Source: https://supreme.justia.com/cases/federal/us/552/148/opinion.html
Timestamp: 2016-07-27 03:48:02
Document Index: 155453346

Matched Legal Cases: ['§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§10', '§78', '§10', '§10', '§78', '§10']

Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc :: 552 U.S. 148 (2008) :: Justia U.S. Supreme Court Center Log In
› Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc
Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc 552 U.S. 148 (2008)
The District Court granted respondents’ motion to dismiss for failure to state a claim on which relief can be granted. The United States Court of Appeals for the Eighth Circuit affirmed. In re Charter Communications, Inc., Securities Litigation, 443 F. 3d 987 (2006). In its view the allegations did not show that respondents made misstatements relied upon by the public or that they violated a duty to disclose; and on this premise it found no violation of §10(b) by respondents. Id., at 992. At most, the court observed, respondents had aided and abetted Charter’s misstatement of its financial results; but, it noted, there is no private right of action for aiding and abetting a §10(b) violation. See Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164, 191 (1994). The court also affirmed the District Court’s denial of petitioner’s motion to amend the complaint, as the revised pleading would not change the court’s conclusion on the merits. 443 F. 3d, at 993.
Rule 10b–5 encompasses only conduct already prohibited by §10(b). United States v. O’Hagan, 521 U. S. 642, 651 (1997). Though the text of the Securities Exchange Act does not provide for a private cause of action for §10(b) violations, the Court has found a right of action implied in the words of the statute and its implementing regulation. Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9 (1971). In a typical §10(b) private action a plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. See Dura Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 341–342 (2005). In Central Bank, the Court determined that §10(b) liability did not extend to aiders and abettors. The Court found the scope of §10(b) to be delimited by the text, which makes no mention of aiding and abetting liability. 511 U. S., at 177. The Court doubted the implied §10(b) action should extend to aiders and abettors when none of the express causes of action in the securities Acts included that liability. Id., at 180. It added the following:
“Were we to allow the aiding and abetting action proposed in this case, the defendant could be liable without any showing that the plaintiff relied upon the aider and abettor’s statements or actions. See also Chiarella [v. United States, 445 U. S. 222, 228 (1980)]. Allowing plaintiffs to circumvent the reliance requirement would disregard the careful limits on 10b–5 recovery mandated by our earlier cases.” Ibid.
The Court of Appeals concluded petitioner had not alleged that respondents engaged in a deceptive act within the reach of the §10(b) private right of action, noting that only misstatements, omissions by one who has a duty to disclose, and manipulative trading practices (where “manipulative” is a term of art, see, e.g., Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 476–477 (1977)) are deceptive within the meaning of the rule. 443 F. 3d, at 992. If this conclusion were read to suggest there must be a specific oral or written statement before there could be liability under §10(b) or Rule 10b–5, it would be erroneous. Conduct itself can be deceptive, as respondents concede. In this case, moreover, respondents’ course of conduct included both oral and written statements, such as the backdated contracts agreed to by Charter and respondents.
Reliance by the plaintiff upon the defendant’s deceptive acts is an essential element of the §10(b) private cause of action. It ensures that, for liability to arise, the “requisite causal connection between a defendant’s misrepresentation and a plaintiff’s injury” exists as a predicate for liability. Basic Inc. v. Levinson, 485 U. S. 224, 243 (1988); see also Affiliated Ute Citizens of Utah v. United States, 406 U. S. 128, 154 (1972) (requiring “causation in fact”). We have found a rebuttable presumption of reliance in two different circumstances. First, if there is an omission of a material fact by one with a duty to disclose, the investor to whom the duty was owed need not provide specific proof of reliance. Id., at 153–154. Second, under the fraud-on-the-market doctrine, reliance is presumed when the statements at issue become public. The public information is reflected in the market price of the security. Then it can be assumed that an investor who buys or sells stock at the market price relies upon the statement. Basic, supra, at 247.
These considerations answer as well the argument that if this were a common-law action for fraud there could be a finding of reliance. Even if the assumption is correct, it is not controlling. Section 10(b) does not incorporate common-law fraud into federal law. See, e.g., SEC v. Zandford, 535 U. S. 813, 820 (2002) (“[Section 10(b)] must not be construed so broadly as to convert every common-law fraud that happens to involve securities into a violation”); Central Bank, 511 U. S., at 184 (“Even assuming … a deeply rooted background of aiding and abetting tort liability, it does not follow that Congress intended to apply that kind of liability to the private causes of action in the securities Acts”); see also Dura, 544 U. S., at 341. Just as §10(b) “is surely badly strained when construed to provide a cause of action … to the world at large,” Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 733, n. 5 (1975), it should not be interpreted to provide a private cause of action against the entire marketplace in which the issuing company operates.
The practical consequences of an expansion, which the Court has considered appropriate to examine in circumstances like these, see Virginia Bankshares, Inc. v. Sandberg, 501 U. S. 1083, 1104–1105 (1991); Blue Chip, 421 U. S., at 737, provide a further reason to reject petitioner’s approach. In Blue Chip, the Court noted that extensive discovery and the potential for uncertainty and disruption in a lawsuit allow plaintiffs with weak claims to extort settlements from innocent companies. Id., at 740–741. Adoption of petitioner’s approach would expose a new class of defendants to these risks. As noted in Central Bank, contracting parties might find it necessary to protect against these threats, raising the costs of doing business. See 511 U. S., at 189. Overseas firms with no other exposure to our securities laws could be deterred from doing business here. See Brief for Organization for International Investment et al. as Amici Curiae 17–20. This, in turn, may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets. Brief for NASDAQ Stock Market, Inc., et al. as Amici Curiae 12–14.
The history of the §10(b) private right and the careful approach the Court has taken before proceeding without congressional direction provide further reasons to find no liability here. The §10(b) private cause of action is a judicial construct that Congress did not enact in the text of the relevant statutes. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U. S. 350, 358–359 (1991); Blue Chip, supra, at 729. Though the rule once may have been otherwise, see J. I. Case Co. v. Borak, 377 U. S. 426, 432–433 (1964), it is settled that there is an implied cause of action only if the underlying statute can be interpreted to disclose the intent to create one, see, e.g., Alexander, supra, at 286–287; Virginia Bankshares, supra, at 1102; Touche Ross & Co. v. Redington, 442 U. S. 560, 575 (1979). This is for good reason. In the absence of congressional intent the Judiciary’s recognition of an implied private right of action “necessarily extends its authority to embrace a dispute Congress has not assigned it to resolve. This runs contrary to the established principle that ‘[t]he jurisdiction of the federal courts is carefully guarded against expansion by judicial interpretation … ,’ American Fire & Casualty Co. v. Finn, 341 U. S. 6, 17 (1951), and conflicts with the authority of Congress under Art. III to set the limits of federal jurisdiction.” Cannon v. University of Chicago, 441 U. S. 677, 746 (1979) (Powell, J., dissenting) (citations and footnote omitted). The determination of who can seek a remedy has significant consequences for the reach of federal power. See Wilder v. Virginia Hospital Assn., 496 U. S. 498, 509, n. 9 (1990) (requirement of congressional intent “reflects a concern, grounded in separation of powers, that Congress rather than the courts controls the availability of remedies for violations of statutes”).
This restraint is appropriate in light of the PSLRA, which imposed heightened pleading requirements and a loss causation requirement upon “any private action” arising from the Securities Exchange Act. See 15 U. S. C. §78u–4(b). It is clear these requirements touch upon the implied right of action, which is now a prominent feature of federal securities regulation. See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 81–82 (2006); Dura, 544 U. S., at 345–346; see also S. Rep. No. 104–98, p. 4–5 (1995) (recognizing the §10(b) implied cause of action, and indicating the PSLRA was intended to have “Congress … reassert its authority in this area”); id., at 26 (indicating the pleading standards covered §10(b) actions). Congress thus ratified the implied right of action after the Court moved away from a broad willingness to imply private rights of action. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U. S. 353, 381–382, and n. 66 (1982); cf. Borak, supra, at 433. It is appropriate for us to assume that when §78u–4 was enacted, Congress accepted the §10(b) private cause of action as then defined but chose to extend it no further.