National Credit Union Administration Board v. RBS Securities, Inc. et al

Filing 247

OPINION & ORDER: Because Section 12(G) of the Illinois Blue Sky Law does not require a showing of reliance, it is unnecessary to address the parties' arguments with respect to whether NCUA's First Amended Complaint does, in fact, sufficiently plead reliance, or whether NCUA should be granted leave to amend its First Amended Complaint to add more detailed allegations of reliance. RBS's February 20 motion is denied. (Signed by Judge Denise Cote on 06/15/2015)(tg)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
:
NATIONAL CREDIT UNION ADMINISTRATION
:
BOARD, as Liquidating Agent of
:
Southwest Corporate Federal Credit
:
Union and Members United Corporate
:
Federal Credit Union,
:
:
Plaintiff,
:
-v:
:
RBS SECURITIES INC., f/k/a Greenwich
:
Capital Markets, Inc., and RBS
:
ACCEPTANCE INC., f/k/a Greenwich Capital:
Acceptance, Inc.,
:
:
Defendants.
:
:
----------------------------------------X

13cv6726 (DLC)

OPINION & ORDER

APPEARANCES
For plaintiff:
David C. Fredrick, Wan J. Kim, Gregory G. Rapawy, and Andrew C.
Shen
KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C.
Sumner Square, 1615 M Street, N.W., Suite 400
Washington, DC 20036
George A. Zelcs
KOREIN TILLERY LLC
205 North Michigan Avenue, Suite 1940
Chicago, IL 60601
Stephen M. Tillery, Greg G. Gutzler, and Robert L. King
KOREIN TILLERY LLC
505 North Seventh Street, Suite 3600
St. Louis, MO 63101
David H. Wollmuth, Fredrick R. Kessler, Steven S. Fitzgerald,
and Ryan A. Kane
WOLLMUTH MAHER & DEUTSCH LLP
500 Fifth Avenue, 12th Floor
New York, NY 10110

Norman E. Siegel and Rachel E. Schwartz
STUEVE SIEGEL HANSON LLP
460 Nichols Road, Suite 200
Kansas City, MO 64112
For defendants:
R. Alexander Pilmer, David I. Horowitz, Jay L. Bhimani, Kristin
E. Rose, and Gavin C.P. Campbell
KIRKLAND & ELLIS LLP
333 South Hope Street
Los Angeles, CA 90071
DENISE COTE, District Judge
On February 20, 2015, defendants RBS Securities Inc. and
RBS Acceptance Inc. (collectively “RBS”) moved pursuant to Fed.
R. Civ. P. 12(c) to dismiss the claims brought under Section
12(G) of the Illinois Securities Law of 1953, 815 Ill. Comp.
Stat. 5/12(G) (“Illinois Blue Sky Law”), by plaintiff National
Credit Union Administration Board (“NCUA”) for failure to plead
the element of reliance.

For the following reasons, the motion,

which was fully submitted on March 13, is denied.
BACKGROUND
Before addressing the legal issues raised by the Rule 12(c)
motion, the procedural context of the motion will be described.
This is one of a set of coordinated actions brought by NCUA in
this District, the District of Kansas, and the Central District
of California, as liquidating agent of various credit unions,
against various financial institutions involved in the
packaging, marketing, and sale of residential mortgage backed
2

securities that the credit unions purchased in the period from
2005 to 2007.

See NCUA v. Morgan Stanley & Co. (“Morgan

Stanley”), No. 13cv6705 (DLC), 2014 WL 1673351, at *1 & n.1
(S.D.N.Y. Apr. 28, 2014), reconsideration denied in part, No.
13cv6705 (DLC), 2014 WL 1909499 (S.D.N.Y. May 13, 2014).

NCUA

brings this particular action against RBS on behalf of Southwest
Corporate Federal Credit Union (“Southwest”) and Members United
Corporate Federal Credit Union (“Members United”), alleging that
the Offering Documents for the relevant securities contained
misrepresentations regarding loan originators’ compliance with
underwriting guidelines and certain quantitative characteristics
of the mortgage loan collateral backing the offerings.
The initial complaint, filed on September 23, 2013,
asserted claims on behalf of both credit unions under Sections
11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k77l; on behalf of Southwest under the Texas Securities Act, Tex.
Rev. Civ. Stat. art. 581, § 33 (“Texas Blue Sky Law”); and on
behalf of Members United under the Illinois Blue Sky Law.

The

instant motion concerns only the claims brought under Section
12(G) of the Illinois Blue Sky Law.
NCUA’s action against Morgan Stanley was designated as the
lead case in this District, and defendants in the other actions
were to await resolution of Morgan Stanley’s motion to dismiss
before filing their own.

Morgan Stanley’s motion to dismiss did
3

not call for dismissal of NCUA’s claims under Section 12(G) of
the Illinois Blue Sky Law for failure to plead reliance.
A January 22, 2014 Opinion on Morgan Stanley’s motion to
dismiss dismissed NCUA’s Securities Act claims as time-barred
but permitted the Blue Sky Law claims to go forward.

NCUA v.

Morgan Stanley & Co., No. 13cv6705 (DLC), 2014 WL 241739
(S.D.N.Y. Jan. 22, 2014), reconsideration denied, No. 13cv6705
(DLC), 2014 WL 5017822 (S.D.N.Y. Sept. 30, 2014).

A March 17,

2014 Stipulation and Order applied those rulings to the RBS
action as well.

Neither RBS nor any defendant in the other

coordinated actions moved to dismiss NCUA’s claims under Section
12(G) of the Illinois Blue Sky Law for failure to plead
reliance.
NCUA was given until November 14, 2014 to amend its
pleadings.

Over a week before that deadline, NCUA provided RBS

with a “redline version” of the amended complaint that it
intended to file and asked that by November 12 RBS indicate the
basis of any objections to the amendments so they could be
discussed before November 14.

In response to this request, RBS

raised no objection to NCUA’s Section 12(G) claims; nor did RBS
move to dismiss NCUA’s First Amended Complaint for failure to
plead reliance before answering on December 15, 2014.
RBS filed the instant motion under Rule 12(c) on February
20, 2015, arguing for the first time that NCUA was required to
4

plead reliance to support its Section 12(G) claims.

No

defendant in any of the other coordinated actions has made a
similar argument.
DISCUSSION
I.

Legal Standard
Pursuant to Fed. R. Civ. P. 12(c), “[a]fter the pleadings

are closed -- but early enough not to delay trial -- a party may
move for judgment on the pleadings.”
In deciding a Rule 12(c) motion, [the Court] employ[s]
the same standard applicable to dismissals pursuant to
Fed. R. Civ. P. 12(b)(6). Thus, [the Court] accept[s]
all factual allegations in the complaint as true and
draw[s] all reasonable inferences in plaintiff’s
favor. To survive a Rule 12(c) motion a complaint
must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on
its face.
In re Thelen LLP, 736 F.3d 213, 218-19 (2d Cir.), certified
question accepted sub nom. Thelen LLP. v. Seyfarth Shaw LLP, 4
N.E.3d 359 (2013), and certified question answered, 20 N.E.3d
264 (2014) (citation omitted).
II.

Reliance Under Section 12(G) of the Illinois Blue Sky Law
RBS contends that it is entitled to judgment on the

pleadings by arguing that NCUA failed to plead reliance, which,
according to RBS, is a necessary element of a claim under
Illinois Blue Sky Law Section 12(G).

Not so.

In determining whether reliance is an element of a Section
12(G) claim,
5

[this Court] of course look[s] to the state’s
decisional law, as well as to its constitution and
statutes. Where state law is unsettled, [this Court
is] obligated to carefully predict how the state’s
highest court would resolve the uncertainty or
ambiguity. Where, as here, a state’s highest court
has not spoken on an issue, [this Court] give[s]
proper regard to the relevant rulings of a state’s
lower courts. [This Court] may also consider
decisions in other jurisdictions on the same or
analogous issues.
Id. at 219 (citation omitted).
Looking first to the text of Section 12(G), it includes no
reliance element:
It shall be a violation . . . for any person [t]o
obtain money or property through the sale of
securities by means of any untrue statement of a
material fact or any omission 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.
815 Ill. Comp. Stat. 5/12(G).
The Illinois Supreme Court, while it has not addressed
whether a claim under Section 12(G) requires proof of reliance,
has noted that Section 12 of the Illinois Blue Sky Law “is
closely analogous to” Section 17 of the Securities Act, 15
U.S.C. § 77q, and has looked to federal judicial interpretations
of Section 17 in construing Section 12.
433 N.E.2d 629, 633-34 (Ill. 1982).

See People v. Whitlow,

Similarly, the definitive

treatise on the Illinois Blue Sky Law explains that Section
12(G) was “based on Section 17 of the . . . Securities Act.”
Samuel H. Young, Interpretive Comments and Notes on Sections of
6

the Securities Law of 1953 as Amended, Ch. 121 1/2, Appendix, at
629 (1960).
Section 12(G) was modeled in particular on Section
17(a)(2), which provides:
It shall be unlawful for any person in the offer or
sale of any securities . . . by the use of any means
or instruments of transportation or communication in
interstate commerce . . . to obtain money or property
by means of any untrue statement of a material fact or
any omission to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not
misleading.
15 U.S.C. § 77q(a)(2).
17(a)(2) claim.

Reliance is not an element of a Section

See N. Sims Organ & Co. v. SEC, 293 F.2d 78, 80

n.3 (2d Cir. 1961) (agreeing with the Securities and Exchange
Commission (“SEC”) “that reliance is not an element of the
violation charged”); see also United States v. Lewis, 774 F.3d
837, 842 (5th Cir. 2014) (per curiam) (“Specific reliance by the
investor . . . need not be shown.” (citation omitted)); SEC v.
Fife, 311 F.3d 1, 9 (1st Cir. 2002) (“Under [S]ection 17(a) of
the Securities Act, specific reliance by the investor need not
be shown.” (citation omitted)); SEC v. Boock, No. 09cv8261
(DLC), 2011 WL 3792819, at *21 (S.D.N.Y. Aug. 25, 2011) (noting
that reliance need not be proved “in an action under . . .
Section 17(a)” (citation omitted)); SEC v. Infinity Grp. Co.,
993 F. Supp. 324, 327 (E.D. Pa. 1998), aff'd sub nom. U.S. SEC
v. Infinity Grp. Co., 212 F.3d 180 (3d Cir. 2000) (“[R]eliance
7

by investors is not a necessary statutory element under . . .
[S]ection 17 . . . .”).
In fact, Section 17(a)(2) is itself materially identical to
Section 12(a)(2) of the Securities Act, 15 U.S.C. § 77l(a)(2), 1
see Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 691
(3d Cir. 1991) (“Because the language of [S]ection 17(a)(2) and
of [S]ection 12[(a)](2) is similar, these sections have been
referred to as civil and criminal analogues.”), 2 which does not
include a reliance element either, see NECA-IBEW Health &
Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 156 (2d Cir.
2012) (noting that reliance is not an element of a Section
12(a)(2) claim).
1

As Morgan Stanley noted, Section 17(a)(2),

Pursuant to Section 12(a)(2):
Any person who offers or sells a security . . . , by
the use of any means or instruments of transportation
or communication in interstate commerce or of the
mails, by means of a prospectus or oral communication,
which includes an untrue statement of a material fact
or omits to state a material fact necessary in order
to make the statements, in the light of the
circumstances under which they were made, not
misleading (the purchaser not knowing of such untruth
or omission), and who shall not sustain the burden of
proof that he did not know, and in the exercise of
reasonable care could not have known, of such untruth
or omission, shall be liable . . . .

15 U.S.C. § 77l(a)(2).
See also NCUA v. Morgan Stanley & Co., No. 13cv6705 (DLC), 2014
WL 1909499, at *1 (S.D.N.Y. May 13, 2014) (“Section 12(G) . . .
is patterned on Section 17(a)(2) of the Securities Act, which is
the criminal analogue to Section 12(a)(2) of the Securities
Act.”).
2

8

like Section 12(a)(2), “is written as a strict liability
offense.”

2014 WL 1673351, at *6.

Accordingly, as no reliance

element exists under Section 12(a)(2) or Section 17(a)(2) of the
Securities Act, one does not exist under Section 12(G) of the
Illinois Blue Sky Law either.
The text of Section 12(G) and the analogy to Securities Act
Section 17(a)(2), invited by the Illinois Supreme Court, are not
the only bases to conclude that reliance is not an element of
the instant claim.

As the definitive treatise on the Illinois

Blue Sky Law explains, “the Uniform Securities Act has, in the
main, similar violation provisions” to those of Section 12.
Young, supra, at 629.

Section 101(2) is “the Uniform Act’s

analog to Securities Act [Section] 17(a)[(2)],” Gustafson v.
Alloyd Co., 513 U.S. 561, 603 (1995) (Ginsburg, J., dissenting),
and thus to Section 12(G) of the Illinois Blue Sky Law. 3

And

other states’ Blue Sky Laws modeled on Section 101(2) of the
Uniform Securities Act have been interpreted not to require
3

Pursuant to Section 101(2):
It is unlawful for any person, in connection with the
offer, sale or purchase of any security, directly or
indirectly 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.

Unif. Sec. Act (1956) § 101(2). What “was Section 101 in the
1956 Act” is now Section 501. See Unif. Sec. Act (2002) § 501
cmt. 1.
9

proof of reliance.

See, e.g., Dunn v. Borta, 369 F.3d 421, 433

(4th Cir. 2004) (declining to imply reliance element into
Virginia Blue Sky Law); 4 Carothers v. Rice, 633 F.2d 7, 10, 14
(6th Cir. 1980) (noting parallel between Kentucky Blue Sky Law
and Section 101 of the Uniform Act and explaining that Kentucky
Blue Sky Law does not “require proof of reliance”); Green v.
Green, 293 S.W.3d 493, 505-06, 508 (Tenn. 2009) (noting parallel
between Tennessee Blue Sky Law and Section 101 of the Uniform
Act and holding that the Tennessee Blue Sky Law does not
“require reliance as an element of the right of action”); Gohler
v. Wood, 919 P.2d 561, 566 (Utah 1996) (holding that “reliance
is not an element of a private cause of action under [S]ection[]
61-1-1(2)” of the Utah Blue Sky Law). 5
III. RBS’s Arguments
To argue against this conclusion, RBS principally relies on
Illinois Appellate Court decisions and an attack on the premise
that Section 17(a)(2) of the Securities Act itself has no
reliance element.

Neither tack is successful.

Section 13.1-502(2) of the Virginia Blue Sky Law is materially
identical to Section 101(2) of the Uniform Securities Act.
4

Section 61-1-1(2) of the Utah Blue Sky Law is materially
identical to Section 101(2) of the Uniform Securities Act.
5

10

A.

Illinois Appellate Court Decisions

RBS cites three Illinois Appellate Court decisions that
seemingly rule that Section 12(G) requires a showing of
reliance.

“Decisions of [a state]’s intermediate appellate

courts are helpful indicators of how the [highest court] would
decide, but [this Court is] not strictly bound by decisions of
the [intermediate a]ppellate [courts], particularly when [there
is] persuasive data that the [highest court] would decide
otherwise.”

Reddington v. Staten Island Univ. Hosp., 511 F.3d

126, 133 (2d Cir. 2007), certified question accepted, 881 N.E.2d
214 (2008), and certified question answered, 893 N.E.2d 120
(2008) (citation omitted).
Here, there is such persuasive data, in the form of the
statutory text, the analogy -- invited by the Illinois Supreme
Court itself -- to federal securities law, and the
determinations regarding parallel state statutes.

Moreover, all

three cases cited by RBS are prone to attack.
In Foster v. Alex, 572 N.E.2d 1242 (Ill. App. Ct. 1991),
the appellate court was asked to determine whether a lower court
erred in, among other things, instructing the jury that a
Section 12(G) claim requires proof of both scienter and
reliance.

In holding that Section 12(G) does not require proof

of scienter, Foster explicitly “[f]ollow[ed] Whitlow’s lead” in
“look[ing] to Federal case law” ruling that Section 17(a)(2)
11

does not require scienter.

Id. at 1244-45.

In answering the

question whether Section 12(G) requires proof of reliance,
however, Foster, for unknown reason, abandoned Whitlow and the
analogy to Section 17(a)(2), and instead analogized Section
12(G) to a common law cause of action for negligent
misrepresentation, which, in Illinois, does require reliance.
Id. at 1245.

Had Foster persisted in the appropriate analogy to

Section 17(a)(2), it would have held that Section 12(G) requires
neither scienter nor reliance.
In Lucas v. Downtown Greenville Investors Ltd. P’ship, 671
N.E.2d 389 (Ill. App. Ct. 1996), the plaintiffs alleged
violations of, among other provisions, Sections 12(G) and 12(F)
of the Illinois Blue Sky Law.

Much as Section 12(G) is

materially identical to Section 17(a)(2), Section 12(F) is
substantially similar to Section 17(a)(3). 6

The appellate court

cited Foster for the proposition that it would look to Sections
17(a)(2) and 17(a)(3) of the Securities Act for guidance in
interpreting the subsections of Section 12.

Id. at 395.

But

Illinois Blue Sky Law Section 12(F) makes it a violation “[t]o
engage in any transaction, practice or course of business in
connection with the sale or purchase of securities which works
or tends to work a fraud or deceit upon the purchaser or seller
thereof.” 815 Ill. Comp. Stat. 5/12(F). Securities Act Section
17(a)(3) makes it unlawful “to engage in any transaction,
practice, or course of business which operates or would operate
as a fraud or deceit upon the purchaser.” 15 U.S.C.
§ 77q(a)(3).
6

12

when it stated that Section 12(G) requires a showing of
“transaction causation” -- which is effectively the same as
reliance -- Lucas looked not to federal cases interpreting
Section 17(a)(2) but instead to federal cases holding that a
plaintiff must prove both transaction and loss causation to
bring an action under Section 10(b) of the Securities and
Exchange Act of 1934, 15 U.S.C. § 78j(b). 7
398.

Lucas, 671 N.E.2d at

While Section 12(F) and Section 17(a)(3) are comparable to

Exchange Act Section 10(b), as they all sound in fraud, Section
12(G) and Section 17(a)(2), which are strict liability statutes,
are comparable not to Exchange Act Section 10(b) but to
Securities Act Section 12(a)(2), which does not require
reliance.

Notably, the Lucas plaintiffs did not dispute that

they bore a burden to show transaction causation, and the
appellate court summarily found that they had “sufficiently met
th[at] burden,” proceeding to spend the bulk of its analysis on
loss causation.

Id. at 398. 8

Exchange Act Section 10(b) makes it unlawful “[t]o use or
employ, in connection with the purchase or sale of any
security . . . [,] any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.” 15 U.S.C.
§ 78j(b).
7

RBS points out that, in Morgan Stanley, this Court said that
“[t]here is no persuasive data to suggest that Lucas was wrongly
decided.” 2014 WL 1673351, at *5. That statement, however, was
made with respect to Lucas’s holding regarding loss causation;
8

13

Finally, in Tirapelli v. Advanced Equities, Inc., 813
N.E.2d 1138 (Ill. App. Ct. 2004), the plaintiffs brought
Illinois common law fraud claims as well as claims under
Sections 12(F), 12(G), and 12(I) of the Illinois Blue Sky Law.
Citing Whitlow and Foster, the appellate court said, “[b]ecause
[S]ections 12(F), 12(G), and 12(I) of the Illinois Securities
Law are modeled after [S]ections 17(a)(1) through (a)(3) of the
federal Securities Act, Illinois courts look to federal
securities fraud case law in interpreting those [S]ections of
the Illinois Securities Law.”

Id. at 1142 (citation omitted).

Thus, said the court, again citing Foster, “reasonable reliance
is an element of [S]ections 12(F), 12(G), and 12(I) of the
Illinois Securities Law, as well as [S]ection 10(b) of the
Securities Exchange Act.”

Id. (citation omitted).

But, while

Section 12(F) (modeled on Section 17(a)(3)) and Section 12(I)
(modeled on Section 17(a)(1) 9) sound in fraud and are thus
comparable to Exchange Act Section 10(b), Section 12(G) (modeled
on Section 17(a)(2)) is a strict liability statute and is
Morgan Stanley had no cause to consider Lucas’s discussion of
reliance under Section 12(G).
Illinois Blue Sky Law Section 12(I) makes it a violation “[t]o
employ any device, scheme or artifice to defraud in connection
with the sale or purchase of any security, directly or
indirectly.” 815 Ill. Comp. Stat. 5/12(I). Securities Act
Section 17(a)(1) makes it “unlawful for any person in the offer
or sale of any securities . . . to employ any device, scheme, or
artifice to defraud.” 15 U.S.C. § 77q(a)(1).
9

14

comparable to Securities Act Section 12(a)(2), which does not
require proof of reliance.
For these reasons, the three intermediate appellate
decisions do not reliably indicate that the Illinois’s highest
court would construe Section 12(G) to include the element of
reliance.

The persuasive and reliable evidence indicate that it

would not.
B.

Reliance Under Section 17(a)(2)

RBS also fights the premise that no proof of reliance is
required under Section 17(a)(2) of the Securities Act (and thus
under Section 12(G) by analogy).

RBS points out that the cases

cited above for the proposition that Section 17(a)(2) does not
require reliance are public enforcement actions brought by the
Government or the SEC.

See, e.g., N. Sims Organ, 293 F.2d at 79

(petition to review order of SEC); see also Lewis, 774 F.3d at
839 (appeal from criminal conviction); Fife, 311 F.3d at 7 (SEC
action seeking ex parte preliminary injunction).

Because the

Government and the SEC are not required to prove reliance in a
securities fraud action even though a private plaintiff is, see
United States v. Vilar, 729 F.3d 62, 88 (2d Cir. 2013), cert.
denied, 134 S. Ct. 2684 (2014) (“[W]hile a plaintiff must prove
reliance in a private securities fraud suit, there is no such
requirement in an SEC enforcement action.” (citation omitted)),
RBS says that the enforcement actions cited above do not answer
15

the question whether a private cause of action under Section
17(a)(2) (and thus under Section 12(G)) requires reliance.
RBS goes on to argue that, in the past, when it was thought
that Section 17(a) did contain an implied private right of
action, some courts, in RBS’s words, “required a private Section
17(a) plaintiff to plead reliance (or acknowledged that such
proof was likely necessary).”

In support, RBS cites one case

from the Courts of Appeals for each of the Second, Fourth,
Seventh, and Ninth Circuits.

At most, only the Ninth Circuit

case actually held that reliance is an element of a private
action under Section 17(a).

See Kramas v. Sec. Gas & Oil Inc.,

672 F.2d 766, 770 (9th Cir. 1982). 10
For instance, Lanza v. Drexel & Co., 479 F.2d 1277 (2d Cir.
1973), did not hold that reliance was an element of any nowextinct private right of action under Section 17(a)(2).

First

of all, it was never specified in Lanza which subsection of
Section 17(a) was at issue, and, given that the plaintiffs
brought claims not only under Section 17(a) but also under
Exchange Act Section 10(b), common law fraud, and prima facie
tort, it is reasonable to suspect that the subsections of
Section 17(a) that sound in fraud -- (a)(1) and (a)(3), but not
The Ninth Circuit has subsequently recognized that “there
is . . . no implied private cause of action under [S]ection
17(a),” In re Sherman, 491 F.3d 948, 960 (9th Cir. 2007), thus
rendering Kramas’s holding obsolete.
10

16

(a)(2) -- were implicated there.

Id. at 1280.

Plus, with

respect to reliance being an element under Section 17(a), the
Second Circuit simply said
For the purposes of this case, Judge Frankel below
considered that the requirements for a private cause
of action under [Section] 17(a) were identical to
those under Rule 10b-5 [promulgated under Exchange Act
Section 10(b)]. We do likewise. The theories of
common law fraud and prima facie tort were suggested
to the court in a post-trial memorandum.
Id. at 1280 n.2 (citation omitted).

Lanza hardly holds that a

Section 17(a)(2) action requires reliance, much less does it
cast doubt on using the prevailing interpretations of Section
17(a)(2) to inform construction of Section 12(G). 11

The Fourth Circuit case cited by RBS, Johns Hopkins Univ. v.
Hutton, 488 F.2d 912 (4th Cir. 1973), which, like Lanza, was
brought under Exchange Act Section 10(b) and an unspecified
subsection of Securities Act Section 17(a), also did not hold
that reliance was an element under Section 17(a)(2), instead
“assuming that in a case such as this some degree of reliance is
necessary.” Id. at 915 (emphasis added). Nor did the Seventh
Circuit case cited by RBS, Schlifke v. Seafirst Corp., 866 F.2d
935 (7th Cir. 1989), hold that reliance was an element under
Section 17(a)(2). Indeed, that case noted that “[a] decisive
majority of recent authorities have refused to imply a right of
action under [S]ection 17(a),” and merely said that “if an
implied private right of action were available under [S]ection
17(a), this section and Rule 10b-5 track each other closely.”
Id. at 943 (emphasis added). The claim in that case was not
brought specifically under subsection (2) of Securities Act
Section 17(a), and the Seventh Circuit’s invocation of Rule 10b5, which -- like its parent, Exchange Act Section 10(b) -sounds in fraud, implies that the court was likely referring to
either subsections (a)(1) or (a)(3) of Section 17, which, unlike
(a)(2), also sound in fraud.
11

17

These interlocking arguments by RBS also fail to address
the fact that there is a private right of action under Section
12(a)(2), which is the civil analog to Section 17(a)(2).

As

already described, it is well established that reliance is not
an element of a Section 12(a)(2) claim.

Thus, while RBS may

believe it has pointed out a weakness in the analogy to Section
17(a)(2), it has failed to complete the analysis and grapple
with each of the relevant provisions of the Securities Act or
with any of the other state statutes modeled on the Uniform
Securities Act.
CONCLUSION
Because Section 12(G) of the Illinois Blue Sky Law does not
require a showing of reliance, it is unnecessary to address the
parties’ arguments with respect to whether NCUA’s First Amended
Complaint does, in fact, sufficiently plead reliance, or whether
NCUA should be granted leave to amend its First Amended
Complaint to add more detailed allegations of reliance.

RBS’s

February 20 motion is denied.
SO ORDERED:
Dated:

New York, New York
June 15, 2015

________________________________
DENISE COTE
United States District Judge

18