Court Opinion

ID: 9467202
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:41:44.388108+00
Date Added: 2024-06-11T17:40:13.611124
License: Public Domain

NATHANIEL R. JONES, Circuit Judge,
dissenting.
Because I believe the language of Kentucky’s “Blue Sky” Statute evinces an unambiguous legislative intent to deny a private cause of action to defrauded sellers of securities and because precedent in this Circuit establishes our policy in favor of longer, not shorter, statute of limitations in securities fraud cases, I respectfully dissent.
I.
Plaintiffs allege fraud in the sale of their securities in violation of §§ 10(b) and 14(e), of the Securities Exchange Act of 1934, 15 U.S.C. § 78 et seq., 78j(b) and 78n(e). The applicable statute of limitations period for plaintiffs’ claims of fraud is the Kentucky statute of limitations for the state action which most closely resembles the federal claims and which best effectuates federal policy. Nickels v. Koehler Management Corp., 541 F.2d 611, 612, 615 (6th Cir. 1976).
Kentucky’s “Blue Sky” Statute, Ky.Rev. StatAnn. § 292.310 et seq., applies a three year limitations period to state law claims of securities fraud, however the statute does not provide a cause of action to defrauded sellers of securities. Clearly, as the majority asserts, a state statute that denies these plaintiffs a claim for relief cannot be characterized as closely resembling their federal claims or as effectuating federal policy. Alternatively, plaintiffs have a claim for relief in common law fraud. The applicable statute of limitations is five years. Rather than apply this five year statute of limitations to plaintiffs’ federal securities law claim, the majority puts on its legislative robes, and, in violation of the most basic principles of statutory construction and established precedent in this Circuit, creates an implied cause of action for defrauded sellers of securities under Kentucky’s “Blue Sky” statute.
II.
The threshold question in this case is whether to imply a cause of action for defrauded sellers of securities under the anti-fraud section of Kentucky’s “Blue Sky” statute, § 292.320(1), so that it may be construed to closely resemble federal claims and effectuate federal policy. Kentucky jurisprudence has not specifically addressed the question of implied causes of action in statutes. However, implying of a cause of action in a statute is a task of statutory construction. To decide the question presented, Kentucky courts would apply basic principles of statutory construction and would reason from the criteria federal courts follow to imply causes of action in federal statutes.1
*16The majority’s holding is premised upon the Kentucky legislature’s: (1) failure to enact a clause proscribing the implication of a private cause of action for defrauded sellers; and (2) enactment of a guide to courts to interpret the “Blue Sky” statute consistent with the federal securities acts and decisions of other state courts.
The majority’s reliance on the Kentucky legislature’s failure to enact language prohibiting judicial creation of a private cause of action is misplaced. First, the primary principle of statutory construction is that legislative intent is ascertained from the words of the statute, rather than judicial surmising of what may have been intended but not expressed. Although § 292.320 of Kentucky’s “Blue Sky” statute prohibits fraud in the purchase or sale of securities, section 292.480 of the statute sets forth an express private cause of action to enforce the anti-fraud provisions which is explicitly limited to defrauded purchasers. As articulated in the seminal decision of Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975):
In situations in which it is clear that federal law has granted a class of persons certain rights, it is not necessary to show an intention to create a private cause of action, although an explicit purpose to deny such a cause of action would be controlling.
Id. at 82, 95 S.Ct. at 2090 (emphasis in original). In Cort the Supreme Court reaffirmed its earlier holding in National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 456, 94 S.Ct. 690, 692, 38 L.Ed.2d 646 (1974); (“Amtrak”), that the enactment of an express private cause of action explicitly limited in scope is evidence of a purpose to deny any other cause of action.2 This frequently stated principle, derived from the ancient maxim — expressio unius exelusio alter; us, is not alien to Kentucky law. See Wade v. Commonwealth, 303 S.W.2d 905 (Ky.1957).
The application of this well settled principle to this case militates against judicial creation of a cause of action for defrauded sellers under the general anti-fraud clause of Kentucky’s “Blue Sky” Statute. The language of the statute is clear and unambiguous. Where the express civil cause of action is, by its terms, limited to defrauded *17purchasers, I am extremely reluctant to imply a cause of action significantly broader than the remedy chosen by the legislature. Indeed, as stated by the Kentucky Supreme Court in Thomas v. Fidelity & Casualty Co. of New York, 258 Ky. 860, 80 S.W.2d 8 (1935):
The legislature has ample power, if it sees fit, [to promulgate additional causes of action under its Blue Sky Statute.] It is the sole judge in such matters, and where, as in the instant case, it has spoken in plain and unmistakable language, the courts are without authority to en-graft an exception upon the statute.
Id. at 10 (emphasis added).
Second, the legislative history cited by the majority is not clearly contrary to my textual analysis of the statute.3 A preliminary draft of the statute contained a clause prohibiting judicial creation of private causes of action. The majority relies heavily upon the Kentucky legislature’s failure to enact this provision. The “legislative history” cited by the majority is not a recitation of the Kentucky legislature’s deliberations concerning enactment of its “Blue Sky” statute. Rather, the legislative history is the draftsman’s commentary to a proposed Uniform Securities Act drafted under the auspices of the National Commission of State Commissioners on Uniform State Laws. Whether the clause in question was a part of the legislation submitted to the legislature and subsequently deleted by passage of an amendment is uncertain. However, at least as important to an understanding of legislative intent as the possible amending of proposed legislation is the draftsman’s commentary explaining the reason for not providing a civil cause of action to defrauded sellers:
Although the lower federal courts have uniformly implied a civil cause of action against fraudulent buyers under the SEC rule, the federal courts when applying federal law do not have at their disposal all of the common-law and equitable remedies of deceit and recission which are available to the state courts without benefit of statute ...
Loss, Commentary on the Uniform Securities Act § 101, at 8 (1976). See also Id. at § 410(a), p. 147. Before implying a cause of action for defrauded sellers, there ought to be an articulation of the inadequacies of the intended remedies available to defrauded sellers.
I conclude from my examination of the statute and its legislative history that there is a legislative intent to deny a cause of action to defrauded sellers of securities.4
The majority also relies upon a policy statement in Kentucky’s “Blue Sky” statute that courts ought to interpret the statute consistent with the federal securities statutes and state court decisions construing sister states’ “Blue Sky” statutes, Ky.Rev. Stat.Ann. § 292.530. Causes of action have been judicially implied pursuant to the general anti-fraud provision of the federal securities act. However, the federal judiciary’s role in creating causes of action under federal securities statutes is distinguishable. The above cited commentary to the Uniform Securities Code explains that federal courts are without the traditional arsenal of state law causes of action and remedies to prevent fraud in securities transactions. In addition, the anti-fraud provision of the federal securities act did not provide an explicit cause of action limited to particular parties.5
III.
Assuming arguendo that neither the language enacted nor the legislative history offer definitive guidance, it is proper to *18consider what may be described as policy considerations. Blue Chip Stamps v. Manor Drugs Stores, 421 U.S. 723, 737, 95 S.Ct. 1917, 1926, 44 L.Ed.2d 539 (1975).
Three cases in this Circuit have considered the choice of one of several state statutes of limitations to federal securities claims. Nickels v. Koehler Management Corp., 541 F.2d 611 (6th Cir. 1976) (construing Ohio law,) I.D.S. Progressive Fund, Inc. v. First of Michigan Corp., 533 F.2d 340 (6th Cir. 1976), (construing Michigan law), and Charney v. Thomas, 372 F.2d 97 (6th Cir. 1967) (construing Michigan law). The language of I.D.S. Progressive Fund, Inc. articulates the favored policy in this Circuit: “the broad remedial purposes of the federal securities law are best served by a longer not shorter statute of limitations.” 533 F.2d at 344. The majority’s opinion overrules the well established policy of our Circuit without any explanation of the inappropriateness of applying longer statutes of limitation to remedial statutes.
Accordingly, I would affirm the judgment of the district court and remand the case for proceedings consistent with my opinion.

. See Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979); United States v. Naftalin, 441 U.S. 768, 99 S.Ct. 2077, 60 L.Ed.2d 624 (1979); Cannon v. University of Chicago, 441 U.S. 677, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979); Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975); and National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 94 S.Ct. 690, 38 L.Ed.2d 646 (1974). The majority opinion does not acknowledge or discuss these recent decisions.
In Cort, the Supreme Court established the following oft-cited four-prong inquiry to guide judicial decisions to imply private causes of action in federal statutes:
In determining whether a private remedy is implicit in a statute not expressly providing one, several factors are relevant. First, is the plaintiff “one of the class for whose especial benefit the statute was enacted,” Texas & *16Pacific R. Co. v. Rigsby, 241 U.S. 33, 39 [36 S.Ct. 482, 60 L.Ed. 874] (1916) (emphasis supplied) — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? See, e. g., National Railroad Passenger Corp. v. National Assn. of Railroad Passengers, 414 U.S. 453, 458, 460 [94 S.Ct. 690, 693, 694, 38 L.Ed.2d 646] (1974) (Amtrak). Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? See, e. g., Amtrak, supra; Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 423 [95 S.Ct. 1733, 1740, 44 L.Ed.2d 138] (1975); Calhoon v. Harvey, 379 U.S. 134 [85 S.Ct. 292, 13 L.Ed.2d 190] (1964). And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? See Wheeldin v. Wheeler, 373 U.S. 647, 652 [83 S.Ct. 1441, 1445, 10 L.Ed.2d. 605] (1963), cf. J. I. Case Co. v. Borak, 377 U.S. 426, 434 [84 S.Ct. 1555, 1560, 12 L.Ed.2d 423] (1964); Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 394-395 [91 S.Ct. 1999, 2003-2004, 29 L.Ed.2d 619] (1971); id., at 400, 91 S.Ct. at 2006 (Harlan, J., concurring in judgment).
422 U.S. at 78, 95 S.Ct. at 2088.
For an excellent analysis of precedent in this area, see Steinburg, Implied Private Rights of Action Under Federal Law, 55 The Notre Dame Lawyer 33 (1979).

. Unfortunately, the majority’s footnote four mischaracterizes my use of Cort and its progeny. I do not hold that those decisions are precedent governing the issue of whether to imply a cause of action for defrauded sellers pursuant to Kentucky’s Blue Sky Statute. Rather, in the absence of a Kentucky jurisprudence specifically addressed to the question of judicially implied causes of action, I conclude that Kentucky would find guidance in the “criteria federal courts follow to imply causes of action in federal statutes.”
According to the majority, my “reliance" on Cort is misplaced because the State legislature possesses general police powers and the state courts make available common law and statutory remedies. It is ironic that the common law remedies of recission, restitution and fraud are the very reasons cited by the drafters of the Uniform Securities Act to purposefully deny to defrauded sellers a state statutory remedy.

. As stated in Amtrak, “even the most basic general principles of statutory construction must yield to clear contrary evidence of legislative intent.” 414 U.S. at 458, 94 S.Ct. at 693.

. This case, therefore, is clearly distinguishable from Cannon, wherein Justice Stevens, writing for the majority, stated:
[Ljegislative history of a statute that does not expressly create or deny a private remedy will typically be silent or ambiguous on the question .. . But this is not the typical case. Far from evidencing any purpose to deny a private cause of action, the history of Title IX [20 U.S.C. § 1681] plainly indicates that Congress intended to create such a remedy.
99 S.Ct. at 1956 (emphasis in original).

. See J. I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964).