Opinion ID: 152931
Heading Depth: 1
Heading Rank: 8

Heading: Legislative History of Amendments to the Act

Text: Northstar goes on to argue that even if the Act's language does not imply a private right to sue, the statute's legislative history, specifically the amendments to §§ 8 and 13 enacted in 1970 and 2007, demonstrates that Congress intended there to be an implied private right of action to enforce § 13(a). We must disagree, because nothing in the language or context of those amendments demonstrates a clear congressional intent to allow private lawsuits to enforce the statute's provisions. A. The 1970 Amendments Congress amended §§ 8 and 13 in 1970 to make it clear that an investment company's registration statement must recite all policies that can be changed only by shareholder vote and that deviation from any policy so designated violates § 13(a). Northstar contends that when Congress amended these two sections, it meant to affirm its original intent to create a private right of action under § 13(a). No such meaning or intent is apparent. The amendments deal with the need for shareholder votes to change investment policy. The language and legislative history reflect that purpose and that purpose only. The report of the House Committee on Interstate and Foreign Commerce states that the purpose of the amendments was to make clear that deviation from an investment policy which is changeable only by shareholder vote constitutes a violation of section 13, regardless of whether the investment company's registration statement explicitly identifies the policy as fundamental. H.R.Rep. No. 91-1382, at 19. By clarifying when a change of policy violates § 13(a), Congress did not thereby indicate an intent to recognize a private remedy for such a violation. Northstar further contends that the 1970 amendments affirmed a contemporary federal court interpretation of § 13(a) as privately enforceable. Northstar tries to invoke the principle that when an implied cause of action is part of the contemporary legal context in which Congress amends a statute, and a significant amendment of the statute leaves intact the provisions the courts relied on for implying a cause of action, Congress intends the cause of action to remain. In this situation, the lack of change is itself evidence that Congress affirmatively intended to preserve that remedy. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 381-82, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982). It is only evidence, however. The Supreme Court has cautioned that dispositive weight should not be given to the expectations Congress has with respect to the contemporary legal context. Sandoval, 532 U.S. at 287-88, 121 S.Ct. 1511. Here, we can give the expectations no weight, because there was no contemporary legal context in 1970, when Congress amended §§ 8 and 13 recognizing a private right of action under § 13(a). Northstar cites to only two casesboth from federal district courtsto support its theory that there was such a context: Green v. Brown, 276 F.Supp. 753 (S.D.N.Y.1967), and Leighton v. The One William Street Fund, Inc., 1965 U.S. Dist. LEXIS 9430 (S.D.N.Y. July 2, 1965). Even assuming two district court, and hence non-precedential, cases could provide a legal context, neither Green nor Leighton actually held that there was an implied private right to enforce § 13(a). In Green, a stockholder of an investment company brought a derivative action against the company and its directors, alleging the defendants violated § 13(a) of the ICA by concentrating the company's investments in a manner contrary to the investment policy contained in the company's registration statement. See 276 F.Supp. at 754. The district court granted the defendants' motion for summary judgment, holding that the defendants had not violated § 13(a) because the company's registration statement did not characterize the investment policy at issue as a fundamental policy, even though the registration statement said the policy could not be changed without shareholder approval. Id. at 755-56. The question of whether a private right of action to enforce § 13(a) even existed was not raised by any of the parties and was not addressed in the district court's decision. The House Report and other portions of the legislative history relating to the 1970 amendments to §§ 8 and 13 indicate that Congress was, of course, aware of Green, because it wanted to clarify the confusion Green had created about the need for shareholder votes. See H.R.Rep. No. 91-1382, at 19. There is no indication Congress thought the case stood for anything else. The amendments made it clear that any unapproved deviation from policies the registration statement says require a shareholder vote violate § 13(a). The earlier district court case, Leighton, also involved whether shareholder approval was needed. In Leighton, a stockholder challenged an investment fund's decision to hire a certain investment advisor as its broker and to pay that advisor brokerage commissions. 1965 U.S. Dist. LEXIS 9430, at -8. The stockholder argued that decision, made without shareholder approval, amounted to a change in fundamental policy in violation of § 13(a) of the ICA. Id. at -7. The district court rejected this claim, entering summary judgment on behalf of the fund and its advisor because the fund's registration statement was silent on the matter of brokerage commissions. Id. at -8. The non-published opinion does not discuss the existence of a private right to enforce § 13(a). It held there had been no violation of § 13(a). Even if Congress had been aware of the Leighton decision when it amended §§ 8 and 13 in 1970, it could not have believed the amendments affirmed any recognition in Leighton of a private right to enforce § 13(a). B. The 2007 Amendments Northstar's stronger argument, the one the district court accepted, is that Congress recognized a preexisting private right of action to enforce § 13(a) when it enacted the SADA in 2007 and added § 13(c) to the ICA. Section 13(c) is a broad prohibition of remedies for a narrow purpose. It prohibits the availability of any remedy or cause of action pertaining to an investment company's divestment from, or failure to invest in, securities of entities, but only of those that do business in the oil, power production, mineral extraction, or military equipment sectors of Sudan. See 15 U.S.C. § 80a-13(c)(1)(A). It is a broad prohibition because it bars all civil, criminal, and administrative actions, including state as well as federal claims, and it begins with the sweeping phrase [n]otwithstanding any other provision of Federal or State law. Id. It has narrow application because it applies to Sudanese divestments. Section 13(c) thus is a bar to actions any person or government agency might file to challenge divestment from Sudanese investments. The district court found it significant that § 13(c) referred to actions that a person could file, and that it included actions under § 13. Northstar, 609 F.Supp.2d at 944. The court reasoned that [i]f there were no private right of action under Section 13(a), there would be no need to restrict the actions that could be filed under Section 13. Id. Thus, the argument concludes, Congress's use of the word person in § 13(c) must mean that private persons, and not just the SEC, are otherwise authorized to bring an action for a violation of § 13(a). This argument would have some validity if the Sudanese bar in § 13(c) applied only to causes of action to enforce the other provisions of § 13, including § 13(a). But the bar is not so limited. The § 13(c) bar extends to any civil, criminal, or administrative action brought under any state or federal law. Thus, Congress included the term person to describe the entities restricted from bringing the types of actions barred by § 13(c), because a wide range of persons are potential plaintiffs when all possible civil, criminal, and administrative actions under both state and federal law are considered. Congress meant to bar all such potential plaintiffs from remedies for divestment. It did not limit the Sudanese bar to plaintiffs under § 13(a). Thus, we conclude Congress did not use the word person as recognition of a private right of action to enforce § 13(a). The legislative history of the SADA supports our interpretation of the language of § 13(c) as barring actions beyond those for violations of the provisions of § 13. According to the report of the Senate Committee on Banking, Housing, and Urban Affairs, a primary purpose of the SADA was to permit public and private asset managers to adopt Sudanese divestment measures without fear of legal reprisals. S.Rep. No. 110-213, at 1-2. To this end, § 4 of the SADA added § 13(c) to the ICA to allow[ ] private asset managers, if they so choose, to divest from the securities of companies conducting business operations in the power production, mineral extraction, oil, and military equipment sectors of Sudan, and to provide[ ] a `safe harbor' for those divestment decisions made in accordance with the [SADA]. Id. at 6-7, 2007 U.S.C.C.A.N. at 823. Congress could not have intended to restrict § 13(c)'s application solely to causes of action arising from divestments that might otherwise violate § 13(a). Northstar nevertheless points to the heading of § 4 of the SADA as indicating that Congress intended ICA § 13(c) to apply only to causes of action arising from violations of ICA § 13(a). Section 4 of the SADA is entitled Safe Harbor for Changes of Investment Policies by Asset Managers. Pub.L. No. 110-174, § 4, 121 Stat. at 2519. The somewhat attenuated argument is that the reference to investment policies by asset managers mirrors the language in ICA § 13(a)(3), which prohibits investment companies from deviating from certain types of investment policies without shareholder approval. Thus, Northstar concludes that § 4 of the SADA implies that ICA § 13(c), which was added to the ICA by SADA § 4, was explicitly intended to modify ICA § 13(a). Assuming, arguendo, that such a meaning can be attached to the words in the title, the Supreme Court has cautioned that the title of a statute and the heading of a section cannot limit the plain meaning of the text. For interpretative purposes, they are of use only when they shed light on some ambiguous word or phrase. Bhd. of R.R. Trainmen v. Baltimore & O.R. Co., 331 U.S. 519, 528-29, 67 S.Ct. 1387, 91 L.Ed. 1646 (1947). Here, the text of ICA § 13(c) unambiguously applies to all actions that can be brought under any other provision of Federal or State law. 15 U.S.C. § 80a-13(c)(1). It is not limited to actions for violations of ICA § 13(a). Thus, Congress's use of the term investment policy both in the heading of SADA § 4 and in the text of ICA § 13(a)(3) cannot be parsed to reflect any intent to restrict § 13(c)'s application to violations of § 13(a), much less to constitute a recognition of private causes of action to challenge them. Congress's recent amendment of ICA § 13(c)(2)(A) is in accord with our understanding of the relationship between § 13(a) and (c). This amendment expressly stated that § 13(c)(1) does not create or affect the existence of a private right of action under § 13(a). It provides: Nothing in [§ 13(c)(1)] shall be construed to create, imply, diminish, change, or affect in any way whether or not a private right of action exists under [§ 13(a)] or any other provision of [the ICA]. 15 U.S.C. § 80a-13(c)(2)(A). The amendment undermines the district court's holding. Northstar finally contends that when Congress enacted the SADA in 2007, it affirmed a private cause of action courts had recognized in the preceding 40 years. It contends there was by 2007 unanimous case law confirming the private right of action. Northstar cites fifteen cases, yet in fourteen the issue was either not squarely raised or not squarely decided. As we have already seen, this court in Lapidus only assumed, without deciding, that a private right of action exists under § 13(a). See 232 F.3d at 681 n. 4. In both Karpus v. Hyperion Capital Mgmt., Inc., 1996 WL 668860, at  (S.D.N.Y. Nov.18, 1996), and Potomac Capital Markets Corp. v. Prudential-Bache Corporate Dividend Fund, Inc., 726 F.Supp. 87, 93 n. 5 (S.D.N.Y. 1989), the district court acknowledged that the issue of whether there is a private right of action to enforce § 13(a) had not been raised. Eleven of the other cases cited by Northstar contain no discussion of the issue whatsoever. See, e.g., Hunt v. Alliance N. Am. Gov't Income Trust, Inc., 159 F.3d 723, 731-32 (2d Cir.1998); Rodney v. KPMG Peat Marwick, 143 F.3d 1140, 1143 (8th Cir.1998) (does not include any claim brought under § 13(a)); Green, 398 F.2d at 1008; Phillips v. Morgan Stanley Dean Witter High Income Advantage Trust III, 2002 WL 31119441, at -4 (S.D.N.Y. Sept.25, 2002); Lapidus, 2002 WL 1034042, at -9; Sheppard v. TCW/DW Term Trust 2000, 938 F.Supp. 171, 180 n. 7 (S.D.N.Y.1996); Krouner v. Am. Heritage Fund, Inc., 899 F.Supp. 142, 148-49 (S.D.N.Y.1995); Omni Fin. Corp. v. Cohen, 1994 WL 97125, at -7 (S.D.N.Y. Mar.22, 1994); Monheit v. Carter, 376 F.Supp. 334, 339 (S.D.N.Y.1974); Green, 276 F.Supp. at 755-56; Leighton, 1965 U.S. Dist. LEXIS 9430, at -8. The one case in which the court did have such an issue squarely before it and did hold that § 13(a) implies a private right of action was Blatt v. Merrill Lynch, Pierce, Fenner & Smith Inc., 916 F.Supp. 1343 (D.N.J.1996). The district court's decision in Blatt, however, did not rely on the text or history of § 13(a) itself. The court instead relied on § 7(d), 15 U.S.C. § 80a-7(d), and the court's conclusion that a private right of action existed to enforce that provision of the ICA. Blatt, 916 F.Supp. at 1348-50, 1357. Section 7(d) prohibits foreign investment companies from issuing securities in interstate commerce without first registering with the SEC. Section 7(d) is unrelated to § 13(a). We believe the approach taken in Blatt is in some tension with the Supreme Court's later teaching in Sandoval, requiring closer analysis of the particular provision in question to determine the existence of an implied private right of action. See Sandoval, 532 U.S. at 286-91, 121 S.Ct. 1511. Indeed, following the Supreme Court's decision in Sandoval, the modern trend has been for federal courts to deny the existence of implied private rights of action under the ICA, with many courts applying the analytical framework employed by the Second Circuit in Olmsted and Bellikoff. See, e.g., W. Inv. LLC v. DWS Global Commodities Stock Fund, Inc., 705 F.Supp.2d 281, 284-86, 2010 WL 1404208, -4 (S.D.N.Y.2010) (holding there is no implied private right of action under § 13(a)(3) of the ICA and rejecting district court's reasoning in this case in favor of the rationale relied on in Olmsted and Bellikoff ); In re Salomon Smith Barney Mut. Fund Fees Litig., 441 F.Supp.2d 579, 591-93(S.D.N.Y.2006) (holding there is no private right of action to enforce §§ 34(b) and 48(a) of the ICA and citing other post- Olmsted cases in the same district that reached the same conclusion); In re Franklin Mut. Funds Fee Litig., 388 F.Supp.2d 451, 464-67 (D.N.J.2005) (holding there is no implied private right of action to enforce §§ 34(b) and 36(a) of the ICA and citing other post- Sandoval and post- Olmsted cases reaching the same conclusion); Mutchka v. Harris, 373 F.Supp.2d 1021, 1025-27 (C.D.Cal.2005) (holding there is no implied private right of action to enforce § 36(a) of the ICA); White v. Heartland High-Yield Mun. Bond Fund, 237 F.Supp.2d 982, 986-88 (E.D.Wis.2002) (holding that §§ 22 and 34(b) of the ICA do not create implied private rights of action). In reversing the district court in this case, we follow the conclusion reached by the Second Circuit in Olmsted and Bellikoff, and supported by the weight of contemporary authority, that there is no implied private right of enforcement.