E. F. Hutton & Co., Inc. v. Rousseff

• Decision Date: 05 January 1989
• Docket Number: No. 72361,72361
• Citation: 537 So.2d 978,14 Fla. L. Weekly 3
• Parties: Blue Sky L. Rep. P 72,950, 57 USLW 2413, 14 Fla. L. Weekly 3 E.F. HUTTON & COMPANY, INC., et al., Defendants/Appellants, v. Christ M. ROUSSEFF, et al., Plaintiffs/Appellees.
• Court: Florida Supreme Court

Page 978

537 So.2d 978

Blue Sky L. Rep. P 72,950, 57 USLW 2413, 14 Fla. L. Weekly 3

E.F. HUTTON & COMPANY, INC., et al., Defendants/Appellants, v. Christ M. ROUSSEFF, et al., Plaintiffs/Appellees.

No. 72361.

Supreme Court of Florida.

Jan. 5, 1989.

Rehearing Denied Feb. 27, 1989.

C. Timothy Corcoran, III of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa, and William G. Campbell, Jo Lanier Meeks, Joseph A. Ingrisano and G. Wayne Hillis, Jr. of Kutak, Rock & Campbell, Atlanta, Ga., for defendants/appellants.

Martin T. Fletcher, Sr., Scott T. Niemann and Anne Carney of Rothberg, Gallmeyer, Fruechtenicht & Logan, Fort Wayne, Ind., for plaintiffs/appellees.

Charles L. Stutts, Gen. Counsel and R. Michael Underwood, Deputy Gen. Counsel, Florida Dept. of Banking and Finance, Tallahassee, amicus curiae, for State of Fla., ex rel. Gerald Lewis, Comptroller of Florida.

SHAW, Justice.

This case is before us on the following question of Florida law certified by the United States Court of Appeals, Eleventh Circuit:

In an action under the Florida Securities and Investor Protection Act, Fla.Stat. §§ 517.301, 517.211, is the claimant required to prove that his loss was proximately caused by the defendant's fraud?

Rousseff v. E.F. Hutton Co., 843 F.2d 1324, 1326 (11th Cir.1988). We have jurisdiction. Art. V, § 3(b)(6), Fla. Const. We answer the question in the negative.

In 1982, Rousseff purchased two million dollars worth of limited partnership shares in an oil and gas drilling venture known as Anadarko Oil & Gas Partners 1982 (AOGP). The purchase was made from AOGP's general partner, Anadarko Land and Exploration Company (Anadarko). An employee of E.F. Hutton Co. (Hutton) affirmatively solicited Rousseff's investment and Hutton was Anadarko's exclusive sales agent for the transaction. Anadarko's experts had projected that the gas well which formed the venture's basis contained between six and ten billion cubic feet (BCF) of natural gas. Hutton's experts, however, had projected that it contained only 3.6 BCF. Prior to making his investment, Rousseff was told of the Anadarko projections but not of the Hutton projections. When the well ultimately became productive, its reserves were fixed at less than four BCF.

Unsatisfied with his investment, Rousseff filed suit in federal court against AOGP, Anadarko, and Hutton under section 10(b) of the Securities Exchange Act of 1934 (1934 Act), ¹ federal rule 10b-5, ² the Florida Securities Act (Florida Act), ³ and the common law theory of fraud. AOGP and Anadarko settled. The claim against Hutton proceeded to trial, and in accordance with the jury's verdict, the court entered judgment allowing Rousseff to rescind his purchase. Hutton appealed and the federal circuit court reversed as to the federal and common law fraud claims on the ground that the trial court failed to submit to the jury the question of whether Rousseff's loss was proximately caused by Hutton's fraud. As to the Florida law claim, the court certified the above question to this Court.

Relevant federal law consists of the Securities Act of 1933 (1933 Act), ⁴ which governs the initial issuance of securities, and the 1934 Act, which governs subsequent trading in securities. Section 12(2) of the 1933 Act provides a civil remedy for a buyer against his seller. It states:

§ 77l. Civil liabilities arising in connection with prospectuses and communications

Any person who--

....

(2) offers or sells a security ... by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

Rule 10b-5, promulgated under section 10(b) of the 1934 Act, provides a criminal or administrative remedy against any person who commits fraud in connection with the purchase or sale of any security. It states:

§ 240.10b-5 Employment of manipulative and deceptive devices.

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) 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 were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Though rule 10b-5 offers no civil remedy, federal courts have implied one under it and have established a body of court-made law defining the remedy. See, e.g., Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir.1981).

State securities laws operate in conjunction with the federal laws; federal laws do not supercede state laws. 15 U.S.C. §§ 77p, 78bb(a) (1982). The Florida statutes in issue here are sections 517.301 and 517.211, Florida Statutes (1981). Section 517.301(1) is similar in language to rule 10b-5. It provides:

517.30 Fraudulent transactions; falsification or concealment of facts.--It is unlawful and a violation of the provisions of this chapter for any person:

(1) In connection with the offer, sale, or purchase of any security, including any security exempted under the provisions of s. 517.051 and including any security sold in any transaction exempted under the provisions of s. 517.061, directly or indirectly:

(a) To employ any device, scheme, or artifice to defraud;

(b) To obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

(c) To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Section 517.211, which operates upon section 517.301, is similar in effect to section 12(2) of the 1933 Act. It provides:

517.211 Remedies available in cases of unlawful sale.--

....

(2) Any person purchasing or selling a security in violation of s. 517.301, and every director, officer, partner, or agent of or for the purchaser or seller, if the director, officer, partner, or agent has personally participated or aided in making the sale or purchase, shall be jointly and severally liable to the person selling the security to or purchasing the security from such person in an action for recission [sic], if the plaintiff still owns the security, or for damages, if the plaintiff has sold the security.

(3) In an action for recission [sic]:

(a) A purchaser may recover the consideration paid for the security, plus interest thereon at the legal rate, less the amount of any income received by the purchaser on the security upon tender of the security.

(b) A seller may recover the security upon tender of the consideration paid for the security, plus interest at the legal rate, less the amount of any income received by the defendant on the security.

(4) In an action for damages brought by a purchaser of a security, the plaintiff shall recover an amount equal to the difference between:

(a) The consideration paid for the security, plus interest thereon at the legal rate from the date of purchase; and

(b) The value of the security at the time it was disposed of by the plaintiff, plus the amount of any income received on the security by the plaintiff.

(5) In an action for damages brought by a seller of a security, the plaintiff shall recover an amount equal to the difference between:

(a) The value of the security at the time of the complaint, plus the amount of any income received by the defendant on the security; and

(b) The consideration received for the security, plus interest at the legal rate from the date of sale.

Hutton claims that because section 517.301 closely tracks rule 10b-5, the legislature intended that the body of federal case law which has been established for civil remedies under rule 10b-5 applies equally to Florida claims. Loss causation is a requirement under this federal law and provides that the decline in value of the injured party's investment must result directly from the offending party's fraud, not from some other source, e.g., independent market forces. ⁵ Rousseff asserts that because the overall effect of sections 517.301 and 517.211 is similar to that of section 12(2), federal case law interpreting section 12(2), which has no loss causation requirement, should be relevant.

Section 517.301 makes securities fraud illegal. It creates a criminal or administrative offense, as does rule 10b-5. The two provisions are similar in language. Both allow...