Source: https://law.justia.com/cases/federal/appellate-courts/F2/203/627/360872/
Timestamp: 2018-08-14 23:33:29
Document Index: 228546927

Matched Legal Cases: ['§ 6', '§ 10', '§ 10', '§ 6', '§ 41', '§ 78', '§ 78', '§ 78', '§ 78', '§ 6', '§ 6', '§ 1331', '§ 41']

Fratt v. Robinson et al, 203 F.2d 627 (9th Cir. 1953) :: Justia
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Fratt v. Robinson et al, 203 F.2d 627 (9th Cir. 1953)
U.S. Court of Appeals for the Ninth Circuit - 203 F.2d 627 (9th Cir. 1953)
We are in substantial agreement with Judge Clark's dissenting opinion in the case of Baird v. Franklin, 2 Cir., 1944, 141 F.2d 238, 244, certiorari denied 1944, 323 U.S. 737, 65 S. Ct. 38, 89 L. Ed. 591, as to which we shall have more to say presently, wherein he construed § 6(b) of the same Act upon the point under consideration as we construe § 10 and, as we see it, such construction conforms to the intent of Congress as expressed in the Act's preamble, that is, to make the control of security transactions "reasonably complete and effective." Without going into the details of the legislative history, and we have made some examination thereof, we believe our construction is in harmony therewith. We will not lengthen this opinion with extracts from or specific citation of the applicable legislative history. Very full citation and quotations may be found in Appendix A and Appendix B of the Commission's brief and in the body of appellees' brief.
However, the weight of authority and the best reasoning, as we see it, bring us to the conclusion that a civil cause of action may be brought to enforce § 10 as implemented by Securities Exchange Commission Regulation X-10B-5, C.F.R. Section 240.10b-5.15 As heretofore mentioned, the second circuit had a similar point before it in Baird v. Franklin, 2 Cir., 1944, 141 F.2d 238, and the point was discussed in an opinion written by Judge Clark which is termed a dissent. In the majority opinion the court assumed the jurisdictional power of the district court to entertain the action, but reversed the judgment on the merits. Judge Clark dissents as to the majority view of the facts, but since the majority did not treat the jurisdictional question at length, he proceeded to do so. The case rests on § 6(b) of the Act as to which there is no specific right of action granted to private individuals. He reasons, not inconsistently with our reasoning although not perfectly parallel with it, that Congress intended to make the control of securities transactions "reasonably complete and effective" as that phrase is used in the preamble of the Act.16 We can think of nothing that would tend more toward discouraging trading off the established business markets and out of governmental regulation or that would more certainly tend to deter fraudulent practices in security transactions and thus make the Act more "reasonably complete and effective" than the right of defrauded sellers or buyers of securities to seek redress in damages in federal courts. Judge Clark disposes of the applicability of the expressio unius est exclusio alterius rule, (and we are in agreement with him,) by pointing out that the sections which contain specific rights of actions are "* * * sections [which] deal with special matters only indirectly germane to the regulation of securities exchanges; they provide for more unrestricted recovery than would be possible at common law; and they prescribe narrow statutes of limitation." 141 F.2d 238, 245.
In Bell v. Hood, 1946, 327 U.S. 678, 684, 66 S. Ct. 773, 90 L. Ed. 939, a case brought by private parties against Federal Bureau of Investigation officers for tort, there was claimed the right to bring the action for redress of violations made under the Fourth and Fifth Amendments to the United States Constitution. Congress had not enacted a statute providing for such action. However, Congress had authorized, by 28 U.S. C.A. § 41 (1),17 federal district courts to try "suits of a civil nature" where the matter in controversy arises under the "Constitution or laws of the United States * * *." The point under attack was the jurisdiction of the district court. It was held that the district court had jurisdiction to adjudicate the scope of the Fourth and Fifth Amendments, and left the point to be decided by the district court. We quote in the margin from the opinion.18 It is not unusual for courts to take jurisdiction of civil remedies where the legislature has spoken only of criminal sanctions.19
"To use or employ [directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange —], in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." [Emphasis ours.] 15 U.S. C.A. § 78j(b), 48 Stat. 891.
The motions to dismiss referred specifically to Rules 3, and 12(b) of the Federal Rules of Civil Procedure, 28 U.S. C.A
Rule 12(b) (1), Federal Rules of Civil Procedure, 28 U.S.C.A
The various defendants based their motions to dismiss under either Rule 12(b) (1) or 12(b) (6), Fed.Rules of Civil Procedure, 28 U.S.C.A
Motion based on Rule 12(f), Fed.Rules of Civil Procedure, 28 U.S.C.A
Motion based on Rule 12(e), Federal Rules of Civil Procedure, 28 U.S.C.A
In a like action brought by other share-holders of appellee company, in the United States District Court for the Eastern District of Pennsylvania, alleging facts similar to those alleged here, defendant's motion to dismiss the complaint was denied. Robinson v. Difford, 1950, 92 F. Supp. 145
§ 78b, [preamble], 15 U.S.C.A.: "For the reasons hereinafter enumerated, transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, including transactions by officers, directors, and principal security holders, to require appropriate reports, and to impose requirements necessary to make such regulation and control reasonably complete and effective, in order to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions: * * *."
Kardon v. National Gypsum Co., D.C. E.D. Pa., 1946, 69 F. Supp. 512; Kardon v. National Gypsum Co., D.C.E.D. Pa., 1947, 73 F. Supp. 798; Robinson v. Difford, D.C.E.D. Pa., 1950, 92 F. Supp. 145; Speed v. Transamerica Corp., D.C., D. Del., 1951, 99 F. Supp. 808. See also Birnbaum v. Newport Steel Corp., 2 Cir., 1952, 193 F.2d 461, 463. "The Prospects for Rule X-10B-5: An Emerging Remedy for Defrauded Investors", 59 Yale L.J. 1120, 1140, note 95
Robinson v. Difford, D.C.E.D. Pa., 1950, 92 F. Supp. 145, 148; Kardon v. National Gypsum Co., D.C.E.D. Pa., 1947, 73 F. Supp. 798, 800. See also Speed v. Transamerica Corp., D.C.D. Del., 1951, 99 F. Supp. 808, 831
Speed v. Transamerica Corp., D.C.D. Del., 1951, 99 F. Supp. 808, 830
Sections 9(e), 16(b), and 18(a), 15 U.S.C.A. §§ 78i(e), 78p(b), 78r(a)
See "Securities Exchange Commission Action Against Fraudulent Purchasers of Securities", 59 Harvard Law Rev. 769, 779
Kardon v. National Gypsum Co., D.C. E.D. Pa., 1946, 69 F. Supp. 512; Speed v. Transamerica Corp., D.C.D. Del., 1947, 71 F. Supp. 457, 458; Robinson v. Difford, D.C.E.D. Pa., 1950, 92 F. Supp. 145, 149; Slavin v. Germantown Fire Ins. Co., 3 Cir., 1949, 174 F.2d 799, 805; Fischman v. Raytheon Mfg. Co., 2 Cir., 1951, 188 F.2d 783, 787; "The Prospects for Rule X-10B-5: An Emerging Remedy for Defrauded Investors", 59 Yale L.J. 1120, 1133; "Implied Liability Under the Securities Exchange Act", 61 Harv.L.R. 858
"One of the primary purposes of Congress in enacting the Securities Exchange Act of 1934 was to protect the general investing public. Section 2, 15 U.S.C.A. § 78b, states that `transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest', while § 6(d) specifically prescribes for the protection of investors. Some thirty-five other sections of the Act include similar references to this ideal [citing them]. Section 2 also states that another goal of the statute is to make the control of securities transactions `reasonably complete and effective'. If these aims are to be followed by the Act, then, if the investing public is to be completely and effectively protected, § 6(b) must be construed as granting to injured investors individual causes of action to enforce the statutory duties imposed upon the exchanges. * * *." Judge Clark, dissenting in Baird v. Franklin, 2 Cir., 1944, 141 F.2d 238, 244, 245
1927 Edition, now 28 U.S.C.A. § 1331
"The issue of law is whether federal courts can grant money recovery for damages said to have been suffered as a result of federal officers violating the Fourth and Fifth Amendments. That question has never been specifically decided by this Court. That the issue thus raised has sufficient merit to warrant exercise of federal jurisdiction for purposes of adjudicating it can be seen from the cases where this Court has sustained the jurisdiction of the district courts in suits brought to recover damages for depriving a citizen of the right to vote in violation of the Constitution. And it is established practice for this Court to sustain the jurisdiction of federal courts to issue injunctions to protect rights safeguarded by the Constitution and to restrain individual state officers from doing what the 14th Amendment forbids the State to do. Moreover, where federally protected rights have been invaded,it has been the rule from the beginning that courts will be alert to adjust their remedies so as to grant the necessary relief. And it is also well settled that where legal rights have been invaded, and a federal statute provides for a general right to sue for such invasion, federal courts may use any available remedy to make good the wrong done. Whether the petitioners are entitled to recover depends upon an interpretation of 28 U.S.C. § 41(1), and on a determination of the scope of the Fourth and Fifth Amendments' protection from unreasonable searches and deprivations of liberty without due process of law. Thus, the right of the petitioners to recover under their complaint will be sustained if the Constitution and laws of the United States are given one construction and will be defeated if they are given another. For this reason the District Court has jurisdiction. [Cites Cases.]" [Emphasis ours.] Bell v. Hood, 1946, 327 U.S. 678, 684, 66 S. Ct. 773, 776, 90 L. Ed. 939.
Bell v. Hood, 1946, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939. See Lowndes, "Civil Liability Created by Criminal Legislation", 16 Minn. L. Rev. 361; "New Civil Liabilities Under Securities and Exchange Act Rules", 14 U. of Chi.L.Rev. 471
See the following which we believe have the best reasoning in support:
Schillner v. H. Vaughan Clarke & Co., 2 Cir., 1943, 134 F.2d 875; Moore v. Gorman, D.C.S.D.N.Y., 1948, 75 F. Supp. 453.
See contra: Kemper v. Lohnes, 7 Cir., 1949, 173 F.2d 44; Siebenthaler v. Aircraft Access. Corp'n, D.C.S.D. Mo., 1940, CCH Fed.Sec.L.Rep. 90, 112; Independence Shares Corp'n v. Deckert, 3 Cir., 1939, 108 F.2d 51, reversed on other grounds, 1940, 311 U.S. 282, 61 S. Ct. 229, 85 L. Ed. 189; Murphy v. Cady, D.C.D. Me., 1939, 30 F. Supp. 466, affirmed, 1 Cir., 1940, 113 F.2d 988, certiorari denied 1940, 311 U.S. 705, 61 S. Ct. 175, 85 L. Ed. 458.
Thomas v. Richter, 1915, 88 Wash. 451, 153 P. 333; Douglas County v. Grant County, 1917, 98 Wash. 355, 167 P. 928; Heitfeld v. Benevolent and Protective Order of Keglers, 1950, 36 Wash. 2d 685, 220 P.2d 655, 18 A.L.R.2d 983