Source: https://supreme.justia.com/cases/federal/us/444/11/case.html
Timestamp: 2016-12-10 14:41:50
Document Index: 586071825

Matched Legal Cases: ['§ 215', '§ 26', '§ 206', '§ 206', '§ 80', '§ 209', '§ 215', '§ 215', '§ 206', '§ 215', '§ 215', '§ 215', '§ 1525', '§ 881', '§ 29', '§ 78', '§ 206', '§ 215', '§ 206', '§ 206', '§ 217', '§ 80', '§ 209', '§ 206', '§ 203', '§ 20', '§ 206', '§ 11', '§ 18', '§ 214', '§ 40', '§ 40', '§ 214', '§ 213', '§ 214', '§ 206', '§ 80', '§ 206', '§ 80', '§ 78', '§ 79', '§ 215', '§ 206', '§ 215', '§ 206', '§ 215', '§ 206', '§ 206', '§ 206', '§ 214', '§ 214', '§ 214', '§ 214', '§ 1331']

Transamerica Mtg. Advisors, Inc. v. Lewis (full text) :: 444 U.S. 11 (1979) :: Justia U.S. Supreme Court Center Log In
› Transamerica Mtg. Advisors, Inc. v. Lewis
Transamerica Mtg. Advisors, Inc. v. Lewis 444 U.S. 11 (1979)
U.S. Supreme CourtTransamerica Mtg. Advisors, Inc. v. Lewis, 444 U.S. 11 (1979)Transamerica Mortgage Advisors, Inc. v. LewisNo. 77-1645Argued March 20, 1979Reargued October 2, 1979Decided November 13, 1979444 U.S. 11CERTIORARI TO THE UNITED STATES COURT OF APPEALS
or to engage in specified transactions with clients without making required disclosures -- does not, however, create a private cause of action Page 444 U. S. 12 for damages. Unlike § 215, § 26 simply proscribes certain conduct, and does not, in terms, create or alter any civil liabilities. In view of the express provisions in other sections of the Act for enforcing the duties imposed by § 206, it is not possible to infer the existence of an additional private cause of action. And the mere fact that § 206 was designed to protect investment advisers' clients does not require the implication of a private cause of action for damages on their behalf. Pp. 444 U. S. 19-24.
The Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 et seq., was enacted to deal with abuses that Congress had Page 444 U. S. 13 found to exist in the investment advisers industry. The question in this case is whether that Act creates a private cause of action for damages or other relief in favor of persons aggrieved by those who allegedly have violated it.
The respondent's complaint alleged that the petitioners, in the course of advising or managing the Trust, had been guilty of various frauds and breaches of fiduciary duty. The complaint set out three causes of action, each said to arise under the Investment Advisers Act of 1940. [Footnote 2] The first alleged that the advisory contract between TAMA and the Trust was unlawful because TAMA and Transamerica were not registered under the Act and because the contract had provided for grossly excessive compensation. The second alleged that the petitioners breached their fiduciary duty to the Trust by causing it to purchase securities of inferior quality from Land Capital. The third alleged that the petitioners had misappropriated profitable investment opportunities for the benefit Page 444 U. S. 14 of other companies affiliated with Transamerica. The complaint sought injunctive relief to restrain further performance of the advisory contract, rescission of the contract, restitution of fees and other considerations paid by the Trust, an accounting of illegal profits, and an award of damages.
The Investment Advisers Act nowhere expressly provides for a private cause of action. The only provision of the Act that authorizes any suits to enforce the duties or obligations created by it is § 209, which permits the Securities and Exchange Commission (Commission) to bring suit in a federal district court to enjoin violations of the Act or the rules promulgated under it. [Footnote 5] The argument is made, however, that the Page 444 U. S. 15 clients of investment advisers were the intended beneficiaries of the Act and that courts should therefore imply a private cause of action in their favor. See Cannon v. University of Chicago, 441 U. S. 677, 441 U. S. 689; Cort v. Ash, 422 U. S. 66, 422 U. S. 78; J. I. Case Co. v. Borak, 377 U. S. 426, 377 U. S. 432. The question whether a statute creates a cause of action, either expressly or by implication, is basically a matter of statutory construction. Touche Ross & Co. v. Redington, 442 U. S. 560, 442 U. S. 568; Cannon v. University of Chicago, supra at 441 U. S. 688; see National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U. S. 453, 414 U. S. 458 (Amtrak). While some opinions of the Court have placed considerable emphasis upon the desirability of implying private rights of action in order to provide remedies thought to effectuate the purposes of a given statute, e.g., J. I. Case Co. v. Borak, supra, what must ultimately be determined is whether Congress intended to create the private remedy Page 444 U. S. 16 asserted, as our recent decisions have made clear. Touche Ross Co. v. Redington, supra at 442 U. S. 568; Cannon v. University of Chicago, supra at 441 U. S. 688. We accept this as the appropriate inquiry to be made in resolving the issues presented by the case before us.
or to engage in specified transactions with clients without making required disclosures. [Footnote 6] The second is § 215, which provides that contracts whose formation or performance would Page 444 U. S. 17 violate the Act "shall be void . . . as regards the rights of" the violator and knowing successors in interest. [Footnote 7]
It is apparent that the two sections were intended to benefit the clients of investment advisers, and, in the case of § 215, the parties to advisory contracts as well. As we have previously recognized, § 206 establishes "federal fiduciary standards" to govern the conduct of investment advisers, Santa Fe Industries, Inc. v. Green, supra, at 430 U. S. 471, n. 11; Burks v. Lasker, 441 U. S. 471, 441 U. S. 481-482, n. 10; SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 375 U. S. 191-192. Indeed, the Act's legislative history leaves no doubt that Congress intended to impose enforceable fiduciary obligations. See H.R.Rep. No. 2639, 76th Cong., 3d Sess., 28 (1940); S.Rep. No. 1775, 76th Page 444 U. S. 18 Cong., 3d Sess., 21 (1940); SEC, Report on Investment Trusts and Investment Companies (Investment Counsel and Investment Advisory Services), H.R. Doc No. 477, 76th Cong., 2d Sess., 27-30 (1939). But whether Congress intended additionally that these provisions would be enforced through private litigation is a different question.
In the case of § 215, we conclude that the statutory language itself fairly implies a right to specific and limited relief in a federal court. By declaring certain contracts void, § 215, by its terms, necessarily contemplates that the issue of voidness under its criteria may be litigated somewhere. At the very least, Congress must have assumed that § 215 could be raised defensively in private litigation to preclude the enforcement of an investment advisers contract. But the legal consequences of voidness are typically not so limited. A person with the power to avoid a contract ordinarily may resort to a court to have the contract rescinded and to obtain restitution of consideration paid. See Deckert v. Independence Corp., 311 U. S. 282, 311 U. S. 289; S. Williston, Contracts § 1525 (3d ed.1970); J. Pomeroy, Equity Jurisprudence §§ 881 and 1092 (4th ed.1918). And this Court has previously recognized that a comparable Page 444 U. S. 19 provision, § 29(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b), confers a "right to rescind" a contract void under the criteria of the statute. Mills v. Electric Ato-Lite Co., 396 U. S. 375, 396 U. S. 388. Moreover, the federal courts in general have viewed such language as implying an equitable cause of action for rescission or similar relief. E.g., Kardon v. National Gypsum Co., 69 F.Supp. 512, 514 (ED Pa.1946); see 3 L. Loss, Securities Regulation 1758-1759 (2d ed.1961). Cf. Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 421 U. S. 735.
We view quite differently, however, the respondent's claims for damages and other monetary relief under § 206. Unlike § 215, § 206 simply proscribes certain conduct, and does not, in terms, create or alter any civil liabilities. If monetary liability to a private plaintiff is to be found, it must be read into the Act. Yet it is an elemental canon of statutory construction that, where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it. Page 444 U. S. 20 "When a statute limits a thing to be done in a particular mode, it includes the negative of any other mode." Botany Mills v. United States, 278 U. S. 282, 278 U. S. 289. See Amtrak, 414 U.S. at 414 U. S. 458; Securities Investor Protection Corp. v. Barbour, 421 U. S. 412, 421 U. S. 419; T. I. M. E., Inc. v. United States, 359 U. S. 464, 359 U. S. 471. Congress expressly provided both judicial and administrative means for enforcing compliance with § 206. First, under § 217, 15 U.S.C. § 80b-17, willful violations of the Act are criminal offenses, punishable by fine or imprisonment, or both. Second, § 209 authorizes the Commission to bring civil actions in federal courts to enjoin compliance with the Act, including, of course, § 206. Third, the Commission is authorized by § 203 to impose various administrative sanctions on persons who violate the Act, including § 20. In view of these express provisions for enforcing the duties imposed by § 206, it is highly improbable that "Congress absentmindedly forgot to mention an intended private action." Cannon v. University of Chicago, supra at 441 U. S. 742 (POWELL, J., dissenting).
Even settled rules of statutory construction could yield, of course, to persuasive evidence of a contrary legislative intent. Securities Investor Protection Corp. v. Barbour, supra at 421 U. S. 419; Amtrak, supra at 414 U. S. 458. But what evidence of intent exists in this case, circumstantial though it be, weighs against the implication of a private right of action for a monetary award in a case such as this. Under each of the securities laws that preceded the Act here in question, and under the Investment Company Act of 1940, which was enacted as companion legislation, Congress expressly authorized private suits for damages in prescribed circumstances. [Footnote 10] For example, Congress Page 444 U. S. 21 provided.an express damages remedy for misrepresentations contained in an underwriter's registration statement in § 11(a) of the Securities Act of 1933, and for certain materially misleading statements in § 18(a) of the Securities Exchange Act of 1934. "Obviously, then, when Congress wished to provide a private damages remedy, it knew how to do so and did so expressly." Touche Ross & Co. v. Redington, 442 U.S. at 442 U. S. 572; Blue Chip Stamps v. Manor Drug Stores, supra at 421 U. S. 734; see Amtrak, supra., at 414 U. S. 458; T. I. M. E., Inc. v. United States, supra at 359 U. S. 471. The fact that it enacted no analogous provisions in the legislation here at issue strongly suggests that Congress was simply unwilling to impose any potential monetary liability on a private suitor. See Abrahamson v. Fleschner, 568 F.2d 862, 883 (CA2 1977) (Gurfein, J., concurring and dissenting).
The omission of any such potential remedy from the Act's substantive provisions was paralleled in the jurisdictional section, § 214. [Footnote 11] Early drafts of the bill had simply incorporated Page 444 U. S. 22 by reference a provision of the Public Utility Holding Company Act of 1935, which gave the federal courts jurisdiction "of all suits in equity and actions at law brought to enforce any liability or duty created by" the statute (emphasis added). See S. 3580, 76th Cong., 3d Sess., §§ 40(a), 203 (introduced by Sen. Wagner, Mar. 14, 1940); H. . 8935, 76th Cong., 3d Sess., §§ 40(a), 203 (introduced by Rep. Lea, Mar. 14, 1940). After hearings on the bill in the Senate, representatives of the investment advisers industry and the staff of the Commission met to discuss the bill, and certain changes were made. The language that was enacted as § 214 first appeared in this compromise version of the bill. See Confidential Committee Print, S. 3580, 76th Cong., 3d Sess., § 213 (1940). That version, and the version finally enacted into law, S. 4108, 76th Cong., 3d Sess., § 214 (1940), both omitted any references to "actions at law" or to "liability." [Footnote 12] The unexplained deletion of a single phrase from a jurisdictional provision is, of course, not determinative of whether a private remedy exists. But it is one more piece of evidence that Congress did not intend to authorize a cause of action for anything beyond limited equitable relief. [Footnote 13] Page 444 U. S. 23
"It is true that, in Cort v. Ash, the Court set forth four factors that it considered 'relevant' in determining whether a private remedy is implicit in a statute not expressly providing one. But the Court did not decide that each of these factors is entitled to equal weight. The central inquiry remains whether Congress intended to create, either expressly or by implication, a private cause Page 444 U. S. 24 of action. Indeed, the first three factors discussed in Cort -- the language and focus of the statute, its legislative history, and its purpose, see 422 U.S. at 422 U. S. 78 -- are ones traditionally relied upon in determining legislative intent."
For the reasons stated in this opinion, we hold that there exists a limited private remedy under the Investment Advisers Act of 1940 to void an investment advisers contract, but that the Act confers no other private causes of action, legal or equitable. [Footnote 14] Accordingly, the judgment of the Court of Appeals is affirmed in part and reversed in part, and the Page 444 U. S. 25 case is remanded to that court for further proceedings consistent with this opinion.
"* * * *" "(b) Every contract made in violation of any provision of this subchapter and every contract heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of any provision of this subchapter, or any rule, regulation, or order thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, regulation, or order shall have made or engaged in the performance of any such contract, and (2) as regards the rights of any persons who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provision."
The Court today holds that private rights of action under the Investment Advisers Act of 1940 (Act) are limited to actions for rescission of investment advisers contracts. In reaching this decision, the Court departs from established principles governing the implication of private rights of action by confusing the inquiry into the existence of a right of action with the question of available relief. By holding that damages are unavailable to victims of violations of the Act, the Court rejects the conclusion of every United States Court of Appeals that has considered the question. Abrahamson v. Fleschner, 568 F.2d 862 (CA2 1977); Wilson v. First Houston Investment Corp., 566 F.2d 1235 (CA5 1978); Lewis v. Transamerica Corp., 575 F.2d 237 (CA9 1978). The Court's decision cannot be reconciled with our decisions recognizing implied private actions for damages under securities laws with substantially the same language as the Act. [Footnote 2/1] By resurrecting Page 444 U. S. 26 distinctions between legal and equitable relief, the Court reaches a result that, as all parties to this litigation agree, can only be considered anomalous.
This Court has long recognized that private rights of action do not require express statutory authorization. Texas & Pacific R. Co. v. Rigsby, 241 U. S. 33 (1916); Tunstall v. Locomotive Firemen & Enginemen, 323 U. S. 210 (1944). [Footnote 2/2] The preferred approach for determining whether a private right of action should be implied from a federal statute was outlined in Cort v. Ash, 422 U. S. 66, 422 U. S. 78 (1975). See Cannon v. University of Chicago, 441 U. S. 677 (1979). Four factors were thought relevant. [Footnote 2/3] and although subsequent Page 444 U. S. 27 decisions have indicated that the implication of a private right of action "is limited solely to determining whether Congress intended to create the private right of action," Touche Ross & Co. v. Redington, 442 U. S. 560, 442 U. S. 568 (1979), these four factors are "the criteria through which this intent could be discerned." Davis v. Passman, 442 U. S. 228, 442 U. S. 241 (1979). Proper application of the factors outlined in Cort clearly indicates that § 206 of the Act, 15 U.S.C. § 80b-6, creates a private right of action.
The Court concedes that the language and legislative history of § 206 leave no doubt that it was "intended to benefit the clients of investment advisers," ante at 444 U. S. 17, as we have previously recognized. SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 375 U. S. 191-192 (1963); Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 430 U. S. 471, n. 11 (1977). [Footnote 2/4] Because Page 444 U. S. 28 respondent's claims were brought on behalf of a member of the class the Act was designed to benefit, i.e., the clients of investment advisers, the first prong of the Cort test is satisfied in this case.
I find no such intent to foreclose private actions. Indeed, the statutory language evinces an intent to create such actions. [Footnote 2/5] In 215(b) of the Act, Congress provided that contracts Page 444 U. S. 29 made in violation of any provision of the Act "shall be void." As the Court recognizes, such a provision clearly contemplates the existence of private rights under the Act. Similar provisions in the Investment Company Act of 1940, 15 U.S.C. § 80a-46(b), the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b), and the Public Utility Holding Company Act of 1935, 15 U.S.C. § 79z(b), have been recognized as reflecting an intent to create private rights of action to redress violations of substantive provisions of those Acts. Brown v. Bullock, 194 F.Supp. 207, 22228 (SDNY), aff'd, 294 F.2d 415 (CA2 1961); Kardon v. National Gypsum Co., 69 F.Supp. 512, 514 (ED Pa.1946); Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 787, n. 4 (CA2 1951); Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 421 U. S. 735 (1975); Goldstein v. Groesbeck, 142 F.2d 422, 42627 (CA2 1944).
The Court's conclusion that § 215, but not § 206, creates an implied private right of action ignores the relationship of § 215 to the substantive provisions of the Act contained in § 206. Like the jurisdictional provisions of a statute, § 215 "creates no cause of action of its own force and effect; it imposes no liabilities." Touche Ross & Co. v. Redington, supra at 442 U. S. 577. Section 215 merely specifies one consequence of a violation of the substantive prohibitions of § 206. The practical necessity of a private action to enforce this particular consequence of a § 206 violation suggests that Congress contemplated the use of private actions to redress violations of § 206. It also indicates that Congress did not intend the powers given to the SEC to be the exclusive means for enforcement of the Act. [Footnote 2/6] Page 444 U. S. 30
Thus, in the absence of any contrary indication by Congress, courts may provide private litigants exercising implied rights of action whatever relief is consistent with the congressional purpose. J. I. Case Co. v. Borak, 377 U. S. 426 (1964); Securities Investor Protection Corp. v. Barbour, 421 U. S. 412, 421 U. S. 424 (1975); cf. Texas & Pacific R. Co. v. Rigsby, 241 U.S. at 241 U. S. 39. The very decisions cited by the Court to support implication of an equitable right of action from contract voidance provisions of a statute indicate that the relief available in such an action need not be restricted to equitable relief. Deckert v. Independence Shares Corp., 311 U. S. 282, 311 U. S. 287-288 (1940); Mills v. Electric Auto-Lite Co., 396 U. S. 375, 396 U. S. 388 (1970) ("Monetary relief will, of course, also be a possibility"); Kardon v. National Gypsum Co., supra at 514 ("[S]uch suits would include not only actions for rescission, but also for money damages"). As the Court recognized in Porter v. Warner Holding Co., 328 U.S. Page 444 U. S. 31 395, 328 U. S. 399 (1946),
"There is not a shred of evidence in the Page 444 U. S. 32 legislative history of the Advisers Act to support the assertion that Congress intentionally omitted the reference to 'actions at law' in order to preclude private actions by investors."
The fundamental problem with the Court's focus on § 214 is that it attempts to discern congressional intent to deny a private cause of action from a jurisdictional, rather than a substantive, provision of the Act. Because § 214 is only a jurisdictional provision, "[i]t creates no cause of action of its own force and effect; it imposes no liabilities." Touche Ross & Co. v. Redington, 442 U.S. at 442 U. S. 577. Since the source of implied rights of action must be found "in the substantive provisions of [the Act] which they seek to enforce, not in the jurisdictional provision," ibid., § 214's failure to refer to "actions at law" does not indicate that private actions for damages are unavailable under the Act. The subject matter jurisdiction of the federal courts over respondent's action is unquestioned, Page 444 U. S. 33 regardless of how § 214 is interpreted, because jurisdiction is provided by the "arising under" clause of 28 U.S.C. § 1331. Cf. Abrahamson v. Fleschner, supra at 880, n. 5 (Gurfein, J., concurring and dissenting). Where federal courts have jurisdiction over actions to redress violations of federal statutory rights, relief cannot be denied simply because Congress did not expressly provide for independent jurisdiction under the statute creating the federal rights. [Footnote 2/9] Page 444 U. S. 34
Implication of a private right of action for damages unquestionably would be not only consistent with the legislative goal of preventing fraudulent practices by investment advisers, but also essential to its achievement. While the Act empowers the SEC to take action to seek equitable relief to prevent offending investment advisers from engaging in future violations, [Footnote 2/11] Page 444 U. S. 35 in the absence of a private right of action for damages, victimized clients have little hope of obtaining redress for their injuries. Like the statute in Cannon, the Act does not assure that the members of the class it benefits are able "to activate and participate in the administrative process contemplated by the statute." Cannon v. University of Chicago, supra at 441 U. S. 707, n. 41. Moreover, the SEC candidly admits that, given the tremendous growth of the investment advisory industry, the magnitude of the enforcement problem exceeds the Commission's limited examination and enforcement capabilities. [Footnote 2/12] The Commission maintains that private litigation therefore is a necessary supplement to SEC enforcement activity. Under the circumstances of this case, this position seems unassailable. Cf. J. I. Case Co. v. Borak, 377 U.S. at 377 U. S. 432; Cannon v. University of Chicago, supra at 441 U. S. 706-708.
The final consideration under the Cort analysis is whether the subject matter of the cause of action has been so traditionally relegated to state law as to make it inappropriate to infer a federal cause of action. Regulation of the activities of investment advisers has not been a traditional state concern. During the Senate hearings preceding enactment of the Act, Page 444 U. S. 36 Congress was informed that only six States had enacted legislation to regulate investment advisers. Hearings on S. 3580 before a Subcommittee of the Senate Committee on Banking and Currency, 76th Cong., 3d Sess., 996-1017 (1940). Most of the state statutes subsequently enacted have been patterned after the federal legislation. See Note, Private Causes of Action Under Section 206 of the Investment Advisers Act, 74 Mich.L.Rev. 308, 324 (1975).