State v. Marsh & McLennon Companies

ORS 59.137, allowing a party to recover damages from fraud or misrepresentation in a sale or purchase of securities, requires a party to show some sort of reliance, but the party may rely on the "fraud-on-the-market" doctrine to do so.

The State sued Marsh pursuant to ORS 59.135 and 59.137, alleging it made false statements that caused the State to lose $10 million on investments in Marsh stock. The trial court granted summary judgment in favor of Marsh, finding that the statutes required proof of reliance on misrepresentations and that the State introduced no such evidence, and that the State could not use the "fraud-on-the-market" doctrine to do so; the Court of Appeals affirmed. The Supreme Court reversed. Although the statutes did not expressly state that a party must suffer damages due to reliance, the Court ruled that for a person to cause the harm alleged there must be a causal link, and reliance on the misrepresentation that causes the harm was that link. Additionally, the fraud-on-the-market doctrine allows the State to establish reliance if the stock is sold on the open market because the price reflects all the available material information on the company. Thus, misrepresentations that affect the price harm those that relied on the price to accurately reflect the information available. Reversed and remanded.