State v. Larsen

Decision Date17 December 1993
Docket NumberNo. 920114,920114
Citation865 P.2d 1355
PartiesSTATE of Utah, Plaintiff and Respondent, v. C. Dean LARSEN, Defendant and Petitioner.
CourtUtah Supreme Court

R. Paul Van Dam, Atty. Gen., David B. Thompson, Asst. Atty. Gen., Salt Lake City, for plaintiff and respondent.

Larry R. Keller, John T. Nielsen, David L. Arrington, Joel G. Momberger, Jon E. Waddoups, Melyssa D. Davidson, Salt Lake City, for defendant and petitioner.

ON CERTIORARI TO THE UTAH COURT OF APPEALS

ZIMMERMAN, Justice:

C. Dean Larsen petitioned for a writ of certiorari, seeking review of a Utah Court of Appeals decision upholding the district court's rulings on two issues relating to his conviction on eighteen counts of criminal securities fraud. Larsen contends that the trial court erred in refusing to instruct the jury that the intent to defraud, deceive, or manipulate is an element of a criminal violation of sections 1(2) and 21 of the Utah Uniform Securities Act. See Utah Code Ann. §§ 61-1-1(2), -21. Larsen also complains that the trial court erroneously allowed a State expert to testify as to the "materiality" of information that Larsen allegedly had failed to disclose to investors. We affirm his convictions.

The facts of this case are detailed in the court of appeals' opinion in State v. Larsen, 828 P.2d 487, 488-90 (Utah Ct.App.1992). To summarize, Larsen was charged with, and convicted of, eighteen counts of securities fraud under sections 61-1-1(2) and 61-1-21 of the Code. These convictions arose out of his actions while president of a real estate development company in which others had invested. Larsen's criminal acts included his failure to inform investors of material information related to the company, misrepresentations of material facts regarding the company's financial status, and related acts of dishonesty. Larsen appealed to the court of appeals, which affirmed his convictions. 828 P.2d at 496. We granted certiorari to consider his claims of legal error.

Larsen first asserts that the trial court erroneously instructed the jury as to the applicable law. He alleges that the trial court improperly refused to give portions of his proposed instructions concerning the elements of and defenses to criminal securities fraud. The omitted portions, in substance, would have instructed the jury that to be guilty of a criminal violation of section 61-1-1(2), Larsen must have acted with the specific intent to defraud and that a representation made "in good faith constitutes a complete defense to a charge of securities fraud."

The propriety of the instructions given hinges on the correct interpretation of sections 61-1-1(2) and -21. 1 In particular, does a criminal violation of these sections require proof of an intent to defraud, deceive, or manipulate? The correct interpretation of a statute is a question of law and is reviewed for correctness. State v. James, 819 P.2d 781, 796 (Utah 1991); Ward v. Richfield City, 798 P.2d 757, 759 (Utah 1990).

When faced with a question of statutory construction, this court first examines the plain language of the statute. Schurtz v. BMW of N. Am., Inc., 814 P.2d 1108, 1112 (Utah 1991); Bonham v. Morgan, 788 P.2d 497, 500 (Utah 1989) (per curiam). Section 61-1-1(2) states in relevant part:

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

....

(2) 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.

Utah Code Ann. § 61-1-1(2). 2 This section's standards govern both civil and criminal liability. To ascertain the elements of a criminal violation, however, this section must be read in conjunction with section 61-1-21, which specifies the requisite mental state and penalties for a criminal violation. Utah Code Ann. § 61-1-21. Section 61-1-21 provides in pertinent part:

Any person who willfully violates any provision of this chapter [including section 61-1-1(2) ] ... or who willfully violates any rule or order under this chapter ... shall upon conviction be fined not more than $10,000 or imprisoned not more than three years, or both.

Utah Code Ann. § 61-1-21 (emphasis added). The plain language of section 61-1-21 requires that to be liable for a criminal violation of section 61-1-1(2), the defendant must have acted "willfully" in misstating or omitting material facts. Id. Larsen asks this court to interpret "willfully" as requiring "scienter," the intent to deceive, manipulate, or defraud, as defined by the United States Supreme Court in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), a rule 10b-5 case.

In determining whether we can, or should, give "willfully" such a construction, we first look to the statutory definition of "willful." The legislature has indicated that a person acts willfully when it is his or her "desire to engage in the conduct that cause[s] the result." Utah Code Ann. § 76-2-103. Nothing in this definition requires scienter. 3 Moreover, a brief survey of the Code confirms that the Utah legislature knows how to require scienter, if it so desires, by including specific language to that effect. See, e.g., id. §§ 23-20-27, 41-1a-1319, 76-6-506.2, 76-10-706 & -1006.

Failing to find support in the express terms of the Code, Larsen suggests that the scienter requirement is an "independent element" of the offense. Stated another way, although it is not apparent from the language of the provision, Larsen contends that we should read the scienter requirement into the statute. We have rejected similar attempts to engraft a judicially created intent requirement upon the plain language of a criminal statute. E.g., State v. Delmotte, 665 P.2d 1314, 1315 (Utah 1983) (holding offense of writing bad check does not require intent to defraud). Perhaps more on point, other states have rejected attempts to import scienter into analogous securities-fraud statutes. See, e.g., People v. Johnson, 213 Cal.App.3d 1369, 262 Cal.Rptr. 366, 369 (Ct.App.1989); State v. Temby, 108 Wis.2d 521, 322 N.W.2d 522, 526 (Ct.App.1982). This court will not affix new "independent requirements" to an otherwise clear and constitutional statute.

Although the language of the statute effectively disposes of the issue, Larsen asserts that this court should look beyond the plain language of the Utah Uniform Securities Act to the legislative intent. Section 61-1-27 of the Code provides that Utah's Uniform Securities Act "may be construed so 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 regulation." Utah Code Ann. § 61-1-27. Larsen asserts that this section was intended to bind state judicial interpretations of Utah's antifraud provisions to the United States Supreme Court's interpretations of similar federal securities provisions. Specifically, Larsen argues that the language similarities between section 61-1-1(2) and rule 10b-5 of the Securities and Exchange Commission ("SEC"), when viewed in light of the intent requirement embodied in section 61-1-27, require this court to interpret Utah's antifraud provision in conformity with the Supreme Court's decision in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Hochfelder held, inter alia, that "scienter," or an intent to deceive, manipulate, or defraud, must be proved before civil liability can be imposed under rule 10b-5. See id., 425 U.S. at 187, 96 S.Ct. at 1378, 47 L.Ed.2d at 674; Aaron v. Securities & Exch. Comm'n, 446 U.S. 680, 692, 100 S.Ct. 1945, 1953, 64 L.Ed.2d 611 (1980). Larsen's argument is facially legitimate and requires response.

We first examine Hochfelder's reasoning. The issue before the Hochfelder court was "whether a private cause of action for damages [would] lie under § 10(b) and Rule 10b-5 in the absence of any allegation of 'scienter'--intent to deceive, manipulate, or defraud." Id. The SEC promulgated rule 10b-5 4 pursuant to powers vested in it by section 10(b) 5 of the Securities Exchange Act of 1934 ("1934 Act"). Id. at 195, 96 S.Ct. at 1381. The Court ultimately determined that scienter is required because the language of section 10(b)--the statutory authority upon which rule 10b-5 is grounded--implicitly limited the SEC's power to promulgate an implementing rule to one that required scienter. Id. at 213-14, 96 S.Ct. at 1390-91; see also Aaron, 446 U.S. at 690, 100 S.Ct. at 1952; 2 Thomas Lee Hazen, The Law of Securities Regulation § 13.4, at 81 (2d ed. 1990).

In contrast to rule 10b-5, Utah's securities fraud provision, section 61-1-1(2), does not operate against a background of limiting statutory authority. The interpretation we give to section 61-1-1(2) of the Utah Code is therefore not circumscribed by the dispositive language of section 10(b) of the 1934 Act. In that respect, section 61-1-1(2) of the Code atavistically resembles, not rule 10b-5, but section 17(a)(2) of the Securities Act of 1933, which the Aaron Court declined to interpret as requiring scienter. 446 U.S. at 697, 100 S.Ct. at 1956. 6 Because of this critical difference, Hochfelder is not particularly helpful in interpreting Utah's analogue to rule 10b-5. 7

Further, even if we were to assume that rule 10b-5 and section 61-1-1(2) are direct parallels, as Larsen suggests, he fails to recognize that the Utah legislature has not required the courts to interpret the Utah Uniform Securities Act in lockstep with federal decisions. Section 61-1-27, on which Larsen relies for his lockstep mandate, seems to make uniformity with other states more important than uniformity with interpretations of analogous federal statutes. See Utah Code Ann. § 61-1-27. Section 61-1-27 provides that Utah's Uniform Securities Act "may be so construed as to...

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