IN COURT OF APPEALS
First National Bank of the
North, et al.,
Miller & Schroeder Financial, Inc., et al.,
State of Minnesota,
Hennepin County District Court
File No. 00-15958
Vernon J. Vander Weide, Thomas V. Seifert, Head, Seifert & Vander Weide, 333 South Seventh Street, Suite 1140, Minneapolis, MN 55402; and
John A. Cochrane, Cochrane & Bresnahan, P.A., 24 East Fourth Street, St. Paul, MN 55101 (for appellants)
Mike Hatch, Attorney General,
Gary R. Cunningham, Assistant Attorney General, 1800
Considered and decided by Halbrooks, Presiding Judge; Klaphake, Judge; and Wright, Judge.
S Y L L A B U S
1. Statutory immunity bars tort claims against the state that derive from the state’s registration of securities.
2. The Minnesota Consumer Fraud Act does not authorize suits against the state.
O P I N I O N
November 14, 1997, the Minnesota Department of Commerce (the department) issued
a notice of registration by coordination for debentures offered by United
Homes, Inc. (UHI). See
The department is charged with regulating securities sold in Minnesota. As part of the process of registering debt securities, such as UHI’s debentures, the department reviews the proposed offering for compliance with several statutory and regulatory criteria. When it reviewed UHI’s request for coordinate registration, the department did not strictly comply with some of its regulatory requirements for registration of securities. In their complaint, appellants claim that this noncompliance gave rise to several tort and statutory causes of action against the State of Minnesota, including negligence, negligent misrepresentation, fraud, aiding and abetting, and violation of the Minnesota Consumer Fraud Act.
The state moved to dismiss for failure to state a claim on which relief can be granted. In doing so, the state asserted statutory immunity from liability for appellant’s tort claims under Minn. Stat. § 3.736 (2002). The state also argued that appellants failed to state a claim under the Minnesota Consumer Fraud Act because the department had not made any false representations regarding the registration of the debentures. The district court dismissed appellants’ claims under Minn. R. Civ. P. 12.02(e). This appeal followed.
review de novo a dismissal for failure to state
a claim on which relief can be granted to determine whether the
complaint sets forth a legally sufficient claim for relief. Barton v.
Appellants argue that the state is liable in tort because the department failed to follow its own regulations when it registered UHI debentures for sale in Minnesota. Specifically, appellants allege that the UHI registration was approved despite the department’s knowledge that the UHI offering would not meet the registration requirements without including cash flow from borrowing, which is prohibited by Minn. R. 2875.3500, subp. 2A (1997).
Generally, under the Minnesota Tort Claims Act, the state will pay damages for torts caused by state employees acting within the scope of their employment “where the state, if a private person, would be liable to the claimant.” Minn. Stat. § 3.736, subd. 1 (2002). But the Minnesota Tort Claims Act includes several exclusions under which the state is immune from tort liability. Under subdivision 3(k), for example, the state is not liable for “a loss based on the failure of a person to meet the standards needed for a license, permit, or other authorization issued by the state or its agents.” Id., subd. 3(k) (2002). In considering whether this exclusion applies to the state in this case, our analysis focuses on whether registration of UHI debentures is “a license, permit, or other authorization issued by the state.” Thus, we are presented with an issue of statutory interpretation, which we review de novo.
The object of statutory interpretation is to give effect to the intention of the legislature. Educ. Minn.-Chisholm v. Indep. Sch. Dist. No. 695, 662 N.W.2d 139, 143 (Minn. 2003). If the meaning of a statute is clear, then it shall be given effect according to the plain meaning of the words used. Molloy v. Meier, 679 N.W.2d 711, 723 (Minn. 2004); see also Minn. Stat. § 645.08 (1) (2004) (stating canons of statutory construction).
“license” is defined as an “official or legal permission” to perform a
specified act. American Heritage Dictionary 1038 (3d ed. 1985). “Authorization” is synonymous with
“permission.” Id. at 124. The state does
not permit the sale of securities to the public unless the securities have been
registered by the department.
Gertken v. State, 493 N.W.2d 290 (Minn.
App. 1992), review denied (Minn. Feb.
9, 1993), appellants argue that the state is not immune from liability under
the licensing exclusion in this case.
Appellants’ reliance on Gertken
is misplaced. In Gertken, we held that the state was immune from liability for the
deaths of two individuals from carbon-monoxide poisoning after a homeowner
asked an inspector during a daycare-licensing inspection about fireplace
cleaning. Id. at 291-93. The homeowner
alleged that the inspector failed to notice dangerous conditions that violated
the licensing standards and that the homeowner had detrimentally relied on the
inspector’s advice about whether fireplace cleaning was needed, which led to
the deaths of her husband and daughter. Id. at 291. Our analysis in Gertken turned on whether the inspector’s representations were
directly related to the scope of the subject matter considered in
Appellants’ allegations here are analogous to those in Gertken. Appellants allege that the department erroneously concluded, in violation of its own regulations, that UHI would be able to fund its debentures. While the department’s conclusion may have been erroneous, as was the conclusion of the inspector in Gertken, any representation made by the department as a result of the registration certainly was directly related to the subject matter considered in registering the securities.
argue that Gertken contains an “express
representation” exception to the licensing exclusion that applies in this
case. Indeed, in Gertken we noted that the holding was “confined to the facts” and did
not “address the issue of an express representation which differs from the
representations implied by licensing.”
maintain for the first time on appeal that interpreting the Minnesota Tort
Claims Act so as to bar their tort claims against the state would render the
Act unconstitutional. Citing
also argue that, when the department registered the UHI debentures, it violated
the Minnesota Consumer Fraud Act. The Minnesota
Consumer Fraud Act prohibits the “act, use, or employment by any person of any
fraud, false pretense, false promise, misrepresentation, misleading statement
or deceptive practice, with the intent that others rely thereon in connection
with the sale of any merchandise.”
Our analysis of the plain language of the statute establishes that the Minnesota Consumer Fraud Act does not apply to the state as an entity. Although neither party raised this argument on appeal, we may properly decide a case based on arguments not raised by the parties when our reasoning is neither novel nor questionable. State v. Hannuksela, 452 N.W.2d 668, 673-74 n.7 (Minn. 1990).
Minnesota Consumer Fraud Act prohibits “any person” from engaging in fraudulent
Because the Minnesota Consumer Fraud Act does not authorize suits against the state, appellants failed to state a claim on which relief can be granted.
D E C I S I O N
 The securities regulations specifically indicate that
“the fact that a security is
effectively registered . . . [does not constitute] a finding by the
commissioner that any document filed under this chapter is true, complete and