Federal Home Loan Bank Of Seattle v. Credit Suisse Securities (usa) Llc
75779-2
| Wash. Ct. App. | Dec 11, 2017Background
- Federal Home Loan Bank of Seattle (FHLBS) purchased four RMBS from Credit Suisse; two prospectus supplements relate to the purchases at issue.
- FHLBS bought one RMBS on Sept. 30, 2005 (before 2:00 p.m. PT); the related prospectus supplement was filed the same day but not publicly available until about 5:00 p.m. ET (after the purchase).
- FHLBS bought the other challenged RMBS on May 30, 2007; the related prospectus supplement was filed with the SEC on June 1, 2007 (after the purchase).
- FHLBS sued under RCW 21.20.010 (Washington Securities Act), alleging the prospectus supplements contained untrue or misleading statements and seeking rescission and other relief.
- The trial court granted Credit Suisse summary judgment, concluding FHLBS failed to show it reasonably relied on the supplements because the purchases occurred before the supplements were publicly available.
- On appeal, the Court of Appeals affirmed, holding that reasonable reliance is an essential element of an RCW 21.20.010 claim and that no genuine issue of material fact existed as to reliance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RCW 21.20.010 requires plaintiff to prove reasonable reliance | FHLBS argued reliance is not an essential element and WSSA imposes liability without reliance | Credit Suisse argued reliance is required, consistent with federal Rule 10b-5 and Washington precedent | Held: Reasonable reliance is an essential element of an RCW 21.20.010 claim |
| Whether FHLBS reasonably relied on the prospectus supplements it alleges were misleading | FHLBS alleged it relied on the supplements in entering the transactions | Credit Suisse pointed out both supplements were filed after the purchases were completed, so FHLBS could not have relied on them | Held: No genuine issue — FHLBS could not reasonably have relied because supplements were not publicly available until after purchase; summary judgment for Credit Suisse |
| Whether WSSA should be interpreted as imposing strict liability because of similarity to Securities Act Section 12(2) | FHLBS argued borrowing language from Section 12(2) shows legislature intended strict liability | Credit Suisse argued Washington borrowed liability framework from Rule 10b-5, not Section 12(2), and reliance remains required | Held: Rejected strict-liability argument; liability provisions align with Rule 10b-5, so reliance is required |
| Whether prior Washington decisions requiring reliance are dicta or binding | FHLBS contended Hines language was dicta and not controlling | Credit Suisse relied on Hines and subsequent Washington decisions and legislative inaction as supporting reliance requirement | Held: Hines (and follow-on decisions) control; legislative amendments did not displace the reliance requirement |
Key Cases Cited
- Hines v. Data Line Sys., Inc., 114 Wn.2d 127 (1990) (holding plaintiff must have relied on misrepresentations to recover under RCW 21.20.010)
- Go2Net, Inc. v. Freeyellow.com, Inc., 158 Wn.2d 247 (2006) (discussing reliance requirement under Washington securities law)
- Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) (federal Rule 10b-5 reliance jurisprudence referenced)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (federal securities-law reliance principles)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (interpreting scienter and reliance principles in securities law)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard cited for burden shifting)