In Re Washington Public Power Supply System Securities Litigation. Henry Puchall v. Houghton, Cluck, Coughlin & Riley

Here, standards, Fujikawa clearly under those to an award of

entitled fees. That his

party opponents are his co-trustees is no Fujikawa perfects

bar. If his claim for manner, timely

fees in a we will fix the

amount to be awarded. AND

REVERSED REMANDED FOR

PROCEEDINGS CONSISTENT WITH

THIS OPINION

In re WASHINGTON PUBLIC POWER

SUPPLY SYSTEM SECURITIES

LITIGATION.

Henry PUCHALL, al., et

Plaintiffs-Appellants,

HOUGHTON, CLUCK, COUGHLIN &

RILEY, al., Defendants-Appellees. et

No. 86-3594. Appeals,

United States Court of

Ninth Circuit.

Argued En Banc and Submitted

April July

Decided then trans-

recuse himself. case was Judge Browning, ferred to District William Judge ruling Bilby’s who vacated on the Judge Browning con- claims. litigation “in massive and cluded that as this, complex unimpeachable as a record as possible Washing- In re as was essential.” Supply System ton Public Power Securi- Litigation, 623 ties (W.D.Wash.1985). He therefore decided to Cal., Simon, Diego, for B. San Leonard rulings, Judge Bilby’s substantive “revisit” plaintiffs-appellants. including ruling on section Id. Murdock, Wachtell, Herbert M. Daniel R. 3, 1985, Judge Browning On December Hall, Mi- M. Camden City, and New York granted the defendants’ motion to dismiss Riviera, Foster, Se- Sandler, Pepper & chael claims. Id. at 1474-76. all defendants-appеllees. attle, Wash., for Judge Browning interlocutory his certified appeal pursuant order for immediate KENNEDY, GOODWIN, Before 1292(b), stating ruling his U.S.C. NELSON, TANG, ANDERSON, existing apparent “in conflict with WIGGINS, NORRIS, HALL, authority, Ninth Circuit and involves a BRUNETTI, KOZINSKI, and controlling issue of law as to which there is THOMPSON, Judges. Circuit ground opin- substantial for difference of ion, appeal may material- and an immediate litigation.” Id. at 1476. ly advance the timely petitioned Plaintiffs this court HALL, Circuit CYNTHIA HOLCOMB permission interlocutory appeal, file an Judge: granted. petition which this court I. Plaintiffs then moved this court for sum- mary reversal of the district court’s order 1981, Washington and Between 1977 dismissing their section claims. This (WPPSS) System sold Supply Public Power granted plaintiffs’ court motion for billion to bonds with a face value of $2.25 summary relying on reversal Mosher v. power finance construction of two nuclear (9th Cir.1986), Kane, 784 F.2d 1385 plants. ceased construc- 1982 WPPSS II, Ltd., Stephenson Calpine plants tion of default- these and thereafter Conifers There- plain- ed In 1983 payments. on the bond granted suggestion after we for rehear- tiffs-appellants, purchasers of WPPSS ing en to decide whether to overrule banc bonds, action, filed a class on behalf Having these two cases. considered the purchased themselves and all others who argument, and oral address the briefs February the bonds between 1977 and following question: Will a action lie 15, 1983, against nearly June WPPSS 17(a) of the Act of under section alleging 200 other defendants 77q(a)? 15 U.S.C. § pretenses” bonds were sold “on false violation of and state securi- both federal

ties laws. II. Judge Bilby

District Richard denied by Stephenson, motion thе defendants to dismiss the In our earlier decisions of 815, Mosher, plaintiffs’ 784 F.2d at claims under section existence of a 77q(a). Securities Act of 1390 n. we had found the U.S.C. § 17(a).1 Thereafter, Judge action under section Bilby noted that he must transportation provides: or com- Section means or instruments of by or in interstate commerce any person It shall munication be unlawful for mails, directly indirectly— any offer or sale of securities use of the use Plaintiffs contend that these negligence decisions were standard for use in actions correctly principle reasoned and that the of brought 17(a)(2) weighs against stare decisis reaching a con- set forth in SEC, Aaron trary holding in absence guidance on the Bearing issue. this Our court also did engage not mind, we now reexamine thе reasoning in any attempt to distinguish among the supporting progeny and its three subsections of section in order impact and we the review that those cases to discern whether action could jurisprudence have had on the of our cir- exist for one subsection but not for anoth- Stephenson We cuit. conclude the Indeed, and er. with the exception of the cita- Mosher were incorrectly decided and are no tion to sister circuit authority, we did not longer controlling precedent in this circuit. engage in any attempt to analyze the intent respect with to the existence Stephenson, presented In we were actions 17(a).2 under section appeal from a summary judgment for the in defendants action for dam- We recognize now that our court’s cita- ages brought under sections various tion to Second Circuit authority misinter- federal securities plaintiffs’ laws. The preted authority. that In Stephenson, alleged fourth cause of action quoted a claim un- language appearing in Kirshner der section stating After that the which itself was a flawed restatement of Supreme issue, Court had not decided the issue by Judge addressed Friendly in we held that a his Texas Sulphur right of action exist- concurrence. Ste- Gulf proposition phenson and ed because of authority Kirshner relied for that solely on a emanating portion from following the Second Circuit. Ste- argument from phenson, Texas Sulphur: Kirshner (citing F.2d at 815 Gulf States, (2d United F.2d established, Once it had been however, denied, Cir.1978), cert. aggrieved that an buyer has a 61 L.Ed.2d SEC v. 10(b) action under Act, of the 1934 Sulphur Texas there practical seemed little point in de- Gulf (2d Cir.1968) J., (Friendly, nying concurring), the existence of such an action under important 17—with proviso (1969)). fraud, L.Ed.2d 756 that as negli- distinct from mere gence, must be alleged. reaching conclusion, In this we did not 401 F.2d at 867. In Stephenson, our court fully examine the underlying reasons misquoted Judge Friendly, as did the Sec- ruling Second Circuit’s did we apply nor Kirshner, Circuit in omitting ond “the im- analysis Court’s in Cort v. portant proviso fraud, that as distinct from negligence, mere alleged.” must be See In particular, Stephenson in our Stephenson, 815; 652 F.2d at Kirshner, (1) court did not consider Judge Friendly’s at 241. reliance on the applicability assumed in sec- tion cases of the scienter standard grown importance The omission has in required in actions section governing the standard of conduct actions 10(b) of the Act of under the federal securities laws has be- (2) implications 1934 and Aaron, of the Su- more refined. come In preme adoption Court’s 695-97, 1955-56, scienter stan- 17(a)(1) for use in dard section cases and a Court held that negligence not scien- —and (1) device, scheme, employ any (3)to transaction, engage any or artifice practice, in or defraud, or operates course of business which or would money property by to obtain or means of operate upon purchas- as a fraud or deceit any untrue any statement of a material fact or er. necessary omission to state a material fact 77q(a) 15 U.S.C. § made, order light make the statements Ledbetter, they circumstances under which 2. See Bruns v. made, misleading, (S.D.Cal.1984). were not injunction support a SEC citations to and Kirshner Texas ter —suffices Sul Gulf 17(a)(2) (a)(3).3 sections phur, apparent per it is action we did not suggests if sec- The Aaron decision problem. Although ceive the we were not implied action, support could time, establishing aware of it at the govern only a scienter standard private right of action under sections 17(a)(1)action. As the Su- private section 17(a)(2) allegation for which an held, private preme Court earlier likely required, not fraud would be our by the scienter governed exceeding court the limits of the cited Congress so intend- only standard because authority embarking on a course Hochfelder, Ernst ed. Ernst & fraught danger. 1375, 1388-89, We relied on later two Since Aaron any significant cases without reexami re- language held that the nation of the issue. Feldman Sim Congress did not intend to limit vealed Inc., Industries, kins 17(a)(2) alleging to actions (9th Cir.1982), purposes stated we that for apply scienter, rule should to the same duties, 10(b) 17(a) of disclosure and private actions. could be viewed as “coterminous.” In relied on “the mini- Stephenson, In Mosher, 9, recog 784 F.2d at 1390 n. after 17(a) of the differences between mal § nizing the fact that various circuits have 10(b) 652 Act of the 1934 Act.” 1933 and § issue, split on the we followed dispels any expecta- F.2d at 815.4 Aaron recognized implied right an uniformity in the treatment of sec- tion of we believed that it was “the better because 10(b). section evident, however, view.” It is that neither at 1955-56. The differ- 100 S.Ct. of the cases we havе decided since Ste prac- ence in the standards would have the support holding. phenson add to its eliminating any need to show tical effect of fact, cases, Stephenson, the three Feld matter, or, proceed scienter for that to man, Mosher, properly treated as 10(b). The likelihood that under section misreading turning solely on a of Second im- these differences would have such an authority Circuit which has been under portant practical effect existed at time However, Supreme in mined Court’s decision Stephenson was decided. be- opinion categorically cause our relied on Aaron.5 circuits, public point

3. Aaron was a SEC action 5.Plaintiffs to decisions in other enforcement uphold implied privatе right which action under section The Court has persuasive authority. under section as A not decided whether the same standard would circuits, however, review of the shows tenden- apply in a section action or even cy private right of to disallow a action. Even whether a section exists. implied private those circuits which had actions Eichler, Richards, See Bateman ner, Hill Inc. v. Ber recently prior have reversed or modified their 299, 9, 2622, U.S. 472 304 n. 105 S.Ct. 2625 Circuit, applying positions. The Fifth the Cort 9, (1985); n. Herman & MacLean analysis, flatly rejected private v. Ash section Huddleston, 375, 2, 459 U.S. 378 n. 103 S.Ct. Landry actions in v. All American Assur 683, 2, (1983); 685 n. 74 L.Ed.2d Interna- 548 381, (5th Cir.1982). ance F.2d 688 Daniel, tional Brotherhood Teamsters v. 439 squarely Eighth The Circuit reaffirmed its rule 551, 9, 9, U.S. n. 99 S.Ct. n. 58 private right that "there is no of action for (1979); Chip Stamps L.Ed.2d 808 Blue Manor 17(a)” in § violations of Deviries v. Prudential- Stores, Drug 734 n. Securities, Inc., (8th F.2d Bache see also Eisenstein, Cir.1986). See also Brannan v. Kane, Mosher v. n. 9 The Tenth F.2d 1043 n. Cir.1986). expressed Circuit "considerable doubt" of action exists under whether States, 4. See also Kirshner v. United Peterson, Rall, Lowry, in Ohio (2d Cir.1978) ("[Tjhere prac was little Ross, (10th Cir.), Barber & 689 n. 1 point denying tical in denied, existence of an action cert. aggriev once it is that an established The Second Circuit has L.Ed.2d 209 buyer 10(b)."), ed willingness has a action under in indicated a to reexamine Kirshner which it held that the "minimal differences" 17(a) justified L.Ed.2d 274 and section between Workers, Transport III. (1981)). Court, Cort v. in Plaintiffs must establish that Con analysis applied in to be deter- set out gress provide intended to for the private remedy implicit mining is whether remedy they which ask us to or at expressly prоviding statute not one: in a least that it is legisla consistent with the First, plaintiff is the “one of the class for tive scheme. While a remedy may especial benefit the statute was whose plain be inferred from the language of the is, enacted,” that does the statute create statute, structure, or some plaintiff? in favor of the a federal “ source, engraft other we ‘willnot a reme Second, legisla- there indication of statute, dy on a no matter salutary, how intent, explicit implicit, either tive or ” provide,’ did not intend to deny create such a one? plaintiff even if the can show that he is a Third, underlying is it consistent with the member of the class for whose benefit the legislative im- purposes of the scheme to statute was enacted and that there is no ply plaintiff? for the And such impediment implication state-law of a finally, is the cause of action one tradi- Id. v. Sierra remedy. law, California relegated tionally to state an area Club, States, basically the concern of the so (1981)).6 inappropriate it would be to infer a solely action based on federal cause of language We first examine the of section law? light legislative history

Id. (emphasis statutory structure of the Securities Act of omitted). original; citations 1933. See Transamerica Mortgage Advis ‍​‌​‌‌​​​​​‌‌​‌​​‌‌‌‌​‌‌​​​‌​‌​​​‌‌​‌‌‌​‌​‌​‌‌​​​‍ ors, Lewis, 11, 15-18, Inc. v. 444 U.S. 100 recently Supreme The Court reaffirmed 242, 245-46, (1979); 62 L.Ed.2d 146 v. Ash emphasized Cort that the sec- Co., Landry v. All American Assurance congressional ond and third intent factors — (5th Cir.1982). 688 F.2d 389 & n. 31 statutory consistency —constitute “ language 17(a) The of section no predicate implication of a reveals ‘essential ” private remedy. private remedy.’ Massachusetts Mutual intent to create a It mere Russell, 134, 145, ly represents general censure of Ins. Co. fraudu Life 3085, 3092, Landry, practices. lent 87 L.Ed.2d 96 F.2d at 389.7 Airlines, Indeed, Northwest Inc. v. (quoting Congress provided the 17(a). recently action under section courts have refused to Institute, 17(a). See Yoder v. Oppen- Orthomolecular Nutrition action under section Mann v. Inc., (2d Cir.1985). Co., (Del.1986); 751 F.2d 559 n. 3 heimer & 517 A.2d 1056 CPC Fourth Circuit has also indicated a lack of confi International, Corp., Inc. v. McKesson prior recognition dence in its of a sec (1986), appeal N.Y.S.2d A.D.2d tion cause of action. See SEC v. American granted, 69 N.Y.2d 507 N.E.2d 321 Trust, Realty Cir. Mauersberg E.F. Hutton & 116 A.D.2d 1978). that The Seventh Circuit has declared (1986). 501 N.Y.S.2d 748 "open question.” the issue is now an Teamsters Angelos, 762 Local 282 Pеnsion Trust Fund v. Redington, 6. See Touche Ross & Co. v. (7th Cir.1985); Ray F.2d see also 560, 578, 61 L.Ed.2d 82 Karris, 641 n. (1979) ("The question ultimate is one of con- Although yet the Third to address Circuit intent, gressional not one of whether this Court issue, among the clear trend the district improve upon thinks that it can against implying courts of that circuit has been law."). into scheme that enacted of action under Mursau Gas, Inc., Corp. v. Florida Penn Oil & Inc., Dain, Quail, 7. See also Shull v. Kalman (without (W.D.Pa.1986), aff'd ("Section 17(a) (8th Cir.1977) (3d Cir.1987); opinion), 813 F.2d 398 see also confer in terms a Securities, [its] ... does not Pennington v. Thomas McKinnon person purchases a Inc., (E.D.Pa.Dec. 24, 1986) (avail favor of a who of action in No. 86-3672 Westlaw, database). Moreover, security that has been sold to him in violation in able on DCT section.”), opinions, carefully [that] reasoned appellate and two Nеw York State 55 L.Ed.2d 792 Delaware (SEC) specific legislation ‘with an Commission unmistakable focus on 17(a) in sec- class,’ enforce section procedures to the benefited instead has framed the 24, indicating tions 20 and simply general statute as a prohibition.” private remedies intend to create did not Ass’n, Universities Research Inc. v. Cou rather that Con- tu, 754, 772, 1451, 1462, protections sought supplement the gress Cannon v. 5, 11, under sections afforded to investors 677, 691, University Chicago, 441 U.S. power by giving the Commission the flagrant cases of abuse to deal with (1979)).10Moreover, Congress’ inclusion of of sections and 24.8 means sections 11 of the Securities Act shows that pro- when wished to Plaintiffs nevertheless contend that sec- private damages vide a requirement remedy, first it knew satisfies the is, test, how to exрressly. that section do and it did so the Cort v. Ash Cou tu, “especial 1462; was enacted for the benefit” of investors and therefore creates “a feder- Touche Ross & v. Redington, Co. plaintiff[s].” in al favor of the Cort U.S. at S.Ct. at 2088. point Plaintiffs out that all of the prong the first

We need not decide whether provisions antifraud of the Securities Act v. Ash is satisfied.9 Even if the Cort specifically designed protect inves- satisfied, find first factor were that the tors, relying Eichler, on Bateman Hill plaintiffs failed to clear the second have Richards, Berner, Inc. v. hurdles, is, and the third v. Ash Cort How- plaintiffs provide failed to evidence have ever, present unlike the situation Bate- legislative intent to create reaffirm a Eichler, man wherein the SEC notified the private remedy under section аnd Court that go violations of the law would plaintiffs have failed to show that such plaintiffs undetected if the there were with- private remedy would be consistent with any private action, out barring purposes underlying legislative actions under section part. scheme of which section is a As “inexorably not result a number of al- Russell, Court declared leged practices going fraudulent undetect- satisfy failure these to two factors is deter- by ed the authorities and unremedied.” Id. minative. 473 U.S. at at 105 S.Ct. at 2631. Plaintiffs here 3092; 11,105 n. 11 id. at 154 n. S.Ct. at 143 (and pursue can pursuing) indeed are (concurring opinion). defendants under section of the Secu- fact, plain rities Act of In language face of the of 1934. 17(a), very availability section there is no reason of to infer a that avenue of relief private remedy persuaded in favor of some individuals has some imply courts not to a “Congress, 17(a).11 where drafting private right rather than of action under section Ruder, Liability practices; only 8. See Civil Under Rule 10b-5: censure of fraudulent subse- Intent?, Legislative Judicial Revision 57 Nw.U. quent provisions equitable enable and criminal of (1963) (discuss- L.Rev. ing & 656-57 nn. 132-35 action.”). causes Fletcher, agreed Memorandum of ‍​‌​‌‌​​​​​‌‌​‌​​‌‌‌‌​‌‌​​​‌​‌​​​‌‌​‌‌‌​‌​‌​‌‌​​​‍Senator to Senate, Cong.Rec. 8711-13 Ross, 10. See also Touche 442 U.S. at 99 S.Ct. Robinson, Amicus Brief of the SEC in Fratt v. (“[T]he at 2485 fact that a federal statute has (9th Cir.1953)). 203 F.2d 627 person been violated and some harmed does not automatically give rise to a cause of Compare Naftalin, 9. States v. United Instead, person. action in favor of that our task solely determining is limited to whether Con- (1979) ("invеstor protection pre- was a constant gress private right intended to create the occupation legislators" who enacted the asserted.”) (citation omitted). Acts) Landry Securities v. All American Co., (5th Cir.1982) Assurance 688 F.2d See, Co., ("On face, 17(a) e.g., Wachovia Bank & Trust N.A. v. satisfy appear its does not to test, Marketing Corp., National Student 650 F.2d first factor of the Cort for the denied, (D.C.Cir.1980), language suggest does not a 350 n. 19 954, cert. merely represents general action. The statute a indication, explicit Ass’n, simply 1, 14-15, no mers There a legislative intent to create implicit, of 2615, 2623-24, (1981); 17(a). action under section Transamerica, concerning Congressional activity the Secu- 246-47; Ross, Touche 442 U.S. at 571- remedies is limited to dis- rities Act’s civil 74, 99 S.Ct. at 2486-88.15 While there were 11 and 12.12 There is cussions of sections problems implying privаte right explicit of an intent to extend no evidence 10b-5, action under doing Rule so under 17(a).13 remedies under section What civil problematic— section is even more against implicit evidence there is cautions multiplied, “the anomalies since the implying any action under section recognition private right of such a Report, in The House Committee a section assuming, Congress involves not that ‘cas- Liabilities,” indicates that entitled “Civil ually nullified’ in 1934 what it did in sections and 12 were intended to be the ‘casually nullified’ in a private remedies under the Act exclusive later section it did in very what same responsi- imposition “greater and that of a Marsh, Jennings Act.” R. bility” provided by than & H. sections Securities unnecessarily and 12 “would restrain the 1982). Regulation 817 ed. conscientious administration of honest busi- stated, As Professor Loss has compensating advantage no to ness with action under section attributes public.” H.R.Rep. Cong., No. 73d the rather bizarre intention of (1933).14 1st Sess. The evidence from enabling purchaser to avoid the statute is to the same effect. the Senate See procedural of limitations and other limita- S.Rep. No. 73d 1st Sess. 6 explicitly provided ap- tions which Cong.Rec. ply actions under sections 11 and Implying of action under Loss, Regulation 12. 3 L. inconsistent with the section is also (2d 1961).16 Congress ed. If had statutory scheme of the Securities Act. provide private intended presence express civil remedies sections 11 and 12 would be against within the same act militates “entirely superfluous” complex and “[t]he finding Congressional intent scheme which wove in the ex- County further remedies. Middlesex Sew press liability totally civil erage Authority v. National Clam- would be Sea (avoiding imposed by issue of of action under the civil liabilities the Act and the enforcement_”) plaintiffs’ machinery (empha- because “claims can be for their 10(b); added). fully recognizing satisfied” under section sis conflict circuits on whether section actions). permits private supra; Landry, "Under Section See note 12 see also Act, generally possi- 34; Sulphur of the Securities it has been SEC v. Texas at 389-90 Gulf issue, since, (2d Cir.1968) (Friendly, ble to avoid the event, J., implied remedy concurring), be based on could 10b-5, making remedy Rule the Section S.Ct. Bloomenthal, redundant." H. 1982 Securities (Implied Law Handbook ch. 12 Remedies—Pri H.R.Rep. Cong., See No. 73d 1st Sess. at 10b-5), (1982) marily (citing 21-24; Sulphur, Rule at 198 Globus Texas 401 F.2d at 867 Gulf Serv., Inc., (2d J., concurring). (Friendly, v. Law Research Cir.1969), 418 F.2d 1276 Ray- Peterson, Fischman v. F.Supp. 15. See Kimmel v. (2d Cir.1951)). Mfg. here, ("This (E.D.Pa.1983) especially theon 188 F.2d 783 is true Cf. Industries, Inc., Piper v. sufficiently broad to cover virtu- section ally is Chris-Craft all addressed sections 11 and activities ("where congressional likely purposes are to be 12.”). enforcement, private private undermined absent may implied particu- remedies be in favor of the Cong., S.Rep. 16. See No. 73d 1st Sess. protected by lar class the stat- (1933) ("A intended to be upon 5-year placed limitation is all ute"). brought by purchasers.”) (empha- civil suits ... added). applicable sis This limitation was not 17(a). Cong., H.R.Rep. 2d Sess. 12.See No. 73d 1st Sess. 9 to section See S. 73d (1933) ("Sections §§ 11 and 12 create and define Peterson, statutory legislation affеcting the enacted Kimmel undermined.” is a of the section at issue scheme which (E.D.Pa.1983).17 476, 487 F.Supp. Pierce, Merrill, Lynch, & Fenner part. the factors three which Curran, Smith, Inc. v. applying the Cort emphasized in has Court leg- language, its statute’s v. Ash test—the must Con- precisely, More examine statutory scheme— history, and its islative perception of the law that it was gress’ same direction: the precisely point all Congress reshaping. shaping or When to create in 1933 not intend Congress did legislation, question the is new enacts right of action under private create a intended to Congress whether tamper an en- reluctant “We supplement to the remedy as a such evi- crafted with scheme forcement provisions express enforcement ‘The that a presumption care.... dent Congress in statu- acts statute. When deliberately omitted from a remedy was remedy implied tory context in which an Congress strongest has when is statute recognized by the already been legislative comprehensive scheme enacted a however, courts, inquiry logically is the proce- integrated system of including an ” in- Congress need not have different. Russell, enforcement.’ dures for remedy, one a new since tended to create at 3093 U.S. at existed; question the is already whether Airlines, Transport Inc. v.

Northwest preserve pre- the Congress intended to 1583). Workers, at at existing remedy. of 1933 contained such Act The Securities (footnote scheme; 378-79, plaintiffs the Id. at integrated unless an Congress preserved omitted). later establish can remedy judiсially-created pre- Congress intended to holding to create such any decision it implied serve an when future con- must left to right of action be Act Commodity Exchange amended the action. gressional (CEA), relied the Curran upon Court judicial degree uniformity in the congressional high of for evidence Our search right of ac- precedents legislative histo- limited to the is not intent uniformity opin- This originally passed tion at that time. ry which legal contemporary constituted “the analysis nor is our ion question; the statute the Court found context” which statutory limited to a review consistency 62-66, nn. at 379-82 & Id. had ratified. at that time. We statutory scheme nn. 62-66.18 at 1840-41 & intent when Congress’ examine also must (“The Congress af- evidence that cre- of action firmatively itself Landry, F.2d at 390 17. See also remedy. preserve implied sec- intended [under of action ation of an cause legislative history of the stat- effectively A review the the care- frustrate would ] tion fully preservation of Act.”); persuasively indicates that ute Roskos laid framework Inc., what actual- the ly indeed Express, Shearson/American ("To intended. (E.D.Wis.1984) permit a (citation and Id. at omitted). See also Herman MacLean footnote judicially-crafted restrictions on Huddleston, 380 & 10(b) and 12 of §§11 of the 1934 Act 10, 74 L.Ed.2d 686 & n. away atrophy fall as securities Act to recognized (because "consistently had courts 17.”). of § hustled in back door cases fraud years” for more than 35 in Curran: As the stated 10b-5 of ‍​‌​‌‌​​​​​‌‌​‌​​‌‌‌‌​‌‌​​​‌​‌​​​‌‌​‌‌‌​‌​‌​‌‌​​​‍and Rule of action under section any dispute issue about Act of In view of the absence the Securities Chip proposition prior "simply beyond peradventure”); of Cort the decision Blue was Stamps 723, 730, Stores, abundantly Drug clear that an Ash in it is v. Manor implied under the CEA was a cause of action legal "contemporary (Twenty-five years court part context" in after the first district of the right implied of action Congress legislated in 1974. In that that there which context, held Exchange comprehensive of the Securities reex- Rule 10b-5 the fact that a virtually “confirmed significant of Act of amendment amination overwhelming consensus provisions no discussion the CEA left intact the Appeals that and Courts implied District Courts a had which the federal courts (1975)) (footnote omitted). examine the contem- Sess. 1 must We therefore Con- prevailing gress, revision, at the time porary legal context that was silent as to reexamination of or any comprehensive of the Securities Act. to the Securities significant amendment Our “Congress’ percep- examination of may infer Act of 1933. While we tion of the law that it was reshaping,” ... by its silence—to reaf- intended — Curran, 456 U.S. at 102 S.Ct. at remedy which existed firm over- convinces us that did not intend consensus, whelming judicial recognize “preserve” a civil as a private right a of action on supplement express to the enforcement congressional the basis of silence is a haz- provisions of the statute. Plaintiffs con- enterprise, Ross, ardous at best. Touche tend refusing imply the cases 99 S.Ct. at 2486. private right of action form an “insignifi- minority.” cant overwhelming simply This is not the

No consensus ever case; and, evеnt, in any precedent. existed in section state of the law was at least so unclear addressed as to caution cases which whether against implying private right of action remedy was available under section congressional on the basis of consistently routinely implied had not silence. at the times when note, however, We that “the relevant in- any significant analysis undertook of the quiry Congress correctly is not whether contrary, ques Securities Acts. On the law, perceived the then state of the subject dispute.19 had been a of much tion perception rather what its of the state of GSA, out, the law was.” Brown v. plaintiffs point signifi As the most congressional cant action occurred in 1975 (1976) (footnote omitted), “Congress quoted with comprehensively

when revised Curran, approval in 456 U.S. at 378 n. еnact[ing] the securities laws ... the ‘most at 1839 n. 61. We have significant no indica- substantial and revision of this Congress’ perception what country’s Federal securities laws since the was; only guess. Congress law we can passage Exchange Act in Securities may have decided to leave the issue for 1934.” Herman MacLean v. Huddle 375, 384-85, 103 day, allowing another the courts to resolve ston, 459 U.S. conflicting their decisions. some Because Acts Securities avoiding by relying courts were the issue Hearings on Amendments 1975: S. 249 apparent overlap on the between the Subcommittee on Securities of before 17(a),20 Congress may and section Banking, Committee on Hous Senate thought that it need not decide ing, Affairs, and Urban 1st well have exist.") considering substantively (quoted such a cause of action did done so without foundation”) Curran, right any statutory approval has U.S. at whether the cases); 1840); (compiling Dyer Corp. Kay, v. Eastern Trust & Scientex Co., (D.Me. 1982) Banking F.Supp. ("congressional imply 903-05 Cir. intent to Bloomenthal, 1971) (same); see also H. may of action be inferred in a (Implied ch. 12 Reme- Securities Law Handbook situation where there been a ‘routine and 10b-5), (1982) (“The Primarily at 210 Rule recognition by consistent’ courts that the federal dies— lower hopelessly courts are divided as to wheth- exists”; refusing such a cause of action er an claim can be based on Section private remedy under section omitted; Act.”) (citations of the Securities 1934). Act of added). emphasis See, Hutcheson, e.g., F.Supp. Gunter v. (N.D.Ga.1977) ("the question Globus, See, is so (citing e.g., SEC 418 F.2d at 1283 changed (2d unсertain” that some "have Sulphur courts v. Texas Gulf (com positions years”) Cir.1968), modified their in recent cases); Mann, Reid, (1969)); piling F.Supp. Reid v. (N.D.Ill.1974) ("several (“[N]either litigants courts have de nor the court single termined that 17 was not intended to be used able discover a case have been under § as a basis for civil remedies ... which a [and] accepted permitted plaintiff also did not courts which have the existence was allege where [t]hose conduct.”). action, generally for the same of a have a 10b-5 claim [sic] law, I re- purposes of securities section mental statutory scheme the whether spectfully dissent. action. right of permitted a case, say cannot we either right under implied The of action § preserve a to by its silence intendеd recent Su- comports the mandate of case law of the the state since The Court set forth preme Court cases. insufficiently uniform.21 1975 was measuring permissi- four-part test for the action bility IV. Ash, 422 in Cort v. clearly reasons, Section we foregoing For all of Bondhold- requirement. first satisfies the and judgment court’s district affirm the investing ers and members other conflict prior cases which our overrule “ for public members ‘of the class no are Because we decide disposition. this en- especial the statute whose benefit was lies under right of action ” Ash, 422 U.S. at acted.’ Cort not address not and do need R. (quoting Texas & S.Ct. at 2088 against lie such an action would whether Pacific 33, 39, 36 Rigsby, 241 U.S. our reverse Co. Because we municipality.22 (1916)). 484, 60 L.Ed. 874 appeal, the rulings on this certified priоr costs of their own protect each bear parties purpose will of the bill is to The Fed.R.App.P. appeal. investing public See and honest business. informing the policy is that of The basic AFFIRMED. concerning securi- of the facts investor for sale in ties to be offered interstate dissenting: TANG, Judge, Circuit providing pro- foreign commerce and and right implied thirty-eight years, For misrepresenta- against fraud and tection helped protect has under of action tion. from fraud investing public securities S.Rep. 73d 1st Sess. 1 No. It come under misrepresentation.1 and 8, 1933) (remarks Cong.Rec. (May recently, today it suf- increasing attack Fletcher). of Sen. majority per- The a mortal blow. fers factor, legislative evidence of reversing The second the case suasively presents for remedy or to create such a courts have intent “either circuit. Other the law of this one,” deny U.S. at implied remedy be- Cort questioned the § weighs in favor of re- also trend they sense a Court remedy. The implied private taining im- restricting the standards towards Act makes legislative history of the 1933 the ma- remedies. Because plying private of civil no whatsoever liabilities neither mention jority’s decision is mandated However, 17(a).2 significant it is the funda- under nor consonant with precedent says 11 & to be intended only §§ from the to 21. The indication footnote in the Act. is contained in its remedies under the exclusive Stores, Drug Stamps Chip majority v. Manor legislative history quoted Blue The n. "imposition cautioning against opinion the Court ex- in which L.Ed.2d 'greater responsibility’" cоntext is taken out of pressed opinion” "no as whether paragraph discusses the inapposite. The exists under right of action shifting requirements of 11 & 12: §§ burden the circuit courts which were cases from cited in conflict. throwing upon the defend- provisions The 12 the ant in suits exempt City Municipal proof himself indis- York 22. In re New burden Cf. (S.D.N.Y. F.Supp. Litigation, buyer's pensable to make remedies 1980) (no against munici- Every practically effective. these sections pality). lawyer all the facts in the knows that with practically im- of the defendant it is control recog- first possible buyer prove a state knowl- for a Mallory, in Osborne nized edge exercise due on or a failure to care (S.D.N.Y.1949). responsibility is part defendant. Unless liability merely paper neces- it is involve House Com- Liabilities section of The Civil disproving re- sary the burden of implicitly to throw explicitly Report nor neither mittee

1359 Congress that when comprehensively Eichler, Bateman Richards, Hill Inc. v. 1975, federal amended securities laws in it Berner, 299, 310, 472 U.S. 105 2622, S.Ct. 17(a) unchanged. left § 2628, 86 L.Ed.2d 215 (quoting J.I. Congress acts in statutory When con- Borak, Case Co. v. 426, 432, 377 U.S. 84 implied an remedy text which has al- 1555, 1560, 5.Ct. 12 (1964)). L.Ed.2d 423 ready recognized by been the courts.... disagree I that the private reme- § question is whether intend- dy makes 11 & 12 “entirely superflu- §§ preserve ed to the pre-existing remedy. ous.” The latter carry an infer- Lynch, Pierce, Smith, Merrill Fenner & ence of liability and shift the burden of Curran, 353, 378-79, Inc. v. 456 U.S. 102 proof to the defendant. Under § 1825, 1839, (1982). S.Ct. proof burden of remains plaintiff. on 1975 the Seventh3 Fourth4 Circuits Furthermore, fact provi- that other “[t]he Second, and district Third, courts sions оf a complex statutory scheme create Fourth, Fifth and recog- Ninth Circuits5 express remedies has not accepted ‍​‌​‌‌​​​​​‌‌​‌​​‌‌‌‌​‌‌​​​‌​‌​​​‌‌​‌‌‌​‌​‌​‌‌​​​‍been nized remedy.6 The fact § a sufficient reason for refusing to imply an that left unchanged the statute appropriate otherwise sep- under a preserve an intent evidences the remedy. arate section.” Cannon v. University of factor, The third Cort v. consistency Ash Chicago, 441 with the “underlying purposes legis- 1965, 60 L.Ed.2d 560 Touche scheme,” lative also implied favors the cf. rem- Ross & v. Redington, Co. 442 U.S. edy. The purpose underlying of federal 2479, 2486, securities laws is to encourage private en- (1979) (presence explicit provisions forcement. will provide justification” “further for refusing repeatedly emphasized have that [W]e a remedy). Seventy-Third provide actions “a most weapon adopted effective both enforcement” of the 1933 and 1934 the securities laws and are “a Acts. necessary The Acts contain overlap dupli- supplement to Commission action.” cation which courts have tolerated.7 In the sponsibility reprehensible Ind., acts of omission Wulc v. & F.Supp. Western 400 99 Gulf purport or commission on who (E.D.Pa.1975); those to issue Pittsburgh Crowell v. and Lake public’s statements for the reliance. The re- Co., F.Supp. (E.D. Erie R. 373 sponsibility imposed is no more nor less than 1974); Corp., v. First Boston 336 Dorfman responsibility that of a trust. It is a no F.Supp. (E.D.Pa.1972); Corey v. honest banker and no honest business man Co., F.Supp. (S.D.W.Va.1973) Bache & 355 1123 should seek to avoid impose or fear. To (by implication); Investments, Tony’s Larson v. rеsponsibility lesser nullify pur- would Inc., (M.D.Ala.1969) 46 (by implica- F.R.D. 612 poses legislation. of this impose greater To tion); Harris, Upham v. Hecht & 283 responsibility, doubts, apart from constitutional (N.D.Cal.1968), F.Supp. modified, unnecessarily restrain the con- F.2d 1202 scientious administration honest business compensating advantage no pub- to the notes, majority opinion 6. As the there was a lic. minority require view. Curran does not an H.R.Rep. (1933). No. 73d 1st Sess. 9 "overwhelming majority” give weight for us to §§11 Unlike & 17§ does not shift the Congressional inaction. proof. respect, imposes burden In this responsibility. lesser standard of required Much 7. information to be filed v. First National Bank 3. Lincoln Schaefer already required by § 12 1934 Act was wood, (7th Cir.1975), cert. §§ 6 & 7 § 1933 Act. 10 of the 1934 Both denied, 48 L.Ed.2d Act and prohibit § Act fraudulent conduct. “While some conduct actionablе un- may 10(b), der 11§ also be actionable under § Hutton, Hopkins University Johns v. proposition hardly it is a novel that the 1934 Act (4th Cir.1973), 'prohibit and the 1933 Act of the same some Huddleston, conduct.’" Herman MacLean See, Shanman, e.g., F.Supp. Dack v. (S.D.N.Y.1964); 28-29 F.Supp. Shields, Cressaty, Naftalin, United States Pfeffer (S.D.N.Y.1963); Thiele (S.D.N.Y.1955); Cir.1981). agree I the court scheme, overlap be- overall implied right recognizing Mosher

tween significant. F.2d at hardly unusual is “the view.” 784 12 is better 11 & §§ however, 10(b) and significant, 1391-92 n. 9. Mosher are It is identical lan- almost contain Rule 10b-5 intent, Congress’ re- consistent with is a 17(a). there That guage to § Court, peatedly recognized by the 10(b) and Rule action § legislation pur- for the securities enacted peradventure.” “simply beyond is 10b-5 avoiding pose of frauds be construed Huddleston, 459 v. MacLean Herman & technically restrictively, “not 683, 686, 380, 103 375, S.Ct. U.S. pur- flexibly to its remedial effectuate (1983). poses.” this court argues that when majority The 185, Hochfelder, & Ernst v. U.S. Ernst 17(a)by reason of its remedy in implied a § 1375, 1392, 217, L.Ed.2d S.Ct. “embarking 10(b)8 it on similarity to § (1976) (Blackmun, J., dissenting); see also danger” fraught because a course Huddleston, 459 at 103 S.Ct. U.S. element of a may not be an scienter 689-90; v. Unit- at Ute Citizens Affiliated (3). v. 17(a)(2) See Aaron & action under § 1456, States, 128, 151, 92 S.Ct. ed 406 U.S. 1945, 64 680, 100 S.Ct. SEC, 446 U.S. (1972); Superintend- (1980). purchasing se- When L.Ed.2d 611 Casualty v. Bankers & ent Ins. Life entrusts its curities, investing public the corporate officials. money to hard-earned L.Ed.2d 128 sophisticated usually lack Investors expressly re- The Court has products and understanding of investment issue times last served this four expertise rely must on the assurances has failed years.9 the Court twelve That Congress reasonably officials. these it, question is resolve manifests securities sellers chosen to hold could have majority closer than makes it much of care. That these fiduciary standard to a recently reaffirmed seem. The Court negligence to a mere might officials be held 10(b) § action under in a standard 375, 103 Huddleston, Rule 10b-5. little concern. 17(a)(2) me causes § prematurely, at 683. We are Nevertheless, negligence evil is the if the incorrectly, anticipating perhaps even adjust stan- standard then should ruling of the Court. care, remedy. dard of not eliminate in me the reac- Today’s decision invokes requirement v. Ash is The final Cort Blackmun expressed Justice his implied remedy is “traditional- whether the Stamps, the decision Chips dissent Blue law_” ly relegated to state Cort v. ac- and Rule 10b-5 that restricted § Reg- at 95 S.Ct. at 2088. U.S. purchasers and sellers of tions to actual in the securities field of misconduct ulation securities: states. peculiar not a concern Cf. so, preter- doing exhibits Advisors, Mortgage Inc. Transamerica corporate well- natural solicitousness Lewis, 444 U.S. seeming callousness being and a toward investing public quite keeping, out of definitively held The Ninth Circuit me, our own traditions it seems cause of action exists under that a the securities laws. and the intent of Kane, Mosher Stores, Stamps Drug (9th Cir.1986); Chip v. Manor Stephenson v. Blue 1391-92 n. 9 II, Ltd., 808, 421 F.2d Calpine Conifers Daniel, Ltd., II, 557 n. Calpine Teamsters Conifers Cir.1981). 795 n. Blue Stores, Drug Chip Stamps v. Manor 9. Bateman Eichler, n. at 304 n. n. L.Ed.2d 9; Huddleston, n. at 459 U.S. at 378 2; Bhd. 685 n. International (Blackmun, ‍​‌​‌‌​​​​​‌‌​‌​​‌‌‌‌​‌‌​​​‌​‌​​​‌‌​‌‌‌​‌​‌​‌‌​​​‍J., dissent- ing). suggest,

Perhaps, as commentators restricting

trend is toward the anti-fraud

protections in federal securities law.10 To-

day, the 9th Circuit rushes to the forefront. majority opinion brings an end to the 17(a) implied private remedy in this cir- prefer I

cuit. to adhere to stare decisis and

pay my respects to a worthy doctrine at premature

this hour of its- demise. DEUTSCH, Plaintiff-Appellant,

Samuel FLANNERY,

Robert G. Robert C. Mar Stumbo,

quis, Jr., Richard W. Walter J.

Treanor, Bannister, Wayne John G. T.

Donnels, McDonald, John G. M. Justin Jr., Rosenblatt, Joseph

Roach Western Company

Pacific Railroad and Union Corporation, Defendants-Appel

Pacific

lees.

No. 85-1953.

United Appeals, States Court of

Ninth Circuit.

Argued July and Submitted 1986. July

Decided See, Steinberg, e.g., 68 Geo.L.Rev. Section the Secu- Redington, Naftalin rities Act After

Case Details

Case Name: In Re Washington Public Power Supply System Securities Litigation. Henry Puchall v. Houghton, Cluck, Coughlin & Riley

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Jul 30, 1987

Citation: 823 F.2d 1349

Docket Number: 86-3594

Court Abbreviation: 9th Cir.