petitioners supplemantal brief — Transamerica Mortgage Advisors, Inc. v. Lewis

FOR ARGUMENT.

Supreme Court, US

i

Pike D

icili

SEP 21 1979

In the Supreme ——

ICHAEL RODAK, JR., CLERK

| 2

OF THE

United States

-

Ocroser Term, 1977

No. 77-1645

TRANSAMERICA MortcacE Apvisors, Inc. (Tama); Kent L. Cot-

WELL; J. WENDELL Coops; JoHN R. JENSEN; RALPH D. WENGER;

Joun Havens; TRANSAMERICA CoRPORATION; TRANSAMERICA LAND

Capita, INC.; AND MorTGAGE TRUST OF AMERICA,

Petitioners,

V.

Harry Lewis

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SUPPLEMENTAL BRIEF FOR PETITIONERS :

Joun M. ANDERSON

Counsel for Petitioners

450 Pacific Avenue

San Francisco, California 94133

Telephone: (415) 788-5000

Of Counsel

Bruce W. HyMANn

LANDELS, RrpLey & DiaMonp

Counsel for Petitioners,

Transamerica Mortgage

Advisors, Inc. (TAMA)

Kent L. Colwell

John R. Jensen

Ralph D. Wenger

(continued )

September 19, 1979

BOWNE-PERNAU WALSH ¢ 1045 SANSOME ST. ¢ S.F., CA 94111 © (415) 981-7882

R. Barry CHURTON

New. L. SHapmo

Cooper, Wurre & CooPer

San Francisco, California

Counsel for Petitioner,

John Havens

JoserH Marti, Jr.

Perrir & MARTIN

San Francisco, California

Counsel for Petitioners,

Transamerica Corporation

Transamerica Land Capital, Inc.

JeroME I. BrauN

Jon F. Hartunc

FARELLA, BRAUN & MARTEL

San Francisco, California

Counsel for Petitioner,

Mortgage Trust of America

In the Supreme Court

OF THE

United States

OcroBER TERM, 1977

No. 77-1645

TRANSAMERICA MoriGAGE Apvisors, INc. (TAMA); Kent L. CoL-

WELL; J. WENDELL CooMBs; JOHN R. JENSEN; RALPH D. WENGER;

Joun Havens; TRANSAMERICA CORPORATION; TRANSAMERICA LAND

CaprraL, INC.; AND MORTGAGE TRUST OF AMERICA,

Petitioners,

Vv.

Harry Lewis

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

SUPPLEMENTAL BRIEF FOR PETITIONERS

INTRODUCTION

This brief supplements petitioners’ two earlier briefs

and is filed pursuant to Rule 41(5) of the Rules of the Su-

preme Court of the United States.

This brief discusses recent authorities and whether this

Court should distinguish between legal and equitable rights

of action, a question presented during initial argument.’

ARGUMENT

1. Two Recent Decisions of This Court Belie Implication

of a Private Right of Action Under the Investment

Advisers Act.

In the six months since first hearing oral argument in

this case, this Court has rendered decisions in two cases

that are especially relevant here.

In Touche Ross & Co. v. Redington, ...... U8. ...4

S.Ct. 2479 (1979), this Court held that Section 17(a) of the

Securities Exchange Act of 1934 does not afford a private

right of action. In Cannon v. University of Chicago, ......

US. ......, 99 S.Ct. 1946 (1979), this Court held that a pri-

vate litigant may sue to enforce the anti-discrimination

provisions of the Education Amendments of 1972.

We do not think it necessary to argue at length the sig-

nificance of Touche Ross or Cannon. But as we hope to

explain briefly, both Touche Ross and Cannon refute re-

spondent’s contention that Section 206 of the Investment

Advisers Act authorizes a private right of action.

1See, Tr. of oral argument, Transamerica Mortgage Advisors, Inc.

(TAMA), et al. v. Harry Lewis, Dkt. No. 77-1645, March 20, 1979,

at pages 7-8, 10, 16.

*See also, Burks v. Lasker, ... U.S. .. , 99 S.Ct. 1831 (1979),

where this Court ruled that the independent directors of an invest-

ment company may have the right under state law to terminate

a derivative action. The decision undermines respondent's insist-

ence that state law has “proved inadequate to protect the rights

of investors in transactions and relationships within the ambit of

the federal securities laws.” Brief for Respondent at page 55.

2

Touche Ross & Co. v. Redington

In holding that Section 17(a) of the Securities Exchange

Act of 1934 does not afford a private right of action, this

Court stated that “the existence of a statutory cause of

action is, of course, one of statutory construction.” Touche

Ross & Co. v. Redington, ........ 1h Gace , 99 S.Ct. 2479, 2485

(1979) (citations omitted). The Court rejected the argu-

ment made by respondent here* that a private right of

action may be implied from general tort principles. Jd.

In rejecting reliance on the jurisdiction provision of the

1934 Act to imply a private right of action, the Court said

it “creates no cause of action of its own force and effect;

it imposes no liabilities.” 7d. at 2490. Similarly, the juris-

diction provision of the Advisers Act neither creates nor

prohibits a private right of action. But it remains an

important indication of legislative intent. The only actions

provided for in the Advisers Act are suits in equity “to

enjoin any violations” of the Act. Restricting the Act’s

grant of jurisdiction to suits in equity for an injunction is

consistent with Congressional intent to vest enforcement

power in the SEC. But the restriction refutes respondent’s

argument that Congress intended to give disgruntled

investors the right to sue for money damages.°

*See, Brief for Respondent at pages 12-19.

‘The complete text of Section 214 of the Advisers Act is set forth

in Addendum B to the Brief for Petitioners.

*The SEC a peers ready to meet its enforcement responsibilities.

In a recent ay ress to the Investment Counsel Association, SEC

Commissioner, Roberta S. Karmel, stated that “the Commission has

established a new Office of Investment Adviser Regulation in the

Division of Investment Management” whose sole function “will be

to oversee investment advisors.” Karmel, R.S., The Goal of Profes-

sionalism in Investment Adviser Regulation 7 (May 3, 197)

(Address to the Investment Counsel Association of America, Inc.,

available from the Securities and Exchange Commission, Washing-

ton, D.C.). Commissioner Karmel added that if a private right of

action is not implied in this case it “could mean a more pronounced

SEC or in the day-to-day affairs” of investment advisers, and

“could result in a more vigorous examination program.” Id. at 8.

3

In Touche Ross, this Court called attention to “the statu-

tory scheme of which §17(a) is a part.” 7d. at 2487. The

Court noted that Section 17(a) “is flanked by provisions of

the 1934 Act that explicitly grant private causes of action”

and that “when Congress wished to provide a private dam-

age remedy, it knew how to do so and did so expressly.”

Id. (citations omitted).

Here, Section 206 of the Advisers Act is part of a statu-

tory scheme that includes the Investment Company Act.

The Advisers Act and the Investment Company Act are

companion statutes. S. Rep. No. 91-184, 91st Cong., 1st Sess.

43 (1969). In 1970, the Investment Company Act was

amended to create a private right of action against certain

investment advisers.° No such right was added to the

Advisers Act. See generally, Reply Brief for Petitioners at

pages 9-10.

In Touche Ross, this Court said that “generalized refer-

ences to the ‘remedial purposes’ of the 1934 Act will not |

justify reading a provision ‘more broadly than its language

and the statutory scheme reasonably permit.’” T'ouche

Ross & Co. v. Redington, supra, 99 S.Ct. at 2490. The “mere

fact” that Section 17(a) of the 1934 Act “was designed to

provide protection for brokers’ customers does not require

the implication of a private damage action in their behalf.”

Id. (citations omitted). Here, the fact that one purpose of

the Advisers Act may be to protect clients of investment

advisers should not mean the Act affords ready access to

the federal courts.

In Touche Ross, the Court observed that the statute

involved, Section 17(a) of the 1934 Act, “neither confers

rights on private parties nor proscribes any conduct as

See, Public Law No. 91-547, § 20, 84 Stat. 1413, adding § 35(b)

of the Investment Company Act, 15 U.S.C. § 80a-35(b) (1971).

4

unlawful.” Jd. at 2486. Here, Section 206 of the Advisers

Act proscribes certain conduct by investment advisers as

unlawful.’ It may be argued that those prohibitions are

significant. But the fact that a statute proscribed conduct as

unlawful was not sufficient to give the plaintiffs standing

in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1 (1977),

nor to imply a private right of action in National Railroad

Passenger Corp. v. National Association of Railroad

Passengers (“Amtrak”), 414 U.S. 453 (1974).° Piper and

Amtrak make it clear that prohibited conduct alone does

not mean Congress intended to allow suits by private

litigants.

That a statute proscribes conduct as unlawful may be

one indication of legislative intent to allow private actions.

But in this case there are abundant indications Congress

did not intend to allow private actions—including the

initial history of the Act; Congress’s failure in 1960, 1970,

1976 and 1977 to confer jurisdiction over “actions at law”;

and the Act’s limited grant of jurisdiction to actions in

equity “to enjoin violations”. In determining Congressional

intent, the language and history of the Advisers Act out-

weigh the mute prohibitions of Section 206.

7Section 206 of the Investment Advisers Act of 1940, 15 U.S.C.

§ 80b-6 (1971), is set forth in Addendum A to Brief for Petitioners.

‘In aes the plaintiff sought standing to sue under Section

14(e) of the Securities Exchange Act of 1934. Section 14(e) pro-

vides in part that it “shall be unlawful for any person to make any

untrue statement of a material fact or to omit to state any material

fact . . . in connection with any tender offer or request an invitation

for tenders, or any solicitation of security holders in opposition to

or in favor of any such offer, request, or invitation.” See, Piper v.

Chris-Craft Industries, Inc., 430 U.S. 1, 24-25 (1977). In Amtrak,

the plaintiffs sought to imply a private right of action under

Section 404(a) of the Rail Passenger Service Act of 1970. Section

404(a) prohibits Amtrak from goers assenger train service

unless certain conditions have been sati Ay See, National Rail-

road Passenger Corporation v. National Association of Railroad

Passengers (“Amtrak”), 414 U.S. 453, 455 n.3 (1974).

5

Cannon v. University of Chicago

In permitting a graduate school applicant to maintain a

sex discrimination action under Title IX of the Education

Amendments of 1972, this Court found abundant evidence

of Congressional intent to allow private actions. See, Can-

non v. University of Chicago, ........ 8. ee , 99 S.Ct. 1946

(1979).°

In Cannon, Congress had authorized an award of attor-

ney fees to the prevailing party, other than the United

States, in actions against public education institutions.

“The language of this provision explicitly presumes the

availability of private suits to enforce” the Act. 7d. at 1958-

1959. The Advisers Act has no provision even remotely

similar.

In Cannon, the statute in question was essentially iden-

tical to a statute banning race discrimination, and was en-

acted with the knowledge that the latter “had a'ready been

construed as creating a private remedy.” Jd. at 1957. Here,

Section 206 was enacted six years before a federal court

first implied a private right of action under the federal

securities laws. See, Kardon v. National Gypsum Co., 69

F.Supp. 512 (B.D. Pa. 1946). More importantly, Congress

has not acted on the SEC’s repeated requests since 1940

that it “facilitate” implication of a private remedy by ex-

tending the Act’s grant of jurisdiction to actions at law.

See, Brief for Petitioners at pages 18-21.

In Cannon, the Court expressed reluctance “to imply

causes of actions under statutes that create duties on the

part of persons for the benefit of the public at large.”

Cannon v. University of Chicago, supra, 99 S.Ct. at 1955

n.13. In this case, Section 206 imposes duties on investment

*See also, Davis vs. Passman, .... U.S. ... . 99 S.Ct. 2264 (1979).

6

advisers for the benefit of “any client or prospective client”

(emphasis added). That is hardly a discrete class. Since it

even includes those who may be “considering” the services

of an investment adviser, Section 206 exiends its benefits

to a sizeable part of the public at large—in addition to cre-

ating a vague, ill-defined class of prospective plaintiffs.

See, Reply Brief for Petitioners at pages 4-5.

In Cannon, this Court was confronted with legislative

history which “rather plainly indicates that Congress in-

tended to create” a private right of action. Jd. at 1956. The

opposite is true here.

2. No Distinction Should Be Made Between an Implied

Right to Legal Relief and an Implied Right to Equi-

table Relief.

Section 214 of the Advisers Act limits its grant of juris-

diction to “suits in equity to enjoin” violations of the Act.

As a result, it may be suggested that this Court could

imply a private right to equitable relief, but not to legal

relief.”

We agree with respondent that a distinction between

legal and equitable relief would be “an historical anomaly.”

Brief for Respondent at page 42. In fact, no such distine-

tion is appropriate.

In those cases where this Court has implied a private

right of action, it has not distinguished between legal and

See, e.g., Tr. of oral argument, Transame; ica Mortgage Advis-

ors, Ine. TAMA), et al. v. Harry Lewis, Dkt. No. 77-1645, March

20, 1979, at pages 7-8, 10, 16.

7

equitable relief.*‘ Were this Court to imply a private right

to equitable relief alone, the limitation would soon become

meaningless. When the equity jurisdiction of a federal court

is invoked, “the court has the power to decide all relevant

matters in dispute and to award complete relief even

though the decree includes that which might be conferred

by a court of law.” Porter v. Warner-Holding Co., 327 U.S.

395, 399 (1946). Where, as here, the plaintiff seeks rescis-

sion, an award of money damages is routine—and would

destroy any distinction this Court might make between a

legal and equitable right of action. See, e.g., Chasins v.

Smith Barney & Co., Inc., 488 F.2d 1167 (2d Cir. 1970);

Janigan v. Taylor, 344 F.2d 781 (1st Cir. 1965). See also,

Gulbenkian v. Gulbenkian, 147 F.2d 173 (2d Cir. 1945)

where the court awarded money damages in lieu of specific

performance.

"See e.g., Johnson v. Railway Express Agency, Inc., 421 U.S. 454

Fraps holding that a successful plaintiff under the Civil Rights

Act of 1866 could obtain legal and equitable relief, as well as

punitive damages under certain conditions.

8

CONCLUSION

For the reasons set forth in this brief and in their two

earlier briefs, petitioners respectfully pray an order of

this Court reversimg the decision of the court below.

Respectfully submitted,

Joun M. ANDERSON

Counsel for Petitioners

450 Pacific Avenue

San Francisco, California 94133

Telephone: (415) 788-5000

Of Counsel

Bruce W. HyMan

LANDELS, RipLey & DIAMOND

Counsel for Petitioners,

Transamerica Mortgage

Advisors, Inc. (TAMA)

Kent L. Colwell

John R. Jensen

Ralph D. Wenger

R. Barry CHURTON

New. L. SHAPIRO

Cooper, Wurre & Coorer

San Francisco, California

Counsel for Petitioner,

John Havens

JoserH Marti, Jr.

Pettit & MARTIN

San Francisco, California

Counsel for Petitioners,

Transamerica Corporation

Transamerica Land Capital, Inc.

JEROME I. BRAUN

Jon F. Hartunc

FARELLA, BRAUN & MARTEL

San Francisco, California

Counsel for Petitioner,

Mortgage Trust of America

September 19, 1979