Protecting the Professional: Contribution Bar Orders in Securities Cases
| Publication year | 1995 |
| Pages | 775 |
| Citation | Vol. 24 No. 4 Pg. 775 |
1995, April, Pg. 775. Protecting the Professional: Contribution Bar Orders in Securities Cases
Attorneys and accountants providing professional services to clients who offer and sell securities are often targets (along with their clients) of claims based on violations of state and federal securities law. Although the U.S. Supreme Court has recently restricted the viability of claims against professionals, securities claims, both state and federal, continue to be recognized under certain circumstances.
In that the doctrine of joint and several liability applies to state and federal securities law claims, the professional who wishes to settle, particularly when the client does not, is faced with a serious dilemma. If the professional settles without protection from the client's potential contribution claims, the professional risks a trial: (1) in which he or she is not represented; and (2) that would determine the total damages from which his or her ultimate share is derived.(fn1)
In response to this problem and in an effort to promote settlement, practitioners have commonly used so-called "contribution bar orders" to extinguish possible claims based on contribution or indemnity. Recently, however, the U.S. Court of Appeals for the Tenth Circuit held in TBG, Inc. v. Bendis(fn2) that orders barring claims against settling defendants by nonsettling defendants are of questionable viability in federal securities law cases. This article examines the implications of TBG, Inc. to professionals who desire to settle all state and federal securities claims, including those of non-settling defendants.
Section 12(1) of the Securities Act of 1933 ("1933 Act")(fn3) imposes civil liability on those who "offer" or "sell" a security in violation of the registration or prospectus provisions of the Act. Additionally, § 12(2) of the 1933 Act imposes civil liability on those who "offer" or "sell" a security based on false or misleading statements in prospectuses or oral statements used to sell the securities.(fn4) A private right of action also has been implied by the terms of § 10(b) of the Securities Exchange Act of 1934 ("1934 Act"),(fn5) which make it unlawful for any person, directly or indirectly, by the use of interstate commerce or the mails to use or employ "in connection with the purchase or sale of any security" a manipulative or deceptive device.
Federal claims that are based on §§ 12 and 10(b) have historically been the most common against a "nonseller" attorney or accountant. Although recent U.S. Supreme Court cases have significantly restricted the application of federal securities law to nonselling professionals who perform only professional services, these claims continue to be viable when the professional takes an active role in the sale of securities.(fn6)
The Colorado Securities Act of 1990 ("1990 Act") took effect July 1, 1990, and replaced the Colorado Securities Act of 1981.(fn7) CRS § 11-51-604(3) is Colorado's analogue to federal § 10(b) and imposes civil liability for similar conduct.(fn8) Furthermore, CRS § 11-51-604(1) and (4) provide state analogues to federal claims under §§ 12(1) and (2). Because the Colorado Securities Act parallels the federal 1933 and 1934 Acts, federal case authorities are persuasive authority for purposes of statutory interpretation.(fn9)
Perhaps the most significant distinction between the Colorado statute and the federal statute is Colorado's express authorization of secondary claims similar to the federal aiding and abetting claims, which are no longer recognized.(fn10) Consequently, despite the protection afforded professionals by recent decisions of the federal courts, they may nevertheless be subjected to a secondary claim on an aiding and abetting theory under state law, based on express provisions authorizing such claims.
Liability under federal securities law for violations of § 10(b) is joint and several.(fn11) As a result, the defendant in an action brought under § 10(b) has an implied cause of action for contribution.(fn12) Although federal law does not provide a defendant in a § 12 action a right of contribution, federal law does not preempt a state right to contribution to the extent it exists.(fn13)
Like federal law, Colorado's statute imposes joint and several liability on multiple violators.(fn14) Additionally, the statute includes an express right of contribution to any liable person from other persons liable "directly or indirectly, for the same violation."(fn15) The statute provides that contribution...
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