Gunter v. Hutcheson

• Decision Date: 12 April 1977
• Docket Number: No. C76-1702.,C76-1702.
• Citation: 433 F. Supp. 42
• Parties: William L. GUNTER et al., Plaintiffs, v. Theodore M. HUTCHESON et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

433 F. Supp. 42

William L. GUNTER et al., Plaintiffs, v. Theodore M. HUTCHESON et al., Defendants.

No. C76-1702.

United States District Court, N. D. Georgia, Atlanta Division.

April 12, 1977.

Harold L. Russell, James H. Bratton, Jr., Thomas W. Rhodes, Gambrell, Russell, Killorin & Forbes, Atlanta, Ga., for plaintiffs.

A. Stephens Clay, Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Atlanta, Ga., for defendants Cochran, Finley, Hamilton, Hutcheson, Johnson, Lancaster, Patten, Smartt, Blackwell Smith and Richard C. Thatcher.

Robert P. Cochran, Huie, Ware, Sterne, Brown & Ide, Atlanta, Ga., for defendants Youmans, Mahone and Barrett.

John Vorder Bruegge, pro se.

Paul Webb, Jr., Joel Y. Moss, Webb, Parker, Young & Ferguson, Atlanta, Ga., for defendant Richard H. Houck.

C. B. Rogers, Richard M. Sinkfield, Rogers & Hardin, Atlanta, Ga., for defendant Theodore M. Hutcheson.

Long, Aldridge, Heiner, Stevens & Sumner, S. Phillip Heiner, Atlanta, Ga., for defendant Estate of J. E. Whitaker.

John C. Stophel, John R. Seymour, Stophel, Caldwell & Heggie, Chattanooga, Tenn., for defendant Richard L. Heffner.

William Deadrick Moon, Jr., pro se.

Joe Hildreth, Chattanooga, Tenn., for defendant Executor of Estate of J. E. Whitaker, Carbaugh, Harris, Wheland, Wilson and Hipsher.

Jones, Bird & Howell, Robert H. Walling, Truly F. Bracken, Atlanta, Ga., for defendant W. Frank Hutcheson.

T. Wendell Holliday, pro se.

Harry O. Moline, Jr., Moline, Tegethoff, Ottsen & Mauze, St. Louis, Mo., for defendant Hugh S. Hauck.

Thomas S. Richey, Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., for defendant Federal Deposit Ins. Corp., as successor in int. to HBTC.

David A. Dycus, Shumacker, Thompson & Dycus, Chattanooga, Tenn., for defendants Kruesi and Lebovitz.

John A. Chandler, Sutherland, Asbill & Brennan, Atlanta, Ga., for defendant Fed. Deposit Ins. Corp.

William C. Humphreys, Jr., Alston, Miller & Gaines, Atlanta, Ga., for defendants Brock, Mills, Murphey, Oakes, Street, Unruh and Siskin.

James W. Gentry, Jr., Gentry & Boehm, Chattanooga, Tenn., for defendants B. Lamar Rankin, James T. Vann and Paul R. Cobble.

ORDER OF COURT

MOYE, District Judge.

This is an action for securities fraud brought under the provisions of the Securities Act of 1933 (1933 Act), the Securities Exchange Act of 1934 (1934 Act), and various state-law claims by Mr. and Mrs. William Gunter, plaintiff purchasers, against Theodore M. Hutcheson (Hutcheson), seller of stock in the Hamilton Bank and Trust Company in Atlanta, Georgia, officers and/or directors of Hamilton Bank of Chattanooga, and officers and/or directors of Hamilton Bancshares, which allegedly controlled the Hamilton Bank of Chattanooga. The case is presently before the Court on defendant Hutcheson's motion to dismiss Count Two of the Complaint or, in the alternative, for an undertaking for the payment of costs.

Count Two of plaintiff's Complaint is based solely upon the alleged violation of § 17(a) of the 1933 Act, 15 U.S.C. § 77q(a), which provides as follows:

"(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly —

(1) to employ any device, scheme, or artifice to defraud, or

(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser."

The issue before the Court is whether plaintiffs have a right of action under § 17(a) although none is specifically provided in the provision. Plaintiffs contend that a private cause of action should be implied from § 17(a) under the principle that breach of a statutory duty gives rise to an action in tort when that breach proximately causes damage to a plaintiff within the statute's protected class. Defendant Hutcheson argues that the better reasoned authority holds that no implied civil liability arises under § 17(a) itself, apart from the liability which may be imposed on such conduct under § 12(2) of the 1933 Act, 15 U.S.C. § 77 l(2).

The Court had this identical question before it on defendants Brock, Mills, Murphy, Oakes, Street, Uruh, and Siskin's motion to dismiss. In its order entered March 23, 1977, the Court noted that § 12(2) provided a civil remedy for violations of § 17(a) and found it unnecessary to address the § 17(a) private right of action issue inasmuch as plaintiffs could enforce the duties owed them under § 17(a) by alleging a cause of action under § 12(2). See Hardy v. Sanson, 356 F.Supp. 1034 (N.D.Ga.1973). Accordingly, the Court granted plaintiffs 20 days to amend their Complaint to assert a cause of action under § 12(2).

None of the parties to defendants Brock's, et al., motion to dismiss indicated that a cause of action under § 12(2) would be improper. However, defendant Hutcheson has brought to the Court's attention that plaintiffs may not be entitled to assert a cause of action under § 12(2) inasmuch as bank securities are expressly excluded from the coverage of that section. 15 U.S.C. §§ 77c(a)(2) and 77l(2). The Court need not comment on the § 12 exclusion at this time but, in light of the apparent exclusion, the Court shall consider the question of a private right of action under § 17(a) on its merits.

Neither the Fifth Circuit Court of Appeals¹ nor the United States Supreme Court has addressed the issue presently before the Court. Moreover, no clear line of authority can be gleaned from the decisions of federal courts which have resolved the question. Some courts have found that § 17(a) does not imply a private right of action, see, e. g., Dyer v. Eastern Trust and Banking Co., 336 F.Supp. 890, 903-05 (D.Me.N.D.1971); Emmi v. First-Manufacturers National Bank of Lewiston and Auburn, 336 F.Supp. 629, 635 (D.Me.S.D.1971); Cowsar v. Regional Recreations, Inc., 65 F.R.D. 394, 398 (M.D.La.1974); Reid v. Mann, 381 F.Supp. 525 (N.D.Ill.E.D.1974); Welch Foods Inc. v. Goldman Sachs, 398 F.Supp. 1393, 1399-1401 (S.D.N.Y.1974); Ferland v. Orange Groves of Florida, 377 F.Supp. 690, 706-07 (M.D.Fla.1974); Architectural League of New York v. Bantos, 404 F.Supp. 304, 313 (S.D.N.Y.1975), while other courts have found that there is an implied private right of action under § 17(a), see, e. g., Surowitz v. Hilton Hotels Corp., 342 F.2d 596 (7th Cir. 1965); rev'd on other grounds, 383 U.S. 363, 86 S.Ct. 845, 15 L.Ed.2d 807 (1966); Osborne v. Mallory, 86 F.Supp. 869, 878-79 (S.D.N.Y.1949); Dack v. Shanman, 227 F.Supp. 26, 28-29 (S.D.N.Y.1964); Lynn v. Caraway, 252 F.Supp. 858, 863-64 (W.D. La.1966), aff'd per curiam, 379 F.2d 943 (5th Cir. 1967), cert. denied, 393 U.S. 951, 89 S.Ct. 373, 21 L.Ed.2d 362 (1968); Hecht v. Harris, Upham & Co., 283 F.Supp. 417 (N.D. Cal.1968), aff'd, as modified on other grounds, 430 F.2d 1202 (9th Cir. 1970); Dorfman v. First Boston Corp., 336 F.Supp. 1089, 1093-96 (E.D.Pa.1975) (limits a private right of action under § 17 to the restrictions on claims for relief in the 1933 Act); B & B Investment Club v. Kleinert's, Inc., 391 F.Supp. 720, 726 (E.D.Pa.1975); Daniel v. International Brotherhood of Teamsters, etc., 410 F.Supp. 541, 546-47 (N.D.Ill.E.D.1976). As may be noted from the above citations, the question is so uncertain that two districts, the Southern District of New York and the Northern District of Illinois, have changed or modified their positions in recent years. See Reid v. Mann, 381 F.Supp. 525 (N.D.Ill.E.D.1974) (no private right of action) and Daniel v. International Brotherhood of Teamsters, etc., 410 F.Supp. 541, 546-47 (N.D.Ill.E.D. 1976) (upheld a private right of action); Osborne v. Mallory, 86 F.Supp. 869, 878-79 (S.D.N.Y.1949) (upheld a private right of action); Dack v. Shanman, 227 F.Supp. 26, 28-29 (S.D.N.Y.1964) (follows Osborne) and Welch Foods Inc. v. Goldman Sachs, 398 F.Supp. 1393, 1399-1401 (S.D.N.Y.1974) (no private right of action); Architectural League of New York v. Bantos, 404 F.Supp. 304, 313 (S.D.N.Y.1975) (follows Welch).

This Court, in Hamrick v. Tico, Inc., Civil Action No. 14880 (N.D.Ga. June 27, 1972), held that there was no implied private right of action under § 17(a). Accord, Hardy v. Sanson, supra, 356 F.Supp. at 1038 (Edenfield, J.) (dicta). Although plaintiffs have made a strong argument supporting a private right of action under § 17(a), the Court is not persuaded to change its position. The Court remains convinced by the reasoning of those courts which have found that there is no private right of action implied from § 17(a). Moreover, the Court's holding is buoyed by several recent Supreme Court decisions which indicate a trend construing the federal securities laws narrowly. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) (a private cause of action for damages will not lie under § 10b of the 1934 Act and Rule 10b-5 in the absence of any allegation of scienter); Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977) (a tender offeror, suing in its capacity as a takeover bidder, does not have an implied cause of action under § 14(e) of the 1934 Act); Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977) (a cause of action under § 10b of the 1934 Act or Rule 10b-5 lies only when the conduct involves manipulation or deception).

In addressing the issue before the Court, the language of § 17 must first be examined, for "the starting point in every case involving construction of a statute is the language itself." Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 197, 96 S.Ct. at 1383. It is readily apparent, and undisputed, that there is no express private...