444 U.S. 11 (1979), 77-1645, Transamerica Mortgage Advisors, Inc. v. Lewis

Docket Nº:No. 77-1645
Citation:444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146
Party Name:Transamerica Mortgage Advisors, Inc. v. Lewis
Case Date:November 13, 1979
Court:United States Supreme Court
 
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444 U.S. 11 (1979)

100 S.Ct. 242, 62 L.Ed.2d 146

Transamerica Mortgage Advisors, Inc.

v.

Lewis

No. 77-1645

United States Supreme Court

Nov. 13, 1979

Argued March 20, 1979

Reargued October 2, 1979

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

[100 S.Ct. 242] Syllabus

Respondent, a shareholder of petitioner Mortgage Trust of America (Trust), brought this suit in Federal District Court as a derivative action on behalf of the Trust and as a class action on behalf of the Trust's shareholders, alleging that several [100 S.Ct. 243] trustees of the Trust, its investment adviser, and two corporations affiliated with the latter, had been guilty of various frauds and breaches of fiduciary duty in violation of the Investment Advisers Act of 1940 (Act). The complaint sought injunctive relief, rescission of the investment advisers contract between the Trust and the adviser, restitution of fees and other considerations paid by the Trust, an accounting of illegal profits, and an award of damages. The District Court ruled that the Act confers no private right of action and accordingly dismissed the complaint. The Court of Appeals reversed, holding that

implication of a private right of action for injunctive relief and damages under the Advisers Act in favor of appropriate plaintiffs is necessary to achieve the goals of Congress in enacting the legislation.

Held:

1. Under § 215 of the Act, which provides that contracts whose formation or performance would violate the Act "shall be void . . . as regards the rights of" the violator, there exists a limited private remedy to void an investment advisers contract. The language of § 215 itself fairly implies a right to specific and limited relief in a federal court. When Congress declared in § 215 that certain contracts are void, it intended that the customary legal incidents of voidness would follow, including the availability of a suit for rescission or for an injunction against continued operation of the contract, and for restitution. Pp. 18-19.

2. Section 206 of the Act -- which makes it unlawful for any investment adviser

to employ any device, scheme, or artifice to defraud . . . [or] to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client,

or to engage in specified transactions with clients without making required disclosures -- does not, however, create a private cause of action

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for damages. Unlike § 215, § 26 simply proscribes certain conduct, and does not, in terms, create or alter any civil liabilities. In view of the express provisions in other sections of the Act for enforcing the duties imposed by § 206, it is not possible to infer the existence of an additional private cause of action. And the mere fact that § 206 was designed to protect investment advisers' clients does not require the implication of a private cause of action for damages on their behalf. Pp. 19-24.

575 F.2d 237, affirmed in part, reversed in part, and remanded.

STEWART, J., delivered the opinion of the Court, in which BURGER, C.J., and BLACKMUN, POWELL, and REHNQUIST, JJ., joined. POWELL, J., filed a concurring statement, post, p. 25. WHITE, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and STEVENS, JJ., joined, post, p. 25.

STEWART, J., lead opinion

MR. JUSTICE STEWART delivered the opinion of the Court.

The Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 et seq., was enacted to deal with abuses that Congress had

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found to exist in the investment advisers industry. The question in this case is whether that Act creates a private cause of action for damages or other relief in favor of persons aggrieved by those who allegedly have violated it.

The respondent, a shareholder of petitioner Mortgage Trust of America (Trust), brought this suit in a Federal District Court as a derivative action on behalf of the Trust and as a class action on behalf of the Trust's shareholders. Named as defendants were the Trust, several individual trustees, the Trust's investment adviser, Transamerica Mortgage Advisors, Inc.(TAMA), and two corporations affiliated with TAMA, Land Capital, Inc. (Land Capital), and Transamerica Corp. (Transamerica), all of which are petitioners in this case.1

[100 S.Ct. 244] The respondent's complaint alleged that the petitioners, in the course of advising or managing the Trust, had been guilty of various frauds and breaches of fiduciary duty. The complaint set out three causes of action, each said to arise under the Investment Advisers Act of 1940.2 The first alleged that the advisory contract between TAMA and the Trust was unlawful because TAMA and Transamerica were not registered under the Act and because the contract had provided for grossly excessive compensation. The second alleged that the petitioners breached their fiduciary duty to the Trust by causing it to purchase securities of inferior quality from Land Capital. The third alleged that the petitioners had misappropriated profitable investment opportunities for the benefit

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of other companies affiliated with Transamerica. The complaint sought injunctive relief to restrain further performance of the advisory contract, rescission of the contract, restitution of fees and other considerations paid by the Trust, an accounting of illegal profits, and an award of damages.

The trial court ruled that the Investment Advisers Act confers no private right of action, and accordingly dismissed the complaint.3 The Court of Appeals reversed, Lewis v. Transamerica Corp., 575 F.2d 237, holding that

implication of a private right of action for injunctive relief and damages under the Advisers Act in favor of appropriate plaintiffs is necessary to achieve the goals of Congress in enacting the legislation.

Id. at 239.4 We granted certiorari to consider the important federal question presented. 439 U.S. 952.

The Investment Advisers Act nowhere expressly provides for a private cause of action. The only provision of the Act that authorizes any suits to enforce the duties or obligations created by it is § 209, which permits the Securities and Exchange Commission (Commission) to bring suit in a federal district court to enjoin violations of the Act or the rules promulgated under it.5 The [100 S.Ct. 245] argument is made, however, that the

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clients of investment advisers were the intended beneficiaries of the Act and that courts should therefore imply a private cause of action in their favor. See Cannon v. University of Chicago, 441 U.S. 677, 689; Cort v. Ash, 422 U.S. 66, 78; J. I. Case Co. v. Borak, 377 U.S. 426, 432. The question whether a statute creates a cause of action, either expressly or by implication, is basically a matter of statutory construction. Touche Ross & Co. v. Redington, 442 U.S. 560, 568; Cannon v. University of Chicago, supra at 688; see National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 458 (Amtrak). While some opinions of the Court have placed considerable emphasis upon the desirability of implying private rights of action in order to provide remedies thought to effectuate the purposes of a given statute, e.g., J. I. Case Co. v. Borak, supra, what must ultimately be determined is whether Congress intended to create the private remedy

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asserted, as our recent decisions have made clear. Touche Ross Co. v. Redington, supra at 568; Cannon v. University of Chicago, supra at 688. We accept this as the appropriate inquiry to be made in resolving the issues presented by the case before us.

Accordingly, we begin with the language of the statute itself. Touche Ross & Co. v. Redington, supra at 568; Cannon v. University of Chicago, supra at 689; Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472; Piper v. Chris-Craft Industries Inc., 430 U.S. 1, 24. It is asserted that the creation of a private right of action can fairly be inferred from the language of two sections of the Act. The first is § 206, which broadly proscribes fraudulent practices by investment advisers, making it unlawful for any investment adviser

to employ any device, scheme, or artifice to defraud . . . [or] to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client,

or to engage in specified transactions with clients without making required disclosures.6 The second is § 215, which provides [100 S.Ct. 246] that contracts whose formation or performance would

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violate the Act "shall be void . . . as regards the rights of" the violator and knowing successors in interest.7

It is apparent that the two sections were intended to benefit the clients of investment advisers, and, in the case of § 215, the parties to advisory contracts as well. As we have previously recognized, § 206 establishes "federal fiduciary standards" to govern the conduct of investment advisers, Santa Fe Industries, Inc. v. Green, supra, at 471, n. 11; Burks v. Lasker, 441 U.S. 471, 481-482, n. 10; SEC v. Capital Gains Research Bureau Inc., 375 U.S. 180, 191-192. Indeed, the Act's legislative history leaves no doubt that Congress intended to impose enforceable fiduciary obligations. See H.R.Rep. No. 2639, 76th Cong., 3d Sess., 28 (1940); S.Rep. No. 1775, 76th

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Cong., 3d Sess., 21 (1940); SEC, Report on Investment Trusts and Investment Companies (Investment Counsel and Investment Advisory Services), H.R. Doc No. 477, 76th Cong., 2d Sess., 27-30 (1939). But whether Congress intended additionally that these provisions would be enforced through private litigation is a different question.

On this question, the legislative history of the Act is entirely silent -- a state...

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