+ All Categories
Home > Documents > Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

Date post: 06-Apr-2018
Category:
Upload: statesman-journal
View: 222 times
Download: 0 times
Share this document with a friend

of 47

Transcript
  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    1/47

    IN THE SUPREME COURT OF THE STATE OF OREGON

    _______________

    STATE OF OREGON, acting by andthrough the Oregon State Treasurer,

    and the Oregon Public EmployeeRetirement Board, on behalf of theOregon Public Employee RetirementFund,

    Plaintiff-Appellant,Petitioner on Review,

    v.

    MARSH & MCLENNANCOMPANIES, INC. and MARSH,INC.,

    Defendants-Respondents,Respondent on Review,

    and

    JEFFREY GREENBERG and RAYGROVES,

    Defendants.

    Multnomah County CircuitCourt No. 050808454

    CA A139453

    SC S059386

    _______________

    BRIEF ON THE MERITS OFPETITIONER ON REVIEW, STATE OF OREGON

    _______________

    Review of the Decision of the Court of Appealson Appeal from a Judgment

    of the Circuit Court for Multnomah CountyHonorable FRANK L. BEARDEN, Judge

    _______________

    Opinion Filed: February 23, 2011Before: Schuman, P.J.; Wollheim, J.; and Rosenblum, J.

    _______________

    Continued

    August 31, 2011 04:14 PM

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    2/47

    JAMES T. MCDERMOTT #933594DWAIN M. CLIFFORD #025074Ball Janik LLP101 SW Main St., Suite 1100

    Portland, OR 97204Telephone: (503) 228-2525Email: [email protected]

    Attorneys for Defendants-

    Respondents,

    Respondents on Review

    Marsh & McLennan Co., Inc. &

    Marsh Inc.

    JOHN R. KROGER #077207

    Attorney General

    MARY H. WILLIAMS #911241

    Solicitor GeneralKEITH S. DUBANEVICH #975200

    Chief of Staff and Special CounselDENISE G. FJORDBECK #822578Attorney-in-Charge,Civil/Administrative Appeals1162 Court St. NESalem, Oregon 97301-4096Telephone: (503) 378-4402

    Email:

    [email protected]

    Email:[email protected]

    and

    SCOTT SHORR #961873Stoll Berne Lokting & Schlachter PC

    209 SW Oak Street, Suite 500

    Portland, OR 97204Telephone: (503) 227-1600

    Email: [email protected]

    Attorneys for Plaintiff-Appellant,

    Petitioner on Review

    State of Oregon

    8/11

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    3/47

    i

    TABLE OF CONTENTS

    STATEMENT OF THE CASE ........................................................................... 1

    First Question Presented.............................................................................2

    First Proposed Rule of Law ........................................................................2

    Second Question Presented ........................................................................3

    Second Proposed Rule of Law ...................................................................3

    Third Question Presented ...........................................................................3

    Third Proposed Rule of Law ......................................................................3

    Summary of Facts Material to Review.......................................................4

    Summary of Argument ...............................................................................6

    ARGUMENT....................................................................................................... 9

    A. ORS 59.137(1) does not require proof of reliance to obtain

    damages resulting from unlawful securities practices. ....................9

    1. The text of ORS 59.137(1) is unambiguous and does

    not contain a reliance requirement...................................... 11

    2. Contextual provisions confirm the absence of any

    reliance requirement in a cause of action underORS 59.137(1). ................................................................... 14

    a. Reliance is unnecessary to violate

    ORS 59.135(2), which triggers liability under

    ORS 59.137(1).......................................................... 15

    b. ORS 59.115(1)(b), a closely-related statute that

    creates a cause of action for securities law

    violations arising in direct sales of a security,

    does not require proof of reliance............................. 19

    c. Had the legislature intended to add a reliance

    requirement, it would have expressly done so. ........ 21

    2. The legislative history suggests that the legislature

    intended to expand and not constrict the Oregon

    Securities Law..................................................................... 22

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    4/47

    ii

    3. Applicable maxims of statutory construction confirm

    that any ambiguity in ORS 59.137 should be

    construed against adopting a reliance requirement............. 26

    B. If ORS 59.137 requires proof of reliance, reliance may be

    presumed under the fraud-on-the-market doctrine.....................27

    1. The text of ORS 59.135 is similar to federal Rule 10b-

    5 under which reliance may be presumed under the

    fraud-on-the-market doctrine. ......................................... 28

    2. The legislative history supports incorporating the

    fraud-on-the-market doctrine into the Oregon

    Securities Law..................................................................... 30

    3. Maxims of statutory construction favor inclusion ofthe fraud-on-the-market doctrine. ................................... 31

    4. The state proved reliance under the fraud-on-the-

    market doctrine. ................................................................ 32

    C. This Is an Omission Case for Which Reliance Is Not an

    Element of the Claim. ....................................................................32

    CONCLUSION.................................................................................................. 37

    TABLE OF AUTHORITIES

    Cases Cited

    Affiliated Ute Citizens of Utah v. United States ,

    406 US 128, 92 S Ct 1456, 31 L Ed 2d 741 (1972) .................................35

    Anderson v. Transglobe Energy Corp.,

    35 F Supp 2d 1363 (M D Fla 1999) .........................................................30

    Basic Inc. v. Levinson,

    485 US 224, 108 S Ct 978, 99 L Ed 2d 194 (1988) .................... 29, 30, 32

    Bergquist v. International Realty, Ltd.,

    272 Or 416, 537 P2d 553 (1975)....................................................... 26, 31

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    5/47

    iii

    Black v. Finantra Capital, Inc.,

    418 F3d 203 (2nd Cir 2005) .....................................................................30

    Brewer v. Erwin,

    287 Or 435, 600 P2d 398 (1979),

    overruled on other grounds in McGanty v. Staudenraus,321 Or 532, 901 P2d 841 (1995)..............................................................13

    Computer Concepts, Inc. v. Brandt,

    310 Or 706, 801 P2d 800 (1990)..............................................................29

    Conzelmann v. Northwest P. & D. Prod. Co.,

    190 Or 332, 225 P2d 757 (1950)....................................................... 13, 17

    Denton and Denton,

    326 Or 236, 951 P2d 693 (1998)..............................................................19Dura Pharmaceuticals, Inc. v. Broudo,

    544 US 336, 125 S Ct 1627, 161 L Ed 2d 577 (2005) .............................13

    Emerald PUD v. PP & L,

    302 Or 256, 729 P2d 552 (1986)..............................................................18

    Erica P. John Fund, Inc. v. Halliburton Co.,

    ___ US ___, 131 S Ct 2179, 180 L Ed 2d 24 (2011) ...............................29

    Everts v. Holtmann,64 Or App 145, 667 P2d 1028,

    rev den, 296 Or 120 (1983) ............................................................... 20, 24

    Fleming v. United Services Automobile Assn.,

    329 Or 449, 988 P2d 378 (1999)..............................................................12

    In Re Weber,

    337 Or 55, 91 P3d 706 (2004)........................................................... 20, 24

    Karsun v. Kelley,

    258 Or 155, 482 P2d 533 (1971)..............................................................29

    Leonard v. Stuart-James Co., Inc.,

    742 F Supp 653 (N D Ga 1990) ...............................................................30

    Lesser v. Great Lakes Casualty Co.,

    171 Or 174, 135 P2d 810 (1943)..............................................................12

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    6/47

    iv

    Musgrave v. Lucas,

    193 Or 401, 238 P2d 780 (1951)..............................................................17

    Patton v. Target Corp.,

    349 Or 230, 242 P3d 611 (2010)..............................................................25

    PGE v. Bureau of Labor & Industries,

    317 Or 606, 859 P2d 1143 (1993)................................... 10, 11, 22, 26, 27

    Sanders v. Francis,

    277 Or 593, 561 P2d 1003 (1977)............................................... 33, 34, 35

    State ex rel. Dept. of Human Services v. Rardin,

    338 Or 399, 110 P3d 580 (2005)..............................................................19

    State Treasurer v. Marsh & McLennan Companies, Inc.,

    241 Or App 107, 250 P3d 371 (2011)................................................. 6, 18

    State v. Cunningham,

    337 Or 528, 99 P3d 271 (2004) ................................................................27

    State v. Gaines,

    346 Or 160, 206 P3d 1042 (2009)............................................... 10, 22, 27

    Sunshine Dairy v. Peterson,

    183 Or 305, 193 P2d 543 (1948)....................................................... 26, 31

    Teamsters Local 282 Pension Trust Fund v. Angelos,762 F2d 522 (7th Cir 1985) ......................................................................30

    U. S. Nat. Bank of Oregon v. Fought,

    291 Or 201, 630 P2d 337 (1981)..............................................................17

    U. S. Soil, Inc. v. Oregon State Dept. of Agriculture,

    276 Or 377, 554 P2d 1008 (1976) ............................................................15

    Constitutional & Statutory Provisions

    15 USC 78bb(f)(1) ...........................................................................................23

    15 USC 78bb(f)(3)(B)......................................................................................23

    ORS 174.010.......................................................................................... 10, 14, 22

    ORS 30.750.........................................................................................................21

    ORS 59.005.........................................................................................................17

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    7/47

    v

    ORS 59.005-59.451 ............................................................................................17

    ORS 59.015.........................................................................................................17

    ORS 59.115.............................................................................................. 7, 23, 25

    ORS 59.115(1) (2001) ........................................................................................22

    ORS 59.115(1)(b) ............................................................................ 19, 21, 23, 24

    ORS 59.115(1)(b) (1983)....................................................................................20

    ORS 59.115(1)(b) (2003)....................................................................................20

    ORS 59.135................................................................................................. passim

    ORS 59.135(1)............................................................................................ passim

    ORS 59.135(2)............................................................................................ passim

    ORS 59.135(3)............................................................................................ passim

    ORS 59.137................................................................................................. passim

    ORS 59.137(1)............................................................................................ passim

    ORS 59.365.........................................................................................................17

    ORS 59.370.........................................................................................................21

    ORS 59.991- 59.995 ...........................................................................................17

    ORS 646.608(1) ..................................................................................................34

    ORS 646.608(1)(i) ..............................................................................................33

    ORS 646.608(1)(j) ..............................................................................................33

    ORS 646.608(2) ..................................................................................................34

    ORS 70.105.........................................................................................................21

    ORS 70.230.........................................................................................................21

    US Const Art I, 8 .............................................................................................37

    US Const, Art I, 3, cl 3 ......................................................................................5

    Administrative Rules

    17 CFR 240.10b-5................................................................................. 1, 28, 30

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    8/47

    vi

    Other Authorities

    Blacks Law Dictionary 394 (7th ed 2002) ................................................. 12, 13

    Minutes,

    Senate Business and Labor Committee Minutes, SB 609, Apr 28, 2003 23

    Senate Bill (SB) 609 (2003)................................................. 22, 23, 24, 28, 30, 31

    Staff Measure Summary,

    House Committee on Judiciary, SB 609, Jul 2, 2003.................. 23, 28, 31

    Staff Measure Summary,

    Senate Committee on Business and Labor,

    SB 609, April 7, 2003.................................................................. 23, 28, 31

    Tape Recording,

    House Floor, SB 609, Jul 16, 2003,

    Tape 145 (statement by Rep. Greg Macpherson).....................................23

    Testimony,

    House Judiciary Committee, May 16, 2003, Ex J (statement of Floyd G.

    Lanter) ......................................................................................................25

    Testimony,

    Senate Committee on Business and Labor, Apr 7, 2003,

    Ex K (statement of Floyd G. Lanter)........................................................25Testimony,

    Senate Committee on Business and Labor, April 7, 2003,

    Ex I (statement by Sen. Kate Brown........................................... 23, 28, 30

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    9/47

    BRIEF ON THE MERITS OF

    PETITIONER ON REVIEW ON REVIEW, STATE OF OREGON

    _______________

    STATEMENT OF THE CASE

    The primary issue for this court to decide is whether a plaintiff in an

    action under ORS 59.137(1) must prove the element of reliance.

    ORS 59.137(1) provides a cause of action for security purchasers against any

    person who violates ORS 59.135(2) by making an untrue or misleading

    statement in connection with the purchase of the security. Neither

    ORS 59.137(1) nor ORS 59.135(2) expressly require proof of reliance in a

    cause of action under ORS 59.137(1). And as will be explained below, the text,

    context, and legislative history of ORS 59.137(1) all confirm that the statutory

    provision does not require proof of reliance.

    Should this court conclude otherwise, a second issue may arise with

    respect to whethera plaintiff may prove reliance indirectlyin an action under

    ORS 59.137(1) for an alleged violation of ORS 59.135(2), that is, making an

    untrue or misleading statement. ORS 59.137(1) and ORS 59.135(2) are silent

    as to that issue. However, the text of ORS 59.135(2) is closely similar in form

    to the text of Rule 10b-5 of the Securities and Exchange Commission (SEC),

    17 CFR 240.10b-5and the legislature likely intended that actions under

    state law would be consistent with fraud-on-the-market actions under federal

    law. In a cause of action arising under Rule 10b-5, a plaintiff may prove

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    10/47

    2

    reliance under the fraud-on-the-market doctrine, by proving that the

    defendant made public and material misstatements, the defendants shares were

    traded in an efficient market, and that the plaintiff purchased its shares before

    the truth was disclosed.

    In addition, if this court concludes that reliance is generally required

    under state law, this court may also consider whether a plaintiff must prove

    reliance when alleging a violation of ORS 59.137(1) due to the omission of

    material facts about a security. In cases involving omitted facts, a plaintiff

    cannot readily show actual reliance on facts of which it was unaware. Thus,

    this court should consider whether a plaintiff may satisfy any reliance

    requirement in ORS 59.137(1) by showing that had the withheld information

    been known, a reasonable investor would not have purchased or sold the

    securities at the prices he or she did.

    First Question Presented

    To prevail on a claim under ORS 59.137(1) against a person who makes

    an untrue or misleading statement about a security, must the plaintiff plead and

    prove that he or she actually relied on the statement?

    First Proposed Rule of Law

    No. In order to establish a claim under ORS 59.137(1) against a person

    who makes an untrue or misleading statement about a security, a plaintiff need

    not prove that he or she relied on the statement.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    11/47

    3

    Second Question Presented

    If reliance is an element of a cause of action under ORS 59.137(1), can a

    plaintiff prove reliance through the fraud-on-the-market doctrine?

    Second Proposed Rule of Law

    Yes. If a plaintiff must prove reliance in a claim under ORS 59.137(1), a

    plaintiff may prove reliance under the fraud-on-the-market doctrine

    recognized under federal law, which provides that a fact-finder may presume

    reliance if the plaintiff can show that the defendant made public and material

    misstatements, the defendants shares were traded in an efficient market, and

    that the plaintiff purchased its shares before the truth was disclosed.

    Third Question Presented

    If reliance is an element of a cause of action under ORS 59.137(1), may a

    plaintiff establish that element, in a claim involving omitted statements of

    material fact, by showing that a reasonable investor would not have purchased

    the security had he or she known about the facts omitted in the defendants

    statements about the security?

    Third Proposed Rule of Law

    Yes. If a plaintiff must prove reliance in a claim under ORS 59.137(1), a

    plaintiff may prove reliance by showing that a reasonable investor would have

    taken other action had it been aware of all of the withheld material facts about

    the security at the time of the purchase of the security.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    12/47

    4

    Summary of Facts Material to Review

    Marsh & McLennan Companies, Inc. (MMC), through its subsidiary

    defendant Marsh, Inc., (MI), is the largest provider of insurance and brokerage

    services in the world. (TCF 1306, First Amended Complaint (FAC), 2). In

    2003 and 2004, investment managers for the state purchased approximately $15

    million of the common stock of MMC on the New York Stock Exchange. (TCF

    1305, FAC, 1).

    Unbeknownst to the investment market and the states investment

    managers, MMC engaged in an unlawful bid-rigging scheme in which it would

    steer insurance business to insurers on a non-competitive basis and to the

    detriment of MMCs business clients. (TCF 1307, FAC, 6). During this time,

    defendants represented to the investment market that MMC was collecting

    hundreds of millions of dollars in revenue from insurance companies based on

    contingent commission agreements (or market service agreements) that it

    had entered into with the insurers. Defendants did not disclose that $845

    millionand more than half of MMCs 2003 publicly reported incomewere

    payments for services not provided and were used to facilitate defendants

    unlawful business practices. (TCF 1307, FAC, 7).

    On October 14, 2004, the New York Attorney General exposed

    defendants unethical and illegal business practices. (TCF 1307-08, FAC, 8).

    As a result of the exposure and resulting press reports, the value of MMCs

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    13/47

    5

    common stock declined from $46.13 per share on October 13, 2004, to $29.20

    per share on October 15, 2004, and later to as low as $22.75 per share. (Id.;

    TCF 3367-68, Declaration of Scott Shorr (Shorr Dec), 7). The state, which

    purchased 354,000 shares of MMC stock during the relevant period, suffered

    approximately $10 million in damages as a result of defendants illegal

    practices. (TCF 1307-08, FAC, 8-9). Two of the states investment

    managers who purchased MMC stock, Steven Gorham and Richard Rubinstein,

    testified that had they been aware of defendants unlawful bid-rigging practices,

    they would not have purchased shares of MMC at the prices they paid. (TCF

    3409-10, Shorr Dec, Ex 12; Deposition of Steven Gorham, 71-72; TCF 4626,

    Declaration of Richard Rubinstein (Rubinstein Dec), 2).

    The state filed this civil action against defendants under ORS 59.137 for

    several violations of ORS 59.135(1), (2), and (3). (TCF 1338, FAC, 101).

    However, the trial court granted summary judgment in favor of defendants on

    the grounds that ORS 59.137 required proof of reliance, that the state had not

    proven reliance, that ORS 59.137 did not allow the state to create a presumption

    of reliance pursuant to the fraud-on-the-market doctrine, and that

    ORS 59.137(1) violated the dormant commerce clause of the United States

    Constitution (US Const Art I, 3, cl 3). (App Br, ER 10-22, 6/11/08 Opinion

    and Order).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    14/47

    6

    The Court of Appeals affirmed the trial courts judgment. Construing

    ORS 59.137, the court held that a plaintiff must show reliance. The court

    rejected the states claims that it could prove reliance under the fraud-on-the-

    market doctrine or by showing that the case involved an omission of material

    fact and that the state would not have purchased MMC stock had defendants

    disclosed their unlawful insurance practices. State Treasurer v. Marsh &

    McLennan Companies, Inc., 241 Or App 107, 115-16, 250 P3d 371 (2011).

    And because the court affirmed the trial courts ruling on statutory grounds, the

    court did not consider whether ORS 59.137(1) was constitutional.

    Id. at 123 n 9.

    Summary of Argument

    ORS 59.137(1) is unambiguous and does not require a plaintiff to prove

    that he or she relied on untrue or misleading statements made in connection

    with the purchase of a security. The text of ORS 59.137(1) confirms that a

    plaintiff may obtain damages from a defendant if the plaintiff can show (1) that

    the defendant violated ORS 59.135(2) by making a false or misleading

    statement; and (2) that the defendants false or misleading statements caused

    actual damages to plaintiff. There is no further requirement that the plaintiff

    prove reliance.

    Contextual statutory provisions confirm that ORS 59.137(1) does not

    contain a reliance requirement. In particular, a person becomes liable under

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    15/47

    7

    ORS 59.137(1) by violating ORS 59.135(2) by making an untrue or misleading

    statementand that violation does not require proof of reliance. Thus, the

    plain text of ORS 59.137(1)when considered in context with

    ORS 59.135(2)does not impose a reliance requirement. Moreover, the lack

    of any reliance requirement is consistent with ORS 59.115, which creates a

    cause of action for false and misleading statements made in connection with a

    direct purchase and sale of a security, and which does not require reliance under

    long-standing Court of Appeals precedent.

    The legislative history of the 2003 enactment of ORS 59.137(1) bolsters

    the conclusion that the statute does not require proof of reliance. The

    legislature enacted ORS 59.137 to provide a cause of action for securities law

    violations that occur in purchase and sale transactions that occur in the

    secondary market. That is, the legislature sought to expand an investors

    existing ability under ORS 59.115 to pursue a similar cause of action arising

    from the direct sale of a securityand a cause of action that did not require

    proof of reliance under Court of Appeals case law. In the absence of evidence

    that the legislature intended to add a reliance requirement and overrule existing

    law applicable to causes of action under ORS 59.115, it is likely the legislature

    intended the elements of a cause of action under ORS 59.137 to be the same as

    the elements in a cause of action under ORS 59.115, and that a plaintiff would

    not need to prove reliance.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    16/47

    8

    If the legislatures intent is unclear after considering the text and

    legislative history of ORS 59.137(1), applicable maxims of statutory

    construction warrant against inserting a reliance requirement into

    ORS 59.137(1). Maxims of statutory construction provide that remedial

    statutes and statutes within the Oregon Securities Law should be construed

    liberally in favor of investors. Because ORS 59.137(1) is such a remedial

    statute, this court should construe it as not requiring proof of reliance because

    such a construction would better protect investors and advance the legislatures

    well-recognized intent to protect investors from unlawful securities practices.

    Thus, this court should not insert a reliance requirement into ORS 59.137(1).

    But if this court concludes that ORS 59.137(1) contains an implied

    reliance requirement, then it is likely that the legislature intended to allow

    investors to prove reliance under the fraud-on-the-market doctrine. The text

    of ORS 59.135(2) parallels the text of analogous federal securities laws, and the

    legislative history of ORS 59.137(1) demonstrates that the legislature intended

    ORS 59.137(1) to have consistency with federal securities laws that apply for

    claims involving securities law violations in transactions occurring in

    secondary markets. Under federal law, reliance may be presumed under the

    fraud-on-the-market doctrine if a plaintiff proves that the defendant made

    public and material misstatements, defendants shares traded in an efficient

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    17/47

    9

    market, and plaintiff purchased those shares before the truth was disclosed.

    Here, the state presented such evidence.

    Lastly, if this court concludes that ORS 59.137(1) requires proof of

    reliance, and that the fraud-on-the-market doctrine does not apply under state

    law, a plaintiff nevertheless should not have to prove reliance in claims in

    which a defendant omitted to state material facts about a security. Under

    Oregon law and the federal securities laws, a plaintiff does not have to prove

    direct reliance on information that was never supplied. Instead, a plaintiff may

    prove reliance by showing a reasonable investor would not have purchased the

    stock at the price it did had it been aware of all of the material information. The

    state made that showing in this case. Accordingly, the trial court erred when it

    granted summary judgment in favor of defendants.

    ARGUMENT

    A. ORS 59.137(1) does not require proof of reliance to obtain damages

    resulting from unlawful securities practices.

    The initial issue in this case concerns whether the cause of action created

    in ORS 59.137(1) contains a reliance requirement, that is, a requirement that

    a plaintiff prove he or she relied on a defendants actions or statements that

    violated ORS 59.135(1), (2), or (3). ORS 59.135 provides:

    It is unlawful for any person * * *:

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

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    18/47

    10

    (2) To make any untrue statement of a material fact or toomit to state a material fact necessary in order to make thestatements made, in the light of the circumstances under whichthey are made, not misleading;

    (3) To engage in any act, practice or course of businesswhich operates or would operate as a fraud or deceit upon anyperson * * *.

    In turn, ORS 59.137(1) creates the following cause of action for violations of

    ORS 59.135: [a]ny person who violates or materially aids in a violation of

    ORS 59.135(1), (2), or (3) is liable to any purchaser or seller of the security for

    the actual damages caused by the violation * * *. Importantly, neither

    ORS 59.137(1) nor ORS 59.135 contain any express language referring to

    reliance, rely, or any functional equivalent. At the outset, imputing a

    reliance requirement in the absence of express language would violate the

    requirement that this court is not to insert what has been omitted into

    ORS 59.137(1). ORS 174.010. Thus, this court must construe ORS 59.137(1)

    to determine whether the legislature otherwise imposed such a requirement in

    ORS 59.137(1).

    To resolve that issue, this court will apply the familiar three-level

    methodology for interpreting a statute set out in PGE v. Bureau of Labor &

    Industries, 317 Or 606, 610, 859 P2d 1143 (1993), and modified in State v.

    Gaines, 346 Or 160, 171, 206 P3d 1042 (2009). In the first level of analysis,

    this court will first consider the text of the statutory provision, which is the

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    19/47

    11

    best evidence of the legislatures intent, and apply any pertinent rules of

    construction provided by statute or case law that bear directly on how to read

    the text, including the rule that words of common usage typically should be

    given their plain, natural, and ordinary meaning. PGE, 317 Or at 611. This

    court will also consider the context of the statutory provision, including other

    provisions and related statutes, and apply rules of construction that bear

    directly on the interpretation of the statutory provision in context. PGE, 317

    Or at 611.

    1. The text of ORS 59.137(1) is unambiguous and does not

    contain a reliance requirement.

    To begin, the text of ORS 59.137(1) plainly creates a cause of action, and

    provides instruction about (1) who may bring such an action, (2) who an action

    may be brought against, and (3) what damages may be recovered. Those

    instructions come from the following three successive phrases in

    ORS 59.137(1): a person who violates or materially aids in a violation of

    ORS 59.135(1), (2), or (3) is liable; to any purchaser or seller of the security;

    and for actual damages caused by the violation. The state will discuss each

    phrase in turn and whether the phrases singularly or collectively impose a

    reliance requirement.

    The first phrase, a person who violates or materially aids in a violation

    of ORS 59.135(1), (2), or (3) is liable plainly defines the type of person that

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    20/47

    12

    may be subject to liabilityand does not impute a reliance requirement. To the

    contrary, the text of this phrase bases liability merely upon occurrence of a

    violation of ORS 59.135(1), (2), or (3).1

    Likewise, the second phrase, to any purchaser or seller of the security,

    does not contain a reliance requirement. The use of the modifier any

    demonstrates that the cause of action under ORS 59.137(1) applies broadly

    and is not available only to security purchasers and sellers on the basis of

    reliance. See Fleming v. United Services Automobile Assn., 329 Or 449, 456,

    988 P2d 378 (1999) (any is typically synonymous with every);Lesser v.

    Great Lakes Casualty Co., 171 Or 174, 184, 135 P2d 810 (1943) (The words

    any person or persons are most comprehensive and unambiguous). Thus,

    this phrase provides no textual support for a reliance requirement.

    Lastly, the third phrase, for actual damages caused by the violation,

    does not contain a reliance requirement. This phrase defines the scope of

    liability for an action under ORS 59.137, and restricts liability in two ways.

    First, liability is limited to actual damages (i.e., compensatory damages), and

    would by definition include damages incurred withoutreliance. See Blacks

    Law Dictionary 394 (7th ed 2002) (defining actual damages as [a]n amount

    1 As will be discussed below, reliance is not necessary for a personto violate ORS 59.135(1), (2), or (3).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    21/47

    13

    awarded to a complainant to compensate for a proven injury or loss);Brewer

    v. Erwin, 287 Or 435, 448, 600 P2d 398 (1979), overruled on other grounds in

    McGanty v. Staudenraus,321 Or 532, 549, 901 P2d 841 (1995) (recognizing

    that as used in the context of Oregons Residential Landlord-Tenant Act, the

    term actual damages refer[s] to compensation for tangible harm resulting

    from the statutory violation, though it need not be economic harm. The harm

    must be of a kind within the contemplation of the protective provision that was

    breached). Second, liability is limited to those actual damages caused by (or

    brought about by) the defendants conduct, i.e. a violation of ORS 59.135(1)-

    (3), and is not expressly or necessarily limited to damages as a result of a

    plaintiffs reliance. See Blacks Law Dictionary 213 (7th ed 2002) (defining

    cause as [t]o bring about or effect); cf. Conzelmann v. Northwest P. & D.

    Prod. Co., 190 Or 332, 350, 225 P2d 757 (1950) (explaining that in a claim for

    common-law fraud or deceit, that causation is a separate element from the

    requirements to prove reliance and the right to rely).2 Again, there is no

    2Under federal securities law, a plaintiff proves loss causation by

    showing that the companys stock price was initially inflated based on falseinformation unknown to the market and the price later dropped when the trueinformation was disclosed to the market. See Dura Pharmaceuticals, Inc. v.

    Broudo, 544 US 336, 345-47, 125 S Ct 1627, 161 L Ed 2d 577 (2005).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    22/47

    14

    textual restriction on the scope of liability with respect to the existence or non-

    existence of reliance.

    In sum, the three phrases that define the cause of action in

    ORS 59.137(1), when considered singularly or collectively, do not require proof

    of reliance. Rather, the text of ORS 59.137(1) establishes a cause of action for

    a statutory tort that allows any purchaser to recover actual damages caused by

    a violation of ORS 59.135(1)-(3). Because the text omits any reliance

    requirement, ORS 174.010 precludes this court from inserting that requirement

    into ORS 59.137(1).

    2. Contextual provisions confirm the absence of any reliance

    requirement in a cause of action under ORS 59.137(1).

    In addition to the absence of an express reliance requirement in

    ORS 59.137(1), contextual statutory provisions confirm that ORS 59.137(1)

    does not include a reliance requirement. This court should first consider

    ORS 59.135(2), the statutory provision that proscribes making untrue or

    misleading statements in connection with the purchase or sale of any security, a

    violation that triggers liability under ORS 59.137(1), and the violation of which

    is at issue in this case.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    23/47

    15

    a. Reliance is unnecessary to violate ORS 59.135(2), which

    triggers liability under ORS 59.137(1).

    ORS 59.135(2) supports the conclusion that ORS 59.137(1) does not

    contain a reliance requirement. Briefly restated, ORS 59.135 provides that it is

    unlawful:

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

    (2) To make any untrue statement of a material fact or toomit to state a material fact necessary in order to make thestatements made, in the light of the circumstances under whichthey are made, not misleading;

    (3) To engage in any act, practice or course of business whichoperates or would operate as a fraud or deceit upon any person * * *.

    What is apparent from ORS 59.135(2) is that a violation occurs at the moment

    the person make[s] any untrue statement of a material factand does not

    condition a violation on whether reliance has occurred. Likewise, a violation of

    ORS 59.135(2) also occurs at the moment a person omit[s] to state a material

    fact that makes the statement misleadingand does not depend on whether

    reliance has occurred.3 Thus, when ORS 59.137(1) is considered in context

    with ORS 59.135(2), a plaintiff need not prove that a defendants violation

    3 Indeed, a statement that is misleading must only have atendency to mislead. See, e.g., U. S. Soil, Inc. v. Oregon State Dept. of

    Agriculture, 276 Or 377, 380-81, 554 P2d 1008 (1976) (determining whether aword was misleading in a false advertising context depended on whether theword would tend to mislead consumers).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    24/47

    16

    triggered reliance by the plaintiff. Instead, ORS 59.137(1) requires only that a

    plaintiff prove that the defendant violated ORS 59.135(2).

    To be sure, other provisions in ORS 59.135, namely, ORS 59.135(1) and

    (3), include terms that imply that a violation might induce reliance. For

    example, ORS 59.135(1) prohibits the use of devices to defraud, while

    ORS 59.135(3) also prohibits any act that operates or would operate as a fraud

    or deceit. But even those provisions do not require proof that actual reliance

    has occurred. To the contrary, a plaintiff may prove a violation of

    ORS 59.135(1) or (3) merely by proving that the person committed an unlawful

    action, that is, the defendant employ[ed] a device to defraud, or engage[d]

    in any act that operates or would operate as a fraud or deceita plaintiff need

    not prove that fraud or deceit occurred. In any event, ORS 59.135(1) and (3) do

    not change the fact that a violation of ORS 59.135(2) can occur without

    reliance. Thus, ORS 59.135(1) and (3) do not implicitly require a plaintiff to

    prove reliance in order to prevail on a claim under ORS 59.137(1).

    The state also anticipates that defendants may argue that the terms

    fraud and deceit in ORS 59.135(1) and (3) evince a legislative intent to

    incorporate the elements of common-law fraud and deceit (including the

    element of reliance) into ORS 59.135 and ORS 59.137(1). However, such a

    construction of ORS 59.135 or ORS 59.137 is unreasonable for at least two

    reasons.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    25/47

    17

    First, the terms fraud and deceit, as used in ORS 59.135, do not refer

    to common-law causes of action for fraud and deceit. ORS 59.015 provides

    that, [a]s used in the Oregon Securities Law[4] * * * (6) Fraud, deceit and

    defraud are not limited to common-law deceit unless the context otherwise

    requires * * *. (Emphasis added). In a claim for common-law fraud or deceit,

    there are nine elements:

    (1) a representation; (2) its falsity; (3) its materiality; (4) thespeakers knowledge of its falsity of ignorance of its truth; (5) hisintent that it should be acted on by the person and in the mannerreasonably contemplated; (6) the hearers ignorance of its falsity;(7) his reliance on its truth; (8) his right to rely thereon; (9) and hisconsequent and proximate injury. Conzelmann v. Northwest P. &

    D. Prod. Co., 190 Or 332, 350, 225 P2d 757 (1950).

    Musgrave v. Lucas, 193 Or 401, 410, 238 P2d 780 (1951) (stating elements for

    common-law fraud claim); see also U. S. Nat. Bank of Oregon v. Fought,291

    Or 201, 220-21, 630 P2d 337 (1981) (stating same elements for common-law

    deceit claim) (citing Conzelmann). In contrast to common-law fraud and deceit

    under Conzelmann,a person may violate ORS 59.135(1), and (3), without proof

    of the elements of (1) knowledge, (2) intent, (3) reliance, or (4) a right to rely.5

    4The Oregon Securities Law includes ORS 59.005-59.451 and

    ORS 59.991- 59.995. See ORS 59.005 (defining the Oregon Securities Law).

    5 The legislature expressly recognizes that remedies under theOregon Securities Law would complement (and not replace) remedies availableunder common law such as fraud and deceit. See ORS 59.365 ([n]othing in

    Footnote continued

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    26/47

    18

    See generally, Marsh & McLennan, 241 Or App at 123 n 9 (defendants do not

    dispute on appeal that a plaintiff must prove knowledge or intent to prevail on a

    claim under ORS 59.137(1)). Thus, as the terms fraud and deceit are used

    in context, the legislature did not intend to incorporate the common-law

    definitions of fraud and deceit into ORS 59.135, or to require a plaintiff to

    prove reliance in a cause of action under ORS 59.137(1).

    Second, unlike ORS 59.135(1) or (3), ORS 59.135(2) does notcontain

    the terms fraud or deceit. When the legislature includes a term in one

    statute but omits it in another, we infer that its omission is purposeful.

    Emerald PUD v. PP & L, 302 Or 256, 269, 729 P2d 552 (1986). Thus, even if

    defendants argued that the terms fraud and deceit reflect an intent to require

    reliance in a cause of action for violations of ORS 59.135(1), or (3), the

    omission of those terms in ORS 59.135(2) warrants against the conclusion that

    reliance would be required in a cause of action involving a violation of

    ORS 59.135(2). Instead, ORS 59.137(1) requires a plaintiff to prove that the

    defendant violated ORS 59.135(2) by making an untrue statement of material

    fact or omitting to state a material fact. And in this case, the state provided

    (continued)

    the Oregon Securities Law limits any statutory or common-law right of a personto bring an action in any court for an act involved in the sale of securities, or theright of the state to punish a person for a violation of any law).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    27/47

    19

    sufficient evidence to raise a question of fact as to whether defendant violated

    ORS 59.135(2) by making untrue statements of material fact and by omitting to

    state material facts about MMCs business practices.

    In sum, ORS 59.135 further supports the conclusion that when the

    legislature enacted ORS 59.137, it did not require reliance as a necessary

    element for a cause of action for violations of ORS 59.135.

    b. ORS 59.115(1)(b), a closely-related statute that creates a

    cause of action for securities law violations arising in

    direct sales of a security, does not require proof of

    reliance.

    Other contextual statutory provisions support the conclusion that

    ORS 59.137(1) does not require proof of reliance. ORS 59.137(1) is one of

    several investor-protection provisions in the Oregon Securities Law, and other

    statutory provisions in that law provide context for discerning the underlying

    purpose of the text of ORS 59.137(1) and how it should be construed. SeeState

    ex rel. Dept. of Human Services v. Rardin, 338 Or 399, 407, 110 P3d

    580 (2005) ([s]tatutory context includes other provisions of the same statute

    and other related statutes, as well as the preexisting common law and the

    statutory framework within which the [statute] was enacted (quotingDenton

    and Denton, 326 Or 236, 241, 951 P2d 693 (1998)).

    A highly-instructive contextual provision in the Oregon Securities Law is

    ORS 59.115(1)(b), which provides a cause of action for violations of

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    28/47

    20

    ORS 59.135(1) and (3), and further provides a cause of action for untrue

    statements and material omissions that parallels ORS 59.135(2). ORS

    59.115(1)(b) applies in directtransactions between a security purchaser and

    seller. The text of ORS 59.135(2) is functionally identical to the text of

    ORS 59.115(1)(b) (1983), which the Court of Appeals held does notcontain a

    reliance requirement. See Everts v. Holtmann, 64 Or App 145, 152, 667 P2d

    1028, rev den, 296 Or 120 (1983).6 Thus, this court may presume that when the

    legislature enacted ORS 59.137(1), that proof of a violation of ORS 59.135(2)

    would not require reliance in light of the long-established construction of a

    functionally identical statutory provision inEverts. See In Re Weber, 337 Or

    55, 67, 91 P3d 706 (2004) ([t]his court presumes that the legislature enacts

    statutes in light of existing judicial decisions that have a direct bearing upon

    6 ORS 59.115(1)(b) (1983) (the statutory provision interpreted inEverts) and ORS 59.115(1)(b) (2003), which was in effect at the timeORS 59.137(1) was enacted, both contained the following text:

    by means of an untrue statement of a material fact or an omissionto state a material fact necessary in order to make the statementsmade, in light of the circumstances under which they are made, notmisleading (the buyer not knowing of the untruth or

    omission) * * *.

    Thus, sinceEverts, ORS 59.115 has permitted a cause of action for misleadingstatements and the Court of Appeals conclusion that ORS 59.115 did notincorporate, or refer to the term[] * * * misleading was incorrect. Marsh &

    McLennan, 241 Or App at 116.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    29/47

    21

    those statutes). Accordingly, this court should conclude that the legislature did

    not intend a cause of action under ORS 59.137(1) would require proof of

    reliance when analogous causes of action under ORS 59.115(1)(b) would not.

    c. Had the legislature intended to add a reliance

    requirement, it would have expressly done so.

    As a final matter, had the legislature intended to add a reliance element

    into ORS 59.137(1), it could have inserted the term rely or reliance into the text.

    In fact, the legislature regularly includes the terms rely or reliance to

    impose reliance requirements in a number of other statutory provisions that

    concern false statements on financial and property documents. See, e.g.,

    ORS 70.105 (creating a cause of action for one who suffers a loss by a

    reliance on a false material statement in a limited partnership certificate);

    ORS 70.230 (allowing enforcement of a contribution obligation to a partnership

    if the creditor * * * acted in reliance on that obligation); ORS 30.750

    (creating liability for a person that certifies an abstract of title for all damages

    sustained by any person who, in reliance on the correctness thereof, acts thereon

    with reference to the title of such land, and is damaged in consequence of any

    errors, omissions or defects therein); ORS 59.370 (discharging liability of

    registering entity that transfers security registration in good faith reliance on

    the registration application). Thus, these provisions demonstrate that the

    legislatures omission of the terms rely or reliance, was likely intentional,

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    30/47

    22

    and this court should not insert an omitted reliance requirement into the text of

    ORS 59.137(1). ORS 174.010.

    2. The legislative history suggests that the legislature intended to

    expand and not constrict the Oregon Securities Law.

    Although the text of ORS 59.137(1) is unambiguous in that it contains no

    reliance requirement, the legislative history of Senate Bill (SB) 609 (2003), the

    legislation that created ORS 59.137(1), removes any doubt that might remain.

    SeeGaines, 346 Or at 172 (this court may consider legislative history in the

    absence of ambiguity); PGE, 317 Or at 612 (this court may consider legislative

    history in the second-level of statutory analysis, to resolve any ambiguity in the

    text).

    Before the 2003 enactment of ORS 59.137(1), a security purchaser could

    only bring a cause of action for violations of ORS 59.135(1)-(3) that occurred

    in the context of a direct transaction between a purchaser and seller. See

    generally ORS 59.115(1) (2001) (providing a cause of action for securities law

    violations in direct transactions). The bulk of the legislative history shows that

    the legislature intended to expand state law remedies, especially to state pension

    funds,7 to reach transactions that occur in the secondary market (i.e.

    7 Most private investors cannot use ORS 59.137 to raise claimsagainst issuers of nationally traded securities because of federal laws thatpreempt such claims. However, state pension funds are excepted from federal

    Footnote continued

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    31/47

    23

    transactions occurring on national stock exchanges). See Tape Recording,

    House Floor, SB 609, Jul 16, 2003, Tape 145 (statement by Rep. Greg

    Macpherson) (explaining that although investors may bring securities actions

    under federal law, SB 609 would allow an Oregon remedy to bring an action in

    state court); Testimony, Senate Committee on Business and Labor, April 7,

    2003, Ex I (statement by Sen. Kate Brown8) (stating that SB 609 allows

    investors to recover damages when investors purchase stock in the open

    market); Staff Measure Summary, Senate Committee on Business and Labor,

    SB 609, April 7, 2003 (explaining that existing law allows claims when

    securities were purchased in the open market); Staff Measure Summary,

    House Committee on Judiciary, SB 609, July 2, 2003 (same). Thus, the

    legislative history confirms that the legislature intended ORS 59.137(1) to serve

    as a complementary cause of action to ORS 59.115to allow a similar cause of

    action for securities law violations occurring in secondary markets.

    The significance of that intent is that under ORS 59.115(1)(b), a plaintiff

    did not need to prove reliance to prevail on a claim that a defendant made

    (continued)

    preemption and may bring state law claims. 15 USC 78bb(f)(1), (f)(3)(B)(Securities Litigation Uniform Standards Act (or SLUSA)).

    8Senator Brown carried the bill in the Senate. Minutes, Senate

    Business and Labor Committee Minutes, SB 609, Apr 28, 2003.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    32/47

    24

    untrue or misleading statements in a direct sale of securities, as discussed

    above. See Everts, 64 Or App at 152. Nothing in the legislative history of SB

    609 suggests that the legislature intended to legislatively overruleEverts or

    fundamentally adopt new elements that were not required under an existing

    cause of action under ORS 59.115(1)(b). See In Re Weber, 337 Or at 67 (this

    court will presume the legislature enacts statutes in light of existing judicial

    decisions that have a direct bearing upon those statutes). It is unlikely that the

    legislature would have intended to create a complementary cause of action for

    securities law violations that occur in transactions in the secondary market yet

    fundamentally alter the elements of that action by using text that the Court of

    Appeals had long held did not impose a reliance requirement. At the very least,

    the legislature would have done so only if there had been substantial discussion

    of such an intent.

    However, the legislative history of SB 609 contains no discussion of

    overrulingEverts or imposing a new reliance requirement to causes of action

    under ORS 59.137(1). The only reference to the term reliance came from

    Floyd Lanter, a single non-legislator witness from the Department of Consumer

    and Business Services. Lanter stated:

    We also believe investors should have the right to bring so-called fraud on the market lawsuits when they buy stock on theopen market in reliance on financial statements and similarinformation that turn out to be fraudulent.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    33/47

    25

    Testimony, Senate Committee on Business and Labor, Apr 7, 2003, Ex K

    (statement of Floyd G. Lanter); Testimony, House Judiciary Committee,

    May 16, 2003, Ex J (statement of Floyd G. Lanter) (stating the same). But

    Lanters passing reference to the term reliance is of little use for showing that

    the legislature intended to include a novel reliance requirement into

    ORS 59.137(1).9 See generally, Patton v. Target Corp., 349 Or 230, 243, 243 n

    9, 242 P3d 611 (2010) (a legislators comment at a committee hearing is of

    dubious utility in determining the intent of the legislature, and a non-

    legislators comment is even less helpful) (citations omitted). Instead, the

    greater weight of the legislative history confirms that the legislature likely

    intended to create a new cause of action that would function similarly to the

    then-existing cause of action under ORS 59.115and that the legislature did

    not intend to fundamentally alter the elements contained in that new cause of

    action.

    9As discussed below, Lanters remark, even if persuasive as to the

    legislatures intent, would not ultimately aid defendants because Lantersremark arose in a discussion about a fraud-on-the-market lawsuit underfederal law, a lawsuit in which reliance is presumed and indirectly proved basedon the entire markets reliance on an untrue or misleading statement.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    34/47

    26

    3. Applicable maxims of statutory construction confirm that any

    ambiguity in ORS 59.137 should be construed against adopting

    a reliance requirement.

    Lastly, should this court conclude after considering the text and history of

    ORS 59.137 that the legislatures intent is unclear, this court should apply

    applicable maxims of statutory construction to determine how the legislature

    would have intended the statute to be applied had it considered the issue. PGE,

    317 Or at 612. In this case, two maxims of statutory construction are pertinent.

    First, ORS 59.137(1) should be construed liberally in light of the legislative

    purpose of the Oregon Securities Law to afford the greatest possible

    protection to the publicBergquist v. International Realty, Ltd., 272 Or 416,

    423, 537 P2d 553 (1975) (citations omitted). Second, ORS 59.137(1) should be

    liberally construed because it is a remedial statute. Sunshine Dairy v.

    Peterson, 183 Or 305, 317, 193 P2d 543 (1948) ([a] remedial statute should

    receive liberal construction so as to afford all the relief within the power of the

    court which the language of the act indicates that the legislature intended to

    grant). As explained above, ORS 59.137 was created to provide relief to

    investors who were harmed by unlawful securities practices in the open market.

    Imposing a reliance requirement would substantially defeat the legislatures

    effort to protect investors from serious misconduct that harms the public. In the

    absence of clear and unambiguous proof that the legislature intended to impose

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    35/47

    27

    such a reliance requirement in ORS 59.137(1), this court should conclude the

    contrary.

    In sum, the text, context, legislative history, and applicable maxims of

    statutory construction all lead to the same conclusion: the legislature did not

    intend and would not have intended to add a reliance requirement to

    ORS 59.137(1). The Court of Appeals erred when it concluded otherwise.

    Accordingly, the decision of the Court of Appeals should be reversed, and this

    case should be remanded to the Court of Appeals to consider the states

    remaining assignments of error concerning the trial courts ruling that

    ORS 59.137(1) was unconstitutional. See State v. Cunningham, 337 Or 528,

    546, 99 P3d 271 (2004) (the proper remedy in this court is to reverse the Court

    of Appeals decision and remand for further proceedings to consider any

    unresolved assignments of error).

    B. If ORS 59.137 requires proof of reliance, reliance may be presumed

    under the fraud-on-the-market doctrine.

    If this court concludes that ORS 59.137 requires proof of reliance, an

    issue that follows concerns determining how a plaintiff may prove reliance.

    Again, resort to the rules for statutory construction set out in PGEand Gaines

    may resolve this issue.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    36/47

    28

    1. The text of ORS 59.135 is similar to federal Rule 10b-5 under

    which reliance may be presumed under the fraud-on-the-

    market doctrine.

    The text of ORS 59.137(1) does not incorporate a reliance requirement

    let alone provide direct guidance as to how a plaintiff might prove it. However,

    the legislative history and text of ORS 59.137(1) suggest that if the legislature

    created a reliance requirement, the legislature intended that a plaintiff could

    prove reliance in a manner provided under related federal securities laws. The

    legislative history confirms that SB 609 was intended to create consistency

    between Oregon and federal law. Testimony, Senate Committee on Business

    and Labor, SB 609, Apr 7, 2003 (statement of Sen. Kate Brown) ; see also Staff

    Measure Summary, Senate Committee on Business and Labor, SB 609, Apr 7,

    2003 (explaining that SB 609 creates consistency between Oregon law and

    corresponding federal laws); Staff Measure Summary, House Committee on

    Judiciary, SB 609, Jul 2, 2003 (same). Moreover, the text of ORS 59.135(1)-(3)

    is functionally identical to the text of SEC Rule 10b-5, 17 CFR 240.10b-510.

    10 17 CFR 240.10b-5 provides that it is unlawful:

    To employ any device, scheme, or artifice to defraud,

    To make any untrue statement of a material fact or to omit tostate a material fact necessary in order to make the statementsmade, in the light of the circumstances under which they weremade, not misleading, or

    Footnote continued

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    37/47

    29

    Thus, both the legislative history and textual similarity between state and

    federal law strongly suggest that federal securities law will be highly instructive

    in interpreting ORS 59.137(1). See e.g., Karsun v. Kelley, 258 Or 155, 161, 482

    P2d 533 (1971) (noting that where state statute adopt[ed] substantially the

    same terms as set forth in [a federal act] the legislative history of that act, as

    well as decisions construing its provisions, are of significant interest);

    Computer Concepts, Inc. v. Brandt, 310 Or 706, 714 n 7, 801 P2d 800, 805

    (1990) (recognizing the same) (citing Karsun).

    The significance of federal law, which does include a reliance

    requirement,11 is that a plaintiff may establish a presumption of reliance

    pursuant to the fraud-on-the-market doctrine. Basic Inc. v. Levinson, 485 US

    224, 243, 247, 108 S Ct 978, 99 L Ed 2d 194 (1988); Erica P. John Fund, Inc.

    v. Halliburton Co., ___ US ___, 131 S Ct 2179, 2185, 180 L Ed 2d 24 (2011).

    Under that doctrine:

    (continued)

    To engage in any act, practice, or course of business whichoperates or would operate as a fraud or deceit upon any person,

    in connection with the purchase or sale of any security.

    11 Federal law includes a reliance requirement because SEC Rule10b-5 is an implied cause of action and federal courts borrowed common-lawelements into that implied cause of action. Dura Pharmaceuticals, 544 US at341.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    38/47

    30

    An investor who buys or sells stock at the price set by the marketdoes so in reliance on the integrity of that price. Because mostpublicly available information is reflected in market price, aninvestors reliance on any public material misrepresentations,therefore, may be presumed for purposes of a Rule 10b-5 action.

    Basic, 485 US at 247.12

    Here, if this court concludes that reliance is required under

    ORS 59.137(1), given the similarity between ORS 59.135(2) and SEC Rule

    10b-5, this court should conclude that the legislature also intended to allow

    proof of reliance under the fraud-on-the-market doctrine.

    2. The legislative history supports incorporating the fraud-on-

    the-market doctrine into the Oregon Securities Law.

    The legislative history supports the conclusion that if the legislature

    incorporated a reliance requirement, it also intended to incorporate the federal

    fraud-on-the-market doctrine. As discussed above, the legislative history

    contained repeated references that SB 609 would create consistency between

    state and federal securities laws. Testimony, Senate Committee on Business

    and Labor, SB 609, Apr 7, 2003, Ex I (statement of Sen. Kate Brown) ; Staff

    12 Although inBasic the fraud-on-the-market doctrine was

    discussed within the context of a class action, it arises from the efficient markettheory and has been applied to individual cases. Black v. Finantra Capital,

    Inc., 418 F3d 203, 209-10 (2nd Cir 2005); Teamsters Local 282 Pension TrustFund v. Angelos, 762 F2d 522, 529 (7th Cir 1985);Anderson v. Transglobe

    Energy Corp., 35 F Supp 2d 1363, 1369 (M D Fla 1999); Leonard v. Stuart-James Co., Inc., 742 F Supp 653, 659-60 (N D Ga 1990).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    39/47

    31

    Measure Summary, Senate Committee on Business and Labor, SB 609, Apr 7,

    2003; Staff Measure Summary, House Committee on Judiciary, SB 609, Jul 2,

    2003. Moreover, witnesses clarified that SB 609, if enacted, would allow

    plaintiffs to pursue fraud-on-the-market claims. Testimony, Senate

    Committee on Business and Labor, SB 609, Apr 7, 2003, Ex I (statement of

    Sen. Kate Brown). Thus, the legislative history shows that if the legislature

    added a reliance requirement in ORS 59.137(1), the legislature intended state

    securities law to follow federal securities law and include the fraud-on-the-

    market doctrine as a means of proving reliance.

    3. Maxims of statutory construction favor inclusion of the fraud-

    on-the-market doctrine.

    As a final matter, should this court conclude that the legislative history is

    unclear as to how a plaintiff may prove reliance under ORS 59.137(1), then

    maxims of statutory construction should be considered. Again, in this case, the

    applicable maxims require this court to construe ORS 59.137(1) liberally in

    favor or protecting the public. Bergquist, 272 Or at 423; Sunshine Dairy, 183

    Or at 317. Here, including a fraud-on-the-market doctrine into state law

    would significantly protect and promote the legislatures interests in protecting

    the public from the unlawful securities practices set out in ORS 59.135(1), (2),

    and (3) .

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    40/47

    32

    4. The state proved reliance under the fraud-on-the-market

    doctrine.

    In sum, even if this court concludes that reliance is required under

    ORS 59.137(1), the state could prove reliance under the fraud-on-the-market

    doctrine and did so in this case. To trigger a presumption of reliance under that

    doctrine, the state needed to prove that there was a material public

    misrepresentation or omission (meaning the information would be material to a

    reasonable investor), the companys shares are traded on an efficient market,

    and the plaintiff traded the relevant shares before the information was publicly

    disclosed. Basic, 485 US at 248 n 27. In this case, the state met its burden by

    presenting evidence that (1) defendants made material misstatements and

    omissions, (2) the states managers purchased shares in the market during this

    time period, and (3) the state had an expert who would testify that MMC was

    traded in an efficient market, and the subsequent revelations about MMCs

    practices substantially negatively impacted the price of Oregons MMC

    securities. (TCF 4626, Rubinstein Dec., 2; TCF 3367-68, Shorr Dec, 3-6,

    7). Accordingly, the trial court erred when it granted summary judgment on the

    ground that the state failed to prove reliance.

    C. This Is an Omission Case for Which Reliance Is Not an Element of

    the Claim.

    As a final matter, if this court concludes that ORS 59.137(1) contains a

    reliance requirement and that the fraud-on-the-market doctrine is not

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    41/47

    33

    available under state law, this court must consider whether reliance is necessary

    when a person violates ORS 59.135(2) by omitting material facts in a statement

    about a security. Generally, when a statute proscribes the omission of material

    factsand that omission triggers statutory liabilitya plaintiff need not prove

    direct reliance.

    The case that illustrates this point is Sanders v. Francis, 277 Or 593, 598,

    561 P2d 1003 (1977). In Sanders, a plaintiff filed a complaint alleging that

    defendants violated ORS 646.608(1)(i) and (j)13 by selling a vehicle at a price

    $800 higher than the price advertised in a local newspaper. 277 Or at 595. The

    defendants argued that plaintiff failed to state a claim for relief because she

    failed to allege that she relied on two undisclosed facts such that her losses

    were the result of defendants violations of ORS 646.608(1)(i) and (j): (1)

    that the vehicle had been advertised at a lower price; and (2) that the defendants

    13 ORS 646.608(1)(i) and (j) provide that it is unlawful to:

    (i) Advertise[] real estate, goods or services with intent notto sell them as advertised, or with intent not to supply reasonably

    expectable public demand, unless the advertisement discloses alimitation of quantity;

    (j) Make[] false or misleading representations of factconcerning the reasons for, existence of, or amounts of pricereductions[.]

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    42/47

    34

    never intended to sell the vehicle at the advertised price. However, this court

    rejected the defendants reliance arguments. This court explained:

    In many cases plaintiffs reliance may indeed be a requisite cause

    of any loss, i.e. when plaintiff claims to have acted upon a sellersexpress representations. But an examination of the possible formsof unlawful practices shows that this cannot invariably be the case.Especially when the representation takes the form of a failure todisclose under subsection (2)14, as in this case, it would beartificial to require a pleading that plaintiff had relied on thatnon-disclosure. Similarly, if the particular violation of paragraph(i) is a sale made in willful disregard of the advertised price, andintended at the time of the advertisement, then plaintiffs damageresults precisely from defendants reliance on her ignorance, notfrom plaintiffs reliance on defendants advertisement.

    Sanders, 277 Or at 598. Thus, this court recognizes that in cases in which a

    person violates a statute by omitting to state material facts, reliance need not be

    proven.

    A similar result should occur in cases in which a person violates

    ORS 59.135(2) by omitting material facts in a statement about a security. For

    the same reasons discussed in Sanders, the state cannot practicably prove that it

    relied on the omission of information. Instead, a proper means of proof

    would be to require the state to show that the misstatement was material and

    14 ORS 646.608(2) provides that [a] representation under[ORS 646.608(1)] may be any manifestation of any assertion by words orconduct, including, but not limited to, a failure to disclose a fact. (Quoted inSanders, 277 Or at 596).

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    43/47

    35

    that it would have influenced a reasonable investor to not purchase MMC

    securities at the prices they did.

    Moreover, such a rule would keep ORS 59.137(1) consistent with federal

    securities law, a stated goal of the legislature in enacting ORS 59.137(1).

    Under federal securities law, a plaintiff need not provide direct evidence of

    reliance where the defendant has made statements with material omissions of

    fact. Affiliated Ute Citizens of Utah v. United States, 406 US 128, 153-54, 92

    S Ct 1456, 31 L Ed 2d 741 (1972). The Court explained:

    Positive proof of reliance is not a prerequisite for recovery. Allthat is necessary is that the facts withheld be material in the sensethat a reasonable investor might have considered them important inthe making of this decision.

    Id. Thus, construing ORS 59.137(1) to exclude reliance in claims involving the

    omission of material facts would be consistent both with federal law and this

    courts precedent concerning whether a plaintiff may prove that an omission

    induced reliance.

    If this court concludes that a plaintiff may establish reliance in the

    manner recognized in Sanders andAffiliated Ute, then this court should further

    conclude that the trial court erred when it granted summary judgment in favor

    of defendants. Here, the state alleged that defendants failed to disclose the

    nature of their contingent commission revenues and their illegal bid rigging and

    other unlawful business practices. The state presented evidence that had its

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    44/47

    36

    investment managers been fully aware of defendants illegal bid rigging and

    improper business practices, they would not have invested in MMC securities at

    the prices they did. (TCF 3408-10, Shorr Dec., Exh. 12; TCF 4626, Rubinstein

    Dec., 2). Thus, at the very least, the state created an issue of fact as to

    whether defendants should be liable under ORS 59.137(1) for violating

    ORS 59.135(2). Accordingly, the trial court erred when it granted summary

    judgment on the ground that the state failed to prove reliance.

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    45/47

    37

    CONCLUSION

    For the reasons state above, the state requests that this Court reverse the

    decision of the Court of Appeals and remand this case for further proceedings,

    including a determination as to whether ORS 59.137(1) violates the Dormant

    Commerce Clause of Article I, section 8, of the United States Constitution.

    Respectfully submitted,

    JOHN R. KROGER

    Attorney GeneralMARY H. WILLIAMSSolicitor General

    /s/ Keith S. Dubanevich________________________________KEITH S. DUBANEVICH #975200Chief of Staff and Special [email protected]

    DENISE G. FJORDBECK #822578Attorney-in-Charge,Civil/Administrative [email protected]

    Attorney for Petitioner on ReviewState of Oregon

    MJL:bmg/2990786

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    46/47

    NOTICE OF FILING AND PROOF OF SERVICE

    I certify that on August 31, 2011, I directed the original Brief on the

    Merits of Petitioner on Review, State of Oregon to be electronically filed with

    the Appellate Court Administrator, Appellate Records Section, and

    electronically served upon Scott Shorr, attorney for petitioner on review State

    of Oregon, and James T. McDermott and Dwain M. Clifford, attorneys for

    respondents on review Marsh & McLennan Co. Inc. & Marsh Inc., by using the

    court's electronic filing system.

    I further certify that on August 31, 2011, I directed the Brief on the

    Merits of Petitioner on Review, State of Oregon to be served upon Kim T.

    Buckley and John W. Stephens, Attorneys for Amicus Curiae Oregon Trial

    Lawyers Association and Economic Fairness Oregon, Robert S. Banks, Jr. and

    Joe Opron, III, attorneys forAmicus Curiae North American Securities

    Administrators Association, Franklin Jason Seibert and Meyer Eisenberg,

    Attorneys forAmicus Curiae Meyer Eisenberg and F. Jason Seibert, by mailing

    two copies, with postage prepaid, in an envelope addressed to:

    Kim T. Buckley #781589

    John W. Stephens #773583Esler Stephens & Buckley888 SW 5th Avenue, Suite 700Portland, OR 97204Telephone: (503) 223-1510Email: [email protected]

    [email protected]

    Attorneys for Amicus Curiae OregonTrial Lawyers Association andEconomic Fairness Oregon

    Robert S. Banks, Jr., OSB 821862

    Joe Opron, III (admittedpro hac vice)Banks Law Office, PC1300 SW 5th Ave., Ste. 2135Portland, OR 97201Telephone: (503) 222-7475Email: [email protected]

    Attorneys forAmicus Curiae NorthAmerican Securities AdministratorsAssociation

  • 8/3/2019 Supreme Court in Oregon v. Marsh and McLennan: Written Arguments

    47/47

    Franklin Jason Seibert, OSB 095009F.J. Seibert, LLC A Law Office100 High Street SE, Suite 202Salem, OR 97301Telephone: (971) 235-5764

    Email: [email protected]

    Meyer Eisenberg(Oregonpro hac vice order pending)Visiting Professor of LawWillamette University College of Law245 Winter Street SESalem, OR 97301Telephone: (503) 370-6642Email: [email protected]

    Attorneys forAmicus Curiae MeyerEisenberg and F. Jason Seibert

    CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d)

    I certify that (1) this brief complies with the word-count limitation in

    ORAP 5.05(2)(b) and (2) the word-count of this brief (as described in ORAP

    5.05(2)(a)) is 8,377 words. I further certify that the size of the type in this brief

    is not smaller than 14 point for both the text of the brief and footnotes as

    required by ORAP 5.05(4)(f).

    /s/ Keith S. Dubanevich________________________________

    KEITH S. DUBANEVICH #975200Chief of Staff and Special [email protected]

    Attorney for Petitioner on Review


Recommended