Kittilson v. Ford

• Decision Date: 22 May 1979
• Docket Number: No. 2640-III,2640-III
• Parties: , Blue Sky L. Rep. P 71,516 Cloe M. KITTILSON, Appellant, v. Robert L. FORD and Ann C. Ford, husband and wife, and Gerald Kirkingburg and Yvonne Kirkingburg, husband and wife, Respondents.
• Court: Washington Court of Appeals

Page 402

23 Wn.App. 402

595 P.2d 944, Blue Sky L. Rep. P 71,516

Cloe M. KITTILSON, Appellant, v. Robert L. FORD and Ann C. Ford, husband and wife, and Gerald

Kirkingburg and Yvonne Kirkingburg, husband and

wife, Respondents.

No. 2640-III.

Court of Appeals of Washington, Division 3, Panel 3.

May 22, 1979.

Reconsideration Denied June 20, 1979.

Thomas Milby Smith, Spokane, for appellant.

R. Max Etter, Spokane, for respondents.

GREEN, Chief Judge.

Plaintiff brought this action to recover damages arising from her purchase of securities from the defendants. Her complaint contains three causes of action based upon (1) a violation of the Washington Securities Act, RCW 21.20; (2) a violation of the Consumer Protection Act, RCW 19.86; and as an alternative to the foregoing causes of action (3) a claim against defendant Kirkingburg alleging that by fraud and misrepresentation he had breached his fiduciary duty to her and that he was a constructive trustee of her moneys. A default judgment was entered for plaintiff against the defendant Ford; however, a summary judgment dismissing the complaint was entered in favor of the defendant Kirkingburg. Plaintiff appeals from this dismissal.

Three issues are presented: (1) Does the specific time limitation upon actions brought under the Securities Act apply to the other causes of action; or, is the second cause of action governed by the limitation provisions of the Consumer Protection Act and is the third cause of action governed by the general statute of limitations? (2) Was the defendant's activity "otherwise regulated," and, therefore, outside the scope of the Consumer Protection Act? and (3) Should certain amendments to the Securities and Consumer Protection Acts be applied retroactively?

Real-Tex Enterprises, Inc., is a Texas-based corporation engaged in the sale of real estate contracts. Defendant Ford was the Washington representative for Real-Tex, and defendant Kirkingburg acted as agent for Mr. Ford. Mr. Kirkingburg approached the plaintiff with the proposal that she purchase some of these contracts. As a result of his representations concerning the nature, quality, and security of such an investment, the plaintiff, an elderly widow, invested in excess of $35,000 in real estate contracts in June 1972 and in March 1973. After these purchases, Real-Tex Enterprises filed bankruptcy proceedings. She lost substantially all of her investment.

The underlying allegations of the plaintiff's complaint are that the real estate contracts were unregistered securities and their sale violated the Washington Securities Act; the representations made to plaintiff by Mr. Kirkingburg were false and she relied upon those representations to her substantial detriment and loss; and finally, she is entitled to recover under the Securities Act and the Consumer Protection Act or, alternatively, against Mr. Kirkingburg for misrepresentation and fraud. Mr. Kirkingburg answered these allegations by, Inter alia, generally pleading the statute of limitations. Subsequently, he moved for summary judgment. The affidavit in support of this motion states that plaintiff's last purchase occurred on March 1, 1973, more than 3 years prior to the commencement of this action on March 10, 1976. The Securities Act provided that actions for violations of the Act must be brought no more than 3 years after the contract of sale. ¹ Mr. Kirkingburg asserted that the Securities Act preempted the other causes of action, and therefore, plaintiff's action was barred and should be dismissed. In September 1977, the court granted the motion for summary judgment as to the causes of action alleging violations of the Securities and Consumer Protection Acts. Later, in November, plaintiff's cause of action based upon common law fraud was dismissed. This appeal followed.

First, the plaintiff contends the court erred in dismissing her causes of action for violation of the Consumer Protection Act and for common law fraud. She argues that the Consumer Protection Act action is governed by the specific limitation provisions of that Act, namely, RCW 19.86.120, ² and that the general statute of limitations, RCW 4.16.080(4), ³ governs her cause of action for common law fraud. On the other hand, it is Mr. Kirkingburg's position that when the legislature substantially adopted the broad-reaching Uniform Securities Act, it intended to preempt all other remedies previously available to an injured party to a securities transaction. Thus, he asserts that the limitation provision of the Securities Act controls and the trial court properly granted summary judgment. We disagree with Mr. Kirkingburg.

"The Securities Act of Washington, RCW 21.20, is patterned after and restates in substantial part the language of the Federal Securities Exchange Act of 1934." Clausing v. DeHart, 83 Wash.2d 70, 72, 515 P.2d 982, 984 (1973). Illustrative of numerous cases that have stated that the federal act is remedial and should be liberally construed to protect the public is Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); and Securities & Exchange Comm'n v. Glen W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir. 1973); See also, State v. Williams, 17 Wash.App. 368, 371, 563 P.2d 1270 (1977). Stated another way, the Securities Act was adopted to provide added protection and additional remedies for a largely uninformed public who might be victimized by the fraudulent sale of securities. The Securities Act of Washington admonishes that it shall be construed to effectuate its general purpose and in a manner which coordinates its interpretation and administration with the related federal regulation. RCW 21.20.900. ⁴ Since we are here concerned with remedial legislation, we are guided by the principle that "remedial statutes are liberally construed to suppress the evil and advance the remedy." 3 C. Sands, Sutherland Statutory Construction § 60.01 (4th ed. 1973).

The adoption by the trial court of the defendant's position is inconsistent with the liberal construction given the Act by the courts and does not square with the underlying protective purpose of that Act. Moreover, plaintiff's civil remedy for fraud under the Act is different, and, in some ways, more restrictive than her potential choice of remedies at common law. RCW 21.20.430 ⁵ provides only for rescission of the transaction and the award of interest; or, if the purchaser no longer has the security, he may recover damages in the amount of the purchase price less its value on the date of the disposition, plus interest. The Act does not allow the purchaser to keep the security and recover damages as he may do in a common law action for fraud or misrepresentation. McInnis & Co. v. Western Tractor & Equipment Co., 67 Wash.2d 965, 967, 410 P.2d 908 (1966). Sigman v. Stevens-Norton, Inc., 70 Wash.2d 915, 921, 425 P.2d 891 (1967). On the other hand, the court may award attorney fees under the Act; whereas, attorney fees generally would not be allowed in an action based upon common law fraud or misrepresentation.

In view of the difference between the statutory remedy and the common law remedy, there is no reason why the two causes of action cannot co-exist. See Detwiler v. Glavin, 377 Mich. 1, 138 N.W.2d 336, 339 (1965). Indeed, it would be incongruent with the protective purpose and remedial nature of the Securities Act to hold that the Act restricted a defrauded plaintiff to the remedy contained therein. We think that the legislature intended to provide additional remedies to a plaintiff, not to eliminate existing remedies compatible with the Act. Those other remedies continue to be governed by their own statutes of limitation. Consequently, we hold that the trial court erred in applying the limitation provisions of the Securities Act as a bar to the plaintiff's second and third causes of action. ⁶

Second, the plaintiff argues she has a viable cause of action for violation of the Consumer Protection Act. The question presented by this argument is whether the defendant's activity was "otherwise regulated" within the meaning of RCW 19.86.170. Prior to its recent amendment, ⁷ that statute read: Nothing in this chapter shall apply to actions or transactions otherwise Permitted, prohibited or regulated under laws administered by the insurance commissioner of this state, the Washington utilities and transportation commission, the federal power commission or . . . Any other regulatory body or officer acting under statutory authority of this state or the United States:

(Italics ours.) In Dick v. Attorney General, 83 Wash.2d 684, 688, 521 P.2d 702 (1974), the court stated that the Consumer Protection Act applies if the particular practice found to be deceptive is not regulated, even though the business is regulated generally. Here, the particular acts of the defendant which the plaintiff claims caused her injury were specifically regulated by the Securities Act. The Securities Act imposes civil and criminal penalties on persons selling unregistered securities not exempted from registration under the Act. See RCW 21.20.400. ⁸ The version of the Securities Act in effect at the time of this lawsuit also provided for a private cause of action under the Act for fraud or misrepresentation. ⁹ Successful plaintiffs are awarded reasonable attorneys' fees, costs, and interest from the date of the sale. RCW 21.20.430(1). ¹⁰ Therefore, the instant sales were "otherwise regulated" and the Consumer Protection Act does not apply. The fact that plaintiff's action is barred under the Securities Act does not change this result.

Third, the plaintiff urges the court to apply the amendments to RCW 19.86.170 and RCW 21.20.430 retroactively to her case. In 1974, the legislature amended RCW 19.86.170, ¹¹ so that only those practices which are otherwise Permitted by a regulatory body escape Consumer Protection Act coverage. Practices which are Prohibited or Regulated by regulatory bodies may...