Baerlein v. State, 45321

CourtUnited States State Supreme Court of Washington
Citation92 Wn.2d 229,595 P.2d 930
Docket NumberNo. 45321,45321
Parties, Blue Sky L. Rep. P 71,518 Otto BAERLEIN, William Brunelle, Laura Brunelle, Katherine Engberg, Margaret Mary Thilman Mitchell, Lillian L. Gracey, Byron Hahner, Carl Hahner, Olive Hahner, Otto J. Haussler, Lydia S. Haussler, Ernest Huber, Mina Huber, Walter E. Hurst, Marie K. Hurst, Cheri Lynn Hurst, Sandra Gale Hurst, George Jackson, Kenneth McLeod, H. Evelyn McLeod, Louis C. Moritz, Bertha Moritz, Lou M. O'Brien, Emil Palm, Christine Palm, Heather L. Watten as Trustee for Winifred Duncan, Merle Whitlock and Ester Whitlock, Appellants, v. The STATE of Washington and the Washington Department of Motor Vehicles, Securities Division, Cross Appellants and Respondents, Jack Nelson and Jane Doe Nelson, his wife, Douglas Thoms and Jane Doe Thoms, his wife, John A. Doe and Jane A. Doe, his wife, Defendants.
Decision Date31 May 1979

Peterson, Bracelin, Young & Putra, Elizabeth J. Bracelin, Brian A. Putra, Seattle, for appellants.

Slade Gorton, Atty. Gen., Earl R. McGimpsey, Asst., Olympia, for cross appellants and respondents.

Ferguson & Burdell, W. J. Thomas Ferguson, David N. Lombard, Seattle, amicus curiae.

DOLLIVER, Justice.

This case presents the question of the extent to which the State is required to protect its citizens from economic injury caused by the activities of a third party.

Plaintiffs appeal directly from a summary judgment order dismissing their claims against the securities division of the Department of Motor Vehicles (now the Department of Licensing). The case arises out of the activities of Sparkman & McLean Company, a Washington corporation, and its related companies. Plaintiffs were investors in the corporation which went into receivership in 1970. Although the receivership with respect to Sparkman & McLean Income Fund, Sparkman & McLean Investment Fund, Inc., and Retirement Income Corporation was ended in 1975, receivership with respect to Sparkman & McLean Company was still proceeding at the time the defendants' motion for summary judgment was granted.

Plaintiffs' action, filed as a class action but not yet certified, is based on the alleged failure of the State to enforce the provisions of the Securities Act of Washington (RCW 21.20), and its own administrative regulations. Plaintiffs allege the securities division owed or assumed a duty to them and that the duty was breached when the division issued permits for the sale of securities by Sparkman & McLean Company, and then failed to issue stop orders against the false and misleading advertising and registration statements of the company.

Defendants moved for summary judgment of dismissal, arguing (1) it owed no duty to plaintiffs, and (2) the statute of limitations had run on plaintiffs' action. The trial court granted the motion on the ground that the defendants owed no duty to investors in the company, but found plaintiffs' claim was not barred by the statute of limitations. The State cross-appealed from the statute of limitations portion of the summary judgment order. Since we hold the State owed no duty to plaintiffs which is enforceable in tort, we need not consider the question of the statute of limitations on the cross appeal.

In order for a cause of action for negligence to exist, there must first of all be a duty of care on the part of the defendant. Morgan v. State,71 Wash.2d 826, 430 P.2d 947 (1967); Lewis v. Scott, 54 Wash.2d 851, 341 P.2d 488 (1959). The traditional rule is that a regulatory statute imposes a duty on public officials which is owed to the public as a whole, and that such a statute does not impose any duties owed to a particular individual which can be the basis for a tort claim. Halvorson v. Dahl, 89 Wash.2d 673, 676, 574 P.2d 1190 (1978). The rule is almost universally accepted regardless of the exact nature of the statute relied upon by the plaintiff. See 18 McQuillin, Municipal Corporations § 53.04(b) (3d rev. ed. 1977); 2 Cooley on Torts § 300 (4th ed. 1932); Shapo, The Duty to Act: Tort Law, Power & Public Policy 80, 92, 106 (1977); H. R. Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 159 N.E. 896 (1928); Jahnke v. Incorporated City of Des Moines, 191 N.W.2d 780 (Iowa 1971); Massengill v. Yuma County, 104 Ariz. 518, 456 P.2d 376 (1969); Riss v. City of New York, 22 N.Y.2d 579, 293 N.Y.S.2d 897, 240 N.E.2d 860 (1968); Keane v. Chicago, 98 Ill.App.2d 460, 240 N.E.2d 321 (1968). Contra: Adams v. State, Alaska, 555 P.2d 235 (1976); Coffey v. Milwaukee, 74 Wis.2d 526, 247 N.W.2d 132 (1976); Tcherepnin v. Franz, 393 F.Supp. 1197 (N.D.Ill.1975).

In Halvorson, we announced what was called an "exception" to the traditional rule: "Liability can be founded upon a municipal code if that code by its terms evidences a clear intent to identify and protect a particular and circumscribed class of persons." Halvorson, 89 Wash.2d at 676, 574 P.2d at 1192. While we have characterized the Halvorson doctrine as an "exception", other courts have simply considered it a part of the traditional rule of nonliability. See Stranger v. New York State Elec. & Gas. Corp.,25 A.D.2d 169, 268 N.Y.S.2d 214 (1966); Motyka v. Amsterdam, 15 N.Y.2d 134, 256 N.Y.S.2d 595, 204 N.E.2d 635 (1965). Obviously a statute which by its terms creates a duty to individuals can be the basis for a negligence action where the statute is violated and the injured plaintiff was one of the persons designed to be protected by the legislation. A clear statement of legislative intent to protect individuals does not need an "exception" to the traditional rule; it is simply a statutory duty imposed upon the governmental entity. By our language in Halvorson, we advised legislative bodies that, when they impose a duty on public officials as a whole, no duty in tort is owed to a particular individual. If, on the other hand, the legislation evidences a clear intent to identify a particular and circumscribed class of persons, such persons may bring an action in tort for violation of the statute or ordinance. Thus, the first question we must determine in this case is if such a clear legislative intent exists.

Plaintiffs point to RCW 21.20.020, .100, .230, .280(5), .360, .450, and .900, of the securities act as evincing a legislative intent to protect individual investors. However, other portions of the securities act and the administrative code regulations adopted pursuant to the act severely limit the duty of the State and, in our opinion, contradict the "clear intent" plaintiffs assert.

We believe RCW 21.20.360 gives a true statement of the duty the legislature intended to impose on the regulatory agency:

Neither the fact that an application for registration under RCW 21.20.050, a registration statement under RCW 21.20.180 or 21.20.210 has been filed, nor the fact that a person or security if effectively registered, constitutes a finding by the director that any document filed under this chapter is true, complete, and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the director has passed in any way upon the merits of qualifications of, or recommended or given approval to, any person, security, or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer, or client any representation inconsistent with this section.

This is a complete disclaimer by the State that any documents filed under the securities act by any security or person registered under the act are true, complete and not misleading. The registration statements, advertising and other documents complained of by plaintiffs as containing false, fraudulent and misleading information were all filed with the securities division and under RCW 21.20.360 ...

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