State v. Marsh & McLennan Cos.

• Decision Date: 13 December 2012
• Docket Number: (CC 050808454,SC S059386).,CA A139453
• Citation: 353 Or. 1,292 P.3d 525
• Court: Oregon Supreme Court
• Parties: STATE of Oregon, acting by and through the Oregon State Treasurer, and the Oregon Public Employee Retirement Board, on behalf of the Oregon Public Employee Retirement Fund, Petitioner on Review, v. MARSH & McLENNAN COMPANIES, INC. and Marsh, Inc., Respondents on Review, and Jeffrey Greenberg and Ray Groves, Defendants.

353 Or. 1

292 P.3d 525

STATE of Oregon, acting by and through the Oregon State Treasurer, and the Oregon Public Employee Retirement Board, on behalf of the Oregon Public Employee Retirement Fund, Petitioner on Review,

v. MARSH & McLENNAN COMPANIES, INC. and Marsh, Inc., Respondents on Review,andJeffrey Greenberg and Ray Groves, Defendants.

(CC 050808454; CA A139453; SC S059386).

Supreme Court of Oregon,

En Banc.

Argued and Submitted Dec. 7, 2011.

Decided Dec. 13, 2012.

On review from the Court of Appeals.^*

Keith S. Dubanevich, Special Counsel, Salem, argued the cause for petitioner on review.

With him on the briefs were John R. Kroger, Attorney General, Mary H. Williams, Solicitor General, and Denise G. Fjordbeck, Assistant Attorney General.

James T. McDermott, Ball Janik LLP, Portland, argued the cause for respondents on review. With him on the brief was Dwain M. Clifford.

Kim T. Buckley and John W. Stephens, Esler, Stephens & Buckley, LLP, Portland, filed a brief on behalf of amici curiae Oregon Trial Lawyers Association and Economic Fairness Oregon.

Meyer Eisenberg, Washington D.C., and Franklin Jason Seibert, F.J. Seibert, LLC, Salem, filed a brief on behalf of amici curiae Meyer Eisenberg and Franklin Jason Seibert.

Robert S. Banks, Jr., Banks Law Office, PC, Portland, filed a brief on behalf of amicus curiae North American Securities Administrators Association.

DE MUNIZ, J.

This case arises under provisions of the Oregon Securities Law set out in ORS chapter 59. The State of Oregon, acting by and through the Oregon State Treasurer, and the Oregon Public Employee Retirement Board (PERB), on behalf of the Oregon Public Employee Retirement Fund (PERF) (collectively, “state”), have asserted claims against Marsh & McLennan Companies, Inc. (MMC) and Marsh, Inc.(MI) (collectively, “Marsh”). The state alleges that Marsh engaged in a scheme perpetrated by false and misleading statements that caused the state to lose approximately $10 million on investments in Marsh stock. The state contends that the actions of Marsh violate ORS 59.135 and ORS 59.137. Marsh asserted below, and asserts on appeal, that the state's claims must fail because ORS 59.135 and ORS 59.137 require a showing of reliance by the state, the state failed to establish any direct reliance by state actors on any actions by Marsh, and the state could not establish the required reliance by means of a presumption of reliance based on the “fraud-on-the-market” doctrine.¹ For the reasons that follow, we determine that ORS 59.137 requires a stock purchaser to establish reliance, but that a stock purchaser who purchases stock on an efficient, open market may establish reliance by means of the “fraud-on-the-market” presumption.

The state's amended complaint alleges that the state purchased more than $15 million of common stock in MMC in the open market on the New York Stock Exchange (NYSE) in 2003 and 2004. The state further alleges that the MMC shares are traded on an efficient securities market, that the price of MMC shares traded on the NYSE during 2003 and 2004 reflected the material information that Marsh disclosed to the market, and that the price of MMC shares was artificially inflated because of misrepresentations made by Marsh. The state contends that Marsh made three types of misrepresentations: falsely representing that Marsh had complied with a strict ethical code of conduct; misrepresenting the nature of contingent commission agreements that Marsh had with brokers; and concealing the fact that MMC's reported financial results had been achieved through unethical and illegal business practices. The state's complaint further alleges that the state's money managers who purchased MMC stock had no reason to know of those misrepresentations and would not have purchased the MMC stock at the price paid had they known of those misrepresentations. Finally, the state asserts that the misrepresentations were brought to light through an investigation by the New York Attorney General and that, once the misrepresentations were disclosed in October 2004, the price of MMC stock declined some 37 percentcausing the state to lose approximately $10 million in damages.

The state's complaint claims that the course of misrepresentation engaged in by Marsh violated ORS 59.135 and ORS 59.137. The trial court granted summary judgment in favor of Marsh on two grounds. The trial court determined that the provisions of ORS 59.135 and ORS 59.137 require proof of reliance, that the state had not established proof of actual reliance, and that the state could not establish reliance by means of a presumption of reliance based on the “fraud-on-the-market” doctrine. The trial court also determined that ORS 59.137(1) violated the Dormant Commerce Clause of the United States Constitution because Oregon's statutory scheme does not require the purchaser of stock to establish scienter—i.e., that the stock issuer's or stock seller's misrepresentations or omissions were intentional.

On the state's appeal, the Court of Appeals affirmed the trial court's determination that actual reliance must be established by a stock purchaser under ORS 59.135 and ORS 59.137 and that a stock purchaser cannot establish reliance through the “fraud-on-the-market” presumption. The Court of Appeals did not address whether scienter must be established under the Oregon statutes, nor did the Court of Appeals reach the constitutional issue decided by the trial court. For the reasons that follow, we determine that ORS 59.137 requires a stock purchaser to establish reliance, but that the reliance element required by that statute may be established by a plaintiff who purchases stock on an efficient, open market by means of the presumption available under the “fraud-on-the-market” doctrine. At this stage of proceedings, we do not address, and we express no opinion on, whether scienter must be proved to establish a claim under ORS 59.135 and ORS 59.137, nor do we address any constitutional issues related to the scienter issue.²

RELIANCE

The state contends that it need not establish any form of reliance as part of its claim. The state bases its argument on what it perceives to be a straightforward application of statutory construction principles. The state asserts that neither ORS 59.135 nor ORS 59.137 contains any express reliance requirement and that the context of those statutes provides additional support for its position that no reliance is required. Because the statutory terms are significant and central, we set them out here to provide a frame of reference.

ORS 59.137(1) provides:

“(1) Any person who violates or materially aids in a violation of ORS 59.135(1), (2) or (3) is liable to any purchaser or seller of the security for the actual damages caused by the violation, including the amount of any commission, fee or other remuneration paid, together with interest at the rate specified in ORS 82.010 for judgments for the payment of money, unless the person who materially aids in the violation sustains the burden of proof that the person did not know and, in the exercise of reasonable care, could not have known of the existence of the facts on which the liability is based.”

ORS 59.135 provides, in part:

“It is unlawful for any person, directly or indirectly, in connection with the purchase or sale of any security or the conduct of a securities business or for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise:

“(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 circumstancesunder which they are made, not misleading;

“(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person[.]”

The state correctly notes that these two statutes do not contain the terms rely or reliance. Based on the methodology established in PGE v. Bureau of Labor & Industries, 317 Or. 606, 859 P.2d 1143 (1993), and State v. Gaines, 346 Or. 160, 206 P.3d 1042 (2009), the state asserts that the text of these statutes is unambiguous, that the text does not contain a reliance requirement, and that inserting a reliance requirement into the statutory claim established by ORS 59.137 would violate the provisions of ORS 174.010, which generally precludes a court from inserting into statutes terms that the legislature has omitted.³

To sustain its position, the state begins its statutory interpretation by separating the statutory terms in ORS 59.137(1) into constituent parts and then providing what it asserts are the most reasonable definitions of those parts. The state posits that the text of ORS 59.137(1) provides three instructions regarding who may bring a claim, against whom such a claim may be brought, and what damages may be recovered. The state derives those three instructions from the terminology in ORS 59.137(1), asserting that the instructions result from

“three successive phrases in ORS 59.137(1): ‘a person who violates or materially aids in a violation of ORS 59.135(1), (2) or (3) is liable’; ‘to any purchaser or seller of the security’; and ‘for actual damages caused by the violation.’ ”

In particular, the state suggests that the phrase “for actual damages caused by the violation” limits the claim to actual damages and that the terms “caused by the violation” limit the damages to those brought about by the defendant's conduct without introducing any requirement that the purchaser of the security rely on the defendant's conduct— i.e., in the state's view, the terms “caused by” do not expressly or necessarily limit damages to those resulting from a plaintiff's reliance. As support, the state cites to a definition of “cause” set out in...