442 U.S. 560 (1979), 78-309, Touche Ross & Co. v. Redington

Docket Nº:No. 78-309
Citation:442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82
Party Name:Touche Ross & Co. v. Redington
Case Date:June 18, 1979
Court:United States Supreme Court
 
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Page 560

442 U.S. 560 (1979)

99 S.Ct. 2479, 61 L.Ed.2d 82

Touche Ross & Co.

v.

Redington

No. 78-309

United States Supreme Court

June 18, 1979

Argued March 26, 1979

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

Petitioner accounting firm was retained by a securities brokerage firm (Weis) registered with the Securities and Exchange Commission (SEC) and a member of the New York Stock Exchange (Exchange), and, in this capacity, audited Weis' books and records and prepared for filing with the SEC the annual reports of financial condition [99 S.Ct. 2481] required by § 17(a) of the Securities Exchange Act of 1934 (1934 Act) and implementing regulations. Subsequently, because of Weis' precarious financial condition, respondent Redington was appointed as trustee in the liquidation of Weis' business pursuant to the Securities Investor Protection Act (SIPA). During the liquidation, Weis' cash and securities on hand, as well as a sum of money advanced by respondent Securities Investor Protection Corporation (SIPC) to the trustee under the SIPA, proved to be insufficient to make whole those customers who had left assets or deposits with Weis. The SIPC and the trustee then filed an action for damages against petitioner in District Court, seeking to impose liability upon petitioner by reason of its allegedly improper audit of Weis' financial statements, and alleging that, because of such improper conduct, petitioner breached duties owed to the SIPC, the trustee, and others under the common law, § 17(a), and the regulations, and that this misconduct prevented Weis' true financial condition from becoming known until it was too late to forestall liquidation or to lessen the adverse financial consequences to Weis' customers. The District Court dismissed the complaint, holding that no claim for relief was stated because no private cause of action could be implied from § 17(a). The Court of Appeals reversed, holding that § 17(a) imposes a duty on accountants, that a breach of this duty gives rise to an implied private right of action for damages in favor of a broker-dealer's customers, and that the SIPC and the trustee could assert this implied cause of action on behalf of Weis' customers.

Held: There is no implied private cause of action for damages under § 17(a). Pp. 568-579.

(a) In terms, § 17(a) simply requires broker-dealers to keep such records and file such reports as the SEC may prescribe, and does not purport to create a private cause of action in favor of anyone. The

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section's intent, evident from its face, is to provide the SEC, the Exchange, and other authorities with a sufficiently early warning to enable them to take appropriate action to protect investors before a broker-dealer's financial collapse, and not by any stretch of its language does the section purport to confer private damages rights or any remedy in the event the regulatory authorities are unsuccessful in achieving their objectives and the broker-dealer becomes insolvent before corrective steps can be taken. Pp. 568-571.

(b) The conclusion that no private right of action is implicit in § 17(a) is reinforced by the fact that the 1934 Act's legislative history is entirely silent on whether or not such a right of action should be available. This conclusion is also supported by the statutory scheme under which other sections of the Act explicitly grant private causes of action. More particularly, a cause of action in § 17(a) should not be implied that is significantly broader than the one granted in § 18(a), which provides the principal express civil remedy for misstatements in reports, but limits it to purchasers and sellers of securities. Pp. 571-574.

(c) The inquiry in a case such as this ends when it is determined on the basis of the statutory language and the legislative history that Congress did not intend to create, either expressly or by implication, a private cause of action. Further inquiries as to the "necessity" of implying a private remedy and the proper forum for enforcement of the asserted rights have little relevance to the decision of the case. Pp. 575-576.

(d) Section 27 and the remedial purposes of the 1934 Act do not furnish a sufficient ground for holding that the federal courts should provide a damages remedy for petitioner's alleged breach of its duties under § 17(a). Section 27 merely grants jurisdiction to federal district courts over violations of the Act and suits to enforce any liability or duty thereunder, and provides for venue and service of process. It creates no cause of action of its own force and effect, and imposes no liabilities. And generalized references to the "remedial purposes" of the Act do not justify reading a provision "more broadly than its language and the statutory scheme reasonably permit." SEC v. Sloan, 436 U.S. 103, 116. Pp. 576-578.

592 F.2d 617, reversed and remanded.

REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, WHITE, BLACKMUN, and STEVENS, JJ., joined. BRENNAN, J., filed a concurring opinion, post, p. 579. MARSHALL, J., filed a dissenting opinion, post, p. 580. POWELL, J., took no part in the consideration or decision of the case.

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REHNQUIST, J., lead opinion

MR. JUSTICE REHNQUIST delivered the opinion of the Court.

Once again, we are called upon to decide whether a private remedy is implicit in a statute not expressly providing one. During this Term alone, we have been asked to undertake this task no fewer than five times in cases in which we have granted certiorari.1 Here we decide whether customers of securities brokerage firms that are required to file certain financial reports with regulatory authorities by § 17(a) of the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 897, as amended, 15 U.S.C. § 78q(a), have an implied cause of action for damages under § 17(a) against accountants who audit such reports, based on misstatements contained in the reports.2

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I

Petitioner Touche Ross & Co. is a firm of certified public accountants. Weis Securities, Inc. (Weis), a securities brokerage firm registered as a broker-dealer with the Securities and Exchange Commission (Commission) and a member of the New York Stock Exchange (Exchange), retained Touche Ross to serve as Weis' independent certified public accountant from 1969 to 1973. In this capacity, Touche Ross conducted audits of Weis' books and records and prepared for filing with the Commission the annual reports of financial condition required by § 17(a) of the 1934 Act, 15 U.S.C. § 78q(a), and the rules and regulations adopted thereunder. 17 CFR § 240.17a-5 (1972).3 [99 S.Ct. 2483] Touche Ross also prepared for Weis

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responses to financial questionnaires required by the Exchange of its member firms.

This case arises out of the insolvency and liquidation of Weis. In 1973, the Commission and the Exchange learned of Weis' precarious financial condition and of possible violations of the 1934 Act by Weis and its officers. In May, 1973, the Commission sought and was granted an injunction barring Weis and five of its officers from conducting business in violation of the 1934 Act.4 At the same time, the Securities Investor Protection Corporation (SIPC), pursuant to statutory authority, applied in the United States District Court for the Southern District of New York for a decree adjudging that Weis' customers were in need of the protection afforded by the Securities Investor Protection Act of 1970 (SIPA), 84 Stat. 1636, 15 U.S.C. § 78aaa et seq.5 The District Court

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granted the requested decree and appointed respondent Redington (Trustee) to act as trustee in the liquidation of the Weis business under SIPA.

During the liquidation, Weis' cash and securities on hand appeared to be insufficient to make whole those customers who had left assets or deposits with Weis. Accordingly, pursuant to SIPA, SIPC advanced the Trustee $14 million to satisfy, up to specified statutory limits, the claims of the approximately 34,000 Weis customers and certain other creditors of Weis. Despite the advance of $14 million by SIPC, there apparently remain several million dollars of unsatisfied customer claims.6

In 1976, SIPC and the Trustee filed this action for damages against Touche Ross in the District Court for the Southern District of New York. The "common allegations" of the complaint, which at this stage of the case we must accept as true, aver that certain of Weis' officers conspired to [99 S.Ct. 2484] conceal substantial operating losses during its 1972 fiscal year by falsifying financial reports required to be filed with regulatory authorities pursuant to § 17(a) of the 1934 Act. App. 8. SIPC and the Trustee seek to impose liability upon Touche Ross by reason of its allegedly improper audit and certification

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of the 1972 Weis financial statements and preparation of answers to the Exchange financial questionnaire. Id. at 15-19. The complaint alleges that, because of its improper conduct, Touche Ross breached duties that it owed SIPC, the Trustee, and others under the common law, § 17(a) and the regulations thereunder, and that Touche Ross' alleged dereliction prevented Weis' true financial condition from becoming known until it was too late to take remedial action to forestall liquidation or to lessen the adverse financial consequences of such a liquidation to the Weis customers. App. 8-9. The Trustee seeks to recover $51 million on behalf of Weis in its own right and on behalf of the customers of Weis whose property the Trustee was unable to return. SIPC claims $14 million, either as subrogee of Weis' customers whose claims it has paid under SIPA or in its own right. The federal claims are based on § 17(a) of the 1934 Act...

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