Liability of Lawyers under Oregon Securities Act

A lawyer may be held liable under ORS 59.115 for securities fraud merely by doing routine legal word in a securities offering. In Prince v. Brydon, 307 Ore. 146; 764 P 2d 1370 (1988), the Supreme Court quoted with approval the words of the Court of Appeals at page 149, “A lawyer who prepares the legal documents necessary for the creation of the entity whose securities are sold, prepares the offering statement for that sale or gives an opinion on the entity's tax status -- all of which are routine parts of a securities practice -- has materially aided in the sale. Without those actions, a sale cannot occur.” The only defense available to the lawyer who materially aids a sale is to sustain the burden of proof that “he did not know or, in the exercise of reasonable care, could not have known of the facts on which the liability is based.” ORS 59.115(3).

This result is the plain intent of the Oregon Legislature. In Prince v. Brydon at page 150 the Supreme Court stated, “The drafters took pains to make clear that the relevant knowledge is of ‘the existence of the facts,’ not of the unlawfulness of a sale. These provisions may place upon persons besides a seller's employees or agents who materially aid in an unlawful sale of securities a substantial burden to exonerate themselves from liability for a resulting loss, but this legislative choice was deliberate. The 1967 revision of the Oregon Securities Act substituted, in ORS 59.115(3), the words ‘every person who participates or materially aids in the sale’ for the words ‘every employee of such a seller * * * and every broker-dealer or agent who materially aids in the sale’ in section 410(b) of the Uniform Securities Act, on which the revision was based. The possible liability of a lawyer who prepares a prospectus was raised in Senate Judiciary Committee hearings on the revision in the 1965 session, and the witness for the drafters responded that the bill ‘makes clear that a person who does not know of a violation is not liable.’ The defense against strict liability, in short, was to be a showing of ignorance, not the professional role of the person who renders material aid in the unlawful sale.”
 
This rule has been followed in a series of cases since Prince v Brydon. One example is the case of a lawyer who was sued for securities fraud for merely drafting a settlement agreement. In Towery v. Lucas, 128 Ore. App. 555, 876 P 2d 814 (1994) the court stated at “This is a statutory claim brought under ORS 59.115(3), which establishes liability of “every person who participates or materially aids in the sale” of securities by means of an untrue statement or omission. (Emphasis supplied.) ‘Every person,’ as used in that statute, includes attorneys, and no privilege for statements of attorneys who participate or materially aid in an unlawful sale of securities has been recognized by the courts. See, e.g., Prince v. Brydon, 307 Or 146, 150-51, 764 P2d 1370 (1988); Adams v. American Western Securities, 265 Or 514, 529, 510 P2d 838 (1973).”

The law of Oregon is that a participant is liable jointly and severally to Plaintiff if securities fraud was committed in the transaction. The lawyer is liable not because of his own fault but because of his status as a “participant” or one who “materially aids.” 

No Duty to Investigate

Plaintiffs do not have a duty of investigation. This theory has been invalidated by the Court of Appeals in Towery v. Lucas  at page 563, “The statute says nothing about a buyer's obligation of inquiry. In contrast, ORS 59.115(1)(b) further provides that a seller may avoid liability for selling a security by means of an untrue statement or omission if the seller ‘did not know, and in the exercise of reasonable care, could not have known, the untruth or omission.’ (Emphasis supplied.) Thus, when the legislature intended to impose an obligation of inquiry, it plainly said so.”

Prince v Brydon - Lawyer liabilty