§ 5.1.1.5 SECTION 44-2003(A)'S SAFE HARBOR

• Jurisdiction: Arizona

§ 5.1.1.5 Section 44-2003(A)'s Safe Harbor

Grand II identified an important respect in which inducement is broader than participant liability. The difference occurs because of the legislature's decision in 1996 to amend § 44-2003(A) to create a safe harbor for professional services. The amended language appears in the last sentence of § 44-2003(A), which reads:

No person shall be deemed to have participated in any sale or purchase solely by reason of having acted in the ordinary course of that person's professional capacity in connection with that sale or purchase.¹⁶⁴⁸

This provision, and similar statutes in other states,¹⁶⁴⁹ creates a safe haven for those persons who act solely within the ordinary course of their profession.¹⁶⁵⁰ The postman who delivers a fraudulent letter, the secretary who types it, and the store that sells the paper on which it was typed are surely not culpable participants.¹⁶⁵¹

Similarly, Arizona's territorial statutes outlawed bucket shops but created a safe harbor for the communication carriers through which bets were placed on stocks, bonds, or commodities.¹⁶⁵² These bets were commonly made through telephone or telegraph services. The legislature recognized the need for a safe harbor¹⁶⁵³ and included a provision that shielded telegraph and telephone companies from liability if they were "exclusively so engaged" as a "common carrier" with no "direct or indirect connection with, or interest in such transaction other than the transmission of such message and receiving the charges therefor which are not in excess of the usual rate."¹⁶⁵⁴

Like a postal service, telegraph company, or telephone company that innocently provides services connected to a fraudulent transaction, § 44-2003(A)'s safe harbor ensures that professionals who do no more than provide ordinary professional services will not be liable.¹⁶⁵⁵ On the other hand, those who depart from the ordinary course of their profession are likely to have engaged in culpable participation.¹⁶⁵⁶

Most professions have rules or standards that identify unprofessional conduct. For example, in the legal profession it is unprofessional conduct for a lawyer to engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.¹⁶⁵⁷ Arizona's State Board of Accountancy has a rule that prohibits certified public accountants from knowingly or recklessly making misrepresentations.¹⁶⁵⁸ Similar rules exist for real-estate agents¹⁶⁵⁹ and securities professionals.¹⁶⁶⁰ Professionals who knowingly or recklessly violate the standards of their profession when advising their clients are not providing legitimate professional advice for which statutory protection should exist.¹⁶⁶¹

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Notes:

^[1648] A.R.S. § 44-2003(A) (2013). See generally Steinberg & Ames, su...