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STATE OF OREGON, acting by and. )
through the OREGON STATE )
TREASURER, and the OREGON )
PUBLIC EMPLOYEE RETIREMENT )
BOARD, on behalf of the OREGON )
PUBLIC EMPLOYEE RETIREMENT )
FUND, )
v.
Plaintiff-Appellant,
Petitioner on Review
MARSH & MCLENNAN
COMPANIES, INC. and MARSH
INC.,
and
Defendants-Respondents,
Respondents on Review
JEFFREY GREENBERG and RAY
GROVES,
Defendants.
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Multnomah County Circuit Court
No.0508-08454
Oregon Court of Appeals
No. A139453
Oregon Supreme Court
No. S059386
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW
Review of the Decision of the Court of Appeals
on Appeal from a Judgment of the Circuit Court for Multnomah County
The Honorable Frank L. Bearden
Court of Appeals Opinion Filed: February 23, 2011
Before: Schuman, P.J.; Wollheim, J.; and Rosenblum, J.
Filed: October 2011
James T. McDermott, OSB 933594
Dwain M. Clifford, OSB 02507 4
Ball Janik LLP
101 SW Main St., Ste. 1100
Portland, OR 97204
Tel: (503) 228-2525
Fax: (503) 226-3910
Attorneys for Respondents on Review Marsh & McLennan Companies, Inc. and
Marsh Inc.
Keith A. Ketterling, OSB 913368
Scott A. Shorr, OSB 961873
Joshua L. Ross, OSB 034387
Stoll Stoll Berne Lokting & Shlachter PC
209 SW Oak St., Fifth Floor
Portland, OR 97204
Tel: (503) 227-1600
Fax: (503) 227-6840
Attorneys for Petitioner on Review State of Oregon, acting by and through the
Oregon State Treasurer, and the Oregon Public Employee Retirement Board, on
behalf of the Oregon Public Employee Retirement Fund
John R. Kroger, OSB 077207
Attorney General
Mary H. Williams, OSB 911241
Solicitor General
Keith S. Dubanevich, OSB 975200
Chief of Staff and Special Counsel
Denise G. Fjordbeck, OSB 822578
Attorney-in-Charge
Civil Administrative Appeals
Oregon Department of Justice
1162 Court St. NE
Salem, OR 97301
Tel: (503) 378-4402
Fax: (503) 378-8732
Attorneys for Petitioner on Review State of Oregon, acting by and through the
Oregon State Treasurer, and the Oregon Public Employee Retirement Board, on
behalf of the Oregon Public Employee Retirement Fund
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TABLE OF CONTENTS
I. Summary of Argument ....................................... ~ ............................................ I
II. Questions on Review and Proposed Rules of Law ... ; ..................................... !
III. Factual and Procedural Background ............................................................... 3
IV. The Court of Appeals correctly interpreted ORS 59.137 as requiring
the plaintiff to prove reliance on the defendant's misstatement. .................... 9
A. The text of ORS 59.13 7 necessarily requires that reliance is an
element of a claim under that statute .................................................... 9
B. The context of other statutes in the Oregon Securities Law
further supports construing ORS 59.137 to require the
plaintiffs reliance ............. .................................................................. 12
C. The legislative history further supports interpreting ORS 59.137
to require reliance as an element of the plaintiffs claim .................... l6
D. Because the first two levels of inquiry answer the question
about reliance under ORS 59.137, this Court should not resort
" . " f . . . 19
to any maxims o statutory mterpretatwn ............ ~ ........ ~ ................ .
E. Applying the Bergquist rule to OPERF's claim would be
particularly inappropriate .................................................................... 24
F. OPERF inappropriately relies on Everts, which deals with an
entirely different statute allowing entirely different relief ................. 26
G. The Oregon legislature does not always "expressly" include
reliance as an element of claims that, in fact, require reliance ........... 32
V. ORS 59.137, which has no counterpart in any federal statute, does not
borrow the "fraud on the market" doctrine from federal cases ..................... 34
A. The inconsistency between Oregon and federal law undercuts
the prinCipal foundation of OPERF' s arguments ................................ 3 5
B. The legislative history does not evince any legislative intent to
adopt the federal "fraud on the market" doctrine ............................... 3 9
c. No "maxim" of statutory incorporation could allow importing
the federal "efficient market" doctrine into ORS 59.137 .................. .45
VI. Strawn is irrelevant to claims under ORS 59.137 ........................................ .47
VII. OPERF does not, and cannot, rely on any "omission" as the cause of
its Injury under ORS 59.137 ......................................................................... A9
VIII. Conclusion ..................................................................................................... 56
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TABLE OF AUTHORITIES
CASES
Affiliated Ute Citizens of Utah v. U.S., 406 US 128 (1972) ............................ .49, 51
American Hardware Ins. Group v. West One Auto. Group, Inc., 167 Or App
244 (2000) ..................................................................................................... 22
Anglo Am. Sec. Fund, LP v. S.R. Global Int 'l Fund, LP, No Civ 20066 N,
2006 WL 1494360, at *3 (Del Ch May 24, 2006) ........................................ 44
Basic Inc. v. Levinson, 485 US 224 (1988) ..................................... : ....... ?, 10, 36, 38
Beckv. Cantor, Fitzgerald & Co., 621 FSupp 1547 (ND 1111985) ........................ 50
Bergquist v. Int'l Realty, Ltd., 272 Or 416 (1975) ...................................... 20, 25,46
Bowden v. Robinson, 67 Ca1App3d 705 (1977) ...................................................... 22
Cent. Bank of Denver, NA. v. First Interstate Bank of Denver, NA., 511 US
164 (1994) ..................................................................................................... 38
City of Portland v. Duntley, 185 Or 365 (1949) ...................................................... 14
Conzelmann v. Northwest Poultry & Dairy Prod. Co., 190 Or 332 (1950) ...... 11, 24
Denson v. Ron Tonkin Gran Turismo, Inc., 279 Or 85 (1977) .......................... 24, 33
Emmi v. First-Manufacturers Nat' l Bank of Lewiston & Auburn, 336 FSupp
629 (D Me 1971) ........................................................................................... 23
Ernst & Ernst v. Hochfelder, 425 US 185 (197 6) ................................................... 3 7
Everts v. Holtmann, 64 Or App 145 (1983) ...................................................... 29, 30
Feitler v. Animation Celection, Inc., 170 Or App 702 (2000) .......................... ! 0, 33
Gohler v. Wood, 919 P2d 561 (Utah 1996) ............................................................. 15
Huddleston v. Herman & MacLean, 640 F2d 534 (5th Cir 1981) .......................... 15
In re Bexar County Health Facility Develop. Corp. Securities Litig., 125
FRD 625 (ED Pa 1989) ................................................................................. 43
In re Sahlen v. Assocs., Inc. Sec. Litig., 773 F Supp 342 (SD Fla 1991) ............... .43
Janus Capital Group, Inc. v. First Derivative Traders, 131 S Ct 2296 (2011) ...... 36
Kardon v. Nat'! Gypsum Co., 69 F Supp 512 (DC Pa 1946) .................................. 36.
Kaufman v. i-Stat Corp., 754 A2d 1188 (NJ 2000) ................................................ .43
Knowles v. State ex rei. Lindeen, 222 P3d 595 (Mont 2009) .................................. 23
Matrixx Initiatives, Inc. v. Siracusano, 131 S Ct 1309 (2011) ................................ 52
-Onita Pacific Corp. v. Trustees of Bronson, 315 Or 149 (1992) ............................. 24
Peil v. Speiser, 806 F2d 1154 (3d Cir 1986) .......................................................... .44
Pete's Mountain Homeowners Ass 'n v. Oregon Water Resources Dep 't, 236
Or App 507 (2010) ........................................................................................ 28
PGE v. BOLl, 317 Or 606 (1993) ........................................................................ 9, 10
Quintero v. Bd. of Parole, 329 Or 319 (1999) ......................................................... 11
Ritch v. Robinson-Humphrey Co., 748 So2d 861 (Ala 1999) ................................. 22
Sanders v. Francis, 277 Or 593 (1977) ....................................................... 33, 53, 55
Schafer v. Fraser, 206 Or 446 (1955) ........ ~ ............................................................ 24
Schwartz v. Celestial Seasonings, Inc., 185 FRD 313 (D Colo 1999) ................... .43
State ex rei. Schrunk v. Bonebrake, 318 Or 312 (1994) .......................................... 12
State v. Gaines, 346 Or 160 (2009) ............................................................... 9, 16, 20
State v. Marsh & McLennan Cos., 241 Or App
107 (20 11) ............................................................. 8, 18, 22, 33, 40, 42, 45, 50
Stockton v. Sileo Canst. Co., 319 Or 365 (1994) ..................................................... 21
Stoneridge lnv. Partners, LLC v. Scientific-Atlanta, 552 US 148 (2008) ............... 11
Strader v. Grange Mut. Ins. Co., 179 Or App 329 (2002) ...................................... 21
Strawn v. Farmers Ins. Co. of Oregon, 350 Or 336 (2011) ................................... .47
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Sunshine Dairy v. Peterson, 183 Or 305 (1948) ............................................... 21, 46
Thompson v. IDS Life Ins. Co., 274 Or 649, 652 (1976) ........................................ .41
TSC Indus., Inc. v. Northway, Inc., 426 US 438 (1976) .......................................... 51
ZRZ Realty Co. v. Beneficial Fire & Cas. Ins. Co., 349 Or 117 (2010) ................... 8
STATUTES
ORS 174.010 ............................................................................................................ 11
ORS 59.115 .................................................................................................. 26, 28, 29
ORS 59.135 ...................................................................................... 12, 13, 14, 52,54
ORS 59.137 ........ ~ ...................................................... 9, 11, 14, 17, 23, 27,28, 52,54
ORS 646.608 ............................................................................................................ 54
ORS 646.638 ............................................................................................................ 33
OTHER AUTHORITIES
B-Engrossed Senate Bill609, Committee Summary, July 11, 2003 ................. 13, 18
Julie A Herzog, Fraud Created the Market: An Unwise and Unwarranted
Extension of Section JO(b) and Rule JOb-5, 63 GEO. WASH. L. REv.
359 .. (March 1995) .......................................................................................... 28
Lynne A. Stout, Are Stock Markets Costly Casinos?Disagreement, Market
Failure, and Securities Regulation, 81 VAL REv 611 (1995) ..................... .45
MERRIAM WEBSTER'S COLLEGIATE DICTIONARY (10TH ED) ............................. 10, 13
OSB ADVISING OREGON BUSINESSES 18.17 LIABILITY (20 11 rev. with 2007
supp.) ............................................................................................................. 27
Staff Measure Summary, Senate Committee on Business and Labor, SB 609-
A, May 2, 2003 ............................... ; ........................................................ 13, 18
Testimony, House Committee on the Judiciary, SB 609A, May 16, 1003 ............. 17
Testimony, Senate Committee on Business and Labor, SB 609, April 7,
2003 ......................................................................................... ~ ................ 17, 20
APPENDIX
ORS 59.135 (2007) ....................................... ~ ................................................... APP-1
ORS 59.137 (2007) ........................................................................................... APP-2
Staff Measure Summary, Senate Committee on' Business and Labor,
SB 609-A, May 2, 2003 .................... -................................................................ APP-3
-B-Engrossed Senate Bill 609, Committee Summary, July 11, 2003 ..... -........... APP-4
Testimony, Senate Committee on Business and Labor,
SB 609, April 7, 2003 ....................... ; .................................................... ~ ........ APP-10
Testimony, House Committee on the Judiciary,
SB 609A, May 16,1003 ................................................................................. APP-12
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I. Summary of Argument
The text, context, and legislative history ofORS 59.137 all support the Court
of Appeals's correct conclusion that a plaintiff must plead and prove that she
purchased a security because of her reliance on the defendant's misstatement.
The Court of Appeals also correctly held that this requirement could not be sat-
isfied under the federal-law presumption of reliance created by caselaw inter-
preting claims under federal Rule lOb-5. Finally, the Court of Appeals correctly
held that this is not an "omission" case under ORS 59.137 and, accordingly,
that "omission" cases are irrelevant.
II. Questions on Review and Proposed Rules of Law
First Question Presented
Under ORS 59.137, a defrauded investor may sue to recover her "actual
damages" in the purchase of a security that were "caused by" a violation of any
of the three subsections of ORS 59.135, including a fraudulent misstatement
made by the defendant. Does a claim under ORS 59.137 require the plaintiff to
plead and prove that she relied on the defendant's misstatement or omission in
deciding to purchase the security?
First Proposed Rule of Law
A plaintiff asserting a claim under ORS 59.137 arising from fraudulent mis-
statement must plead and prove that she relied on the defendant's misstatement
in deciding to purchase the security.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 2
Second Question Presented
When the Oregon legislature enacted ORS 59.137 in 2003, the stated pur-
pose of the new statute was to expand the Oregon Securities Law to allow
claims by investors purchasing securities in the "open market" <?n national stock
exchanges. Does ORS 59.13 7 permit a plaintiff to rely on the federal "efficient
market" theory to create a presumption of reliance by the entire "market" in set-
ting the purchase price of the security?
Second Proposed Rule of Law
Under ORS 59.137, a plaintiff cannot rely on the federal-law "efficient mar-
ket'' theory to create a presumption of reliance on a defendant's misstatement.
Rather, Oregon law requires the plaintiffs actual reliance on the defendant's
misstatement.
Third Question Presented
Under ORS 59.13 7, a plaintiff may recover actual damages caused by the
defendant's violation of ORS 59.135(2), which forbids omitting material infor-
mation about a security from the "statements made" by the defendant that, in
context, make the defendant's statements "misleading." May a plaintiff rely on
an "omission" of material information without pleading and proving reliance on
the relevant "statements made" by the defendant about the security?
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 3
Third Proposed Rule of Law
A claim under ORS 59.137 arising from a misleading "omission" of material
information requires pleading and proving reliance on the "statements made" by
the defendant that, under the circumstances under which they were made, mis-
led the plaintiff.
1
III. Factual and Procedural Background
This is a lawsuit brought by Petitioner on Review State of Oregon, acting by
and through the Oregon State Treasurer, and the Oregon Public Employee Re-
tirement B o a r d ~ on behalf of the Oregon Public Employee Retirement Fund
("OPERF") asserting a securities-fraud claim under ORS 59.137 against Re-
spondents on Review Marsh & McLennan Companies, Inc. ("MMC") and
Marsh Inc. ("Marsh").
OPERF alleges that MMC had misrepresented the role that "contingent
commissions" played in the insurance-brokerage business operated by Marsh,
one ofMMC's subsidiaries. TCF 42 ~ ~ 3-4. Contingent commissions, which are
and always have been legal, are payments made to insurance brokers by insur-
ers. It has long been the practice in the insurance industry for insurers to pay
contingent commissions to brokers. Indeed, even the principal of OPERF's in-
RESPONDENTS' BRIEF ON THE MERITS ON R E V I E W ~ 4
vestment manager, Richard Rubenstein, acknowledged that he was aware for a
"long time" that it was an "industry-wide practice" for insurance brokers to be
compensated by insurers. TCF 84 (Ex D at 65:2-10).
2
Pursuant to these long-
standing practices, insurers paid contingent commissions to Marsh under con-
tracts known as Market Service Agreements or, at an earlier time, Placement
Service Agreements. TCF 42 ~ 4.
There is no dispute that MMC routinely disclosed to the public that Marsh
received contingent commissions from insurers and that these payments were
based on factors such as the aggregate volume of business that Marsh placed
with insurers. For example, in its 10-K for the fiscal year ended December 31,
1999, MMC disclosed (as was similarly disclosed in other SEC filings after this
date), "Placement services revenue and contingent fees includes payments or
allowances by insurance companies based upon such factors as the overall vol-
ume of business placed by the broker with that insurer, the aggregate commis-
sions paid by the insurer for that business during specific periods, or the loss
performance to the insurer of that business." TCF 84 (Ex. Eat 5). Information
1
As the Court of Appeals recognized, OPERF does not assert a true "omis-
sions" case. See Section VII. Defendants do not believe that this Court should
reach OPERF' s Third Question Presented. Defendants offer this proposed rule
of law only in the event that this Court finds that OPERF has truly pleaded an
"omission" case rather than a case based on affirmative misrepresentations.
2
References to papers in the trial-court file will be' denoted in this brief by
"TCF" and the number assigned to that item in the index. ORAP 3.20, 5.20
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 5
regarding Marsh's acceptance of contingent commissions was available and
known to anyone reviewing public documents.
During the second quarter of 2004, the former New York Attorney General,
Eliot Spitzer, issued subpoenas to numerous insurers and brokers, including
Marsh. Spitzer's investigation cast a wide net, examining the industry-wide
practice of contingent commissions. On October 14, 2004, Spitzer held a press
conference and filed a complaint alleging, for the first time, that Marsh had en-
gaged in "bid-rigging" to "steer" business to particular insurers. TCF 42 ~ 88.
OPERF alleges that the price of MMC stock "dropped more than 25%" in "di-
rect response" to Spitzer's press conference. !d. at ~ 8. Notably, however,
OPERF purchased 50,000 shares of MMC stock after Spitzer's press confer-
. ence. TCF 84 (Ex. C).
On August 16, 2005, OPERF filed this lawsuit. .
On March 23, 2006, Defendants moved to dismiss, arguing that Oregon law
required proof of scienter (that is, proof of the defendant's knowledge or state
of mind), which OPERF had failed to adequately plead, or, alternatively, that if
ORS 59.137 lacked a scienter requirement, that it was unconstitutional as ap-
plied to publicly traded companies like MMC. Defendants also argued that
OPERF had failed to adequately plead reliance on any of Defendants' alleged
misstatements.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 6
On July 19, 2006, Multnomah County Circuit Court Judge FrankL. Bearden
issued an Opinion and Order, writing, "On it's [sic] face {2) of 59.135 does not
require scienter" but also acknowledging that the "lack of scienter as an element
may or may not raise constitutional issues." TCF 119 (Ex. 2 at 1-2)? The trial
court also held that reliance was an element of a claim under ORS 59.137 and
directed OPERF to plead its allegations about reliance with more specificity.
The trial court left open, however, whether Oregon recognized the federal
"fraud on the market" theory of presumed reliance until after "appropriate mo-
tions are filed." !d..
On March 11, 2008, Defendants moved for summary judgment on two dis-
tinct grounds. First, Defendants argued that the absence of a scienter require-
ment in ORS 59.137 renders the statute unconstitutional under the Commerce
Clause as applied to publicly traded companies. Without a scienter requirement
like that found in federal securities law, Defendants argued that ORS 59.137
would subject public companies to state-law requirements that are inconsistent
with federal disclosure standards, regulate commercial activity transpiring
wholly outside of Oregon's borders, and impose an undue burden on interstate
commerce. Second, Defendants contended that summary judgment should be
3
Under the procedural posture of this appeal, Defendants cannot challenge
Judge Bearden's ruling about scienter. Defendants reserve the right to make this
challenge, however, should this issue ever be squarely before this Court or the
Court of Appeals.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 7
granted because discovery confirmed that OPERF did not rely on Defendants'
alleged misstatements, and that Oregon did not recognize the federal "fraud on
the market" presumption of reliance to cure OPERF's missing reliance.
On June 11, 2008, Judge Bearden granted summary judgment on both
grounds. TCF 107; ER-1. Judge Bearden held that ORS 59.137 was unconstitu-
tional because the "statute regulates commerce occurring wholly outside the
boundaries of Oregon." !d. at 9. In addition, Judge Bearden granted summary
judgment to Defendants on a second ground: OPERF's failure to proffer any
evidence showing its reliance on the alleged misstatements. See id. at 15 (noting
that "the two financial advisors hired by OPERF who bought and sold MMC
stock in 2003 and 2004 testified that they did not rely on MMC's alleged mis-
representations when purchasing stock for OPERF").
Judge Bearden also rejected OPERF's invitation to import the federal pre-
sumption of reliance under Basic Inc. v. Levinson, 485 US 224, 250 (1988),
concluding, "Importing the presumption of reliance through the federal fraud on
the market doctrine would be a radical departure for Oregon, based on the ab-
sence of clear precedents and the numerous other states that have rejected the
theory." !d. at 14. Additionally, Judge Bearden found that, even if Oregon law
allowed a presumption of reliance, this presumption had been "clearly rebutted"
by the parties' summary-judgment evidence. !d. at 15-16.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 8
OPERF timely appealed Judge Bearden's summary-judgment order. The
Court of Appeals unanimously affirmed Judge Bearden's conclusions that ORS
59.137 requires the plaintiffs actual reliance and that this proof of reliance can-
not be presumed under federal cases interpreting federal Rule 1 Ob-5 claims:
In sum, we conclude that the trial court did not err in granting Marsh's mo-
tion for summary judgment. To survive that motion relative to its claim un-
der ORS 59.137, the state had to present evidence that it had purchased
Marsh stock in actual reliance on Marsh's violations of ORS 59.135. The
state did not do so.
State v. Marsh & McLennan Cos., 241 Or App 107, 122-23 (2011).
Out of deference to the Oregon legislature, the Court of Appeals did not ad-
dress the trial court's ruling that ORS 59.137 was unconstitutional. !d. at 114
(addressing the reliance issue first in order to, if possible, "refrain from passing
constitutional judgment on the work of a coequal branch").
4
OPERF timely
sought review in this Court on April27, 2011. On July 22, 2011, this Court al-
lowed OPERF's petition for review.
4
Accordingly, if this Court reverses the Court of Appeals's conclusion about
reliance, this appeal should be remanded to the Court of Appeals for considera-
tion of the constitutionality of ORS 59.137. See ZRZ Realty Co. v. Beneficial
Fire & Cas. Ins. Co., 3490r 117, 150-51 (2010) (on remand to Court of Ap-
peals, the "parties are also free to ask the court to consider, if appropriate, those
assignments of error that the court did not reach"). OPERF also seeks this relief
if it prevails before this Court. Br. at 27, 37.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 9
IV. The Court of Appeals correctly interpreted ORS 59.137 as requiring
the plaintiff to prove reliance on the defendant's misstatement.
The Court of Appeals faithfully and correctly applied this Court's rules of
statutory interpretation under PGE v. BOLl, 317 Or 606 (1993) and State v.
Gaines,346 Or 160 (2009) in holding that claims under ORS 59.137 require the
plaintiff to plead and prove that she relied on the defendants' misstatements. In
-
State v. Gaines, this Court recently clarified the "three sequential levels of
analysis" in interpreting a statute:
The first step remains an examination of text and context. But, contrary to
this court's pronouncement in PGE, we no longer will req1-1ire an ambiguity
in the text of a statute as a necessary predicate to the second step- consid-
eration of pertinent legislative history that a party may proffer. *** The
third, and final step, qf the interpretative methodology is unchanged. If the
legislature's intent remains unclear after examining text, context, and legis-
lative history, the court may resort to general maxims of statutory construc-
tion to aid in resolving the remaining uncertainty.
346 Or 160, 171-72 (2009) (citations and footnotes omitted). Proper application
of this tripartite analysis demonstrates that reliance is an element of securities-
fraud claims under ORS 59.137.
A. The text of ORS 59.137 necessarily requires that reliance is an
element of a claim under that statute.
ORS 59.137 requires proof of reliance because the text of the statute requires
proof that the plaintiffs "actual damages" were "caused by" the defendant's al-
leged misstatements: "Any person who violates or materially aids in a violation
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 10
of ORS 59.135 (1 ), (2) or (3) is liable to any purchaser or seller of the security
for the actual damages caused by the violation[. ]"
5
(emphasis added).
Under Oregon law, this Court presumes that the legislature intended that
"words of common usage" in a statute should be given their "plain, natural, and
ordinary meaning." PGE, 317 Or at 611. The plain, natural, and ordinary mean-
ing of "cause" means "a reason for action or condition: MOTIVE" or "suffi-
cient reason." MERRIAM WEBSTER'S COLLEGIATE DICTIONARY (10TH ED)
(2000). Accordingly, in analyzing an alleged misstatement about the purchase
of a security, the plaintiffs "motive" or "sufficient reason" for purchasing a se-
curity forms the requisite causal nexus between the alleged misstatement and
the plaintiffs damages. In short, the plaintiffs reliance on the defendant's mis-
statement must be part of a claim for damages "caused by" that misstatement.
6
5
The full text ofORS 59.137 and ORS 59.135 are appended hereto. APP 1-2.
6
Although federal and Oregon securities-fraud laws are inconsistent in some
respects, jurisprudence in both systems recognizes the logical imperative that
damages "caused by" a misstatement necessarily require proof of reliance as the
causational nexus between the misstatement and the resulting damages. See
Feitler v. Animation Celection, Inc., 170 Or App 702, 708 (2000) ("Where, as
here, the alleged violations are affirmative misrepresentations, the causal/'result
of element requires proof of reliance-in-fact by the consumer."); Basic, 485 US
at 243 ("Reliance provides the requisite causal connection between a defen-
dant's misrepresentation and a plaintiffs injury.").
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 11
Severing this showing of reliance on the alleged misstatement, as OPERF
suggests, would necessarily require this Court to ignore that ORS 59.137 re-
quires that the plaintiffs damages be "caused by" the defendant's alleged mis-
statement, which this Court cannot do. See ORS 174.010 (forbidding any judge
to "omit what has been inserted" by the legislature); Quintero v. Bd. of Parole,
329 Or 319, 324 (1999) (referring to the stated goal of statutory interpretation
"of giving effect to every provision of a statute").
The plain meaning of "caused by" demonstrates that the legislature intended
that a plaintiff asserting a securities-fraud claim under ORS 59.137 must show
her reliance on the defendant's misstatement, especially when the subsections
contained in the relevant statute itself use the terms "defraud," "fraud," and
"deceit." ORS 59.135(1), (3).
7
This is the only interpretation of "caused by"
that does not read the meaning of this term right out of the statute.
8
Accord-
7
0 PERF conflates the "reliance" and elements of a common-law
fraud claim in its citation to Conzelmann v. Northwest Poultry & Dairy Prod.
Co., 190 Or 332, 350 (1950). Br. at 13. In the context of securities-fraud cases,
however, the "reliance" element is also known as "transaction causation,"
which requires that the plaintiff show that she purchased the security in reliance
on the defendant's misstatement. See Stoneridge Inv. Partners, LLC v. Scien-
tific-Atlanta, 552 US 148, 171 (2008) ("Reliance is. often equated with 'transac-
tion causation.' Transaction causation, in tum, is often defined as requiring an
allegation that but for the deceptive act, the plaintiff would not have entered
into the securities transaction.").
8
Conversely, the "caused by" language contradicts OPERF' s suggestion that
"ORS 59.137(1) requires only that a plaintiff prove that the defendant violated
ORS 59.135(2)." Br. at 16. OPERF's argument falls because OPERF does not
ascribe any meaning to the "caused by" requirement contained in ORS 59.137.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 12
ingly, the Court of Appeals correctly held that ORS 59.137 requires that the
plaintiff must plead and prove her reliance on the defendant's misstatement.
B. The context of other statutes in the Oregon Securities Law
further supports construing ORS 59.137 to require the
plaintiff's reliance.
The statutory context of ORS 59.137 within the Oregon Securities Law fur-
_ ther supports an interpretation of ORS 59.137 requiring the plaintiff's reliance
on the defendant's alleged misstatement in purchasing a security. Under State
ex rel. Schrunk v. Bonebrake, 318 Or 312, 318 ( 1994 ), "The context of a statute
includes other provisions of the same statute and of related statutes." By explicit
reference, ORS 59.137 provides a private cause of action "in connection with"
three possible "violations" ofORS 59.135:
(1) To employ any device, scheme or artifice to defraud;
(2) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business which operates or
would operate as a fraud or deceit upon any person;
This statutory interdependence makes ORS 59.135 a "related statute" that
supports the only logical interpretation ofORS 59.137 as requiring reliance. In-
deed, the Oregon legislature enacted ORS 59.137 with the knowledge that ORS
59.135 was entitled: "Fraud and deceit with respect to securities or securi-
ties business." APP-1. Moreover, the legislative summary of SB 609 also fo-
cuses on the centrality of "fraud" for claims under the proposed new law:
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 13
"Allows action for actual damages for certain securities laws violations involv- .
ing element of fraud." B-Engrossed Senate Bill 609, Committee Summary, July
11, 2003 (APP-4). See also Staff Measure Summary, Senate Committee on
Business and Labor, SB 609-A, May 2, 2003 (APP-3) ("Allows investors tore-
cover for damages involving fraud for securities purchased in the open market."
"Expansion of individual investor's ability to file suit involving fraud.").
Both "fraud" and "deceit," of course, mean that an aggrieved party was
somehow duped. See MERRIAM WEBSTER'S COLLEGIATE DICTIONARY (10TH ED)
(2000) (defining "fraud" to mean "intentional perversion of truth in order to in-
duce another to part with something of value"); id. (defining "deceit" to mean
"an attempt or device to deceive: TRICK"). Since one cannot be duped without
relying on some "perversion of truth," the title ofORS 59.135 confirms that re-
liance must be an element of a claim seeking "actual damages caused by" any
"violations" of its provisions.
Similarly, all three of the relevant subparts of ORS 59.135 forbid acts that
implicitly and necessarily require reliance, proscribing: (1) any "device,
scheme, or artifice to defraud" the buyer; (2) any "untrue statement" or "mis-
leading" omission; and (3) any practice that operates as a "fraud or deceit upon
any person." None of these proscribed acts can result in actual damages to a
buyer of securities without the buyer's reliance on them. Accordingly, ORS
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW:- 14
59.137 and its predicate violations under ORS 59.135 require a showing ofreli-
ance in order to establish a claim.
Moreover, the centrality of reliance to establishing a causal connection be-
tween the defendant's misstatement and the plaintiffs damages is further sup-
ported by other textual aspects of ORS 59.135. Under ORS 59.137, a plaintiff
may recover her "actual damages caused by" a violation of any of the three sub-
sections of ORS 59.135, which, among other violations, makes it unlawful for a
person to make untrue statements of material fact "in connection with the pur-
chase or sale of any security." ORS 59.135 (emphasis added).
9
The Utah Supreme Court, interpreting similar language in Utah's securities-
fraud statute, held that reliance was a necessary element of a plaintiffs securi-
ties-fraud claim arising from the defendant's misstatement about a security:
Not only is the need for a causal connection satisfied by the reliance re-
quirement, but additionally, the Utah Act explicitly requires that the alleged
misrepresentations be made "in connection with" the offer, sale or purchase
9
OPERF oversimplifies this issue, arguing, "Reliance is unnecessary to violate
ORS 59.135(2), which triggers liability under ORS 59.137(1)." Br. at 15. But
the "trigger" of liability under ORS 59.137 is not automatic. Rather, ORS
59.137 imposes liability only where the plaintiffs injury was "caused by" the
misstatement or omission. OPERF's argument collapses when the actual text of
ORS 59.137 and ORS 59.135 are considered together. See City of Portland v.
Duntley, 185 Or 365, 380 (1949) ("It is a rule of statutory interpretation, having
paramount importance, that courts seeklegislative intent from the whole of the
statute and not from isolated words and phrases, divorced from their context,
and from the spirit and purpose of the enactment.").
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 15
of a security .... [O]ne can conclude only that a plaintiff who brings a cause
of action under the Utah Act must establish ( 1) that the alleged misrepresen-
tations were made in connection with the offer, sale, or purchase of securi-
ties, and (2) that she actually and reasonably relied on such
misrepresentations.
Gohler v. Wood, 919 P2d 561, 568 (Utah 1996) (citations omitted; emphasis
added). Accordingly, the "in connection with" textual requirement in ORS
59.135, read in conjunction with the "caused by" textual requirement in ORS
59.137, further supports the Court of Appeals's correct conclusion that reliance
is required for claims under ORS 59.137.
Finally, OPERF' s own measure of its alleged damages tacitly acknowledges
that reliance must be an element of OPERF's claim. In its complaint, OPERF
alleges damages of at least $10 million because MMC's misstatements and
other violations of ORS 59.137 had "artificially inflated the value of MMC
stock at the time OPERF purchased the stock." TCF 42 ,-r 103. Taking OPERF
at its own word. then, MMC's misstatements caused OPERF to overpay for
MMC's stock by at least $10 million- purchases that allegedly would not
have been made (at least at the full "artificially inflated" price) if OPERF had
known that MMC was misrepresenting, among other things, that "Marsh was
providing legitimate services in return for insurers' payments pursuant to"
agreements between Marsh and the insurers. !d. at ,-r 4. Cf Huddleston v. Her-
man & MacLean, 640 F2d 534, 556 (5th Cir 1981) (instructing that "the deter-
mination of each individual plaintiffs recovery becomes a simple matter of
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 16
subtraction of the 'true' value of the security on the date of the plaintiffs pur-
chase from the purchase price paid by the plaintiff on that date"). OPERF's
pleaded measure of damages, like the text and context of ORS 59.137, clarifies
that a plaintiff must show reliance in order to prove that her damages were
"caused by" the defendant's misstatemeQt.
By contrast, if this Court were to accept OPERF's invitation to omit reliance
as an element of claim under ORS 59.137, then any investor would be able to
recover without showing any link between the alleged misstatement and her
damages. In other words, a plaintiff would be required only to show that she has
the publicly traded security in her portfolio at the time that the alleged mis-
statement is revealed. This sweeping result could not have been intended by the
legislature without at least some indication, either in the legislative history or
the statute itself, that ORS 59.137 was truly intended to permit recovery of any
loss in a publicly traded security's value- an extraordinary remedy for secon-
dary-market transactions that would isolate Oregon's securities laws from every
other state's securities regime.
C. The legislative history further supports interpreting ORS
59.137 to require reliance as an element of the plaintiff's claim.
The legislative history preceding the enactment of ORS 59.137 further con-
firms that reliance is an element of a claim under ORS 59.137. See Gaines, 346
Or at 171-72 (holding that "a party is free to proffer legislative history to the
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 17
court, and the court will consult it after examining text and context, even if the
court does not perceive an ambiguity in the statute's text, where that legislative
history appears useful to the court's analysis").
The legislative history confirms that the Oregon legislature enacted ORS
59.137 based on testimony that claims under this new statute were allowed only
on a showing of "reliance on financial statements and similar information."
Testimony, Senate Committee on Business and Labor, SB 609, April 7, 2003
(APP-11 ). See also Testimony, House Committee on the Judiciary, SB 609A,
May 16, 1003 (APP-14) (observing that ORS 59.137 was intended to provide a
remedy for plaintiffs who "buy stock on the open market in reliance on finan-
cial statements and similar information") (emphasis added). This legislative
history supports the conclusion that the Oregon legislature enacted ORS 59.137
with the understanding that reliance, consistent with the text and the context of
ORS 59.137, would be an element of a claim under ORS 59.137 to recover for
"actual damages caused by" the defendant's misstatement or omission.
It should be remembered that this statement about reliance was not a mere
"passing reference'' by a "single, non-legislator witness," as OPERF now sug-
gests to this Court. Br. at 24-25. Rather, this statement was made by none other
than Floyd Lanter, the Administrator of Oregon's Division of Finance and Cor-
porate Securities. This Court should refuse to countenance OPERF's attempt to
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 18
minimize these testimonial statements, which were made in writing by a key
State officer testifying in support of the bill that would become ORS 59.13 7.
Additionally, the legislative summary of SB 609 specifically focused on
"fraud" as the keystone of the proposed new claim: "Allows action for actual
damages for certain securities laws violations involving element of fraud." B-
Engrossed Senate Bill 609, Committee Summary, July 11, 2003 (APP-4). See
also Staff Measure Summary, Senate Committee on Business and Labor, SB
609-A, May 2, 2003 (APP-3) ("Allows investors to recover for damages in-
volving fraud for securities purchased in the open market." "Expansion of indi-
vidual investor's ability to file suit involving fraud."). This legislative summary
further supports the Court of Appeals's conclusion that reliance is an element of
a claim under ORS 59.137, just as reliance has always been one of the elements
of a fraud claim. Marsh, 241 Or App at 115 ("'Fraud' is a term of art naming a
common-law cause of action. We presume that the legislature intends such
terms to carry their specialized meaning, and, as a common-law cause of action,
fraud necessarily requires reliance.") (citations omitted).
Accordingly, this Court should affirm the Court of Appeals's opinion and
hold that securities-fraud claims under ORS 59.137 require the plaintiffs reli-
ance on the defendant's misstatement in purchasing a security.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 19
D. Because the first two levels of inquiry answer the question
about reliance under ORS 59.137, this Court should not resort
to any "maxims" of statutory interpretation.
OPERF inappropriately seeks quarter under maxims of statutory interpreta-
tion, asking this Court to apply maxims generally applicable to remedial stat-
utes in order "to determine how the legislature would have intended the statute
to be applied had it considered the issue." Br. at 26. First, as a threshold matter,
this notional speculation about what the legislature "would have" intended ig-
nores that the legislature actually did "consider the issue" about reliance, as
stated by the Administrator of the Oregon Division of Finance and Corporate
Securities himself:
We also believe investors should have the right to bring so-called "fraud on
the market" lawsuits when they buy stock on the open market in reliance on
financial statements and similar information that tum out to have been
fraudulent.
10

10
As explained in greater detail below, testimony and legislative statements
leading up to the adoption ofORS 59.137 confused and conflated "fraud on the
market" claims with "open market" claims. In any case, however, whatever
Oregon's representatives and the legislators may have considered about this
terminology, both "fraud on the market" and "open market" claims were always
considered in the context of legislative history assuming that reliance was an
element of such claims. Otherwise, why would there be legislative testimony
about whether ORS 59.137 would permit a presumption of reliance, as OPERF
suggests, if reliance was not required at all in the first place? OPERF has no an-
swer for this riddle of its own making. Rather, the only intellectually honest
resolution of this confusion must be that the legislators understood "fraud on
the market" and "open market" claims to mean the same thing - and that, in
any case, all such claims require "reliance on fimmcial statements and similar
information that tum out to have been fraudulent."
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 20
Testimony by Floyd G. Lanter (ER-25) (emphasis added).
11
Accordingly, con-
trary to OPERF's suggestion that the legislature never "considered" whether re-
liance was an element of a claim under ORS 59.137, Lanter's testimony shows
that the legislature actually did "consider" whether reliance was required.
Second, OPERF's invitation to indulge in maxims of statutory interpretation
cannot be accepted under this Court's recent clarification of Oregon's rules of
statutory interpretation in Gaines: "If the legislature's intent remains unclear
after examining legislative history, 'the court may resort to general maxims of
statutory construction to aid in resolving the remaining uncertainty."' 346 Or at
164-65. Under Oregon's methodology, the "general maxims" of statutory inter-
pretation do not even come into play if the first two levels of analysis answer
the question about the interpretation of the statute before the court.
The rule under Bergquist v. Int 'l Realty, Ltd., 272 Or 416 (1975) regarding
the "liberal" construction to be afforded to remedial statutes (including the Ore-
gon Securities Law) is just such a maxim; accordingly, it operates only once a
11
OPERF does not even attempt to harmonize the Oregon Department of Con-
sumer and Business Services's legislative testimony stating that ORS 59.137
requires reliance with the same Department's after-the-fact reversal on precisely
this issue: "The Court of Appeals, essentially out of whole cloth, has re-ordered
the Oregon securities laws and with the introduction of a reliance element has
established bad precedent." NASAA Br.; App-1 at 2. The State's own under-
standing of SB 609 was manifestly part of the very same "whole cloth" under
which the Court of Appeals correctly held that the legislature considered, and
intended, that reliance would be an element of claims under ORS 59.137.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 21
court must reach the third level of the Gaines methodology, not at the first
level, as suggested by OPERF:
Plaintiffs also mischaracterize the "rule" regarding liberal construction as a
"first level" rule under the so-called "template" established by PGE. In fact,
the rule regarding liberal interpretation of remedial statutes is a policy-based
rule, as opposed to a syntax-based rule, and therefore operates at the "third
level" under PGE- a level we do not reach when, as here, the text and con-
text of a provision are clear.
Strader v. Grange Mut. Ins. Co., 179 Or App 329, 337 (2002). See also Stock-
ton v. Sileo Const. Co., 319 Or 365, 376 (1994) (acknowledging caselaw impos-
ing a duty to "liberally" construe remedial statutes, but cautioning, "This court
is not at liberty, however, to read into a remedial statute a remedy that the legis-
lature did not intend to create."); Sunshine Dairy v. Peterson, 183 Or 305, 317
(1948) ("A remedial statute should receive a liberal construction so as to afford
all the relief within the power of the court which the language of the act indi-
cates that the legislature intended to grant.") (including the same emphasis
added to this quotation by the Stockton court).
Under the Court of Appeals's analysis of ORS 59.137's text, context, and
legislative history, the question of whether reliance is an element of a claim u n ~
der ORS 59.137 was answered by the first two levels of analysis under Ore-
gon's methodology of statutory interpretation -foreclosing any analysis of
ORS 59.137 under any "general maxims":
This court, in contrast, construes statutes relying on text, context and, on oc-
casion, legislative history, State v. Gaines, 346 Or. 160, 171-72, 206 P.3d
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 22
1042 (2009) - and the legislature whose history we examine is not Con-
gress.
Marsh, 241 Or App at 118 (distinguishing federal securities-law cases because
the federal methodology of statutory interpretation materially differs from Ore-
gon's methodology). Cf American Hardware Ins. Group v. West One Auto.
Group, Inc., 167 Or App 244, 252 (2000) (refusing to adopt the reasoning of an
-Arkansas case because it had "omitted a critical step of analysis under Oregon's
methodology" for interpreting insurance policies). Accordingly, this Court
should not reach any maxims of statutory interpretation at the third level of this
Court's methodology of statutory interpretation.
This Court should also reject one amicus's invitation to follow foreign law
interpreting dissimilar statutes. Amicus NASAA cites cases from other states to
suggest that interpreting ORS 59.137 to require reliance would somehow put
Oregon within a "small minority" ofstates. NASAA Br. at 2, 8. To make this
assertion, however, NASAA misplaces reliance on foreign cases interpreting
statutes more similar to ORS 59.115 (which, in tum, is much like 12(2) of the
federal Securities Act of 1933 and 410(a)(2) of the Uniform Securities Act).
See, e.g., Ritch v. Robinson-Humphrey Co., 748 So2d 861, 862 (Ala 1999)
(holding that Alabama's 8-6-19(a)(1) does not require the plaintiff to prove
that she purchased the security "because of the seller's violation of the rule");
Bowden v. Robinson, 67 Ca1App3d 705, 715 (1977) (holding that California's
25401 and 25501 "differ from common law negligent misrepresentation" in
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 23
that "reliance is not required" and "no proof of causation is required") ( empha-
sis added); Emmi v. First-Manufacturers Nat'/ Bank of Lewiston & Auburn, 336
FSupp 629, 638 (D Me 1971) (noting that Maine's 881(1)(B) "substantially
tracks the language of Section 12(2) of the Securities Act" and is an "express
liability" provision under which "plaintiff is not required t'o allege or prove
causation of damage in order to establish a cause of action") (emphasis added);
Knowles v. State ex rel. Lindeen, 222 P3d 595, 610 (Mont 2009) (holding that
the language of Montana's 30-10-301 indicates "that actual damage or injury
is not an element of fraud under the statute").
NASAA's cases, interpreting completely different laws from foreign juris-
dictions, have nothing to do with Oregon law under ORS 59.137 and its explicit
requirement that the plaintiffs "actual damages" have been "caused by" the de-
fendant's misstatement. Moreover, nothing in Oregon law supports NASAA's
invitation to this Court to interpret ORS 59.137 simply to avoid an imagined
"nationwide" impact. NASAA Br. at 2. Gaines and PGE simply provide no
support for NASAA's argument that uniformity with another state's laws could
possibly allow an interpretation of ORS 59.137 that is inconsistent with the
Oregon legislature's explicit requirement that the plaintiffs "actual damages"
were "caused by" the defendant's misstatement.
Since the text, context, and legislative history of ORS 59.137 show that the
legislature intended to require reliance as an element of a securities-fraud claim
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 24
under ORS 59.137, the first two levels of analysis under PGE and Gaines dis-
positively answer the question about reliance. This contradicts OPERF's and
amici's suggestion that Bergquist and its ilk were somehow erroneously not
considered by the Court of Appeals. Accordingly, this Court should affirm the
Court of Appeals correct conclusion that reliance is an element of claims under
ORS 59.137.
12
E. Applying the Bergquist rule to OPERF's claim would be
particularly inappropriate.
If for some reason this Court reaches the third level of statutory analysis un-
der Gaines, OPERF's proposed rules of law still do not merit adoption. OPERF
correctly cites Bergquist for the proposition that this Court construes the Ore-
gon Securities Law statutes "liberally in light of the legislative purpose of the
12
In addition to honoring the text, context, and legislative history of ORS
59.137, requiring reliance would complement Oregon's axiomatic rule that all
species of "fraud" or "misstatement" claims require reliance on the misstate-
ment. See Conzelmann, 190 Or at 350 (common-law fraud claims) (identifying
elements of "actionable fraud," including the plaintiffs reliance on the "truth"
of the defendant's misstatement, and holding, "Fraud is never presumed.");
Denson v. Ron Tonkin Gran Turismo, Inc., 279 Or 85, 91 (1977) (UTPA
claims) (holding that "absent further detrimental reliance, plaintiff did not at
that point suffer any ascertainable loss"); Schafer v. Fraser, 206 Or 446, 472
( 195 5) (promissory-estoppel claims) (outlining elements of promissory estop-
pel, including that plaintiffs actions have been "taken in alleged reliance upon
a promise" by the defendant); On ita Pacific Corp. v. Trustees of Bronson, 315
Or 149, 159 (1992) (negligent-misrepresentation claims) (stating that "one may
be liable for economic loss sustained by others who rely on one's representa-
tions negligently made").
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Oregon Securities Law to afford the 'greatest possible protection' to the pub-
lie." 272 Or at 23.
. OPERF, a multi-billion-dollar fund, is probably the largest single purchaser
of securities in the State of Oregon. OPERF has access to, and in fact employs
and contracts with, sophisticated investment advisers ~ d professionals t o m ~
age its multi-billion-dollar securities portfolio. See Petition for Review at 6, n.
4; ER 1-2. As evidenced by OPERF's success in persuading the legislature to
amend Oregon Securities Law to allow OPERF to file cases such as this one,
OPERF also has ready access to, and familiarity with, achieving success .
through the legislative process.
OPERF, after all, was represented by some of the same attorneys now before
this Court during the legislative process leading up to the enactment of ORS
59.137: "As I mentioned, the primary beneficiaries of extending the law are the
Oregon Public Employee Retirement System (OPERS) and other State funds
that purchase securities." TCF 84; Ex. N at 1-2 (May 16, 2003 testimony by
OPERF's attorney, Scott Shorr, in support ofORS 59.137). If anything, apply-
ing maxims in this case should be in favor of resolving ambiguities against par-
ties that were involved in drafting and shepherding the bills through the
legislature to final enactment.
Accordingly, applying Bergquist's maxim regarding remedial statutes
would not, in OPERF's case, further Oregon's general policy to protect litigants
. .
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 26
in the general public who lack OPERF's size, sophistication, and demonstrated
access to the Oregon legislature.
F. OPERF inappropriately relies on Everts, which deals with an
entirely different statute allowing entirely different relief.
OPERF suggests that ORS 59.115 can somehow "provide context for dis-
ceming the underlying purpose of the text ofORS 59.137(1) and how it should
be construed." Br. at 19. This supposed comparison, however, falls apart once
the critical differences between claims under ORS 59.115 and ORS 59.137 are
examined.
The first of these differences relates to OPERF' s mistaken suggestion that
ORS 59.115 and ORS 59.137 are "functionally identical" as to their respective
remedies. Br. at 20. They are not. Even a cursory analysis of these statutes re-
. .
veals that they are decidedly not identical in either function or form, and the
crucial differences actually cut against OPERF's arguments- illustrating in-
stead why reliance must be an element of a claim arising under ORS 59.13 7.
Under ORS 59.115, a defrauded plaintiff who purchased a security directly
from its issuer may recover "rescissionary" relief. See ORS 59.115(2) (provid-
ing for recovery of the entire "purchase price" of the security upon tender of the
security back to the defendant or, if the security had been sold, the purchase
price minus whatever the plaintiff had sold it for). Critically, this measure of
damages for claims arising under ORS 59.115 does not require any causational
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 27
nexus between the defendant's misstatement and the plaintiffs injury since
there is simply no occasion to compare the "artificially inflated" value of the
security with reliance on the untrue statement with the "true" value of the secu-
rity relying only on correct and full information about the security.
This rescissionary measure of damages contrasts sharply with the remedy
under ORS 59.137, which provides that a plaintiff may recover her "actual
damages" that were "caused by" the defendant's misstatement. See OSB
. ADVISING OREGON BUSINESSES 18.17 LIABILITY (2011 rev. with 2007 supp.)
("Unlike ORS 59.115 and 59.127, which provide for rescissionary damages,
ORS 59.137 permits the recovery of actual damages."). As explained in greater
detail above, reliance must be an element of a plaintiffs claim under ORS
59.137's "actual damages" remedy in order to connect the misstatement to the
injury, a logical and textual imperative flowing from the "caused by" text in
ORS 59.137. By contrast, this "caused by" requirement, as one would expect,
does not appear anywhere in the text of ORS 59.115. Functionally, and as a
matter of the plain textual comparison, ORS 59.115 and ORS 59.137 differ in a
way that strikes at the heart of OPERF's invitation to read reliance out of secu-
rities-fraud cases arising under ORS 59.137.
A second critical "functional" difference between ORS 59.115 and ORS
59.137 lies in another textual difference that OPERF fails to address in its in-
cautious gloss about the two statutes. Under ORS 59.115, a plaintiff who knows
J
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 28
about the falsity of the defendant's statement cannot recover anything at all. See
ORS 59.115(1)(b) ("the buyer not knowing of the untruth or omission"). There
is no similar prohibition in the text ofORS 59.137. Accordingly, there would be
no bar to a plaintiffs recovery under ORS 59.137 where the plaintiff actually
knew about the "untruth" at issue - unless there is a reliance requirement that
would serve this function. But under OPERF' s view that the plaintiffs reliance
- . .
is never considered in claims under ORS 59.137, there would be nothing to pre-
vent a plaintiff from purchasing a security with knowledge of the falsity of a
statement, exposing the truth, and then profiting from the drop in the value of
the security.
Nothing in the legislative history suggests that the legislature ever intended
to permit this sort of preposterous gamesmanship - but without a reliance re-
quirement in ORS 59.137 there would be nothing to prevent it. See Pete's
Mountain Homeowners Ass 'n v. Oregon Water Resources Dep 't, 236 Or App
507, 522 (2010) ("In the face of competing and not wholly implausible con-
structions of a statute, when one construction would lead to an absurd result and
the other would not, we generally favor the latter, under the assumption that the
legislature would not intend an absurd or impossible result."); Julie A Herzog,
Fraud Created the Market: An Unwise and Unwarranted Extension of Section
JO(b) and Rule JOb-5, 63 GEO. WASH. L. REv. 359, 362 (March 1995) ("Proof
of reliance is necessary to avoid turning [Rule lOb-5] into a "scheme of inves-
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tor's insurance" or a mechanism for recovery of losses whenever an investment
turns sour.").
A third difference between the two statutes, also disregarded in OPERF's
analysis, relates to the defendant's state of mind. Under ORS 59.115(1)(b), the
defendant must "sustain the burden of proof that [the defendant] did not know,
and in the exercise of reasonable care could not have known, of the untruth or
omission." In other words, there is a defense based on the defendant's state of
mind for all claims under ORS 59.115. But as OPERF itself successfully ar-
gued, the trial court below held that the defendant's state of mind, or "scienter,"
is irrelevant to claims under ORS 59.137. TCF 119 (Ex. 2 at 2). See also Marsh,
241 Or App at 112 (noting that OPERF "also maintained that Marsh could be
liable under ORS 59.137 even if its violations of ORS 59.135 were uninten-
tional, that is, that there was no scienter requirement").
Under the trial court's order and OPERF's successful arguments below,
then, claims under ORS 59.137 are functionally very different from claims un-
der ORS 59.115. These serial differences between ORS 59.115 and ORS 59.137
cripple OPERF's arguments, which explicitly rely on its erroneous assumption
that ORS 59.115 and ORS 59.137 are "functionally identical." Br. at 20.
This comparison between ORS 59.115 and ORS 59.137 also reveals that
OPERF inappropriately relies on Everts v. Holtmann, 64 Or App 145 (1983).
By incorrectly assuming that ORS 59.115 and ORS 59.137 are "functionally
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 30
identical," OPERF argues that, because Everts held that reliance was not re-
quired under the old version ORS 59.115, this holding should apply with equal
force to require finding that reliance is required under ORS 59.137. But Everts,
which was decided in 1983, does not analyze claims under ORS 59.137, which
was not enacted until twenty years later in 2003. Everts analyzed only whether
claims arising under the former version of ORS 59.115(l)(b) required reli-
ance.13 It held that such claims do not. !d. at 153 (holding that "ORS
59.115(1)(b) imposes liability without regard to whether the buyer relies on the
omission or misrepresentation"). But Everts does not, of course, address any
question about_ORS 59.137, a 2003 statute that is very different from the sup-
posedly "functionally identical statutory provision in Everts." Br. at 20. Be-
cause OPERF's underlying assumption fails, so does OPERF's reliance on
Everts.
Moreover, O ~ E R F attacks the Court of Appeals's opinion by selectively
quoting from it. To begin with, OPERF (before this Court at least) correctly de-
scribes the differences between ORS 59.115 at the time of the Everts opinion in
13
The Everts court observed that ORS 59.115(1)(b) "adopted substantially the
same language" as 12(2) of the Securities Act of 1933 (codified at 15 USC
77[). !d. at 151. By contrast, as noted below in Section V.A, there is no fed-
eral statutory counterpart to ORS 59.137.
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1983 and the version when ORS 59.137 was adopted in 2003. Br. at 20, n.6.
14
But then OPERF attempts to characterize the Court of Appeals's opinion as
"incorrect" by excising crucial language from the opinion, replacing the actual
language with "[] ***."/d. What, then, did OPERF replace with "[] ***" in-
stead of faithfully quoting the opinion? Below is the entirety of what the Court
of Appeals actually wrote:
The phrase "in violation ofORS 59.135(1) or (3)" was not added until2003.
Or. Laws 2003, ch. 631, 1; Or. Laws 2003, ch. 786, 1. Thus, the statute
that Everts construed - unlike the statute that we construe in this case -
did not contain, incorporate, or refer to the terms "fraud," "fraudulent," "de-
ceit," or "misleading."
Marsh, 241 Or App at 116 (with underlining showing the portion redacted in
OPERF's Brief on the Merits (at 20 n.6)). Viewed in its entirety, the Court of
Appeals was plainly referring to the plural "terms" in the new version of ORS
59.115 and, by incorporation, the newly-connected subsections of ORS 59.135
that were not actionable under the former version of ORS 59.115. The Court of
Appeals made no mistake about ORS 59.115 in correcting OPERF's mistake
about the former version of that statute as it was written in 1983.
14
OPERF's briefing before the Court of Appeals was not quite as diligent about
the differences between the two versions of ORS 59.115 that were critical to the
Court of Appeals in distinguishing Everts. Compare OPERF'sOpening Br. at
30-31 (asserting that Everts "held that reliance is not an element of a claim un-
der ORS 59.115 for a violation ofORS 59.135") (emphasis added) with Marsh,
241 Or App at 116 (observing that, before the, 2003 amendments to ORS
59.115, actions under ORS 59.115 were not permitted for violations of ORS
59.135). .
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 32
The Court of Appeals's opinion in Marsh is not inconsistent with Everts.
Nor is Marsh inconsistent with any other opinion from this Court or the Court
of Appeals (neither OPERF nor amici suggest that any other Oregon appellate
opinion interpreting any of the statutes in the Oregon Securities Law directly
conflicts with the Court of Appeals's opinion in this case). Accordingly,
OPERF's reliance on Everts cannot withstand scrutiny, as the Court of Appeals
correctly concluded.
15
G. The Oregon legislature does not always "expressly" include
reliance as an element of claims that, in fact, require reliance.
Inferring reliance as an element of a statutory claim even though the relevant
statute does not use the term "reliance" has long been accepted under Oregon
law. For example, Oregon's Unlawful Trade Practice Act provides for a cause
of action to recover "actual damages" without including the word "reliance" in
the statute:
[A]ny person who suffers any ascertainable loss of money or property, real
or personal, as a result of willful use or employment by another person of a
method, act or practice declared unlawful by ORS 646.608, may bring an in-
15
Similarly, OPERF's reliance on the absence of a discussion of Everts in the
legislative history ofORS 59.137 is a house built on sand. See Br. at 24 ("Noth-
ing in the legislative history of SB 609 suggests that the legislature intended to
legislatively overrule Everts or fundamentally adopt new elements that were not
required under an existing cause of action under ORS 59 .115( 1 )(b)."). But a far
more potent and likely explanation for the lack of discussion about the sup-
posed intersection between Everts and ORS 59.137 is _that no one in the legisla-
ture (and none of OPERF's lawyers who testified before the legislature)
believed that one statutory provision had anything to do with the other.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 33
dividual action in an appropriate court to recover actual damages or statu-
tory damages of $200, whichever is greater.
ORS 646.638 (emphasis added). Nevertheless, this Court has long required that
a plaintiff asserting a UTPA claim must plead and prove the plaintiff's reliance
on an alleged misstatement. See Denson, 279 Or at 91 ("Additionally, absent
further detrimental reliance, plaintiff did not at that point suffer any ascertain-
able loss under ORS 646.638(1)."); Sanders v. Francis, 277 Or 593, 598 (1977)
("In many cases plaintiff's reliance may indeed be a requisite cause of any loss,
i.e. when plaintiff claims to have acted upon a seller's express representa-
tions."); Feitler, 170 Or App at 702 ("Where, as here, the alleged violations are
affirmative misrepresentations, the causal/' as a result of element requires proof
of reliance-in-fact by the consumer.").
Just as Denson; Sanders, and Feitler have long held that reliance is an ele-
ment of a UTP A claim involving an alleged misstatement - even though the
word "reliance" does not appear in the text of the UTP A statute - the Court of
Appeals in this case correctly held that a securities-fraud claim under ORS
59.137 necessarily requires the plaintiff to plead and prove reliance on the al-
leged misstatement:
One cannot "lead" without "leading" something or somebody else. Thus, al-
though the statutory text does not contain the word "reliance," it nonetheless
implies that, in order to prove a violation, a purchaser must demonstrate
fraud, deceit, or misleading, all of which require reliance.
Marsh, 241 Or App at 116.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 34
Contrary to OPERF's suggestion, the Court of Appeals did not insert the
word "reliance" into the text ofORS 59.137 in violation ofORS 174.010. Br. at
14. Rather, like Denson, Sanders, and Feitler, the Court of Appeals correctly
interpreted the text and context of ORS 59.137 to require that a plaintiff plead
and prove reliance in any claim arising under that statute.
-v. ORS 59.137, which has no counterpart in any federal statute, does
not borrow the "fraud on the market" doctrine from federal cases.
As a threshold matter, even if this Court reaches OPERF's arguments that
reliance may be presumed under ORS 59.137, the trial court has already held
that, even if Oregon law had adopted this presumption, the summary-judgment
proof showed that "defendants have clearly rebutted the presumption." ER 15-
16 (reciting evidence rebutting the presumption of reliance, even if it were to be
adopted in Oregon, by finding that OPERF purchased and continued to hold
shares of MMC even after Spitzer's press conference supposedly revealed the
"truth" about Marsh's business practices and contingent commissions). See Ba-
sic, 485 US at 248 ("Any showing that severs the link between the alleged mis-
representation and either the price received (or paid) by the plaintiff, or his
decision to trade at a fair market price, will be sufficient to rebut the presump-
tioil of reliance."). OPERF does not challenge this ruling on appeal.
16
16
OPERF argues only that it has "trigger[ ed]" the presumption of reliance. Br.
at 32. OPERF does not challenge the trial court's finding that Marsh presented
evidence that "clearly rebutted the presumption." ER 15-16.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 3 5
Accordingly, OPERF's claim must fail as a matter of law- with or without
a presumption of reliance under federal law. Consequently, even if this Court
were to adopt OPERF's second proposed rule of law, OPERF still fails its test,
and the trial court's judgment should be affirmed.
The lynchpin of OPERF's argument for borrowing the federal ."efficient
market" theory into state-law claims under ORS 59.137 depends on OPERF's
unwarranted declaration that the "legislative history confirms that SB 609 was
intended to create 'consistency' between Oregon and federal law." Br. at 28.
This statement, however, is not supported by the legislative history and, perhaps
more importantly, is not supported by crucial inconsistencies between Oregon
and federal law.
A. The inconsistency between Oregon and federal law undercuts
the principal foundation of OPERF's arguments.
OPERF begins its analysis of the federal "efficient market" theory by ob-
serving that "ORS 59.135 is similar to federal Rule 10b-5 under which reliance
may be presumed under the 'fraud-on-the-market' doctrine." Br. at 28. But this
observation suffers from the indisputable fact that Rule 10b-5 (which, in tum, is
derived from 1 O(b) of the Securities Exchange Act of 1934, and codified at 15
USC 78j) does not explicitly create a private cause of action. Rather, federal
securities-fraud claims under Rule 10b-5 are entirely a creature of federal case-
law implying a private cause of action. See, e.g., Kardon v. Nat'! Gypsum Co.,
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 36
69 F Supp 512, 513 (DC Pa 1946) (observing that 10(b) of the Securities Ex-
change Act of 1934 did not expressly create a private right of action, but finding
such a right implied by the statute and holding, "The disregard of the command
of a statute is a wrongful act and a tort."); Basic, 485 US at 250 (citing Kardon
as authority for the "relatively youthful private cause-of-action under 1 O(b )");
Janus Capita( Group, Inc. v. First Derivative Traders, 131 S Ct 2296, 2303
(2011) (noting that "the existence of a private right" under Rule 10b-5 is settled,
but refusing to expand liability to additional defendants, and noting, "Our hold-
ing also accords with the narrow scope that we must give the implied private
right of action.").
By contrast, ORS 59.135, which is very similar to Rule 10b-5 and which has
been part of Oregon law since 1967, has never been interpreted by any Oregon
court to create a private right of action for violation of any of its provisions.
17
Instead, a violation of any of the prohibitions in ORS 59.13 5 is actionable under
Oregon law only by reference to another Oregon statute explicitly providing
this relief under terms chosen by the legislature. And, as to claims seeking to
recover damages caused by a violation ofORS 59.135 for securities sold on the
"open market," this statute is ORS 59.137. There is no federal-statute counter-
17
Amicus NASAA makes the same mistake, asserting that "securities law
claims under ORS59.135 have been held to not require reliance." NASAA Br.,
at 5. Actually, Oregon law has never implied or allowed any claim "under ORS
59.135" at all. Consequently, OPERF's and amici's claims about reliance can-
not survive careful scrutiny of their mistaken underpinnings.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 3 7
part to ORS 59.137 in the whole of the United States Code.
18
Oregon, it should
be clear, took a different path from federal law.
And this different path does not end with the basic enabling framework of
securities-fraud claims under Oregon law. Claims under federal Rule lOb-5 re-
quire that the plaintiff plead and prove the "scienter" element. See Ernst &
Ernst v. Hochfelder, 425 US 185, 193 (1976) ("We granted certiorari to resolve
the question whether a private cause of action . for damages will lie under
1 O(b) and Rule 1 Ob-5 in the absence ofany allegation of 'scienter' intent to
deceive, manipulate, or defraud. We conclude that it will not and therefore we .
reverse.").
OPERF, however, successfully argued to the trial court in this case that Ore-
gon law was actually inconsistent with federal claims under Rule lOb-5, and
that the Oregon legislature intended to omit the "scienter". requirement for
claims arising under ORS 59.137. See TCF 27 at 27 ("Thus, defendants' argu-
ment that, based on federal law, ORS 59.137 necessarily requires proof of sci-
enter should be rejected."). The trial court agreed with OPERF's interpretation
ofORS 59.137, but it also held that this manifest inconsistency between federal
and state securities-fraud claims was so grave that ORS 59.137 was unconstitu-
18
Amicus OTLA makes this same mistake without even attempting to explain
the manifest differences between federal and state law. See OTLA Br. at 34 (ar-
guing that federal cases "construing federal counterparts of the Oregon Securi-
ties Law" are persuasive authority in interpreting ORS 59.137).
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 3 8 .
tional under the Commerce Clause as applied to publicly traded companies. ER
5-13 (holding that ORS 59.137, as interpreted to part ways from federal Rule
lOb-5 claims regarding the scienter requirement, was unconstitutional) .
. OPERF cannot have it both ways, arguing to this Court that the Oregon leg-
islature intended uniform "consistency" between the whole of Oregon law un-
_ der ORS 59.137 and federal caselaw under Rule lOb-5 - but arguing
successfully below to the trial court that Oregon law under ORS 59.137 actually
omits the "scienter" element from securities-fraud claims.
19
This stark inconsis-
tency between Oregon and federal law, as OPERF has itself argued within the
history of this lawsuit, fatally undercuts OPERF' s present argument that the
Oregon legislature somehow, and in complete silence, adopted Basic and the
federal "fraud on the market" doctrine for claims arising under ORS 59.137.
OPERF's claim, in fact, presents a singularly inappropriate case for allowing
a presumption of reliance, which was developed principally in class actions as a
means to manage difficulties in proving class-wide reliance. See Basic, 485 US
at 242 ("Requiring proof of individualized reliance from each member of the
proposed plaintiff class effectively would have prevented respondents from
19
Additionally, OPERF now argues to this Court that the "reliance" element
has also beenomitted from claims under ORS 59.137- yet another marked
inconsistency with federal Rule 1 Ob-5 claims. See Cent. Bank of Denver, N.A. v.
First Interstate Bank of Denver, N.A., 511 US 164, 180 (1994) ("Allowing
plaintiffs to circumvent the reliance requirement would disregard the careful
limits on 1 Ob-5 recovery mandated by our earlier cases.").
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proceeding with a class action, since individual issues then would have over-
whelmed the common ones."). Here, of course, this is not a class-action case, so
there is no practical need to apply a presumption-of-reliance doctrine that grew
out of challenges to a court in managing complex class-action securities litiga-
tion. OPERF, the lone plaintiff in this case, is a large and sophisticated investor.
Its claims do not present the same case-management concerns animating the
federal fraud-on-the-market doctrine.
Accordingly, if OPERF and the trial court are correCt that claims under ORS
59.137 do not require the plaintiff to plead and prove the "scienter'' element,
then one cannot reasonably suppose that the legislature also intended to import
Basic and the whole of Rule lOb-5 jurisprudence into ORS 59.137, including all
of the federal Rule 1 Ob-5 caselaw establishing a private cause of action and,
based on that implied federal cause of action, creating the federal "fraud on the
market" substitute for actual reliance.
B. The legislative history does not evince any legislative intent to
adopt the federal "fraud on the market" doctrine.
OPERF' s reliance on the legislative history is both erroneous and contradic-
tory. As to the first, OPERF mistakenly argues that the Oregon legislature in-
tended to eschew any requirement of reliance for claims under ORS 59.13 7 and
that "the legislative history of Senate Bill (SB) 609, the legislation that created
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 40
ORS 59.137(1), removes any doubt that might remain" about this supposed in-
tent to forgo any reliance requirement at all. Br. at 22.
But every one of the legislative-history citations proffered by OPERF to "re-
move any doubt" about reliance have nothing to do with reliance. ld. Rather,
the legislative history proffered by OPERF shows merely that the legislature in-
tended only to extend the reach of the Oregon Securities Laws. And this is pre-
cisely what ORS 59.137 does in that, for the first time in Oregon's history,
defrauded investors have a state-law claim for purchases made in "secondary
markets" such as the New York Stock Exchange. Cf Marsh, 241 Or App at 114
(noting that ORS 59.115 creates a cause of action only "for purchasers of stock
who are damaged by misrepresentations in face-to-face securities transactions
(as opposed to transactions occurring on an exchange)"); id. at 121 (reciting tes-
timony before the legislature that the "new proposed [ORS 59.137] would per-
mit OPERS to bring a claim when it purchased the securities in the open market
where most securities are purchased").
After making this erroneous characterization about the legislative history of
ORS 59.137, OPERF than pulls its arguments through a rather impossible twist:
(1) the legislature intended no reliance at all (Br. at 22), but, at the same time,
(2) the legislature intended to incorporate the whole of federal law under Basic
into a silent- and perfectly hidden- rule that plaintiffs lacking actual reli-
ance on a defendant's misstatement may instead rely on a rebuttable presump-
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tion of reliance by "efficient" secondary markets. Br. at 30. Remarkably, there
is not one jot of legislative history even mentioning Basic or any other case al-
lowing a presumption of reliance to replace actual reliance. Cf Thompson v.
IDS Life Ins. Co., 274 Or 649, 652, 656 (1976) (concluding that ORS 30.675
"does not cover the sale of insurance" based, in part, on the observation that
"the legislative history of ORS 30.675 does not include a single reference to in-
surance").
And, as a matter of simple logic and common sense, the legislature cannot
have simultaneously intended to omit reliance as an element and, in the same
breath, intended to allow substituted, presumed proof of that same omitted ele-
ment. This is not a matter of choosing between two alternatives. Rather, OPERF
argues that the legislature somehow entertained two opposite intentions at the
same time. This Court should reject this impossible conundrum of OPERF's
own invention.
In contrast to the lack of any discussion about Basic or its "efficient market"
theory, there was legislative testimony about "fraud on the market" and "open
market" claims. But, as deftly described by the Court of Appeals, the use of
these terms does not lend any credence to OPERF's circular and inconsistent
arguments:
Nothing in the text or context of ORS 59.137 states or implies the existence
of an efficient market presumption to replace actual reliance. Nor does the
state claim otherwise. Rather, it relies on the legislative history. Reviewing
the same data, we come to a different conclusion.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 42
It is true, as the state argues, that several of the witnesses before legislative
committees considering what was to become ORS 59.137 refer to the "fraud
on the market" theory. One proponent submitted the following written testi-
mony:
***
"SB 609 [which, with some modifications that are not relevant to the is-
sues in this case, became ORS 59.137] clarifies and extends the Oregon
Securities Laws to allow an investor which is damaged by fraud to re-
cover its losses when the investor purchased its stock in the 'open mar-
ket.' The amendment would allow for so-called 'fraud on the market'
claims and would make Oregon law consistent with the corresponding
federal statute that allows for such claims."
We believe that a legislator perceiving that testimony would not understand
the term "fraud on the market" to embody a presumption of an efficient
market so as to relieve an investor ofproving reliance. Rather, the term is
used to explain the primary purpose of the new statute: to provide a cause of
action for investors who are defrauded when they purchase securities in non-
face-to-face transactions, as they normally do in an "open market" purchase
on a stock exchange.
Marsh, 241 Or App at 120-22 (citations omitted). See also id. at 122 (describ-
ing similar statements by Senator Kate Brown and concluding that "she used
the term to refer to open market transactions; nothing indicates that she used the
term to imply a presumption of reliance" and "there is no indication that any
member of the legislature who heard the term was aware of its specialized
meaning"). The Court of Appeals's careful reading of the legislative history re;.
veals no support for OPERF's suggestion that the Oregon legislature intended
to import a doctrine developed in federal caselaw, including Basic and its prog-
eny, into ORS 59.137.
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Oregon has never, in any context, adopted the federal presumption of reli-
ance applicable to Rule 10b-5 claims under Basic and its federal-law progeny.
The Court of Appeals and the trial court were correct in declining to adopt this
novel and heavily criticized federal doctrine into state-law claims.
The Court of Appeals's refusal to adopt the federal presumption of reliance
is shared by other courts that have considered this issue under the securities-
fraud statutes of at least seven states. See Schwartz v. Celestial Seasonings, Inc.,
185 FRD 313,317 (D Colo 1999) (distinguishingrelianceunderColorado's se-
curities-fraud claims and federal Rule 10b-5 claims, and holding, "There is no
recognized 'fraud on the market' theory in Colorado, so reliance or causation
must be proved."); In re Sahlen v. Assocs., Inc. Sec. Litig., 773 F Supp 342, 371
(SD Fla 1991) (distinguishing "federal security laws" from Florida's securities-
fraud statute, and holding, "Unlike under federal law, however, a presumption
of reliance based on a 'fraud on the market theory' is unavailable in Florida.");
In re Bexar County Health Facility Develop. Corp. Securities Litig., 125 FRD
625, 628, 636 (ED Pa 1989) (multidistrict litigation refusing to certify state-law
claims arising under the Blue Sky Laws of Minnesota, Illinois, and Texas be-
cause "[ f]raud on the market, and the derivative fraud created the market, theo-
ries of reliance have not been developed in state courts"); Kaufman v. i-Stat
Corp., 754 A2d 1188, 1198 (NJ 2000) (observing that "no state court with the
authority to consider whether Basic is persuasive has chosen to apply it to
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 44
claims arising under its own state's laws"); Peil v. Speiser, 806 F2d 1154, 1163
n.l7 (3d Cir 1986) (noting, "While the fraud on the market theory is good law
with respect to the [federal] Securities Acts, no state courts have adopted the
theory, and thus direct reliance remains a requirement of a common law securi-
ties fraud claim" and affirming directed verdict against plaintiff on Pennsyl-
vania state-law claims); Anglo Am. Sec. Fund, LP v. S.R. Global Int'l Fund, LP,
No Civ 20066 N, 2006 WL 1494360, at *3 (Del Ch May 24, 2006) (refusing the
plaintiff's invitation to follow federal Rule 10b-5 cases presuming reliance be-
cause "Delaware law does not recognize the fraud on the market theory.").
20
The overwhelming rejection of the federal "efficient market" doctrine by
every state to consider this doctrine reflects the widespread disenchantment
with the federal framework adopted in Basic. The federal rule depends on a fun-
damental assumption that the market price of a security efficiently reflects all
publicly available information. But the twenty years since Basic have badly un-
dermined this assumption of "market efficiency." Although the concept "was
described as an article of doctrinal faith in corporate and securities law" in the
1970s and 1980s, the years following Basic produced a "rising tide of evidence"
20
Amicus NASAA, in fact, in a brief filed last year in a securities-fraud case be-
fore the U.S. Supreme Court, explicitly recognized this state-law consensus re-
fusing to adopt the federal fuiud-on-the-market doctrine. See Brief of AARP
and NASAA as Amicus Curiae, a:t 14 (observing that "state courts generally
have not recognized the doctrine of fraud-on-the-market in cases seeking relief
under state common law") (available at http://www.nasaa.org/wp-con-
tent/uploads/2011/08/6-Janus FINAL.pdf).
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that has led economists "to conclude that orthodox efficient market theory is
suffering 'a near-death experience."' Lynne A. Stout, Are Stock Markets Costly
Casinos? Disagreement, Market Failure, and Securities Regulation, 81 VAL
REv 611, 648-49 (1995).
This Court should affirm the Court of Appeals's rejection of the federal-
court doctrine of presumed reliance under Basic for claims arising under ORS
59.137, which has no counterpart in any federal statutes and, as OPERF has
successfully argued, fundamentally differs from federal law in omitting "sci-
enter" as one ofthe critical elements of a plaintiffs proof:
Unlike the Supreme Court in Basic, Oregon courts do not subscribe to any
particular economic theory,. including one that is based on the highly con-
tested premise that markets untainted by misinformation are efficient or,
more precisely, that sophisticated participants in securities markets believe
that they are.
Marsh, 241 Or App at 120. Accordingly, under PGE and Gaines, there is sim-
ply no authority for this Court to import the federal "efficient market" doctrine
into. a statute lacking any text incorporating this doctrine and lacking even pass-
ing mention of Basic or any other "efficient market" case during the statute's
legislative history.
C. No "maxim" of statutory incorporation could allow importing
the federal "efficient market" doctrine into ORS 59.137.
Even if this Court were to consider "maxims" of statutory interpretation at
the third level of Gaines (see generally Sec. IV.D), Oregon's maxims of statu-
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 46
tory interpretation do not support OPERF's request that this Court adopt a fed-
eral doctrine with no parallel or precedent in Oregon jurisprudence. After fail-
ing to show anything in the text, context, or legislative history evincing an
intent to import Basic into Oregon law, OPERF falls back on maxims of statu-
tory interpretation to ask this Court to "construe ORS 59.137(1) liberally in fa-
vor of protecting the public." Br. at 31. But the maxims in the cases relied on by
OPERF apply only in interpreting some ambiguity actually found in the statute.
See, e.g., Bergquist, 272 Or at 427 (applying rule in interpreting the meaning of
"investment contract" in ORS 59.015(13)(a)); Sunshine Dairy, 183 Or at 317
("A remedial statute should receive liberal construction so as to afford all the
relief within the power of the court which the language of the act indicates that
the legislature intended to grant.").
Nothing in the "language of the act" in ORS 59.137 remotely suggests that
the legislature even considered Basic or any other case applying the "efficient
market" theory. Accordingly, OPERF does not ask this Court to apply maxims
of statutory interpretation to resolve an ambiguity found in ORS 59.137. Rather,
OPERF asks this Court to allow the wholesale importation of a doctrine devel-
oped by federal caselaw (implying a remedy from a federal rule) into an Oregon
statute that, unlike federal law, explicitly creates a private cause of action (but
with different elements of proof) and that quite plainly lacks any language al-
luding to Basic, an efficient market, or a presumption of reliance. Accordingly,
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 4 7
the interpretive maxims relied on by OPERF, even if they were considered by
this Court, simply cannot apply to such dissimilar causes of action and an Ore-
gon statute missing thevery "language of the act" that OPERF supposes is part
ofOregon law.
VI. Strawn is irrelevant to claims under ORS 59.137.
In OPERF' s Memorandum of Additional Authorities to this Court, submit-
ted in support of its then-pending Petition for Review, OPERF erroneously as-
serted that Strawn v. Farmers Ins. Co. of Oregon, 350 Or 336 (2011) somehow
"directly relates to the issues briefed here." Memo. at 1 n.l. But, perhaps recog-
nizing the futility of this argument, OPERF omits any mention of Strawn in its
entire Brief on the Merits?
1
OPERF had good reason to forgo this red herring:
Strawn arises out of class-action common-law fraud claims, and nothing in the
opinion even indirectly suggests that ORS 59.137 somehow silently adopted
Basic and its progeny allowing a presumption of reliance in securities-fraud
class actions arising under federal law. See Strawn, 350 Or at 362 (holding that
a jury could "infer" reliance on misstatements made by the defendant directly to
the plaintiff class from evidence "common to the class members").
But amicus will not let this irrelevant case go and, instead, misrepresents
Oregon law in asserting that this Court "has approved the use of Basic v. Levin-
21
NASAA's amicus brief, it should be noted, also omits any reference to
Strawn at all.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 48
son and the 'fraud on the .market' doctrine in securities fraud cases under Ore-
gon law." Eisenberg Br. at6 (emphasis added).
22
But the only Oregon case cited
for this proposition is Strawn, which even amicus later admits "did not adopt
the 'fraud on the market' presumption." Id. at 8. Although amicus correctly re-
cites that Justice Balmer, in a dissenting opinion, recognized that the doctrine
_was "allowed in securities fraud cases," amicus misleadingly omits the fact that
both of the "securities fraud cases" cited by Justice Balmer were federal cases,
arising under federal law. Strawn, 350 Or at 377 (citing Basic and Ute and con-
eluding, "That doctrine, too, is unavailable to plaintiffs here.") (emphasis
added). There is no dispute in this appeal about whether federal common law,
under Basic, currently allows a presumption of reliance based on an "efficient
market" in federal securities-fraud class-action cases. It does. But amicus fails
to cite any Oregon case supporting its statement that this Court has somehow
"approved" following Basic under Oregon law in any context, but especially a
single-plaintiff case arising under ORS 59.13 7. OPERF was right to eschew re-
liance on Strawn. This Court, too, should refuse to give any credence to
amicus's misuse of Strawn.
22
OTLA copies a block quote from Strawn into its brief, but without any expla-
nation at all about how Strawn could possibly shed any light on interpreting
ORS 59.137. OTLA Br. at 33-34.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 49
VII. OPERF does not, and cannot, rely on any "omission" as the cause of
its injury under ORS 59.137.
This Court should not reach OPERF's proposed third rule of law. Br. at 3. In
support of this proposed rule of law, OPERF asks this Court to follow Affiliated
Ute Citizens of Utah v. U. S., 406 US 128 (1972) in order to "keep ORS
59.137(1) consistent with federal securities law." Br. at 35. As a threshold mat-
ter, OPERF entirely fails to explain why this Court should follow Ute to be
"consistent" with federal law when, as a result of OPERF's own arguments
about scienter, the trial court already has held that ORS 59.137 is inconsistent
with federal law. As with OPERF's selective reliance on federal law under Ba-
sic, this Court should reject OPERF's attempt to cherry-pick those parts of fed-
eral law, including Ute, that OPERF wants to be "consistent" with federal law,
but then reject other aspects of federal law that are part and parcel to implied
causes of action under federal Rule 1 Ob-5.
Even if Ute were controlling or even persuasive precedent, however, the
Court of Appeals correctly distinguished Ute from OPERF's claims, which
OPERF has pleaded differently from its current argument that this is really an
"omission" case. Ute applies only in cases involving "primarily a failure to dis-
close" a material fact. Ute, 406 US at 1 5 3 ~ 5 4 . OPERF's case, however, is "pri-
marily" built on alleged misstatements in MMC's public filings. See, e.g., TCF
42 ,-r 4 ("MMC repeatedly and falsely represented that Marsh was providing le-
gitimate services in return for insurer's payments pursuant to these PSAs and
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 50
MSAs"); ~ ~ 17-18 ("Marsh expressly stated that qualified insurers competed on
a level playing field without regard to Marsh's revenue considerations. Marsh's
assurances were false.").
Recognizing the true nature of OPERF' s case, the Court of Appeals cor-
rectly distinguished Ute and refused OPERF's attempt to circumvent theTeli-
ance requirement:
The present case, unlike Ute, does not involve an active, face-to-face omis-
sion in a situation in which the defrauded party could be expected to rely on
an agent charged with a lawful and specific duty to disclose. More impor-
tantly, this case does not "involv[ e] primarily a failure to disclose." In Ute,
the defendants omitted disclosure of a fact that bore directly on the transac-
tion; in the present case, the "omission" is failure to disclose an unlawful
scheme of kickbacks and bid-rigging. This case, in other words, involves
primarily an "act, practice or course of business which operates or would
operate as a fraud or deceit upon any person," ORS 59.135(3), and not an
"omi[ssion] to state a material fact necessary in order to make the statements
made* * *not misleading," ORS 59.135(2).
Marsh, 141 Or App at 119. In claims like OPERF's, the Court of Appeals cor-
rectly recognized that Ute is inapposite. See Beck v. Cantor, Fitzgerald & Co.,
621 FSupp 1547, 1556 (ND Ill 1985) (distinguishing Ute and cautioning that
"[ e ]very fraud case based on material misrepresentations could be turned fac-
ilely into a material omissions case" and holding that "reliance cannot be pre-
sumed where the alleged material omissions constitute only the converse of the
alleged affirmative and material misrepresentations"). This Court should not
even reach OPERF's third proposed rule of law because the proposed rule, like .
Ute, does not apply to the circumstances of this case.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 51
'
Additionally, Ute is inapposite to OPERF's claims because, unlike OPERF,
the plaintiffs in Ute actually relied on underlying statements by the defendants
as "marketmakers" for those securities. Ute, 406 US at 153. In Ute, the two de-
fendants liable for the "omission" of information had been personally "solicit-
ing and accepting standing orders" from the plaintiffs and had "devised a plan
and induced [the plaintiffs] to dispose of their shares without disclosing to them
material facts that reasonably could have been expected to influence their deci-
sions to sell." !d. at 152-53. But in the context of the defendants' statements
made in the course of soliciting and accepting securities orders from the plain-
tiffs, the defendants never disclosed that those same securities were actually il-
legal to sell. !d. at 153.
By contrast, OPERF cannot point to any statements relied on by OPERF that
omitted information that, in context, made the omission and accompanying
"statements made" misleading in some way. Without predicate "statements
made" by Defendants, OPERF has no "omissions" case under ORS 59.13 7 (or,
for that matter, under the rule in Ute either). See, e.g., TSC Indus., Inc. v.
Northway, Inc., 426 US 438, 449 (1976) (holding that, for Rule lOb-5 claims
arising out of omissions of information, "there must be a substantial likelihood
that the disclosure of the omitted fact would have been viewed by the reason-
able investor as having significantly altered the 'total mix' of information made
available"); Matrixx Initiatives, Inc. v. Siracusano, 131 S Ct 1309, 1321-22
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 52
(2011) (cautioning that "it bears emphasis that 10(b) and Rule 10b-5(b) do
not create an affirmative duty to disclose any and all material information. Dis-
closure is required under these provisions only when necessary 'to
make ... statements made, in the light of the circumstances under which they
were made, not misleading.'"). Accordingly, the Court of Appeals correctly
held that OPERF failed to allege a true "omission" case and that Ute was inap-
posite to OPERF' s claims.
Moreover, this is not an "omission" case because OPERF does not, and can-
not, argue that it relied on any predicate "statements made" by MMC or Marsh.
ORS 59.137 permits a defrauded investor to recover "actual damages caused
by" a violation of ORS 59.135. In tum, ORS 59.135 makes it unlawful to "omit
to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading." ORS
59.135(2) (emphasis added). Under these Oregon statutes, an omission that is
untethered to any "statements made" by the defendant is not actionable. That is,
an omission of information is not actionable unless the plaintiff relied on the
"statements made" from which information was missing in a misleading way.
Here, OPERF did not rely on any "statements made" by either MMC or
Marsh. Richard Rubenstein, who made investment decisions for OPERF, testi-
fied that he only "may peruse" annual 10-K filings with the SEC "as opposed to
reading them" and that he reads quarterly Form 10-Q filings with the SEC only
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 53
"if I'm interested." TCF 84 (Ex. D at 57:18-58:2). But Rubenstein could not
say whether he actually reviewed any 1 0-Ks or 1 0-Qs before purchasing MMC
stock for OPERF. ld. at 138:18-139:20. Similarly, Steve Gorham, OPERF's
other investment adviser, testified that he did not recall reading any of MMC's
filings with the SEC in 2003 and was not even familiar with Marsh's contingent
commission revenue when he made the decision to purchase MMC stock. See
TCF 84 (Ex. L at 46:20-22,48:10-15,50:14--51:8,65:9-12, 74:13-16).
Moreover, OPERF's decision to purchase additional MMC stock on October
14, 2004, after the press conference supposedly revealing the truth about
Marsh 's contingent-commission revenue, underscores that OPERF did not rely
on MMC's public disclosures or any other "statements made" by either of the
defendants regarding contingent commissions. Accordingly, OPERF lacks the
necessary foundation, under ORS 59.137, to assert a claim based on an alleged
"omission" of information from any "statements made" by Marsh or MMC.
OPERF's reliance on Sanders v. Francis, 277 Or 593, 595 (1977) is unavail-
ing. First, a violation of Oregon's Unlawful Trade Practices Act for "failure to
disclose a fact" depends on very different language from claims for "omissions"
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 54
under ORS 59.135(2).
23
Under ORS 646.608, a forbidden "representation" by
the defendant "may be any manifestation of any assertion by words or conduct,
including, but not limited to, a failure to disclose a fact." By contrast, a claim
under ORS 59.137 (for a violation of ORS 59.135) explicitly looks to the
"statements made" by the defendant, which may be actionable only when the
defendant's statements are untrue or when an omission from those statements,
within the context of those statements, is misleading:
To make any untrue statement of a material fact or to omit to state a material.
fact necessary in order to make the statements made, in the light of the cir-
cumstances under which they are made, not misleading;
ORS 59.135(2) (emphasis added). Accordingly, Sanders and its interpretation
of ORS 646.608 cannot support OPERF's argument that ORS 59.137 permits
claims for a defendant's "omission" of a fact without showing reliance on some
misleading "statements made" by the defendant.
Additionally, the facts of Sanders show that Oregon law does not allow li-
ability, even under the UTP A, for an "omission" of some fact that is wholly un-
related to any actual statement by a defendant. In Sanders, the defendant sold a
23
In addition to the differences in the statutory definitions of actionable mis-
conduct, claims under the UTP A require that the defendant "knew or should
have known that his conduct was a violation." Sanders, at 598 n.4. By contrast,
as described above in Section V.A, OPERF has already convinced the trial
court that scienter is irrelevant for claims under ORS 59.137. See BRYAN A.
GARNER, A DICTIONARY OF MODERN LEGAL USAGE (2d ed 1995) (defining "sci-
enter" as "the fact of an act's having been done knowingly"). Again, as with
OPERF's comparison of claims under Rule lOb-5 to claims under ORS 59.137,
OPERF attempts to compare apples to oranges with its reliance on Sanders.
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 55
used car to the plaintiff for $800 more than the defendant had advertised in the
local paper the day before. Sanders, 277 Or at 595. The defendant negotiated
the higher price knowing that the plaintiffs "ignorance" of the advertised price
was the reason that she was paying $800 too much. !d. at 598-99. Under these
circumstances, the Sanders court held that the defendant's failure to tell the
plaintiff about the advertised price constituted an actionable "representation"
under ORS 646.608.
By contrast, OPERF did not purchase any stock from MMC, which distin-
guishes the duty to disclose imposed on the plaintiff in Sanders by virtue of the
defendant's direct contact and reliance on the "ignorance" of the plaintiff in
charging $800 more than the sale price. Accordingly, Sanders is both factually
and legally distinguishable from the facts and law at issue in OPERF's appeal.
These critical differences defeat OPERF's attempt to borrow from Sanders dis-
cussion of claims made under an entirely different statute.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW - 56
VIII. Conclusion
The Court of Appeals correctly held that securities-fraud claims under ORS
59.137 require a plaintiff to plead and prove reliance on the defendant's mis-
statement. Accordingly, this Court should affirm the decision of the Court of
Appeals.
Dated: October 26, 2011
James T. McDermott, OSB 933594
Dwain M. Clifford, OSB 025074
Ball Janik LLP
101 SW Main St., Ste. 1100
Portland, OR 97204
Tel: (503) 228-2525
Fax: (503) 226-3910
Attorneys for Respondent on Review
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 57
CERTIFICATE OF COMPLIANCE
WITH BRIEF-LENGTH AND TYPE-SIZE REQUIREMENTS
I certify that this brief complies with the word-count limitation in ORAP
5.05(2)(d) and ORAP 9.10(3); the word count of this brief (as described in
ORAP 5.05(2)(a)) is 13,878 words.
I certify that the size of the type in this brief is not smaller than 14 point for
both the text of the brief and footnotes, as required by ORAP 5.05(4)().
Dated: October 26, 2011
M. Clifford, OSB 025074
Attorneys for Respondents on Review
Marsh & McLennan Companies, Inc. and
Marsh Inc.
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 58
CERTIFICATE OF FILING
I certify that on October 26, 2011 I filed the original and twelve copies of
the foregoing RESPONDENTS' BRIEF ON THE MERITS ON REVIEW with
the Appellate Court Administrator at this address:
Appellate Court Administrator
Appellate Court Records Section
1163 State Street
Salem, OR 97301-2563
by United States Postal Service, ordinary first-class mail.
CERTIFICATE OF SERVICE
I certify that on October 26, 2011 I served two copies of the foregoing
RESPONDENT'S BRIEF ON THE MERITS ON REVIEW on the following
parties at these addresses:
Keith A. Ketterling, OSB 913368
Scott A. Shorr, OSB 961873
Joshua L. Ross, OSB 034387
Stoll Stoll Berne Lokting & Shlachter PC
209 SW Oak St., Fifth Floor
Portland, OR 97204
Tel: (503) 227-1600
Fax: (503) 227-6840
Attorneys for Petitioner on Review
John R. Kroger, OSB 077207
Attorney General
Mary H. Williams, OSB 911241
Solicitor General
Keith S. Dubanevich, OSB 975200
Chief of Staff and Special Counsel
Denise G. Fjordbeck, OSB 822578
Attorney-in-Charge
Civil Administrative Appeals
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RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 59
Oregon Department of Justice
1162 Court St. NE
Salem, OR 97301
Tel: (503) 378-4402
Fax: (503) 378-8732
Attorneys for Petitioner on Review
Kim T. Buckley, OSB 781589
John W. Stephens, OSB 773583
Esler, Stephens & Buckley, LLP
888 SW 5th Ave., Ste. 700
Portland, OR 97204
Tel: (503) 223-1510
Fax: (503) 294-3995
Attorneys for Amici Curiae Oregon Trial Lawyers Assoc. and Economic
Fairness Oregon
RobertS. Banks, Jr., OSB 821862
John Opron, III, admitted pro hac vice
Banks Law Office, PC
1300 SW 5th Ave., Ste. 2135
Portland, OR 97201
Tel: (503) 222-7475
Fax: (503) 914-1444
Attorneys for Amicus Curiae North American Securities Administrators
Assoc.
Franklin Jason Seibert, OSB 095009
F.J. Seibert, LLC- A Law Office
I 00 High St. SE, Ste. 202
Salem, OR 9730 I
Tel: (971) 235-5764
Attorneys for Amici Curiae Meyer Eisenberg and Franklin Jason Seibert
RESPONDENTS' BRIEF ON THE MERITS ON REVIEW- 60
Meyer Eisenberg, admitted pro hac vice
Willamette University College of Law
245 Winter St. SE
Salem, OR 97301
Tel: (503) 370-6642
Attorneys for Amici Curiae Meyer Eisenberg and Franklin Jason Seibert
by United States Postal Service, ordinary first-class mail.
Dated: October 26, 2011
a esT. McDermott, OSB 933594
in M. Clifford, OSB 025074
Attorneys for Respondents on Review
Marsh & McLennan Companies, Inc. and
Marsh Inc.
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