§ 4.1.8 When Should Federal Securities Law Be Cited?
No Arizona case has attempted to comprehensively list the principles of statutory interpretation that should be followed to decide whether to cite federal securities law. But when carefully analyzed, the cases and intent provisions in Arizona's securities statutes articulate a core of interpretative principles. The cases state, for example, that relying on federal cases may be inappropriate because of differences in statutory language or policy.790 The Arizona Supreme Court has also suggested that it will only follow settled federal law.791 Other cases show that judge-made rules under implied-liability provisions like Rule 10b-5 may not be appropriate under the express-liability provisions of Arizona's securities statutes.792 The cases also show that it may be necessary to consider more than one federal statute to decide whether federal law is relevant.793
Other cases reveal the importance of the intent statutes.794 The intent statutes explain that the purpose of Arizona's securities laws is public protection;795 that narrow interpretations are to be avoided;796 that the statutes should be liberally construed;797 that federal cases should be cited only when the Arizona and federal statutes are substantially similar;798 and that interpretations by the SEC of substantially similar federal statutes may be considered.799 The courts use these statutory expressions of legislative intent to evaluate and sometimes reject federal case law.800
When synthesized as a whole, the intent statutes and the case law identify the body of interpretative principles that should be followed in deciding whether federal securities law provides relevant guidance on Arizona securities law. These principles are summarized below in ten questions and explanatory comments.
Questions | Comments |
| Is the text of the Arizona statute the same as the federal statute? | Some provisions in the Arizona Securities Act have no federal counterpart.801 In cases involving these unique Arizona statutes, the courts have declined to consider federal case law.802 In other instances, the Arizona and federal statutes are similar but have textual differences that require different interpretations.803 |
Questions | Comments |
| Is the federal court's interpretation one that reduces public protection? | Some federal decisions adopt interpretations that conflict with the 1951 Act's intent to foster public protection.804 |
| Does the federal case adopt a narrower interpretation than what is required by the statute's language? | Some federal decisions adopt narrower interpretations than a fair reading of the statute requires.805 These cases are inconsistent with the Arizona legislature's intent to have Arizona's securities laws liberally construed without narrow or restricted interpretations.806 |
Questions | Comments |
| Does the federal court's method of statutory interpretation conflict with established methods of Arizona interpretation? | U.S. Supreme Court decisions, particularly those involving civil liability under Rule 10b-5, sometimes adopt narrow interpretations that contradict normal statutory inter pretation in Arizona.807 |
| Is federal case law settled? | If the U.S. Supreme Court has not addressed the issue, the lower-federal courts may not have developed a settled position.808 The Arizona Supreme Court has only approved citing settled-federal securities law.809 |
Questions | Comments |
| If unsettled federal case law is cited, what justifies its use? | If federal case law is cited on an issue where federal law is unsettled or conflicting, that fact should be mentioned. A reasoned explanation should then be provided as to why the selected case law provides an appropriate interpretation of the Arizona statute.810 |
| Does more than one federal statute with similar language exist? | The federal securities laws include nine acts.811 As a result, multiple federal statutes may be similar to the language of an Arizona statute.812 If federal precedent is cited, all potentially relevant statutes and the differences in their elements and remedies should be considered.813 |
Questions | Comments |
| If more than one federal statute applies, do the statutes have different elements of proof? | Federal securities statutes sometimes provide cumulative remedies.814 Sometimes this statutory overlap exists even when the federal statutes "involve distinct causes of action and were intended to address different types of wrongdoing."815 Care must therefore be taken to identify the federal statute that most closely parallels the Arizona statute.816 |
Questions | Comments |
| Is the federal statute an express- liability statute or an implied-liability statute? | Arizona's securities statutes provide for express-liability and articulate the available remedies and elements of proof within the statutes' text.817 By contrast, with implied remedies like those under Rule 10b-5, the elements of proof and permissible remedies were judicially created and often cannot be explained by the statute's text.818 This judge-made law may be inconsistent with Arizona's statutes.819 |
| Does relevant precedent by the SEC or a state court exist? | Sometimes the SEC's rules or administrative decisions may provide relevant guidance.820 Securities law in other states may also be relevant.821 |
From this ten-part list, the core principles that should govern citations to federal precedent can be stated even more succinctly. First, as an overarching principle, the text of Arizona's statutes should be given their fair meaning.822 Second, federal cases should not be used to support narrow interpretations not required by an Arizona statute's words.823 Third, requirements from federal case law should not be added to a statute when the requirements are not supported by its text.824 And fourth, if an interpretation that furthers public protection is supported by the statute's text, that interpretation is the preferred one even if federal cases reach a different interpretation.825 These four principles—giving the words their fair meaning; avoiding narrow interpretations; avoiding nontextual requirements; and adopting textually permitted interpretations that advance public protection—describe the predominate approach followed in Arizona securities cases. If fairly applied, these principles will distinguish relevant federal case law from cases that are only superficially relevant.
Interpretive principles may of course sometimes point in different directions.826 And the courts are not always consistent.827 Interpretative canons are sometimes marshaled or distinguished in the manner that best suits the outcome the court prefers.828 Federal cases can be selectively cited the same way.829 But if fairly applied, the four suggested principles provide a reasoned and predictable approach to the use of federal securities law.
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Notes:
[790] See id. at 326-27 ¶¶ 12, 18, 295 P.3d at 424-25 ¶¶ 12, 18 (noting that the court will give less weight to and not necessarily defer to federal securities law when the federal statutes or their policies are materially different); Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 18, 945 P.2d 317, 329 (Ct. App. 1996) ("Because, however, there is no counterpart in those [federal] statutes to the participation-or-inducement standard of our state statute, the federal statutes do not guide us here."); see also In re Allstate Life Ins. Co. Litig., 971 F. Supp. 2d 930, 944 (D. Ariz. 2013) (holding that unlike § 12(a)(2) of the 1933 Act, § 44-1991(A) is not limited to misleading statements made in a prospectus used in an initial public offering).
[791] See Sell, 231 Ariz. at 326-27 ¶¶ 12, 18, 295 P.3d at 424-25 ¶¶ 12, 18 (stating that the court will follow "settled federal securities law" unless there is a good reason not to); see also State v. Gunnison, 127 Ariz. 110, 112-13, 618 P.2d 604, 606-07 (1980) ("Unless there is a good reason for deviating from the United States Supreme Court's interpretation, we will follow the reasoning of that court in interpreting sections of our statutes which are identical or similar to federal securities statutes.").
[792] See Grand I, 214 Ariz. 9, 24-25 ¶ 51, 147 P.3d 763, 778-79 ¶ 51 (Ct. App. 2006) (refusing to apply Rule 10b-5 loss-causation requirements to rescission claims based on § 44-1991(A)(1) and (3) and noting that unlike the Arizona statutes, the federal statutes do not contain an express-rescission remedy for violations of scheme provisions like those in § 44-1991(A)(1) and (3)); see also Strategic Diversity, Inc. v. Alchemix Corp., 666 F.3d 1197, 1209 (9th Cir. 2012) (holding that unlike federal law under Rule 10b-5, "rescission under Arizona securities law does not require the existence of damages").
[793] See Grand I, 214 Ariz. at 24-25 ¶ 51, 147 P.3d at 778-79 ¶ 51 (declining to follow either Rule 10b-5 of the 1934 Act or § 12(a)(2) of the 1933 Act regarding loss causation requirements for claims seeking rescission for violations of § 44-1991(A)(1) and (3)); see also id. at 26 ¶¶ 58-59, 147 P.3d at 780 ¶¶ 58-59 (using loss-causation requirements under Rule 10b-5 and § 12(a)(2) to explain the loss-causation rules that govern damages under § 44-1991(A)'s three subsections).
[794] See supra notes 775-86 and accompanying text (discussing the intent statutes in the 1951 Act and the 1996 amendments). The statutes are quoted in the Appendix at p. 415.
[795] See Securities Act of Arizona, ch. 18, § 20, 1951...
