Opinion ID: 692029
Heading Depth: 1
Heading Rank: 2

Heading: Private Right of Action under Section 14(d)(7)

Text: The SEC's statutory authority to promulgate Rule 14d-10 derives from sections 14(d)(6) and 14(d)(7) of the 1968 Williams Act Amendments to the Securities Exchange Act of 1934. 15 U.S.C. Sec. 78n(d)(6), (7) (1981). 8 Matsushita 9 makes the threshold argument that it cannot be sued by MCA shareholders for violating Rule 14d-10 because Congress did not intend sections 14(d)(6) and 14(d)(7) to be privately enforceable. 10 In advancing this argument, Matsushita asks us to create a conflict with the Second and Third Circuits, both of which have held that Congress intended to create a private right of action under section 14(d)(7). See Polaroid Corp. v. Disney, 862 F.2d 987, 996 (3d Cir.1988); Field v. Trump, 850 F.2d 938, 946 (2d Cir.1988), cert. denied, 489 U.S. 1012, 109 S.Ct. 1122, 103 L.Ed.2d 185 (1989); cf. Pryor v. United States Steel Corp., 794 F.2d 52, 57-58 (2d Cir.) (holding that section 14(d)(6) also contains a private right of action), cert. denied, 479 U.S. 954, 107 S.Ct. 445, 93 L.Ed.2d 393 (1986). We find the reasoning of the Second and Third Circuits to be persuasive. In Field and Pryor, the Second Circuit applied the traditional four-factor Cort v. Ash test in deciding whether, in enacting sections 14(d)(6) and 14(d)(7), Congress intended to create ... by implication ... a private cause of action. Pryor, 794 F.2d at 57 (quoting Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S.Ct. 2479, 2488-89, 61 L.Ed.2d 82 (1979)). In holding that Congress did intend to create a private right of action the Second Circuit reasoned, first, that both 14(d)(6) and 14(d)(7) identif[y] [their] beneficiaries and, unlike the bulk of federal securities regulation, confer[ ] a substantive right on those beneficiaries. Pryor, 794 F.2d at 57 (cited in Field, 850 F.2d at 946). Second, the court found that a private damages remedy was totally consistent with the statutory purpose of protecting injured investors and provided a particularly effective means of enforcing sections 14(d)(6) and 14(d)(7). Field, 850 F.2d at 946; Pryor, 794 F.2d at 56, 58. Finally, the Second Circuit noted that these claims are not those traditionally relegated to state law. Field, 850 F.2d at 946; Pryor, 794 F.2d at 58. In Polaroid, the Third Circuit relied on Pryor and Field, but added that the  'contemporary legal context' informing what Congress perceived itself to be doing when it acted, supported an inference that Congress intended to create a private remedy for violations of section 14(d)(7). Polaroid, 862 F.2d at 995 (quoting Cannon v. Univ. of Chicago, 441 U.S. 677, 698-99, 99 S.Ct. 1946, 1958-59, 60 L.Ed.2d 560 (1979)). In 1968, when the Williams Act was enacted, various lower federal courts had construed section 10(b) of the 1934 Act as providing a private cause of action, and the Supreme Court, in J.I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), had announced a liberal policy toward inferring private rights of action for securities law violations generally. See Polaroid, 862 F.2d at 995-96. Because Congress enacted the Williams Act in this context, it is reasonable to conclude that Congress passed the Williams Act with an understanding that courts would construe the Act as creating private remedies that would enforce the provisions of the Act effectively. Id. at 996. Matsushita argues that we should not follow Pryor, Field, and Polaroid because their rationale is inconsistent with our decision in In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F.2d 1349 (9th Cir.1987) (en banc) (hereinafter WPPSS ). We reject this argument. In WPPSS, we held that section 17(a) of the Securities Act of 1933 did not create a private right of action, id. at 1358, but in doing so we hardly sounded the death knell for implied rights of action generally. Instead, like the Second and Third Circuits in Pryor, Field, and Polaroid, we applied the traditional four-factor Court v. Ash test, emphasizing two prongs in particular: whether there is an implicit indication, in the statute's language, legislative history, or structure, of legislative intent to create a private remedy, and whether such an implication would be consistent with the underlying legislative scheme. 11 Id. at 1353. Like the Third Circuit, further, we focused on the context in which the statute was enacted. See id. at 1357 (looking to contemporary legal context prevailing at the time of any comprehensive reexamination of or significant amendment to the securities laws in evaluating whether Congress intended to create private right of action under section 17(a) of the 1933 Act). In WPPSS we not only found no evidence whatsoever of congressional intent to create a private right of action under section 17(a), but we also indicated that creating an implied private right of action would frustrate the purposes of the legislative scheme. Id. at 1355-56. In Pryor, Field, and Polaroid, just the opposite was true. While we stated in WPPSS that we will not engraft a remedy on a statute, no matter how salutary, that Congress did not intend to provide, id. at 1353 (quoting California v. Sierra Club, 451 U.S. 287, 297, 101 S.Ct. 1775, 1781, 68 L.Ed.2d 101 (1981)), we made equally clear that a private remedy may be inferred from the plain language of the statute, the statutory structure, or some other source. Id. The principal difference between this case and WPPSS is the clarity of the statutory language. In WPPSS, the statute at issue, section 17(a) of the 1933 Act, states that [i]t shall be unlawful for any person in the offer or sale of any securities ... (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact.... 15 U.S.C. Sec. 77(q)(a) (1981). Section 14(d)(7), in contrast, specifically endows shareholders with the right to receive any increased consideration offered to other shareholders. It states that whenever any person varies the terms of a tender offer by increasing the consideration offered to some security holders, such person shall pay the increased consideration to each security holder whose securities are taken up and paid for pursuant to the tender offer.... (emphasis added). This language, of course, constitutes far more than the general censure of fraudulent practices we found insufficient to create an implied right of action in WPPSS, 823 F.2d at 1353. Instead, it is legislation with an unmistakable focus on the benefitted class. Id. at 1354. The structure of section 14(d)(7) also points to Congress' intent to give shareholders the right to sue. If shareholders were not permitted to sue for damages for violations of section 14(d)(7), there would be no way, once a violation has occurred, to enforce the express statutory command that a bidder shall pay to each security holder any increased consideration paid to any other security holder. 12 Under section 21(d)(1) of the 1934 Act, the SEC's authority to enforce the provisions of the 1934 Act is limited to bringing injunctive actions. Finally, the legal context of section 14(d)(7) of the 1968 Williams Act differed markedly from that of section 17(a) of the 1933 Act. It was not until 1964 that the Supreme Court announced the implied right of action doctrine in J.I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). Thus, at the time of passage of the Williams Act, the Court's implied right of action jurisprudence gave Congress reason to think it need not decide the private right of action question itself. Matsushita also urges us not to follow Pryor, Field, and Polaroid on the ground that these cases are inconsistent with the implied cause of action jurisprudence of the Supreme Court as it exists today. As Matsushita would have us read the Supreme Court's cases, a private right of action would not be recognized unless Congress explicitly created one. For example, Matsushita asserts that the Supreme Court would not interpret section 14(d)(7) as creating a damages remedy for MCA shareholders because Congress did not say explicitly that all security holders shall have the right to receive any increased consideration offered to select shareholders. Wasserman Brief at 56. Matsushita's argument that there has been a recent sea change in the Court's implied right of action jurisprudence is based on wishful thinking, not case law. 13 The argument is essentially the same one advanced by Justice Scalia in his concurring opinion in Thompson v. Thompson, 484 U.S. 174, 188, 108 S.Ct. 513, 520-21, 98 L.Ed.2d 512 (1988) (Scalia, J., concurring in the judgment), where he urged his colleagues to get out of the business of implied private rights of action altogether. Id. at 192, 108 S.Ct. at 522-23. The problem is that no other justice of the Court has yet to endorse the get out of the business approach to implied causes of action. To the contrary, the Court has only recently reaffirmed the vitality of the Cort v. Ash test--which the Second and Third Circuits applied in holding that section 14(d)(7) is privately enforceable--as an aid in determin[ing] 'whether Congress intended to create the private remedy asserted' for the violation of statutory rights. Wilder v. Virginia Hospital Assn., 496 U.S. 498, 508 n. 9, 110 S.Ct. 2510, 2517 n. 9, 110 L.Ed.2d 455 (1990) (quoting Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16, 100 S.Ct. 242, 245-46, 62 L.Ed.2d 146 (1979)); Suter v. Artist M., 503 U.S. 347, 363-64, 112 S.Ct. 1360, 1370, 118 L.Ed.2d 1 (1992) (applying the familiar test of Cort v. Ash  in concluding that Congress did not intend to make a private remedy available to enforce the Adoption Assistance and Child Welfare Act). Indeed, in Thompson v. Thompson, the case in which Justice Scalia called for an end to implied private rights of action, the eight members of the Court who comprised the majority stated that the existence of a private right of action does not require evidence that Members of Congress, in enacting the statute, actually had in mind the creation of a private cause of action. Thompson, 484 U.S. at 179, 108 S.Ct. at 516. Rather, the Court reaffirmed its long-standing view that as an implied cause of action doctrine suggests, Congress' intent may appear implicitly in the language or structure of the statute, or in the circumstances of its enactment. Id. (internal citation and quotation omitted). 14 We therefore reject Matsushita's argument that the rationale of Pryor, Field, and Polaroid is inconsistent with Supreme Court implied private right of action jurisprudence as it exists today. 15 Like the Second and Third Circuits, we believe that the statutory language--that a bidder shall pay the increased consideration to a shareholder who was paid less than another shareholder--is more than adequate under existing Supreme Court case law to support a finding of congressional intent to create a private right of action for violations of section 14(d)(7). In sum, we hold that in enacting section 14(d)(7) of the Williams Act, Congress intended to provide a damage remedy as a means of enforcing its command that every security holder who tenders his shares be paid any increased consideration offered to others.