Court Opinion

ID: 9848929
Source: CourtListenerOpinion
Date Created: 2023-09-24 04:30:14.639036+00
Date Added: 2024-06-11T09:18:54.348398
License: Public Domain

RUSSON, Justice,
dissenting:
I respectfully dissent. The majority opinion mistakenly concludes that S & F Supply Co. v. Hunter, 527 P.2d 217 (Utah 1974), does *567not require reliance. To the contrary, a plaintiff who brings a cause of action under the Utah Act must establish that she actually and reasonably relied on the defendant’s misrepresentations.
In S & F Supply, we rejected the argument, now proffered by the majority, that because the plain language of the Utah Act does not contain a reliance requirement, this court should not impose one:
[I]t has also been said that this statute does not require the buyer to prove the element of his own reliance on the false representation. It is true that the statute does not expressly so state. But all of the law cannot be written in one sentence or one statute. This, and any other statute, must be considered in its relationship to the total fabric of the law and be so interpreted and applied as to be consistent with common sense, and with elemental principles of justice.
Id. at 221 (footnote omitted) (emphasis added). The court then went on to hold that the Utah Act does require reliance:
It follows that the statute cannot fairly be understood as meaning that a buyer can naively or blindly purchase stocks without concern for the truth or reasonableness of representations made, then if it later develops that it would serve his interest, assert a claim of falsity of a representation about which he previously had no concern, and upon which he placed no reliance, as a basis for avoiding his contract.
Id. (emphasis added). The court continued, “This is fairly deducible from the parenthetical clause in the statute quoted above (the buyer not knowing of the untruth or omission).” Id. In 1990, the Utah legislature amended the statute interpreted by the S & F Supply court and, in doing so, retained the requirement that the buyer not know of the untruth or omission to recover — language cited by the S &F Supply court to support the imposition of a reliance requirement. Therefore, the legislature endorsed the S & F Supply court’s interpretation of this language. See American Coal Co. v. Sandstrom, 689 P.2d 1, 3 (Utah 1984) (“Where the legislature amends a portion of a statute, leaving other portions unamended ... absent substantial evidence to the contrary, the legislature is presumed to have been satisfied with prior judicial constructions of the unaltered portions of the statute and to have adopted those constructions as consistent with its own intent.”). Thus, this passage affirmatively establishes a reliance requirement, and the subsequent legislative changes did not preclude this requirement.
In addition, as acknowledged by the majority, the S & F Supply court held that the Utah Act contains an “objective standard of reliance” in connection with the materiality requirement of former section 61-1-22. Id. The materiality element of former section 61-1-22 is now found in section 61-1-1(2). Pursuant to section 61-1-1(2), it is unlawful for any person 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 ... not misleading_” (Emphasis added.) We stated in S & F Supply:
[This language] seems to import some objective standard of reliance, because the determination of whether a fact is “material” can only be made in the frame of reference of the definition of what a material fact is: that is, it must be something which a buyer or seller of ordinary intelligence and prudence would think to be of some importance in determining whether to buy or sell.
S & F Supply, 527 P.2d at 221 (footnote omitted) (emphasis added). It would be illogical for the court to require a plaintiff to prove she reasonably relied on the defendant’s misrepresentations without also requiring that she actually relied on such misrepresentations. Thus, I depart from the majority’s conclusion that S & F Supply does not import a reliance requirement under the Utah Act. Accordingly, to bring a cause of action under the Utah Act, a plaintiff must establish that (1) she actually relied on the alleged misrepresentations, and (2) the misrepresentations were of the kind upon which a person “of ordinary intelligence and prudence” would rely in deciding to buy or sell securities. Accord Geisenberger v. John Hancock Distribs., Inc., 774 F.Supp. 1045, 1050-51 (S.D.Miss.1991); Foster v. Alex, 213 *568Ill.App.3d 1001, 157 Ill.Dec. 778, 572 N.E.2d 1242, 1245 (1991).
Finally, although the majority opinion implicitly acknowledges the need for a causal connection between the plaintiffs injury and the defendant’s misrepresentations, it mistakenly concludes that the privity requirement under section 61-l-22(l)(a) satisfies the need for a causal connection. However, this argument ignores the fact that a plaintiff may also bring a cause of action against a defendant with whom there was no privity. Section 61-l-22(4)(a) provides:
Every person who directly or indirectly controls a seller or buyer liable under Subsection (1), every partner, officer, or director of such a seller or buyer, every person occupying a similar status or performing similar functions, every employee of such a seller or buyer who materially aids in the sale or purchase, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller or purchaser, unless the nonseller or nonpurchaser who is so liable sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.
(Emphasis added.) Thus, the privity requirement of section 61-l-22(l)(a) alone does not satisfy the need for a causal connection between the plaintiffs injury and the defendant’s misrepresentations.
Not only is the need for a causal connection satisfied by the reliance requirement, but additionally, the Utah Act explicitly requires that the alleged misrepresentations be made “in connection with” the offer, sale or purchase of a security. Utah Code Ann. § 61-1-1. As acknowledged by the Utah Court of Appeals, federal courts have broadly interpreted the “in connection with” requirement, “determining that it encompasses any sale of a security where fraud ‘touches’ the transaction.” State v. Harry, 873 P.2d 1149, 1156 (Utah Ct.App.1994). Thus, an essential element of a cause of action under the Utah Act is that a plaintiff establish that the alleged misrepresentations “touched” or were involved in the offer, sale, or purchase of a security.
On the basis of the plain language of sections 61-1-1 and 61-1-22 and Utah case law interpreting these statutes, one can conclude only that a plaintiff who brings a cause of action under the Utah Act must establish (1) that the alleged misrepresentations were made in connection with the offer, sale, or purchase of securities, and (2) that she actually and reasonably relied on such misrepresentations.
HOWE, J., concurs in Justice RUSSON’s dissenting opinion.
Having disqualified themselves, STEWART, Associate C.J., and DURHAM, J., do not participate herein; GLENN K. IWASAKI and TYRONE MEDLEY, District Judges, sat.