Opinion ID: 152931
Heading Depth: 1
Heading Rank: 7

Heading: Language and Structure of the Act

Text: Our analysis of whether § 13(a) contains an implied private right of action begins with the language and structure of the statute itself. Alexander v. Sandoval, 532 U.S. 275, 288, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001); In re Digimarc, 549 F.3d at 1231. This is because congressional intent to create a private right of action is the key inquiry in determining whether an implied private right to enforce the statute exists. Opera Plaza, 376 F.3d at 835; see also Orkin v. Taylor, 487 F.3d 734, 739 (9th Cir.2007). In analyzing the language of § 13(a), we look for the presence of any rights-creating language that might imply Congress intended to confer upon shareholders the right to sue an investment company for violating the statute's requirements. See Sandoval, 532 U.S. at 288-89, 121 S.Ct. 1511; In re Digimarc, 549 F.3d at 1231-32. We then look to the structure of the ICA itself. We have observed that analogous provisions [of the statute] expressly providing for private causes of action can imply congressional intent not to create an implied cause of action. Opera Plaza, 376 F.3d at 836(citing Touche Ross, 442 U.S. at 571-74, 99 S.Ct. 2479). We also look to see whether Congress designated a method of enforcement other than through private lawsuits, because [t]he express provision of one method of enforcing a substantive rule suggests that Congress intended to preclude others. Sandoval, 532 U.S. at 290, 121 S.Ct. 1511. We turn first to whether the statute contains any language that would imply Congress intended to allow private enforcement of the statute's requirements, what in Sandoval is termed rights-creating language. Id. at 288, 121 S.Ct. 1511. Section 13(a) contains none. Instead, § 13(a) is focused on limiting the types of actions an investment company can take without first obtaining shareholder approval. Statutes that focus on the person regulated rather than the individuals protected create `no implication of an intent to confer rights on a particular class of persons.' Id. at 289, 121 S.Ct. 1511 (quoting California v. Sierra Club, 451 U.S. 287, 294, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981)). This is because there is far less reason to infer a private remedy in favor of individual persons if Congress, instead of drafting [the statute] with an unmistakable focus on the benefitted class, writes it simply as a ban on or as a prohibition against undesirable conduct by a regulated entity. Cannon, 441 U.S. at 690-92, 99 S.Ct. 1946. Here, as in the district court, Northstar contends that in Lapidus we already construed the statute as creating a private right. The district court correctly said we did not. Northstar, 609 F.Supp.2d at 943. As the district court explained, we found it unnecessary in Lapidus to reach the question of whether § 13(a) creates an implied private right of action. Id. This was because the district court in Lapidus had dismissed the plaintiffs' § 13(a) claims for lack of subject matter jurisdiction and not for failure to state a claim. Lapidus, 232 F.3d at 681. We said in a footnote in Lapidus that the existence of a private right to enforce § 13(a) could be assumed without being decided to resolve the jurisdictional question before us, because the question whether a cause of action exists is not a question of jurisdiction. Id. at 681 n. 4 (quoting Burks v. Lasker, 441 U.S. 471, 476 n. 5, 99 S.Ct. 1831, 60 L.Ed.2d 404 (1979)) (internal quotation marks and citation omitted). We resolved the jurisdictional question in the plaintiffs' favor, and remanded to the district court for consideration in the first instance of the defendants' other asserted grounds for dismissal. Id. at 684. On remand, the district court dismissed the plaintiffs' claims for failure to state a claim without addressing whether § 13(a) creates an implied private right of action. Lapidus v. Hecht, 2002 WL 1034042 (N.D.Cal. May 17, 2002). The language of the statute does not imply a private remedy, and we have never held that it did. We next turn to the structure of the ICA to determine whether it suggests any congressional intent to allow private enforcement. Our Circuit has not done this analysis, but the Second Circuit, twice in the past decade, has analyzed the ICA's statutory scheme for evidence of congressional intent to create a private right of action to enforce other sections of the Act, and has concluded that no such evidence exists. See Bellikoff, 481 F.3d at 116-17(holding there is no private right of action to enforce ICA §§ 34(b), 36(a), and 48(a)); Olmsted, 283 F.3d at 432-33(holding there is no private right of action to enforce ICA §§ 26(f) and 27(i)). In both Bellikoff and Olmsted, the Second Circuit focused on the fact that § 42 of the ICA, 15 U.S.C. 80a-41, authorizes SEC enforcement of the ICA, and that Congress actually created an express private right of action against investment advisors for breach of certain fiduciary duties in § 36(b). This led the Second Circuit to conclude that Congress did not intend to imply a private right to enforce other sections of the ICA. See Bellikoff, 481 F.3d at 116-17; Olmsted, 283 F.3d at 433. We now agree with the Second Circuit that the structure of the ICA does not indicate that Congress intended to create an implied private right to enforce the individual provisions of the Act. In §§ 6 and 42 of the ICA, Congress expressly authorized the SEC to enforce all of the provisions of the Act by granting the Commission broad authority to investigate suspected violations; initiate actions in federal court for injunctive relief or civil penalties; and create exemptions from compliance with any ICA provision, consistent with the statutory purpose and the public interest. 15 U.S.C. §§ 80a-6(c), 80a-41. This thorough delegation of authority to the SEC to enforce the ICA strongly suggests Congress intended to preclude other methods of enforcement. Sandoval, 532 U.S. at 290, 121 S.Ct. 1511. The Supreme Court has also cautioned that where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it. Transamerica, 444 U.S. at 19, 100 S.Ct. 242. Because the statutory scheme of the ICA provides for thorough SEC enforcement of the Act's provisions, including § 13(a), it is highly improbable that Congress absentmindedly forgot to mention an intended private action. Id. at 20, 100 S.Ct. 242(internal quotation marks and citation omitted). Moreover, it is evident from the text of the ICA that Congress knew how to create a private right of action to enforce a particular section of the Act when it wished to do so. In § 30(f) of the original 1940 Act (now codified at 15 U.S.C. § 80a-29(h)), Congress expressly authorized private suits for damages against insiders of closed-end investment companies who make short-swing profits. Transamerica, 444 U.S. at 20 & n. 10, 100 S.Ct. 242. Congress created a second express private right of action in 1970 when it added § 36(b) to the ICA, which allows shareholders to sue an investment company's advisor and its affiliates for breach of certain fiduciary duties relating to management fees. 15 U.S.C. § 80a-35(b); Bellikoff, 481 F.3d at 116; Olmsted, 283 F.3d at 433. Congress's enactment of these two express private rights of action elsewhere in the ICA, without the enactment of a corresponding express private right of action to enforce § 13(a), indicates that Congress did not, by its silence, intend a private right of action to enforce § 13(a). See In re Digimarc, 549 F.3d at 1232-33. Despite this strong evidence from the language of § 13(a) and the ICA's statutory scheme that Congress did not intend to create a private right of action to enforce § 13(a), Northstar argues that such a right can be implied from §§ 1, 33, and 44 of the Act. We disagree, as none of these sections demonstrate that Congress intended private enforcement of each of the provisions of the ICA. Section 1, the congressional findings and declaration of policy, contains general language indicating that one of the purposes of the Act is to protect investors. 15 U.S.C. § 80a-1. That is a key function of the SEC. This general language does not demonstrate that Congress intended the ICA to be enforced by any entity other than the SEC. See Sandoval, 532 U.S. at 290, 121 S.Ct. 1511; Transamerica, 444 U.S. at 24, 100 S.Ct. 242([T]he mere fact that [a] statute was designed to protect [one class of individuals] does not require the implication of a private cause of action for damages on their behalf.); Touche Ross, 442 U.S. at 578, 99 S.Ct. 2479([G]eneralized references to the `remedial purposes' of [an act] will not justify reading a provision `more broadly than its language and the statutory scheme reasonably permit.' (quoting SEC v. Sloan, 436 U.S. 103, 116, 98 S.Ct. 1702, 56 L.Ed.2d 148 (1978))). Section 33 does nothing more than require investment companies and their affiliates to file certain litigation documents with the SEC whenever an investment company or one of its affiliates is a party to a suit against an officer, director, investment advisor, trustee, or depositor of the investment company. 15 U.S.C. § 80a-32. This filing requirement does not imply that Congress anticipated private suits against investment companies for violations of the ICA; the requirement applies to any action or claim and is not solely directed to suits for violations of the ICA. Id. Section 44 is the ICA's jurisdictional provision; it grants concurrent federal and state jurisdiction over all suits in equity and actions at law brought to enforce the provisions of the entire ICA. 15 U.S.C. § 80a-43. It does not create a private right of action to enforce § 13(a). The entity entitled to sue for violations must be identified in the substantive provision of the act. See Touche Ross, 442 U.S. at 577, 99 S.Ct. 2479(The source of plaintiffs' rights must be found, if at all, in the substantive provisions of the [act] which they seek to enforce, not in the jurisdictional provision.).