Document: 459 U.S. 375 103 S.Ct. 683 74 L.Ed.2d 548 HERMAN & MacLEAN, Petitioner,v.Ralph E. HUDDLESTON et al. Ralph al., Petitioner, v. MacLEAN. Nos. 81-680, 81-1076. Argued Nov. 9, 1982. Decided Jan. 24, 1983. Syllabus Alleging that they were defrauded by misrepresentations in a registration statement and prospectus for certain securities, purchasers of such securities brought class action Federal District Court against most the participants offering, seeking recovery under § 10(b) Securities Exchange Act 1934 (1934 Act), which makes it unlawful "any" person to use manipulative or deceptive device contrivance purchase sale security. The trial judge instructed jury determine whether plaintiffs had proved their cause preponderance evidence, judgment was entered on basis verdict plaintiffs' favor. Appeals held may be maintained fraudulent omissions even when, as this case, conduct might also actionable 11 1933 (1933 expressly allows registered security sue enumerated parties who play direct role offering when false misleading information is included statement. However, concluded plaintiff must prove his case "clear convincing" reversed remanded other grounds. Held: 1. availability an express remedy does not preclude from maintaining Act. Pp. 380-387. (a) two provisions involve distinct causes intended address different types wrongdoing. Under 11, need only show material misstatement omission establish prima facie case. Such purchaser security, can parties. In contrast, "catchall" antifraud provision requires seller order action, defendant acted with scienter. 380-382. (b) To exempt liability would conflict basic purpose Act: provide greater protection securities. It hardly novel proposition Acts prohibit some same conduct. Cf. Ernst Hochfelder, 425 185, 96 1375, 47 668. A cumulative construction remedies supported fact Congress comprehensively revised laws 1975, federal courts consistently recognized implied private right where available. furthers broad remedial purposes. 382-387. 2. Persons evidence only, clear convincing evidence. standard has been employed actions laws. SEC C.M. Joiner Leasing Corp., 320 344, 64 120, 88 L.Ed. 88. Reference traditional higher burden proof civil fraud at common law unavailing here. An important statutes rectify perceived deficiencies available common-law protections establishing standards industry. balance parties' interests warrants standard, both share risk error roughly equal fashion. While defendants face opprobrium result finding conduct, investors are among very individuals sought protect laws, if more likely than defrauded, should recover. 387-391. 640 F.2d 534, affirmed part, remanded. James L. Truitt, Dallas, Tex., Herman MacLean. Robert H. Jaffe, Springfield, N.J., Huddleston, Paul Gonson, Washington, D.C., Commission amicus curiae special leave Court. Justice MARSHALL delivered opinion 1 These consolidated cases raise unresolved questions concerning Section 1934, 15 U.S.C. 78j(b). first allege maintain notwithstanding misstatements statements provided 1933, 77k. second question persons rather 2 * 1969 Texas International Speedway, Inc. ("TIS"), filed total $4,398,900 public. proceeds used finance automobile speedway. entire issue sold date, October 30, 1969. TIS did meet success, however, corporation petition bankruptcy November 1970. 3 1972 Huddleston Bradley instituted United States Southern Texas1 behalf themselves complaint alleged violations ("the Act") Rule 10b-5 promulgated thereunder, 17 CFR 240.10b-5.2 Plaintiffs sued including accounting firm, MacLean, issued financial pro forma sheet3 contained prospectus. claimed engaged scheme misrepresent conceal facts regarding condition TIS, costs incurred building 4 After three-week trial, Judge submitted interrogatories relating liability. could found scienter.4 proven rendered favor issues, MacLean others violated making statement.5 court then determined amount damages plaintiffs. 5 On appeal, Fifth Circuit Act"). 540-543 (1981). disagreed appropriate 10(b), concluding Id., 545-546. Court's grounds new trial. 547-550, 560. 6 We granted certiorari consider will lie subject Act, we have previously reserved,6 decide applicable 10(b).7 --- ----, 102 1766, 72 173 (1982). now affirm appeals' holding but reverse proof. II 7 "constitute interrelated components regulatory governing transactions securities." 206, 1387, 668 (1976). created several rights action,8 one addition explicitly Acts, laws.9 Most significantly present purposes, 35 years.10 existence simply beyond peradventure. 8 party barred invoking established because allegedly apparently damage Act.11 resolution turns 9 section designed assure compliance disclosure imposing stringent liability12 offering.13 If purchased pursuant statement, he Liability issuer virtually absolute,14 innocent misstatements. Other bear demonstrating due diligence. See 77k(b). 10 Although limited scope, places relatively minimal plaintiff. provision,15 carry heavier action. based parties, "any security" person" contrivance" connection 78j (emphasis added). carries significantly, scienter, i.e., intent deceive, manipulate, defraud.16 Since wrongdoing, see no reason carve out exception occurring just 11.17 Exempting anomalous indeed afforded deemed deprive manipulation deception all deal 12 "prohibit conduct." Naftalin, 441 768, 778, 99 2077, 2084, 60 624 (1979) (applying 17(a) prohibited SEC). " 'The there well overlap neither unusual nor unfortunate.' Ibid., quoting National Securities, Inc., 393 453, 468, 89 564, 572, 21 (1969). savings clauses rejected notion preempt 16 states unequivocally "[t]he subchapter shall any exist equity." 77p. 28(a) contains parallel provision. 78bb(a). confirm each supplemented all" additional remedies. 13 This conclusion reinforced our reasoning supra, require scienter do encompass negligent so holding, noted allowing procedural restrictions action.18 U.S., 208-210, S.Ct., 1388-89. emphasized extension allowed negligence instead "thereby nullify[ing] effectiveness carefully drawn these actions." 210, 1389 (footnote omitted). required avoid circumvention surrounding remedies, necessarily assumed exclusive. Otherwise danger nullification. Conversely, added proving attaches suits invocation "nullify" apply remedies.19 14 that, consistent line judicial decisions permitted regardless 1975 enacted "most substantial significant revision country's since passage 1934."20 Amendments Pub.L. No. 94-29, Stat. 97. When acted, routinely proceed available.21 light well-established interpretation, Congress' decision intact suggests ratified nature Merrill Lynch, Pierce, Fenner Smith, Curran, 1825, 1841, 182 (1982); Lorillard Pons, 434 575, 580-581, 98 866, 870, 55 40 (1978). enacting stated its "to impose requirements necessary make [securities] regulation control reasonably complete effective." 78b. furtherance objective, proscription undermined scope restricted 11.22 Yet repeatedly combating construed "not technically restrictively, flexibly effectuate [their] purposes." Capital Gains Research Bureau, 180, 195, 84 275, 284, 237 (1963). Accord: Superintendent Insurance Bankers Life Cas. Co., 404 6, 12, 92 165, 169, 30 128 (1971); Affiliated Ute Citizens States, 406 128, 151, 1456, 1471, 31 741 (1972). therefore reject interpretation displaces 10(b).23 Accordingly, hold extent appeals affirmed. III typical suit money damages, evidence.24 Similarly, 77q(a), suffices 355, 125, (1943). "Where . offered here, ." Ibid. applies administrative proceedings before SEC25 lower laws.26 18 nonetheless relied primarily law. F.2d, practices misleading, historical considerations underlying imposition questionable pertinence here.27 Blue Chip Stamps Manor Drug Stores, 421 723, 744-745, 95 1917, 1929, 44 539 (1975) ("[T]he situation classic tort misrepresentation deceit evolved years world commercial applicable."). Moreover, coextensive doctrines fraud.28 Indeed, 186, 279, find reference instance unavailing. 19 Where prescribed Constitution dictate particular prescribe one. Steadman SEC, 450 91, 95, 101 999, 1004, 67 69 generally 749, 1931 (private judicially delimited until acts). doing so, mindful "serves allocate between litigants indicate relative importance attached ultimate decision." Addington Texas, 418, 423, 1804, 1808, 323 (1979). re Winship, 397 358, 370-371, 90 1068, 1075, 25 368 (1970) (Harlan, J., concurring). Thus, particularly individual stake. See, e.g., Santosky Kramer, 1388, 71 599 (1982) (proceeding terminate parental rights); supra (involuntary commitment proceeding); Woodby INS, 385 276, 285-286, 87 483, 487, 362 (1966) (deportation).29 By severe sanctions implicate after Regan, 232 37, 48-49, 34 213, 217, 58 494 (1914) (proof involving acts expose criminal prosecution). interpreting statutory upheld provisions. imposed permanently barring practicing profession. And 20 preponderance-of-the-evidence "share fashion." 1808. Any expresses preference side's interests. standard. hand, identical 17(a), governed differ qualitatively antitrust suffices. significant. Defrauded decline depart actions.30 Appeals' reversed. IV 22 part otherwise opinion. 23 ordered. 24 POWELL took cases. transferred Northern January, 1973. of, inter alia, 77q(a). reserved affords remedy, Brotherhood Teamsters Daniel, 439 551, 557, n. 790, 795, 808 (1979), once again. abandoned claim, Brief, 4, separate 17(a). us issue. sheet prepared assumptions future events. reckless behavior satisfy requirement. instruction reflects prevailing view addressed issue, McLean Alexander, 1190, 1197, (CA3 1979) (collecting cases), left open recklessness satisfies 194, 1381, aided abetted 10(b). aider abettor liability, IIT, Investment Trust Cornfeld, 619 909, 922 (CA2 1980) specifically 191-192, 7, 1380, 7. Smith 1847-48, (discussing conspiracy analogous Commodity provision). 752 15, (1975). Circuit's adoption clear-and-convincing-evidence appears unprecedented. Devitt C. Blackmar, Jury Practice Instructions 98.04, 930 (1981 Cum.Supp.). Mihara Dean Witter 814, 824-825 (CA9 1980); Dzenits 168, 171, (CA10 1974); Globus Law Service, 418 1276, 1291 1969), cert. denied, 913, 93 (1970); Franklin Co. Commonwealth Edison 451 F.Supp. 602, 607 (SD Ill.1978), aff'd per curiam, 598 1109 (CA7), 444 900, 100 62 136 §§ 77k, 77l, 77o; 16, 18, 78i, 78p, 78r. J.I. Case Borak, 377 426, 1556, 423 (1964) (Section 14(a) Act); Dan River, Unitex Ltd., 1216 (CA4 1980), 449 1101, 896, 66 827 (1981) Kirshner 603 234, 241 1978), 442 2821, 61 274 Act). But see, Touche Ross Redington, 560, 2479, 82 (no Piper Chris-Craft Industries, 430 1, 97 926, 51 124 (1977) (defeated tender offeror 14(e) Kardon Gypsum 512 (ED Pa.1946). 1961, four district circuits 10b-5, reached contrary conclusion. Loss, Regulation 1763-1764 nn. 260-263 (2d ed.1961) cases). 1969, ten eleven appeals. VI 3871-3873 ed. Supp.1969) considered Court, confirmed without extended discussion. 13, (1971). reaffirmed "the statute established." 196, 1382 (citing prior "apparently remedy." 541, 5. accurate defendants, respect Accountants liable those matters purport certified them. 77k(a)(4). contends "expertise" least materials lawsuit, Tr. Oral Arg. 6-8, true materials. H.R.Rep. 85, 73d Cong., 1st Sess. (1933) creates "correspondingly legal liability" responsibility public). issuer, directors partners, underwriters, accountants named having 77k(a). At time, Sections exclude wide variety (such government banks) ones small offerings) 77c d. Feit Leasco Data Processing Equipment 332 544, 575 (EDNY 1971); R. Jennings Marsh, 828-829 (1977). Chiarella 445 222, 234-235, 1108, 1117, 63 348 (1980). 193, 1380. Mills Electric Auto-Lite, 396 375, 390-391, 616, 624, 593 (existence attorneys' fees 9(e) 18(a) award For example, post bond costs, 77k(e), limitations year, 77m. requiring costs. Also, look forum state, usually longer period actions. 29, 1389, 29. Fischman Raytheon Mfg. 188 783, 786-787 1951); A. Bromberg Lowenfels, Fraud Commodities 2.4(403), 2:179-2:180 1975: Hearings S. 249 Before Subcomm. Senate Comm. Banking, Housing Urban Affairs, 94th As conference report legislation explained, amendments culmination searching reexamination competitive, statutory, economic issues facing markets, industry, and, course, public investors, 1930's." 94-229, 91 (1975), U.S.Code Cong. Admin.News pp. 179, 322. Schaefer First Bank, 509 1287, 1292-1293 (CA7 1975), 943, 1682, 48 186 (1976); Wolf Frank, 477 467, 475 (CA5), 414 975, 94 287, 38 218 (1973); Jordan Bldg. Corp. Doyle, O'Connor 401 47, 1968); Ellis Carter, 291 270, 273-274 1961); 786-787; Orn Eastman Dillon, Union Sec. 364 352, 355 (C.D.Cal.1973); Stewart Bennett, 359 878, 886 (D.Mass.1973); Trussell Underwriters, 228 757, 765-766 (D.Colo.1964). Gilbert Nixon, 429 348, 1970) (recognizing overlapping resolving "explicit"). Two early refused recognize 11. Rosenberg Globe Aircraft 80 123 Pa.1948); Montague Electronic America, 76 933 (SDNY 1948). latter subsequently followed District, Osborne Mallory, 86 869 1949), precedential value Second supra. stood alone time amendments, decided, Premier Delaware Valley Financial 185 694 Pa.1960), elsewhere within circuit, Dauphin Redwall 201 466 (D.Del.1962). continued Berger Bishop 695 302 (CA8 1982); Wachovia Bank Student Marketing 650 342, 354-359 (CADC 452 954, 3098, 965 (1981); A.H. Robins 545, 551-556 1979), 446 946, 2175, 802 (1980); Pearlstein Mortgage Investors, [1979] CCH Fed.Sec.L.Rptr. ¶ 96,760 94,973-94,974 (ND Tex.1978); Clinton Oil Company Litigation, [1977-1978] 96,015 91,575 (D.Kan.1977). preparing cannot include corporate officers specified 77k(a), lawyers acting "experts," parts certified. If, argues offerings rely solely recourse excluded while participating exempted immune though extends engages application maxim construction, expressio unius est exclusio alterius. Hart Sacks, Legal Process: Basic Problems Making Application 1173-1174 (tent. 1958); Note, Implying Civil Remedies Regulatory Statutes, 77 Harv.L.Rev. 285, 290-291 350-351, 123, (1943), canons "long subordinated doctrine construe details act conformity dominating general purpose." Silver New York Stock Exchange, 373 341, 357, 83 1246, 1257, 389 (1963) (favoring "an analysis reconciles operation schemes another completely ousted"). believe properly applied redress misconduct purposes presumption exclusivity. 26 note 27 arose equity chancellor faced claims unenforceable Statute Wills, Frauds, parole rule. Appellate Review Courts Findings Requiring More Preponderance Evidence, 111, 112 (1946). Concerned fabricated, chancery demanding received acceptance set aside presumptively valid written instruments account fraud. American Bell Telephone 167 224, 240-241, 809, 810, 42 144 (1897); Development Silva, 125 247, 249-250, 881, 882, 678 (1888); Colorado Coal 307, 316-319, 131, 135-37, (1887); Maxwell Land-Grant Case, 121 325, 381, 1015, 1028, 949 (1887) ("We take be, proposed aside, annul correct instrument mistake execution itself, testimony done clear, unequivocal, convincing, upon bare leaves doubt."). little relationship modern lawsuits 28 (common developed around tangible items wealth ill-suited intangibles securities); 1435 1961). 29 Vance Terrazas, 252, 266, 540, 548, 461 (1980), Due Process Clause expatriation proceeding. Nishikawa Dulles, 356 129, 135-136, 78 612, 659 (1958) (in absence congressional adopt proof, imposes often matter inference circumstantial anything, difficulty defendant's state mind supports event, sufficient. Michalic Cleveland Tankers, 330, 81 10, (1960). TSC Northway, 426 438, 463, 2126, 2139, 757

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