§ 5.1.9.6 Reliance
Reliance is a uniquely common-law concept that is linked with common-law fraud.1057 The U.S. Supreme Court has described it as "a specialized condition that happens to have grown up with common law fraud."1058
Despite being a "specialized condition" of common-law fraud, reliance is an element of Rule 10b-5 actions.1059 This is so even though nothing in the text of Rule 10b-5 or § 10(b) of the 1934 Act mentions reliance.1060 Reliance is one of several common-law tort concepts used to limit liability under Rule 10b-5.1061 By contrast, civil liability under § 44-1991(A) is a matter of statutory right rather than one of judicially shaping an implied-damage action. Nothing in the language of § 44-1991(A) speaks of reliance.1062 Thus, unlike federal decisions, Arizona courts have declined to read the specialized, common-law fraud condition of reliance into § 44-1991(A).1063
Paradoxically, Arizona decisions finding reliance unnecessary have cited Rule 10b-5 precedent.1064 Because reliance is a Rule 10b-5 requirement, use of Rule 10b-5 precedent by these Arizona courts is analytically confusing. The breakdown in analysis stems from the failure to realize that civil liability for violations of § 44-1991(A) is implemented by the remedy provisions of §§ 44-2001(A) and 44-2002(A), which are modeled on the predecessor of § 12(a)(2) of the 1933 Act.1065 Under § 12(a)(2) the federal courts have uniformly rejected a reliance requirement.1066 The weight of authority construing state-securities statutes analogous to Arizona's statutes also holds reliance unnecessary.1067 Arizona's appellate courts have reached the correct result¾reliance is not required for § 44-1991 civil liability. But their reasoning would be on sounder footing had the courts cited precedent under § 12(a)(2) and similar state statutes.1068
Reliance and causation should not be confused. Reliance is often used to prove causation.1069 But reliance is only one way to prove causation.1070 Thus, statutory requirements for causation, when they exist,1071 do not make reliance an element of the plaintiff's proof.1072 Causation can be proved without reliance by the plaintiff.1073
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Notes:
[1057] See John C.P. Goldberg, Anthony J. Sebok & Benjamin C. Zipursky, The Place of Reliance in Fraud, 48 Ariz. L. Rev. 1001, 1002-04, 1015-20 (2006) (arguing that reliance is a distinct and essential element of common-law fraud but noting that there may be reasons to relax reliance requirements in actions under consumer-fraud and securities statutes).
[1058] Bridge v. Phx. Bond & Indem. Co., 553 U.S. 639, 655-56 (2008) (describing reliance as "a specialized condition that happens to have grown up with common law fraud" and refusing to read reliance into statutory actions for RICO damages predicated on mail fraud (quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 477 (2006) (Thomas, J., concurring in part and dissenting in part)) (internal quotation mark omitted)).
[1059] See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 166-67 (2008) (affirming dismissal of claims against customers and suppliers in alleged revenue scheme because investors did not rely upon any statements or representations by the defendants); Basic Inc. v. Levinson, 485 U.S. 224, 242-47 (1988) (finding reliance necessary but adopting a fraud-on-the-market theory to create a rebuttable presumption of reliance). See...
