Opinion ID: 425977
Heading Depth: 4
Heading Rank: 3

Heading: Broker-Dealer Duty

Text: 26 Plaintiff's final attempt to establish a cognizable duty between himself and the defendants is to argue that Newman violated rule 10b-5 because as a registered broker-dealer he owed a general duty to the market to disclose material nonpublic information prior to trading. Moss relies on the District of Columbia Circuit's decision in Dirks v. SEC, 681 F.2d 824 (D.C.Cir.1982), rev'd on other grounds --- U.S. ----, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), to support his argument. Such reliance is misplaced. In Dirks, the SEC censured a broker-dealer for tipping his clients about irregularities at Equity Funding Corporation of America before he publicly disclosed evidence of corporate fraud. The Circuit Court did not consider whether a broker-dealer's nondisclosure of nonpublic information gives rise to civil liability under section 10(b) or rule 10b-5. In fact, the D.C. Circuit made clear that a private action for damages might raise questions of standing, causation, and appropriate remedy not pertinent [in Dirks ]. 681 F.2d at 839-40 n. 19. Moreover, in the Supreme Court's recent reversal of Dirks, the Court expressly declined to consider Judge Wright's novel theory that Dirks acquired a fiduciary duty by virtue of his position as an employee of a broker-dealer. --- U.S. at ---- n. 26, 103 S.Ct. at 3267 n. 26. Therefore, neither the D.C. Circuit's nor the Supreme Court's decision in Dirks lends any support to the plaintiff's argument. 27 We find nothing in the language or legislative history of section 10(b) or rule 10b-5 to suggest that Congress intended to impose a special duty of disclosure on broker-dealers simply by virtue of their status as market professionals. Cf. Dirks v. SEC, 681 F.2d at 840, 841 & n. 21 (Judge Wright reads the legislative history of the 1934 Act as providing that securities professionals regulated by the Act would owe certain responsibilities to the public at large as well as to their clients.). Indeed, to impose such a duty could have an inhibiting influence on the role of market analysts, which the SEC itself recognizes is necessary to the preservation of a healthy market. Dirks v. SEC, --- U.S. at ---- & n. 17, 103 S.Ct. at 3263 & n. 17. 28 Moreover, in Dirks v. SEC, --- U.S. ----, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), the Supreme Court expressly reaffirmed its holding in Chiarella that  '[a] duty [to disclose] arises from the relationship between parties ... and not merely from one's ability to acquire information because of his position in the market.'  Id. at ----, 103 S.Ct. at 3263 (quoting United States v. Chiarella, 445 U.S. at 232-33 & n. 14, 100 S.Ct. at 1116 & n. 14). The Court reexamined this duty of disclosure: 29 Under certain circumstances, such as where corporate information is revealed legitimately to an underwriter, accountant, lawyer, or consultant working for the corporation [Deseret's advisers], these outsiders may become fiduciaries of the shareholders. The basis for recognizing this fiduciary duty is not simply that such persons acquired nonpublic corporate information, but rather that they have entered into a special confidential relationship in the conduct of the business of the enterprise and are given access to information solely for corporate purposes. See SEC v. Monarch Fund, 608 F.2d 938, 942 (CA2 1979); In re Investors Management Co., 44 S.E.C. 633, 645 (1971); In re Van Alstyne, Noel & Co., 43 S.E.C. 1080, 1084-1085 (1969); In re Merrill Lynch, Pierce, Fenner & Smith, Inc., 43 S.E.C. 933, 937 (1968); Cady, Roberts, 40 S.E.C., at 912.... For such a duty to be imposed, however, the corporation must expect the outsider to keep the disclosed nonpublic information confidential, and the relationship at least must imply such a duty. 30 Id. --- U.S. at ---- n. 14, 103 S.Ct. at 3261 n. 14 (emphasis added). 31 The defendants in this case--Courtois and his tippees Antoniu and Newman--owed no duty of disclosure to Moss. In working for Morgan Stanley, neither Courtois nor Newman was a traditional corporate insider, and neither had received any confidential information from the target Deseret. Instead, like Chiarella and Dirks, the defendants were complete stranger[s] who dealt with the sellers [of Deseret stock] only through impersonal market transactions. Chiarella v. United States, 445 U.S. at 232-33, 100 S.Ct. at 1117. 32 Since Moss failed to demonstrate that he was owed a duty by any defendant, he has failed to state a claim for damages under section 10(b) or rule 10b-5.