Source: http://www.chanrobles.com/usa/us_supremecourt/503/258/case.php
Timestamp: 2018-01-21 10:38:10
Document Index: 784435090

Matched Legal Cases: ['§ 1964', '§ 1962', '§ 4', '§ 7', '§ 1964', '§ 1964', '§ 1964', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 1961', '§ 1961', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 1961', '§ 1964', '§ 1964', '§ 10', '§ 1961', '§ 10', '§ 1964', '§ 1961', '§ 1961', '§ 1961', '§ 10', '§1964']

HOLMES v. SECURITIES INVESTOR PROTECTION CORPORATION ET AL. 503 U.S. 258 - US SUPREME COURT DECISIONS ON-LINE
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(a) A plaintiff's right to sue under § 1964(c)-which specifies that "[a]ny person injured ... by reason of a violation of [§ 1962] may sue therefor ... and ... recover threefold the damages he sustains ... "requires a showing that the defendant's violation was the proximate cause of the plaintiff's injury. Section 1964(c) was modeled on § 4 of the Clayton Act, which was itself based on § 7 of the Sherman Act, see Associated General Contractors of Cal., Inc. v. Carpenters, 459 U. S. 519, 530, and both antitrust sections had been interpreted to incorporate common-law principles of proximate causation, see, e. g., id., at 533-534, and n. 29, 536, n. 33. It must be assumed that the Congress which enacted § 1964(c) intended its words to have the same meaning that courts had already given them. Cf. id., at 534. Although § 1964(c)'s language can be read to require only factual, "but for," causation, thiscralaw
(c) SIPC's claim that it is entitled to recover on the ground that it is subrogated to the rights of the broker-dealers' customers who did not purchase manipulated securities fails because the conspirators' conduct did not proximately cause those customers' injury. Even assuming, arguendo, that SIPC may stand in the shoes of such customers, the link is too remote between the stock manipulation alleged, which directly injured the broker-dealers by rendering them insolvent, and the nonpurchasing customers' losses, which are purely contingent on the broker-dealers' inability to pay customers' claims. The facts of this case demonstrate that the reasons supporting adoption of the Clayton Act direct-injury limitation, see ibid., apply with equal force to § 1964(c) suits. First, if the nonpurchasing customers were allowed to sue, the district court would first need to determine the extent to which their inability to collect from the broker-dealers was the result of the alleged conspiracy, as opposed to, e. g., the broker-dealers' poor business practices or their failures to anticipate financial market developments. Second, assuming that an appropriate assessment of factual causation could be made out, the court would then have to find some way to apportion the possible respective recoveries by the broker-dealers and the customers, who would otherwise each be entitled to recover the full treble damages. Finally, the law would be shouldering these difficulties despite the fact that the directly injured broker-dealers could be counted on to bring suit for the law's vindication, as they have in fact done in the persons of their SIPA trustees. Indeed, the insolvency of the victim directly injured adds a further concern to those already expressed in Associated General Contractors, since a suit by an indirectly injured victim could be an attempt to circumvent the relative priority its claim would have in the directly injured victim's liquidation proceedings. This analysis is not deflected by the congressional admonition that RICO be liberally construed to effectuate its remedial purposes, since allowing suits by those injured only indirectly would open the door to massive and complex damages litigation, which would not only burden the courts, but also undermine the effectiveness of treble-damages suits. Id., at 545. Thus, SIPC must await the outcome of the trustees' suitcralaw
Kevin P. Roddy and William S. Lerach filed a brief for the National Association of Securities and Commercial Law Attorneys (NASCAT) as amicus curiae urging affirmance.cralaw
1 Such "customer property," see 15 U. S. C. § 78lll(4), does not become part of the debtor's general estate until all customers' and SIPC's claims have been paid. See § 78fff-2(c)(I). That is to say, the claim of a generalcralaw
3To cover these advances, SIPA provides for the establishment of a SIPC Fund. § 78ddd(a)(1). SIPC may replenish the fund from time to time by levying assessments, § 78ddd(c)(2), which members are legally obligated to pay, § 78jjj(a).cralaw
5 Two years earlier, the District Court had dismissed SIPC's non-RICO securities action on the ground that SIPC's claim to have been subrogated to the rights only of those customers who did not purchase any of the manipulated securities rendered the action a failure under the so-called Birnbaum test, which requires a plaintiff to be a purchaser or seller of a security. See Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975); Birnbaum v. Newport Steel Corp., 193 F.2d 461 (CA2), cert. denied, 343 U. S. 956 (1952). The Court of Appeals for the Ninth Circuit reversedcralaw
6 For purposes of this decision, we will assume without deciding that the Court of Appeals correctly held that Holmes can be held responsible for the acts of his co-conspirators.cralaw
9 Section 1962 lists "Prohibited activities." Before this Court, SIPC invokes only subsections (c) and (d). See Brief for Respondent 15, and n. 58. Subsection (c) makes it "unlawful for any person ... associated with any enterprise ... to ... participate ... in the conduct of such enterprise's affairs through a pattern of racketeering activity .... " Insofar as it is relevant here, subsection (d) makes it unlawful to conspire to violate subsection (c). The RICO statute defines "pattern of racketeering activity" as "requir[ing] at least two acts of racketeering activity [,] ... the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." § 1961(5). The predicate offenses here at issue are listed in 18 U. S. C. §§ 1961(1)(B) and (D) (1988 ed., Supp. II), whichcralaw
12 SIPC does say that the question whether its claim must, and as alleged may, satisfy the standard of proximate causation is not within the question on which we granted certiorari. See Brief for Respondent 3, 33, 34, 38-39. However, the proximate-cause issue is "fairly included" within that question. See this Court's Rule 14.1(a). SIPC's own restatement of the question presented reads: "Was the Ninth Circuit correct when it held that SIPC need not be a 'purchaser or seller' of securities to sue under Section 1964(c), which provides that 'any person' may sue for 'injury tocralaw
"Any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act, may sue .... " 26 Stat. 210.cralaw
14 These lower courts had so held well before 1970, when Congress passed RICO.cralaw
For the same reason, there is no merit in SIPC's reliance on legislative history to the effect that it would be inappropriate to have a "private litigant ... contend with a body of precedent-appropriate in a purely antitrust context-setting strict requirements on questions such as 'standing to sue' and 'proximate cause.'" 115 Congo Rec. 6995 (1969) (American Bar Association comments on S. 2048). That statement is rightly understood to refer only to the applicability of the concept of "antitrust injury" to RICO, which we rejected in Sedima, supra, at 495-497. See Brandenburg V. Seidel, 859 F. 2d, at 1189, n. 11. Besides, even if we were to read this statement to say what SIPC says it means, it would not amount to more than background noise drowned out by the statutory language.cralaw
As a threshold matter, SIPC's theory of subrogation is fraught with unanswered questions. In suing Holmes, SIPC does not rest its claimed subrogation to the rights of the broker-dealers' customers on any provision of SIP A. See Brief for Respondent 38, and n. 181. SIPC assumes that SIP A provides for subrogation to the customers' claims against the failed broker-dealers, see 15 U. S. C. §§ 78fff-3(a), 78fff-4(c); see also § 78fff-2(c)(1)(C); see generally Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 556-557 (SDNY 1990), but not against third parties like Holmes. As against him, SIPC relies rather on "common law rights of subrogation" for what it describes as "its money paid to customers for customer claims against third parties." Brief for Respondent 38 (footnote omitted). At oral argument in this Court, SIPC narrowed its subrogation argument to cover only the rights of customers who never purchased manipu-cralaw
18 The record reveals that those customers have brought their own suit against the conspirators.cralaw
20 As we said in Associated General Contractors, "the infinite variety of claims that may arise make it virtually impossible to announce a blackletter rule that will dictate the result in every case." 459 U. S., at 536cralaw
21 If the trustees had not brought suit, SIPC likely could have forced their hands. To the extent consistent with SIPA, bankruptcy principles apply to liquidations under that statute. See § 78fff(b); see also § 78fffl(b) (to extent consistent with SIPA, SIPA trustee has same duties as trustee under Chapter 7 of Bankruptcy Code); § 78eee(b)(2)(A)(iii) (to extent consistent with SIPA, court supervising SIPA liquidation has same powers and duties as bankruptcy court). And, it is generally held that a creditor can, by petitioning the bankruptcy court for an order to that effect, compel the trustee to institute suit against a third party. See In re Automated Business Systems, Inc., 642 F.2d 200, 201 (CA6 1981). As a practical matter, it is very unlikely that SIPC will have to petition a court for such an order, given its influence over SIPA trustees. See § 78eee(b)(3) (court must appoint as trustee "such perso[n] as SIPC, in its sole discretion, specifies," which in certain circumstances may be SIPC itself); § 78eee(b)(5)(C) (SIPC's recommendation to court on trustee's compensation is entitled to "considerable reliance" and is, under certain circumstances, binding).cralaw
SIPC also claims a statutory entitlement to pursue Holmes for funds advanced to the trustees for administering the liquidation proceedings. See Tr. of Oral Arg. 30. Its theory here apparently is not one of subrogation, to which the statute makes no reference in connection with SIPC's obligationcralaw
23 Compare 908 F. 2d, at 1465-1467 (no purchaser-seller rule under RICO); Warner v. Alexander Grant & Co., 828 F.2d 1528, 1530 (CAll 1987) (same), with International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 151-154 (CA41987) (RICO plaintiff relying on securities fraud as predicate offense must have been purchaser or seller); Brannan v. Eisenstein, 804 F. 2d 1041, 1046 (CA8 1986) (same).cralaw
I agree with the Court that the civil action provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO), 84 Stat. 941, as amended, 18 U. S. C. §§ 1961-1968 (1988 ed. and Supp. II), have a proximate cause element, and I can even be persuaded that the proximate cause issue is "fairly included" in the question on which we granted certiorari. Ante, at 266, n. 12. In my view, however, before deciding whether the Securities Investor Protection Corporation (SIP C) was proximately injured by petitioner's alleged activities, we should first consider the standing question that was decided below, and briefed and argued here, and which was the only clearly articulated question on which we granted certiorari. In resolving that question, I would holdcralaw
IThat acceptance was not universal. E. g., Eason v. General Motors Acceptance Corp., 490 F.2d 654, 659 (CA7 1973) (holding that "the protection of [Rule 10b-5] extends to persons who, in their capacity as investors, suffer significant injury as a direct consequence of fraud in connection with a securities transaction, even though their participation in the transaction did not involve either the purchase or the sale of a security") (Stevens, J.).cralaw
2 Compare Securities Investment Protection Corp. v. Vigman, 908 F.2d 1461, 1465-1467 (CA9 1990) (purchaser/seller standing limitation does not apply to RICO claims predicated on acts of fraud in the sale of securities); Warner v. Alexander Grant & Co., 828 F.2d 1528, 1530 (CA111987) (same), with International Data Bank, Ltd. v. Zepkin, 812 F.2d 149, 151-154 (CA4 1987) (standing to bring RICO action predicated on fraud in the sale of securities is limited to purchaser or seller of securities); Brannan v. Eisenstein, 804 F.2d 1041, 1046 (CA8 1986) (same).cralaw
Of course, a RICO plaintiff "only has standing if, and can only recover to the extent that, he has been injured in his business or property by [reason of] the conduct constituting the violation." Id., at 496. We have already remarked that the requirement of injury in one's "business or property" limits the availability of RICO's civil remedies to those who have suffered injury in fact. Id., at 497 (citing Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F.2d 384, 398 (CA7 1984)). Today, the Court sensibly holds that the statutory words "by reason of" operate, as they do in the antitrust laws, to confine RICO's civil remedies to those whom the defendant has truly injured in some meaningful sense. Requiring a proximate relationship between the defendant's actions and the plaintiff's harm, however, cannot itself preclude a nonpurchaser or nonseller of securities, alleging predicate acts of fraud in the sale of securities, from bringing suit under § 1964(c). Although the words "injury in [one's] business or property" and "by reason of" are words of limitation, they do not categorically exclude non-cralaw
Nor can I accept the contention that, even if § 1964(c) does not normally incorporate the standing requirements of the predicate acts, an exception should be made for "fraud in the sale of securities" simply because it is well established that a plaintiff in a civil action under § 10(b) and Rule 10b-5 must be either a purchaser or seller of securities. A careful reading of § 1961(1) reveals the flaw in this argument. The relevant predicate offense is "any offense involving ... fraud in the sale of securities ... punishable under any law of the United States." The embracing words "offense ... punishable under any law of the United States" plainly signify the elements necessary to bring a criminal prosecution. See Trane Co. v. O'Connor Securities, 718 F.2d 26, 29 (CA2 1983); Dan River, Inc. v. Icahn, 701 F.2d 278, 291 (CA4 1983). To the extent that RICO's reference to an "offense involving fraud in the sale of securities" encompasses conduct that violates § 10(b), see infra, at 282-283, the relevant predicate iscralaw
Although the civil suit provisions of § 1964(c) lack a purchaser/seller requirement, it is still possible that one lurks in § 1961(1)'s catalog of predicate acts; i. e., it is possible that § 1961(1) of its own force limits RICO standing to the actual parties to a sale. As noted above, the statute defines "racketeering activity" to include "any offense involving ... fraud in the sale of securities ... punishable under any law of the United States." Unfortunately, the term "fraud in the sale of securities" is not further defined. "[A]ny offense ... punishable under any law of the United States" presumably means that Congress intended to refer to the federal securities laws and not common-law tort actions for fraud. Unlike most of the predicate offenses listed in § 1961(1), however, there is no cross-reference to any specific sections of the United States Code. Nor is resort to the legislative history helpful in clarifying what kinds of securities violations Congress contemplated would be covered. See generally Bridges, Private RICO Litigation Based Upon "Fraud in the Sale of Securities," 18 Ga. L. Rev. 43, 58-59 (1983) (discussing paucity of legislative history); Note, RICO and Securities Fraud: A Workable Limitation, 83 Colum. L. Rev. 1513, 15361539 (1983) (reviewing testimony before Senate Judiciary Committee).cralaw
The Role of Civil RICO in Securities Litigation, 65 Notre Dame L. Rev. 896, 944-947 (1990) (securities fraud is a predicate offense only if fraudcralaw
occurs in actual sale of a security); Tyson & August, The Williams Act Mter RICO: Has the Balance Tipped in Favor of Incumbent Management?, 35 Hastings L. J. 53,79-80 (1983) (criminal violations of antifraud provisions of the securities laws should constitute racketeering activity, provided that the conduct is in connection with purchase or sale of securities); Note, Application of the Racketeer Influenced and Corrupt Organizations Act (RICO) to Securities Violations, 8 J. Corp. L. 411, 430-431 (1983) ("fraud in the sale of securities" applies to fraudulent purchase as well as fraudulent sale of securities).cralaw
In Blue Chip Stamps, we adopted the purchaser/seller standing limitation in § 10(b) cases as a prudential means of avoiding the problems of proof when no security was traded and the nuisance potential of vexatious litigation. 421 U. S., at 738-739. In that case, however, we were confronted with limiting access to a private cause of action that was judicially implied. We expressly acknowledged that "if Congress had legislated the elements of a private cause of action for damages, the duty of the Judicial Branch would be to administer the law which Congress enacted; the Judiciary may not circumscribe a right which Congress has conferred because of any disagreement it might have with Congress about the wisdom of creating so expansive a liability." Id., at 748. To be sure, the problems of expansive standing identified in Blue Chip Stamps are exacerbated in RICO. In addition to the threat of treble damages, a defendant faces the stigma of being labeled a "racketeer." Nonetheless, Congress has legislated the elements of a private cause of action under RICO. Specifically, Congress has authorized "[ainy person injured in his business or property by reason of" a RICO violation to bring suit under §1964(c). Despite the very real specter of vexatious litigation based on speculative damages, it is within Congress' power to create a private right of ac-cralaw
The ultimate question here is statutory standing: whether the so-called nexus (mandatory legalese for "connection") between the harm of which this plaintiff complains and the defendant's so-called predicate acts is of the sort that will sup-cralaw
*My terminology may not be entirely orthodox. It may be that proximate causality is itself an element of the zone-of-interests test as that phrase has ordinarily been used, see, e. g., Wyoming v. Oklahoma, 502 U. S. 437, 473 (1992) (SCALIA, J., dissenting), but that usage would leave us bereft of terminology to connote those aspects of the "violation-injury connection" aspect of standing that are distinct from proximate causality.cralaw
It also seems to me obvious that unless some reason for making a distinction exists, the background zone-of-interests test applied to one cause of action for harm caused by violation of a particular criminal provision should be the same as the test applied to another cause of action for harm caused by violation of the same provision. It is principally in this respect that I differ from JUSTICE O'CONNOR'S analysis,cralaw
What prevents that proposition from being determinative here, however, is the fact that Blue Chip Stamps did not involve application of the background zone-of-interests rule to a congressionally created Rule 10b-5 action, but rather specification of the contours of a Rule 10b-5 action "implied" (i. e., created) by the Court itself-a practice we have since happily abandoned, see, e. g., Touche Ross & Co. v. Redington, 442 U. S. 560, 568-571, 575-576 (1979). The policies that we identified in Blue Chip Stamps, supra, as supporting the purchaser-seller limitation (namely, the difficulty of assessing the truth of others' claims, see id., at 743-747, and the high threat of "strike" or nuisance suits in securities litigation, see id., at 740-741) are perhaps among the factors properly taken into account in determining the zone of interests covered by a statute, but they are surely not alone enough to restrict standing to purchasers or sellers under a text that contains no hint of such a limitation. I think, in other words, that the limitation we approved in Blue Chip Stamps was essentially a legislative judgment rather than ancralaw