Court Opinion

ID: 4713586
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:39:30.520839+00
Date Added: 2024-06-11T08:07:18.453396
License: Public Domain

¶20 At issue is whether Clark E. and Barbara E. Kinney's complaint states a colorable claim for violation of The Securities Act of Washington, chapter 21.20 RCW.
 ¶21 The purpose of the securities act is "`to regulate investments, in whatever form they are made and by whatever name they are called.'" Cellular Eng'g, Ltd. v.O'Neill, 118 Wn.2d 16, 25, 820 P.2d 941 (1991) (emphasis omitted) (quoting Reves v. Ernst Young,494 U.S. 56, 61, 110 S. Ct. 945, 108 L. Ed. 2d 47 (1990)). It is a violation of the act for any person, "in connection with the offer, sale or *Page 847 
purchase of any security, directly or indirectly," to "employ any device, scheme, or artifice to defraud"; to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading"; or to "engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." RCW 21.20.010-(1)-(3). Anyone "who offers or sells a security" in violation of the act is civilly liable to the person who bought the security. RCW 21.20.430(1).
 ¶22 A "sale" of a security is broadly defined, encompassing "every contract of sale of, contract to sell, ordisposition of, a security or interest in a security for value." RCW 21.20.005(10) (emphasis added). An "offer" "includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value." Id. (emphasis added). Andany security given or delivered with "anypurchase of. . . any other thing is considered to constitute part of the subject of the purchase and to have been offered and sold for value." Id. (emphasis added).
 ¶23 "Security" is also expansively defined by a long and detailed list of items that constitute a "security," including "any note." RCW 21.20.005(12)(a). This definition "`embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.'" Cellular Eng'g, 118 Wn.2d at 24 (quotingSec. Exch. Comm'n v. W.J. Howey Co.,328 U.S. 293, 299, 66 S. Ct. 1100, 90 L. Ed. 1244 (1946)). And in determining whether a transaction constitutes the sale of a security, substance prevails over form, consistent with the purpose of the act to protect the investing public.
 ¶24 The trial court here granted Kenneth Cook's CR 12(b)(6) motion. A motion to dismiss under CR 12(b)(6) assumes the truth of the factual allegations of the complaint.Cutler v. Phillips Petroleum Co., 124 Wn.2d 749, *Page 848 
755, 881 P.2d 216 (1994). The motion should be granted only if it appears beyond a reasonable doubt that no facts exist, including hypothetical facts, that would justify recovery.Id. A CR 12(b)(6) motion is to be granted sparingly and only in the unusual case in which the complaint reveals on its face an insuperable bar to relief. Id. A trial court's ruling on a CR 12(b)(6) motion is reviewed de novo as a matter of law. Id.
 ¶25 Applying the generous standard required under CR 12(b)(6), the broad provisions of the securities act, as well as the liberal construction placed on the securities act for the protection of investors, see Cellular Eng'g,118 Wn.2d at 23, summary judgment was improper in this case. Securities are inextricably involved in these parties' transaction. The original loan Cook made to the Kinneys was for the purpose of forming Spokane Freightliner, Inc., the corporation that issued the stock here. The Kinneys gave Cook a promissory note for the loan amount, securing the note with an agreement pledging their shares to Cook as collateral. Only when they finally repaid the loan did they receive stock certificates. As mentioned above, a "sale" includes any security or interest in a security "`given ordelivered" with "any purchase of . . . any otherthing." RCW 21.20.005(10) (emphasis added). Moreover, every note is "presumed" to be a security, with the burden on the defendant to prove otherwise. Douglass v. Stanger,101 Wn. App. 243, 252, 2 P.3d 998 (2000).
 ¶26 Given the intent of the securities law to protect investors, the blatant conduct by Cook, and the injury suffered by the Kinneys, I would hold that the Kinneys' complaint survives this motion to dismiss for failure to state a claim. *Page 849