The Securities Act of Washington Protects the Public, Rely on It

Lawrence R. Cock, Jack Lovejoy, and John Bender [1] | October 17, 2019

On October 3, 2019, the Washington Supreme Court issued a decision in a case arising out of the 2007-08 financial crisis that will have a major impact on litigation under the Securities Act of Washington.  In Federal Home Loan Bank of Seattle v. Credit Suisse Secs. (USA), LLC, et al. — Wn.2d —, 2019 WL 4877437 (2019), a 6-3 majority held that proof of reliance is not required to prove a claim for violation of RCW 21.20.010(2), which renders unlawful any material misrepresentation or omission of fact by a seller of securities. The opinion, issued just a few weeks after the 11th anniversary of Lehman Brothers’ collapse, continues the trend of Washington Supreme Court cases interpreting the Securities Act of Washington in a manner consistent with its remedial purpose.

The plaintiff, Federal Home Loan Bank of Seattle, sued Credit Suisse and Barclays in separate actions under the Act, claiming they made material misrepresentations in connection with the sale of over $900,000,000 of residential-mortgage-backed securities. Specifically, Federal Home Loan claimed that the defendants overstated the value of the securities by misrepresenting the occupancy rates, underwriting standards, and loan-to-value ratios of the mortgages backing the securities.

Although the lawsuits were filed in December 2009, the litigation moved slowly. In August 2016, the Superior Court dismissed all claims on summary judgment. The Court dismissed the claims against Credit Suisse because there was no evidence of reliance and dismissed the claims against Barclays because it found Federal Home Loan’s reliance on its misstatements was unreasonable.

The Court of Appeals issued its decisions affirming the Superior Court in December 2017. The Supreme Court heard oral arguments on the consolidated cases on October 9, 2018. A full year went by before the Supreme Court issued its decision.

Overturning the trial court and court of appeals, the majority began its analysis with the plain language of the Act. The decisive fact for the Court was that, like the Uniform Securities Act upon which it based, RCW 21.20.010(2) does not contain an express reliance requirement. The court also looked to see if a reliance requirement could be exported from other provisions of the Act. Concluding it could not, the court held that the statute was unambiguous: proof of reliance was not required.

Barclays and Credit Suisse argued that a ruling against a reliance requirement would impose a standard of “absolute liability” on sellers of securities. The majority rejected this argument, concluding that both the statute of limitations and the other elements of proof required to prevail on a claim under RCW 21.20.010, including materiality, prevented the potential for open-ended liability. Still, with the Federal Home Loan decision, Washington’s skies are among the bluest in the nation. Past legislative liberalization of the Act, together with Washington courts’ embrace of the statute’s purpose, makes the Act a powerful tool for ensuring fair play in securities transactions in Washington.


[1] Lawrence Cock can be reached at (206-812-0836). Jack Lovejoy can be reached at (206-812-0894). John Bender can be reached at (206-652-8659).

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