Court Opinion

ID: 9427720
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:21:39.611966+00
Date Added: 2024-06-11T17:23:08.942053
License: Public Domain

Mr. Justice White,
with whom Mr. Justice Brennan, Mr. Justice Marshall, and Mr. Justice Stevens join, dissenting.
The Court today holds that private rights of action under the Investment Advisers Act of 1940 (Act) are limited to actions for rescission of investment advisers contracts. In reaching this decision, the Court departs from established principles governing the implication of private rights of action by confusing the inquiry into the existence of a right of action with the question of available relief. By holding that damages are unavailable to victims of violations of the Act, the Court rejects the conclusion of every United States Court of Appeals that has considered the question. Abrahamson v. Fleschner, 568 F. 2d 862 (CA2 1977); Wilson v. First Houston Investment Corp., 566 F. 2d 1235 (CA5 1978); Lewis v. Transamerica Corp., 575 F. 2d 237 (CA9 1978). The Court’s decision cannot be reconciled with our decisions recognizing implied private actions for damages under securities laws with substantially the same language as the Act.1 By resurrecting *26distinctions between legal and equitable relief, the Court reaches a result that, as all parties to this litigation agree, can only be considered anomalous.
I
This Court has long recognized that private rights of action do not require express statutory authorization. Texas & Pacific R. Co. v. Rigsby, 241 U. S. 33 (1916); Tunstall v. Locomotive Firemen & Enginemen, 323 U. S. 210 (1944).2 The preferred approach for determining whether a private right of action should be implied from a federal statute was outlined in Cort v. Ash, 422 U. S. 66, 78 (1975). See Cannon v. University of Chicago, 441 U. S 677 (1979). Four factors were thought relevant;3 and although subsequent *27decisions have indicated that the implication of a private right of action “is limited solely to determining whether Congress intended to create the private right of action," Touche Ross & Co. v. Redington, 442 U. S. 560, 568 (1979), these four factors are “the criteria through which this intent could be discerned.” Davis v. Passman, 442 U. S. 228, 241 (1979). Proper application of the factors outlined in Cort clearly indicates that § 206 of the Act, 15 U. S. C. § 80b-6, creates a private right of action.
II
In determining whether respondent can assert a private right of action under the Act, “the threshold question under Cort is whether the statute was enacted for the benefit of a special class of which the plaintiff is a member.” Cannon v. University of Chicago, supra, at 689. The instant action was brought by respondent as both a derivative action on behalf of Mortgage Trust of America and a class action on behalf of Mortgage Trust's shareholders. Respondent alleged that Mortgage Trust had retained Transamerica Mortgage Ad-visors, Inc. (TAMA), as its investment adviser and that violations of the Act by TAMA had injured the client corporation. Thus the question under Cort is whether the Act was enacted for the special benefit of clients of investment advisers.
The Court concedes that the language and legislative history of § 206 leave no doubt that it was “intended to benefit the clients of investment advisers,” ante, at 17, as we have previously recognized. SEC v. Capital Cains Research Bureau, Inc., 375 U. S. 180, 191-192 (1963); Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 471, n. 11 (1977).4 Because *28respondent’s claims were brought on behalf of a member of the class the Act was designed to benefit, i. e., the clients of investment advisers, the first prong of the Cort test is satisfied in this case.
Ill
The second inquiry under the Cort approach is whether there is evidence of an express or implicit legislative intent to negate the claimed private rights of action. As the Court noted in Cannon:
“[T]he legislative history of a statute that does not expressly create or deny a private remedy will typically be equally silent or ambiguous on the question. Therefore, in situations such as the present one '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 cause of action would be controlling ’ Cort, 422 U. S., at 82 (emphasis in original).” 441 U. S., at 694.
I find no such intent to foreclose private actions. Indeed, the statutory language evinces an intent to create such actions.5 In § 215 (b) of the Act Congress provided that con*29tracts made in violation of any provision of the Act “shall be void.” As the Court recognizes, such a provision clearly contemplates the existence of private rights under the Act. Similar provisions in the Investment Company Act of 1940, 15 U. S. C. § 80a-46 (b), the Securities Exchange Act of 1934, 15 U. S. C. § 78cc (b), and the Public Utility Holding Company Act of 1935, 15 U. S. C. § 79z (b), have been recognized as reflecting an intent to create private rights of action to redress violations of substantive provisions of those Acts. Brown v. Bullock, 194 F. Supp. 207, 225-228 (SDNY), aff’d, 294 F. 2d 415 (CA2 1961); Kardon v. National Gypsum Co., 69 F. Supp. 512, 514 (ED Pa. 1946); Fischman v. Raytheon Mfg. Co., 188 F. 2d 783, 787, n. 4 (CA2 1951); Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 735 (1975); Goldstein v. Groesbeck, 142 F. 2d 422, 426-427 (CA2 1944).
The Court’s conclusion that § 215, but not § 206, creates an implied private right of action ignores the relationship of § 215 to the substantive provisions of the Act contained in § 206. Like the jurisdictional provisions of a statute, § 215 “creates no cause of action of its own force and effect; it imposes no liabilities.” Touche Ross & Co. v. Redington, supra, at 577. Section 215 merely specifies one consequence of a violation of the substantive prohibitions of § 206. The practical necessity of a private action to enforce this particular consequence of a § 206 violation suggests that Congress contemplated the use of private actions to redress violations of § 206. It also indicates that Congress did not intend the powers given to the SEC to be the exclusive means for enforcement of the Act.6
*30The Court’s holding that private litigants are restricted to actions for contract rescission confuses the question whether a cause of action exists with the question of the nature of relief available in such an action. Last Term in Davis v. Passman, 442 U. S., at 239, we recognized that “the question of whether a litigant has a 'cause of action’ is analytically distinct and prior to the question of what relief, if any, a litigant may be entitled to receive.” Once it is recognized that a statute creates an implied right of action, courts have wide discretion in fashioning available relief. Sullivan v. Little Hunting Park, Inc., 396 U. S. 229, 239 (1969) (“The existence of a statutory right implies the existence of all necessary and appropriate remedies”). As the Court stated in Bell v. Hood, 327 U. S. 678, 684 (1946), “where legal rights have been invaded, and a federal statute provides for a general right to sue for such invasion, federal courts may use any available remedy to make good the wrong done.” Thus, in the absence of any contrary indication by Congress, courts may provide private litigants exercising implied rights of action whatever relief is consistent with the congressional purpose. J. I. Case Co. v. Borak, 377 U. S. 426 (1964); Securities Investor Protection Corp. v. Barbour, 421 U. S. 412, 424 (1975); cf. Texas & Pacific R. Co. v. Rigsby, 241 U. S., at 39. The very decisions cited by the Court to support implication of an equitable right of action from contract voidance provisions of a statute, indicate that the relief available in such an action need not be restricted to equitable relief. Deckert v. Independence Shares Corp., 311 U. S. 282, 287-288 (1940); Mills v. Electric Auto-Lite Co., 396 U. S. 375, 388 (1970) (“Monetary relief will, of course, also be a possibility”); Kardon v. National Gypsum Co., supra, at 514 (“[S]uch suits would include not only actions for rescission but also for money damages”). As the Court recognized in Porter v. Warner Holding Co., 328 U. S. *31395, 399 (1946), “where, as here, the equitable jurisdiction of the court has properly been invoked for injunctive purposes, the court has the power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law.” Thus, if a private right of action exists under the Act, the relief available to private litigants may include an award of damages.
The Court concludes that the omission of the words “actions at law” from the jurisdictional provisions of § 214 of the Act and the failure of the Act to authorize expressly any private actions for damages reflect congressional intent to deny private actions for damages. Section 214 provides that federal district courts “shall have jurisdiction of violations of [the Act]” and “of all suits in equity to enjoin any violation of” the Act. 15 U. S. C. § 80b-14. Although other federal securities Acts have provisions expressly granting federal-court jurisdiction over “actions at law,” the significance of this omission is Delphic at best. While a previous draft of the bill that became the Act incorporated by reference the jurisdictional provisions of the Investment Company Act and the Public Utility Holding Company Act, there is no indication in the legislative history as to why this draft was replaced with the language that became § 214.7 The only reference to the jurisdictional provisions of the Act is the statement in the House Committee Report that §§ 208-221 “contain provisions comparable to those in [the Investment Company Act].” H. R. Rep. No. 2639, 76th Cong., 3d Sess., 30 (1940). As the Second Circuit concluded in Abrahamson v. Fleschner, 568 F. 2d, at 875: “There is not a shred of evidence in the *32legislative history of the Advisers Act to support the assertion that Congress intentionally omitted the reference to 'actions at law’ in order to preclude private actions by investors.” See Wilson v. First Houston Investment Corp., 566 F. 2d, at 1242. The Court recognizes that the more plausible explanation for the failure of § 214 expressly to include a reference to actions at law is that, unlike other federal securities Acts, the Act did not include other provisions expressly authorizing private civil actions for damages. See Abrahamson v. Fleschner, supra, at 874; Bolger v. Laventhol, Krekstein, Horwath & Horwath, 381 F. Supp. 260, 264-265 (SDNY 1974). But, as our cases indicate, this silence of the Act is not an automatic bar to private actions.8
The fundamental problem with the Court’s focus on § 214 is that it attempts to discern congressional intent to deny a private cause of action from a jurisdictional, rather than a substantive, provision of the Act. Because § 214 is only a jurisdictional provision, “[i]t creates no cause of action of its own force and effect; it imposes no liabilities.” Touche Ross & Co. v. Redington, 442 U. S., at 577. Since the source of implied rights of action must be found “in the substantive provisions of [the Act] which they seek to enforce, not in the jurisdictional provision,” ibid., § 214’s failure to refer to “actions at law” does not indicate that private actions for damages are unavailable under the Act. The subject-matter jurisdiction of the federal courts over respondent’s action is unquestioned, *33regardless of how § 214 is interpreted, because jurisdiction is provided by the “arising under” clause of 28 U. S. C. § 1331. Cf. Abrahamson v. Fleschner, supra, at 880, n. 5 (Gurfein, J., concurring and dissenting). Where federal courts have jurisdiction over actions to redress violations of federal statutory rights, relief cannot be denied simply because Congress did not expressly provide for independent jurisdiction under the statute creating the federal rights.9
*34IV
The third portion of the Cort standard requires consideration of the compatibility of a private right of action with the legislative scheme.10 While a private remedy will not be implied to the frustration of the legislative purpose, “when that remedy is necessary or at least helpful to the accomplishment of the statutory purpose, the Court is decidedly receptive to its implication under the statute.” Cannon v. University of Chicago, 441 U. S., at 703.
The purposes of the Act have been reviewed extensively by the Court in SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180 (1963). A meticulous review of the legislative history convinced the Court that the purpose of the Act was “to prevent fraudulent practices by investment advisers.” Id., at 195. The Court concluded that “Congress intended the Investment Advisers Act of 1940 to be construed like other securities legislation 'enacted for the purpose of avoiding frauds/ not technically and restrictively, but flexibly to effectuate its remedial purposes.” Ibid, (footnote omitted).
Implication of a private right of action for damages unquestionably would be not only consistent with the legislative goal of preventing fraudulent practices by investment advisers, but also essential to its achievement. While the Act empowers the SEC to take action to seek equitable relief to prevent offending investment advisers from engaging in future viola*35tions,11 in the absence of a private right of action for damages, victimized clients have little hope of obtaining redress for their injuries. Like the statute in Cannon, the Act does not assure that the members of the class it benefits are able “to activate and participate in the administrative process contemplated by the statute.” Cannon v. University of Chicago, supra, at 707, n. 41. Moreover, the SEC candidly admits that, given the tremendous growth of the investment advisory industry, the magnitude of the enforcement problem exceeds the Commission’s limited examination and enforcement capabilities.12 The Commission maintains that private litigation therefore is a necessary supplement to SEC enforcement activity. Under the circumstances of this case, this position seems unassailable. Cf. J. I. Case Co. v. Borak, 377 U. S., at 432; Cannon v. University of Chicago, supra, at 706-708.
V
The final consideration under the Cort analysis is whether the subject matter of the cause of action has been so traditionally relegated to state law as to make it inappropriate to infer a federal cause of action. Regulation of the activities of investment advisers has not been a traditional state concern. During the Senate hearings preceding enactment of the Act, *36Congress was informed that only six States had enacted legislation to regulate investment advisers. Hearings on S. 3580 before a Subcommittee of the Senate Committee on Banking and Currency, 76th Cong., 3d Sess., 996-1017 (1940). Most of the state statutes subsequently enacted have been patterned after the federal legislation. See Note, Private Causes of Action Under Section 206 of the Investment Advisers Act, 74 Mich. L. Rev. 308, 324 (1975).
Although some practices proscribed by the Act undoubtedly would have been actionable in common-law actions for fraud, “Congress intended the Investment Advisers Act to establish federal fiduciary standards for investment advisers.” Santa Fe Industries, Inc. v. Green, 430 U. S., at 471, n. 11; SEC v. Capital Gains Research Bureau, Inc., supra, at 191-192. While state law may be applied to parties subject to the Act, “as long as private causes of action are available in federal courts for violation of the federal statutes, '[the] enforcement problem is obviated.” Burks v. Lasker, 441 U. S. 471, 479, n. 6 (1979).
VI
Each of the Cort factors points toward implication of a private cause of action in favor of clients defrauded by investment advisers in violation of the Act. The Act was enacted for the special benefit of clients of investment advisers, and there is no indication of any legislative intent to deny such a cause of action, which would be consistent with the legislative scheme governing an area not traditionally relegated to state law. Under these circumstances an implied private right of action for damages should be recognized.

 The provisions of § 206 of the Investment Advisers Act of 1940, 15 U. S. C. § 80b-6, are substantially similar to § 10 (b) of the Securities Exchange Act of 1934, 15 U. S. C. §78j (b), and Rule 10b-5, 17 CFR § 240.10b-5 (1979), both of which have been held to create private rights of action for which damages may be recovered. Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 13, n. 9 (1971); Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 730 (1975). The provisions of §215 (b) of the Act, 15 U. S. C. § 80b-15 (b), are substantially similar *26to other provisions in the Securities Exchange Act of 1934, 15 U. S. C. § 78cc (b).

 Rigsby marked the first time this Court implied a private right of action. There the Court recognized that implied rights of action were not novel and had been a not infrequent feature of the common law. 241 U. S., at 39-40 (citing Couch v. Steel, 3 El. & Bl. 402, 411, 118 Eng. Rep. 1193, 1196 (Q. B. 1854)). See Cannon v. University of Chicago, 441 U. S. 677, 689, n. 10 (1979).

 “First, is the plaintiff 'one of the class for whose especial benefit the statute was enacted,’ Texas & Pacific R. Co. v. Rigsby, 241 U. S. 33, 39 (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 (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 (1975); Calhoon v. Harvey, 379 U. S. 134 (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 (1963); cf. J. I. Case Co. v. Borak, 377 U. S. 426, 434 (1964); Bivens v. Six Unknown Federal Narcotics Agents, 403 U. S. 388, 394-395 *27(1971); id., at 400 (Harlan, J., concurring in judgment).” 422 U. S., at 78.

 The statutory language clearly indicates that the intended beneficiaries of the Act are,the clients of investment advisers. Section 206 makes it unlawful for any investment adviser “(1) to employ any device, scheme, or artifice to defraud any client or prospective client; (2) to engage in *28any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client”; and (3) to engage in certain transactions with “a client” or “for the account of such, client,” without making certain written disclosures “to such client” and “obtaining the consent of the client to such transaction.” Statements in the House and Senate Committee Reports that accompanied the original legislation reinforce the conclusion that the Act was designed to protect investors against fraudulent practices by investment advisers. See, e. g., H. R. Rep. No. 2639, 76th Cong., 3d Sess., 28 (1940); S. Rep. No. 1775, 76th Cong., 3d Sess., 21 (1940).

 Also, as the Court recognizes, the legislative history of the Act is “entirely silent” on the question of private rights of action; it neither explicitly nor implicitly indicates that Congress intended to deny private damages actions to clients victimized by their investment advisers. Every court that has considered the question has come to this conclusion.

 The Court concludes that because the Act expressly provides for SEC enforcement proceedings, Congress must not have intended to create private rights of action. This application of the oft-criticized maxim expressio unius est exdusio alterius ignores our rejection of it in Cort v. Ash, 422 U. S., at 82-83, n. 14, in the absence of specific support in the legislative history for the proposition that express statutory remedies are to be exclusive. Moreover, the Court ignores the fact that the enforcement powers given the SEC under the Act are virtually identical to those *30embodied in other securities Acts under which implied rights of action have been recognized. Abrahamson v. Fleschner, 568 F. 2d 862, 874, n. 19 (CA2 1977).

 Petitioners’ suggestion that this change may have been the product of industry pressure is at odds with the legislative history. Industry objections to the original draft of the legislation focused on matters unrelated to the jurisdictional provisions of the bill. See, e. g., Hearings on H. R. 10065 before a Subcommittee of the House Committee on Interstate and Foreign Commerce, 76th Cong., 3d Sess., 92 (1940).

 Congressional failure to make express provision for private actions for damages is not surprising in light of Congress’ traditional reliance on the courts to determine whether private rights of action should be implied and to award appropriate relief. See Cannon v. University of Chicago, 441 U. S., at 718 (Rehnquist, J., concurring). Although recent decisions of the Court have contained admonitions for Congress to legislate with greater specificity in the future, ibid. (Rehnquist, J., concurring) and id., at 749 (Powell, J., dissenting); Touche Ross & Co. v. Redington, 442 U. S. 560, 579 (1979), Congress cannot be faulted for failing to anticipate these admonitions when the Act was enacted in 1940.

 If Congress provided no indication of any intent to deny private rights of action when § 214 was enacted, the subsequent failure of Congress to amend §214 likewise offers none. The 1960 amendments to the Act expanded the scope of §206 and strengthened the authority of the SEC. 74 Stat. 887. These amendments were not addressed to the private-right-of-action question, nor is there any indication that Congress considered the question when the amendments were passed. Moreover, as the Court has noted in reviewing the legislative history of the Act on a prior occasion: “[T]he intent of Congress must be culled from the events surrounding the passage of the 1940 legislation. '[0] pinions attributed to a Congress twenty years after the event cannot be considered evidence of the intent of the Congress of 1940' ” SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 199-200 (1963).
This admonition applies with equal force with respect to the 1970 amendments to the Act. Although the 1970 amendments were part of legislation that created a new private right of action under the Investment Company Act, “it would be odd to infer from Congress’ actions concerning the newly created provisions of [a companion Act] any intention regarding the enforcement of a long-existing statute.” Cort v. Ash, 422 U. S., at 83, n. 14. Moreover, the Committee Reports accompanying the 1970 amendments clearly indicated that the provision of express rights of action was not intended to affect the availability of implied rights of action elsewhere. H. R. Rep. No. 91-1382, p. 38 (1970); S. Rep. No. 91-184, p. 16 (1969).
The failure of Congress during its 1976 and 1977 sessions to adopt an SEC proposal to add the words “actions at law” to § 214 of the Act also does not foreclose private enforcement. The proposal, which was favorably reported on by a Senate Committee, S. Rep. No. 94-910 (1976), was intended only to confirm the existence of an implied right of action and not to create one. 575 F. 2d 237, 238, n. 1 (CA9 1978). The failure of Congress to enact legislation is not always a reliable guide to legislative *34intent, Red Lion Broadcasting Co. v. FCC, 395 U. S. 367, 382, n. 11 (1969); Fogarty v. United States, 340 U. S. 8, 13-14 (1950). It is a totally inadequate guide when, as here, Congress may have deemed the proposed legislation unnecessary, given the adequacy of existing legislation to support an implied right of action.

 The Court ignores the third and fourth prongs of the Cort test on the ground that they were ignored in Touche Ross & Co. v. Redington, supra. However, in Touche Ross the Court found it unnecessary to consider these factors only because the other portions of the Cort standard could not be satisfied. By contrast, the Court here concludes that at least the first part of the Cort test is satisfied.

 See, e. g., § 209 (e) of the Act, 15 U. S. C. § 80b-9 (e) (authorizing the SEC to seek injunctive relief against violations of the Act); § 203 (e), 15 U. S. C. § 80b-3 (e) (empowering the SEC to revoke the registration of investment advisers).

 As of December 31, 1978, a total of 5,385 investment advisers were registered with the SEC. The Commission estimates that for the fiscal year ending October 30, 1980, more than $200 billion in assets will be under advisement by registered investment advisers. Brief for SEC as Amiens Curiae 32-33. In 1977, the SEC was able to conduct only 459 inspections of investment advisers. 43 SEC Ann. Rep. 234 (1977). As the Court recognized in Cannon, in many eases the enforcement agency may be unable to investigate meritorious private complaints, and even when the few investigations do uncover violations, the private victims of the violations need not be included in the relief. 441 U. S., at 706-708, n. 41.