Source: http://openjurist.org/442/us/560
Timestamp: 2013-12-21 14:20:40
Document Index: 696811952

Matched Legal Cases: ['§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 18', '§ 17', '§ 17', '§ 78', '§ 17', '§ 17', '§ 78', '§ 240', '§ 78', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 17', '§ 78', '§ 17', '§ 1681', '§ 1981', '§ 78', '§ 1982', '§ 1973', '§ 1982', '§ 78', '§ 17', '§ 17', '§ 17']

442 US 560 Touche Ross Co v. S Redington | OpenJurist
442 U.S. 560 - Touche Ross Co v. S Redington	Home442 us 560 touche ross co v. s redington
442 US 560 Touche Ross Co v. S Redington 442 U.S. 560
99 S.Ct. 2479
61 L.Ed.2d 82
TOUCHE ROSS & CO., Petitioner,v.Edward S. REDINGTON, etc., et al.
No. 78-309.
Argued March 26, 1979.
Opinion after remand, 2 Cir., 612 F.2d 68.
ccounting firm was retained by a securities brokerage firm (Weis) registered with the Securities and Exchange Commission (SEC) and a member of the New York Stock Exchange (Exchange), and in this capacity audited Weis' books and records and prepared for filing with the SEC the annual reports of financial condition required by § 17(a) of the Securities Exchange Act of 1934 (1934 Act) and implementing regulations. Subsequently, because of Weis' precarious financial condition, respondent Redington was appointed as trustee in the liquidation of Weis' business pursuant to the Securities Investor Protection Act (SIPA). During the liquidation, Weis' cash and securities on hand, as well as a sum of money advanced by respondent Securities Investor Protection Corporation (SIPC) to the trustee under the SIPA, proved to be insufficient to make whole those customers who had left assets or deposits with Weis. The SIPC and the trustee then filed an action for damages against petitioner in District Court, seeking to impose liability upon petitioner by reason of its allegedly improper audit of Weis' financial statements and alleging that because of such improper conduct petitioner breached duties owed to the SIPC, the trustee, and others under the common law, § 17(a), and the regulations, and that this misconduct prevented Weis' true financial condition from becoming known until it was too late to forestall liquidation or to lessen the adverse financial consequences to Weis' customers. The District Court dismissed the complaint, holding that no claim for relief was stated because no private cause of action could be implied from § 17(a). The Court of Appeals reversed, holding that § 17(a) imposes a duty on accountants, that a breach of this duty gives rise to an implied private right of action for damages in favor of a broker-dealer's customers, and that the SIPC and the trustee could assert this implied cause of action on behalf of Weis' customers.
Held: There is no implied private cause of action for damages under § 17(a). Pp. 568-579.
(a) In terms, § 17(a) simply requires broker-dealers to keep such records and file such reports as the SEC may prescribe, and does not purport to create a private cause of action in favor of anyone. The section's intent, evident from its face, is to provide the SEC, the Exchange, and other authorities with a sufficiently early warning to enable them to take appropriate action to protect investors before a broker-dealer's financial collapse, and not by any stretch of its language does the section purport to confer private damages rights or any remedy in the event the regulatory authorities are unsuccessful in achieving their objectives and the broker-dealer becomes insolvent before corrective steps can be taken. Pp. 568-571.
(b) The conclusion that no private right of action is implicit in § 17(a) is reinforced by the fact that the 1934 Act's legislative history is entirely silent on whether or not such a right of action should be available. This conclusion is also supported by the statutory scheme under which other sections of the Act explicitly grant private causes of action. More particularly, a cause of action in § 17(a) should not be implied that is significantly broader than the one granted in § 18(a), which provides the principal express civil remedy for misstatements in reports but limits it to purchasers and sellers of securities. Pp. 571-574.
(c) The inquiry in a case such as this ends when it is determined on the basis of the statutory language and the legislative history that Congress did not intend to create, either expressly or by implication, a private cause of action. Further inquiries as to the "necessity" of implying a private remedy and the proper forum for enforcement of the asserted rights have little relevance to the decision of the case. Pp.575-576
(d) Section 27 and the remedial purposes of the 1934 Act do not furnish a sufficient ground for holding that the federal courts should provide a damages remedy for petitioner's alleged breach of its duties under § 17(a). Section 27 merely grants jurisdiction to federal district courts over violations of the Act and suits to enforce any liability or duty thereunder and provides for venue and service of process. It creates no cause of action of its own force and effect and imposes no liabilities. And generalized references to the "remedial purposes" of the Act do not justify reading a provision "more broadly than its language and the statutory scheme reasonably permit." SEC v. Sloan, 436 U.S. 103, 116, 98 S.Ct. 1702, 1711, 56 L.Ed.2d 148. Pp. 576-578.
2 Cir., 592 F.2d 617, reversed and remanded.
Arnold I. Roth, New York City, for petitioner.
Philip R. Forlenza, New York City, for respondent, Securities Investor Protection Corp.
James B. Kobak, Jr., New York City, for respondent Redington.
Once again, we are called upon to decide whether a private remedy is implicit in a statute not expressly providing one. During this Term alone, we have been asked to undertake this task no fewer than five times in cases in which we have granted certiorari.1 Here we decide whether customers of securities brokerage firms that are required to file certain financial reports with regulatory authorities by § 17(a) of the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 897, as amended, 15 U.S.C. § 78q(a), have an implied cause of action for damages under § 17(a) against accountants who audit such reports, based on misstatements contained in the reports.2
* Petitioner Touche Ross & Co. is a firm of certified public accountants. Weis Securities Inc. (Weis), a securities brokerage firm registered as a broker-dealer with the Securities and Exchange Commission (Commission) and a member of the New York Stock Exchange (Exchange), retained Touche Ross to serve as Weis' independent certified public accountant from 1969 to 1973. In this capacity, Touche Ross conducted audits of Weis' books and records and prepared for filing with the Commission the annual reports of financial condition required by § 17(a) of the 1934 Act, 15 U.S.C. § 78q(a), and the rules and regulations adopted thereunder. 17 CFR § 240.17a-5 (1972).3 Touche Ross also prepared for Weis responses to financial questionnaires required by the Exchange of its member firms.
This case arises out of the insolvency and liquidation of Weis. In 1973, the Commission and the Exchange learned of Weis' precarious financial condition and of possible violations of the 1934 Act by Weis and its officers. In May 1973, the Commission sought and was granted an injunction barring Weis and five of its officers from conducting business in violation of the 1934 Act.4 At the same time, the Securities Investor Protection Corporation (SIPC), pursuant to statutory authority, applied in the United States District Court for the Southern District of New York for a decree adjudging that Weis' customers were in need of the protection afforded by the Securities Investor Protection Act of 1970 (SIPA), 84 Stat. 1636, 15 U.S.C. § 78aaa et seq.5 The District Court granted the requested decree and appointed respondent Redington (Trustee) to act as trustee in the liquidation of the Weis business under SIPA.
During the liquidation, Weis' cash and securities on hand appeared to be insufficient to make whole those customers who had left assets or deposits with Weis. Accordingly, pursuant to SIPA, SIPC advanced the Trustee $14 million to satisfy, up to specified statutory limits, the claims of the approximately 34,000 Weis customers and certain other creditors of Weis. Despite the advance of $14 million by SIPC, there apparently remain several million dollars of unsatisfied customer claims.6
In 1976, SIPC and the Trustee filed this action for damages against Touche Ross in the District Court for the Southern District of New York. The "common allegations" of the complaint, which at this stage of the case we must accept as true, aver that certain of Weis' officers conspired to conceal substantial operating losses during its 1972 fiscal year by falsifying financial reports required to be filed with regulatory authorities pursuant to § 17(a) of the 1934 Act. App. 8. SIPC and the Trustee seek to impose liability upon Touche Ross by reason of its allegedly improper audit and certification of the 1972 Weis financial statements and preparation of answers to the Exchange financial questionnaire. Id., at 15-19. The complaint alleges that because of its improper conduct, Touche Ross breached duties that it owed SIPC, the Trustee, and others under the common law, § 17(a) and the regulations thereunder, and that Touche Ross' alleged dereliction prevented Weis' true financial condition from becoming known until it was too late to take remedial action to forestall liquidation or to lessen the adverse financial consequences of such a liquidation to the Weis customers. App. 8-9. The Trustee seeks to recover $51 million on behalf of Weis in its own right and on behalf of the customers of Weis whose property the Trustee was unable to return. SIPC claims $14 million, either as subrogee of Weis' customers whose claims it has paid under SIPA or in its own right. The federal claims are based on § 17(a) of the 1934 Act; the complaint also alleges several state common-law causes of action based on accountants' negligence, breach of contract, and breach of warranty.7
The District Court dismissed the complaint, holding that no claim for relief was stated because no private cause of action could be implied from § 17(a). 428 F.Supp. 483 (SDNY 1977).8 A divided panel of the Second Circuit reversed. 592 F.2d 617 (1978). The court first found that § 17(a) imposes a duty on accountants. 592 F.2d, at 621. It next concluded, based on the factors set forth in Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2088, 45 L.Ed.2d 26 (1975), that an accountant's breach of his § 17(a) duty gives rise to an implied private right of action for damages in favor of a broker-dealer's customers, even though it acknowledged that the "legislative history of the section is mute on the issue." 592 F.2d, at 622. The court held that SIPC and the Trustee could assert this implied cause of action on behalf of the Weiss customers.9 We granted certiorari, 439 U.S. 979, 99 S.Ct. 563, 58 L.Ed.2d 649 (1978), and we now reverse.
The question of the existence of a statutory cause of action is, of course, one of statutory construction. Cannon v. University of Chicago, 441 U.S. 677, 688, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979); see National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 458, 94 S.Ct. 690, 693, 38 L.Ed.2d 646 (1974) (hereinafter Amtrak ). SIPC's argument in favor of implication of a private right of action based on tort principles, therefore, is entirely misplaced. Brief for Respondent SIPC 22-23. As we recently have emphasized, "the fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person." Cannon v. University of Chicago, supra, 441 U.S., at 688, 99 S.Ct., at 1953. Instead, our task is limited solely to determining whether Congress intended to create the private right of action asserted by SIPC and the Trustee. And as with any case involving the interpretation of a statute, our analysis must begin with the language of the statute itself. Cannon v. University of Chicago, supra, at 689, 99 S.Ct. at 1953; Teamsters v. Daniel, 439 U.S. 551, 558, 99 S.Ct. 790, 795-796, 58 L.Ed.2d 808 (1979); Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472, 97 S.Ct. 1292, 1300, 51 L.Ed.2d 480 (1977); Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 24, 97 S.Ct. 926, 940, 51 L.Ed.2d 124 (1977); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976).
At the time pertinent to the case before us, § 17(a) read, in relevant part, as follows:
"Every national securities exchange, every member thereof, . . . and every broker or dealer registered pursuant to . . . this title, shall make, keep, and preserve for such periods, such accounts, correspondence, . . . and other records, and make such reports, as the Commission by its rules and regulations may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78q(a) (1970 ed.).
In terms, § 17(a) simply requires broker-dealers and others to keep such records and file such reports as the Commission may prescribe. It does not, by its terms, purport to create a private cause of action in favor of anyone. It is true that in the past our cases have held that in certain circumstances a private right of action may be implied in a statute not expressly providing one. But in those cases finding such implied private remedies, the statute in question at least prohibited certain conduct or created federal rights in favor of private parties. E. g., Cannon v. University of Chicago, supra (20 U.S.C. § 1681); Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 95 S.Ct. 1716, 44 L.Ed.2d 295 (1975) (42 U.S.C. § 1981); Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971) (15 U.S.C. § 78j(b)); Sullivan v. Little Hunting Park, Inc., 396 U.S. 229, 90 S.Ct. 400, 24 L.Ed.2d 386 (1969) (42 U.S.C. § 1982); Allen v. State Board of Elections, 393 U.S. 544, 89 S.Ct. 817, 22 L.Ed.2d 1 (1969) ( 42 U.S.C. § 1973c); Jones v. Alfred H. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968) (42 U.S.C. § 1982); J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964) (15 U.S.C. § 78n(a)). By contrast, § 17(a) neither confers rights on private parties nor proscribes any conduct as unlawful.
The intent of § 17(a) is evident from its face. Section 17(a) is like provisions in countless other statutes that simply require certain regulated businesses to keep records and file periodic reports to enable the relevant governmental authorities to perform their regulatory functions. The reports and records provide the regulatory authorities with the necessary information to oversee compliance with and enforce the various statutes and regulations with which they are concerned. In this case, the § 17(a) reports, along with inspections and other information, enable the Commission and the Exchange to ensure compliance with the "net capital rule," the principal regulatory tool by which the Commission and the Exchange monitor the financial health o