331 P.3d 29
Wash.2014Background
- FutureSelect, a Washington-based investor, invested $195 million (1997–2008) in Tremont’s Rye Funds, which fed money to Bernie Madoff’s Ponzi scheme; the investments were lost when Madoff’s fraud was revealed.
- FutureSelect sued Tremont (NY), Tremont’s parent companies (MassMutual and Oppenheimer), and auditors (Ernst & Young, KPMG, Goldstein Golub Kessler) for violations of the Washington Securities Act (WSSA), negligence, and negligent misrepresentation.
- The trial court granted motions to dismiss on the pleadings; the Court of Appeals reversed in part. The Supreme Court granted review.
- Key disputed procedural/legal questions: (1) whether Washington courts have personal jurisdiction over nonresident Oppenheimer based on agency, (2) which state’s law (Washington or New York) governs (choice of law), and (3) whether Ernst & Young can be a “seller” under the WSSA.
- The Supreme Court affirmed the Court of Appeals: denial of dismissal on pleadings; ordered limited jurisdictional discovery; held Washington law plausibly applies; and held plaintiffs adequately pleaded facts that could make Ernst & Young a ‘‘seller’’ under the WSSA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Oppenheimer (agency theory) | Oppenheimer controlled and benefited from Tremont; Tremont solicited and made representations to FutureSelect in WA — thus Oppenheimer transacted business in WA through its agent. | Oppenheimer lacks minimum contacts with Washington; due process bars jurisdiction. | Jurisdictional allegations suffice to survive CR 12(b)(2); limited discovery allowed and Oppenheimer may renew challenge. |
| Choice of law (WSSA v. NY Martin Act) | Washington has the most significant relationship: representations were received and relied on in WA; WA has strong interest protecting its investors; WSSA gives a private right of action. | New York has stronger ties and its law should govern; under NY law (Martin Act) no private cause of action, so dismissal is appropriate. | Actual conflict exists; on pleadings WA law plausibly governs under Restatement §148 factors; CR 12(b)(6) dismissal was improper. |
| Whether Ernst & Young is a “seller” under WSSA | EY’s audits were used to solicit and reassure FutureSelect; FutureSelect alleges it would not have invested but for EY audits — EY was a substantial contributive factor. | EY provided routine professional services (audits) only; that is insufficient to be a "seller." | On pleadings, allegations of ‘‘something more’’ survive — factual question whether EY was a substantial contributive factor; dismissal improper. |
| Sufficiency of pleadings for WSSA and tort claims | Complaint alleges targeted misrepresentations, reliance in WA, agency, and damages; enough to proceed. | Claims fail as a matter of law (choice of law, lack of seller status, jurisdiction) and should be dismissed on pleadings. | Complaint survives CR 12(b)(6) as plaintiffs have alleged facts that, if proven, support liability; remand for further development. |
Key Cases Cited
- Kinney v. Cook, 159 Wn.2d 837 (review of CR 12(b)(6) standard)
- Shute v. Carnival Cruise Lines, 113 Wn.2d 763 (long-arm / specific jurisdiction factors)
- Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107 (definition of "seller" under WSSA; choice-of-law framework reference)
- Hines v. Data Line Sys., Inc., 114 Wn.2d 127 (requirement of "something more" beyond routine professional services to be a seller)
- Hoffer v. State, 113 Wn.2d 148 (interpretation of WSSA; remedial purpose)
- Johnson v. Spider Staging Corp., 87 Wn.2d 577 (most significant relationship approach to contacts)
- Southwell v. Widing Transp., Inc., 101 Wn.2d 200 (two-step choice-of-law analysis under §145/§148)
- Pinter v. Dahl, 486 U.S. 622 (U.S. Supreme Court decision narrowing "seller" scope under federal securities law; discussed in concurrence)
- SEC v. Phan, 500 F.3d 895 (Ninth Circuit post-Pinter authority referenced in concurrence)