Touche Ross & Co. v. Redington

Mr. Justice Marshall,

dissenting.

In determining whether to imply a private cause of action for damages under a statute that does not expressly authorize such a remedy, this Court has considered four factors:

“First, is the plaintiff 'one of the class for whose especial benefit the statute was enacted/ — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?” Cort v. Ash, 422 U. S. 66, 78 (1975) (citations omitted).

Applying these factors, I believe respondents are entitled to bring an action against accountants who have allegedly breached duties imposed under § 17 (a) of the Securities Exchange Act of 1934, 15 U. S. C. § 78q (a).

Since respondents seek relief on behalf of brokerage firm customers, the first inquiry is whether those customers are the intended beneficiaries of the regulatory scheme. Under § 17 (a), brokers must file such reports “as the [SEC], by rule, prescribes as necessary or appropriate . . . for the protection of investors.” 15 U. S. C. § 78q (a)(1) (emphasis added). Cf. *581 J. I. Case Co. v. Borak, 377 U. S. 426, 432 (1964). Pursuant to this authority, the SEC requires brokers to provide a battery of financial statements, and directs independent accountants to verify the brokers' reports. 17 CFR § 240 .17a-5 (1978); see also ante, at 563-564, n. 3. The purpose of these requirements, as the Commission has consistently emphasized, is to enable regulators to “monitor the financial health of brokerage firms and protect customers from the risks involved in leaving their cash and securities with broker-dealers.” Ante, at 570. 1 In addition, at the time of the events giving rise to this suit, the rules implementing § 17 mandated that brokers disclose to customers whether an accountant's audit had revealed any “material inadequacies” in financial procedures. 37 Fed. Reg. 14608 (1972). Thus, it is clear that brokerage firm customers are the “favored wards” of § 17, 592 F. 2d 617, 623 (CA2 1978), and that the initial test of Cort v. Ash is satisfied here. 2

With respect to the second Cort factor, the legislative history does not explicitly address the availability of a damages remedy under § 17. The majority, however, discerns an intent to deny private remedies from two aspects of the statutory scheme. Because unrelated sections in the 1934 Act expressly grant private rights of action for violation of their terms, the Court suggests that Congress would have made such provision under § 17 had it wished to do so. But as we noted recently in Cannon v. University of Chicago, 441 U. S. *582 677, 711 (1979), “that other provisions of a complex statutory-scheme create express remedies has not been accepted as a sufficient reason for refusing to imply an otherwise appropriate remedy under a separate section.” The Court finds a further indication of congressional intent in the interaction between §§ 17 and 18 of the 1934 Act. Section 18 (a), 15 U. S. C. § 78r (a), affords an express remedy for misstatements in reports filed with the Commission, apparently including reports required by § 17, but limits relief to purchasers or sellers of securities whose price was affected by the misstatement. In light of this limitation, the majority reasons, we should not imply a remedy under § 17 which embraces a broader class of plaintiffs. However, § 18 pertains to investors who are injured in the course of securities transactions, while § 17 is concerned exclusively with brokerage firm customers who may be injured by a broker’s insolvency. Given this divergence in focus, § 18 does not reflect an intent to restrict the remedies available under § 17. Indeed, since false reports regarding a broker’s financial condition would not affect the price of securities held by the broker’s customers, § 18 would provide these persons with no remedy at all. I am unwilling to assume that “Congress simultaneously sought to protect a class and deprived [it] of the means of protection.” 592 F. 2d, at 623 .

A cause of action for damages here is also consistent with the underlying purposes of the legislative scheme. Because the SEC lacks the resources to audit all the documents that brokers file, it must rely on certification by accountants. See J. I. Case Co. v. Borak, supra, at 432 ; Allen v. State Board of Elections, 393 U. S. 544, 556 (1969); see also 592 F. 2d, at 623 n. 12. Implying a private right of action would both facilitate the SEC’s enforcement efforts and provide an incentive for accountants to perform their certification functions properly.

Finally, enforcement of the 1934 Act’s reporting provisions is plainly not a matter of traditional state concern, but rather *583 relates solely to the effectiveness of federal statutory requirements. And, as the Court of Appeals held, since the problems caused by broker insolvencies are national in scope, so too must be the standards governing financial disclosure. Id., at 623 .

In sum, straightforward application of the four Cort factors compels affirmance of the judgment below. Because the Court misapplies this precedent and disregards the evident purpose of § 17, I respectfully dissent.

See SEC, Study of Unsafe and Unsound Practices of Brokers and Dealers, H. R. Doc. No. 92-231, p. 24 (1971); Exchange Act Release No. 8024 (1967); Exchange Act Release No. 11497 (1975); see also 592 F. 2d 617 , 621-622 (CA2 1978).

In the Court’s view, it is inappropriate to imply a private remedy because § 17 (a) “neither confers rights on private parties nor proscribes any conduct as unlawful.” Ante, at 569. But § 17 does impose duties for the benefit of private parties; in that sense, it both generates expectations, on which customers may appropriately rely, that those duties will be performed, and prohibits conduct inconsistent with the obligations created.