§ 5.1.7.3

• Jurisdiction: Arizona

§ 5.1.7.3 Arizona's Legislatively Guided Remedial Interpretation

Liability under § 44-1991 has not tracked the retrenchment in Rule 10b-5 civil liability. Arizona's securities laws have been shaped by a remedial view of § 44-1991 that has promoted investor protection more than federal law.⁸¹³ This remedial, investor-protective interpretation has been expressed judicially,⁸¹⁴ administratively,⁸¹⁵ and legislatively.⁸¹⁶

The foremost reason for the different Arizona and federal approaches is that liability under § 44-1991 is express liability,⁸¹⁷ while civil liability under Rule 10b-5 is judicially implied.⁸¹⁸ In Blue Chip Stamps, the Supreme Court acknowledged that if Rule 10b-5 had been congressionally enacted as an express-liability statute, the Court would be required to interpret the statute as written.⁸¹⁹ But the right to sue under Rule 10b-5 was judicially created from a statute (§ 10(b) of the 1934 Act) that does not for the most part define the elements of the claim.⁸²⁰ Because § 10(b) does not create express liability, Blue Chip concluded that the Court is not bound to strictly follow the statute's text. Instead, the Court is free to use judicially identified policy considerations to narrow civil liability.⁸²¹

This license to judicially define liability for securities fraud does not exist under Arizona's securities statutes. Unlike Rule 10b-5, civil liability for violations of § 44-1991 is statutorily explicit,⁸²² not judge made. The existence of a private action for violations of § 44-1991 is stated in the text of § 44-1991⁸²³ and other statutes that define the rules on joint-and-several liability, proportionate fault, pleading, and discovery in private actions under § 44-1991.⁸²⁴ In addition, §§ 44-2001 and 44-2002 create legislatively defined remedies for violations of § 44-1991(A).⁸²⁵ Because the Arizona legislature rather than the courts created civil liability for securities fraud, the usual rules on statutory interpretation apply. These rules prohibit courts from rewriting the statutes or narrowing them on policy grounds.⁸²⁶ It is for the legislature alone to decide if policy reasons justify changing a statute.⁸²⁷

Recognizing this, Arizona's courts have interpreted the securities statutes as written,⁸²⁸ and since 2001, have looked to the 1951 statement of legislative intent for guidance on the relevant policy considerations.⁸²⁹ This approach has produced a remedial interpretation that is more protective of investors than the federal securities laws.⁸³⁰ Since 2001, the Court of Appeals has expressed the view that it "will not defer to federal case law when, by doing so, [it] would be taking a position inconsistent with the policies embraced by our own legislature."⁸³¹ The same decision made the point that even decisions of the U.S. Supreme Court may be disregarded on issues of Arizona-securities law.⁸³²

Sell v. Gama,⁸³³ a 2013 decision by the Arizona Supreme Court, acknowledged the Court of Appeals' position in principle⁸³⁴ but stated that "we will interpret the ASA by following settled federal securities law unless there is a good reason to depart from that authority."⁸³⁵ The Sell court saw no substantial differences in Arizona and federal law on aiding-and-abetting securities fraud⁸³⁶ and elected to follow the U.S. Supreme Court's decision in Central Bank v. First Interstate Bank,⁸³⁷ which eliminated aiding-and-abetting under Rule 10b-5.⁸³⁸

Decisions since Sell have examined the similarity of federal and Arizona securities law and found good reason to depart from federal law where substantial differences exist.⁸³⁹

Almost every Arizona securities-law decision that has been reported since 2001,⁸⁴⁰ including Sell,⁸⁴¹ has cited § 20 of the 1951 Securities Act. And those that do not generally acknowledge the securities laws' remedial goals or intent to protect investors—core principles under § 20.⁸⁴² Section 20 is a statement of legislative intent that expresses the legislature's desire for a broad interpretation of civil liability.⁸⁴³ It includes a directive that the "Act shall not be given a narrow or restricted interpretation or construction, but shall be liberally construed as a remedial measure."⁸⁴⁴ This statutory expression of legislative intent has been invoked by the Arizona Supreme Court⁸⁴⁵ and the Court of Appeals⁸⁴⁶ to explain the Act's proper interpretation. It is also frequently cited in administrative decisions by the Arizona Corporation Commission,⁸⁴⁷ where it has been advanced as a reason to explain why civil liability under Arizona's securities laws is broader than under federal law.⁸⁴⁸

Section 20's importance is enhanced by the fact that it is statutory law. It is not a preamble or legislative history. It is a statute and is entitled to be interpreted in the same manner as any other statute.⁸⁴⁹

A statement of legislative intent also accompanied amendments in 1996 to the Arizona Securities Act. It provides: "[T]he courts may use as a guide the interpretations given by the securities and exchange commission and the federal or other courts in construing substantially similar provisions in the federal securities laws of the United States."⁸⁵⁰ This authorization to cite SEC precedent is unusual but consistent with the remedial background of Arizona's statutes. More so than federal case law, SEC decisions reflect an investor-oriented, remedial view of the securities laws.⁸⁵¹

The 1996 statement of intent was cited in the 2013 Sell decision to support relying on a decision of the U.S. Supreme Court.⁸⁵²Sell followed the U.S. Supreme Court's decision in Central Bank⁸⁵³ and held that a "separate claim for aiding and abetting does not exist" under Arizona's Securities Act.⁸⁵⁴

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Notes:

^[813]See Richard G. Himelrick, Arizona Securities Fraud Liability: Charting a Non-Federal Path, 32 Ariz. St. L.J. 203, 208-10 (2000) [hereinafter Himelrick, Arizona Securities Fraud] (discussing the more remedial view under Arizona law); Richard M. Weinroth, Liability of Attorneys in Securities Transactions: A Reevaluation in Light of Central Bank, Ariz. Att'y, Sept. 1994, at 18, 21 ("Arizona courts have consistently construed the Arizona Securities Act, and related liability laws (such as AZRAC), in an expansive fashion resulting in a greater liability reach than federal securities laws." (footnote omitted)). Compare Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142, 144 (2011) (referring to the "narrow dimensions" and "narrow scope" that "we must give the [Rule 10b-5] implied private right of action"), with Grand II, 225 Ariz. 171, 174 ¶ 16, 236 P.3d 398, 401 (2010) (holding that Arizona's securities act should be liberally construed).

^[814]See Grand II, 225 Ariz. at 174 ¶ 16, 236 P.3d at 401 ("The legislature intended the ASA 'as a remedial measure' for the 'protection of the public' and therefore specified that the act be 'liberally construed.'") (quoting the statement of legislative intent that directs the court to liberally construe the securities statutes to protect the public); Denver Energy Exploration, LLC v. Ariz. Corp. Comm'n, No. 1 CA-CV 15-0553, 2016 WL 4916776, at *1 ¶ 6 (Ariz. Ct. App. Sept. 15, 2016) (stating that Arizona's Securities Act is "to 'be liberally construed to effect its remedial purpose of protecting the public interest'" (quoting Eastern Vanguard Forex, Ltd. v. Ariz. Corp. Comm'n, 206 Ariz. 399, 410 ¶ 36, 79 P.3d 86, 97 (Ct. App. 2003))); Eastern Vanguard, 206 Ariz. at 410 ¶ 36, 79 P.3d at 97 (declining to follow certain cases in the Ninth Circuit that the court characterized as too restrictive to adequately guard the public); Siporin v. Carrington, 200 Ariz. 97, 104 ¶ 35, 23 P.3d 92, 99 (Ct. App. 2001) (refusing to follow federal decision because its "rationale does not serve the prophylactic and remedial purposes of the Arizona Securities Act"); Bullard v. Garvin, 1 Ariz. App. 249, 251, 401 P.2d 417, 419 (1965) (stating that the securities statutes are to be "liberally construed in favor of the persons whom they are designed to protect"). See generally Blake A. Watson, Liberal Construction of CERCLA Under the Remedial Purpose Canon: Have the Lower Courts Taken A Good Thing Too Far?, 20 Harv. Envtl. L. Rev. 199, 229-58 (1996) (discussing the history and use of the remedial-construction canon in statutory interpretation).

^[815]See, e.g., Concordia Financing Co., Ltd., No. S-20906A-14-0063, 2019 WL 995567, at *205 (Ariz. Corp. Comm'n Feb. 20, 2019) (citing the 1951 statement of intent in support of decision that "proper enforcement of the [ASA] requires that we reject the approach of the Second Circuit which finds no need for a securities salesperson to disclose compensation"), aff'd No. 1 CA-CV 20-0163, 2021 WL 710211 (Ariz. Ct. App. Feb...