Court Opinion

ID: 9469446
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:40:49.597242+00
Date Added: 2024-06-11T17:41:23.639905
License: Public Domain

JERRE S. WILLIAMS, Circuit Judge,
concurring in part and dissenting in part.
I concur in all parts of Judge Gee’s opinion except Part III, A, the Federal Securities Law claims. I particularly note my concurrence in those portions of the majority opinion to which Judge Reavley directs his dissenting views.
Judge Gee’s opinion rules out any liability under federal law for the stock manipulations of James Williams and those who participated in or who are responsible for his activities. The opinion is meticulously reasoned. The difficulty I have with it is that it leads to a result which borders on the absurd. In spite of the reasoning, I cannot conclude that Congress intended any such result.
The defendants before the Court, Business Funds, Inc. (BFI) and David Bintliff are responsible for the manipulations of Williams and John Austin, Chairman of BFI, upon which this lawsuit is based. Williams was found to have engaged in a (1) scheme relating to the purchase or sale of stock, which included (2) misstatements or *1195omissions (3) of material facts, (4) made with scienter, (5) upon which Chemetron relied, (6) causing Chemetron’s injury, and (7) touching upon the loss in value of the stock. We have held that these are the elements required by Section 10(b) of the statute and Rule 10b-5. See, Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir. 1981). But because Williams’ activities failed to “affect” the purchase or selling price of the stock, according to the finding of the jury, Williams and those responsible for his actions are found by this Court to have committed no federal securities offense at all.
In evaluating this case it is of significant aid to speculate what the result would have been if Chemetron had brought its suit only under Section 10(b) and not referred to Section 9(a) at all. I should think the result is clear. An offense was committed by the defendants under Section 10(b) and Rule 10b-5. All of the requisites were met. It is only because an additional element of an offense under Section 9(a) was not proven that the defendants are freed of all responsibility for having violated federal securities law. This is an overtly unrealistic view of the law, and I cannot conceive that Congress would contemplate such a result.
If it were true that this was some unusual kind of stock manipulation which could only be cognizable under Section 9(a), then the majority opinion’s analysis would be correct. But such is not this case. The defendants through Williams engaged in a number of different kinds of manipulations and deceits designed to enhance the value of the stock. These manipulations and deceits were not unique nor unusual for such offenses. At least some of them were “manipulative or deceptive” devices or contrivances clearly at the core of a Section 10(b) violation as well as a Section 9(a) violation. The Section 9(a) violations charged in this case require a series of transactions. Section 10(b) requires only one. But surely it cannot be argued that someone who commits one violation under Section 10(b) must go free if he commits more than one unless additional and more stringent proofs are met. This would be an open invitation to commit more than one offense to make responsibility more difficult to prove.
It is quite true, as the opinion for the Court points out, that Section 10(b) was created as a “catch-all.” It was intended to cover transgressions other than those covered by the specific requirements of Section 9(a) and a number of other sections of the statute. But I cannot see what is wrong with the use of a catch-all. As the jury found, Williams did not violate Section 9(a). But he was in complete and literal violation of Section 10(b). Hence the application of a “catch-all.”
The opinion for the Court concedes that, “Rule 10b-5 has been extended well beyond its gap-filling purpose as originally envisioned by Congress in Section 10(b) and proposed by the SEC.” The major alteration of the scope of Section 10(b), of course, was the finding of an implied private right of action under Rule 10b-5 in Kardon v. National Gypsum Co., 69 F.Supp. 512 (E.D.Pa.1946). The private remedy is now well established, see Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976). The earlier pattern of the statute was found in the specific provision in Section 9(e) for a civil remedy for those damaged by stock manipulation schemes under Section 9, but with no comparable civil remedy provision in Section 10(b), thus leaving 10(b) violations to governmental enforcement. But the subsequent creation by judicial interpretation of a civil remedy under Section 10(b) must not be taken as narrowing the scope of Section 10(b). It was a broadening of Section 10(b), not a narrowing.
It is asserted, however, that we are bound by the analysis of this Court in Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981), modified on denial of rehearing and of rehearing en banc, 5th Cir., 650 F.2d 815, cert. granted, - U.S. -, 102 S.Ct. 1766, 72 L.Ed.2d 173 (1982). In my view, the Court in the instant case is not bound by the Huddleston case for two reasons. In the first place, in that case the Court upheld as proper, private remedies, even *1196with admitted overlap, under both Section 17(a) and the Section 10(b) “catchall.” The substantive provisions of Section 17(a) of the statute were found to be different from the substantive provisions of Section 10(b). The Court found that the Section 10(b) offense charged required different, and in some circumstances stronger, proof than that required by Section 17(a). Therefore, the analysis in Huddleston which the majority opinion urges is that if Section 10(b) does not make some additional requirements over offenses charged in the other section it cannot be used. But this analysis was not a part of the holding in that case because the Court upheld the overlapping remedy, nor was it necessary to the holding.
But the second, and more compelling reason, is that the Huddleston analysis did not focus at all upon or evaluate in detail a situation where, as in this case, a person engaged in deceitful stock manipulations would clearly be in violation of Section 10(b) while another person who did the same thing but was charged with his actions having a serious and harmful additional impact would go free.
Huddleston points out clearly in its footnote 7, 640 F.2d 542, that the authority in existence is overwhelmingly in favor of recognizing that conduct covered by the express liability provisions of the 1933 and 1934 acts may also be covered by Section 10(b). This view is confirmed in footnote 9 of the majority opinion. Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 788 (2d Cir. 1951) established this rule. It was stated as the rule of law in 1 A. Bromberg, Securities Law: Fraud SEC Rule 10b-5 § 2.4(1), at 27-28 (1967). Particularly noted should be the case of Schaeffer v. First National Bank of Lincolnwood, 509 F.2d 1287 (2d Cir. 1975), cert. denied, 425 U.S. 943, 96 S.Ct. 1682, 48 L.Ed.2d 186 (1976) holding that a plaintiff can file claims under both Section 9 and Rule 10b-5, the same situation as in the instant case.
But Huddleston argued that these cases and these authorities are now somewhat in doubt as a result of recent Supreme Court decisions “curtailing the broader sweep given the Securities Acts by lower federal courts. . . .,” 640 F.2d 534, 541. The majority opinion discusses these cases beginning at MSP 10 and also MSP 29. But these cases are not at all controlling in Chemetron’s situation. Blue Chip Stamps, supra, held only that a person who was neither a purchaser nor a seller could not claim the benefits of Section 10(b). This had already been the law under the Birnbaum rule since 1952. Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1386 (1952). Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) held only that Section 10(b) requires scienter, that a mere claim of negligence is not cognizable. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977) held' that where the minority stockholders’ option to purchase in a merger situation was fairly presented there was no 10(b) violation. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977) held that there was no private cause of action under Section 14(e) relating to fraudulent practices in a tender offer situation. The Court held also that Section 10(b) did not apply to the specific tender offer situation because the only allegation was that the opportunity to gain control of the target company had been defeated. The Court interpreted Section 10(b) as being aimed only at maintaining an orderly market for the distribution of securities free from manipulative influences and was not aimed at tender offers as such.
Moving to claimed further restrictive interpretations, Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979) held only that the record keeping requirements of Section 17(a) do not create a private cause of action under that provision. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) held only that the Investor Advisor’s Act of 1940, 15 U.S. § 80b-l, did not create a private cause of action. Middlesex County Sewerage Authority v. National Sea Clammers Assn., 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981) held *1197only that neither the Federal Water Pollution Control Act, 33 U.S.C. § 1251 nor the Marine Protection, Research and Sanctuaries Act of 1977, 33 U.S.C. § 1401 created a private cause of action for damages. It should be noted that these three cases in refusing to recognize private causes of action under the statutes have no relevance at all to Chemetron’s situation because it is well established that there is a private cause of action under Section 10(b), and the majority opinion concedes this.
Finally, Chiarella v. United States, 445 U.S. 222, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980) held that the employee of a company printing materials related to takeover bids who on his own used the confidential information gained from such printing to buy stock and then sell it at a profit when the takeover bids became public did not violate Section 10(b) because he was under no duty to the purchasers of the stock which he sold since there was no relationship of trust and confidence.
None of the cases summarized above has any measurable impact upon the well established law as exemplified both by commentators and the lower federal courts that Section 10(b) violations can stand along side Section 9(a) violations and violations of other sections of the law. This conclusion is also confirmed by recent holdings of both the Second and the D.C. Circuits. In Ross v. A. H. Robins Co., 607 F.2d 545 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980), the Court held that a Section 10(b) cause of action would lie for conduct which would also justify a private remedy suit under Section 18 of the 1934 act. In Wachovia Bank & Trust Co. v. National Student Marketing Corp., 650 F.2d 342 (D.C.Cir.1980), cert. denied, 452 U.S. 954, 101 S.Ct. 3098, 3099, 69 L.Ed.2d 965 (1981) the Court thoroughly considered the overlapping remedies problem. It held that the Section 10(b) remedy was available although Section 17(a) was an express remedy also applicable. Admittedly, in this case the Court again reiterated the differences between Section 10(b) and Section 17(a) as the Court had done in Huddleston, supra.
It is suggested that if we allow the Section 10(b) remedy in this case we have eliminated the provisions of Section 9(a). The same argument can be turned around the other way. If we do not allow the remedy under Section 10(b), we have eliminated Section 10(b) as it relates to manipulative and deceptive schemes in the purchase and sale of securities. And this is contrary to the exact and precise wording of the Section. There is no denying the expansion of Section 10(b) has weakened the impact of Section 9(a). But that expansion took place long before this ease. This earlier expansion, of course, lessened the significance of legislative history of the 1930’s relied upon so heavily in the majority opinion. It is not necessary in this case to decide what other kinds of improper and fraudulent stock transactions are forbidden in Section 9(a) which may not be covered by Section 10(b). Section 9(a) is a long and complicated section, and it cannot be concluded that to hold as I here suggest wipes out the entire Section 9(a).
The compelling irony in this case is that the majority view results in freeing the more serious offender but holding the lesser offender liable for engaging in exactly the same activities, manipulative and fraudulent devices in securities transactions. Such an interpretation does not ring true.
Defendants are responsible for the actions of Williams in his manipulative and deceitful wrongdoing under Section 10(b) of the statute but which fell short of violation of Section 9(a). This liability is not because of any particular activities or techniques which are any different under Section 9(a) or Section 10(b), but solely because the jury found the activities did not “affect” the value of the stock (Section 9(a)), although it is obvious, and the majority of the Court agrees, that the activities did “touch upon the reasons for the investment’s decline in value” (Section 10(b)). By the same analysis a person engaged in these stock manipulations who was charged with acting intentionally (scienter under Section 9(a)) and also recklessly (scienter under Section 10(b)) but who is found to have acted not inten*1198tionally but recklessly would be free of guilt while the person charged only with reckless disregard of the rights of others and proved to have been in such a state of mind would be in violation of the law.
Posed as the issue is in the stark facts of this case, I cannot accept the cases which indicate that the Section 10(b) catch-all must be interpreted in such a way as to free from federal wrong-doing individuals who commit offenses which fall literally, specifically, and precisely within the scope of Section 10(b) when those same activities fall short of the offenses set out in Section 9(a). I therefore respectfully dissent from that portion of the majority opinion which rules out any liability on the part of defendants under the federal securities laws for these obviously forbidden securities manipulations.