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

Touche Ross & Co. v. Redington

No. 78-309

Argued March 26, 1979
Decided June 18, 1979
442 U.S. 560

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 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 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.