Gohler v. Wood

• Citation: 919 P.2d 561
• Decision Date: 05 July 1996
• Docket Number: No. 940306,940306
• Parties: Blue Sky L. Rep. P 74,106 Gerhard W. GOHLER, IRA; John C. Sutherland; Barbara Catherwood; David W.J. Paden; Joseph M. Gaffney; Stevens D. Frink; and Jeff Nouwens, on behalf of themselves and all others similarly situated, Plaintiffs, Appellants, and Cross-Appellees, v. Robert L. WOOD; Raymond L. Hixson; Robert N. Pratt; L. Wynn Johnson; John T. Dunlop; Gerald C. Monson; Stephen D. Nadauld; Portland General Corporation; Portland General Holdings, Inc.; Richard G. Reiten; Richard W. Dyer; C.D. Hobbs; Peter J. Brix; Ken L. Harrison; Calvert Knudson; Deloitte & Touche; Kidder, Peabody & Co.; Piper, Jaffray & Hopwood, Inc., and Hanifen, Imhoff Inc., Defendants, Appellees, and Cross-Appellants.
• Court: Utah Supreme Court

Page 561

919 P.2d 561

Blue Sky L. Rep. P 74,106

Gerhard W. GOHLER, IRA; John C. Sutherland; Barbara Catherwood; David W.J. Paden; Joseph M. Gaffney; Stevens D. Frink; and Jeff Nouwens, on behalf of themselves and all others similarly situated, Plaintiffs, Appellants, and Cross-Appellees, v. Robert L. WOOD; Raymond L. Hixson; Robert N. Pratt; L Wynn Johnson; John T. Dunlop; Gerald C. Monson; Stephen D. Nadauld; Portland General Corporation; Portland General Holdings, Inc.; Richard G. Reiten; Richard W. Dyer; C.D Hobbs; Peter J. Brix; Ken L. Harrison; Calvert Knudson Deloitte & Touche; Kidder, Peabody & Co.; Piper, Jaffray &amp Hopwood, Inc., and Hanifen, Imhoff Inc., Defendants, Appellees, and Cross-Appellants.

No. 940306.

Supreme Court of Utah.

July 5, 1996.

David K. Isom, Scott A. Call, Thomas R. Karrenberg, Salt Lake City, Edward F. Haber, Boston, Mass., Robert C. Schubert, San Francisco, Cal., Blake M. Harper, Theodore J. Pintar, San Diego, Cal., Justine Fischer, Portland, Or., and Steve W. Berman, Seattle, Wash., for plaintiffs.

Richard D. Burbidge, Stephen B. Mitchell, Salt Lake City, for defendants Wood, Hixson, Johnson, and Monson.

Douglas J. Parry, Salt Lake City, for defendant Dunlop.

William B. Bohling, Randon W. Wilson, Jeffrey N. Walker, Salt Lake City, for defendant Nadauld Michael M. Later, Clark Waddoups, Salt Lake City, and Bruce A. Rubin, Portland, Or., for defendants Portland General.

Daniel L. Berman, Samuel O. Gaufin, Salt Lake City, for defendants Reiten, Dyer, Brix, Hobbs, Harrison, and Knudson.

Gary F. Bendinger, Richard W. Casey, Jeffery S. Williams, Catherine Agnoli, Stephen R. Waldron, Salt Lake City, and Barbara A. Mentz, New York City, for defendant Deloitte & Touche.

Robert A. Peterson, Alan L. Sullivan, Kathryn A. Snedaker, Salt Lake City, for Kidder Peabody, Piper Jaffray, and Hanifen, Imhoff.

ZIMMERMAN, Chief Justice:

This case is before the court on certification from the United States District Court for the District of Utah pursuant to rule 41 of the Utah Rules of Appellate Procedure. The district court's certification order presents the following two issues of state law for our determination: (i) whether reliance upon an alleged untrue statement or misleading omission is an essential element of a private cause of action under sections 61-1-1(2) and -22 of the Utah Code, the antifraud provisions of the Utah Uniform Securities Act ("Utah Act"); and (ii) if reliance is an element, whether proving "fraud-on-the-market" satisfies that requirement. ¹ We hold that these antifraud provisions do not require proof of reliance, and therefore, we need not decide whether such a requirement could be satisfied by proof of "fraud-on-the-market."

The relevant facts, which we have extracted from the district court's certification order, are as follows: Plaintiffs filed a class action complaint in federal district court against various defendants. Plaintiffs alleged that they had purchased common shares and convertible subordinated debentures in the now bankrupt Bonneville Pacific Corporation ("Bonneville"), that defendants intended to promote the myth that Bonneville was a company of sound financial condition by engaging in a series of sham transactions and issuing misleading press releases, financial records, and public-offering documents, and that defendants' misrepresentations violated sections 61-1-1(2) and -22 of the Utah Act.

Certain defendants moved to dismiss plaintiffs' claims under the Utah Act, arguing that plaintiffs had not pleaded that they actually relied on defendants' alleged misrepresentations. Although plaintiffs had not pleaded actual reliance, they had pleaded that defendants' actions constituted "fraud-on-the-market." The district court certified the following questions of first impression to this court: (i) whether reliance is an element of a private cause of action under sections 61-1-1(2) and -22, and (ii) if reliance is an element, whether proof of "fraud-on-the-market" can satisfy that requirement.

The dispositive issue in this case, whether reliance is an element of a private cause of action under sections 61-1-1(2) and -22, presents a question of statutory construction. This court's primary objective in construing enactments is to give effect to the legislature's intent. West Jordan v. Morrison, 656 P.2d 445, 446 (Utah 1982). We look first to the plain language of the statute to discern the legislative intent. Chris & Dick's Lumber & Hardware v. Tax Comm'n, 791 P.2d 511, 514 (Utah 1990); see also Schurtz v. BMW of N. Am., Inc., 814 P.2d 1108, 1112 (Utah 1991). "Thus, we will interpret a statute according to its plain language unless such a reading is unreasonably confused, inoperable, or in blatant contravention of the express purpose of the statute." Perrine v. Kennecott Mining Corp., 911 P.2d 1290, 1292 (Utah 1996). "Only when we find ambiguity in the statute's plain language need we seek guidance from the legislative history and relevant policy considerations." World Peace Movement of Am. v. Newspaper Agency Corp., 879 P.2d 253, 259 (Utah 1994); see also Schurtz, 814 P.2d at 1112. Accordingly, our analysis of sections 61-1-1(2) and -22 begins with the plain language of those sections.

Section 61-1-1(2) makes it

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). Section 61-1-22(1) imposes civil liability upon those who violate section 61-1-1(2), while section 61-1-22(3) provides a defense to liability under certain circumstances. In relevant part, section 61-1-22 provides:

(1)(a) A person who ... offers, sells, or purchases a security in violation of Subsection 61-1-1(2) is liable to the person selling the security to or buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security....

....

(3) A person who offers or sells a security in violation of Subsection 61-1-1(2) is not liable under Subsection (1)(a) if the purchaser knew of the untruth or omission, or the seller did not know and in the exercise of reasonable care could not have known of the untrue statement or misleading omission.

Utah Code Ann. § 61-1-22(1), (3). ²

The terms of these provisions contain no requirement that a plaintiff prove reliance to recover. As applied to the facts alleged in this case, the plain language requires that (i) defendants, in connection with the offer or sale of a security, either made an untrue statement of a material fact or omitted to state a material fact, Utah Code Ann. §§ 61-1-1(2), -22(1); (ii) plaintiffs did not know of the untruth or omission, Utah Code Ann. § 61-1-22(3); and (iii) defendants knew or in the exercise of reasonable care could have learned of the untruth or omission. Id. The second element is the only one which relates to a plaintiff's state of mind, and it requires only that the plaintiff did not know of the untruth or omission; the statute says nothing about reliance. The fact that the legislature plainly articulated a plaintiff's required state of mind but was silent as to whether the plaintiff must have relied on the untruth or omission to recover clearly indicates that the legislature did not intend to adopt a reliance requirement.

Defendants, however, ask us to look beyond the plain language of sections 61-1-1(2) and -22 and to read a reliance requirement into the Utah Act. They argue (i) that in S & F Supply Co. v. Hunter, 527 P.2d 217 (Utah 1974), this court interpreted the pre-1990 version of section 61-1-22 as requiring purchaser reliance and the legislature manifested its intent to adopt S & F Supply 's interpretation when it amended section 61-1-22 in 1990 but left intact the portion of the statute upon which the S & F Supply court relied in inferring a reliance requirement; and alternatively (ii) that section 61-1-22's express private cause of action for violation of section 61-1-1(2) should be interpreted as including the same elements as the federal implied private cause of action for violation of section 10(b) of the Securities Exchange Act of 1934 ("1934 Act") and Securities and Exchange Commission ("SEC") rule 10b-5(b) promulgated thereunder. We reject both arguments.

Defendants first argue that the legislature should be presumed to have adopted S & F Supply 's interpretation of section 61-1-22 because the legislature amended that section in 1990 but did not alter its requirement that a purchaser did not know of the untruth or omission which, defendants contend, was the basis for S & F Supply 's imposition of a reliance requirement. See American Coal Co. v. Sandstrom, 689 P.2d 1, 3 (Utah 1984) ("Where the legislature amends a portion of a statute, leaving other portions unamended, ... absent substantial evidence to the contrary, the legislature is presumed to have been satisfied with prior judicial constructions of the unaltered portions of the statute and to have adopted those constructions as consistent with its own intent."). In making this argument, however, defendants mischaracterize this court's decision in S & F Supply. The court's ultimate conclusion in S & F Supply was that a buyer of securities could not recover under the pre-1990 version of section 61-1-22 unless the buyer exercised "reasonable care and prudence under the circumstances." S & F Supply, 527 P.2d at 222. In reaching this conclusion, the court reasoned:

[T]he statute cannot fairly be understood as meaning that a buyer can naively or blindly purchase stocks without concern for the truth or reasonableness of representations made, then if it later develops that it would serve his interest, assert a claim of falsity of a representation about which he previously had no...