Court Opinion

ID: 6908890
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:11:32.626751+00
Date Added: 2024-06-11T16:06:27.971083
License: Public Domain

FRANK, Circuit Judge.
1. The petitioners argue that, in. addition to reviewing the Commission’s order, we must review the conduct and opinion of the NASD. We think not. For Section 25(a) of the Securities Exchange. Act of 1934, 15 U.S.C.A. § 78y, which affords the sole basis of any judicial review, *695refers to a Commission order only. Moreover, Section (h)(1) of the so-called Ma-loney Act — i. e.j Section 15A of the Securities Exchange Act6 — provides as follows: The Commission shall review disciplinary action taken by a “registered securities association”; in doing so, the Commission shall conduct a hearing of its own and shall consider not only “the record before the association” but also “such other evidence as it may deem relevant”; it shall make its own finding as to whether the disciplined member has done or omitted such acts “as the association has found him to have engaged in or omitted”; the Commission shall then determine for itself whether the act or omission violated such rules of the association “as have been designated in the determination of the association”; the Commission must also determine and declare whether the act or omission constitutes “conduct inconsistent with just and equiable principles of trade, and shall so declare”; and the Commission shall find whether the penalty imposed by the association is “excessive or oppressive, having due regard to the public interest,” and, if so, it shall, by order, “cancel, reduce, or require the remission of such penalty.” We think that those provisions call for (1) de novo findings by the Commission, (2) the hearing (as here) by the Commission of further evidence if necessary, and (3) an independent decision by the Commission as to the charges and penalty; these matters alone are subject to our review. We conclude that we may consider any errors in the proceedings of the association only if and to the extent that they infected the Commission’s action by leading to errors on its part.
2. We perceive no such errors. Having considered the record as a whole, we hold that there is ample substantial evidence to sustain the Commission’s findings, which, in turn, fully justify the conclusion that the firm was guilty as charged.
Petitioners, however, contend that the association’s opinion contains references to matters not relevant to those charges. The Commission suggests that those references be regarded as dicta. Much can be said for that suggestion: Many court opinions abound with similar “asides”, not pertinent to the accompanying decisions, yet no one supposes that the decisions are therefore invalid; it would be strange, then, were a court to invalidate an order by a body of non-lawyers because the order is accompanied by an opinion which imitates the verbal habits of the judiciary. But far more important, the Commission, in its own independent findings, ignored such irrelevant matters. True, lack of supervision and violation of the association’s Rule 27 (a) 7 were not charged. But the Commission properly took them into account in their 'bearing on the specific charges brought against the firm and on the duties of the Commission in the circumstances.8
3. In the light of the statutory provisions concerning (a) the Commission’s power, according to reasonably fixed statutory standards,9 to approve or disapprove of the association’s Rules, and (b) the Commission’s review of any disciplinary action, we see no merit in the contention that the Act unconstitutionally delegates power to the association.10
4. Johnson petitioned the Commission to review the action of the association *696“insofar as said action or the findings” related to him individually. The Commission did so. It found that he was “a cause” of the order expelling the firm. He now urges that the association filed no charges against him. But, as he did not make this point until he reached this court, we may not deal with it; for Section 25 provides, “No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission.”
5. Johnson argues that the record contains no substantial evidence to support the finding that his conduct was a “cause” of the firm’s expulsion within the meaning of Section 15A(b)(4)(C).11 We do not agree. There is ample evidence (1) that he had complete control of all persons in the organization including the other partners (who were such in little more than name) and (2) that he signally failed to provide any adequate supervision although his extensive control put upon him that responsibility. He contends, however, that such failure does not make him a “cause,” because, he says, “cause” must always be interpreted to mean “an immediate or inducing cause,” with the result here that a “cause” cannot consist of anything “back of the employee or associate who was guilty of the violation.”
We reject that interpretation. It involves the “familiar one-word-one-mcaning (or ‘pigs is pigs’) fallacy”,12 grounded on reasoning which “would compel the conclusion that a clotheshorse is an animal of the equine species, and make it impossible to speak of drinking a toast.” 13 It overlooks the context14 in which the word “cause” is used, i. <?., a statute explicitly concerned with adherence to “just and equitable principles of trade.” 15 Johnson’s interpretation would encourage ethical ir*697responsibility by those who should be primarily responsible for such adherence.16 If Johnson’s contention were sound, then, in order to circumvent those principles, a person controlling a firm would merely have to arrange to leave wholly unsupervised its employees who deal with customers. We think Johnson’s irresponsible behavior with respect to supervision amounted to such recklessness as to justify the finding that he was a “cause” 17 of the firm’s ■expulsion.18
6. We think that, in passing upon the penalty, the Commission properly considered previous disciplinary action taken against the firm by the association and by the New York Stock Exchange. We think the Commission did not abuse its discretion in not setting aside the penalty fixed by the association. Assuming, argu-yendo, that we may go further and decide whether or not the penalty was excessive, ■we hold that the penalty was not incorrect.19

. 15 Ü.S.C.A. § 78o-3.

. Rule 27 (a) provides that each sale by a salesman “shall be approved by a partner, duly accredited executive or branch manager * * * by a written endorsement made upon a copy of a memorandum of such sale” which shall be “made a part of the permanent records of such member.”

. Lack of supervision bore directly on the issue whether Johnson was a “cause” of the order expelling the firm; see infra for discussion of that issue.
As the Commission said in its opinion, violation of Rule 27 (a) was relevant in connection with the firm’s contention that responsibility for supervising the Boston salesmen was lodged solely in Boardman and Freeman.

. Cf. Charles Hughes & Co. v. S. E. C., 2 Cir., 139 F.2d 434.

. See Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263; Opp Cotton Mills v. Administrator of Wage and Hour Division. 312 *696U.S. 126, 657, 61 S.Ct. 524, 85 L.Ed. 624.
The contention is especially unsound since a violation of any of those rules cannot result in criminal punishment. Cf. Rice v. Chicago Board of Trade, 331 U.S. 247, 253-254, 67 S.Ct. 1160, 91 L.Ed. 1468.

. It provides that no broker or dealer shall be continued in membership in an association if “by his conduct while employed by, acting for, or directly or indirectly controlling or. controlled by, a broker or dealer, (he) was a cause of” any suspension or expulsion “which is in effect with respect to such broker or dealer.”

. Irwin v. Simmons, 2 Cir., 140 F.2d 558, 560.
See Cook, The Logical and the Legal Bases of the Conflict of Laws (1942) 159: “The tendency to assume that a word which appears in two or more legal rules, and so in connection with more than one purpose, has and should have precisely the same scope in all of them runs all through legal discussions. It has all the tenacity of original sin and must be constantly guarded against.”

. United States v. Forness, 2 Cir., 125 F.2d 928, 932.

. See Hoffman v. Palmer, 2 Cir., 129 F.2d 976, 984; “In a given context, words often come to have a moaning which they do not have in other contexts. What ‘apostles’ mean in an admiralty rule would surprise a theologian. To a mathematician, pi is not a Greek letter * * * ‘Unearned’ in the insurance trade, as used in connection with premiums, does not indicate what it does mean to a man on the street.”
See 3 Corbin, Contracts (1951): “A specific word or a particular phrase often appears in two very different statutes, enacted for very different purposes. To assume that the word or phrase must be given the same meaning in the two statutes is an egregious error” (p. 91). “To elucidate the meanings of the word ‘mean’ requires fourteen long columns of fine print in the Oxford dictionary” (p. 70). “Words have no meaning; it is users of words who give them meaning” (p. 58). Corbin says there is no “one true meaning of” the phrase “one true meaning” (p. 17).
See Holmes, The Theory of Legal Interpretation, 12 Ilarv.L.Rev. (1899 ) 417: “It is not true that in practico (and I know of no reason why theory should disagree with the facts) a given word or even a given allocation of words has one meaning and no other.” See also Williams, Language and The Law, 61 L. Q.Rev. (1945) at 384-388.
That the problem of “context” in interpretation is not peculiar to lawyerdom, see Frank, Book Review, 61 Yale L. J. 1108, 1112 (1952).

. For the history of the phrase in the rules of the Exchanges and in judicial decisions, see National Ass’n of Dealers, *697Inc., 19 S.E.C. 424, 484-485, and cases there cited.
Cf. 3 Corbin, Contracts (1951) 57: “A •word appearing suddenly, in empty space and with no history, would express nothing at all.”

, The Commission, in several earlier cases, each involving its own proceedings to determine whether the registration of a broker-dealer should be revoked for fraudulent conduct, has held that a broker-dealer firm, with a large organization, ‘cannot relieve itself of responsibility for its subordinates’ violations by neglecting their adequate supervision. See Bond v. Goodwin, Inc., 15 S.E.C. 584, 601; E. H. Rollins & Sons, Inc., 18 S.E.C. 347, 391-392.

. It is of interest that apparently the scientific and philosophic notions of “causé” originally derived from the usages of the Greek law courts where “cause” '(aitia) denoted responsibility. Myres, The Beginnings of Science, in the ■volume, Science and Civilization (1923, Marvin ed.) 7, 21-22, after so explain■ing, adds: “Just so in Latin, the corresponding word ‘causa’ itself comes into metaphysics from the law courts.” Myres motes that “causam dieere,” in the courts, meant “to find out who is responsible for what happens.” See also Jaeger, ‘Paideia, Yol. I (1939) 159; Kelsen, Nature and Society (1943) 248, 263, 379 n. 97.
Mention, of this history does not mean that we think that “cause” in Section 15A is equated with respondeat superior.
We need not and do not decide that nothing less than recklessness will add up to “cause.”

. Petitioners quote Bacon’s maxim concerning “cause.” N. St. John Green, tracing the origins of this maxim, shows the influence of Aristotle, and of his scholastic disciples, on the idea of “proximate” and “remote” cause. Green demonstrates the ambiguity of this locution. ■ In legal usage, he says, the “chief difficulty * * * is that the term proximate and the term remote have no clear, distinct, and definable significations. * * * The division is neither scientific nor logical * * * Above all, it is not a fixed or constant division. It varies in different classes of action.” Green, Proximate and Remote Cause, 4 Am.L. Rev. (1870) 201, reprinted in Green, Essays on Tort and Crime (1933) 4-15, and discussed in Wiener, Evolution and The Pounders of Pragmatism (1940) Ch. 7.

. As the Commission said, the expulsion of the firm “will not necesarily be permanent.” See Loss, Securities Regulations (1951) 742-743.