Arizona Supreme Court Follows Central Bank: No Implied Private Right Of Action For Aiding And Abetting Securities Fraud Under The Arizona Securities Act

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Earlier today, in a case titled Sell v. Sewell, et al. (No. CV-12-0211-PR), the Arizona Supreme Court ruled that there is no implied private right of action for aiding and abetting securities fraud under the Arizona Securities Act (ASA).  Today’s ruling in Sell overturns the court’s ruling 34 years ago in State v. Superior Court, 599 P.2d 777 (Ariz. 1979), and continues the court’s strong policy of following the U.S. Supreme Court’s interpretations of analogous federal securities statutes.

In its prior decision in State v. Superior Court, the Arizona Supreme Court implied a private right of action for aiding and abetting under the ASA, because federal courts at the time were implying such a right of action under the ASA’s “almost identical” federal counterpart.  In 1994, however, the U.S. Supreme Court overruled the federal case law on which State v. Superior Court relied, holding that federal courts cannot imply a private right of action for aiding and abetting where the federal statute does not expressly provide for one:  "[T]he text of the 1934 Act does not itself reach those who aid and abet,” and that “resolves the case.” See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 177 (1994). 

Shortly after Central Bank, the Arizona Legislature affirmed that the ASA, just like its federal counterpart, does not reach those who aid and abet.  Private Securities Litigation Act, ch. 197, § 11.B, Ariz. Sess. Laws 1003, 1023 (1996).  The legislature also expressly affirmed Arizona’s policy of following federal interpretations of analogous federal statutes:  “It is the intent of the legislature that in construing the [ASA], the courts may use as a guide the interpretations given by the . . . federal or other courts in construing substantially similar provisions of the federal securities laws of the United States.”  Id. ch. 197, § 11.C.

Today’s ruling is the first time the Arizona Supreme Court has confronted the question of whether Arizona will follow Central Bank.  The ruling gives full effect to the Arizona Legislature’s intent and provides clear guidance to Arizona courts (and plaintiffs) that they cannot imply a private right of action for aiding and abetting under the ASA, which significantly limits the statute’s scope and application.

Perkins Coie attorneys Michael Clyde, Todd Kerr and Tony Caliendo, each a member of the firm’s Securities Litigation practice, secured the summary judgment rulings from which Sell appealed, and also led the effort by several defendants in opposing Sell’s petition for special action review before the Arizona Supreme Court.  In affirming the trial court’s grant of summary judgment and overturning State v. Superior Court, the Arizona Supreme Court adopted most, if not all, of the arguments and reasoning provided by the Perkins Coie team.