In Houston v. Seward & Kissel, LLP, 2008 U.S. Dist. LEXIS 23914 (S.D.N.Y. 2008), plaintiff sued defendant, a law firm, for aiding and abetting securities fraud, claiming that defendant participated in or materially aided in the fraudulent sale of securities by drafting, editing and/or reviewing and approving material containing misrepresentations. The court rejected defendant’s argument that Oregon’s aiding and abetting statute was unconstitutional because it violated the Dormant Commerce Clause by regulating conduct that occurred wholly outside of Oregon’s borders. In this Commentary, Professor Eli Wald, a legal ethics expert and member of the Colorado Supreme Court Standing Committee on the Colorado Rules of Professional Conduct and the Colorado Bar Association Ethics Committee, examines Houston and discusses the court’s holding regarding Oregon’s aiding and abetting statute. He writes:
The court held that the Oregon Blue Sky statutes were aimed at protecting Oregon residents from securities fraud and limited to the sale of securities in the state. The plaintiff, the court explained, received the offering materials including the material misrepresentation about the funds’ diversification from the law firm’s client at his home in Oregon, and made the purchase from there. While allowing aiding and abetting liability may impact the relationship between the out-of-state defendant (a New York law firm) and its client (an Idaho resident), the court concluded that Oregon Blue Sky laws primarily address the sale of securities transaction between the law firm’s client and the plaintiff, and not the relationship between the client and his law firm. . . .
Further, the court rejected defendant’s claim that Congress did not grant the states the authority to regulate aider and abettor liability. Rather, the court found that state police power to regulate aiding and abetting liability has been upheld for almost a century. Concluding that Congress has specifically recognized this aspect of the state’s police power, the court held that aiding and abetting state statutes are not subject to the Commerce Clause.
Finally, the court found that Oregon’s Blue Sky statutes do not facially discriminate by expressly or impliedly favoring in-state interests over out-of-state interests so as to implicate the Dormant Commerce Clause. Defendant suggested that even if Oregon’s derivative liability statute did not discriminate on its face, it nonetheless violated the Commerce Clause by directly regulating commerce and by imposing improper burdens on interstate commerce, for example, on the rendering of legal advice by an out-of-state law firm to an out-of-state client. The court rejected the claim, holding that [b]ut where the effect of the regulation is the same in and outside of the enacting state’s territory, a Commerce Clause challenge will fail.
(citations omitted)