James Sell sued to recover losses suffered by investors in an allegedly fraudulent investment scheme. Sell filed the action under Arizona’s Securities Act (“ASA”) against entities that participated in the scheme, as well as others who allegedly assisted by rendering professional services. Sell’s claims against these professional defendants alleged primarily liability under the ASA, as well as secondary liability for aiding and abetting others’ statutory violations. The trial court granted summary judgment against Sell on his aiding and abetting claims because the reasoning of State v. Superior Court (Davis), 123 Ariz. 324, 599 P.2d 777 (1979), which established such a claim, had been abrogated by Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994). Sell filed a special action with the Arizona Court of Appeals, which declined jurisdiction and then a petition for review with the Arizona Supreme Court, which accepted review.
The Supreme Court noted that the ASA, which makes it illegal for any person to “directly or indirectly” commit various securities-related acts or omissions, is almost identical to the federal Securities Act. The Supreme Court concluded that the difference between the federal and state securities acts was not material; the ASA allows for a private cause of action against any person who participated or induced the illegal act, and the federal statute does not. This private cause of action supports a direct liability theory, not an aiding and abetting one. The Court noted the general principle that courts will interpret state statutes in accordance with judicial interpretation of federal statutes where the federal statutes are identical or similar to the state statutes. Central Bank held that the federal Securities Act did not allow for an aiding and abetting claim, and the Court decided to follow that reasoning because the federal and state securities act did not materially differ. The Court found support for its decision to follow Central Bank in the legislature’s failure to expressly allow for an aiding and abetting theory under the ASA when it amended the ASA two years after Central Bank was decided. It noted other statutory provisions where the legislature expressly recognized aiding and abetting liability. Finally, the Court declined to extend a common law theory in support of the aiding and abetting claim.
Finally, the Supreme Court cautioned lower courts not to depart from binding precedent, such as Davis, in the anticipation that the Supreme Court would overrule existing case law.
Justice A. John Pelander authored the en banc opinion.
DISCLOSURE: Osborn Maledon represented the respondent before the Supreme Court.
Posted by: Chelsea Durkin