FEDERAL HOME LOAN BANK OF SEATTLE, a bank created by federal law, Appellant,
RBS SECURITIES, INC., f/k/a GREENWICH CAPITAL MARKETS, INC., a Delaware corporation; GREENWICH CAPITAL ACCEPTANCE, INC., a Delaware corporation; and RBS HOLDINGS USA, INC., f/k/a GREENWICH CAPITAL HOLDINGS, INC., a Delaware corporation, Respondents.
the Washington State Securities Act (WSSA), an investor who
sues for violation of this act must prove reasonable reliance
on statements or omissions by a defendant. Here, Federal
Home Loan Bank of Seattle (FHLBS) sued, as an investor,
defendants Royal Bank of Scotland Securities Inc., Greenwich
Capital Markets, Inc., Greenwich Capital Acceptance, Inc.,
and RBS holdings USA, Inc., formerly known as Greenwich
Capital Holdings, Inc. (collectively, RBS) for violating the
WSSA. There is no genuine issue of material fact whether
FHLBS relied on the prospectus supplement for the security
that is the basis of its claim. It could not have relied on
the prospectus supplement, which was issued after the
purchase of the security. And FHLBS's new arguments,
first raised in response to RBS's motion for
reconsideration, were not properly before the trial court.
The trial court did not abuse its discretion in granting
reconsideration and dismissing this action. We affirm.
the third of a number of consolidated actions under the WSSA
by FHLBS to reach this court. As in the two prior cases, this
case arises out of FHLBS's purchase of a residential
mortgage backed security (RMBS). In our prior decisions, we
explained the process of securitization and sale of the pool
of residential loans that comprise these types of
securities. The same principles apply here. In
essence, the stream of income generated by the individual
loans in the pool funds the return on investment made by the
purchaser of the security. Accordingly, much of the
information about the characteristics of the loans in the
pool may be material to an investor's decision whether to
purchase the security.
June 29, 2006, FHLBS purchased the security at issue in this
case for $200, 000, 000. As it turns out, the prospectus
supplement for this security was issued one day after this
December 23, 2009, FHLBS commenced this action based solely
on the WSSA. In its amended complaint, it set forth the
allegations supporting its claim for rescission and other
relief. Essentially, FHLBS claimed that RBS had made
"Untrue or Misleading Statements" about the
characteristics of the loans in the security pool.
Specifically, these statements concerned the loan to value
(LTV) ratios of the loans, the originator's underwriting
practices, and the appraisals of the properties securing the
August 2015, RBS moved for summary dismissal of this action.
The trial court denied this motion on the basis that whether
FHLBS received the HVMLT 2006-5 prospectus supplement for the
security certificate before purchasing the certificate was a
material issue of fact.
then moved for reconsideration of the denial of summary
judgment. It did so on the basis that the prospectus
supplement was not issued until one day after the sale of the
security. The court granted this motion, dismissing
REASONABLE RELIANCE IN MARKETING A SECURITY
argues in its briefing on appeal that a plaintiff in an
action under RCW 21.20.010(2) of the WSSA need not prove that
it relied on an untrue or misleading statement of material
fact that a defendant made in connection with the sale of a
security. We hold that this argument is without merit.
issue is controlled by two of our recent decisions:
Federal Home Loan Bank of Seattle v. Barclays Capital.
Inc. and Federal Home Loan Bank of Seattle
v. Credit Suisse Securities (USA) LLC, In Barclays
Capital. Inc., FHLBS made the same arguments that it
makes here. We rejected all of them and do so again.
that the legislative intent of the WSSA is evident in the
words of the statute, its substantial similarity to its
federal counterpart, and an unbroken line of controlling
cases holding that reliance is an essential element of this
statute. Based on this analysis, we concluded in that case
that there were no genuine issues of material fact whether
FHLBS's reliance on the prospectus supplement in that
case was reasonable. It was not reasonable, and summary
dismissal of its claim was proper.
Credit Suisse Securities (USA) LLC, we applied this
legal principle of reasonable reliance to hold that FHLBS
failed to show that necessary element of its claim. That was
because it purchased the security in question before the
issuance of the prospectus supplement on which it allegedly
relied. Because it was impossible to rely on something that
was not issued until after the purchase of the security,
there was no genuine issue of material fact on reliance on
the supplement. Summary dismissal of its claim was
accordingly also proper.
it is undisputed that FHLBS purchased the security at issue
before the related prospectus supplement was issued.
Specifically, FHLBS alleged in its amended complaint that it
purchased the security on June 29, 2006. But this record
shows that the prospectus supplement for that security was
not issued until the day following the purchase. Thus, FHLBS
could not have relied on that prospectus supplement to
purchase the security in this action.
adhere to the principles we articulated in those earlier
cases. FHLBS fails to persuasively argue why we should reach
any different conclusions here. Reasonable reliance is an
essential element of this state securities act claim that
FHLBS must prove.
FHLBS argues that reliance is not an essential element of the
state securities act claim, it now also argues that it relied
on "offering documents" that it received
"before settlement and before the final prospectus
supplement was received." It further argues that
"market practice and the course of dealing between the
parties" about what was to be in the prospectus
supplement supports its position. We hold that FHLBS fails to
establish that the trial court abused its discretion in
rejecting these new arguments, granting reconsideration, and
dismissing this action.
affirm a summary judgment order "where there is no
genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. A 'material
fact' is one on which the outcome of the litigation
depends. We review de novo orders of summary
review for abuse of discretion a trial court decision on a
reconsideration motion. The trial court's decision is
manifestly unreasonable if it exceeds the range of acceptable
choices, in light of the facts and applicable
law. "[I]t is based on untenable grounds
if the factual findings are unsupported by the
record." And "it is based on untenable
reasons if it is based on an incorrect standard or the facts
do not meet the requirements of the correct
begin our analysis of the trial court's decision on
RBS's motion for reconsideration by examining that
motion's context. At that time in the litigation of the
consolidated cases, two defendants were similarly situated
due to special circumstances: Credit Suisse Securities (USA)
LLC and RBS. The special circumstances were that, in each
case, the respective prospectus supplement was issued after
consummation of FHLBS's purchase of the related security.
These facts appear to have been unknown to the parties
throughout the six years of litigating the case below and
only discovered shortly before trial.
hearing on RBS's motion for reconsideration, counsel for
FHLBS candidly explained these circumstances:
Your Honor, I think it's worth pausing for a moment to
understand why these issues have come out now, because Credit
Suisse in particular suggests that the plaintiff has sloughed
off the issue, that at the last minute it's helping
itself to amend the complaint to include much broader
evidence of usage and practice. But in fact, the reason why
these arise now is a good deal more complicated than that.
As your Honor is aware, all prospective supplements had a
date. Throughout the course of this litigation, Seattle Bank
and its counsel, certainly including myself, assumed that the
defendants filed the prospective [sic] supplement with the
SEC on the date when it was dated which proved to be correct
in most cases. Credit Suisse must have made the assumption
that it filed its prospective supplements with the SEC on the
date it was dated, because it wasn't until its reply
brief in support of its individual motion for summary
judgment that Credit Suisse first thought to check the filing
records of the SEC and discovered, apparently for the first
time, that it actually did not file its prospective
supplements for two of the offerings on time.
Now, RBS came to that realization even more belatedly because
they didn't check that out until they read the
Court's ruling granting summary judgment to Credit Suisse
on the grounds that their prospective supplements were filed
after the defective dates.
So it is true that this issue arises late in the case, but it
arises late for one reason which applies to all three parties
that are interested in it, which is that all counsel assumed
that the defendants filed their prospective supplements on
the date they were dated; and ...