Opinion ID: 769835
Heading Depth: 3
Heading Rank: 1

Heading: The SIPC

Text: 10 The SIPC asserts standing in two capacities: 1) as subrogee to the customer claims it has paid through the SIPC Fund; and 2) in its own right, for losses sustained through satisfying the customer claims and for unreimbursed administrative expenses. The district court found that the SIPC had standing only in the former capacity, as subrogee to Baron's customers' claims. SeeSeidman, 49 F. Supp. 2d at 653-54. We disagree and hold that the SIPC has the power to sue both as subrogee of Baron's customers and on its own behalf.
11 The SIPC's standing as the subrogee to the claims of Baron's customers rests on our holding in Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978), rev'd and remanded on other grounds, 442 U.S. 560 (1979). In Redington, we relied on principles of insurance law to hold that the SIPC, as subrogee of the customers of a failed broker-dealer, enjoyed a general common-law right of equitable subrogation. Id.at 624. Specifically, we noted that at common law, an insurer may be subrogated to any right of action which the insured may have against a third person whose negligence or wrongful act caused the loss, and that nothing in the SIPA exempted the SIPC from this general rule. Id. (quoting 31 N.Y. Jur., Insurance § 1620, at 510). Furthermore, we found inconsistent with the Congressional intent underlying the SIPA the notion that wrongdoers should receive the windfall that would result if the SIPC were unable to recover its insurance payments from the parties ultimately responsible for the customers' losses. Based on these principles of subrogation, we held that the SIPC, as subrogee, had the power to sue a broker-dealer's accountant for filing false or misleading reports pursuant to the audit requirements of Rule 17a. See id. 12 The district court in this case determined that it was bound by our decision in Redington to find that the SIPC had standing to pursue claims on behalf of customers. In so holding, the district court questioned the wisdom of the Redington decision, see Seidman, 49 F. Supp. 2d at 653-55, and on appeal Seidman urges us to overturn that case and find that the SIPC has no standing as the customers' subrogee to assert claims against third parties. Even if we were justified in revisiting the Redingtondecision, however, seeIn re Sokolowski, 205 F.3d 532, 534-35 (2d Cir. 2000) (This court is bound by a decision of a prior panel unless and until its rationale is overruled, implicitly or expressly, by the Supreme Court or this court en banc.) (citations and internal quotation marks omitted), we need not do so in this case, as we hold that the SIPC's claims on behalf of Baron's customers fail under Rule 12(b)(6). See infra Part II. We therefore assume, without deciding, that the SIPC has standing as the customers' subrogee, but find that the district court was correct in dismissing its claims on substantive grounds.
13 In addition to bringing suit as subrogee of Baron's customers, the SIPC argues that the plain language of the SIPA permits the SIPC to sue in its own right for any losses it may have suffered as a result of Seidman's misconduct. We agree. 14 The SIPA endows the SIPC with the power to sue and be sued, complain and defend, in its corporate name and through its own counsel, in any State, Federal, or other court. 15 U.S.C. § 78ccc(b)(1). The Act also provides that the SIPC, as a nonprofit corporation, shall have all the powers conferred upon a nonprofit corporation by[] the District of Columbia Nonprofit Corporation Act. Id. § 78ccc(a)(1)(B). The D.C. Nonprofit Corporation Act grants nonprofit corporations the power [t]o sue and be sued. D.C. Code Ann. § 29-505(2) (1981). The plain language of these statutes clearly contemplates that the SIPC, like any nonprofit corporation, will have the power to pursue actions on its own behalf. 15 Caselaw involving similar government-created corporations supports this reading of the SIPA. In Resolution Trust Corporation v. Coopers & Lybrand, 915 F. Supp. 584 (S.D.N.Y. 1996), for example, the district court granted standing to the Resolution Trust Corporation (RTC) based on 1) the express terms of the [enabling] statute, which granted the power to sue and be sued; 2) Congress's intent that the RTC - or its predecessor, the Federal Savings and Loan Insurance Corporation (FSLIC) - have the power to act in a manner similar to a private corporation, coupled with the fact that private corporate bodies have the inherent power to bring claims against tortfeasors; and 3) the conclusion that common sense dictates that the FSLIC had the ability to bring a negligence action. Id.at 590. Moreover, other cases have suggested that the Federal Deposit Insurance Corporation (FDIC), whose enabling legislation, see12 U.S.C. § 1819(a), parallels that of the RTC and the SIPC, has standing to sue on its own behalf. SeeFederal Deposit Ins. Corp. v. Ernst & Young, 967 F.2d 166, 169 (5th Cir. 1992) (assuming, without deciding, that the FDIC has the power to sue in its own right); Federal Deposit Ins. Corp. v. Cheng, 832 F. Supp. 181, 186 (N.D. Tex. 1993) (same); see alsoid. at 187 n.2 (observing that [t]he regulatory roles of the FDIC, FSLIC, and RTC are sufficiently similar that case-law analysis is substantially interchangeable) (citation omitted). While the statutory and regulatory scheme of the SIPC is not identical to that of the RTC or the FDIC, the three entities rest on substantially similar enabling legislation and, as nonprofit government corporations, share similar features. Compare12 U.S.C. § 1811 et seq. (delineating the powers and responsibilities of the FDIC); 12 U.S.C. § 1441(b) (establishing the RTC); Coopers & Lybrand, 915 F. Supp. at 589 (discussing RTC's powers as successor to the FSLIC) (quoting 12 U.S.C. § 1725 (repealed 1989)) with15 U.S.C. § 78ccc et seq. (listing the powers and duties of the SIPC). Insofar as the RTC and FDIC have the power to bring fraud and negligence claims, therefore, we find that the SIPC enjoys this authority as well. 16 Seidman attempts to defeat this reading of the SIPA by relying on 15 U.S.C. § 78ddd, the provision that delineates the authority and operations of the SIPC Fund. Section 78ddd enumerates several ways the SIPC may generate revenue, including assessments on its members, borrowing, and obtaining loans from the SEC. Seeid. Seidman, invoking the expressio unius est exclusio alterius canon of statutory construction, argues that because this provision does not include the authority to sue independently to recover funds paid out in the course of its duties, Congress did not intend to grant the SIPC the ability to recover damages in a civil action. 17 We reject this contention. Section 78ddd addresses methods by which the SIPC may obtain revenue in the ordinary course of its business; recovery of damages does not fall within this category, but rather constitutes a process for redressing injuries resulting from another's misconduct. Damages, in short, are not ordinary revenue. That § 78ddd does not include the ability to sue for damages as a method of obtaining funds, therefore, does not suggest that Congress intended to deprive the SIPC of that power. Cf.United States v. Mango, 199 F.3d 85, 90 (2d Cir. 1999) (noting, in the context of delegation of powers to government officials, that [the] maxim [expressio unius] is not always a reliable guide because Congress may mention a specific official only to make it clear that this official has a particular power rather than to exclude delegation to other officials) (emphasis added). 18 We also reject the district court's conclusion that the SIPC lacked standing because its claim of injury was primarily based on a theory of subrogation to customer claims. Seidman, 49 F. Supp. 2d at 653. The SIPC's alleged damages stem not only from the money it has advanced to pay the claims of Baron's customers, but also from the administrative expenses it has incurred to cover Baron's liquidation. Under the SIPA, the SIPC Fund is liable for such administrative expenses to the extent that the debtor is unable to provide reimbursement. See15 U.S.C. § 78fff-3(b)(2). The SIPC alleges that these costs are directly traceable to Seidman, arguing that absent Seidman's misconduct, Baron's liquidation would not have been necessary. See Compl. para. 49. Assuming, as we must, that the SIPC can prove this claim, its power to recover administrative costs is unrelated to its status as subrogee to customer claims. We therefore find that the SIPC may sue not only as subrogee of Baron's customers, but on its own behalf to recover any losses for which Seidman may be responsible.