# Petition — Touche Ross & Co. v. Redington > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1582%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1978 - **Citation:** 439 U.S. 979 ## Text } | Supreme Court, U. S, FILED AUG 28 1978 “MICHABL RODAK, JR.. CLERK IN THE Supreme Court of the United States OcTOBER TERM, 1978 No. @€8-309 TOUCHE ROSS & CO., Petitioner, —against— EDWARD S. REDINGTON, as Trustee for the liquida- tion of the business of Weis Securities, Inc., and | SECURITIES INVESTOR PROTECTION CORPO- | RATION, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ARNOLD I. ROTH | Attorney for Petitioner 575 Madison Avenue New York, New York 10022 (212) 644-7000 Of Counsel ARTHUR S. LINKER | RONALD Jay LitcHMAN | ROSENMAN COLIN FREUND Lewis & COHEN 575 Madison Avenue | New York, New York 10022 B. The Dismissal Of This Action By The District PRT Sings PR eee os” yee C. The Decision Of The Court Of Appeals ... REASONS FOR GRANTING THE WRIT ............... I. The Holding By The Court of Appeals Major- ity That, Despite The Express Remedy In Section 18(a), Section 17(a) Creates an Im- plied Private Right Of Action Conflicts With This Court’s Decisions That, Where An Ex- press Remedy Is Provided For Violation Of A Statute, The Statute Does Not, Absent Clear Contrary Evidence Of Legislative Intent, Give Rise To Another And Broader Implied OE SA ea al. . on eh gind un dae te 4 A. The Statutory Scheme Of The 1934 Act, Analyzed In Light Of This Court’s Deci- sions In Amtrak, Barbour, Blue Chip Stamps And Piper, Demonstrates a Clear Congressional Intent That The Express Remedy Provided By Section 18(a) Be The Sole Remedy For Section 17(a) Violations 1. The Reporting Requirements of Section 17(a) and Rule 17a-5, And The Ex- press Remedy Provided In Section 18(a) For Misleading Reports........ 2. The Trustee And SIPC Can Assert No Claim For Relief Under Section 18(a) 10 1] 11 13 i . The Statutory Scheme Whereby Section 18(a) Provides an Express And Limited Damage Remedy For Misstatements In Section 17(a) Reports Reflects A Con- greens Intention That Such Remedy e Exclusive And That No Additional Remedy Be Implied From Section RE POE bo be hare. vc BecaR Bee Ge. This Court's Decisions In Amtrak, Bar- bour And Blue Chip Stamps Compel The Conclusion That Section 18(a) PAGE 13 Provides the Exclusive Damage Rem- | edy for Violations Of Section 17(a) .. . Piper Bars Implication Of A Private Damage Remedy Under Section 17(a) - The Court Of Appeals Majority Misap- ehends The Statutory Scheme, And Fails 0 Apply The Analysis Required By, And Therefore Reaches A Result In Conflict With, This Court’s Decisions 1. The Court Of Appeals Majority Errs In ph To Apply The Analysis Re- — By Amtrak, Barbour And Blue hip Stamps re? OC. 0 Oe 8 6 OO 64.8 8 6 O & 66 - The Court Of Appeals Majority Errs In Finding Section 18(a) Irrelevant...... . The Court Of Appeals Majority Errs In Its Application Of The Principles Of COPE PIR ri ok cb bet te eee ds ws 6 - The Court Of Appeals Majority Errs In Failing To Apply The Necessity Stand- ard Of Piper ig ape =e ee Oe CO 'S..0 OS. 8.6 Hae OSs 2s 14 17 17 PAGE Il. The Holding By The Court of Appeals Major- ity That, Despite The Express Remedy In Section 18(a), Section 17(a) Creates An Im- lied Private Right Of Action Conflicts With A Decision Of The Third Circuit, And Numerous District Court Decisions, Which Hold That No Rights Of Action May Be Implied Under Other Reporting Provisions Of The 1934 Act III. The Holding Of The Court Of Appeals Major- ity That The Trustee and SIPC Are Appro- riate Parties to Seek Recovery Of Customers Somnae Is Erroneous And Conflicts With Applicable Decisions Of This Court ........ A. The Holding With Respect To The Trustee Is Erroneous And Conflicts With This Court’s Decision In Caplin v. Marine Mid- land Grace Trust Co. .....eeeeeececeees B. The Holding With Respect To SIPC Is Erroneous And Conflicts With This Court's Decisions In Amtrak And Barbour ...... IV. The Questions Raised By This Petition Are Important To The Administration Of The Federal Securities Laws And Should Be De- cided By this Court ..........seeeeeeeeeees A. The Question Of Whether Section 17(a) Creates Any Implied Right Of Action Should Be Decided By This Court ...... B. The Question Of Whether The Trustee And SIPC May Assert Any Section 17(a) Rights Should Be Decided By This Court ee Be) ok. ota glee ba bh a Eble eo wn.e 23 fb 26 34 iv TABLE OF AUTHORITIES CASES: PAGE Blue Chip Stamps v. Manor Drug Stores, 421 U.S. P 723 ( “— re 7,11-12, 14-16, 18-19, 30, 32, 34 aplin v. Marine Midland Grace Trust Co. i SOR CONEY i ice ein cs : 06-27 35 Cort v. Ash, 422 U.S. 66 (1975) ......... 10, 20-21 Cramer v. General Telephone & Elec- tronics, [1978] Fep.Sec.L.Rep. (CCH) 196,380 CERRA, Ps TEGO Bin Jocuskosk cede uberis 24-25 Daniel v. International Brotherhood of Teamsters 561 F.2d 1223 (7th Cir. 1977), cert. S. CX. 1232 11978) 2... noe bganpavad 34 DeWitt v. American Stock Transfer Co., 433 F.Supp. 994 (S.D.N.Y.), mode on other grounds, 440 F.Supp. 1084 (S.D.N.Y. 1977) . 25 duPont v. Wyly, 61 F.R.D. 615 (D. Del. 1973). 25 In re Equity Funding Corp. of America Securities Litigation, 416 F.Supp. 161 (C.D. Cal. 1976). 25 Ernst & Ernst v. Hochfelder, 425 US. 185 P selon Pana cue h coneweeumepids 9, 12, 32-34 roquols Industries, Inc. v. Syracuse China Corp.., 417 F.2d 963 (2d Cir. 1969), cert. denied, 309 Up, POP (ISIE). cic ceentt oe ee. 19 J. I. Case Co. v. Borak, 377 U.S. 426 ti) Se ret Ptr Ee 21-22 Lank v. New York Stock Exchange, 548 F.2d 61 08 4... BFF lik 905 Gaedica baa, 28, 34 Levy v. Johnson, [1976-77 Transfer Binde Fep.Sec.L.Rep. (CCH) 995,899 (SDNY. AGTPY os cedex caches a le ee Lewis v. Elam [1977-1978 Transfer Binde imc (CCH) 496,013 (SDNY. D ec nwd ve mensde ten ke see hot 25 Massachusetts v. Westcott, 431 U.S. 322 (1977). 31 McLaughlin v. Campbell, 410 F men... De! eee 25 Vv PAGE Meer v. United Brands Co., {1976-77 Transfer Binder] Fep.Sec.L.Rep. (CCH) { 95,648 (S.D.N.Y. 1976) ......cccccccccessecccscnce 25 Myers v. American Leisure Time Enterprises, Inc., 402 F.Supp. 213 (S.D.N.Y. 1975), affd by oral opinion, 538 F.2d 312 (2d Cir. 1976) ....... 24 National Railroad Passenger Corp. v. National Ass’n of Railroad Passengers, 414 U.S. 453 CREE ck os vba Gee genpss 11, 14-16, 18, 28-30, 35 In re Penn Central Securities Litigation, 347 F.Supp. 1327 (E.D. Pa. 1972), decision as to Section 13(a) adhered to on reargument, 357 F.Supp. 869 (E.D. Pa. 1973), affd, 494 F.2d 528 (bd EE ce whe f3 was oo 7, 23-25, 30, 32 Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 CREE wav cake noms evesoae 7, 10-12, 17, 21-22, 30 Redington v. Touche Ross & Co. (Sup.Ct.N.Y. County, Index No. 13996/76) ............+55 Rich v. Touche Ross & Co. (Sup. Ct. N.Y. County, Index No. 23193/76) ..........5505: 33 Rogers v. National Surety Co., 116 Neb. 170, 216 SEG ME RROD hn cence ns cocvevepnseecccs 29 Rosen v. Touche Ross & Co. (Sup. Ct. N.Y. County, Index No. 21572/77) .......++++555: 33 Rosen v. Touche Ross & Co. (S.D.N.Y. 78 Civ. Senki kebdne chene ands hdeybecwn sé 31 Santa Fe Industries, Inc. v. Green, 430 U.S. 462 1: eee eee 82, 17, 4a, 90°92 Securities Investor Protection Corp. v. Barbour, S28 the. S12 (3975) ...255.. 11, 14-16, 18, 29, 30 United Housing Foundation, Inc. v. Forman, 421 RUE MENON no oss ebb cecccsovessevcvece 34 STATUTES AND RULES: Federal Rules of Civil Procedure gcc Gh esc nsedecssese 34 Judicial Code (28 U.S.C.) MMM MRGOEAOY Oo. ici. e eaves 2 Securities Exchange Act of 1934 (15 U.S.C. §§ 78a et seq.) Section 10, 15 U.S.C. $78} ............- 15, 24 Section 12, 15 U.S.C. § 781 ............. 12, 25 vi PAGE section 13, 15 U.S.C. 78m ......... 12, 23-25 pectom 85,19 USC 6 98e. vc ces civic. 12, 25 Section 16, 15 U.S.C. § 78p ............. 16 Section 17, 15 U.S.C. § 78q ....... 2-26, 29-34 Section 18, 15 U.S.C. § 78r .. .2-3, 7-21, 23-25, | 30, 32 Section 27, 15 U.S.C. § 78aa ............ 6 Securities and Exchange Commission Rules Rule 10b-5, 17 C.F.R. § 240.10b-5 ....... 15 Rule 17a-5, 17 C.F.R. § 240.17a-5 (1972). 3, : 11-12, 33 ecurities Investor Protection Act of 1970 (15 U.S.C. §§ 78aaa et seq.) Section 6,.15 U.S.C. § 78fff ....... 2,3, 26-29 TEXTS: O. Ho_mes, THE ComMMon Law (1963 ed.)..... 26 W. Prosser, Law or Torts (4th ed. Pera). ckuw oe MISCELLANEOUS: SIPC SEVENTH ANNUAL REPORT (1977) ...30, 31, 34 IN THE Supreme Court of the United States OctToBER TERM, 1978 No. ToucHE Ross & Co., Petitioner, —against— Epwarb S. REDINGTON, as Trustee for the liquidation of the business of Weis Securities, Inc., and SECURITIES INVESTOR PROTECTION CORPORATION, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Petitioner Touche Ross & Co. (“Touche Ross’’), defendant-appellee below, petitions for a writ of cer- tiorari to review the judgment of the United States Court of Appeals for the Second Circuit entered herein on April 21, 1978. OPINIONS BELOW The opinion of the Court of Appeals (1a-35a') is not yet officially reported, and is unofficially reported at [Current Binder] Fep. Sec. L. Rep. (CCH) § 96,404. The opinion of the District Court (40a-58a) is reported at 428 F.Supp. 483. ‘Numerals followed by the letter “a” refer to pages of the Appendix to this Petition. 2 JURISDICTION The judgment of the Court of Appeals (36a-37a) was entered on April 21, 1978. The Court of Appeals denied Touche Ross’ timely petition for rehearing and sugges- tion for rehearing en banc on July 7, 1978 (38a-39a). The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). QUESTIONS PRESENTED 1. Does Section 17(a) of the Securities Exchange Act of 1934, which requires the filing of certain reports by a securities brokerage firm, create in favor of customers of the brokerage firm an implied private right of action against accountants who audited such reports for damages resulting from misstatements therein, even though Section 18(a) thereof already expressly provides a limited private damage remedy for such misstatements, and even though the implied remedy under Section 17(a) would be broader than the limited express remedy of Section 18(a)? 2. If (as the Court of Appeals held) Section 17(a) does create such an implied right of action, is a Trustee liquidating the business of the brokerage firm pursuant to the Securities Investor Protection Act of 1970 empowered to assert such implied right of action on behalf of customers whose property he is unable to return in the course of the liquidation? 3. If (as the Court of Appeals held) Section 17(a) does create such an implied right of action, is Securities Investor Protection Corporation, upon advancing funds to the Trustee for the payment of claims of customers pursuant to the Securities Investor Protection Act of 1970, subrogated to such implied right of action of such customers, even though the Act expressly provides (in Section 6(f)(1)) only that Securities Investor Protection 3 Corporation is subrogated, upon the advancement of such funds, to the customers’ rights against the estate of the brokerage firm, and not to the customers’ rights against third-parties such as accountants? STATUTES AND RULES INVOLVED Sections 17(a) and 18(a) of the Securities Exchange Act of 1934 (the “1934 Act’), 15 U.S.C. §§ 78q(a). 78r(a), and Rule 17a-5 of the Securities and Exchange Commission (the “SEC”’), 17 C.F.R. § 240.17a-5, and Sections 6(b)(1) and 6(f)(1) of the Securities Investor Protection Act of 1970 (‘“‘SIPA’’), 15 U.S.C. §§ 78fff(b)(1), 78fff(f)(1), all as in effect in 1972, are set forth in the Appendix hereto (59a-70a). STATEMENT OF THE CASE The federal claims on the basis of which respondents (plaintiffs-appellants below) here seek access to the federal courts are based solely upon Section 17(a) of the 1934 Act, which is one of the various reporting provisions of the 1934 Act (see p. 12 n.7, infra) and requires the filing by broker-dealers of “reports” pre- scribed by the SEC. Consequently, since respondents concededly are unable to assert the express remedy provided in Section 18(a) of the 1934 Act for misstate- ments in Section 17(a) reports, this action presents, In the words of the Court of Appeals majority, the “question whether [an implied] private cause of action exists under section 17[a] ... against accountants who prepare misleading statements of a broker's financial affairs, and if so, who may maintain such an action (2a-3a). Over a vigorous and scholarly dissent, the Court of Appeals majority held, in the first such holding in the 44 years since enactment of Section 17(a), that it does create such an implied private right of action. A. The Facts This action arises from the liquidation pursuant to SIPA of the business of Weis Securities, Inc. (““ Weis’), a 4 defunct brokerage firm, and seeks to recover for respon- dents from Touche Ross aggregate damages of $65,000,000 allegedly resulting from the liquidation. Respondent Edward S. Redington (the ‘“*Trustee”’) is the Trustee appointed pursuant to SIPA for the liquidation. Respondent Securities Investor Protection Corporation (“SIPC”) advanced, in accordance with the provisions of SIPA, by which it was created and pursuant to which it acts, funds to the Trustee to pay the claims of certain customers of Weis in the liquidation. Touche Ross is a firm of certified public accountants which audited financial reports (the 1972 Weis financial reports”) of Weis for periods ending May 26, 1972, approximately a year before the Weis collapse. The Trustee and SIPC commenced this action in the United States District Court for the Southern District of New York in April 1976, nearly a year after they had commenced an almost identical action (the “State Court Action’) against Touche Ross in the New York state courts. The State Court Action, which is presently pending, is based upon the same factual allegations, asserts essentially the same claims and seeks the same aggregate damages of $65,000,000 as does this federal action.” ?The State Court Action was commenced in July 1975, and is entitled Edward S. Redington, as Trustee for the liquidation of the business of Weis Securities, Inc., and Securities Investor Protection Corporation v. Touche Ross & Co. (Sup. Ct. N.Y. County, Index No. 13996/76). The only material difference in the two actions is the addition in the complaint in this action of the few allegations deemed by respondents to be necessary to assert their Section 17(a) claims—i.e., the few allegations by which the Trustee and SIPC seek to ‘‘federalize’’ what are essentially nothing more than common law claims of accountants’ negligence and malpractice. As the Court of Appeals majority put it, [t]he common allegations of the plaintiffs in the state court complaint were the same as those in the instant case, except that three paragraphs dealing with claims under section 17 of the Pioj34 Act were omitted. Five of the Trustee's six present ‘causes of action’ ms gto in identical form in the state action, as do four of SIPC’s eight present claims. The additional claims in this action are the federal securities law claims” (Sa). 5 According to the complaint, the allegations of which are accepted for purposes of this Petition (see also 4ajn. 4]), Weis was a broker-dealer in securities regis- tered with the SEC and a member of the New York Stock Exchange (the “Exchange”’). As the result of investigations by the SEC and the Exchange in April and May 1973, and upon the application of the SEC and SIPC, the United States District Court for the Southern District of New York on May 30, 1973, ordered the liquidation of Weis pursuant to SIPA, and appointed the Trustee. Certain officers of Weis had misstated the financial condition and results of operations of Weis in the 1972 Weis financial reports, which were required to be filed with regulatory authorities pursuant to Section 17(a) of the 1934 Act, and had made it appear therein that Weis had pre-tax earnings for the fiscal year of $1,700,000, whereas Weis actually had suffered Josses in excess of $1,500,000. According to the Trustee and SIPC, Touche Ross performed its audit of the 1972 Weis financial reports in a “negligent, reckless, careless, unskilled and grossly negligent manner’, and therefore not only failed to discover the misstatements but also improperly certified that the 1972 Weis financial reports fairly and accurately presented the financial condition of Weis in accordance with generally accepted accounting princi- ples. The Trustee and SIPC also contend that if Touche Ross had discovered the misstatements in the 1972 Weis financial reports, Weis’ declining financial position and the waste of its assets would have been revealed earlier, remedial action such as a change in the Weis manage- ment or merger with another firm could have been taken, the forced liquidation of Weis could have been averted or its adverse consequences reduced, and the losses here sued for would not have occurred. On the basis of the foregoing, the Trustee seeks (either on behalf of Weis itself or for the customers of 6 Weis) to recover damages of $51,000,000, alleging (i) a federal claim that Touche Ross’ deficient audit of the 1972 Weis financial reports violated Section 17(a) of the 1934 Act, and (ii) common law claims of accountants’ negligence and malpractice, breach of contract and breach of warranty. SIPC seeks to recover (either in its own right on account of funds it advanced to the Trustee or as subrogee of the customers for whose claims it advanced such funds) damages of $14,000,000, alleging (i) federal claims of violation of Section 17(a) by Touche Ross, and (ii) common law claims of accountants’ negligence and malpractice. As noted (p. 4 n.2, supra), the federal claims of both the Trustee and SIPC are essentially nothing more than the restatement of their common law claims—basically for accountants’ negli- gence and malpractice—together with the additional conclusory allegations that Touche Ross’ conduct also violated Section 17(a). B. The Dismissal of This Action By The District Court In the District Court, Touche Ross moved to dismiss this action on the grounds that (i) the federal claims of the Trustee and SIPC, which are based solely on Section 17(a) of the 1934 Act, fail to state a claim upon which relief can be granted because Section 17(a) does not create any implied private right of action, and (ii) subject matter jurisdiction of their common law claims is lacking.’ The District Court granted the motion and *The District Court had jurisdiction of the Section 17(a) claims by virtue of Section 27 of the 1934 Act. Jurisdiction of the common law claims was alleged to exist by reason of pendent jurisdiction, as well as (for the Trustee) jurisdiction under SIPA and the Bank- ruptcy Act and (for SIPC) Giversity jurisdiction. Touche Ross’ motion asserted, and the District Court held, that pendent jurisdic- tion was lacking because the federal claims under Section i7(a) fail to state a claim upon which relief can be granted, and that subject matter jurisdiction of the common law claims did not exist on any of the other alleged bases. 7 dismissed the action (40a-58a).* In holding that no private right of action can be implied under Section 17(a), the District Court reasoned that, while there was no explicit statement of legislative intent with respect thereto, the grant in Section 18(a) of an express and carefully limited remedy for misstate- ments in Section 17(a) reports, as well as for misstate- ments in reports filed pursuant to other reporting provisions of the 1934 Act, only to purchasers or sellers of securities in reliance upon such misstatements, “strongly suggest[s] a legislative intent that the only private claim for a violation of Section 17 was the claim created in Section 18” (49a-50a). The District Court also concluded that it is not “necessary to imply a civil liability under Section 17 in order to enforce its provisions” (51a). The District Court explicitly followed recent decisions of this Court which recognize that it would be anamolous and improper to impute to Con- gress an intention to permit an implied remedy under the 1934 Act which would be broader than the express statutory remedies specifically provided, and which em- phasize that creation by judicial interpretation of an implied private damage remedy is proper only if it is necessary to effectuate Congress’ goals. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 734, 736 (1975); Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 25-26 (1977). The District Court also followed a decision of the Court of Appeals for the Third Circuit, Jn re Penn Central Securities Litigation, 494 F.2d 528 (3d Cir. 1974), and other district court decisions, which hold ‘Touche Ross’ motion also sought dismissal of certain of the common law claims for failure to state a claim upon which relief can be granted. Alternatively, the motion sought a me of this action pending determination of the State Court Action. it was unneces- sary for the District Court to reach, and it did not consider, those issues. 8 that other reporting provisions of the 1934 Act do not themselves, in view of the express remedy provided by Section 18(a) and its careful limitation by Congress to certain purchasers or sellers of securities, create any implied private rights of action. C. The Decision Of The Court Of Appeals A divided Court of Appeals (Lumbard and Timbers, CJJ., constituting the majority), over a vigorous and well-reasoned dissent (Mulligan, CJ.), reversed the Dis- trict Court and remanded for further proceedings. The Court of Appeals majority held that customers of a brokerage firm have an implied private right of action under Section 17(a) against accountants for misstate- ments in audited reports filed pursuant thereto (6a-12a), although it expressly declined to set forth “the appro- priate standard for accountant liability in [such] actions” (15).° Moreover, the majority, while recognizing that neither the Trustee on behalf of Weis nor SIPC in its own right has any right of action under Section 17(a) because they are not within any class protected thereby, also held that the Trustee, as ‘“‘bailee’” of certain customers’ property, and SIPC, as ‘“‘subrogee”’ of cus- tomers for the payment of whose claims it has advanced funds, may assert such right of action (12a-15a). Judge Mulligan, in dissent, would have affirmed the order of the District Court. He concluded that there is no implied private right of action under Section 17(a) (20a-33a), and that, even if there were, the Trustee and SIPC are not proper parties to assert such right of action to recover customers’ damages (33a-3S5a). ‘The majority did not disturb, and expressed no opinion as to, the District Court's holding that, absent pendent jurisdiction, there is no other basis for subject matter jurisdiction of the common law claims (3a (a3). The majority, even though it permitted the Trustee and SIPC to assert federal claims under Section 17(a), also expressly declined to determine whether pendent jurisdiction over the common law claims should be exercised (15a). 9 REASONS FOR GRANTING THE WRIT The holding of the Court of Appeals majority that Section 17(a) provides an implied private right of action for brokerage firm customers who are not purchasers or sellers of securities, and to whom the express remedy set forth in Section 18(a) thus is not available, is erroneous and conflicts in principle with decisions of this Court and the Third Circuit. As shown hereinbelow (pp. 10-25, infra), that holding—which, as pointed out in Judge Mulligan’s dissent, “‘goes beyond statutory construction; it amounts instead to judicial legislation’ (27a)—{i) is based upon the majority's misapprehension of the significance of the statutory scheme which provides in the 1934 Act both a reporting requirement (Section 17(a)) and a limited express remedy for violations thereof (Section 18(a)), and (ii) conflicts with the principles established in this Court’s decisions that, where an express remedy is provided for violation of a statute, the statute does not, in the absence of clear evidence of contrary legislative intent, give rise to another and broader implied remedy, and that under the 1934 Act specifically it is improper to imply remedies which are broader than the express statutory remedies provided therein or which are not necessary to effectuate Congress’ goals, and (iii) conflicts in principle with a decision of the Third Circuit that, by reason of the express remedy in Section 18(a) for reporting violations, other reporting provisions of the 1934 Act do not themselves give rise to any implied rights of action.* The majority's holding that the Trustee and SIPC may assert, as “‘bailee’”’ and “‘subrogee’’, respectively, the Section 17(a) claims of certain Weis customers against Touche Ross also is erroneous. As shown hereinbeiow (pp. 25-29, infra), that holding is based upon the *As noted by the District Court (48a), the question of whether there is an implied private right of action under Section 17({a) expressly was left undecided in this Court's decision in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.13 (1976). 10 majority's misapprehension of the statutory context of the grant of powers to the Trustee, and of subrogation rights to SIPC, and conflicts in principle with decisions of this Court. Finally, it is shown hereinbelow (pp. 29-34, infra) that the questions raised by the majority's decision and by this Petition are important to the administration of the federal securities laws and should be decided by this Court. The Holding By The Court of Appeals Majority That, Despite The Express Remedy In Section 18(a), Section 17(a) Creates An Implied Private Right Of Action Conflicts With This Court’s Decisions That, Where An Express Remedy Is Provided For Violation of A Statute, The Statute Does Not, Absent Clear Contrary Evidence Of Legislative Intent, Give Rise To Another And Broader Implied Remedy The Court of Appeals majority bases its conclusion that a private right of action may be implied under Section 17(a) upon a purported consideration of the factors set forth in Cort v. Ash, 422 U.S. 66 (1975) (6a, 7a-11a). However, as Judge Mulligan notes in his dissent (21a, 23a), Cort itself carefully restricted the application of those factors to determination of ‘“‘whethér a private remedy is implicit in a statute not expressly providing one” (emphasis added), 422 U.S. at 78, a restriction which was again emphasized in Piper v. Chris-Craft Industries, Inc., supra, 430 U.S. at 37. As demonstrated in this Point I, this action does not present a situation where (as in Cort) a remedy is sought to be implied for violation of a statute as to which no express private remedy whatsoever is provided, but instead involves a statutory scheme in which Congress already expressly has provided both its desired statutory requirement (Section 17(a)) and the remedy (Section 18(a)) it thought necessary and appropriate for violations of that 11 requirement. Consequently, the controlling decisions are National Railroad Passenger Corp. v. National Associa- tion of Railroad Passengers, 414 U.S. 453 (1974) (‘‘Amtrak’’), and Securities Investor Protection Corp. v. Barbour, 421 U.S. 412 (1975), which establish the principle that, absent clear contrary evidence of legisla- tive intent, a remedy is not to be implied from a statutory provision for which a limited express remedy already is provided; Blue Chip Stamps v. Manor Drug Stores, supra, which recognizes the impropriety of implying broader remedies under the 1934 Act than the express statutory remedies specifically provided therein; and Piper v. Chris-Craft Industries, Inc., supra, which holds that a private right of action is not to be implied under the 1934 Act unless it is “‘necessary” to effectuate Congress’ goals. Since there is, as even the Court of Appeals majority concedes (9a), no evidence of any Congressional intent to create an implied private right of action under Section 17(a), Amtrak, Barbour, and Blue Chip Stamps require a holding that Section 17(a) does not create any implied private right of action, and the contrary holding of the majority conflicts with those decisions. Moreover, since implication of such a private right of action is not, and was not considered by Congress to be, ‘‘necessary”’ to effectuate the goals of Section 17(a), Piper also requires a holding that there is no such implied right of action, and the contrary holding of the majority also conflicts therewith. A. The Statutory Scheme Of The 1934 Act, Analyzed In Light Of This Court’s Decisions In Amérak, Barbour, Blue Chip Stamps And Piper, Demon- strates A Clear Congressional Intent That The Express Remedy Provided By Section 18(a) Be The Sole Remedy For Section 17(a) Violations 1. THE REPORTING REQUIREMENTS OF SECTION 17(a) AND RULE 17a-5, AND THE EXPRESS REMEDY PROVIDED IN SECTION 18(a) FOR MISLEADING ReEports.—As this Court 12 recently has emphasized in cases arising under the 1934 Act, “[t]he starting point in every case involving con- struction of a statute is the language itself’. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472 (1977); Piper v. Chris-Craft Industries, Inc., supra, 430 U.S. at 24; Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 197; Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 756 (Powell, J., concurring). Section 17(a), as in effect during 1972 when Touche Ross audited the 1972 Weis financial reports, required broker-dealers such as Weis to “‘make such reports as the [SEC] by its rules and regulations may prescribe” (emphasis added). 15 U.S.C. § 78q(a).? SEC Rule 17a-5, implementing Section 17(a), required that broker-dealers ‘‘file reports of financial condition con- taining the information required by Form X-17A-5 ... within each calendar year”. 17 C.F.R. § 240.17a-5(a)(2) (1972). Section 18 is entitled ‘Liability For Misleading Statements”. 15 U.S.C. § 78r. Section 18(a) provides an express damage remedy for misstatements ‘“‘in any ... report, Or document filed pursuant to [the 1934 Act] or any rule or regulation thereunder” to persons ‘‘who, in *Section 17(a) is only one of the sections of the 1934 Act which require the filing of “reports’’ or similar material. Other such provisions are found in Sections 12(b)(1), 13(a), 13(d), 13(f) and 15(d). Section 12(b)(1) requires every ‘issuer’ of a security “registered on a national securities exchange” to file an ‘‘application which shall contain . . . [s}uch information” as the SEC may require. 15 U.S.C. § 781(b)(1). Section 13(a) requires every ‘‘issuer” of a registered security to file “‘such information and documents” and “such annual ... and ... quarterly reports’ as the SEC may poe 15 U.S.C. § 78m(a). Section 13(d) requires any person coming the beneficial owner of more than 5% of certain classes of equity securities to file “‘a statement containing such ... informa- tion” as the SEC may prescribe. 15 U.S.C. § 78m(d). Section 13 (f) requires every “institutional investment manager’ to file “reports” as the SEC may prescribe. 15 U.S.C. § 78m/(f). Section 15(d) requires certain issuers to file ‘‘supplementary and periodic informa- tion, documents and reports” as may be required by Section 13. 15 U.S.C. § 780(d). 13 reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement” (emphasis added). 15 U.S.C. § 78r(a). As the Court of Appeals majority and dissent agree (11la-12a, 2la-23a), as other courts have recognized, and as the legislative history demonstrates, it is inescapable that the remedy provided by Section 18(a), which uses the very same word, ‘“‘report’’, as does Section 17(a), is applicable to misstatements in Section 17(a) reports. 2. THE TRUSTEE AND SIPC Can Assert No CLAIM FOR RELIEF UNDER SECTION 18(a).—Both the Court of Appeals and the District Court recognize (11a, 49a), and the Trustee and SIPC concede, that neither they nor Weis’ customers can meet the purchaser-seller require- ment of Section 18(a), and that they thus cannot assert any claim for the express Section 18(a) remedy. Conse- quently, in order to find some purported basis in the 1934 Act to ‘“federalize” their essentially common law claims for accountants’ negligence and malpractice, they assert alleged implied rights of action under Section 17(a) itself. 3. THe StatuToRY SCHEME WHEREBY SECTION 18(a) PROVIDES AN EXPRESS AND LIMITED DAMAGE REMEDY FOR MISSTATEMENTS IN SECTION 17(a) REPORTS REFLECTS A CONGRESSIONAL INTENTION THAT SUCH REMEDY BE ExcLusIVE AND THAT No ADDITIONAL REMEDY BE IMPLIED FROM SECTION 17(a) ItsELF.—The express, and carefully limited, damage remedy provided by Section 18(a) for misstatements in Section 17(a) reports neces- sarily reflects a Congressional intention that a damage remedy for such misstatements would be available only as provided in Section 18(a)—i.e., where a person purchased or sold a security in reliance thereon—and that no other damage remedy for such misstatements (e.g., a damage remedy for brokerage firm customers who neither purchased nor sold securities in reliance 14 thereon) was intended or could be implied. As Judge Mulligan’s dissent observes, ‘‘[the District Court] cor- rectly found and, indeed, common sense would dictate, that section 18(a) expressly provides the sole private remedy which Congress intended to be available for a violation of section 17(a) and the other reporting sections of the [19]34 Act’ (emphasis added) (22a). 4. Tuts Court’s DEcISIONS IN AMTRAK, BARBOUR AND BLUE Cuip STAMPS COMPEL THE CONCLUSION THAT SECTION 18(a) PRoviDES THE ExcLustveE DAMAGE REMEDY FOR VIOLATIONS OF SECTION 17(a).—As Judge Mulligan’s dissent correctly observes (24a-25a), the conclusion that Congress intended Section 18(a) to be the exclusive damage remedy for Section 17(a) violations accords with—indeed, is required by—decisions of this Court explicitly directing that, where a remedy is sought to be implied from a statutory provision for which a limited express remedy already is provided, the doctrine expressio unius est exclusio alterius is to be applied. For example, this Court's decision in Amtrak, supra, une- quivocally directs that [When legislation expressly provides a particu- lar remedy or remedies, courts should not expand the coverage of the statute to subsume other remedies. ‘When a statute limits a thing to be done in a particular mode, it includes the negative of any other mode.’ . . . This principle of statutory construction reflects an ancient maxim—expressio unius est exclusio alterius. Since the Act creates . a private cause of action only under very limited circumstances, this maxim would clearly compel the conclusion that the remedies created . .. are the exclusive means to enforce the duties and obligations imposed by the Act”. 414 U.S. at 458. 15 See also Securities Investor Protection Corp. v. Barbour, supra, 421 US. at 419 (reiterating the “observation [in Amtrak] that express statutory provision for one form of proceeding ordinarily implies that no other means of enforcement was intended by the Legislature’). While this Covwitt did state in Amtrak that the expressio unius doctrine must “yield to clear contrary evidence of legislative intent’, 414 U.S. at 458, even the Court of Appeals majority here concedes that nothing in the language or legislative history of the 1934 Act indicates any Congressional intent to create a private right of action under Section 17(a) (9a). Consequently, Amtrak and Barbour require the conclusion that, in light of the existence of the express remedy in Section 18(a), Section 17(a) does not create any additional implied remedy. The contrary conclusion of the Court of Appeals majority thus conflicts with Amtrak and Barbour. Moreover, to hold, as does the Court of Appeals majority, that Section 17(a) creates an implied right of action in addition to the express remedy of Section 18(a) also conflicts with the principles established by this Court in Blue Chip Stamps v. Manor Drug Stores, supra. There, in upholding the purchaser-seller requirement for claims under Section 10(b) of the 1934 Act and Rule 10b-5, this Court noted that ‘‘[t]he principal express nonderiva- tive private civil remedies, created by Congress contem- poraneously with the passage of § 10(b), for violations of various provisions of the 1933 and 1934 Acts are by their terms expressly limited to purchasers or sellers of securities”, and then, specifically addressing itself to Section 18(a) of the 1934 Act, stated that “Section 18 of the 1934 Act, prohibiting false or misleading statements in reports or other docu- ments required to be filed by the 1934 Act, limits the express remedy provided for its violation to 16 ‘any person ...who.. . shall have purchased or sold a security at a price which was affected by such statement. .. .’ /t would indeed be anomalous to impute to Congress an intention to expand the plaintiff class for a judicially implied cause of action beyond the bounds it delineated for com- parable express causes of action’ (emphasis added). 421 U.S. at 735-736. Of course, as Judge Mulligan’s dissent notes, the “anomalous” intention which Blue Chip Stamps said could not properly be imputed to Congress “‘is precisely what the majority is imputing to Congress in this case” by its holding that there is an implied right of action under Section 17(a) broader than (i.e., in favor of brokerage firm customers who do not meet the purchaser-seller requirement of) the express remedy under Section 18(a) (26a).* As aptly summed up by Judge Mulligan’s dissent, “Amtrak, Barbour and Blue Chip compel the conclusion that the omission [of a remedy for Section 17(a) violations in favor of brokerage firm customers] was studied and that the implication of a damage action against accountants under this section is totally unwarranted. The majority can- not properly characterize this as a case where there is no explicit private remedy provided by Congress. Rather, it is a case in which the remedy *This Court also observed in Blue Chip Stamps that “[w]Jhen Congress wished to provide a remedy to those who neither purchase nor sell securities, it had little trouble in doing so expressly”, citing Section 16(b) of the 1934 Act, 15 U.S.C. § 78p(b). 421 U.S. at 734. This reinforces the conclusion that the limitation to purchasers and sellers of the express Section 18(a) remedy provided by Congress for Section 17(a) violations, and the failure by Congress to provide an express remedy for Section 17(a) violations in favor of brokerage firm customers who are not purchasers or sellers, demonstrate a Congressional intention and understanding that such brokerage firm customers are to have no right of action, either express or implied, for violations of Section 17(a) (see 25a-26a). 17 provided was designed to exclude the class which is here seeking monetary relief.” (26a-27a) 5. Piper Bars IMPLICATION OF A PRIVATE DAMAGE REMEDY UNDER SECTION 17(a).—In Piper v. Chris-Craft Industries, Inc., supra, this Court emphasized that under the 1934 Act a private right of action is to be implied only where it is “necessary to effectuate Congress’ goals”. 430 U.S. at 26. Accord, Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 477. As shown in Judge Mulligan’s dissent, analysis of the scheme by which brokerage firms are regulated demonstrates that, in seeking to protect brokerage firm customers, “the primary congressional intent obviously has ; been to provide a system of reports and monitoring which would prevent insolvency of broker-dealers[,] ‘fot to create private law suits for damages after insolvency has occurred’, and therefore that ‘‘the importance to this scheme of implying a damage remedy after liquidation is dubious” (30a). To enforce compliance with the report- ing requirements of Section 17(a), private damage actions thereunder in favor of persons not entitled to the remedy of Section 18(a) are not necessary; as the District Court here concluded, ‘‘criminal prosecutions and SEC injunctive actions seem abundantly sufficient’ (53a) (see also p. 19 n.9, infra). As Piper explicitly makes clear, an “ever-present threat of damages” is not necessary, because ‘(t]he deterrent value, if any” of a private right of action is so speculative that it does not “provide significant additional protection’. 430 U.S. 39-40. B. The Court Of Appeals Majority Misapprehends The Statutory Scheme, And Fails To Apply The Analysis Required By, And Therefore Reaches A Result In Conflict With, This Court’s Decisions The Court of Appeals majority misapprehends the foregoing statutory scheme and fails to follow the controlling decisions of this Court. The following basic 18 errors are committed by the majority and, as Judge Mulligan’s dissent demonstrates, leads the majority to a decision which conflicts with this Court's decisions. 1. THe Court or AppeALS Masority Errs IN FAILING TO APPLY THE ANALYSIS REQUIRED BY AMTRAK, BARBOUR AND BLUE Cuip Stamps.—In holding that Section 17(a) creates an implied private right of action, the Court of Appeals majority plainly misapprehends the statutory scheme of the 1934 Act. Its basic error is its failure to apply the analysis required by Amtrak, Barbour and Blue Chip Stamps to this case, where there already exists an express remedy (Section 18(a)) for violations of the Statutory provision (Section 17(a)) under which an implied remedy is sought. That analysis requires the Court of Appeals first to recognize the existence of the express remedy of Section 18(a), then to consider Sections 17(a) and 18(a) in light of the expressio unius doctrine, and finally to apply the doctrine to bar an implied remedy under Section 17(a) in the conceded absence of ‘clear contrary evidence of legislative intent’. However, the majority instead purports first to analyze Section 17(a), and to determine whether it creates an implied remedy, without any consideration of Section 18(a) (6a-11a). Only after concluding that there is such an implied remedy does the majority finally give cursory consideration to Section 18(a), and then only to assert that it does not detract from the existence of such a remedy (1la-12a). Of course, as Amtrak, Barbour and Blue Chip Stamps make clear, that approach is based upon the patently erroneous view that Section 18(a) is in no way indicative of the Congressional intent as to whether Section 17(a) creates an implied remedy—a view which the majority acknowledges holding by its Statement that “‘[w]e find no indication . . . in the statute itself . . . of any congressional intent either to create a private remedy under Section 17 or to deny one” (emphasis added) (9a). 19 2. THE Court OF APPEALS Majority Errs IN FINDING SECTION 18(a) IRRELEVANT.—The Court of Appeals ma- jority finds that Section 18(a) is irrelevant because brokerage firm customers are ‘“‘members of a class peculiarly protected by Section 17°’ and “are favored wards of Section 17”, that the express remedy of Section 18(a) will normally not be available to such customers, and therefore that “[w]e cannot agree that Congress simultaneously sought to protect a class and deprived the class of the means of protection” (11a).° However, the majority's conclusion simply does not follow from its premises. Even if it be assumed that Section 17(a) was specifically intended to protect brokerage customers, whereas Section 18(a) “wholly independent[ly]’ was intended to provide rights only to purchasers and sellers (see 12a), the existence of Section 18(a) necessarily demonstrates a further Congressional intent that the purchasers and sellers referred to therein be the only class with a damage remedy for misstatements in Section °The Court of Appeals majority clearly overstates the issue when it says that customers will be “deprived . . . of the means of protection’ without an implied right of action under Section 17(a). As Judge Mulligan’s dissent spells out in detail, brokerage customers have many “protections”, including the preventive monitoring of brokerage firms by the SEC and the Exchange, the existence of SIPC (after 1970), the deterrent effect of criminal and injunctive roceedings, and the availability of state law remedies. Cf. /roquois ndustries, inc. v. Syracuse China Corp., 417 F.2d 963, 969 (2d Cir. 1969), cert. denied, 399 U.S. 909 (1970) (‘That the conduct averred in any given case may be reprehensible does not mean that a federal remedy must be furnished by judges. The remedy in many cases may be found in the state courts... . If there is to be a federal ch goge It is the Congress which must create it”), cited with approval in Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 738-739 n.9. Thus, the real issue here is not whether to grant the customers a Section 17(a) implied remedy or else to leave them without any rotection, but rather whether to add to the protections on already ave the additional [paere of a Section 17(a) implied remedy which Congress itself intentionally refused to provide. 20 17(a) reports. If, in enacting the 1934 Act, Congress was as aware of, and consciously concerned with protecting, both brokerage firm customers (its “favored wards” in Section 17(a), according to the majority) and purchasers and sellers (to whom it provided the express damage remedy in Section 18(a)), the withholding of an express damage remedy from the customers, while at the same time giving such a remedy to the purchasers and sellers, can Only mean that Congress consciously intended that the customers not have a damage remedy and that their protection be provided in a different way. As Judge Mulligan’s dissent correctly puts it, “if the brokers’ customers were so clearly the concern of the Congress when it enacted section 17(a), its failure to afford them a private damage remedy in section 18(a), which was contem- poraneously enacted and which provides a private remedy for misleading statements in reports filed pursuant to the mandate of the Act, leads to the conclusion that Congress did not intend a private damage remedy to be available to brokers’ cus- tomers” (23a). APPLICATION OF THE PRINCIPLES OF Cort v. ASH.—As noted above (pp. 10-11, supra), the factors set forth in Cort v. Ash, supra, upon which the Court of Appeals majority relies to imply a. private right of action under Section 17(a) (7a-11a), do not provide an appropriate analytical framework here because Cort itself limits its own relevance to “determining whether a private remedy is implicit in a statute not expressly providing one” (emphasis added). 422 U.S. at 78. However, even if the Cort factors are assumed to be relevant, the majority’s analysis in terms of those factors is unacceptable be- cause, among other things, it does not at any point 21 consider the significance of Section 18(a), which clearly bears on all four of the Cort factors.’° 4. THE Court oF AppeEALS Majority Errs IN FAILING To Apply THE Necessity STANDARD OF PipER.—The purported Cort analysis of the Court of Appeals majority also is fatally flawed by the majority’s failure to apply the requirement articulated in Piper v. Chris-Craft Indus- tries, Inc., supra, that a private remedy is to be implied only where it is ‘“‘necessary to effectuate Congress’ goals” (emphasis added). 430 U.S. at 26. Application of that requirement bars implication of a private right of action under Section 17(a) (see p. 17, supra); and none of the reasons advanced by the Court of Appeals majority to support implication of such a right satisfies the require- ment. For example, the majority’s conclusion, purport- edly premised upon J. J. Case Co. v. Borak, 377 US. 426 (1964), that ‘a private remedy is an essential supplement to the scheme of enforcement of section 17” because the SEC “does not have the resources to examine and audit all the documents that it receives” ‘First, Section 18(a) shows that insofar as substantive rights and remedies may be derived from reporting obligations imposed by the 1934 Act, only purchasers and sellers, and not customers, are the class for whose special benefit such rights and remedies are provided. Second, it shows a Congressional intent to limit a damage remedy to purchasers and sellers. Third, it shows that a Section 17(a) implied right would be inconsistent with the legislative scheme since it effectively would abolish the limitations placed on express civil remedies. Finally, it shows a Congressional understanding that any cause of action by customers for damages is one traditionally relegated to state law, which, under “well established tort law principles” discussed in Judge Mulligan’s dissent (30a-32a), pro- vides appropriate remedies—remedies which are being pursued as against Touche Ross not only by the Trustee and SIPC in the State Court Action, but also as noted hereinbelow (p. 33 n.19, infra), by Weis’ customers themselves. 22 (10a-11a),"' simply is unacceptable in light of this Court’s recognition in Piper that “‘[e]ven though the SEC operates in this context under the same practical re- straints recognized by the Court in Borak, institutional limitations alone do not lead to the conclusion that any party interested . . . should have a cause of action for damages”. 430 U.S. at 41.'? Similarly unacceptable is the majority's reliance upon an asserted need for nationally uniform standards for actions brought to recover losses after a brokerage firm has failed (11a). Since the primary legislative purpose in enacting Section 17(a) was to provide a system of reports and monitoring to prevent insolvency (see p. 17, supra), it is not necessary in order to achieve that purpose that such standards for recovery of losses resulting from liquidation be uniform. This Court recently has restated the principle that where state law remedies traditionally have been available federal courts should be reluctant to intrude federal remedies into the area to serve “ ‘at best a subsidiary purpose’ of the federal legislation”, Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 478, and has recognized that relegation of plaintiffs to such state law remedies is appropriate, e.g., Santa Fe Industries, Inc. v. Green, supra, id. at 478 (state law appraisal remedy); Piper v. Chris-Craft Industries, Inc., supra, 430 U.S. at 40-41 (common law tort remedy). ''As noted in the opinions of the Court of Appeals majority and the District Court, the SEC, pursuant to Section 17(a), has its own fee one of conducting audit examinations of the financial reports of rokerage firms (10a [n.12], 48a, 53a). '*As the District Court here stated, ‘‘the case at bar is not like Borak. The pt gon required by Section 17 in 1972 were not for the information of any ‘investors’ and were not sent to them but were for the SEC, primarily for monitoring the net capital requirements of the 1934 Act” (53a). Moreover, as Judge ulligan’s dissent points out, the problem faced by the SEC in Borak of examining —_ statements under demanding time limitations is not encoun- tered with respect to its examination of Section 17(a) reports, and the SEC’s burden also is lightened by examinations which are performed by the Exchange (32a [n.11]}). As the dissent also notes, the rationale of Borak has been significantly restricted by more recent decisions of this Court (20a-21a). 23 Il The Holding By The Court Of Appeals Majority That, Despite The Express Remedy In Section 18(a), Section 17(a) Creates An Implied Private Right Of Action Conflicts With A Decision Of The Third Circuit, And Numerous District Court Decisions, Which Hold That No Rights Of Action May Be Implied Under Other Reporting Provisions Of The 1934 Act The holding of the Court of Appeals majority that a private right of action may be implied under Section 17(a) conflicts in principle with the decision of the Third Circuit in In re Penn Central Securities Litigation, supra, as well as a substantial number of district court decisions, involving other reporting provisions of the 1934 Act. Those decisions all hold—for reasons equally applicable to the reporting provisions of Section 17(a)—that no private rights of action can be implied from the reporting provisions themselves, because Section 18(a) is the exclusive remedy for reporting, violations, and because the creation of additional implied remedies from the reporting provisions themselves would ignore the Con- gressional intent and this Court's controlling decisions and distort the statutory scheme. In re Penn Central Securities Litigation, supra, in- volved actions arising out of the operations of the Penn Central companies in which plaintiffs alleged that reports filed under Section 13(a) were misleading and asserted (because they were not purchasers or sellers of securities and thus did not fall within Section 18(a)) that they had an implied right of action for damages under Section 13(a) itself. The District Court dismissed the Section 13(a) claims, 347 F.Supp. 1327 (E.D.Pa. 1972), decision as to Section 13(a) adhered to on reargument, 357 F.Supp. 869 (E.D.Pa. 1973), emphasizing that “Section 13 is one of a number of provisions [of the 1934 Act] that require the filing of .. . 24 reports. See §§. . . 17(a). Section 18(a) is the ‘catch-all civil liability provision for all of the reporting requirements of the [1934] Act’’, 347 F.Supp. at 1340, and then, although recognizing that “Courts have im- plied civil remedies for violations of [certain] provisions of the [1934 Act], held that Section 18(a) “‘is the exclusive remedy for violation of § 13(a)’’ because ‘“‘when the legislature has specifically authorized or withheld the right to recover damages arising by reason of a violation of a statute, an implied right of action does not exist... . Where Congress has specifically authorized a remedy for violation of an act, the courts should not nullify the congressional scheme by implying a right of action on behalf of those not otherwise entitled to recover. . . . Given the express civil remedy for § 13(a) provided by § 18(a), we conclude that § 13(a) does not afford a private right of action’, 347 F. Supp. at 1339-1340. The Third Circuit affirmed. 494 F.2d 528 (3d Cir. 1974). It emphasized that a contrary holding “‘would result in the elimination of the purchaser-seller requirement for violations of § 13(a)’’, and that ‘‘the same considerations [which require application of the purchaser-seller re- quirement to section 10(b)] also apply to [require denial of] the contention . . . that we should imply a private right of action in section 13(a) to avoid the purchaser- seller requirement of section 18.” Jd. at 540-541." '*Numerous district court decisions have reached the same result as did the Third Circuit in Jn re Penn Central Securities Litigation. See, e.g., Myers v. American Leisure Time Enterprises, Inc., 402 fy 213 (S.D.N.Y. 1975), aff'd by oral opinion, 538 F.2d 312 (2d Cir. 1976) (Section 13(d)); Cramer v. General Telephone & Electronics, [1978] Fep. Sec. L. Rep. (CCH) § 96,380 at pp. 25 The reasoning and holding of In re Penn Central Securities Litigation, and of the other decisions reaching the same result, are clearly applicable to Section 17(a). Section 17(a), like the sections of the 1934 Act involved in those decisions, is a reporting provision, and Section 18(a) is as applicable to misleading reports filed under Section 17(a) as it is to such reports filed under those other sections. Thus, the decision of the Court of Appeals majority creates a conflict between the Second Circuit and the Third Circuit concerning whether private rights of action may be implied under the reporting provisions of the 1934 Act, and this Court should grant certiorari to resolve that conflict. The Holding Of The Court Of Appeals Majority That The Trustee And SIPC Are Appropriate Parties To Seek Recovery Of Customers’ Damages Is Erroneous And Conflicts With Applicable Decisions Of This Court Both the Court of Appeals majority and Judge Mulligan in dissent agree that, even if Section 17(a) creates an implied right of action for brokerage firm customers, neither the Trustee on behalf of Weis nor 93,326-93,327 (E.D. Pa. 1977) (Section 12(b)(1)); DeWitt v. American Stock Transfer Co., 433 F.Supp. 994, 1004-1005 (S.D.N.Y.) (Sections 13(a) and 15(d)), modified on other grounds, 440 beg 3 1084 (S.D.N.Y. 1977); Levy v. Johnson, [1976-77 Transfer Binder] Fep. Sec. L. Rep. (CCH) { 95,899 at p. 91,324 (S.D.N.Y. 1977) (Section 13(a)); Lewis v. Elam, [1977-78 Transter Binder] Fep. Sec. L.- Rep. (CCH) § 96,013 (S.D.N.Y. 1977) Section 13(a)); Meer v. United Brands Co., [1976-77 Transfer inder] Fer. Sec. L. Rep. (CCH) 495,648 (S.D.N.Y. 1976) (Section 13(a)); In re Equity prs Corp. of America Securities Litigation, 416 Spee 161, 190 (C.D. Cal. 1976) (Section 13(a)); McLaughlin v. > ell, 410 Ht9 3 1321, 1325 (D.Mass. 19733 Seeotiie 13(a)); duPont v. Wyly, 61 F.R.D. 615, 628 (D.Del. 1973 Section 13(a)). 26 SIPC in its own right is entitled to assert any right of action under Section 17(a), because neither is a member of any class protected thereby (12a [n. 13], 14a, 33a- 34a). However, misapprehending the controlling deci- sions of this Court, the majority, again over Judge Mulligan’s vigorous dissent, erroneously holds that the Trustee as “‘bailee” and SIPC as “‘subrogee”’ are appro- priate parties to assert the Section 17(a) rights of certain customers of Weis (12a-13a). A. The Holding With Respect To The Trustee Is Erroneous And Conflicts With This Court’s Decision In Caplin v. Marine Midland Grace Trust Co. Contending that Touche Ross’ Section 17(a) viola- tions caused the depletion of property held by Weis in trust for its customers, the Trustee seeks to assert the customers’ damage claims, on the ground that Weis was the bailee of their property and thus had a sufficient interest therein to sue third parties for loss or injury thereto. However, any action by Weis itself (or by the Trustee as its representative) as bailee of customers’ property would be an action to vindicate Weis’ own possessory rights as bailee, and not the rights of the customers, see generally W. Prosser, LAW oF Torts 94-95 (4th ed. 1971); O. Hotmes, THE Common Law 130-194 (1963 ed.), and even the Court of Appeals majority concedes that Weis itself, and the Trustee on behalf of Weis, have no right of action under Section 17(a) (14a). Nevertheless, the majority does find, in the Trustee’s statutory duty to marshal and return custom- ers’ property, authorization for the Trustee to sue on behalf of customers whose property he is unable to return, to the extent that they have not been reimbursed by SIPC (13a-15a). That holding of the Court of Appeals majority is erroneous because under Section 6(b)(1) of SIPA, 15 27 U.S.C. § 78fff(b)(1), the Trustee has the same title to property and powers as a bankruptcy or Chapter X trustee. Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972), establishes the principle that such a trustee, and therefore the Trustee here, is not a proper party to assert claims of customers. In Caplin, this Court held that the Chapter X trustee of a corporation has no standing to assert claims on behalf of any particular class of creditors (there, holders of its debentures) against third parties, because fi] nowhere in the statutory scheme is there any suggestion that the trustee . . . is to assume the responsibility of suing third parties on behalf of debenture holders . . . . [ii] [the corporation] could [not] make any claim . . . [and thus] any suit by debenture holders would not affect the interests of other parties to the reorganization . . . [iii] a suit by him on behalf of debenture holders may be inconsistent with any independent actions that they might bring themselves.” 406 U.S. at 428-432. Caplin compels the conclusion here that the Trustee may not sue on behalf of any particular class of creditors of Weis, including the class specified by the Court of Appeals majority, viz., those Weis customers whose claims against Weis for their property have not been satisfied. In the first place, as in Caplin, there is no statutory authorization for any such suit. Second, any recovery by the Trustee would be on behalf of the customers only and would be of no benefit to other general creditors, since, as in Caplin, payment by Touche Ross of customers’ claims simply would subrogate Touche Ross to the customers’ claims against the Weis general estate. Third, there would be a proliferation of litigation since Weis’ customers can sue—indeed, already have sued (see pp. 31, 33 n.19, infra)—Touche Ross; the 28 Trustee may be unable to bind the customers to any settlement; and the Trustee would be inappropriate as the customers’ class representative, since he has no common interest with them and may have conflicting interests, in view of his obligatioms to general creditors and others.'* B. The Holding With Respect To SIPC Is Erroneous And Conflicts With This Court’s Decisions In Amtrak And Barbour SIPC is created by, and its powers are specified in, SIPA, which establishes a comprehensive statutory scheme for brokerage firm liquidations. Section 6(f)(1) of SIPA sets forth the subrogation rights of SIPC, as follows: ‘To the extent that moneys are advanced by SIPC to the trustee to pay the claims of customers, SIPC shall be subrogated to the claims of such customers with the rights and priorities provided in this section’’ (emphasis added). 15 U.S.C. § 78fff(f)(1). Both the Court of Appeals majority and Judge Mulligan in dissent hold that under Section 6(f)(1) SIPC, upon advancing funds to pay “claims” of customers, is subrogated only to the ‘claims’ of such customers against the Weis estate (12a-13a, 34a). In light of the comprehensive statutory scheme of SIPA, Congress clearly intended that SIPC’s express Statutory subrogation to customer “‘claims” against the “In failing to recognize that such proliferation of litigation also is unnecessary, the Court of Appeals ignored the teaching of its own earlier decision in Lank v. New York Stock Exchange, 548 F.2d 61, 67 (2d Cir. 1977), which held it impermissible for a receiver of a brokerage firm to sue where the brokerage firm could not, even though any recovery would be for the benefit of public investors, because ‘‘those investors already have a cause of action in their own right . . . and the receiver's suit would add nothing to their rights.” 29 brokerage firm’s estate be SIPC’s exclusive subrogation remedy, and that SIPC’s subrogation rights not extend to the claims of customers against third parties. See, e.g., Amtrak, supra, 414 U.S. at 458 (“when legislation expressly provides a particular remedy or remedies, courts should not expand the coverage of the statute to subsume other remedies”); Securities Investor Protection Corp. v. Barbour, supra; Rogers v. National Surety Co., 116 Neb. 170, 216 N.W. 182 (1927) (under statute establishing a “depositors guaranty fund’’, express pro- vision subrogating such fund to the rights of creditors paid by the fund to participate in the defunct bank’s assets held, under expressio unius principle, to be the fund’s exclusive subrogation remedy). Nevertheless, the Court of Appeals majority, again over Judge Mulligan’s vigorous dissent which emphasizes that SIPC is “ta congressionally created corporation with limited powers to litigate” (34a), erroneously holds that SIPC has subrogation rights beyond those expressly provided to it in Section 6(f)(1), and is thereby subro- gated also to the alleged Section 17(a) claims of the customers against Touche Ross. In so holding, the Court of Appeals majority is in conflict with this Court's decisions requiring application of the expressio unius doctrine and circumvents the intent of Congress as expressed in SIPA itself. IV The Questions Raised By This Petition Are Import- ant To The Administration of the Federal Securities Laws And Should Be Decided By This Court A. The Question of Whether Section 17(a) Creates Any Implied Right Of Action Should Be Decided By This Court The holding of the Court of Appeals majority that Section 17(a) creates an implied private right of action for brokerage firm customers who are not purchasers or 30 sellers of securities as required by Section 18(a) should be reviewed by this Court. That holding is not only erroneous, and in conflict with this Court’s controlling decisions in Amtrak, Barbour, Blue Chip Stamps and Piper and with the Third Circuit’s decision in Jn re Penn Central Securities Litigation, but also raises questions which are important to the administration of the federal securities laws, for the following reasons. 1. The majority's recognition of a new implied right of action under Section 17(a)—a right of action not heretofore perceived by any other court or litigant in the 44 years since enactment of the 1934 Act—has the serious potential for greatly expanding the volume of litigation under the 1934 Act in, and thereby further burdening, the federal courts. All customers of failed or failing brokerage firms now have, under the majority holding, a potential Section 17(a) right of action against third parties allegedly responsible for misstatements in Section 17(a) reports. The resulting likelihood of pro- liferating litigation is seen from the facts that (i) between 1970 and 1977, 128 brokerage firms have failed and been placed in SIPA liquidation, (ii) such failures, seven of which occurred in the last year alone, continue to be a fact of life in today’s mercurial and often troubled securities markets, and (iii) the total number of custom- ers of such failed brokerage firms is huge, with more than 104,000 customer claims already having been satisfied in whole or in part in SIPA liquidations as of December 31, 1977.'S That the prospect for a greatly- expanded volume of 1934 Act litigation is real, and not simply speculative, is demonstrated by the fact that on April 27, 1978, only six days after the decision of the Court of Appeals here, customers of Weis commenced in the United States District Court for the Southern District 'SSIPC SEVENTH ANNUAL Report (1977) 5-6, 28. 31 of New York a class action against Touche Ross asserting implied rights of action under, and seeking damages for alleged violations of, Section 17(a). Rosen v. Touche Ross & Co. (S.D.N.Y. 78 Civ. 1943).'° Moreover, the satisfaction of customer claims in broker- age firm liquidations does not remove—indeed, appears even to increase—the potential for 1934 Act litigation, in light of the majority's holding that SIPC, to the extent that it advances funds for payment of such claims, is subrogated to and may assert customers’ Section 17(a) rights against third parties. As of December 31, 1977, SIPC had advanced almost $54,000,000 for payment of customers’ claims (i.e., almost $40,000,000 in excess of the $14,000,000 advanced for payment of such claims in the Weis liquidation)'’—advances so substantial as to demonstrate a likelihood that SIPC will find itself compelled to assert such Section 17(a) claims. Of course, the potential for greatly-increased 1934 Act litigation is not limited to situations where the brokerage firm involved is in liquidation. Under the holding of the Court of Appeals majority, Section 17(a) claims can be asserted by customers with respect to the Section 17(a) reports of any of the over 5,000 brokers and dealers registered with the SEC. Finally, since Section 17(a) is a reporting provision, the majority's holding is authority for implying rights of action under all of the other reporting provisions of the 1934 Act in favor of persons who are not purchasers or '6Since Rosen v. Touche Ross & Co. was commenced after, and as the direct consequence of, the Court of Appeals decision, reference thereto necessarily does not appear in the record on which the decision was based. However, this Court may (and hereby is requested to) take judicial notice thereof. See, e.g., Massachusetts v. Westcott, 431 U.S. 322, 323 n.2 (1977). ‘SIPC SEVENTH ANNUAL Report (1977) 6, 28-29. 32 sellers and who therefore may not assert the express remedy provided in Section 18(a). Numerous plaintiffs already have sought to assert such implied rights in the actions, including Jn re Penn Central Securities Litigation, already cited herein (pp. 23-25, supra); and, although the efforts of such plaintiffs heretofore have been unsuccessful, the majority's holding here only can give new impetus to such efforts. 2. The majority's holding, by eliminating the purchaser-seller requirement of Section 18(a), defeats the salutary purposes of that requirement which were recognized by this Court in Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 737-749, and which led it to uphold such a requirement as necessary to avoid the ‘danger of vexatious litigation which could result from a widely expanded class of plaintiffs’. 421 U.S. at 740, 743-749; see also Santa Fe industries, Inc. v. Green, supra, 430 U.S. at 478-479. 3. This Court has noted that serious problems arise when a remedy which “would significantly broaden the class of plaintiffs who may seek to impose liability upon accountants and other experts who perform services or express Opinions with respect to matters under the [federal securities] Acts” is judicially implied, and has emphasized that ‘“‘we are not the first court to express concern that the inexorable broadening of the class of plaintiff who may sue in this area of the law will ultimately result in more harm than good”. Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 214 n.33; Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at 747-748. The substantial consequences to the accounting profession resulting from the majority's judicial creation of a remedy under Section 17(a) raise precisely those concerns of which this Court has expressed its awareness 33 t and make this case an important one which merits this Court’s review.'® 4. There is also a serious question as to the need for the majority’s holding. The claims asserted here, and the similar claims which might be asserted by any brokerage firm customer for misstatements in Section 17(a) reports, are essentially common law claims for accountants’ negligence and malpractice, which traditionally have been a concern of state law and for which state law provides appropriate remedies.'? The ‘‘federalizing” of such common law claims by means of Section 17(a), and the consequences which result therefrom, raise important questions which should be decided by this Court. 5. The majority’s holding also raises important issues of statutory construction, including whether the Court of Appeals majority has usurped the legislative function by '*This is particularly so since Section 17(a), which imposes reporting obligations on every “national securities exchange”, every “broker or dealer’ and every “registered securities association’, does not even mention accountants. Rule 17a-5(b)(1) does call for reports of financial condition required of broker-dealers to be “certified by a certified public accountant or a public accountant who shall be in fact independent”; but there is a serious question as to whether any duty thereby is placed on accountants, and if it is, whether any duty not set forth in Section 17(a) can be derived from Rule 17a-5, because it is well-established that “the language of the statute must control the interpretation of the Rule’. Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 472; see also Ernst & Ernst v. Hochfelder, supra, 425 U.S. at 214 (“[The] scope [of the rule} cannot exceed the power granted the [SEC] by Congress”’). '°The unnecessary nature of the burden placed upon the federal courts by the Second Circuit's creation of a Section 17(a) implied right of action is further demonstrated by the fact that not only do the Trustee and SIPC have eg. the State Court Action (see p. 4 and n.2), but customers of Weis also have pending New York state court actions against Touche Ross for damages allegedly resulting from Touche Ross’ certification of the Weis financial reports, Rosen v. Touche Ross & Co. (Sup. Ct. N.Y. County, Index No. 21572/77) and Rich v. Touche Ross & Co. (Sup. Ct. N.Y. County, Index No. 23193/76). 34 substituting its own judgment for that of Congress with respect to what federal damage remedies are necessary and appropriate to effectuate the purposes of Section 17(a). Cf. Lank v. New York Stock Exchange, supra, 548 F.2d at 65 (“Even were we to agree . . . that granting {plaintiff} a right of action against the Exchange would ‘accord’ with the purpose of the [1934] Act, our function here is to discern the intent of Congress, not to legislate in its place”), cited in the dissenting opinion below (33a). 6. This case also is significant because the Weis liquidation is the largest brokerage firm liquidation since the enactment of SIPA, SIPC SEvENTH ANNUAL REPORT (1977) 5-6; and, it is an important one for the litigants since it involves claims for aggregate damages of $65,000,000.” B. The Question Of Whether The Trustee And SIPC May Assert Any Section 17(a) Rights Should Be Decided By This Court The holding of the Court of Appeals majority that the Trustee and SIPC may assert, as “bailee’ and *In view of the importance of the questions raised by this Petition, the fact that the judgment sought to be reviewed is nonfinal (the Court of Appeals having reversed an order granting a Rule 12(b) motion to dismiss) should not impede the granting of certiorari. This Petition raises clear-cut issues of law which are fundamental to the further conduct of the case; reversal of the judgment would in fact terminate the action. This Court has granted certiorari in other cases which were at a similar procedural stage, where those cases raised similarly important issues affecting the administration of the federal securities laws. E.g., Blue Chip Stamps v. Manor Drug Stores, supra; United Housing Foundation, Inc. v. Forman, 421 U.S. 837 u 75); see Daniel v. International Brother- hood of Teamsters, 561 F.2d 1223 (7th Cir. 1977) (affirming district court’s denial of Rule 12(b) motion), cert. granted, 98 S. Ct. 1232 (1978); cf. Ernst & Ernst v. Hochfelder, supra (the Court of Appeals had reversed an order granting summary judgment and had remanded the action for trial). 35 “subrogee”, respectively, the Section 17(a) claims of certain Weis customers against Touche Ross also should be reviewed by this Court. That holding is erroneous, is in conflict with this Court's decisions in Caplin and Amtrak, and raises such important questions for the administration of the federal securities laws as the propriety of the assertion of customer claims against third parties by a SIPA trustee and by SIPC, and the appropriateness of permitting a SIPA trustee, SIPC and customers of a brokerage firm in liquidation all to assert simultaneously the same claims against a third party such as Touche Ross. CONCLUSION For the foregoing reasons, this petition for a writ of certiorari should be granted. August 23, 1978 Respectfully submitted, ARNOLD I. ROTH Attorney for Petitioner 575 Madison Avenue New York, New York 10022 (212) 644-7000 Of Counsel ARTHUR S. LINKER RONALD Jay LITCHMAN 4ROSENMAN COLIN FREUND LEWIS & COHEN 575 Madison Avenue New York, New York 10022 APPENDIX la Opinion of the Court of Appeals UNITED STATES COURT OF APPEALS For THE SECOND CIRCUIT Nos. 136, 144—September Term, 1977. (Argued November 14, 1977—Decided April 21, 1978.) Docket Nos. 77-7183, 77-7186 Epwarb S. REDINGTON, as Trustee for the liquidation of the business of Weis Securities, Inc., and SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiffs- Appellants, —_—V— ToucHE Ross & Co., Defendant- Appellee. Before: LUMBARD, MULLIGAN, and TIMBERS, Circuit Judges. Appeal from order of the Southern District of New York dismissing complaint. Inzer B. Wyatt, J., ruled that neither SIPC nor broker’s trustee in liquidation could maintain suit against accountant under section 17 of the Securities Exchange Act. Reversed as to both plaintiffs and remanded. James B. Kosak, Jr., New York, N. Y. (Hughes Hubbard & Reed, John S. Allee, John W. Schwartz and Harold L. Kaplan, New York, 2a New York, on the brief), for Plaintiff-Appellant Edward S. Redington, as Trustee for the liquida- tion of the business Weis Securities, Inc. CLARENCE FRIED, New York, N. Y. (Hawkins, Delafield & Wood, Philip R. Forlenza and Rafael Pastor, New York, N. Y., on the brief), for Plaintiff-Appellant Securities Investor Protec- tion Corporation. ARNOLD I. Rotu, New York, N. Y. (Rosenman Colin Freund Lewis & Cohen, Eugene Zemp DuBose, Jr. and Arthur S. Linker, New York, N. Y., on the brief), for Defendant-Appellee. PAUL Gonson, Associate General Counsel; James H. Schropp, Assistant General Counsel; Theo- dore S. Bloch, Attorney, Securities and Ex- change Commission, Washington, D. C., on the brief, Amicus Curiae. LUMBARD, Circuit Judge: In this appeal, rising out of the insolvency and liquidation of the brokerage firm of Weis Securities, Inc. [‘“Weis”’], we are presented with the question whether a private cause of action exists under section 17 of the Securities Exchange Act of 1934' against account- '15 U.S.C. § 78q (1976). This section was amended in 1975: in 1972, the date relevant to the instant case, it read, in relevant part: (a) Every national securities exchange, every member thereof, every broker or dealer who transacts a business in securities through the medium of any such member every registered securities association, and every broker or dealer registered pursuant to section 15 of this title, shall make, keep and preserve for such periods, such accounts, correspondence, memoranda, papers, books, and other records, and make such reports, as the Commission by its rules and regulations may prescribe as necessary or appropriate in the public interest or for the protection of investors. Such accounts, correspondence, memoranda, papers, books, and other records shall be subject at any time or from time to time to such reasonable periodic special, or other examinations by examiners or other representa- tives of the Commission as the Commission may deem necessary Or appropriate in the public interest or for the protection of investors. 3a ants who prepare misleading statements of a broker's financial affairs, and if so, who may maintain such an action. The district court dismissed the claims herein of the Securities Investor Protection Corp. [““SIPC’)? and of Edward S. Redington, Weis’ Trustee in Liquidation (‘“Trustee’’], believing that no claim for relief was stated because no cause of action could be implied from section 17.3 Redington v. Touche Ross & Co., 428 F. Supp. 483 (S.D.N.Y. 1977). We conclude that customers of a broker have a right of action against an accountant whose audits of the brokerage firm are false or mislead- ing. Because we believe that SIPC and the Trustee are appropriate parties to seek (between them) total recov- ery of the customers’ damages, we reverse and remand. I Touche Ross & Co. [‘‘Touche Ross’’] served as Weis’ independent certified public accounting firm from 1969 to 1973. In that capacity, Touche Ross prepared annual audits of Weis’ affairs as required by section 17 and regulations thereunder. The complaint herein alleged that during fiscal 1972, certain of Weis’ officers conceived and executed a scheme to conceal from the regulatory authorities and 2SIPC was created by the Securities Investor Protection Act of 1970, Pub. L. No. 91-598, 91st Cong., 2d Sess., 34 Stat. 1636, codified at 15 U.S.C. §§ 78aaa-78lll (1976). 3Our decision in this case has been materially aided by the brief amicus curiae submitted on — by the SEC. Judge Wyatt did not have the advantage of the SEC's position in this matter. Judge Wyatt also dismissed, for lack of subject matter jurisdic- tion, five state common-law claims which the Trustee had sought to bring under principles of plenary ers weg! or pendent jurisdic- tion, and four state common-law claims by SIPC, with respect to which diversity of citizenship had been alleged. Judge Wyatt ruled that SIPC was not a District of Columbia corporation for purposes of jurisdiction, and that complete diversity did not exist. Because of the view we take of the case, we need express no opinion as to the scope of bankruptcy jurisdiction in SIPA-receivership cases, nor as to the citizenship of SIPC. 4a the public Weis’ dire financial condition.* The elements of this scheme appear in great detail in the complaint; for example, although Weis had suffered a loss for fiscal 1972 of greater than $1.5 million, its pre-tax earnings for that year were stated as being around $1.7 million. When Weis’ fiscal 1972 ended on May 26, 1972, Touche Ross proceeded to prepare and certify Weis’ financial statements, and to answer the financial ques- tionnaire required by the New York Stock Exchange of its member firms. In four opinion letters, dated July 7, July 7, July 21 and July 21 (all of 1972), Touche Ross represented that it had examined (i) the statement of Weis’ current financial condition; (ii) Weis’ answers to the financial questionnaire; (iii) Weis’ consolidated bal!- ance sheet for the past year; and (iv) Weis’ consolidated statement of earnings for the past five years, and found that each presented fairly and accurately the financial picture of Weis, in conformity with generally accepted accounting procedures. In fact, Weis’ financial condition was not as stated in the above four documents, but was far more precarious. As no steps were taken to attempt to remedy Weis’ Situation, it continued to deteriorate.’ On May 24, 1973, the SEC sought an injunction preventing Weis and its officers from continuing to violate the ’34 Act, and SIPC applied for a decree, pursuant to 15 U.S.C. § 78eee(a)(2), adjudging Weis’ customers in need of protection under SIPA. Accordingly, Weis’ liquidation was ordered by (then) District Judge Gurfein on May 30, ‘In this posture of the case, we take—as we must—that view of Dy hopin — “yy 2 —— treating as true the allegations e complaint. See Escalera v. New York Housing Auth., 4 ‘ 853, 857 bd Cir. 1970). exedon ition *Plaintiffs contend that the misleading statements certified by Touche Ross were the direct cause of the failure to take an remedial action, such as the infusion of capital or merger with another firm. Thus, they assert, Touche Ross’ dereliction substan- tially contributed to Weis’ forced liquidation and plaintiffs’ losses. ae contentions will be discussed more thoroughly in the body of € opinion. Sa 1973, and Edward Redington was appointed Trustee for the liquidation. SIPC and the Trustee jointly began an action against Touche Ross in New York state court on July 3, 1975. Redington v. Touche Ross & Co., No. 13996/76 (Sup. Ct. N. Y. County). The common allegations of the plaintiffs in the state court complaint were the same as those in the instant case, except that three paragraphs dealing with claims under section 17 of the °34 Act were omitted. Five of the Trustee’s six present “causes of action” appear in identical form in the state action, as do four of SIPC’s eight present claims. The additional claims in this action are the federal securities law claims. The instant suit was commenced on April 30, 1976. Under federal law and state common law, SIPC seeks to recover $14 million, either as subrogee of Weis’ custom- ers whose claims it has paid under SIPA, or as a member of the group directly injured by Touche Ross’ delicts. Likewise under federal law and state common law, the Trustee is claiming $51 million; he contends that he may recover either by standing in the shoes of Weis’ customers, since under SIPA, his is the responsibility to marshal and return their property,° or by standing in the shoes of Weis itself, since, he alleges, Weis—as an entity distinct from its conniving officers—was directly dam- aged by Touche Ross’ unsatisfactory audit. SIPC and the Trustee appeal from Judge Wyatt's order dismissing the complaint for failure to state a claim on which relief could be granted (with respect to the section 17 counts). Touche Ross asks us, in the event we reverse, to stay the federal action in favor of the state °Property. on hand when Weis was liquidated permitted the Trustee to return to customers 67% of the property they should have received. In addition, SIPC paid out some $14 million to customers and other creditors. Since under 15 U.S.C. § 78fff (1976), accounts are protected only up to $20,000 in cash and $50,000 in cash and securities, there may remain customers with uncompen- sated losses, who therefore retain claims against those who caused their losses. It is these claims that we hold the Trustee may assert. See part III B infra. 6a court suit.’ This last issue, evidently, is one which Judge Wyatt has never had cause to consider. II The first question we address is whether customers of a brokerage firm are given any remedy by the °34 Act against accountants whose section 17 reports are false or misleading. There are two major considerations involved in this decision: the criteria laid down by the Supreme Court in Cort v. Ash, 422 U.S. 66 (1975), for finding an implied right of action in a statute which is silent on the issue; and the ‘purchase or sale’’ requirement reaffirmed by the Court in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). One preliminary matter must be dealt with. Judge Wyatt held that section 17 “was designed to supply administrative guidance in the bookkeeping area and not to create rights in anybody,’ and that it “‘does not impose any duty on accountants.” 428 F. Supp. at 489, 491. We believe that, even if no right of action were implied, to see nothing but “administrative guidance”’ in a provision as crucial to the regulation of brokers as section 17 is to take far too narrow a view of the statute. Certified public accountants play a significant role in the scheme created by the °34 Act for the regulation of securities trading, as is recognized by the regulations promulgated by the SEC.* See, eg., 17 C.F.R. § 240.17a-5(b), (f), (g), (h), (i), (m). It is well estab- lished that section 10(b) of the ’*34 Act and rule 10b-5 ’Plaintiffs aver that the state court action was commenced first only in a highly technical sense. It was begun by service of a summons without complaint (the complaint was not served uniil after the filing of the federal complaint), and then apparently ignored for some months by mutual consent. The parties agree that the state suit has progressed to the extent of responses by each plaintiff to one set of defendant’s interrogatories. *For a discussion of the functions and duties of accountants in this context, see In re Touche, Niven, Bailey & Smart, 37 S.E.C. 629, 5 Fed. Sec. L. Rep. (CCH 972,100, at 62,212 (1957); Note, Accountants’ Liability for False and Misleading Financial Statements, 67 Colum. L. Rev. 1473 (1967). 7a thereunder impose a duty on accountants, for breach of which they may be sued. See Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). We hold that section 17 of the ’34 Act likewise imposes a duty on account- ants. A The factors cited in Cort v. Ash, supra, 422 US. at 78, familiar through much repetition, which bear on the propriety of finding an implied right of action in a statute are: 1) Whether plaintiffs belong to the class for whose special benefit the statute was enacted; 2) Whether there is any indication of legislative intent on the issue; 3) Whether implication of a right of action is consistent with the policies behind the legislative scheme; and 4) Whether the cause of action in question is one traditionally relegated to state law. A consideration of these four factors convinces us that implication of a right of action in favor of Weis’ customers is appropriate. 1. The language of section 17, the SEC rules in the 17a-5 series, and an analysis of the role played by accountants’ reports in the regulation of brokers make clear the extent to which Weis’ customers are members of a class peculiarily protected by section 17. The documents and reports that the SEC is empow- ered to require of brokers must be “necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78q(a) (emphasis added). The 8a same is true of the examinations that the SEC is empowered to conduct. /d.° In order to provide a complete and accurate picture of a broker's financial condition, the SEC requires that the broker enlist an independent accountant to audit and certify its statements, list any matters to which the accountant takes exception, and provide certain addi- tional financial data. Rule 17a-5(b), (i) (k). Further- more, a notice of any “material inadequacies” found by the accountant in the broker’s procedures must be sent to the broker’s customers. Rule 17a-5(m)(3).'° The function of this arsenal of financial reports is to protect the broker’s customers. One of the main methods adopted by the SEC to shield customers is the net capital rule, in either the form promulgated by the SEC, rule 15c3-1, or the stricter version enforced by the New York Stock Exchange, Exchange Rule 325. The net capital rule is a requirement that a broker maintain a certain minimum ratio of liquid assets to aggregate indebtedness; its ‘principal purpose . . . is to require that the capital position of a broker .. . will always be sufficiently liquid to cover his current indebt- edness, in order to be able at all times to promptly meet [sic] the demands of customers.” Exchange Act Release No. 8024, 6 Fed. Sec. L. Rep. (CCH) § 72,129 (1967). As amended in order to take into account the creation of SIPC, the rule serves particularly to “protect customezs prior to the time when the broker’s . . . assets would be sufficient to satisfy customers in the event of liquida- °In 1957, when the SEC expanded certification requirements for section 17 reports, that step represented the Commission’s considered view that certification and —— requirements constituted a valuable aggro tool for the protection of a customer in respect of the risks involved in leaving his money and securities with his broker-dealer. SEC, Study of Unsafe and Unsound Practices of Brokers and Dealers, H. Doc. No. 92-231, 92d Cong., 1st Sess., at 24 (1971). '°Citations to rule 17a-5 are to 17 C.F.R. § 240.17a-5 as it existed in 1972. Rule 17a-5(j)-(0) were adopted on June 30, 1972, and appear in the Federal Register for July 21, 1972. 9a tion.” Exchange Act Release No. 11,497, [1975-76 Transfer Binder] Fed. Sec. L. Rep. (CCH) § 80,212. It is the reporting system created by section 17 that provides the SEC and other regulatory authorities with the information needed te enforce the net capital rule. Thus, a failure to supply accurate reports will leave the customers without protection until the broker's insol- vency can no longer be concealed, and liquidation follows. 2. We find no indication, either in the statute itself or in its legislative history, of any congressional intent either to create a private remedy under section 17 or to deny one."! The legislative history of the section is mute on the issue, leading to the conclusion that Congress never explicitly considered the question. Nor can it be said that Congress implicitly chose to deny a private right of action; section 17 is distinctly different in an important respect from statutes as to which such implicit intent has been found. In SIPC v. Barbour, 421 U.S. 412 (1975), the Supreme Court noted that SIPA manifested a specific legislative intent to restrict enforcement to the SEC. /d. at 420, 425. In National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 458 (1974), a similar exclusivity was found to rest with the Attorney General; in Cort v. Ash itself, supra, 422 U.S. at 74-76, the Federal Election Commission was held to be the agency charged with exclusive enforce- ment. We have recently indicated that an intent to commit enforcement of the securities statutes exclusively to the SEC will not readily be implied. Abrahamson v. Fleschner, 568 F.2d 862, 874 n.19 (2d Cir. 1977). "To the extent that the court below relied on the remedy created by section 18 of the "34 Act as evidence of a legislative intent to deny a private remedy for violations of section 17, its concerns will be treated in part II B infra. 10a Nothing in section 17 induces us to treat it as an exception to this rule. 3. ‘“‘Absent specific statements of legislative intent, we must examine the legislative purposes underlying the Act.” Abrahamson v. Fleschner, supra, 568 F.2d at 874, conclude that a private right of action under section 17 is consistent with those purposes. A partial list of the many sections of the securities acts under which private remedies have been implied appears in Franklin National Bank v. L. B. Meadows & Co., 318 F. Supp. 1339, 1341-42 (E.D.N.Y. 1970). See III L. Loss, Securities Regulation 1785 (2d ed. 1961). At least since J. J. Case Co. v. Borak, 377 U.S. 426 (1964) (section 14(a)), it has been accepted in securities law that when a statutory provision imposes a duty on someone in favor of a class of protected persons; those persons may sue for the ‘statutory tort’ committed when the duty is breached. We have held that section 17 imposes a duty on accountants in favor of brokers’ customers. We note that—just as in Borak—the SEC was not meant to, and does not have the resources to examine and audit all the documents that it receives (in Borak, proxy statements; here, section 17 reports).'? Both it and SIPC, as well as the broker's customers must rely on the certification by the accountants. Neither SEC injunctive actions nor criminal prosecu- tions will restore to customers the money they have lost. Indeed, the cases cited by Judge Wyatt in support of the proposition that there exists injunctive and criminal relief for violations of section 17 do not involve '2In its amicus brief, the SEC advises us that, in fiscal 1976, over 5000 brokers and dealers were registered with it; that each of the approximately 750 broker-dealers that are not members of self- regulating organizations must be audited annually, as must the 500 or sO against whom complaints are lodged; and that this leaves the SEC able to examine each year the statements of only 5% of broker-dealers who are apparently untroubled members of self- regulatory organizations. lla accountants. See 428 F. Supp. at 490, and cases cited. Accordingly, we rule that a private remedy is an essential supplement to the scheme of enforcement of section 17. 4. Finally, it is evident that just as the problems caused by insolvent brokers are national in scope, so must be the standards governing their reporting. Section 17 is part of a statute as to which federal courts have exclusive jurisdiction; state law protection of brokers’ customers varies widely. There is no reason to believe that the remedy sought herein is one traditionally relegated to state law. B The court below found a particularly high barrier to plaintiffs in section 18 and the judicially created purchaser-seller doctrine. 428 F. Supp. at 489-90. Section 18 creates private remedy for “misleading statements” in “any application, report, or document filed pursuant to this chapter,” in favor of “‘any person ... Who... shall have purchased or sold a security at a price which was affected by such statement... .” 15 U.S.C. § 78r. Applying this language, and the holding of Blue Chip Stamps, supra, 421 U.S. at 736, Judge Wyatt ruled that the remedy provided by section 18 was exclusive, and that thus no remedy existed for brokers’ customers injured as a result of an accountant’s misleading state- ments, absent a purchase or sale of an affected security. We disagree. Since any misstatement in a section 17 report would not affect the price of the shares of the various issuers in the hands of a broker’s customers, a strict application of section 18’s limiting language would leave customers without any remedy whatsoever, no matter how egregi- ous the fraud or how grievous their loss. Yet it is plain that brokers’ customers are favored wards of section 17. We cannot agree that Congress simultaneously sought to protect a class and deprived the class of the means of protection. 12a Our holding is not inconsistent with either the purchaser-seller limitation or section 18, which will continue to apply to all investors in market securities who seek relief qua investors. That is, the Blue Chip doctrine would bar a suit by an investor who claimed to have been induced not to purchase or sell by a misstatement. We do not believe, however, that the doctrine applies to brokers’ customers, protection of whom is wholly independent of protection of investors per se. Ill In light of the foregoing analysis, we decide that brokers’ customers have a right of action against accoun- tants for certifications that violate the standard set by section 17 and rule 17a-5. This does not, however, resolve the question whether the plaintiffs in the instant case, SIPC and the Trustee, are proper parties to bring the action. A SIPC asserts a right to bring this action both in its own right and as subrogee of the customers whose claims it has paid. We hold that SIPC may maintain the action as subrogee.'* SIPA provides expressly that SIPC, upon reimbursing a customer’s losses, shall be subrogated to that customers claims against the debtor's (here Weis’) '*We need not reach the question whether SIPC could ever have a claim for damages other than on behalf of a broker’s customers; we only note that as the creature of a 1970 statute, SIPC can hardly claim to have been a specially protected beneficiary of the ’34 Act. SIPC makes much of 15 U.S.C. § 78bbb (1976), which treats SIPA as if it “constituted an amendment to, and was included as a section of” the °34 Act. Nonetheless, it is indisputable that SIPC is not the kind of entity Congress sought to protect either in 1934 or in 1970; the cited omar of the 1970 statute appears to do no more than indicate that, ry where specifically provided otherwise, any prong ge by SIPA is supplemental to the preexisting remedies of the ’ ct. 13a estate. 15 U.S.C. § 78fff(f)(1). Touche Ross contends that SIPC’s statutory right of subrogation against the debtor’s estate is. its exclusive remedy, precluding any rights against third parties such as Touche Ross. We disagree. Section 78fff is a detailed blueprint for the distribu- tion of the liquidated debtor’s estate, and it is to be expected that SIPC’s rights against the estate would be included in that section. However, there is no reason to believe that this was meant to destroy SIPC’s general common-law right of equitable subrogation. [T]he general rule is that upon payment of a loss the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against a third person whose negligence or wrongful act caused the loss. 31 N.Y. Jur., Insurance § 1620, at 510. See Ackerman v. Motor Vehicle Accident Indemnification Corp., 18 App. Div. 2d 307,.239 N.Y.S.2d 463 (1st Dept. 1963) (explicit statutory provision did not destroy MVAIC’s broader common-law right to subrogation). Moreover, we believe that it is more in keeping with the intent of Congress that wrongdoers not receive a windfall benefit from the existence of SIPC, and that SIPC be able to recoup its losses from solvent wrong- doers. Accordingly, we find that SIPC is subrogated to the right of action implied in section 17 in favor of brokers’ customers against third parties such as account- ants. See SEC v. Albert Maguire Securities Co., [Current] Fed. Sec. L. Rep. (CCH) {| 96,129, at 92,076 (3d Cir. July 27, 1977). B The Trustee contends that he is a proper plaintiff herein, both as the representative of Weis’ estate and as bailee of Weis’ customers’ property. We hold that he may maintain this action on behalf of such customers as have not been fully reimbursed by SIPC. 14a The barriers to a right of action on Weis’ behalf are insurmountable. It is apparent that brokers, such as Weis, were not included in the class of those protected by section 17; indeed, brokers are the very entities regulated by section 17. Two recent cases in point are Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (1977), and Lank v. New York Stock Exchange, 548 F.2d 61 (2d Cir. 1977). In each, a member of the class sought to be regulated by Congress attempted to claim the benefit of an implied right of action under the very statute that regulated it. Chris-Craft held that a defeated tender offeror could not enforce the Williams Act, 15 U.S.C. § 780(e), against a successful tender offeror, because ‘‘a party whose .. . conduct was purposefully brought under federal control by the statute . . . can scarcely lay claim to the status of ‘beneficiary whom Congress considered in need of protection.” 430 U.S. at 37. In Lank, we decided, in a case not unlike the instant case, that the receiver of a liquidated brokerage firm could not—because the firm itself could not—sue a securities exchange for failure to force the firm to comply with the exchange’s rules. We pointed out that the ’34 Act did not afford protection ‘‘to the very members of the stock exchanges whose conduct was being regu- lated.” 548 F.2d at 66. The extent to which Lank parallels the instant case precludes our holding that the Trustee may maintain this action on Weis’ behalf. However, none of the above considerations apply to an action brought by the Trustee as bailee of the property of Weis’ customers. He is responsible for marshalling and returning their property; to the extent that he is unable to do so, he argues, he may sue on behalf of the customer/bailors ony wrongdoer whom they could sue themselves. Rule 17(a) of the Federal Rules of Civil Procedure reads, in part: “[A] ... bailee . . . may sue in his own name without joining with him the party for whose 15a benefit the action is brought. . . .’ The Advisory Committee Notes to this section, added in 1966,'* point out by way of illustration that the ‘‘owner of a warehouse in which household furniture is stored is equally entitled to sue on behalf of the numerous owners of the furniture stored.” 39 F.R.D. 69, 85 (1966). See generally 5 N.Y.Jur., Bailments §§ 118, 119. To the extent that customers have claims that have not been satisfied either by Weis in liquidation, see note 6 supra, or by SIPC, they retain rights of action against Touche Ross. We hold that the Trustee, as bailee, is an appropriate real party in interest to maintain this action on their behalf. IV Since we hold that both SIPC and the Trustee may maintain this action against Touche Ross, we remand to the district court for further proceedings consistent with this opinion. We leave to it in the first instance a number of questions that will now arise: whether to stay the federal action pending determination of the state action;'* whether to exercise pendent jurisdiction over the plaintiffs’ common-law claims; and what the appro- priate standard is for accountant liability in actions under section 17, cf. Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). Reversed and remanded. “The purpose of the 1966 amendment was “‘[to] add to the illustrative list of real parties in interest a bailee—meaning, of course, a bailee suing on behalf of the bailor with respect to the property bailed.” 39 F.R.D. 69, 84 (1966). 'SIn Weiner v. Shearson, Hammill & Co., 521 F.2d 817 (9th Cir. 1975), the court of ap als chose to remand the question of a stay to the district court, despite its thorough discussion of the factors involved in the determination of the question. 16a TimBerS, Circuit Judge, concurring: I concur in all respects in Judge Lumbard’s clear, concise and, in my view, correct majority opinion. In view of the characteristically thoughtful and earnest dissent of our Brother Mulligan, however, I should like to add a few words, partly to supplement Judge Lumbard’s opinion, but chiefly to suggest that Judge Mulligan’s dissent be read in the light of the following observations. First, in urging that customers of a broker-dealer in liquidation have no implied right of action for damages under Section 17 of the Exchange Act against accoun- tants who prepare false or misleading reports required by that statute, the dissent understandably is disturbed by the unanimous opinion in Cort v. Ash, 422 U.S. 66, 78 (1975), as recently reaffirmed in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 37-45 (1977). Granted that the dissent’s massive effort to distinguish or to apply a gloss to Ash is an artful attempt to circumvent this key decision, I fear that our dissenting colleague has misap- prehended the essential purpose of Ash in stating certain factors to be taken into consideration in determining whether to imply a right of action under a given statute. The dissent at the outset, post, at , emphasizes that Ash is not relevant to a case which arises under a statute which expressly provides for a private right of action. This overlooks the fact that the Supreme Court specifically applied the Ash analysis in Piper, supra, 430 U.S. at 37-41, in determining whether a private remedy was implicit in Section 14(e) of the same statute with which we are here concerned, i.e. the Exchange Act. Assuming that what the dissent intends te emphasize, post, at , is that Ash does not apply when an express remedy is provided for the specific wrong complained of, it must be remembered that the Court reaffirmed the implication of a private fight of action under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated 17a thereunder in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730 (1975), despite the absence of legislative history on the subject, id. at 737, much less “clear contrary evidence of legislative intent.” Post, at ; Second, the dissent’s displeasure with J. J. Case Co. v. Borak, 377 U.S. 426 (1964), likewise is understand- able. This seminal opinion written by the late Mr. Justice Tom Clark for a unanimous Supreme Court, in holding that Section 27 of the Exchange Act provided the jurisdictional underpinning for an implied private right of action for damages (as well as for declaratory and equitable relief) arising from violations of Section 14(a) of the Exchange Act, id. at 430-35, expressly recognized that “Private enforcement of [Commission rules] pro- vides a necessary supplement to Commission action’, id. at 432, and, that “‘[I]t is the duty of the courts to be alert to provide such remedies as are necessary to make effective the congressional purpose.” Jd. at 433. Despite our Brother Mulligan’s herculean effort in dissent to buttress his assertion that Borak ‘“‘has been significantly restricted by more recent decisions of the Supreme Court’, post, at , those decisions strike me as expressly and emphatically reaffirming the Borak rule'—as Mr. Justice Stevens stated in Piper, supra, 430 U.S. at 67, ““Borak remains a viable precedent.” Third, the dissent speaks disparagingly of the SEC amicus brief. Post, at 2725 n.1. As Judge Lumbard correctly points out, ante, at 2707 n.3, we were aided materially by the SEC brief, whereas the district court did not have the advantage of knowing of the SEC's position. Here again, our Brother Mulligan’s attempt to disparage the SEC brief is understandable, for it urges forcefully and cogently that SIPC should be permitted to assert a private right of action under Section 17 of the 'For example, in Piper, supra, 430 U.S. at 25, Chief Justice Burger stated: “This Court has nonetheless held that in some circumstances a private cause of action can be implied with respect to the 18a Exchange Act under the circumstances of this case. But far more basic than whether the SEC as amicus supports Or opposes one side or the other in litigation under the federal securities laws, is that the position of the SEC should be known to the court. That is the point of Judge Lumbard’s observation referred to above. And it is especially important in a case of first impression such as the instant one involving a statute under which Congress has imposed on the Commission specific responsibilities.’ Wholly aside from the instant case—where I find the 1934 Act’s antifraud provisions, even though the relevant peri are silent as to remedies. J. J. Case Co. v. Borak, 77 U.S. 426 (1964) (§14(a)); Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 13 n. 9 (1971) (410(b)).” In SIPC v. Barbour, 421 U.S. 412, 417 (1975), referring to Borak, Mr. Justice Marshall summarized its holding: “In light of the ‘broad remedial purposes’ of the Act and the SEC's representation that private enforcement was necessary to effectuate those purposes, the Court held that the action for damages could maintained.” And in Blue Chip Stamps, supra, 421 U.S. at 730, after summarizing the 25 year development of the decisional law that there is an implied private right of action under Rule 10b-5, Mr. Justice Rehnquist, referred to Borak as follows: “Such a conclusion was, of course, entirely consistent with the Court’s recognition in J. J. Case Co. v. Borak, 377 U.S. 426, 432 (1964), that private enforcement of Commission rules may ‘[provide] a necessary supplement to Commission action.’”’ These decisions do not strike me as significantly “restricting” Borak; rather, they seem quite clearly to reaffirm Borak as a “viable precedent’, each case turning of course on the particular statute or rule under consideration. *Section 7 of SIPA, 15 U.S.C. §78ggg (1976). See SIPC v. Barbour, supra, 421 US. at 417. The SEC cogently summarizes in its brief filed in our Court its interest in the instant appeal as follows: “The Commission ctfully submits this brief as amicus curiae because this appeal raises significant issues which could materially affect its administration of the federal securities laws. We believe . . . that permitting a private right of action under Section 17 of the Securities Exchange Act will provide a necessary supplement to the Commission’s efforts to enforce that section and the rules and regulations thereunder. In addition, financial statements submitted by broker-dealers 19a SEC amicus brief to measure up to the Commission’s high standard of competence and fairness—I do hope that our Brother Mulligan’s disparagement of the SEC amicus brief will not be construed as a judicial signal, even in dissent, that the Commission should retreat to its position of a generation ago which drew sharp criticism from our Court. Compare Blau v. Mission Corp., 212 F.2d 77, 81 (2 Cir.), cert. denied, 347 U.S. 1016 (1954), and Roberts v. Eaton, 212 F.2d 82, 84 (2 Cir.), cert. denied, 348 U.S. 827 (1954), with Studebaker v. Gittlin, 360 F.2d 692, 695 (2 Cir. 1966), and Greene v. Dietz, 247 F.2d 689, 695-98 (2 Cir. 1957) (concurring and dissenting opinions; per curiam opinion on rehearing). See Some Practical Aspects: The SEC and The Federal Judiciary, 41 A.B.A.J. 1136, 1137-38 (1955).? pursuant to the Act play a key role in the Commission’s administration and enforcement of various statutory provi- sions designed to protect against loss of the funds and securities of customers of broker-dealers and to maintain confidence in the securities markets at a high level. The availability of a right of action under Section 17 will thus have a direct bearing on the overall effectiveness of such Statutory and regulatory provisions as those regarding hypothecation and segregation of securities and cash, and the net capital rule, designed to ensure the ability of brokers to meet their financial obligations as custodians of customer property. In addition, the Commission has ‘plenary authority’ with respect to the operations of the Securties Investor Protection Corporation, and is therefore concerned that SIPC have the ability to recover funds needlessly expended due to the wrongful acts of others, thus ging the funds available to compensate losses suffered by the customers of brokers.” (footnotes omitted). SEC Amicus Curiae Brief, filed August 31, 1977, at 3-4. *I am pleased to note that, in response to my concurring opinion, Judge Mulligan very commendably has disclaimed ary intention to disparage the SEC amicus brief below, n.1, last paragraph. This refiects the good judgment and fairness for which our distinguished colleague is well known. As a former Dean of the Fordham Law School, I think that Judge Mulligan would join in taking judicial notice of one of the leading expositions of the history and functions of the amicus curiae through centuries of development of the law. Beckwith and Sobernheim, Amicus Curiae—MiInisTER OF JUSTICE. 17 Fordham Law Review 38 (1948). 20a Accordingly, after carefully considering Judge Mulligan’s dissenting opinion, especially in the light of the observations set forth above, I concur without qualification in Judge Lumbard’s majority opinion. MULLIGAN, Circuit Judge (dissenting): In my view this case was properly decided by Judge Wyatt and the order and judgment dismissing the complaint should be affirmed.' The majority announces that “‘[a]t least since J. J. Case Co. v. Borak, 377 US. 426 (1964) .. . it has been accepted in securities law that when a statutory provision imposes a duty on someone in favor of a class of protected persons, those persons may sue for the ‘statutory tort’ committed when the duty is breached.” Majority opinion at 2715. The Borak rule, which liberally implied private actions in federal regula- tory acts on a statutory tort theory, has been significantly restricted by more recent decisions of the Supreme Court which are misapplied by the majority opinion.’ 'The majority comments in footnote 3 that its decision has been materially aided by the brief amicus curiae submitted on appeal by the SEC and that Judge Wyatt did not have the advantage of the SEC's position in this matter. The Supreme Court, however, in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1. 41 n.27 (1977) observed that “. . . its [the SEC's] ‘expertise’ in the securities-law field is of limited value when the narrow legal issue is one peculiarly reserved for judicial resolution, namely whether a cause of action should be implied by judicial interpretation in favor of a particular class of litigants.” That, of course, is the principal issue in this case as well. It should also be added that a substantial part of the SEC brief is devoted to the argument that SIPC in its own me may assert a private right of action for violations of section 17 of the °34 Act. This proposition was not only rejected below but was repudiated by the majority in its footnote 13. I do not “disparage”, as my Brother Timbers would have it, the brief of the SEC. I simply do not agree with it—neither does the majority, at least to the extent I have indicated. Nor do I dispute the propriety of its submission. I cannot believe that disagreement with the opinions of any agency can sensibly discourage the filing of a brief expressing its views as amicus curiae (sed non parens curiae). It remains the function of the bench to construe the law as best it can even though that involves on occasion disagreement with one’s colleagues or even an agency. ?These decisions discussed in the text, infra, include Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (1977), Cort v. Ash, 422 21a While the majority purports to consider the factors set forth in Cort v. Ash, 422 U.S. 66 (1975), it must be emphasized that Justice Brennan in his opinion in Cort carefully restricted their application: “‘In determining whether a private remedy is implicit in a statute not expressly providing one, several factors are relevant.” 422 U.S. at 78 (emphasis supplied). In Piper v. Chris-Craft Industries, Inc., -'30 U.S. 1, 37 (1977) Chief Justice Burger's opinion similarly confined the Cort factors, noting that they are “ ‘relevant’ in determining whether a private remedy is implicit in a statute not expressly providing one.” (Emphasis supplied). In the instant case, however, we are confronted with a statute for which Congress has clearly provided a remedy in the event of certain violations. Admittedly, section 17(a), set forth in footnote 1 of the majority opinion, does not itself include any private remedy for an infraction of its terms. It simply requires that brokers or dealers such as Weis, make, keep and preserve records and make such reports as the SEC may prescribe by its rules and regulations in the interest of the public and for the protection of investors. Other comparable sections of the °34 Act (the Act) also provide for the filing of reports. See sections 13(a), 15 U.S.C.§ 78m(a); 13(d), 15 U.S.C.§ 78m(d); 13(f), 15 U.S.C. § 78m(f); and 15 U.S. 66 (1975); Securities Investor Protection Corp. v. Barbour, 421 U.S. 412 (1975); National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453 (1974) (Amtrak); see Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). Numerous commentators have acknowledged the substantial retreat from Borak represented by these subsequent Supreme Court rulings. E.g., Climan, Civil Liability Under the Credit-Regulation Provisions of the Securities Exchange Act of 1934, 63 Cornell L. Rev. 206, 261-69 (1978); Comment, Implying Private Causes of Action From Federal Statutes: Amtrak and Cort Apply the Brakes, 17 B.C. Ind. & Com. L. Rev. 53, 64 (1975); Comment, Private Rights of Action Under Amtrak and Ash: Some Implications for Implication, 123 U. Pa. L. Rev. 1392, 1416 (1975); Note, Implication of Private Actions from Federal Statutes: From Borak G97T} 1 J. Corp. Law 371 (1976); 30 Vand. L. Rev. 905, 908-10 22a (a), 15 U.S.C.§ 780(d). Like section 17(a), these sections include in their text no provisions for a private remedy. Section 17 is immediately followed, however, by section 18(a), 15 U.S.C. § 78r(a), entitled “Liability for Misleading Statements” which does provide an express private remedy for violation of the reporting provisions of the Act. It states: Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to [the *34 Act] or any rule or regulation thereunder . . . , which statement was... false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance unless the person sued shall prove that he acted in good faith and had no knowledge that such statemen was false or misleading. (Emphasis supplied). Section 18(a) follows upon the heels of section 17. Its subject matter covers reports or documents filed pur- suant to the ’34 Act and regulations promulgated thereunder. ‘hus, Judge Wyatt correctly found and, indeed, common sense would dictate, that section 18(a) expressly provides the sole private remedy which Con- gress intended to be available for a violation of section 17(a) and the other reporting sections of the ’34 Act. Furthermore, most courts which have considered the issue have found section 18(a) to contain the only remedy for violation of the Act’s reporting sections.’ *Meer v. United Brands Co.,{1976-77 Transfer Binder] CCH Fed. Sec. L. Rep. 995,648 at p. 90,213 (S.D.N.Y. 1976); d [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1582%3A01. Public record. Not legal advice.