Fed. Home Loan Bank of Seattle v. Credit Suisse Sec. (Usa) LLC
| Decision Date | 03 October 2019 |
| Docket Number | No. 95420-8 (consol. 95436-4),95420-8 (consol. 95436-4) |
| Court | Washington Supreme Court |
| Parties | FEDERAL HOME LOAN BANK OF SEATTLE, Petitioner, v. CREDIT SUISSE SECURITIES (USA) LLC f/k/a Credit Suisse First Boston LLC, a Delaware limited liability company; Credit Suisse First Boston Mortgage Securities Corp., a Delaware corporation; and Credit Suisse Management (USA) LLC f/k/a Credit Suisse First Boston Management LLC, a Delaware limited liability company, Respondents. Federal Home Loan Bank of Seattle, Petitioner, v. Barclays Capital Inc., a Connecticut corporation; BCAP LLC, a Delaware limited liability company; and Barclays Bank PLC, a public limited company registered in England and Wales, Respondents. |
Matthew Aaron Carvalho, Yarmuth LLP, 1420 5th Avenue, Suite 1400, Seattle, WA 98101-3336, David Grais, Grais & Ellsworth LLP, 950 Third Avenue, 24th Floor, New York, NY 10022, for Petitioner.
Agnes Dunogue, Matthew Craner, Shearman & Sterling, LLP, 599 Lexington Avenue, New York, NY 10022, Paul Francis Rugani, Daniel J. Dunne, Jr., Orrick Herrington & Sutcliffe LLP, 701 5th Avenue, Suite 5600, Seattle, WA 98104-7045, Barry Levin, 405 Howard Street, The Orrick Building, San Francisco CA 94105, Michael T. Reynolds, Richard J. Stark, Richard W. Clary, Lauren A. Moskowitz, Cravath, Swaine & Moore LLP, Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019, Louis David Peterson, Brian Corker Free, Michael Jacob Ewart, Hillis Clark Martin & Peterson PS, 999 3rd Avenue, Suite 4600, Seattle, WA 98104-4084, for Respondents.
Kameron Andrew Hillstrom, Attorney at Law, 11021 Cramer Road Kp N, Gig Harbor WA 98329-5779, for Amicus Curiae (North America's Securities Administrators Association).
Sharon M. James, Ian S. McDonald, Chad Corwyn Standifer, Washington Attorney General's Office, P.O. Box 40100, 1125 Washington Street SE, Olympia, WA 98504-0100, for Amicus Curiae (State of Washington Department of Financial Institutions).
¶ 1 The 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.
¶ 2 This 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 $660 million.
¶ 3 RMBS 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).
¶ 4 In 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 misleading."
¶ 5 Federal 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 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.
¶ 6 In each 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 law.
¶ 7 Federal 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, 2017 WL 6336000 (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 Wash. App. 2d 551, 556, 576-77, 406 P.3d 686 (2017) (hereinafter Barclays ).
¶ 8 Federal Home Loan sought review of each case in this court, arguing that reliance is not a requirement. We consolidated the cases and granted review.
¶ 9 We review grants of summary judgment de novo. Folsom v. Burger King, 135 Wash.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 Wash.2d 1, 9, 43 P.3d 4 (2002).
¶ 10 Our 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 Wash.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 Wash.2d 247, 257, 143 P.3d 590 (2006) ().
¶ 11 The 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).
¶ 12 In so 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 (the Respondents).
¶ 13 The objective of statutory interpretation is to ascertain and carry out the intent of the legislature.
Campbell & Gwinn, 146 Wash.2d at 9-10, 43 P.3d 4. "[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 Wash.2d 527,533, 574 P.2d 371 (1978). Any plain language analysis of the Securities Act must be undertaken with this in mind.
¶ 14 As is immediately clear, the plain language of RCW 21.20.010 does not require reasonable reliance:
No 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.
¶ 15 We also look to additional and related sections of the act in which RCW 21.20.010 is found to ascertain its meaning. Campbell & Gwinn, 146 Wash.2d at 11-12, 43 P.3d 4. 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).1 Indeed, in the commentary to the corresponding (albeit differently structured and worded) provision in the Uniform Securities Act of 1956...
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