in connection with the sale, and the firm was presented in the document as the issue's primary best efforts underwriter, even though the firm had withdrawn from the offering; (b) The buyer relied on the firm's participation in the offering in reaching his decision to purchase an interest; (c) There is substantial evidence in the record from which we must infer that the jury found that an underwriter customarily is responsible for controlling distribution of the offering documents in a private offering; (d) The firm's president told the buyer's accountant that the firm was `involved' in the offering document after the firm had rescinded its agreement to help sell the security; (e) The buyer did not directly communicate with the brokerage firm in reaching his decision to invest; (f) The buyer met with the promoter of the issue to discuss the promoter's background and to discuss various business aspects of the venture before deciding to invest; (g) The buyer delivered his check to the promoter in exchange for the security. Count II of Foster's complaint contains two state law claims for damages based on the sale of a security by means of false written or oral communications. The first of these is grounded on Ala.Code § 8-6-19(a)(2). We believe that the disposition of this Alabama claim would be determined by the same question we have certified above with respect to Foster's state law registration claim. The viability of each of these claims depends on the Alabama Supreme Court's application of the `materially aided' standard to the facts of this case. Foster's other basis under state law for his Count II false communication claim is Ala.Code § 8-6-17.24 The district court treated this section as affording a private right of action and concluded on the basis of an analogy to federal Rule 10b-5 actions that scienter must be shown to support recovery under the section. Jesup & Lamont contend on appeal that the section does not afford a private right of action, while Foster appeals contending that an action under the section does not require scienter. We have found no Alabama case addressing either of these questions. Because they may determine Foster's right to recover if he is not successful with his other claims under Alabama law, we certify the following additional questions to the Alabama Supreme Court for instruction under Ala.R.App.P. 18: Question Two: Does Alabama Code § 8-6-17 afford a private right of action? Question Three: If a private cause of action is available under Alabama Code § 8-6-17: (a) is proof of scienter necessary to maintain the action? and (b) would severe recklessness meet the scienter requirement? 25 The particular phrasing used in the certified questions is not to restrict the Alabama Supreme Court's consideration of the problems involved and the issues as the Alabama Supreme Court perceives them to be in its analysis of the record certified in this case.