question before the court is whether the Securities Act of
Washington requires a plaintiff suing for a violation of RCW
21.20.010(2) to prove reliance. We hold that a plaintiff need
not prove reliance to prevail under RCW 21.20.010(2). We
therefore reverse the decisions of the Court of Appeals and
remand to the trial court for further proceedings consistent
with this opinion.
AND PROCEDURAL HISTORY
case emerges out of the financial crisis and ensuing
"Great Recession of 2007-2009." In 2005 and 2007,
Federal Home Loan Bank of Seattle purchased certificates for
residential-mortgage-backed securities (RMBS) from Credit
Suisse, an investment bank, for a total of $248 million.
Federal Home Loan also purchased, in 2007 and 2008,
certificates for RMBS from Barclays, for a total cost of over
are based on payments made by borrowers into a mortgage pool;
nothing backs an RMBS other than payments made by mortgagors.
In the run-up to the Great Recession, mortgage-backed
securities (MBS), including the RMBS at issue here, were
pooled with other securities into collateralized debt
obligations (CDOs). Michael Legg & Jason Harris, How
the American Dream Became a Global Nightmare: An Analysis of
the Causes of the Global Financial Crisis, 32 U.N.S.W.
L.J. 350, 353 (2009). Many of these MBS were subprime, but
their poor credit ratings were effectively concealed when
they were pooled with other securities in the CDOs.
Id. at 353-54. This structure could not hold, and
the losses caused by the subprime mortgages in the MBS helped
to precipitate the Great Recession of 2007-2009. Id.
at 354-57; see also John C. Coffee, Jr., What
Went Wrong: An Initial Inquiry into the Causes of the 2008
Financial Crisis, 9 J. Corp. L. Stud. 1, 4-7 (2009).
2009, Federal Home Loan separately brought suit under the
Securities Act against Credit Suisse and Barclays. Federal
Home Loan alleged that Credit Suisse and Barclays each had
made untrue or misleading statements in violation of the
Securities Act, RCW 21.20.010(2). RCW 21.20.010(2) makes it
unlawful for any seller or purchaser of securities, in
connection with a sale, "[t]o 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
Home Loan's allegations were lengthy. Federal Home Loan
claimed that Credit Suisse made false statements concerning
the loan-to-value ratios (LTVs) for at least 2, 392 of the 6,
884 mortgage loans in in the mortgage pool, overstating their
value by at least 105 percent. Federal Home Loan similarly
alleged that Barclays overstated the LTVs of 2, 810 of the 6,
481 mortgage loans in its pool by at least 105 percent.
Federal Home Loan also alleged that both Credit Suisse and
Barclays made false statements about the occupancy status of
the properties in the collateral pool and misrepresented the
quality of their underwriting standards.
case, Credit Suisse and Barclays moved for summary judgment.
The trial court granted Credit Suisse's motion because,
it concluded, reliance was a requirement of an action under
the Securities Act, RCW 21.20.010(2), and there was no
dispute of material fact there: Federal Home Loan had not
relied, the court concluded, on any statements made by Credit
Suisse. The trial court granted Barclays' motion because,
although Federal Home Loan had relied on Barclays'
statements, that reliance was unreasonable as a matter of
Home Loan appealed both cases, and the Court of Appeals
affirmed in each, holding that reasonable reliance was
required. Fed. Home Loan Bank of Seattle v. Credit Suisse
Sec. (USA) LLC, No. 75779-2-I, slip op. at 3, 7
(Wash.Ct.App. Dec. 11, 2017) (unpublished) (hereinafter
Credit Suisse), https://www.courts.wa.gov/
opinions/pdf/757792.pdf; Fed. Home Loan Bank of Seattle
v. Barclays Capital, Inc., 1 Wn.App. 2d 551, 556,
576-77, 406 P.3d 686 (2017) (hereinafter Barclays).
Home Loan sought review of each case in this court, arguing
that reliance is not a requirement. We consolidated the cases
and granted review.
review grants of summary judgment de novo. Folsom v.
Burger King, 135 Wn.2d 658, 663, 958 P.2d 301 (1998). We
also review the meaning of statutes de novo. Dep't of
Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43
P.3d 4 (2002).
Securities Act was passed in 1959. The legislature modeled
the Securities Act on the Uniform Securities Act of 1956.
Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d
107, 125, 744 P.2d 1032 (1987); see also Unif. Sec.
Act of 1976, 7C U.L.A. 475-76 (2018) (Table of Jurisdictions)
(listing the states that have adopted the Uniform Securities
Act of 1956 and including Washington); Go2Net, Inc. v.
FreeYellow.com, Inc., 158 Wn.2d 247, 257, 143 P.3d 590
(2006) ("The [Securities] Act is patterned after the
Uniform Securities Act of 1956.").
sole question in this case is whether a private plaintiff
bringing an action for a violation of RCW 21.20.010(2) must
prove reliance. We answer this question in the negative:
reliance is not an element of a private securities
claim under subsection .010(2).
doing, we first turn to the bedrock principle of statutory
interpretation: plain language. Concluding that the plain
language of .010(2) does not require proof of reliance, we
next move on to the purpose of the Securities Act. We then
resolve the remaining arguments of Credit Suisse and Barclays
plain language of RCW 21.20.010(2) does not require a private
plaintiff to prove reasonable reliance
objective of statutory interpretation is to ascertain and
carry out the intent of the legislature. Campbell &
Gwinn, 146 Wn.2d at 9-10. "[I]f the statute's
meaning is plain on its face, then the court must give effect
to that plain meaning as an expression of legislative
intent." Id. Additionally, because the purpose
of the Securities Act is to protect the public, "it is
appropriate to construe the statute broadly in order to
maximize the protection offered." McClellan v.
Sundholm, 89 Wn.2d 527, 533, 574 P.2d 371 (1978). Any
plain language analysis of the Securities Act must be
undertaken with this in mind.
immediately clear, the plain language of RCW 21.20.010 does
not require reasonable reliance:
It is unlawful for any person, in connection with the offer,
sale or purchase of any security, directly or indirectly:
(1) To employ any device, scheme, or artifice to defraud;
(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; or
(3) To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon any
reliance-neither term nor concept-appears in RCW
21.20.010(2). Indeed it appears nowhere in the entirety of
.010. Nor does reliance appear in the identical section in
section 101 of the Uniform Securities Act of 1956, on which
this provision is modeled. The plain language of this
provision thus does not include reliance as part of any claim
made under it. On the face of the statute, proof of reliance
is not required.
look to additional and related sections of the act in which
RCW 21.20.010 is found to ascertain its meaning. Campbell
& Gwinn, 146 Wn.2d at 11-12. Other sections of the
Securities Act do not require proof of reliance. Crucially,
in the section that establishes a private right of action
against sellers of securities-the very kind of action brought
here-the legislature did not require reliance. RCW
21.20.430(1). Indeed, in the commentary to the
corresponding (albeit differently structured and worded)
provision in the Uniform Securities Act of 1956, the drafters
expressly ruled out reliance as a requirement for a private
cause of action. Louis Loss, Commentary on the Uniform
Securities Act 148 (1976) (stating unequivocally that
language in section 410 of the 1956 Act "is not intended
as a requirement that the buyer prove reliance on
[an] untrue statement or . . . omission" (reproducing
the original drafters' comments to the 1956 act)).
argues that the use of the word "fraud" in RCW
21.20.010(1) and (3) indicates that we must read reasonable
reliance into the statute, including into subsection .010(2).
Leaving aside that Federal Home Loan sued Barclays and Credit
Suisse under subsection (2), not subsection (1) or (3), this
reading does not withstand close scrutiny. Subsection (1)
prohibits the act of employ[ing] any device, scheme,
or artifice to defraud"-not common law fraud.
RCW 21.20.010(1) (emphasis added). In other words, subsection
(1) does not take into account whether fraud was
committed-only whether an act that could defraud was
undertaken. The same is true of subsection (3), which
similarly prohibits "engag[ing] in any act. . .
which operates or would operate as a fraud
or deceit upon any person." Id. at (3)
argument flies in the face of both precedent and the history
of the act. In Kittilson v. Ford, we expressly
rejected the argument that the words "fraud" and
"misrepresentation," present in the original
version of RCW 21.20.430, should be given their common law
meanings. 93 Wn.2d 223, 225, 608 P.2d 264 (1980). Although
Kittilson dealt with whether the Securities Act
requires proof of scienter, not reasonable reliance, the same
principle applies here: we do not necessarily read common law
fraud requirements into the word "fraud" in the
Securities Act. See id. That the current version of
section .430 lacks any reference to fraud or
misrepresentation reinforces this point. Had the legislature
wanted to require all of the elements of fraud in private
Securities Act claims, it would have expressly done so when
revising the portion of the statute devoted to private causes
of action. It did not. Instead, it removed references to
fraud altogether. See Laws of 1977, 1st Ex. Sess.,
ch. 172, § 4.
dissent argues that the use of the phrase "in connection
with" in RCW 21.20.010 "establishes a causal
connection requirement." Dissent at 28. The dissent
relies on federal case law to make this argument.
Id. As discussed below in Section III.B, we should
not rely so heavily on federal law while interpreting our own
Securities Act. In light of that, there is no reason to read
a reliance requirement into the term "in connection
with." The phrase clearly demarcates only when .010
applies: when there is a sale or purchase of a security. RCW
21.20.010. In essence, it means that merely misstating or
lying about some material fact, outside the context of a
securities transaction, does not expose one to
liability under RCW 21.20.010. See id. Even when
Hines discusses reliance, it discusses it distinctly
from the "in connection with" language. Hines
v. Data Line Sys. Inc., 114 Wn.2d 127, 134, 787 P.2d 8
(1990) (". . . they relied on the misrepresentations
in connection with the sale of the securities"
(emphasis added)). The dissent cannot make "in
connection with" mean "reliance."
the plain language is clear: RCW 21.20.010(2) unambiguously
does not require reliance. It is therefore unnecessary to
employ legislative history or other aids to statutory
construction. See Campbell & Gwinn, 146 Wn.2d at
holding furthers the purpose of the Securities Act
long acknowledged that the Securities Act "has as its
purpose broad protection of the public,"
McClellan, 89 Wn.2d at 533, and that its main
purpose is to protect investors, Haberman, 109 Wn.2d
at 125-26. Holding that reliance is not required furthers
these goals. After ail, an investor who has not
relied on a misrepresentation can still be harmed by that
misrepresentation. "When fraud [or
misrepresentations are] revealed, the price of [a] firm's
equity declines and its shareholders lose money." Urska
Velikonja, The Cost of Securities Fraud, 54 Wm.
& Mary L. Rev. 1887, 1901 (2013). For instance,
"[a]bout one-third of the firms that are targets of SEC
enforcement actions for misreporting file for
bankruptcy." Id. at 1912. In other words, the
misrepresentation itself causes catastrophic loss in the
value of the securities. See id. This means that a
purchaser of securities need not have relied on a
misrepresentation to be harmed by it. Once a
misrepresentation is revealed, the investor is harmed. This
is simply a consequence of the securities marketplace.
scenario is easy to imagine. A seller of securities
misrepresents the underlying value of a security. Relying on
this, a group of sophisticated investors purchases the
security. Its value increases. Another investor-sophisticated
or not- also purchases the security, simply because its value
has gone up, without relying on any misrepresentations
(although the same misrepresentations existed with respect to
the sale to them, as well). When misrepresentations are
revealed, the value declines. The first group of investors,
seeing how they were misled, quickly abandon ship. The value
of the security declines further. The first group can recover
irrespective of a reliance requirement, because they did, in
fact, rely on the misrepresentation. The other investor
suffers similar losses-but with a reliance requirement, these
investors could not recover.
that reliance is not required ensures that those harmed when
a seller misrepresents material facts can recover. This
tracks the concerns investors, who care about whether they
have been harmed by unlawful activity, irrespective of their
reliance on that activity. Our refusal to read reliance into
the statute therefore furthers the Securities Act's goal
of protecting investors. Haberman, 109 Wn.2d at
course, protecting investors is not the only purpose of the
Securities Act. RCW 21.20.900 states:
This chapter shall be so construed as to effectuate its
general purpose to make uniform the law of those states which
enact it and to coordinate the interpretation and
administration of this chapter with the related federal
section is not contravened by our holding today. Uniformity
of the states' laws cannot be achieved by our actions:
the states employing the Uniform Securities Act are split on
the issue of reliance. See 12A Joseph C. Long et al,
Blue Sky Law § 12:5 (perm, ed., rev. vol. 2018) (showing
a split between states requiring reliance and those not
does our holding somehow upset our coordination with federal
securities law. As we stated in Kittilson, such
coordination "does not require imitation [of
federal law] by this court in construing our act, only that
our construction not interfere with the federal scheme."
93 Wn.2d at 227 (emphasis added) (citing Shermer v.
Baker, 2 Wn.App. 845, 472 P.2d 589 (1970)). In
Kittilson, we held that scienter is not an element
of a claim under RCW 21.20.010. Id. We made clear
that our holding did not interfere with the federal scheme,
even though scienter is an element of a federal securities
claim. Id. There is no reason to conclude otherwise
with respect to reliance- especially given that many other
states also lack a reliance requirement. See 12A
Long et al, supra, § 12:5.
The Respondents' remaining arguments are unpersuasive
Respondents propose three more significant arguments why we
must read reliance into the Securities Act: that precedent in
our state dictates that result; that we must follow federal
securities law, and that failing to require reliance will
lead to unlimited liability. None persuades.
Precedent does not require proof of reliance
Respondents argue that our precedent requires that a private
plaintiff in an RCW 21.20.010 civil action show reasonable
reliance in order to recover. This is incorrect.
to the Respondents' arguments are two cases, one from the
Court of Appeals and one from our court: Shermer and
Hines. Respondents rely on Shermer as the
alleged source of nearly 50 years of precedent, holding that
reliance is required in a private Securities Act claim.
Respondents also argue that in Hines we held that
reliance is required in such claims. Neither of these
assertions withstands scrutiny.
Court of Appeals case, Shermer cannot bind us. Just
as importantly, Shermer does not meaningfully
support the Respondents' arguments. In Shermer,
the Court of Appeals stated that:
We . . . hold that in an action brought under RCW 21.20.010,
a plaintiff need neither plead nor prove that defendant
intended to deceive him by the misrepresentation or omission.
It is sufficient that the plaintiff relied upon the
misrepresentation or omission of a material fact.
2 Wn.App. at 857-58. This does not hold that
reliance is necessary to make out a claim. Quite
explicitly, Shermer states that reliance is
sufficient to make out a claim. Id. at 858.
did not provide any support or reasoning to impose a reliance
requirement in an RCW 21.20.010 case. See id. at
857-58. The reason for this becomes apparent when looking to
the procedural posture of the case. Shermer was
concerned with the permissibility of a jury instruction.
Id. at 856. The question was whether proof of
scienter was necessary, as the jury instruction omitted that
requirement. Id. & n.6. Whether reliance was
required was not at issue. Id. However, the jury
instruction itself included reliance as a requirement.
Id. & n.6. Thus, when the court stated that
reliance was sufficient, it was merely indicating that
without proof of scienter, the jury instruction was
nevertheless permissible. Id. at 858. It did not
purport to announce reliance was required for all claims
brought under RCW 21.20.010. See id. This procedural
nuance makes clear that Shermer did not hold that
reliance is a requirement of a private securities claim.
Shermer discussed reliance in the context of whether
an implied private cause of action against a securities buyer
existed under RCW 21.20.010-a cause of action that
Shermer created. Id. at 847, 850.
Shermer's implied private cause of action no
longer exists. It was superseded by the 1975 amendments to
the Securities Act, which replaced the old version of RCW
21.20.430 and added a statutory private right of action
against buyers of securities, not only sellers, as had been
the case when Shermer was decided in 1970. Laws of
1975, 1st Ex. Sess., ch. 84, § 24. The current version
of .430 contains an express statutory right of action against
both sellers and buyers for violations of .010. RCW
21.20.430(1), (2). Thus any light that Shermer might
shed on the modern, statutory cause of action under .010 and
.430 is limited, if not entirely inapplicable, originating as
it did in a wholly different context.
does Hines support the Respondents' arguments.
We did not hold in Hines that proof of
reliance is required. See 114 Wn.2d at 134-35. At
issue in Hines was whether a plaintiff must prove
that the defendant's misrepresentations proximately
caused the decline in the value of stock in order to make out
a claim under RCW 21.20.010. Id. at 134. In
answering that question in the negative, the Hines
court stated that "[t]he investors need only show that
the misrepresentations were material and that they relied on
the misrepresentations in connection with the sale of the
securities." Id. Hines provided no authority
for this statement, nor any analysis supporting this
assertion. It is simply there, unadorned.
to the assertions of the Respondents, this statement is not a
holding of the case; it is dictum. It had nothing to do with
the issue of the case, which was whether proximate cause must
be proved. Hines, 114 Wn.2d at 134. Further, just as
in Shermer, Hines never stated that reliance is
necessary-rather, it indicates only that reliance is
sufficient. Id. "Need only show" is not
the same as "must show." The Respondents cannot use
Hines to argue that we have long held that reliance
is a requirement. Indeed, Hines went on to make
clear that only misrepresentation is required: "The
violation is in the misrepresentation itself."
Id. at 135. The act of the defendant matters, not
whether the plaintiff relied on that act. See id.
reaffirmed that Hines did not create a reliance
requirement in subsequent cases. In Go2Net, we
repeated that "[s]imply put, a seller's
'violation [of the Securities Act] is in the
misrepresentation itself.'" 158 Wn.2d at 253
(quoting Hines, 114 Wn.2d at 135). This dovetails
with the plain language reading of RCW 21.20.010: it is the
misrepresentation that violates the law. More significantly
still, in Kinney v. Cook, we stated unequivocally
that RCW 21.20.010 "has two essential elements: (1) a
fraudulent or deceitful act committed (2) in
'connection with the offer, sale or purchase of any
security.'" 159 Wn.2d 837, 842, 154 P.3d 206 (2007)
(emphasis added) (quoting RCW 21.20.010). Reliance is never
mentioned. This decision, coming 17 years after
Hines, clears up any confusion: if Hines
required reliance, Kinney would have included
reliance when discussing the "essential elements"
of an RCW 21.20.010 claim. But Kinney did no such
thing. Today we reaffirm this line of cases: reliance is not
required in a private Securities Act claim brought under RCW
dissent, in addition to agreeing with the Respondents'
arguments, also cites appellate and federal cases that employ
a reliance requirement in deciding Securities Act claims,
arguing that we too should require reliance because many
courts have employed a reliance requirement in the past.
Dissent at 9-19. These citations cannot disturb the plain
meaning of RCW 21.20.010. Appellate court opinions are, as
the dissent notes, not binding on us. Dissent at 9.
Unpublished Court of Appeals decisions, as well as federal
decisions, cannot bind courts of this state when interpreting
Washington statutes. In re Elliott, 74 Wn.2d 600, 602,
446 P.2d 347 (1968) ("[S]tate courts are not bound by
federal court interpretations of state statutes.").
importantly, just because a number of state appellate courts
and federal courts have acted on their belief that
the Securities Act requires proof of reliance in private
suits does not make it so. Statutory interpretation is not a
numbers game in which the number of nonbinding courts that
have assumed an inaccurate meaning of a statute matters more
than what a statute actually says. Our purpose is to arrive
at the correct interpretation-even if that requires our
correcting the course of nonbinding courts. And the statutory
language indicates that these nonbinding courts, as well as
the dissent, are wrong.
the dissent relies heavily on FutureSelect Portfolio
Management, Inc. v. Tremont Group Holdings, Inc., 180
Wn.2d 954, 331 P.3d 29 (2014), to argue that we have, since
Hines, expressly indicated that reliance is
required. Dissent at 22-23. But FutureSelect did
nothing of the sort. In FutureSelect, we adopted
section 148 of Restatement (Second) of Conflict of
Laws (Am. Law Inst. 1971) to resolve choice of law
questions with respect to securities claims. 180 Wn.2d at
967-68. Section 148 sets out various factors used to conduct
that choice-of-law analysis. Id. at 969. One of
these factors, as the dissent points out, is "the place
where the plaintiff acted in reliance on the
representations." Id. The dissent concludes
that "[o]ur adoption of that provision makes the most
sense if reliance is indeed an element of a private claim
under the Securities Act." Dissent at 23. This is
incorrect. The relevance of reliance to choice-of-law
analysis does not make it an element of a Washington
securities claim. Although we held in FutureSelect
that we "must consider" where the plaintiff's
reliance occurred, that determines only what law
applies, not whether a violation of the Securities Act
occurred. 180 Wn.2d at 969. The dissent attempts to jury-rig
an entirely different doctrine into our securities law. We
decline to follow this approach.
light of this, the Respondents' and the dissent's
arguments that the legislature has acquiesced to a reliance
requirement also lack merit. When looking at the decisions of
this court, it is clear that the legislature has not
acquiesced in an interpretation that requires reasonable
reliance. We did not hold that reliance was required in
Hines. See 114 Wn.2d at 134. Cases since
Hines have also shown we do not require reliance.
Go2Net, 158 Wn.2d at 254; Kinney, 159 Wn.2d
at 842. What the legislature has acquiesced in, if anything,
is our court's not adopting a requirement of reasonable
reliance. Legislative acquiescence does not salvage the
Respondents' or the dissent's argument. We need not
and should not follow federal securities law.
Respondents also argue that we should follow federal
securities law. They claim that "[b]y incorporating the
[Securities and Exchange Commission] Rule 10b-5 standard for
liability, the legislature made reliance an element of a
[Securities Act] claim." This is incorrect. Nothing
demands that we follow the federal courts' construction
of Rule 10b-5.
of course true that RCW 21.20.010 is nearly identical to Rule
10b-5. See Kinney, 159 Wn.2d at 843 (discussing the
similarity). Compare 17 C.F.R. § 240.10b-5,
with RCW 21.20.010. Respondents argue that this
means we must follow federal interpretations of Rule 10b-5
when construing our own law because, they claim, whenever our
legislature adopts verbatim a federal statute, any federal
interpretations of the federal statute flow into our case
of whether their rule about following federal law is correct
as a general matter (an issue we need not decide today), the
Respondents' conclusion here is wrong. In
Kittilson, we rejected the notion that RCW 21.20.010
must track federal interpretations of Rule 10b-5. 93 Wn.2d at
225-26. We reaffirm that conclusion today. Rule 10b-5 is a
federal rule, not a federal statute-the cases cited
by the Respondents have no bearing on it. Further, and more
importantly, our legislature did not adopt Rule
10b-5. "Washington's securities fraud laws are
modeled after the Uniform Securities Act."
Haberman, 109 Wn.2d at 125. Specifically, the
language of RCW 21.20.010 is identical to section 101 of the
Uniform Securities Act of 1956.While the Uniform Act did model
section 101 on Rule 10b-5, we adopted the former, not the
latter. Loss, supra, at 6-7. And, as noted above,
the Uniform Act was not meant to require reliance.
Id. at ...