State Ex Rel. Corbin v. Pickrell

Citations: 667 P.2d 1304; 136 Ariz. 589Docket: 16375-SA

Court: Arizona Supreme Court; October 26, 1983; Arizona; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Petitioners, the State of Arizona and the Arizona Corporation Commission, filed a special action against several individuals and business entities, alleging that the trial judge improperly dismissed four counts of their complaint for failure to state a claim. The Supreme Court of Arizona accepted jurisdiction due to the lack of an adequate remedy by appeal and the public interest involved. The complaint included allegations of illegal securities sales, asserting three claims under the Arizona Securities Act for unregistered securities, unregistered dealers or salesmen, and fraud related to these sales. Additionally, it included two counts under the Arizona Consumer Fraud Act and three counts under the Arizona Racketeering Act (RICO) for fraudulent schemes, control of an enterprise through racketeering, and conducting an enterprise through racketeering. The petitioners also sought the involuntary dissolution of a corporation under Arizona law.

Respondents moved to dismiss the consumer fraud and RICO counts in the complaint, arguing that securities violations cannot support consumer fraud claims and that petitioners did not allege a distinct "racketeering injury" under RICO. The trial judge granted the dismissal, prompting the State to file a special action alleging that the judge abused his discretion. Respondents argued that the trial judge correctly dismissed the consumer fraud counts based on the precedent set in *People ex rel. Babbitt v. Green Acres Trust*, which determined that securities act violations could not form the basis for consumer fraud claims, as the legislative intent was to prevent cumulative remedies. However, the consumer fraud act was amended shortly after this decision to clarify that it provides additional remedies, undermining the foundation of the *Green Acres Trust* ruling. Respondents counter that there is no legislative history indicating the amendment aimed to overturn the earlier decision, but the timing suggests an intent to reverse it. The amendment's clear language supports the conclusion that the legislature intended for the consumer fraud act to offer additional relief for securities act violations. Respondents also contend that the amendment is unconstitutional under Arizona's Constitution due to a purported failure to meet the single-subject requirement.

The legal provision mandates that the title of a bill must adequately inform about its contents. Courts have established that any provisions that naturally relate to the title are validly included. However, if the title specifies certain amendments, the legislation is restricted to those matters, rendering any unrelated provisions void. In this case, the amendment to A.R.S. 44-1533 was titled to indicate changes related to consumer fraud remedies, not the creation of a new cause of action based on securities law violations. The amendment was intended to make remedies cumulative, without altering the section on unlawful practices. Although respondents contended that the title's reference to remedies did not pertain to A.R.S. 44-1533, a review indicated that the title sufficiently addressed the amendment's scope. Additionally, the court noted that statutes are generally prospective unless explicitly stated otherwise, and thus, consumer fraud claims can only arise from actions following the amendment's effective date of July 25, 1981.

A defect in the pleading does not warrant dismissal under Arizona law, as motions to dismiss for failure to state a claim are disfavored. Dismissals should only occur if it is certain that the plaintiff cannot obtain relief under any conceivable facts related to the claim. Even if the plaintiff may not receive the specific relief sought, a motion to dismiss should be denied if other procedures can remedy the defective pleading.

In this case, the plaintiffs alleged that the respondents' actions occurred from 1980 and continued until the filing of the complaint on July 1, 1982. If proven, the plaintiffs would be entitled to relief for actions between July 25, 1981, and July 1, 1982. Therefore, the court erred in dismissing the consumer fraud claims.

Regarding the RICO counts, respondents contend that the dismissal was appropriate because the complaint did not specify a "racketeering injury" separate from the injuries claimed due to securities violations. They argue that RICO's civil remedies are intended to combat racketeering, not to offer additional remedies for securities violations. The interpretation of the statute is guided by its language, which is the primary evidence of legislative intent. A.R.S. 13-2314(A) allows individuals injured by racketeering to seek treble damages, including attorney's fees. Racketeering includes acts for financial gain that violate state laws, including securities fraud and related offenses.

Relief is accessible under A.R.S. 13-2314(A) for individuals injured by violations of A.R.S. 13-2312, which defines illegal control of an enterprise through racketeering and illegally conducting an enterprise through participation in its affairs via racketeering. The statute does not mandate that plaintiffs demonstrate a specific "racketeering injury" separate from the injury linked to the underlying offense. For instance, a plaintiff alleging a violation of A.R.S. 13-2301(D)(4)(s) must only show injury from the defendant's sale of unregistered securities, coupled with intent for financial gain and a chargeable offense punishable by over one year in prison. Similarly, for violations of A.R.S. 13-2312, plaintiffs must show injury from the defendant's racketeering-related control or conduct of an enterprise.

Respondents reference federal RICO case law, arguing that a special "racketeering injury" is necessary, claiming that the Arizona statute mirrors the federal one. However, this argument is dismissed for several reasons: First, federal courts have varied interpretations of RICO's legislative intent. Second, significant differences exist between Arizona's and the federal RICO statutes, as A.R.S. 13-2314(A) allows for a cause of action for injuries directly resulting from racketeering, unlike the federal statute, which limits claims to injuries from racketeering-related actions concerning business or property interests. Third, concerns that motivated federal interpretations of RICO do not apply to Arizona's legislative context, making the application of a special injury requirement inappropriate in Arizona.

Federal courts have limited the scope of RICO due to concerns that its broad application could improperly transfer civil actions from state to federal courts. Courts requiring a special racketeering injury often cite a lack of Congressional intent for RICO to pre-empt existing remedies for predicate offenses. In contrast, the Arizona RICO statute explicitly states that civil actions under it are remedial and do not restrict other civil or criminal actions, indicating a legislative intent for RICO to serve as a cumulative remedy. The Arizona legislature aimed to address white-collar crime and protect victims, recognizing the differences in state and federal RICO statutes. While acknowledging concerns about potential misuse of the legislation, it is emphasized that RICO's applicability is limited to serious criminal offenses among the enumerated acts. The legislative intent is clear: to provide civil remedies for a wide range of conduct while maintaining a balance against overly strict drafting. The case at hand focuses on legislative intent, confirming that a complaint can state a cause of action under Arizona RICO if it alleges damage due to racketeering, specifies the act as financially motivated and illegal, and meets statutory criteria. Additionally, a cause of action can be established under A.R.S. 13-2312 if the injury is linked to the defendant's illegal control or conduct of an enterprise through racketeering.

Petitioners allege they were defrauded in purchasing securities related to a scheme controlled by respondents, which was funded through illegal sales, thus establishing a RICO cause of action. Respondents contend that the Arizona Attorney General lacks authority to bring actions on behalf of non-residents, citing Arizona constitutional provisions and case law that interpret the Attorney General's powers narrowly. However, it is determined that A.R.S. 13-2314(A) allows any person injured by racketeering, regardless of residency, to file a suit. The statute further permits the state to act on behalf of those injured, indicating no restriction to state residents. The court emphasizes the state's interest in addressing fraud affecting both residents and out-of-state investors, highlighting a moral obligation to rectify such wrongs and maintain the integrity of Arizona's business environment. Consequently, the Attorney General is deemed to have acted within his authority, and the court finds the complaint's consumer fraud and RICO claims valid, reversing the trial court’s dismissal and granting the prayer for relief.