Baker, Watts & Co. v. Miles & Stockbridge

• Citation: 876 F.2d 1101
• Decision Date: 07 August 1989
• Docket Number: Nos. 88-1134,s. 88-1134
• Parties: Blue Sky L. Rep. P 72,987, 110 A.L.R.Fed. 83, 57 USLW 2744, Fed. Sec. L. Rep. P 94,454 BAKER, WATTS & COMPANY, Plaintiff-Appellant, v. MILES & STOCKBRIDGE; Timothy R. Casgar, Defendants-Appellees. BAKER, WATTS & COMPANY, Plaintiff-Appellee, v. MILES & STOCKBRIDGE; Timothy R. Casgar, Defendants-Appellants. (L), 88-1135.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1101

876 F.2d 1101

Blue Sky L. Rep. P 72,987, 110 A.L.R.Fed. 83,

57 USLW 2744,

Fed. Sec. L. Rep. P 94,454

BAKER, WATTS & COMPANY, Plaintiff-Appellant, v. MILES & STOCKBRIDGE; Timothy R. Casgar, Defendants-Appellees.

BAKER, WATTS & COMPANY, Plaintiff-Appellee, v. MILES & STOCKBRIDGE; Timothy R. Casgar, Defendants-Appellants.

Nos. 88-1134(L), 88-1135.

United States Court of Appeals Fourth Circuit.

Argued Feb. 9, 1989.

Decided June 7, 1989.

Rehearing and Rehearing In Banc Denied Aug. 7, 1989.

David Foxwell Albright (Harry M. Rifkin, Semmes, Bowen & Semmes, Baltimore, Md., on brief), for Baker, Watts & Co.

Francis B. Burch, Jr. (David Clarke, Jr., Piper & Marbury, Baltimore, Md., on brief), for Miles & Stockbridge and Timothy R. Casgar.

Before ERVIN, Chief Judge, and RUSSELL, WIDENER, HALL, PHILLIPS, SPROUSE, CHAPMAN, WILKINSON, and WILKINS, Circuit Judges, sitting en banc. ^*

WILKINSON, Circuit Judge:

Here we must determine whether a securities wrongdoer, held liable under Sec. 12(2) of the Securities Act of 1933, 15 U.S.C. Sec. 77l(2), has an implied right to contribution or indemnification under that provision. We also must decide whether the federal securities laws preempt plaintiff's pendent statutory claims for contribution and indemnification, see Md. Corps. & Ass'ns Code Ann. Sec. 11-101 et seq. (Maryland Securities Act), or plaintiff's pendent common law actions for legal malpractice, negligent misrepresentation, and breach of contract.

We hold that there is no implied right to contribution or indemnification under Sec. 12(2) of the 1933 Act, and that the federal securities laws preempt plaintiff's pendent state claims to the extent they allow a right of action for indemnification. State common law or statutory actions for contribution are, however, not preempted.

We therefore affirm the district court's grant of summary judgment in favor of defendants on plaintiff's federal claims. We reverse the district court's grant of summary judgment in favor of defendants on plaintiff's Maryland Securities Act claims and vacate the district court's order remanding plaintiff's common law actions to the Circuit Court for Baltimore County. The district court is instructed to dismiss plaintiff's state statutory claim for indemnification with prejudice and to dismiss plaintiff's state statutory claim for contribution and common law actions without prejudice. ¹

I.

In 1981, Baker, Watts & Company retained the law firm of Miles & Stockbridge, and one of its partners, Timothy R. Casgar, in connection with its private offering of limited partnership interests in Superior Drilling Partners '81. Partners '81 was formed for the purpose of oil and gas exploration and Casgar drafted the limited partnership's confidential offering memorandum, which was essentially a securities prospectus. See Adalman v. Baker, Watts & Co., 807 F.2d 359, 361-62 (4th Cir.1986). The offering memorandum was issued on March 9, 1981, and thirty-one investors subsequently purchased interests in the limited partnership.

At the commencement of the offering period, Casgar owned 4.2 percent of the outstanding stock of Superior Petroleum Incorporated, the general partner of Partners '81. In addition, sixteen individuals affiliated with Baker, Watts owned 28 percent of Superior's outstanding stock. During the offering period, Casgar and these sixteen other stockholders negotiated with Superior's president over the sale of their interests in the general partner. These negotiations were not disclosed to the investors and the offering memorandum was not amended to reflect these communications. The offering period closed on June 1, 1981; Casgar and the other stockholders sold their interests to Superior's president on July 1, 1981.

In April of 1983, numerous investors filed suit in federal district court alleging, inter alia, that Baker, Watts violated Sec. 12(2) of the 1933 Act, 15 U.S.C. Sec. 77l (2), and Sec. 11-703(a)(1)(ii) of the Maryland Securities Act, Md. Corps. & Ass'ns Code Ann. Sec. 11-703(a)(1)(ii). A federal jury found that the failure to disclose the negotiations over the possible sale of the Superior stock was a material omission. Baker, Watts therefore violated federal and state securities laws and the district court entered judgment for the investors in the amount of $1,916,314.17. Baker, Watts unsuccessfully appealed that judgment. See Adalman, 807 F.2d at 359.

On October 23, 1987, Baker, Watts brought suit against Miles & Stockbridge and Timothy Casgar in federal district court, asserting rights to indemnification and contribution under federal and state securities law. See 15 U.S.C. Sec. 77l (2) and Md. Corps. & Ass'ns Code Ann. Sec. 11-703(a)(1)(ii). Indemnification, of course, involves shifting the entire loss from one wrongdoer to another; contribution requires each wrongdoer to pay his proportionate--or pro rata--share of the adverse judgment. See In re Olympia Brewing Co. Securities Litigation, 674 F.Supp. 597, 607 (N.D.Ill.1987). The complaint also included Maryland common law claims for legal malpractice, negligent misrepresentation, and breach of contract. On the same day, Baker, Watts filed a similar action against Miles & Stockbridge and Casgar in the Circuit Court for Baltimore County.

On November 24, 1987, defendants removed plaintiff's state suit to federal court. The district court subsequently denied plaintiff's motion to remand and consolidated the two actions pursuant to Fed.R.Civ.P. 42(a). In June of 1988, after numerous motions, the district court held that plaintiff had no right to indemnification or contribution under either Sec. 12(2) of the 1933 Act or Sec. 11-703 of the Maryland Securities Act. The district court also held that the federal securities laws did not preempt plaintiff's common law claims for legal malpractice, negligent misrepresentation, and breach of contract and remanded them for resolution in state court. ² See Baker, Watts & Co. v. Miles & Stockbridge, 690 F.Supp. 431 (D.Md.1988).

Plaintiff appeals. Defendants cross-appeal the district court's decision to remand plaintiff's common law causes of action to state court. Defendants contend that these claims are preempted by the federal securities laws and should have been dismissed with prejudice.

II.

As an initial matter, plaintiff correctly notes that the district court's holding that contribution and indemnification are not available under Sec. 12(2) of the 1933 Act is contrary to our decision in Wassel v. Eglowsky, 542 F.2d 1235 (4th Cir.1976), aff'g, 399 F.Supp. 1330 (D.Md.1975). While the Supreme Court has not yet addressed this question, Pinter v. Dahl, --- U.S. ----, 108 S.Ct. 2063, 2069-70 n. 9, 100 L.Ed.2d 658 (1988), since Wassel was decided both the Supreme Court and this court have been reluctant to recognize private rights of action in the absence of express statutory direction. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) (refusal to imply private right of action for damages in Sec. 206 of the Investment Advisors Act of 1940); Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979) (refusal to imply private right of action for damages under Sec. 17(a) of the Securities Exchange Act of 1934); Piper v. Chris-Craft Industries, Inc. 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977) (refusal to imply private right of action for damages under Sec. 14(e) of the 1934 Act in favor of a defeated tender offeror); Newcome v. Esrey, 862 F.2d 1099 (4th Cir.1988) (refusal to imply private right of action under Sec. 17(a) of the 1933 Act). See also Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981) (refusal to imply private right of action for contribution in Sherman Antitrust Act or Clayton Antitrust Act); Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981) (refusal to imply private right of action for contribution in Equal Pay Act of 1963 or Title VII of the Civil Rights Act of 1964). See generally Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 145-48, 105 S.Ct. 3085, 3091-93, 87 L.Ed.2d 96 (1985) (refusal to imply private right of action for extracontractual damages in Employee Retirement Income Security Act of 1974); Middlesex County Sewerage Authority v. National Sea Clammers Ass'n, 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981) (refusal to imply private right of action in the Federal Water Pollution Control Act or the Marine Protection, Research, and Sanctuaries Act of 1972); California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981) (refusal to imply private right of action in Sec. 10 of the Rivers and Harbors Appropriation Act of 1899); Universities Research Ass'n, Inc. v. Coutu, 450 U.S. 754, 101 S.Ct. 1451, 67 L.Ed.2d 662 (1981) (refusal to imply private right of action for back wages in Davis-Bacon Act). Based on the clear import of these decisions, we hold that implied private rights of action for contribution and indemnification are not available under Sec. 12(2) of the 1933 Act.

In determining whether a particular statute creates a cause of action, either expressly or by implication, a court's task is one of statutory construction. See Transamerica Mortgage Advisors, 444 U.S. at 15, 100 S.Ct. at 245. As with all cases of statutory construction, it is appropriate to begin with the statutory text. See Universities Research Ass'n, 450 U.S. at 772, 101 S.Ct. at 1462.

Section 12(2) of the Securities Act of 1933 provides in relevant part that:

[a]ny person who--

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(2) offers or sells a security ... by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading ..., and who shall not...