Court Opinion

ID: 4227688
Source: CourtListenerOpinion
Date Created: 2017-12-11 23:33:02.913449+00
Date Added: 2024-06-11T14:15:58.312369
License: Public Domain

2011 DEC         '• 55

      IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 FEDERAL HOME LOAN BANK OF                           No. 75779-2-1
 SEATTLE, a bank created by federal
 law,                                                DIVISION ONE

                     Appellant,

              V.

 CREDIT SUISSE SECURITIES(USA)                       UNPUBLISHED
 LLC, f/k/a CREDIT SUISSE FIRST
 BOSTON LLC, a'Delaware limited                      FILED: December 11,2017
 liability company; CREDIT SUISSE
 FIRST BOSTON MORTGAGE
 SECURITIES CORP., a Delaware
 corporation; and CREDIT SUISSE
 MANAGEMENT LLC, f/k/a CREDIT
 SUISSE FIRST BOSTON
 MANAGEMENT LLC, a Delaware
 limited liability company,

                     Respondents.

       Cox, J. — Reasonable reliance is an essential element of a claim under

RCW 21.20.010(2) of the Washington State Securities Act("WSSA").1 Federal

       1 Go2Net, Inc. v. Freeyellow.com, Inc., 158 Wn.2d 247, 251, 143 P.3d 590
(2006); Hines v. Data Line Sys., Inc., 114 Wn.2d 127, 134, 787 P.2d 8(1990);
Fed. Home Loan Bank of Seattle v. Barclays Capital, Inc., No. 75913-2-1, slip op..
at 2-3(Wash. Ct. App. Dec. 11, 2017); Stewart v. Estate of Steiner, 122 Wn.
App. 258, 264, 93 P.3d 919(2004), review denied, 153 Wn.2d 1022(2005).
No. 75779-2-1/2

Home Loan Bank of Seattle ("FHLBS") commenced this action under the WSSA,

after purchasing certain securities. FHLBS claimed that statements in

prospectus supplements related to these securities were untrue or misleading.

The trial court granted the motion for summary judgment by Credit Suisse

Securities (USA), Credit Suisse First Boston Mortgage Securities Corp. and

Credit Suisse Management LLC (collectively, "Credit Suisse").

       On appeal, we conclude that there is no genuine issue of material fact

whether FHLBS reasonably relied on the statements in either prospectus

supplement. It could not have so relied because each supplement was made

publicly available after FHLBS completed the purchases of the related securities.

Credit Suisse is entitled to judgment as a matter of law. We affirm.

       The material facts are undisputed. FHLBS purchased four residential

mortgage backed securities("RMBSs")from a Credit Suisse entity. RMBSs are

securities that are created by a process called "securitization" that entitles an

investor to the stream of income payments from a pool of residential mortgage

loans.2 Two of the four RMBSs are at issue here.

       Credit Suisse filed prospectus supplements with the Securities and

Exchange Commission for both RMBSs. It is undisputed that FHLBS purchased

one of the two securities on September 30, 2005, before 2:00 p.m. Credit Suisse

filed the related prospectus supplement that day but it was not publicly available

until around 5:00 p.m. eastern time, after this purchase was completed.

       2 See   Barclays Capital, Inc., slip op. at 2-3; Clerk's Papers at 2657-60,
2793-96.

                                              2
No. 75779-2-1/3

       FHLBS purchased the other RMBS on May 30, 2007. Credit Suisse filed

the related prospectus supplement with the SEC on June 1, 2007, the day after

the purchase was completed.

      FHLBS commenced this action for rescission and other relief. It alleged in

its amended complaint that it had relied on untrue or misleading statements in

both prospectus supplements. Credit Suisse moved for summary judgment,

which the trial court granted. The court did so on the basis that"FHLBS failed to

establish that it reasonably relied on the misstatements it alleged were contained

in the prospectus supplements" because it purchased the securities before

reviewing the prospectus supplements.3

      FHLBS appeals.

                            REASONABLE RELIANCE

       Despite the allegations in its earlier readings, FHLBS primarily now argues

that the trial court improperly granted summary judgment because reasonable

reliance is not an essential element under RCW 21.20.010(2). We disagree.

      We will affirm an order granting summary judgment where there is no

genuine issue of material fact and the moving party is entitled to judgment as a

matter of law.4 A material fact is one on which the outcome of the litigation

      3 Clerk's   Papers, Vol. 23 at 10461.

      4 McPherson v. Fishing Company of Alaska, 199 Wn. App. 154, 157, 397
P.3d 161, review denied, 189 Wn.2d 1021 (2017).

                                              3
No. 75779-2-1/4

depends.5 We review de novo orders of summary judgment.6 We also review de

novo a trial court's legal conclusions.7

       In summary judgment, the moving party bears the initial burden to show

the absence of an issue of material fact.5 When the moving party is the

defendant, and meets this burden, the burden shifts to the plaintiff.9 If the plaintiff

cannot establish the existence of an essential element in its case, which it would

bear the burden to prove at trial, then the trial court should properly grant

summary judgment.1° Failure to prove an essential element of "'the nonmoving

party's case necessarily renders all other facts immaterial.'"11

       In construing a statute, we seek to ascertain and carry out the legislature's

intent.12 When the legislature takes a state statute substantially verbatim from a

federal statute, "'it carries the same construction as the federal law and the same

       5Knight v. Dep't of Labor & Indus., 181 Wn. App. 788, 795, 321 P.3d 1275
(quoting Ranger Ins. Co. v. Pierce County, 164 Wn.2d 545, 552, 192 P.3d 886
(2008)), review denied, 181 Wn.2d 1023(2014).

      6 Id.

      7 Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wn.2d 873, 880, 73 P.3d
369 (2003).

      8 Young     v. Key Pharm., Inc., 112 Wn.2d 216, 225, 770 P.2d 182(1989).

      9 Id.

       10   id.

      11 Id.(quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct.
2548, 91 L. Ed. 2d 265 (1986)).

       12 Thorpe   v. Inslee, 188 Wn.2d 282, 289, 393 P.3d 1231 (2017).

                                              4
No. 75779-2-1/5

interpretation as federal case law.'"13 And when the legislature passes an

"amendment to a statute without alteration of a section previously interpreted by

the courts," such action may "evidence[] legislative acquiescence in the

interpretation "14

       RCW 21.20.010 makes it:

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

      (2) 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.

       The supreme court has determined that RCW 21.20.010 "is patterned

after and restates in substantial part the language of the federal Securities

Exchange Act of 1934."15 And this court has specified that RCW 21.20.010 is

"related" to Section 10(b) of that act, as well as SEC Rule 10b-5.16 The only

difference between the Washington statute and federal rule is the latter's more

limited application to interstate commerce.17

                v. FedEx Ground Package System, Inc., 174 Wn.2d 851, 868,
       13 Anfinson
281 P.3d 289(2012)(quoting State v. Bobic, 140 Wn.2d 250, 264, 996 P.2d 610
(2000)).

       14   McKinney v. State, 134 Wn.2d 388, 403, 950 P.2d 461 (1998).

       15   Clausing v. DeHart, 83 Wn.2d 70, 72, 515 P.2d 982(1973).

        Guarino v. Interactive Objects, Inc., 122 Wn. App. 95, 110, 86 P.3d
       16
1175 (2004).

       17 15   U.S.C. § 78j.

                                            5
No. 75779-2-1/6

      A plaintiff bringing an action under RCW 21.20.010 must show that she

reasonably relied on the challenged statement in entering the transaction.

Federal courts have long required reliance in Rule 10b-5 actions.18 And

Washington law holds that once a court makes a controlling interpretation of a

statute, that interpretation controls what the statute has always meant.18 As the

Ninth Circuit Court of Appeals has explained, "'the Washington Legislature may

be presumed to have known" about the requirements of Rule 10b-5.23

      The supreme court held in Hines v. Data Line Systems, Inc. that plaintiffs

proceeding under RCW 21.20.010 must show that they "relied on the

misrepresentations in connection with the sale of the securities."21 Only "an

investor who is wrongfully induced to purchase a security may recover his

investment."22 Several subsequent opinions have followed this rule.23

       18 See, e.o., JanusCapital Group, Inc. v. First Derivative Traders, 564
U.S. 135, 140 n.3, 131 S. Ct. 2296, 180 L. Ed. 2d 166 (2011); Basic Inc. v.
Levinson, 485 U.S. 224, 242, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988); Ernst &
Ernst v. Hochfelder, 425 U.S. 185, 206, 96 S. Ct. 1375,47 L. Ed. 2d 668 (1976)).

       18   In re Pers. Restraint of Johnson, 131 Wn.2d 558, 568, 933 P.2d 1019
(1997).

     28 Wade v. Skipper's, Inc., 915 F.2d 1324, 1331 (9th Cir. 1990)(quoting
WPPSS Securities Litigation, 1986 Blue Sky Law Rptr. II 71,675(W.D. Wash.,
MDL 1986)).

       21   114 Wn.2d 127, 134, 787 P.2d 8(1990).

       22   Id. at 135.

       23 See, e.o., Go2Net, Inc., 158 Wn.2d   at 251; Guarino, 122 Wn. App. at
110; Stewart, 122 Wn. App. at 264.

                                            6
No. 75779-2-1/7

       The legislature has never acted to amend the statute in light of this

construction by our courts. The Ninth Circuit Court of Appeals has observed that

the "Washington State Legislature has demonstrated its willingness and ability to

correct its own omissions" in the WSSA.24 Since this court initially recognized a

reliance requirement in 1970,25 the legislature has amended the WSSA eight

times.26 It has at no point modified the requirement that reliance is required. For

the reasons discussed, the legislative intent is clear. A plaintiff must show

reasonable reliance to prevail under RCW 21.20.010.

       FHLBS mounts several arguments against this statutory requirement.

First, it argues that the language in Hines, quoted above, was mere dicta that this

court need not follow. Not so.

       As we recently held in Federal Home Loan Bank of Seattle v. Barclays

Capital, Inc., Hines controls this case.27 The legislature has not amended the

reliance principle espoused in that case. And the supreme court has

subsequently denied review in cases from this court that have held reasonable

reliance an essential element of RCW 21.20.010 claims.25 As we stated in

       24 Wade, 915    F.2d at 1332.

       25 Shermer    v. Baker, 2 Wn. App. 845, 858, 472 P.2d 589 (1970).

       26Laws of 1998, ch. 15,§ 20; Laws of 1986, ch. 304,§ 1; Laws of 1985,
ch. 171,§ 1; Laws of 1981, ch. 272,§ 9; Laws of 1979, Ex. Sess., ch. 68,§ 30;
Laws of 1977, Ex. Sess., ch. 172,§ 4; Laws of 1975, 1st Ex. Sess., ch. 84,§ 24;
and Laws of 1974, Ex. Sess., ch. 77,§ 11.

       27   No. 75913-2-1, slip op. at 9-10(Wash. Ct. App. Dec. 11, 2017).

       28 Stewart, 122 Wn. App. at 264.

                                             7
No. 75779-2-1/8

Barclays Capital, Inc., characterizing the language in Hines as dicta does nothing

to dissuade us from the conclusion that the legislature intended reasonable

reliance to be an essential element of a claim under RCW 21.20.010.

       FHLBS next argues that RCW 21.20.010 creates a strict liability cause of

action because the supreme court has held certain elements of fraud

unnecessary to prove. This argument is also unpersuasive.

       As we explained in Barclays Capital, Inc., the supreme court has held that

a RCW 21.20.010 plaintiff need not show loss causation or scienter.29 We noted

that the supreme court has reached these holdings based on careful analysis of

the statutory text and history of these elements.3° These cases do not stand for

the proposition that a plaintiff need not show reasonable reliance.31

       FHLBS next argues that the legislature intended WSSA actions to be strict

liability actions because it borrowed language from Section 12(2) of the 1933

federal Securities Act. Not so.

       Although Section 12(2) created a strict liability action, we recently held in

Barclays Capital, Inc. that the legislature borrowed only the remedy section from

that statute.32 It borrowed the WSSA's liability provisions from Rule 10b-5. RCW

21.20.430 clearly states by cross reference that RCW 21.20.010 defines

       29   Barclays Capital, Inc., slip op. at 11.

       3°   Id. at 13.

       31   Id.

       32   Id.

                                                8
No. 75779-2-1/9

liability.33 Thus, RCW 21.20.430 and Section 12(2) are irrelevant to whether

RCW 21.20.010 requires a plaintiff to show reliance to establish liability.

       FHLBS further contends that other states' statutes persuasively suggest

that RCW 21.20.010 is strict liability. As Barclays Capital, Inc. makes clear,

these other statutes tell us nothing about the controlling legislative intent: that of

the legislature of Washington.34

       In sum,the failure of FHLBS to prove it reasonably relied on the

prospectus supplements is a failure of proof of an essential element of its claims.

Accordingly, all other future disputes are immaterial for summary judgment

purposes. Credit Suisse is entitled to judgment as a matter of law.

       We affirm the summary dismissal of these claims.

WE CONCUR:

 ciec-/

          RCW 21.20.430(1).

       34 Barclays Capital, Inc., slip op. at 14.

                                              9