Court Opinion

ID: 9480069
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:37:02.554438+00
Date Added: 2024-06-11T17:47:27.853219
License: Public Domain

EDITH H. JONES, Circuit Judge,
specially concurring:
The broad rule stated here by the majority, expounding a standard of duty applicable to an investment adviser under § 10(b) of the Securities Exchange Act of 1934 and Rule 10(b) — 5, has not been urged upon us by appellants or briefed by either party.1 *844For that reason alone, I would not declare it. While I do not quarrel with the general propositions of § 10(b) liability stated by the majority, I fear they are untested against the much narrower facts of this case and may create the misimpression that this opinion is opening new vistas of Securities Act liability. I thus concur in the majority’s result, but I respectfully disagree with their holding.
It is enough to reverse the district court’s grant of summary judgment on appellants’ § 10(b) claims by relying on SEC v. Blavin, 760 F.2d 706 (6th Cir.1985), whose facts resemble those produced here on summary judgment. Blavin holds that an investment adviser invites liability under § 10(b) and Rule 10(b)-5 by promoting a stock to his customers while dishonestly disclaiming any financial interest in the recommendation. On this basis, that the nondisclosure of a substantial financial conflict of interest by an investment adviser may be fraudulent under § 10(b) and Rule 10(b)-5, I concur with the majority’s result.
The majority go on, however, to hold that because an investment adviser is a fiduciary 2, he therefore has an “affirmative duty of utmost good faith to avoid misleading clients. This duty includes disclosure of all material facts and all possible conflicts of interests.” What, if anything, this language portends beyond the usual fact-specific predicates for § 10(b) liability, I am not sure. In particular, I do not know whether the majority would suggest that this fiduciary standard may reduce the threshold levels of scienter or materiality, or weaken the requirement that a fraudulent disclosure or omission be made in connection with the purchase or sale of securities or that reasonable reliance and due diligence are required of the investor. Shivangi v. Dean Witter Reynolds, Inc., 825 F.2d 885, 888 fn. 6 (5th Cir.1987). Certain precedents already limit these possibilities, however. As the majority acknowledges, “a cause of action under Rule 10(b)-5 requires proof of scienter.” Footnote 37 in majority opinion. Our brothers in the Eleventh Circuit have recently held that breaches of fiduciary duty, based on state law, are not tantamount to establishing liability under § 10(b) and Rule 10(b)-5, in part because the federal statute, unlike state fiduciary duty law, requires proof of reasonable reliance and due diligence. Gochnauer v. A.G. Edwards & Sons, Inc., 810 F.2d 1042, 1048 (11th Cir.1987). The Supreme Court has also clearly held that § 10(b) does not cover “a breach of fiduciary duty [by majority shareholders] without any deception, misrepresentation or nondisclosure ...” Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 475, 97 S.Ct. 1292, 1302, 51 L.Ed.2d 480 (1977) (emphasis added).3 Finally, if we set out to differentiate § 10(b) actions against investment advisers too prominently from ordinary actions under § 10(b) and Rule 10(b)-5, we risk the back-door creation of a private right of action for violating the Investment Advisers Act — a result forbidden by the Supreme Court in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 17, 100 S.Ct. 242, 246, 62 L.Ed.2d 146 (1979). Because these limitations on § 10(b) liability may coexist uneasily with the majority’s rule, I would have preferred to await a case whose facts and legal briefing more clearly mandated such a rule than does today’s case.
ON PETITIONS FOR REHEARING
It is ORDERED that appellants’ alternative motion to vacate, amend or modify order on costs is GRANTED to the extent that the amounts reflected in the bill of costs, $577.20 are awarded to the appellants. The section of the opinion affirming the district court’s determination of copying costs, however, remains unchanged.
It is FURTHER ORDERED that the petitions for rehearing filed in the above entitled and numbered cause are hereby DENIED.

. Appellants' brief dwelt on whether Sorcic’s alleged failure to comply with various reporting *844requirements of the Investment Advisers Act is enough, without more, to state a § 10(b) action. The majority holds, and I agree, that it is not.

. See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963).

. Although the majority suggests that a concern for federalism motivated the court’s holding in Santa Fe, that is only the second ground for the Supreme Court’s opinion. The construction of § 10(b) itself is the first basis articulated by the Court.