# Petition — United States v. United States Steel Corporation (Nos. 80-1691, 80-1692, 80-1693, 80-1694, 80-1695) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1594%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 ## Text 5h) Sasa Leet Ves IN THE { APR 8 199) Supreme Cowt of the Mnited | OCTOBER TERM, 1980 - ae WHITE & CASE and MARION JAY EPLEY, I!I, | : Petitioners, lat deo WACHOVIA BANK & TRUST CoO., N.A., ef al., Respondents. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT MILTON V. FREEMAN Counsel of Record ROBERT H. WINTER THOMAS D. NURMI LAWRENCE A. SCHNEIDER ROBERT B. OTT ARNOLD & PORTER 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 872-6700 Attorneys for Petitioners White & Case and Marion Jay Epley, II April 8, 1981 oT QUESTIONS PRESENTED 1. Assuming that remedies may be implied under Section 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”) “in some circumstances”' (a) Should purchasers who allow their express securities law remedy under Section 12 of the Securities Act of 1933 (the “ “1933 Act”) to become time-barred under the express limita- tions period contained in that Act nevertheless be allowed to claim an implied remedy under Section 10(b) of the 1934 Act and thereby obtain a longer limitations period? (b) Should such an implied right of action for damages be limited to sellers and held not available to purchasers? (c) Should such an implied right of action be available against persons who are neither purchasers nor sellers of securities but secondary parties such as accountants, lawyers, and other professional advisers? 2. Did the Court below, in conflict with the principles of Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), and the Seventh Circuit’s decision in Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287 (7th Cir. 1975), cert. denied, 425 U.S. 943 (1976), err by refusing to apply in this securities law case, except prospectively, a District of Columbia blue sky statute of limitations which that very Court of Appeals had previously conceded “best effectuates”* Congress’ intent?’ 1 Piper v. Chris-Craft Industries, 430 U.S. 1, 25 (1977); Santa Fe Industries v. Green, 430 U.S. 462, 477 (1977). 2 Forrestal Village, Inc. v. Graham, 551 F.2d 411, 413 (D.C. Cir. 1977) (per curiam). 3 The following were parties to the proceedings in the Court of Appeals: Plaintiffs: Wachovia Bank & Trust Co., N.A.; First Wisconsin Trust Co.; National Fire Insurance Company of Hart- ford; Mellon Bank, N.A.; and The Dreyfus Offshore Trust, N.V. Defendants: John G. Davies; Donald A. Fergusson; Robert A. Fergusson; James F. Joy; Dennis M. Kelly; Bernard J. Kurek; Cortes W. Randell; Roger O. Walther; Peat, Marwick, Mitchell & Co.; Anthony M. Natelli; Joseph Scansaroli; White & Case; and Marion Jay Epley, III. TABLE OF CONTENTS SUN ISG GU Lik bec o-vk ve eh bok vichgece a ye ie CORR hinhiiisniai dhe hve MU I i i yr ee a a a a aa Se a, i Reasons for Granting the Writ...................... I. The Court of Appeals’ Decision Raises Funda- mental Questions of Federal Law Which Have Not Been, But Should Be, Definitively Resolved MRI OSS AA NG US I A. Federal Courts May Not Create Implied Rem- edies Under Section 10(b) of the 1934 Act in Favor of Securities Purchasers Who Allow Their “xpress Remedies Under the Federal Securities Laws To Become Time-Barred..... No Private Right of Action for Damages Should Be Implied Under Section 10(b) of the 1934 Act in Favor of Securities Purchasers. . . No Private Right of Action for Damages Should Be Implied Under Section 10(b) of the 1934 Act Against Persons Who Are Neither Purchasers Nor Sellers of Securities......... PAGE 10 1] 16 iii PAGE II. The Court of Appeals’ Decision Conflicts with / Uniform Authority in Other Circuits and Miscon- strues This Court’s Decision in Chevron Oil Co.v. TREE ENE ICE SA SEI a NCEA a fe BERR Pe 22 Nee eM eS seats due els 28 APPENDIX Opinion of the United States Court of Appeals for the District of Columbia Circuit, dated Decem- Ne ee kiss) 4's) o ow said .aieheaa ib ath a mie A-1 Opinion of the United States District Court for the District of Columbia, dated November 20, 1978 _B-1 Order, dated March 4, 1981, denying petition for EE ie da dlrs 6 ota MONEE Vas deecccaes C-1 Order, dated March 4, 1981, denying rehearing en District of Columbia Securities Act, D.C. Code © PAGER), (6) (A979) ovine cd bids 60k Sila ker D-1 District of Columbia Code Title 12, Section 301 D-2 Securities Act of 1933 S85, TD Wa. SD 7Te CISION i sic ce cvccnakis D-3 © 12, 15 US.Ci-8 FI IGIG) viesiivecwecvens D-8 © O9i RS Wetiaee BUTT CEB CUE ooh sod venue san D-9 OOF, US BB TF CER iin od cas cans Ges D-10 Securities Exchange Act of 1934 § 10,35 GBs FTES CHRIS) 5 eA ces D-11 iv TABLE OF AUTHORITIES CASES: PAGE Aaron v. SEC, 446 U.S. 680 (1980). .............000- 17 Affiliated Ute Citizens v. United States, 406 U.S. 128 SRNL ER UT RRR 72 Se eR ree 8 aerate we 17 Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977)......... 14 Batchelor v. Legg & Co., 52 F.R.D. 553 (D. Md. 1971). 25 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 STN EK lash cen eile Wietdee bu occas 12, 16, 17, 18, 19, 20, 21 Board of Regents v. Tomanio, 446 U.S. 478 (1980).... 26-27 Brick v. Dominion Mortgage & Realty Trust, 442 F. A Be Ee abe oe SOR rr a 13 Carothers v. Rice, [Current] Fed. Sec. L. Rep (CCH) iil nh Eo OE a 24 Chevron Oil Co. v. Huson, 404 U.S. 97 (1971)....... passim Cowsar v. Regional Recreations, Inc., 65 F.R.D. 394 Ey LR AORN ua dice Uke 6 06k awed wa ialiwe's 13 Dandorph v. Fahnestock & Co., 462 F. Supp. 961 (D. Tg, CHER PEAR TENT SLAP Ce IEE ry opk OREM 24 Delaware State College v. Ricks, 449 U.S. ___., 101 S. CG SN diiis-0 Oa Scans agen Caw ai, ne 26 Dyer v. Eastern Trust & Banking Co., 336 F. Supp. 890 SP SR RPT AD Woks 2 cb iain MOO RAR ECO Le abn 25 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)..... 12, 14, 15-16, 21 Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cy Ree CONTR sic bale Be iba Ca Wawen cocci passim Hanover Shoe, Inc. v. United Shoe Machinery Corp., AE LETD oben CONS SOUR a weenie 25 PAGE Houlihan v. Anderson-Stokes, Inc., 434 F. Supp. 1324 AEE ss CES on Waa bee 4 ee Okie welebee 6 oes 24 JI. Case & Co. v. Borak, 377 U.S. 426 (1964)........ 19 Jimenez v. Weinberger, 523 F.2d 689 (7th Cir. 1975), cert. I Fi CEPT kc 6 bon caked outsic dcr 27 Kissinger v. Reporters Committee for Freedom of the FIGs: Gee Wie ROO CII oo oh head bene 12, 17, 18 Matter of S/S Helena, 529 F.2d 744 (Sth Cir. 1976).... 27 McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 Pe EP BTID Soo vnc tnbc bale cevw Oboe copie 24 Morris v. Stifel, Nicolaus & Co., Inc., 600 F.2d 139 (8th Ce: FP Whe wa ha wh ae bala. ce ORR eae 24 Murray v. Thompson McKinnon Auchincloss, Kohl- meyer, Inc., [1980-81] Fed. Sec. L. Rep. (CCH) DI o's o's 0c 0.05 ccrcbbbgkoesbee 13 New York Mercantile Exchange v. Leist, No. 80-757... 17 Nickels v. Koehler Management Corp., 541 F.2d 611 (6th Cir. 1976), cert. denied, 429 U.S. 1074 (1977) ....... 24 Occidental Life Insurance Co. v. EEOC, 423 U.S. 355 CE RUM og U's hu Vans do ceu he okbew seule sed ae 14-15 Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123 (7th NTU shoe Cds Wi Weide kedi Nine oe muh went 23, 24, 25 Piper v. Chris-Craft Industries, 430 U.S. 1 (1977) ..... 15 Richardson v. Salinas, 336 F. Supp. 997 (N.D. Tex. Es PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT Opinions Below The opinion of the Court of Appeals (Mikva, Robinson and Flannery,' J.J.) is not yet officially reported; it is unofficially reported at [1980] Fed. Sec. L. Rep. (CCH) { 97,712 and is set forth in the Appendix beginning at page A-1. The opinion of the District Court (Parker, J.), whose judgment was reversed by the Court of Appeals, is reported at 461 F. Supp. 999 (1978) and is set forth in the Appendix beginning at page B-1. Jurisdiction The judgment of the Court of Appeals was entered on December 5, 1980. Petitioners’ timely petition for rehearing 1 Sitting by designation, pursuant to 28 U.S.C. § 292(a). 2 and suggestion for rehearing in banc was denied on March 4, 1981, with two judges voting to grant rehearing. (App. C-1, C-3) This petition is filed within 90 days of that denial. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). Statutory and Regulatory Provisions The texts of Sections 11, 12, 13, and 17 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77/, 77m, and 77q (1976); Section 10 of the Securities Exchange Act of 1934, 15 U.S.C. § 78} (1976); Section ]4 of the District of Columbia Securities Act of 1964, Pub. L. No. 88-503, § 14, 78 Stat. 629, D.C. Code § 2-2413 (1973); and Pub. L. No. 88-241, § 1, 77 Stat. 510, D.C. Code § 12-301 (1973) are set forth in the Appendix beginning at page D-1. STATEMENT OF THE CASE I. Introduction Respondents are large, institutional investors—three banks, an offshore investment trust and an insurance company. On December 17, 1969, they purchased primarily from National Student Marketing Corporation (“NSMC”) 128,816 shares of its common stock for $5,667,904.? The sale was a private placement at a substantial discount from the market price pursuant to comprehensive negotiated Stock Purchase Agree- ments. Petitioners White & Case and its partner, Marion Jay Epley, III, served as outside counsel to NSMC in connection with the private placement. Within days after the purchase was completed, the accuracy of NSMC’s reported financial condition came under attack. Litigation was commenced shortly thereafter by others. Also 2 —_ Of the five respondents, four sued petitioners. Mellon Bank, N.A., chose not to sue White & Case or Mr. Epley. °F 3 ~ within days, respondents contemplated litigation but did nothing. More than three years passed. All available federal express remedies expired. Only then on January 29, 1973 did respondents sue, alleging a right to implied remedies under the federal securities laws. NSMC was “one of the glamor stocks of the 1960s.” Slip op. at 5° (App. A-5). Starting with its incorporation in 1966, NSMC enjoyed rapid growth and a spectacular increase in the price of its common stock. In less than two years, from its initial public offering in the spring of 1968 to the private placement on December 17, 1969, the market price of NSMC’s stock rose from $6 per share to $71 per share (and that after a two-for-one stock split). Prior to the December private placement, NSMC had issued its audited financial statements for its fiscal year ended August 31, 1969. Those statements showed that NSMC, on a consoli- dated basis including newly acquired companies, had net earn- ings Of $3,865,080 ($3,185,127 before extraordinary items), a sharp increase from its reported 1968 net earnings of $388,031. In public statements by its president and in a company press release, NSMC had made glowing public estimates of its earnings for periods subsequent to its August 31, 1969 fiscal year end. (J.A. 241, 858.)* In the Stock Purchase Agreements with respondents, NSMC expressly represented that in the period from August 31, 1969 to the closing of the private placement on December 17, 1969, there had been “no material adverse change in the financial condition or results of opera- tions or business of NSMC and its subsidiaries taken as a whole.” Stock Purchase Agreement 4 4(n). (J.A. 779.) In conflict with this representation, as well as its public statements, NSMC had suffered a sharp financial decline. Word of NSMC’s financial problems surfaced almost immedi- 3 References are to the slip opinion by the Court of Appeals below. 4 References are to the Joint’ Appendix filed with the Court of Appeals. ately after the private placement. than one week after the private p ent—Barron’s financial magazine published an article by A\an Abelson, a highly regarded Wall Street analyst, that critic NSMC’s account- ing practices as reflected in its certified financial statements, describing them as “Alice-in-Wonderland.\ (J.A. 711.) In just g little over a week following publicatiok of the Barron’s *Xticle, the price of NSMC’s stock drop by almost 16 p¥cent. Concomitantly, reports circulated publicly predicting liti,\ation by NSMC stockholders under the federal securities laws&\ The market value of NSMC stock contin to decline; by JaQuary 15, 1970, it had fallen by almost 30 percent. (J.A. 262-63 | These \vents, particularly the Barron’s article, hdd a pro- found im,\ct upon respondent purchasers. For instane, ’ aw- rence M. Yreene, Vice President and General C 1 of respondent :Yeyfus Offshore Trust testified during his tion that in eaWy January 1970 he was “greatly concerned’\and “upset,” “bega\ to investigate the situation more deeply,” \nd turned “the ma over to our counsel for litigation.” (J.X. 729.)’ Indeed, prx¥tioners’ efforts through discovery to leari\ more about respoi Yents’ actions in Jar--ary 1970 were consis-’ tently blocked by r.\pondents’ invocation of privilege on the 5 Mr. Greene testified a Yfollows: “Q Is it your understa. Wing that upon your review of the Barron’s article in January of 15} that any subsequent investigations you made with respect to Nai Student Marketing were in contem- plation of litigation? “A I was greatly concerned hen | read the [Barron’s article], and, in fact, | was rather upset Qbout it and I therefore began to investigate the situation more \eply. Whatever I did following that in connection with looking into .¥¢ facts is all part and parcel of my turning the matter over to our cc \nsel for litigation.” (J.A. 729.) See 461 F. Supp. at 1009 .427 (App. B-15). Other officers and advisers of respondents had simila\ reactions. (J.A. 737-38, 743, 762, 768.) 5 ground that respondents were contemplating litigation at that time. (J.A. 724-25, 727-31.)° Respondents’ concerns in early January 1970 were well- founded. On February 16, 1970, NSMC announced a substan- tial loss of between $1.2 and $1.7 million for the period from September 1 to November 30, 1969. The announced loss was in direct conflict with NSMC’s express representation in the Stock Purchase Agreements of December 17, 1969, that there had been no materially adverse change in NSMC’s financial condition since August 31, 1969. Respondents had a number of remedies that they could have invoked almost immediately after the private placement. As a starting point, the Stock Purchase Agreements provided re- spondents with substantial investigation rights: they were en- titled to examine NSMC’s and its subsidiaries’ “books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss [NSMC’s and its subsidi- aries’] respective affairs, finances and accounts with their respective ‘ficers.” (J.A. 793.) As their counsel admitted at oral argumuiit before the Court of Appeals, respondents chose not to invoke these rights. Transcript of Oral Argument, December 13, 1979, at 60. Respondents also chose not to pursue their various state law remedies,’ a course that was taken by other NSMC shareholders less than three months after the 1969 private placement. See Stuckey v. NSMC, No. 70-H-252 (S.D. Tex., Mar. 19, 1970). (J.A. 484-85.) 6 For example, Mr. Greene specifically claimed privilege in response to a question concerning conversations with respect to the Barron’s article in January 1970. His counsel explained the claim of privilege as follows: “In this instance, . . . the privilege would be that of work product, which is to say the product of his own investigation relating to what eventually led to this lawsuit.” (J.A. 729-30.) 7 Respondents could have immediately sued NSMC for rescission of the stock transaction on the ground of fraudulent inducement. They also could have sued for damages under ‘state law on a breach of contract or breach of warranty theory in view of the false express representation in the Stock Purchase Agreements that there had been no material adverse change in NSMC’s financial condition since August 31, 1969. 6 Respondents also had an alternative under federal law: they could have filed suit against NSMC under the express civil remedy contained in Section 12(2) of the 1933 Act. Under Section 12(2), respondents could have filed suit “to recover the consideration [they] paid [for the NSMC stock]”—namely, $5,667,904. They took no such action. Congress devised a specific statute of limitations to govern the express remedy under Section 12(2). No claim under that section can be maintained unless brought within the earlier of “one year after the discovery of the untrue statement or the omission” or “three years after the sale.” 15 U.S.C. § 77m. Eschewing their express remedy under Section 12(2), respon- dents delayed for years, allowing the specific, congressionally- mandated limitations periods to lapse. While respondents sat on their rights, other less sophisti- cated NSMC shareholders were quick to institute litigation. Indeed, a class action suit alleging federal securities law claims against NSMC, its officers, and outside accountants was filed less than two months after respondents contemplated litigation in early 1970. Garber v. Randell, No. 70-835 (S.D.N.Y., Mar. 2, 1970). Another class action was filed two months later. Lipsig v. NSMC, No. 70-2006 (S.D.N.Y., May 15, 1970). In contrast to these less sophisticated shareholders and despite the numerous remedies available to them, respondents did not file suit against anyone, including NSMC to whom they had paid their money, until January 29, 1973—more than three years after the private placement and more than three years after respondents had actually contemplated litigation. On that date, respondents filed the present lawsuit against NSMC, as well as its officers, directors and the accountants who certified its financial statements. Wachovia Bank and Trust Co., et al. v. National Student Marketing Corporation, et al. (D.D.C., filed Jan. 29, 1973). The jurisdiction of the District Court was based on 15 U.S.C. §§ 77v(a) and 78aa. Petitioners were not named as defendants in the original complaint but were added 7 later.* Among their affirmative defenses, petitioners asserted in their answer that the complaint against them was barred by the statute of limitations and that the complaint failed to state a claim upon which relief could be granted. White & Case Answer 4 56, 57. Respondents’ suit was not brought under Section 12(2), the express remedy available to them since at least January 1970. Plainly, this was because by January 29, 1973 the statute of limitations applicable to that express remedy against NSMC had lapsed. Instead, the complaint was based on claimed implied remedies under Section 10(b) of the 1934 Act and Section 17(a) of the 1933 Act, sections in which Congress granted no express remedies and provided no express statutes of limitations.° NSMC, the principal defendant which in 1969 received most of the $5,667,904 paid by respondents, settled respondents’ claims against it for a payment of $300,000 and 300,000 shares of NSMC stock. The remaining defendants in the suit are secondary parties, including officers, directors, accountants and lawyers, who are charged with having aided and abetted NSMC in its false statements to respondents. II. Proceedings Below Following discovery relating, among other things, to the statute of limitations issue, petitioners moved the District Court to dismiss respondents’ complaint with prejudice be- 8 Respondents did not file claims against petitioners until May 28, 1975. However, in light of a tolling letter, obtained from White & Case on January 27, 1973, respondents’ securities law claims against peti- tioners were properly assumed by the District Court to have been asserted as of January 27, 1973. 9 The complaint also alleged violations of Sections 13(a) and 14(a) of the 1934 Act. Respondents abandoned their Section 13(a) claim. 461 F. Supp. at 1004 n.10 (App. B-5). Respondents never asserted any claim under Section 14(a) of the 1934 Act against petitioners. Respondents also asserted nonfederal claims against petitioners, under a theory of pendent jurisdiction. 8 cause the federal remedies repondents sought to invoke were barred by the statute of limitations. Petitioners also moved to dismiss on the ground that a right of action should not be implied in favor of respondents under Section 10(b) of the 1934 Act or Section 17(a) of the 1933 Act.'° Parker, D.J., granted petitioners’ motion to dismiss the federal claims as time-barred but denied petitioners’ motion to dismiss based on plaintiffs’ lack of an implied right of action. 461 F. Supp. at 1004-13 (App. B-5 to B-17)."' On the statute of limitations issue, Judge Parker held that the two-year statute of limitations contained in the District of Columbia blue sky law was applicable to respondents’ implied federal securities law claims. Jd. at 1008 (App. B-12). In so ruling, Judge Parker followed the decision of the Court of Appeals in Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cir. 1977) (per curiam), in which it had held specifically that application of the two-year District of Columbia blue sky statute of limitations “best effectuates” the congressional in- tent underlying the federal securities laws. 551 F.2d at 413. Judge Parker also concluded that respondents were on notice of the alleged fraud more than two years before the suit was filed. 461 F. Supp. at 1010 (App. B-17). Respondents appealed to the United States Court of Appeals for the District of Columbia Circuit, and petitioners cross-ap- pealed from the order denying their motion to dismiss on the ground that respondents had no implied right of action. On December 5, 1980, the Court of Appeals reversed the District Court’s dismissal of respondents’ securities law claims on statute of limitations grounds. The Court of Appeals denied petitioners’ cross-appeal, holding that a right of action in favor 10 Other defendants filed similar motions. Petitioners also moved to dismiss respondents’ nonfederal common law claims because no inde- pendent basis existed for subject matter jurisdiction over them. 11 Judge Parker granted petitioners’ motion to dismiss respondents’ nonfederal common law claims because there was no independent basis for subject matter jurisdiction and, under the circumstances, pendent jurisdiction should not be permitted. 461 F. Supp. at 1010 (App. B-17). > 9 of respondents may be implied under Section 10(b) of the 1934 Act" In reversing the District Court, the Court of Appeals refused to apply in this case its decision in Forrestal Village, which, as noted, mandated application of the two-year blue sky law statute of limitations to implied remedies under Section 10(b) of the 1934 Act and Section 17(a) of the 1933 Act. The Court of Appeals did not overrule its Forrestal Village decision. Nor did it question the correctness of its conclusion in Forrestal Village that application of the two-year statute of limitations “best effectuates” congressional intent and “best furthered federal policy.” 551 F.2d at 413; Slip op. at 13 (App. A-13). Instead, the Court of Appeals reasoned that the concededly correct rule of Forrestal Village deviated from previous rulings so that it should not be applied to the present case but should be applied prospectively only under the special rules of Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). The Court of Appeals also found that the three-year statute of limitations, as applied to respondents’ claims, should not have begun to run until February 1970. In so ruling, the Court of Appeals disregarded, without explanation, the critical fact of record that litigation was actually contemplated by respondents in early January 1970, a fact discussed at some length in oral argument before the Court of Appeals. Transcript of Oral Argument, December 19, 1979, at 14, 30-31." In upholding an implied right of action under Section 10(b) of the 1934 Act, the Court of Appeals acknowledged that the legislative history of Section 10(b) “yields little specific” re- 12 The Court of Appeals declined to rule on whether a right of action should be implied under Section 17(a) of the 1933 Act. The Court, however, did note that the question of whether an implied remedy exists under Section 17(a) “has explicitly been left open by the Supreme Court,” and that the courts of appeals are in conflict on it. Slip op. at 18 n.19 (App. A-18). 13 Had the January 1970 date instead of the February 1970 date been chosen, the suit would have been barred even under the three-year general fraud statute of limitations applied by the Court of Appeals since the complaint was filed on January 29, 1973. *? 10 garding congressional intent to create a private right of action for damages. Slip op. at 20 (App. A-20). Nevertheless, it reasoned that it is appropriate to create an implied remedy “[bJecause the relevant legislative chronicles do not negative the existence of implied remedies.” Jd. at 21 (App. A-21). On December 19, 1980, petitioners filed a timely petition for rehearing and suggestion for rehearing in banc. The petition was denied on March 4, 1981, with two judges of the Court of Appeals, Judges Robb and MacKinnon, voting to giant re- hearing in banc and Judge Wright not participating in the decision. (App. C-1). REASONS FOR GRANTING THE WRIT A writ of certiorari should issue (i) because the decision below raises fundamental questions of federal law which have not been, but should be, definitively resolved by this Court, and (ii) because the decision misconstrues and conflicts with decisions of this Court and of other Courts of Appeals. Specifically, the petition should be granted because: — The Court of Appeals’ decision permits suit to be brought on implied claims after lapse of the specific limitations period Congress established for expressly granted securities law claims, in plain contravention of Congress’ intent; — The Court of Appeals’ decision, which expands the federal courts’ subject matter jurisdiction through the implication of a private right of action under Section 10(b) of the 1934 Act, contravenes recent and authori- tative pronouncements of this Court and Congress’ intent in enacting Section 10(b) in that: (1) it permits such a private right of action in favor of purchasers of securities in addition to express remedies provided such purchasers; and (2) it permits such a private right of action against persons who are neither purchasers ie LAS 11 nor sellers of securities but are only peripherally re- lated to the transaction, including professional ad- visers such as accountants and lawyers; .— The Court of Appeals’ decision not to apply its own prior decision in Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cir. 1977)—that the two-year District of Columbia blue sky law statute of limita- tions “best effectuates” Congress’ intent—conflicts with this Court’s decision in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), which established the criteria for prospective-only application of judicial decisions. The Court of Appeals’ decision also con- flicts with uniform authority in other circuits which have applied statutes of limitations to implied securi- ties law remedies in the normal retroactive manner. In particular, it conflicts with Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287 (7th Cir. 1975), cert. denied, 425 U.S. 943 (1976), in which the Seventh Circuit held that Chevron does not permit, much less require, prospective-only application of a decision that implied remedy actions under Section 10(b) of the 1934 Act are governed by a blue sky law statute of limitations. I. The Court of Appeals’ Decision Raises Fundamental Questions of Federal Law Which Have Not Been, But Should Be, Definitively Resolved by This Court. A. Federal Courts May Not Create Implied Remedies Under ' Section 10(b) of the 1934 Act in Favor of Securities _ Purchasers Who Allow Their Express Remedies Under the Federal Securities Laws To Become Time-Barred. Recent decisions of this Court emphasize that the “task” of a federal court in determining whether a private right of action should be implied under a federal statute is “limited solely to determining whether Congress intended to create the private right of action asserted.” Touche Ross & Co. v. Redington, 442 ”* 12 U.S. 560, 568 (1979). See also Kissinger v. Reporters Commit- tee for Freedom of the Press, 445 U.S. 136, 148-49 (1980); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15 (1979). If Congress did not intend to create a private remedy under Section 10(b), the courts are powerless to do so. E.g., Transamerica, 444 U.S. at 24: “The dispositive question remains whether Congress in- tended to create any such remedy. Having answered that question in the negative, our inquiry is at an end.” See also Touche Ross, 442 U.S. at 568; Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 (1976). Congress provided express private remedies for violations of the federal securities laws and carefully devised the limitations periods applicable to those express remedies. Congress did not provide a statute of limitations for implied remedies under the securities laws because it did not contemplate such remedies. '* Congress intended the statutes of limitations it provided for the remedies it enacted to be uniform and to be short. The statutes of limitations applicable to the express remedies avail- able to a purchaser under both the 1933 and 1934 Acts are in substance identical: one year from the discovery of the viola- tion and no more than three years after the violation occurred. Specifically, Section 13 of the 1933 Act, 15 U.S.C. § 77m, limits the period in which to invoke the remedy created under Section 12(2) for recovery of the consideration paid for the purchase of securities based upon false statements. It provides as follows: “No action shall be maintained to enforce any liability created under. . . section 12(2) unless brought within one year after the discovery of the untrue statement or the 14 Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196 (1976) (“there is no indication that Congress . . . contemplated such a remedy”); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 759 (1975) (Powell, J., concurring) (“[t]he courts . . . have inferred a private cause of action [under Section 10(b)] that was not authorized by the legisla- tion”). 13 \_- omission, or after such discovery should have been made by the exercise of reasonable diligence . . . . In no event shall any such action be brought to enforce a liability created . . . under section 12(2) more than three years after the sale.”'* Neither the uniformity nor the shortness of the congres- sionally enacted statutes of limitations was an accident. As Senator Fletcher, the Senate floor manager and one of the principal authors of the 1934 Act, stated: “We went into [the subject of statutes of limitations] very carefully.” 78 Cong. Rec. 8198 (1934). Other legislative history fully supports this statement.'® Both the appropriate time period and use of dual 15 16 ; : : i! % e See also Sec’ions 9(e), 18(c), and 29 of the 1934 Act, 15 U.S.C. §§ 78i(e), 78r(c), 78cc (1976). The three-year limitations period is absolute; it does not permit tolling. E.g., Murray v. Thompson McKinnon Auchincloss, Kohlmeyer, Inc., [1980-81] Fed. Sec. L. Rep. (CCH) 4 97,869 at 90,376, 90,378 (S.D.N.Y. 1981); Turner v. First Wisconsin Mortgage Trust, 454 F. Supp. 899, 911 (E.D. Wis. 1978); Brick v. Dominion Mortgage & Realty Trust, 442 F. Supp 283, 289-91 (W.D.N.Y. 1977); Cowsar v. Regional Recreations, Inc., 65 F.R.D. 394, 397 (M.D. La. 1974). As originally introduced, the 1934 Act contained uniform periods of limitations for Sections 9(e) and 18(a) of two years from the date of discovery of the violations. See H.R. 7852 §§ 8(e) and 17(e) (intro- duced February 10, 1934), H.R. 7855 §§ 8(e) and 17(e) (introduced February 10, 1934), S. 2693 §§ 8(e) and 17(e) (introduced February 9, 1934), 73d Cong., 2d Sess. (1934). By the time the House bill was passed, the periods of limitations had been changed, but they remained uniform: three years from the date of the violation. 78 Cong. Rec. 8025 (1934). Thereafter, the Senate Committee on Banking and Cur- rency reported out its own bill with a dual limitations period applicable to both Sections 9(e) and 18(a) of two years from discovery of the violation, but no more than six years from the date of the violation. S. Rep. No. 3420 §§ 9(e) and 18(c), 73d Cong., 2d Sess. (1934) (as reported out of Committee on April 20, 1934). The Senate passed its substitute bill after reducing the uniform limitation periods to one year and five years, respectively. 78 Cong. Rec. 8203 (1934). Finally, the Conference Committee retained the “one year after the discovery” limitations period, but reduced the overall limitations period to three years from the date of the violation; again the limitations period applicable to Sections 9(e) and 18(a) remained identical. H.R. Rep. No. 1838, 73d Cong., 2d Sess. at 11, 18, and 32 (1934). (footnote continued on next page) 14 criteria based on the time of discovery and the time of violation were debated at length. 78 Cong. Rec. 8197 ef seq. (1934). The possibility of fomenting litigation, the need to encourage resolution of litigation, and the impact upon per- sons serving on boards of directors, as well as general consider- ations favoring statutes of limitations, were considered by Congress. Congress carefully balanced the needs to provide remedies and to protect against stale claims. The legislative history confirms that Congress intended to prohibit securities purchasers from maintaining any claims under the federal securities laws after the earlier of one year from the date of its discovery or three years from the date of the alleged violation. While the lower courts have generally looked to local law for the statute of limitations to be applied to implied remedies under the federal securities laws,'’ as this Court stated in Occidental Life Insurance Co. v. EEOC: “[A state limitations period should not be] mechanically applied . . . simply because a limitations period is absent from the federal statute. State legislatures do not devise their limitations periods with national interests in mind, The same limitations period that is applicable to Sections 9 and 18 of the 1934 Act was carried back into the 1933 Act. As originally enacted, Section 13 of the 1933 Act provided a “two years after discovery” limitations period for suits brought under Section 12(2) of the 1933 Act; Section 13 provided no absolute limitations period for Section 12(2) although it provided ten-year absolute limitations periods for Sections 11 and 12(1) of the 1933 Act. 48 Stat. 74, 84 (1933). As part of the reforms enacted in 1934, Congress conformed the limitations period in Section 13 of the 1933 Act to the dual one- and three-year periods applicable to Sections 9 and 18 of the 1934 Act. See Securities Exchange Act of 1934, § 207, 48 Stat. 881, 908 (1934). Moreover, in 1938, Congress amended Section 29 of the 1934 Act to subject it to the same one- and three-year limitations period. The same limitations period also governs Section 16(a) of the Public Utility Holding Company Act of 1935, 15 U.S.C. § 79p(a) (1976), and Section 323(a) of the Trust Indenture Act of. 1939, 15 U.S.C. § 77www(a) (1976), both of which impose liability for misleading statements. 17 E.g., Arneil v. Ramsey, 550 F.2d 774, 779 (2d Cir. 1977). Although this practice was referred to by this Court in a footnote in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n.29 (1976), it was neither argued to the Court nor discussed in the Court’s opinion. 15 and it is the duty of the federal courts to assure that the importation of state law will not frustrate or interfere with the implementation of national policies. . . . State limitations periods will not be borrowed if their applica- tion would be inconsistent with the underlying policies of the federal statute.” 432 U.S. 355, 367 (1977). Application of the statute of limitations chosen by the Court of Appeals in this case “would be inconsistent with the underlying policies” of the federal securities laws because it would extend the life of a judicially-created remedy beyond that of the congressionally-enacted remedy. As discussed above, respondents failed to file suit against anyone—including NSMC, which had made express misrepre- sentations to them and to whom they had paid their money— until more than three years after they had purchased their NSMC securities. It was only on January 29, 1973 that re- spondents sued NSMC and the collateral defendants. At that point, their express remedy under Section 12 of the 1933 Act was time-barred under the three-year absolute limitations pe- riod. Even accepting the Court of Appeals’ February 1970 discovery date, the filing of the suit on January 29, 1973 was also long past the one-year period from discovery after which express remedies are barred. The Court of Appeals permitted respondents to avoid the untimeliness of their claims by allowing an implied remedy. But even assuming, arguendo, the existence of an implied remedy “in some circumstances,”'* it would surely be inappropriate to apply to such.a judicially-created remedy a limitations period longer than the absolute three-year and the one year from discovery limitations periods enacted by Congress for express remedies. By allowing respondents a private remedy at that late date, the Court of Appeals disregarded this Court’s admonition in Ernst & Ernst v. Hochfelder that: 18 Piper v. Chris-Craft Industries, 430 U.S. 1, 25 (1977); Santa Fe Industries v. Green, 430 U.S. 462, 477 (1977). v4 Av 16 “(T]he judicially created private damages remedy under § 10(b, [of the 1934 Act]. . . cannot be extended, consis- tently with the intent of Congress, to . . . nullify the effectiveness of the carefully drawn procedural restric- tions on these express actions.” 425 U.S. at 210. The rationale underlying this admonition (again ignored by the Court of Appeals) was articulated by this Court in Blue reonaed Stamps v. Manor Drug Stores: “It 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 comparable express causes of action.” 421 U.S. 723, 736 (1975). See also Note, Limitation Borrowing in Federal Courts, 77 Mich. L. Rev. 1127, 1133-34, 1148 (1979). Simply put, the Court of Appeals was not free to imply a securities law remedy for respondents which could be commenced at a time when Congress intended that even express remedies should be barred. Resolution of the issues presented by this petition will have a significant impact upon litigation in the federal courts. Even a cursory review of the publicly reported cases reveals the sub- stantial amount of implied remedy securities litigation concern- ing the appropriate statute of limitations. A decision of this Court consistent with Congress’ intent that no purchaser be allowed to maintain a securities law claim after lapse of the short and uniform limitations periods enacted by Congress will not only terminate this case but will also eliminate a significant portion of the vexatious litigation pending and continually being brought under Section 10(b) of the 1934 Act. B. No Private Right of Action for Damages Should Be Implied Under Section 10(b) of the 1934 Act in Favor of Securities Purchasers. This Court has acquiesced in the recognition of implied rights of action under Section 10(b) of the 1934 Act “in some 17 circumstances.”'’? However, all these circumstances have in- volved claims in favor of sellers of securities. See, e.g., Affili- ated Ute Citizens v. United States, 406 U.S. 128 (1972); Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6 (1971). To date, the Court has left open the question whether similar rights should be implied in favor of securities purchasers, for whom, Congress has provided an express remedy under Section 12 df the 1933 Act. Blue Chip Stamps, 421 U.S. at 752 n.15. See 3 L. Loss, Securities Regulation 1178-92 (2d ed. 1961); Freeman, /mplied Remedies Under Rule 10b-5; Are They Only for Defrauded Sellers?, Nat’! L.J., Dec. 10, 1979, at 26.*° A writ of certiorari should issue to resolve this important open question. Recent decisions of this Court have confirmed the proposi- tion that federakcourts are courts of limited jurisdiction, and that they may noNexpand their jurisdiction by creating private those intended by Congress. See, e.g., a statute creates a cause of action, either expressly 0 plication, is basically a matter of statutory construc BY. . [W)hat must ultimately be determined is whet private remedy asse rit of certiorari in New York .S.L.W. 3617 (U.S. Feb. 24, ivate remedy should be im- mmange Act.’' Only recently this Court iss Mercantile Exchange v. Lei 1981), to determine wheth plied under the Commoditi 19 See note 18, supra. 20 = The Court also has left op action should be implied und of anyone. Aaron v. SEC, U.S. at 734 n.6. 21 = The Court of Appeals belo in Leist. Slip op. at 34-35 ( question whether private rights of on 17(a) of the 1933 Act in favor . 680, 689 (1980); Blue Chip, 421 d upon the Second Circuit's ruling to A-35). In its recent decisions, this Court has established a numb of basic principles to guide courts in determining whether tc imply a private right of action. The Court of Appeals’ decision in this case js in direct conflict with all of those principles. First, this Court has stated that when a statute provides an express remedy—as the securities laws do for securities pur- chasers—courts should refrain from creating additional im- plied remedies.”* In the decision below, the Court of Appeals expressly disregarded this principle, calling it “a dangerous road map with which to explore legislative intent.” Slip op. at 26 (App. A-26). Second, this ‘Court has stated that federal courts should refrain from implying private rights of action when the legisla- tive history is silent on the question.”» The Court of Appeals below admitted that the legislative history of Section 10(b) provides no indication that Congress intended a private right of action. Slip op. at 20 (App. A-20). Nevertheless, it con- cluded that such a right could be created “because the relevant legislative chronicles do not negative the existence of implied remedies.” Slip op. at 2:1 (App. A-21). Third, this Court has also stated that the “remedial pur- poses” of a statute along do not justify implication of a private right of action. Touche;Ross, 442 U.S. at 578. In contrast, the ‘ourt of Appeals supported its implication of a private remedy i finding a “link between the existence of an implied cause of action and the broad purposes of the 1934 Act.” Slip op. at 21 (Apps, A-21).”* : , SBR al sa 22 Seesg.g., Kissinger, 445 U.S. at 148-49; Transamerica, 444 U.S. at 19, 21; Wwe Chip, 421 U.S. at 734, 736. 23 See, e.g.,, Touche Ross, 442 U.S. at $71. See also Transamerica, 444 U.S. at 20. ee" 24 This precise argument was soundly rejected in Touche Ross, 442 U.S. at 578: “The invocation of the ‘remedial purposes’ of the 1934 Act is similarly unavailing. Only last term, we emphasized that generalized 19 Finally, this Court has stated that the original analysis in J.J. Case & Co. v. Borak, 377 U.S. 426 (1964), which suggests a statutory tort basis for implying a private right of action under the federal securities laws is no longer good law: “the mere fact that [a statute] was designed to provide protection for [a class of persons] does not require the implication of a private damages action in their behalf.” Touche Ross, 442 U.S. at 578 (analyzing the decision in Borak). Nevertheless, the Court of Appeals sought to justify its implication of a private remedy in this case on the ground that respondents are “within the specific class to be protected by the statute.” Slip op. at 20 (App. A-20). The issue whether a private remedy should be judicially implied under Section 10(b) in favor of securities purchasers— and particularly purchasers such as respondents who have chosen not to pursue their express remedies—is of the utmost consequence. Its resolution will have a profound impact upon the many securities law cases that continuously crowd the dockets of federal courts. As this Court stated in Blue Chip: “There has been widespread recognition that litigation under Rule 10b-5 presents a danger of vexatiousness different in degree and in kind from that which accompa- nies litigation in general.” 421 U.S. at 739. Indeed, the burdens of defending such cases often lead to “large judgments, payable in the last analysis by innocent investors, for the benefit of speculators and their lawyers.” Id. Such consequences should no longer be tolerated if, as we submit, implication of a remedy in favor of securities pur- chasers under Section 10(b) is precluded under the standards enunciated by this Court. references 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.’ ” 20 C. No Private Right of Action for Damages Should Be Implied Under Section 10(b) of the 1934 Act Against Persons Who Are Neither Purchasers Nor Sellers of Securities. Even if purchasers are permitted to assert implied remedies under Section 10(b), they should not be allowed to assert such claims against persons who are not sellers but are sued as so-called aiders and abettors of a seller of securities. As noted, respondents were provided a specific remedy against sellers under Section 12(2) of the 1933 Act. They did not avail themselves of that remedy. They brought suit against NSMC, the principal seller, under other theories and elected to settle that claim. They are now pursuing petitioners and other defendants who are not sellers under “aiding and abetting” theories of liability. Their argument is that such a remedy needs to be implied in their favor because Congress did not provide a specific remedy against such secondary parties. The fact is, however, that Congress did specifically provide remedies against just such parties. Section 11 of the 1933 Act provides for liability of officers, directors, accountants and other professionals (including in appropriate cases lawyers). Congress, however, did not want such secondary parties to have “a liability in an indeterminate amount for an indetermi- nate time to an indeterminate class.” Blue Chip, 421 U.S. at 748, quoting Chief Judge Cardozo in Ultramares Corp. v. Touche Niven, 255 N.Y. 170, 179-80, 174 N.E. 441, 444 (1931). When two years after U/tramares Congress enacted the 1933 Act, it carefully limited such remedies by making them avail- able, subject to special defenses, only to persons acquiring shares sold pursuant to a registration statement under the 1933 Act. They are not available to parties such as respondents who elect to acquire shares in a transaction not covered by the registration requirements of the Act. What the Court of Appeals below said in substance is that Congress made an error in restricting non-sellers’ liability to persons purchasing under registration statements. The Court 21 of Appeals sought to cure Congress’ perceived oversight by providing remedies against such non-sellers in favor of those who purchased their securities otherwise than under a registra- tion statement. The Court of Appeals thereby subjected sec- ondary parties to liabilities not subject to the limitations periods Congress imposed on Sections 11 and 12. If such a broad extension of liability beyond Congress’ expressed pur- poses is to be imposed as a result of the “modest aims” of Section 10(b) (see Blue Chip, 421 U.S. at 736 n.8), it should be done only by Congress. See United States v. Rutherford, 442 U.S. 544, 555 (1979) (“Under our constitutional framework, federal courts do not sit as councils of revision, empowered to rewrite legislation in accord with their own conceptions of prudent public policy.”). In point of fact, for thirty odd years after the enactment of Section 10(b), there was no thought that secondary parties could have any liability under that Section and no cases to that effect. It was only in the late 1960s that suggestions were first made that liabilities of secondary parties could arise under Section 10(b). See cases cited in Freeman, The Liability of Professionals Under Rule 10-b-5, 23 The Practical Lawyer 45, 50-52 (1977). And such liability has never been approved by this Court. Indeed, in Ernst & Ernst v. Hochfelder, this Court raised but did not decide the issue whether “aiding and abetting” is a sufficient basis for imposing civil liability under Section 10(b) of the 1934 Act. 425 U.S. at 191 n.7. There is no evidence that Congress intended to impose liability under Section 10(b) on secondary parties such as officers, directors, accountants and lawyers. As late as 1956, it was proclaimed in Congress that no such remedy existed.** In the case of a primary violation by a 25 _In 1956, the House Committee on Interstate and Foreign Commerce recommended passage of a bill which would have amended the 1933 Act to provide express civil remedies similar to those under Section 10(b) of the 1934 Act in favor of purchasers of securities issued pursuant to the exemption from registration contained in Section 3(b) 22 purchaser or seller of securities, the implied remedy is, at least, di-ected against a party to the transaction who has engaged in conduct expressly prohibited by Congress. By contrast, if this Court tolerates an implied remedy against a secondary party, it will do so notwithstanding the absence of any evidence that Congress intended either to permit an implied remedy or even to make the defendant’s conduct a violation of federal law. See generally Fischel, Secondary Liability Under Section 10(b) of the Securities Act of 1934, 1969 Cal. L. Rev. 80, 93-94 (1981). II, The Court of Appeals’ Decision Conflicts with Uniform Authority in Other Circuits and Misconstrues This Court’s Decision in Chevron Oil Co. vy. Huson. The Court of Appeals’ decision in Forrestal Village was based on a determination that application of the two-year District of Columbia blue sky law statute of limitations to implied remedies “best effectuates” the congressional intent underlying the federal securities laws. In this case, the Court of Appeals did not question the reasoning or conclusion of Forrestal Village. Instead, it react:ed a result inconsistent with congressional intent by refusing to apply Forrestal Village to this case. The Court of Appeals’ decision in this case conflicts with uniform authority in other circuits and misconstrues this Court’s decision in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). In Chevron, this Court established three criteria which must be satisfied to justify prospective-only application. The Court of the 1933 Act. The Committee supported its recommendation by noting that: “The only civil remedy the purchaser of a security, issued pursuant to section 3(b) exemption, has for false and misleading statements or omissions in the offering circular is‘ to sue the seller of the security under section 12 of the Securities Act. By contrast, the investor in registered securities has civil remedies under sections 11 and 12 of the act.” H.R. Rep. No. 2513, 84th Cong., 2d Sess. 5 (1956) (emphasis supplied). Congress never enacted the bill. 23 of Appeals’ construction of these criteria and its refusal to apply the rule of Forrestal Village to this case stand in direct conflict with the decision of the Seventh Circuit in Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287 (7th Cir. 1975), cert. denied, 425 U.S. 943 (1976). In Schaefer, plaintiffs brought suit for alleged violations of Section 10(b) relating to events that occurred from 1965 to August 1967. The events were highly publicized in an indict- ment brought in August 1967. A complaint was filed in February 1969, and amended complaints were filed until in October 1972 new defendants were added. 509 F.2d at 1290-91. Earlier, in January 1972, the Seventh Circuit had held in _ Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 126-27 (7th Cir. 1972), that the shorter three-year statute of limitations of the Illinois Blue Sky statute was applicable to implied actions under Section 10(b) rather than the longer Illinois five-year statute of limitations for fraud which had been applied in prior cases. Id. at 125 n.4. On appeal from dismissal of the action as time-barred, the Seventh Circuit rejected plaintiff’s contention “that Chevron Oil Co. v. Huson . . . precluded retrospective application of Parrent.” 509 F.2d at 1294. The Court analyzed the criteria set forth by this Court in Chevron, and concluded that the decision in Parrent was not an overruling of “clear past precedent.” Jd. at 1295. It analyzed decisions such as Vander- boom v. Sexton, 422 F.2d 1233 (8th Cir.), cert. denied, 400 U.S, 852 (1970)—the very case whose reasoning was explicitly adopted by the Court of Appeals in Forrestal Village, 551 F.2d at 413—and concluded that by January 1972, when Parrent was decided, “[c]learly, application of the Illinois Blue Sky limitations period was foreshadowed, and in any event Parrent did not constitute an overruling of any clear past prececent of the Seventh Circuit.” 509 F.2d at 1295. The Court of Appeals’ prospective-only ruling in this case also stands in contrast to the decisions of federal courts other than the Seventh Circuit: no other federal court has given 24 prospective-only effect to a decision as to which statute of limitations should be applied to implied securities law claims. Indeed, as was the Seventh Circuit’s decision in Parrent, every reported decision on this issue has been applied retrospectively, even when previous decisions by the same court had opted for a different statute of limitations. See, e.g., Carothers v. Rice, [1980] Fed. Sec. L. Rep. (CCH) 4 97,632, at 98,392 (6th Cir. Sept. 15, 1980); Morris v. Stifel, Nicolaus & Co., Inc., 600 F.2d 139, 141 (8th Cir. 1979); McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d 888, 894 (Sth Cir. 1979); Nickels v. Koehler Management Corp., 541 F.2d 611, 613, 618 (6th Cir. 1976), cert. denied, 429 U.S. 1074 (1977); Dandorph v. Fahnestock & Co., 462 F. Supp. 961, 963-64 (D. Conn. 1979).?¢ The Court of Appeals reached its incongruous result in this case by systematically disregarding and misapplying each of the criteria established by this Court in Chevron. The first Chevron criterion requires that “the decision to be applied nonretroactively must establish a new principle of law,” i.e., “an avulsive change” in the law. Chevron, 404 U.S. at 106; Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 499 (1968). Forrestal Village did not satisfy this criterion because it simply did not establish “a new principle of law.” It was by no means “avulsive”: it neither “overrul[ed] clear past precedent on which litigants may have relied” nor “decid[ed] an issue of first impression whose resolution was not clearly foreshadowed.” Chevron, 404 U.S. at 106. Rather, the per curiam decision in Forrestal Village was correctly described as resolving a “dispute. . . in [the District of Columbia] Circuit” over which statute of limitations—blue sky or general fraud— 26 We note that in Valencia v. Anderson Brothers Ford, 617 F.2d 1278 (7th Cir.), cert. granted, 101 S.Ct. 395 (1980), and Zweibon v. Mitchell, 606 F.2d 1172, 1177 (D.C. Cir. 1979), cert. pet. filed, 48 U.S.L.W. 3404 (U.S. Dec. 7, 1979), related issues have: been raised before this Court. It is of course not possible to know whether the disposition of these pending matters will be relevant to the issue presented here. 25 should be applied to implied securities law claims. Houlihan v. Anderson-Stokes, Inc., 434 F. Supp. 1324, 1326 (D.D.C. 1977).?” Moreover, during the period in question, other federal courts of appeals were in dispute over which statute of limita- tions should be applied to implied securities law claims.?* Indeed, in Forrestal Village the Court of Appeals simply “join[ed] the majority of circuits which [had] considered this question” and explicitly “adopt[ed] the reasoning of the Eighth Circuit in Vanderboom.” 551 F.2d at 413.”° The second Chevron criterion requires the court to “[look] to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will . . . retard its operation.” 404 U.S. at 107. The Court of Appeals conceded 27 Even as late as January 1973, when respondents first filed suit, no federal court had applied the three-year District of Columbia general fraud statute of limitations to implied securities law claims. The best authority respondents could find for applying the general fraud statute of limitations was dictum contained in an unpublished, unofficial memorandum decision by the Court of Appeals in March 1975, which under the Court of Appeals’ rules was intended to have no precedential value. Moreover, respondents have admitted, as they must, that they could not possibly have relied upon this unofficial decision since it was issued two years after they filed their original complaint. Appellants Brief to the Court of Appeals at 4. 28 As early as 1970, the Eighth Circuit had chosen to apply the blue sky law statute of limitations. Vanderboom v. Sexton, 442 F.2d 1233 (8th Cir.), cert. denied, 400 U.S. 852 (1970). That decision was followed in 1971 by similar decisions by two district courts—one in the First Circuit and one in the Fourth Circuit. Dyer v. Eastern Trust & Banking Co., 336 F. Supp. 890, 906 (D. Me. 1971); Batchelor v. Legg & Co., 52 F.R.D. 553, 558 (D. Md. 1971). In early 1972, the Seventh Circuit joined the trend toward adoption of the blue sky alternative. Parrent v. Midwest Rug Mills, Inc., 445 F.2d 123 (7th Cir. 1972). See generally Richardson v. Salinas, 336 F. Supp. 997, 1000-01 (N.D. Tex. 1972). 29 The District of Columbia blue sky law statute of limitations chosen by the Court of Appeals in Forrestal Village was enacted by Congress in 1964 and, as the Court of Appeals acknowledged, has a “com- monality of purpose” with Section 10(b) of the 1934 Act. It permits no tolling and prohibits enforcement of any securities claim “after two years from the contract of sale.” D.C. Code § 2-2413(e) (1973). Under this statute, respondents’ claims were barred as of December 17, 1971—more than a year before they filed their complaint. 26 that the “commonality of purpose” of the blue sky law and Section 10(b) “dictated” the choice in Forrestal Village of the two-year statute of limitations which “best furthered federal policy.” Slip op. at 13 (App. A-13). The Court of Appeals specifically acknowledged that the second Chevron criterion “suggests retroactive application of Forrestal Village.” Id. It ultimately disregarded this criterion, asserting that it was “outweighed by the first and third criteria.” Jd. The third and final Chevron criterion requires the court to weigh “the inequity imposed by retroactive application.” 404 U.S. at 107. As highly sophisticated institutional investors, respondents had undisputed access to knowledgeable legal, accounting, financial and business advisers. As discussed above, they had available promptly after the private placement numerous remedies under the federal securities laws and otherwise—remedies that other stockholders promptly in- voked. Although litigation was contemplated within days of their stock purchases, responderits made a deliberate decision not to commence litigation. Had respondents merely looked at Vanderboom in early 1971, long before the two-year blue sky statute of limitations had barred their claims, they should have seen “foreshadowed” what the Court of Appeals would later hold in Forrestal Village. Equity would not be served by allowing respondents of this type to bring an implied right of action after they allowed their express remedy under Section 12 of the 1933 Act to become time-barred. Such a result would turn this Court’s rationale in Chevron on its head: instead of prospective-only application being used to avoid a harsh result, it would be used to create one by rewarding plaintiffs who slept on their rights for years and now seek to prosecute a stale claim.*° 30 Not only is the Court of Appeals’ decision unsupported by and contrary to this Court’s decision in Chevron, but its approach to the statute of limitations conflicts with at least the spirit of recent rulings by this Court that emphasize the salutary nature of statutes of limitations. See Delaware State College v. Ricks, 449 U.S. ____., __, 101 S. Ct. 498, 505 (1980) (statutes of limitations “themselves promote important interests”); Board of Regents v. Tomanio, 446 U.S. 478, 487 27 Since this Court’s initial decision in Chevron, the federal courts have refused to expand the Chevron criteria for pro- spective-only application of decisions beyond the narrowly-de- fined circumstances contemplated by this Court. See, é.2., Matter of S/S Helena, 529 F.d 744, 748 (Sth Cir. 1976); Jimenez v. Weinberger, 523 F.2d 689, 703-04 (7th Cir. 1975), cert. denied, 427 U.S. 912 (1976); Schaefer, 509 F.2d at 1294- 95. Adherence to Chevron’s principles has proved essential to the sound and efficient administration of justice. Chevron has been an important element in affording litigants and the courts certainty as to the law that should be applied whenever it appears that “an avulsive change” in law has occurred, even in the absence of the overruling of clear past precedent. Unless certiorari is issued, the decision below will create uncertainty and confusion as to which law should be applied in the myriad of cases involving changing or developing areas of the law, with particular reference to the many cases involving the statute of limitations on securities law claims. The result will be to burden both judicial resources and litigants by opening up yet another arena for imaginative litigants. (1980); United States v. Kubrick, 444 U.S. 111, 117 (1979) (the statute of limitations defense is a “meritorious defense, in itself serving a public interest”). * 28 CONCLUSION For the foregoing reasons, this petition for a writ of cer- tiorari should be granted. Respectfully submitted, MILTON V. FREEMAN : Counsel of Record ROBERT H. WINTER THOMAS D. NURMI LAWRENCE A. SCHNEIDER ROBERT B. OTT ARNOLD & PORTER 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 872-6700 Attorneys for Petitioners White & Case and Marion Jay Epley, ll April 8, 1981 CERTIFICATE OF SERVICE In accordance with Rule 28.5(b) of the Rules of the United States Supreme Court, I hereby certify that three copies of the foregoing Petition for Writ of Certiorari to the United States Court of Appeals for the District of Columbia Circuit were sent by first-class mail, postage prepaid, to each of the follow- ing counsel for the parties to the proceedings in the Court of Appeals, on this 8th day of April, 1981. WILLIAM R. BERNARD, Esquire 910 17th Street, N.W. Suite 1117 Washington, D.C. 20006 Counsel for Cortes W. Randell WILLIAM E. HEGARTY, Esquire CAHILL, GORDON & REINDEL 80 Pine Street : New York, New York 10005; Counsel for Peat, Marwick, Mitchell & Co., Anthony M. Natelli and Joseph Scansaroli SIDNEY DICKSTEIN, Esquire DICKSTEIN, SHAPIRO & MORIN 2101 L Street, N.W. Washington, D.C. 20037 | Counsel for Roger O. Walther CHERIF SEDKY, Esquire HILL, CHRISTOPHER and PHILLIPS, P.-C. 1900 M Street, N.W. Washington, D.C. 20036 Counsel for Wachovia Bank and Trust Co., N.A.., First Wisconsin Trust Co., National Fire Insurance Company of Hartford, Mellon Bank, N.A., and Dreyfus Offshore Trust, N. V. FRANKLIN M, SCHULTZ, Esquire PURCELL & NELSON 1776 F Street, N.W. Washington, D.C. 20006 Counsel for James F. Joy JAMES SHARP, Esquire GLASSIE, PEWETT, BEBBE & SHANKS 1737 A Street, N.W. Washington, D.C. 20006 Counsel for Bernard J. Kurek JAMES J. BIERBOWER, Esquire BIERBOWER & ROCKEFELLER Commonwealth Building 1625 K Street, N.W. Washington, D.C. 20006 Counsel for John G. Davies GEORGE P. MICHAEBLY, JR., Esquire SHAW, PITTMAN, POTTS & TROWBRIDGE 1800 M Street, N.W. Washington, D.C. 20036 Counsel for Donald A. Fergusson and Robert A. Fergusson /s/ MILTON V FREEMAN Counsel of Record for Petitioners White & Case and Marion Jay Epley, Il APPENDICES — s are —_—_ Notice: This opinion is subject to formal revision before publication in the Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify the Clerk of any formal errors in order that corrections may be made before the bound volumes go to press. United Strtes Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 79-1595 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL., APPELLANTS V. NATIONAL STUDENT MARKETING CORPORATION, ET AL. No. 79-1596 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL., APPELLANTS Vs NATIONAL STUDENT MARKETING CORPORATION, ET AL. No. 79-1597 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. V. NATIONAL STUDENT MARKETING CORPORATION, ET AL. WHITE & CASE, ET AL., APPELLANTS Bills of costs must be filed within 14 days after entry of judgment. The court looks with disfavor upon motions to file bills of costs out of time. it A-2 No. 79-1598 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. Vv. NATIONAL STUDENT MARKETING CORPORATION, ET AL. PEAT, MARWICK, ET AL., APPELLANTS No. 79-1599 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. Vv. NATIONAL STUDENT MARKETING CORPORATION, ET AL. ROGER O. WALTHER, APPELLANT No. 79-1600 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. Vv. NATIONAL STUDENT MARKETING CORPORATION, ET AL. JAMES F.. JOY, APPELLANT A-3 No. 79-1601 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. Vv. NATIONAL STUDENT MARKETING CORPORATION, ET AL. DONALD A. FERGUSSON AND ROBERT A. FERGUSSON, APPELLANTS No. 79-1602 WACHOVIA BANK AND TRUST Co., N.A. (as Trustee and Agent for various trust accounts), ET AL. Vv. NATIONAL STUDENT MARKETING CORPORATION, ET AL. CORTES W. RANDELL, APPELLANT Appeals from the United States District Court for the District of Columbia (D.C. Civil Action No. 166-73) Argued December 13, 1979 Decided December 5, 1980 Juan A. del Real and Gilbert C. Miller, with whom Richard M. Phillips was on the brief, for appellants in No. 79-1595. A-4 Paul Gonson, Principal Associate General Counsel, Se- curities and Exchange Commission, with whom Michael K. Wolensky, Assistant General Counsel, Securities and Exchange Commission, was on the brief, for amicus curiae, Securities and Exchange Commission, in No. 79- 1595 urging reversal. Milton V. Freeman, with whom Daniel A. Rezneck, Thomas D. Nurmi, and Lawrence A. Schneider were on the brief, for White & Case and Marion Jay Epley, III, appellees in No. 79-1595 and cross-appellants in No. 79- 1597. William E. Hegarty, with whom Mathias E. Mone was on the brief, for Peat, Marwick, Mitchell & Co., et al. ap- pellees in Nos. 79-1595 and 79-1596 and cross-appellants in No. 79-1598. Franklin M. Schultz and Bruce W. Dunne were on the brief for James F. Joy, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1599, 79-1601, and 79-1602 and cross-appellant in No. 79-1600. Sidney Dickstein was on the brief for Roger O. Walther, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1600, 79-1601, and 79-1602 and cross-appellant in No. 79-1599. William R. Bernard was on the brief for Cortes W. Randell, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1599, 79-1600, and 79-1601 and cross- appellant in No. 79-1602. George P. Michaely, Jr., and Thomas W. Armstrong were on the brief for Fergusson, et al., appellees in No. 79-1595 and cross-appellants in No. 79-1601. Also Cherif Sedky entered an appearance for appellants Wachovia Bank and Trust Co., et al. in Nos. 79-1595 and 79-1596. A-5 Before: ROBINSON and MIKVA, Circuit Judges, and FLANNERY*, United States District Judge for the District of Columbia. Opinion for the court filed by Circuit Judge MIKVA. MIKVA, Circuit Judge: This is yet another installment in the saga of the collapse of one of the glamor stocks of the 1960s, the National Student Marketing Corporation (NSMC). Appellants allege a widespread scheme to mis- represent the financial condition of NSMC and thereby to stimulate investor interest in NSMC’s securities. They seek damages to remedy losses suffered when the value of NSMC stock dropped suddenly and dramatically more than a decade ago, and they appeal the district court’s dismissal of their claims as time-barred. On cross-appeal, defendants argue that the court below erred in finding that appellants have a private right of action under section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j(b) (1976), and under section 17(a) of the Securities Act of 1933 (the 1933 Act), 15 U.S.C. § 77q(a) (1976). We reverse the district court’s holding that appellants’ claims are barred by the statute of limitations, and we af- firm appellants’ right to pursue a remedy under section 10(b) of the 1934 Act. I. BACKGROUND In December of 1979, appellants (Wachovia)! bought approximately five million dollars’ worth of NSMC stock from the corporation and two of its directors. The pur- chase was a private placement transaction governed by detailed purchase agreements. Two months later, the market price of NSMC stock declined more than sixty per- *Sitting by designation pursuant to 28 U.S.C. § 292(a). Judge Flannery authored section II of this opinion. -1 Appellants are the Wachovia Bank and Trust Co., the Mel- lon Bank, the First Wisconsin Trust Co., the Dreyfus Offshore Trust, and the National Fire Insurance Company of Hartford. A-6 cent, and NSMC announced that it expected to report a loss for the previous fiscal quarter. The Securities and Exchange Commission (SEC) then began a two-year investigation of NSMC, which ended in February, 1972, with the filing of an enforcement and in- junction action against NSMC and the other major partici- pants in NSMC’s merger with Interstate National Corpo- ration.2 The Commission charged that the price of NSMC stock had been artificially inflated in violation of the secu- rities laws. In addition, various civil actions were fjJed in 1970 and 1972 by purchasers of NSMC stock.® The original complaint in this case, filed January 29, 1973, sought damages from NSMC and several of its offi- cers and employees and from Peat, Marwick, Mitchell & Co. (PMM), NSMC’s independent auditor; Anthony Natelli, the PMM partner in charge of the NSMC account; and Joseph Scansaroli, the PMM audit supervisor. These defendants were charged with participating in a conspir- acy to defraud investors by artificially inflating the price of NSMC stock and thereby violating various sections of the 1933 and 1934 Acts Specifically, appellants contended that misrepresentations about NSMC’s financial condition had been included in oral statements, in press releases, in reports filed with the SEC, and in other published reports not filed with the Commission. The fraudulent scheme was allegedly furthered by NSMC’s acquisition of a number of corporations. The original complaint did not name as defendants White & Case, NSMC’s outside counsel, or Jay Epley, the 2 SEC v. National Student Marketing Corp., 457 F. Supp. 682 (D.D.C. 1978). 3 Natale v. National Student Marketing Corp., Civ. No. 72- 721 (S.D.N.Y., filed Feb. 18, 1972); Lipsig v. National Student Marketing Corp., Civ. No. 70-2006 (S.D.N.Y., filed May 15, 1970); Stuckey v. National Student Marketing Corp., Civ. No. 70-H-251 (S.D. Tex., filed March 19, 1970); Garber v. Randell, Civ. No. 70-835 (S.D.N.Y., filed March 2, 1970). A-7 White & Case partner principally in charge of the NSMC account. As NSMC’s counsel, they had drafted a purchase agreement between appellants and NSMC and had issued a legal opinion to appellants, in which the buyers were as- sured that the contemplated transaction would not violate any statute. Two days before the complaint was filed, ap- pellants had entered into a letter agreement with White & Case and Epley, which provided that the statute of lim- itations would be tolled as to them for two years from the date of the letter. Appellants then amended their com- plaint on May 28, 1975, to include White & Case and Epley as defendants. The defendants* moved to dismiss the complaint on two grounds: that the action was time-barred under the two- year statute of limitations of the District of Columbia’s blue sky law, and that the sections of the securities acts on which the claims were based did not provide for or allow a private right of action. The district court held that a pri- vate remedy was implied under section 10(b) of the 1934 Act and under section 17(a) of the 1933 Act, but the court dismissed the action as untimely.5 Both issues are now before this court.® * Appellants settled with NSMC and various named defend- ants, and all claims against those parties were dismissed. De- fendants below, and appellees here, are PMM and Natelli and Scansaroli; White & Case and Epley; and the following NSMC officers and directors: John G. Davies, James F. Joy, Dennis M. Kelly, Bernard J. Kurek, Cortes W. Randell, and Roger O. Walther. 5 The district court’s opinion is reported at 461 F. Supp. 999 (D.D.C. 1978). ® Appellants abandoned their claim under § 13(a) of the 1934 Act, 15 U.S.C. § 78m(a) (1976). Their claim under § 14(a) of that Act, 15 U.S.C. § 78n(a) (1976), was dismissed by the court below, and appellants do not appeal from that decision. In addi- tion, defendants-appellees John J. Davies, Dennis M. Kelly, and Bernard J. Kurek have not joined the cross-appeal. A-8 II. STATUTE OF LIMITATIONS Two statute of limitations questions must be resolved: (1) whether the district court committed error in applying retrospectively Forrestal Village, Inc. v. Graham, 5651 F.2d 411 (D.C. Cir. 1977), which calls for a two-year stat- ute of limitations in Rule 10b-—5 actions; and (2) whether the district court properly declined application of the equitable tolling principle.7 A. The Applicable Statute of Limitations For causes of action implied under the securities laws, the forum state’s statute of limitations rules. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n.29 (1976). At issue here is which limitations period to apply: the three- year general fraud provision, D.C. Code § 12-301(8) (1973), or the two-year blue sky law provision, id. § 2- 2413(e). Resolution of this issue determines whether this suit should be dismissed on statute of limitations grounds. Ap- 7A third issue—whether appellants may take advantage of class action tolling— warrants only brief comment. In American Pipe & Construction Co. v. Utah, 414 U.S. 588 (1974), the Su- preme Court held that commencement of a class action tolls the running of the statute of limitations “for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status.” Id. at 558. Hence, a member of the purported class, after denial of certification, may intervene in an individual suit without pen- alty for the time period during which the class certification issue is pending. The district court correctly ruled that appellants fail to qual- ify for the American Pipe tolling rule. Here, certification of the class was granted, not denied. Moreover, no intervention was ever attempted; appellants filed their own action nine months before the district court granted certification, and preferred to pursue their own case rather than seek class relief. A-9 pellants bought NSMC stock on December 17, 1969. The statute of limitations began to run at the end of February, 1970,® and the suit was filed in January, 1973—more than two years, but less than three years, after the limitations period had begun to run. The district court found the two-year period applicable and accordingly dismissed the case for untimely filing. The question of the appropriate statute of limitations is an equivocal one because the trend in the federal case law has shifted. Federal courts once favored invocation of the general fraud limitations period for Rule 10b-5 actions. But during the last decade, the law has moved toward ap- plication of the blue sky law limitations period. The case law in this circuit reflects that general trend. Before 1977, this court favored application of the three- year general fraud limitations period. But in Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cir. 1977), we decided that the two-year blue sky law provision, rather than the three-year general fraud limitations guideline, “‘best effectuates the federal policy involved.’” Id. at 413.9 In so ruling, this circuit joined the majority of circuits, which at that time—in 1977—applied local blue sky law limitations periods to section 10(b) and section 17(a) securities actions. Whether the instant case should be governed by a three-year or two-year statute of limitations thus turns on whether the Forrestal Village decision is applied prospec- tively or retrospectively. The critical precedent on this question is Chevron Oil Co.v. Huson, 404 U.S. 97 (1971). We therefore look to that opinion for guidance. 8 We arrive at this date by invoking the doctrine of equitable tolling. See section II(B) infra. ® Forrestal Village noted that the blue sky statute, because it deals with the sale of securities, more closely resembles Rule 10b-5 than does common law fraud. See 551 F.2d at 414. A-10 In Chevron, the plaintiff, who was injured while work- ing on a drilling rig located on the Outer Continental Shelf, filed suit more than two years after the date the injury occurred. The defendant originally declined to raise the issue of the limitations period. The parties correctly assumed, based on federal court precedent, that admiralty law—including the doctrine of laches—applied to the case.'° During discovery, however, the Supreme Court released its decision in Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352 (1969), which removed the applicability of admiralty law to cases like Chevron. Based on Rodrigue, the district court in Chevron applied the local one-year limitations period for personal injury suits and, accordingly, dismissed the case. See 404 U.S. at 98-99. Articulating three criteria, the Supreme Court ruled in Chevron that its Rodrigue decision should be given pros- pective effect. The first, and most fundamental, factor is that “the decision to be applied nonretroactively must es- tablish a new principle of law, either by overruling clear past precedent on which litigants may have relied or by deciding an issue of first impression whose resolution was not clearly foreshadowed.” Jd. at 1006 (citation omitted). Second, the court must consider whether retrospective application will further or hinder the purpose of the deci- sion in question. Finally, prospectivity is required if ret- roactive application will create substantial injustice. In applying the first criterion and deciding whether a current decision overrules precedent, does the court look to the law as it appears at the time of the new decision, or to the time when a claim arose and a plaintiff relied on the law? The state of the law may fluctuate between these two dates, thereby changing the outcome of the first inquiry required by Chevron. The distinction is critical here. 1° The plaintiff alleged that, only many months after the acci- dent occurred, did he realize the serious nature of the injury. A-l11 The court below applied Forrestal Village retroactively. It ruled that that case failed to overrule precedent, as it existed when the decision was released in 1977. It is cor- rect that, in 1977, the circuits favored application of the blue sky law limitations period. Chevron, however, does not seek to compare a new decision to the extant law when that decision was published. Rather, Chevron favors com- paring the decision to the law at the time the plaintiff re- lied upon it, that is, the law after the claim arose and dur- ing the running of the limitations period. This choice is clear in the opinion itself. The very lan- guage of the first criterion set out in Chevron requires nonretroactive application of a decision that overrules law “on which litigants may have relied.” Moreover, the Court repeatedly noted that its Rodrigue decision reversed the law that the plaintiff relied upon when he contemplated filing suit. For example, the Court observed that, from the time the plaintiff was injured until he commenced suit, the federal cases supported application of admiralty law to cases such as plaintiff's: “(i]t cannot be assumed that he [plaintiff] did or could foresee that this consistent in- terpretation of the Lands Act would be overturned. The most he could do was rely on the law as it then was.” Jd. at 107. In reciting the facts, the Court remarked, “[wJhen this law suit was initiated, there was a line of federal court decisions” favoring application of admiralty law, and the doctrine of laches, to the case. Jd. at 99. The court further noted that the plaintiff's injuries occurred three years be- fore Rodrigue was released, and that the plaintiff filed his law suit more than one year before that decision. The lesson is clear. Chevron mandates nonretroactive application of a statute of limitations decision that over- rules the weight of past precedent. In deciding whether this criterion is met, a court must compare the new lim- itations ruling with the law the plaintiff relied upon when he contemplated filing suit. The court below thus erred in A-12 looking at the state of the law in 1977 when Forrestal Village was decided. Appellants relied on the law from December, 1969, when they bought NSMC stock, until January, 1973, when they filed suit. During that period, this circuit favored applica- tion of the general fraud limitations period. In fact, courts in this circuit reaffirmed the three-year fraud period as late as 1975. See, e.g., Vance v. National Realty Trust, [1974-1975 Transfer Binder] Fep. Sec. L. Rep. (CCH) { 95,004 (D.C. Cir. 1975); National Realty Trust v. Neelon Management Co., [1973 Transfer Binder] FED. SEc. L. REP. (CCH) 4 94,049 (D.D.C. 1973); Conlon v. University Computing Co., [1972-1973 Transfer Binder] FED. SEc. L. REP. (CCH) § 93,796 (D.D.C. 1973). Moreover, as of December, 1971—when the two-year limitations deadline applied by the district court expired—only one circuit court and one federal district court had applied the blue sky law limitations period to federal securities actions. See Vanderboon v. Sexton, 422 F.2d 1233 (8th Cir. 1970); Batchelor v. Legg & Co., 52 F.R.D. 5383 (D. Md. 1971). On the other hand, forty-six federal court decisions had applied the forum state’s gen- eral fraud statute of limitations.11 These cases included opinions from eight United States Circuit Courts of Appeals. }? 11 See Brief for Appellants at 34 n.22. 12 F.g., Richardson v. MacArthur, 451 F.2d 35 (10th Cir. 1971); Bailes v. Colonial Press, Inc., 444 F.2d 1241 (5th Cir. 1971); Douglass v. Glenn E. Inton Investments, Inc., 440 F.2d 912 (9th Cir. 1971); Klein v. Auchincloss, Parker & Redpath, 436 F.2d 339 (2d Cir. 1971); Morgan v. Koch, 419 F.2d 998 (7th Cir. 1969); Charney v. Thomas, 372 F.2d 97 (6th Cir. 1967); Janigan v. Taylor, 344 F.2d 781 (1st Cir.), cert. denied, 382 U.S. 879 (1965); Stevens v. Abbott, Proctor & Paine, 288 F. Supp. 836 (E.D. Va. 1968); Tobacco & Allied Stocks v. Trans- america Corp., 143 F. Supp. 323 (D. Del. 1956). A-13 Thus, prior to, and during, the running of the limitations period, federal courts, including this circuit, overwhelm- ingly adopted the general fraud limitations period. It was the law at this point in time on which appellants relied. Accordingly, consideration of the first factor of Chevron points toward prospective application of Forrestal Village. For the same reason, the third criterion also favors prospectivity. As in Chevron, “{i]t would also produce the most ‘substantial inequitable results’ to hold that [appel- lants] ‘slept on [their] rights’ at a time when [they] could not have known the time limitation that the law imposed upon [them].” 404 U.S. at 108 (citation omitted). The second factor is more equivocal. The court did base its decision in Forrestal Village on which statute of lim- itations period best furthered federal policy. But the choice was ultimately dictated by the “commonality of purpose” between the blue sky law and sections 10(b) and 17(a), 551 F.2d at 414, not by any substantive difference between a two- and three-year limitation. Even if this sec- ond factor suggests retroactive application of Forrestal Village, we think it outweighed by the first and third criteria, which overwhelmingly dictate that the decision be applied prospectively here.!% This action is therefore 13 Appellees’ citation to Zweibon v. Mitchell, 606 F.2d 1172, 1177 (D.C. Cir. 1979), petition for cert. filed, 48 U.S.L.W. 3404 (U.S. Dec. 7, 1979) (Nos. 79-881 & 79-883), for the proposition that “[rJetroactivity is t:.. rule” is unavailing. In Zweibon, the judicial ruling at issue—requiring a warrant for domestic na- tional security wiretaps—did not overrule precedent. Nor was the ruling unforeshadowed. On several occasions in the late 1960s, the Supreme Court had expressed concern regarding warrantless wiretaps, and “[e]xtension of that concern to the national security sphere was certainly likely, though perhaps not inevitable.” Jd. at 1178 n.31. Hence, rather than adopt an avulsive change in the law, or resolve a complex issue of first impression, Zweibon merely extended existing law to domestic national security situations. However, where, as here, a deci- A-14 guided by the three-year statute of limitations for general fraud. e B. Equitable Tolling The doctrine of equitable tolling permits, with respect to fraud, the tolling of the limitations period until the plaintiff discovers, or should have discovered through the exercise of due diligence, the fraudulent activity. This court recently articulated the equitable tolling standard in Fitzgerald v. Seamans, 553 F.2d 220, 228 (D.C. Cir. 1977): “time does not begin to run until plaintiff discovers, or by reasonable diligence could have discovered, the basis of the lawsuit.” The Fitzgerald formulation of the equitable tolling doctrine reiterated a standard long applied in fed- eral courts. See, e.g., Cook v. Avien, Inc., 573 F.2d 685, 695 (1st Cir. 1978); Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402, 410 (2d Cir. 1975); Klein v. Bower, 421 F.2d 338, 343 (D.C. Cir. 1970). The district court decided against invocation of the equitable tolling principle. It ruled that appellants “should have known of the fraud within the two-year statute of limitations, running immediately after the sale.” 461 F. Supp. at 1010. The court based its ruling on certain “‘code blue’ notices of fraud.” Jd. at 1009. These included the precipitous decline of the price of NSMC stock between December 17, 1969, and February 17, 1970; NSMC’s re- ported loss on February 16, 1970, of 1.2 to 1.7 million dol- lars; and articles in Barron’s (December 22, 1969)!* and The Wall Street Journal (February 17, 1970),'5 question- ing NSMC’s auditing procedures and reporting the com- pany’s financial problems. The court below thus concluded: sion displaces the weight of precedent relied upon by the plain- tiff, prospective, rather than retrospective, application must be the rule. 14 Joint Appendix (J.A.) at 710. 15 J.A. at 712. A-15 [Tjhese facts, coupled with the several lawsuits filed in 1970, provided a clearly marked trail, which, if pursued with diligence, would have led the plaintiffs to the fraud of the NSMC officials and to the attorney-defendants and their involvement in the stock sale. Id. There can be little doubt that these code blue factors implicated the accountant-defendants—but only in Feb- ruary, 1970, when most of the events occurred. The only hint of fraud available to appellants before February, 1270, was the publication of the Barron’s article, which appeared on December 22, 1969. This article criticized NSMC’s practices of deferring costs, and of including as part of its 1969 income the earnings of companies acquired after expiration of the 1969 fiscal year. This article, taken alone, was insufficient to alert ap- pellants to fraudulent activity committed by the accountant-defendants. Although the article questions the nature of certain accounting procedures, it in no way inti- mates that such procedures were fraudulent. As a matter of law, we.believe that one article challenging the ac- counting procedures of a reputable firm is insufficient to impute knowledge of fraud to appellants. See Robertson v. Seidman & Seidman, 609 F.2d 583 (2d Cir. 1979) (publicly disseminated information doubting propriety of accounting practices inconclusive regarding time that plaintiff pos- sessed knowledge of fraud). Hence, although we agree with the court below that the code blue factors, taken cumulatively, were sufficient to warn appellants of the possibility of fraud on the part of the accountant- defendants, we nonetheless find that the court committed error in declining to toll the limitations period until Feb- ruary, 1970. The statute of limitations cannot run until the events that implicated the accountants occurred, and all but one of them occurred, or became discernible, in Feb- ruary, 1970. The statute of limitations against the ac- A-16 countants should thus be tolled until that time. Given our holding above that the three-year statute of limitations applies to this case, appellants filed this suit against the auditor-defendants within the limitations period. We are unsure whether the code blue factors were suffi- cient to place appellants on notice in February, 1970, of the possibility of fraud committed by the attorney- defendants. But a more precise determination on the run- ning of the limitations period against these defendants is unnecessary. Insofar as the three-year statute of lim- itations applies, and February, 1970, is the earliest possi- ble time the attorney-defendants could have been impli- cated, appellants’ claims against these defendants clearly fall within the limitations deadline. We therefore reverse the ruling of the court below and find that appellants’ claims are not time-barred. III. AVAILABILITY OF IMPLIED REMEDIES The second issue in this case resurrects a decade-old and multi-faceted controversy and requires application of a doctrine that was examined by the Supreme Court no less than five times during the last Term. The question before the court on the cross-appeal, and necessary to our deci- sion in light of our holding on the statute of limitations question, is whether an implied right of action is available to Wachovia under section 10(b) of the 1934 Act?® and the 16 It shall be unlawful for any person, directly or indi- rectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— (b) To use or employ, in connection with the pur- chase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropri- A-17 corresponding SEC Rule 10b-5,'7 as well as under section 17(a) of the 1933 Act,'® or whether plaintiffs are limited to ate in the public interest or for the protection of in- vestors. Section 10(b), 15 U.S.C. § 78j(b) (1976). 17 Rule 10b-5, promulgated by the SEC pursuant to authority granted by § 10(b) of the 1934 Act, provides in full: It shall be unlawful for any person, directly or indi- rectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme or artifice to de- fraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the cir- cumstances under which they were made, not mis- leading, or (c) To engage in any act, practice or course of busi- ness which operates or would operate as a fraud or deceit upon any person, in connection with the pur- chase or sale of any security. 17 C.F.R. § 240.10b-5 (1979). 18 It shall be unlawful for any person in the offer or sale of any securities by the use of any means or in- struments of transportation or communication in in- terstate commerce or by the use of the mails, directly or indirectly— (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (3) to engage in any transaction, practice, or course of business which operates or would op- erate as a fraud or deceit upon the purchaser. Section 17(a), 15 U.S.C. § 77q(a) (1976). A-18 the express remedies set forth in those statutes.?9 A. Implying a Cause of Action Under Section 10(b) and Rule 106-5 It has been almost thirty-five years since a private cause of action was first implied under section 10(b) and Rule 10b-5, and “a substantial body of case law and commen- tary has developed as to its elements.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197 (1976). Although the initial formulation of the implied remedy and the molding of its contours occurred in the courts of appeals,?° the Supreme Court has recognized an implied cause of action under 10(b) many times.?! 18 Because we decide that appellants may pursue a private remedy under § 10(b) of the 1934 Act, and because their claims can be fully satisfied by such an action, we do not decide whether a private right of action may be implied under § 17(a) of the 1983 Act. That question has explicitly been left open by the Supreme Court. See Aaron v. SEC, 100 S. Ct. 1945, 1951 (1980); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 733 n.6 (1975). The courts of apneals are in conflict on this issue, though most have recognized a cause of action implicit in § 17(a). Compare Kirshner v. United States, 603 F.2d 234, 241 (2d Cir. 1978), cert. denied, 442 U.S. 909 (1979) (recognizing . implied remedy under § 17(a)); Daniel v. International Bhd. of Teamsters, 561 F.2d 1228, 1245-46 (7th Cir. 1977), rev’d on other grounds, 439 U.S. 551 (1979) (same); Newman v. Prior, 518 F.2d 97, 99 (4th Cir. 1975) (same), with Shull v. Dain, Kaiman & Quail, Inc., 561 F.2d 152, 159 (8th Cir. 1977), cert. denied, 434 U.S. 1086 (1978) (rejecting implied remedy). 20 See, e.g., Matheson v. Armbrust, 284 F.2d 670 (9th Cir. 1960); Hooper v. Mountain States Securities Corp., 282 F.2d 195 (5th Cir. 1960), cert. denied, 365 U.S. 814 (1961); Fratt v. Robinson, 203 F.2d 627 (9th Cir. 1953); Fischman v. Raytheon Mfg. Co., 188 F.2d 783 (2d Cir. 1951). 21 See Santa Fe Indus., Inc. v. Green, 480 U.S. 462, 477 (1977); Piper v. Chris-Craft Indus., Inc., 480 U.S. 1, 25 (1977) (“This Court has nonetheless held that in some circumstances a A-19 Moreover, despite many efforts, successful and unsuc- cessful, to amend related sections of the national securities laws, Congress never saw reason to limit or constrict the application of implied remedies under section 10(b). Longstanding judicial application of a court’s statutory in- terpretation, the Supreme Court has said, when added to the failure of Congress to reject its reasoning, “argues significantly in favor of [its] acceptance.” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 728, 733 (1975). The starting point for any inquiry regarding implied remedies is the intent of Congress in passing the statute in the first place. The Supreme Court’s recent opinions, em- phasizing that congressional intent must be the touch- stone, have reaffirmed use of the test first articulated in Cort v. Ash, 422 U.S. 66 (1975), for ascertaining that in- tent.22 There the Court outlined the following four-step analysis to guide efforts to determine legislative intent: First, is the plaintiff ‘one of the class for whose especial benefit the statute was enacted”—that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative private cause of action.can be implied with respect to the 1934 Act’s antifraud provisions, even though the relevant provisions are silent as to remedies.”); Hochfelder, 425 U.S. at 196 (“{T]Jhe existence of a private cause of action for violations of the statute and the Rule is now well-established.”); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 728, 7380 (1975); Affiliated Ute Citizens v. United States, 406 U.S. 128, 144-54 (1972); Super- intendent of Ins. v. Bankers Life & Casualty Co., 404 U.S. 6, 13 n.9 (1971) (“It is now well established that a private right of action is implied under § 10(b).”). 22 Although one of the dissenters in Cannon v. University of Chicago would have discarded the Cort approach, see 441 U.S. 677, 742 (1979) (Powell, J., dissenting), the controversy has primarily revolved around how to apply Cort, not whether to apply it. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 23-24 (1979); Touche Ross & Co. v. Redington, 442 ’ U.S. 560, 575-76 (1979); Cannon, 441 U.S. at 688. a. A-20 intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of ac- tion based solely on federal law? Id. at 78 (citations omitted) (emphasis in original). Applying the Cort criteria, it is clear firstly that Wachovia is within the specific class to be protected by the statute. Section 10(b) proclaims as its purpose “the protec- tion of investors.” Secondly, as in other cases in which private remedies have been implied, a search of the legis- lative history yields little specific. Congress did not spend much time discussing 10(b), notwithstanding its clear place as a “catch-all clause to prevent manipulative devices.” Hochfelder, 425 U.S. at 202 (quoting Thomas Corcoran, spokesperson for the drafters of the statute); see Chiarella v. United States, 445 U.S. 222, 226 (1980). Such silence, however, is neither surprising nor deter- minative. See Transamerica Mortgage Advisors, Ine. v. Lewis, 444 U.S. 11, 18 (1979); Cannon v. University of Chicago, 441 U.S. 677, 694 (1979); Blue Chip Stamps, 421 U.S. at 737. If Congress had spoken plainly enough, the task would be simple. The quest, therefore, is not neces- sarily for evidence that Congress specifically intended to imply a private right of action, but rather for indications whether Congress meant to deny such a remedy. This was the thrust of Transamerica. There, the Court found legislative maneuverings that so reshaped earlier drafts of the statute at issue as to offer persuasive evidence that Congress wanted no implied remedies added to what the statute specifically provided.2* No such legislative history disposes of the issue here. 23 See text following note 26 infra. 7% A-21 Because the relevant legislative chronicles do not nega- tive the existence of implied remedies, the third factor of Cort must be examined: whether a private remedy “is necessary or at least helpful to the accomplishment of the statutory purpose.” Cannon, 441 U.S. at 703. We find more than the requisite link between the existence of an implied cause of action and the broad purposes of the 1934 Act. A private right of action not only compensates the investors who are the beneficiaries of section 10(b) in gen- eral, but also affords a broad deterrent force against the fraud that the statute condemns. See, e.g., Fratt v. Robinson, 203 F.2d 627, 631 (9th Cir. 1953). And, as the . SEC argues forcefully in its amicus position, a private remedy is a necessary supplement to administrative en- forcement because the Commission cannot do the job alone. See Blue Chip Stamps, 421 U.S. at 730; J.J. Case Co. v. Borak, 377 U.S. 426, 482-33 (1964); cf. Cannon, 441 U.S. at 708 n.42.24 Application of the Cort criteria thus points in favor of appellants’ right to pursue a cause of action here. Cross- appellants urge, however, that recent opinions of the Su- preme Court have limited preexisting law in this area. We cannot read those cases to support a conclusion that a pri- vate remedy under section 10(b) no longer exists. In Cannon v. University of Chicago, 441 U.S. 677 (1979), the Court held that there was a private right of action under Title IX of the Education Amendments of 24 The fourth factor outlined in Cort—whether the case in- volves matters traditionally of state or federal concern—is not as relevant as the first three in an inquiry into congressional intent. Nevertheless, that criterion is clearly satisfied here. As the court below found, appellants’ complaint alleges a broad scheme to manipulate the national market for NSMC stock. Conduct with such national implications is exactly what Con- gress was interested in controlling when it provided for federal regulation of the securities markets in the 1934 Act. See § 2, 15 U.S.C. § 78b (1976). A-22 1972, 20 U.S.C. § 1681 (1976), even though the statute it- self specified no such cause of action. Among the two opinions recognizing an implied remedy and the two opin- ions in dissent, there was indeed reconciliation and recon- sideration of earlier precedents. But the Court reiterated its adherence to earlier guidelines, in particular, the four-part test of Cort v. Ash. In fact, that was the core of the complaint voiced by Justice Powell in dissent, who ad- vocated abandonment of the Cort approach. See 441 U.S. at 749.25 The second case cited as proof of this radical shift away from implied remedies is Touche Ross & Co. v. Redington, 442 U.S. 560 (1979). There the Court did reject urgings for an implied remedy for violations of section 17(a) of the Se- curities Act of 1934, 15 U.S.C. § 78q(a) (1976). The Court pointed out how frequently it was called upon to “decide whether a private remedy is implicit in a statute not ex- pressly providing one.” Jd. at 562. But the Court did not announce that it was going out of the business.?® Most recently, in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979), the Court refused to imply a cause of action under section 206 of the Investors Advisers Act of 1940, 15 U.S.C. § 80b-5 (1976), a statu- tory provision worded very similarly to Rule 10b-5. The Court relied there on two pieces of evidence weighing against implication of a private remedy. First, the Act nowhere provided for damage remedies, from which the 25 Even J"stice Powell did not suggest that no private remedy should be implied under § 10(b); rather, he argued that implica- tion of a cause of action under that section “reflects the unique history of Rule 10b-5” and does not “articulate any standards of general applicability.” 441 U.S. at 738 (Powell, J., dissenting). 26 For the Court in Redington, “the inquiry end{ed]” when (1) § 17(a) neither prohibited conduct nor granted private rights, but merely required that certain forms be filed, and (2) the legislative history was silent. 442 U.S. at 576. Here, of course, § 10(b) does specifically prohibit certain conduct. A-23 Court inferred that Congress had been unwilling to impose any monetary liability in private suits under the Act. The 1933 and 1934 Acts do, of course, provide express damage remedies, and the Court in Transamerica specifically dis- tinguished them. See 444 U.S. at 20-21. Second, although early drafts of the Investors Advisers Act had given fed- eral courts jurisdiction over “all suits in equity and ac- tions at law brought to enforce any liability or duty” created by the statute, the final version appeared without the italicized phrases. The Court interpreted this omission as corroborating Congress’ rejection of any civil liability. See id. at 21-22. In contrast, the 1934 Act’s jurisdictional provision, 15 U.S.C. § 78aa (1976), is identical to the early version of the Investors Advisers Act quoted above.?? It may be reasonable to infer from these recent pro- nouncements that the Court is not favorably inclined to- 27 In addition to those cases discussed above, the Supreme Court has recently failed to imply private rights of action in Chrysler Corp. v. Brown, 441 U.S. 281 (1979), and in Piper v. Chris-Craft Indus., Inc., 480 U.S. 1 (1977). Both are distin- guishable from this case. In Brown, involving the Trade Secrets Act, 18 U.S.C. § 1905 (1976), the Court expressed reluctance to find an implied remedy in a criminal statute. And, “[mJost im- portantly,” the Court noted, a private right was not necessary to effectuate the purposes of the Act in that case because of the availability of review under § 10 of the Administrative Proce- dure Act, 5 U.S.C. § 702 (1976). 441 U.S. at 317-18. In Piper, the Court rejected the contention of defeated ten- der offerors that they were entitled to a private remedy under § 14(e) of the 1934 Act, 15 U.S.C. § 78n(e) (1976), added by the Williams Act of 1968. The Court’s decision was based on legisla- tive history indicating that the sole purpose of the Williams Act was the protection of shareholders of target corporations. See 430 U.S. at 26-35. Moreover, the Court held, an implied remedy in favor of tender offerors might be inconsistent with that objec- tive by awarding damages “to the very party whose activities Congress intended to curb.” Jd. at 39. Even if such damage awards might contribute indirectly to shareholder protection, A-24 ward expanding the doctrine of implied remedies; it is un- reasonable to imply, as cross-appellants seem to in their briefs, that all the implied remedies that have previously been established have now been swept away. In sum, we find that under the Cort analysis, section 10(b) continues to lend itself to private remedies, and that neither the spirit nor the letter of any Supreme Court opinion sug- gests otherwise. B. Application of Section 10(b) to Newly Issued Securities Cross-appellants argue that the entire 1934 Act, of which section 10(b) is a part, is inapplicable to this case because the Act was intended to regulate securities only after distribution. It is the 1933 Act, say cross-appellants, which was meant to cover newly issued securities. Such a rigidly compartmentalized analysis misses the clear inten- tion of Congress and the-overall purposes of the statutory scheme. Section 10¢b) by its very terms applies to “any security,” whether or not registered on a national ex- change. The language was intended to be sweeping, and it has been so held. See Affiliated Ute Citizens v. United - States, 406 U.S. 128, 151 (1972). In SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195 (1963), the Court de- clared that Congress wanted securities legislation aimed at protecting against fraud to be construed “not techni- cally and restrictively, but flexibly to effectuate its reme- dial purposes.” the Court concluded that that objective could more directly be realized by “other, less drastic means more closely tailored to the precise congressional goal underlying the Williatas Act.” Jd. at 40. As made clear in our discussion accompanying notes 22-24 supra, the need for private remedies to supplement SEC en- forcement of the 1984 Act and the absence of legislative history indicating congressional disapproval of such remedies distin- guish the case before us and § 10(b) from the statutory provi- sions at issue in Brown and Piper. A-25 Cross-appellants advance the legislative history of the 1934 Act as supportive of their interpretation. Even if the language of section 10(b) were not so plain, its legislative history would offer cross-appellants little solace. That his- tory corroborates Congress’ intent, as noted above, that 10(b) act as a “catch-all clause to prevent manipulative de- vices.” In fact, earlier drafts of the section limited its applicability to securities listed on a national exchange, but that restriction was removed in conference. See 1 A. BROMBERG, SECURITIES LAW: FRAUD § 2.2(320) (1977). The broad scope of section 10(b) has been widely recog- nized, and the section has been applied to newly issued securities and to those sold in private placements. See, e.g., Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 12 (1971) (“[W]e read § 10(b) to mean that Congress meant to bar deceptive devices and contrivances in the purchase or sale of securities whether conducted in the original markets or face to face.”); Woolf v. S.D. Cohn & Co., 515 F.2d 591, 606-07 (5th Cir. 1975), vacated on other grounds, 426 U.S. 944 (1976), on re- mand, 546 F.2d 1252 (5th Cir.), cert. denied, 434 U.S. 831 (1977); Leasco Data Processing Equipment Corp. v. Max- well, 468 F.2d 1326, 1336 (2d Cir. 1972); Lawrence v. SEC, 398 F.2d 276, 280 (1st Cir. 1968); Hooper v. Moun- tain States Securities Corp., 282 F.2d 195, 201 (5th Cir. 1960), cert. denied, 365 U.S. 814 (1961); Fratt v. Robin- son, 203 F.2d 627, 629-31 (9th Cir. 1953). Moreover, overlap between the two statutes is neither “unusual nor unfortunate.” SEC v. National Securities, Inc., 393 U.S. 458, 468 (1969), quoted in United States v. Naftalin, 441 U.S. 768, 778 (1979). It is nowhere written that each pronouncement of Congress must be mutually exclusive of every other pronouncement. In the securities field, Congress has dealt with the problems of regulation many times—on both the cosmic and the specific levels. The 1933 and 1934 Acts are meant to be interrelated and interdependent components of a general scheme, and the = A-26 two should be read together. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 206 (1976). There is no conflict between them, and their overlap in no way diminishes the plain meaning of section 10(b). C. The Relevance of Express Remedies Cross-appellants’ final contention is that section 10(b) may not give rise to an implied remedy because other spe- cific sections of the 1933 and 1934 Acts provide pertinent express remedies. The argument smacks somewhat of a “Catch 22” arrangement because in each instance cross- appellants are ‘at the ready to show that the express rem- edies are not really available to Wachovia. And the argu- ment has been unavailing in previous cases for reasons that are applicable here. The ancient maxim “expressio unius est exclusio al- terius” is a dangerous road map with which to explore legislative intent. As we have pointed out above, the na- ture of the legislative process militates against each enactment’s being self-contained and mutually exclusive of every other enactment. Even in the context of a single piece of legislation, the existence of an express remedy arising under one section does not preclude the need for an implied remedy in other situations under other sections of the act. Such rigid analysis, noted the Supreme Court, would be an “excursion into extrapolation of legislative in- tent [that is] entirely unilluminating.” Cort v. Ash, 422 U.S. 66, 83 n.14 (1975). It is true that’ the Supreme Court has expressed concern about implying private rights of action when express rem- edies have been created by statute, but that concern has been limited to cases in which the express remedies would be nullified if additional remedies were implied. See Touche Ross & Co. v. Redington, 442 U.S. 560, 574 (1979); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 208-11 (1976); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, A-27 736 (1975).28 Such circumvention can hardly be an issue here, where the express remedies are totally different from the remedy implied under section 10(b), and where the express remedies are meant to treat different prob- lems and to be applied in different situations.?® Section 11 of the 1933 Act,%° for example, imposes civil liability for filing a false registration statement. Under 28 Cf. Greater Iowa Corp. v. McLendon, 378 F.2d 783, 790 (8th Cir. 1967); McFarland v. Memorex Corp., 493 F. Supp. 631, 653 (N.D. Cal. 1980); Gunter v. Hutcheson, 433 F. Supp. 42, 46-47 (N.D. Ga. 1977); Dorfman v. First Boston Corp. , 336 F. Supp. 1089, 1093-96 (E.D. Pa. 1972) (all holding that implied remedy under § 17(a) of the 1933 Act would circumvent lim- itations on express remedies provided by § 11 and § 12(2) of that Act). 29 The Supreme Court has never decided whether the exist- ence of express remedies precludes implication of a private right of action, and it specifically left the issue open in Hochfelder, 425 U.S. at 211 n.31, and in Blue Chip Stamps, 421 U.S. at 752 n.15. Dicta in Redington expressing reluctance to create an ad- ditional remedy when express remedies are already provided is not controlling in this case. In Redington, while the Court de- clined to decide the issue, see 442 U.S. at 574, it did note the existence of legislative history supporting a finding that the ex- press remedies were intended to be exclusive. See id. at 573 & n.15. No such evidence exists here. 30 In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a ma- terial fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security (unless it is proved that at the time of such acquisition he knew of such untruth or omission) may, either at law or in equity, in any court of competent jurisdiction, sue— (1) every person who signed the registration statement; (2) every person who was a director of (or per- son performing similar functions) or partner in A-28 that provision, a defendant may be held liable even for negligent misstatements. Because of its broader liability, section 11’s reach is limited by restrictions on the class of plaintiffs to whom its remedy is available and by a short and strict statute of limitations. To no one’s surprise, the remedy is unavailable to Wachovia on both counts: no registration statement was filed, and the suit was brought well beyond the time allowed under section 11. the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted; (3) every person who, with his consent, is named in the registration statemert as being or about to become a director, person performing similar functions, or partner; (4) every accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared or cer- tified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, re- port, or valuation, which purports to have been prepared or certified by him; (5) every underwriter with respect to such se- curity. If such person acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the regis- tration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such omission, but such reliance may be established without proof of the reading of the registration statement by such person. Section 11(a), 15 U.S.C. § 77k(a) (1976). ~ as A-29 Nothing in the remedy expressly provided by section 11 is inconsistent with an implied rig t of action under sec- tion 10(b). Under 10(b), negligence is not enough—one is liable only for fraud. The higher burden of proof under section 10(b) is clearly a trade-off for the limitations on section 11 claims, and it accounts in part for the fact that there are two separate sections dealing with related problems. See Fischmar. v. Raytheon Mfg. Co., 188 F.2d 783, 786-87 (2d Cir. 1951); Beecher v. Able, 435 F. Supp. 397, 412 (S.D.N.Y. 1977). See also Globus v. Law Re- search Service, Inc., 418 F.2d 1276, 1284 (2d Cir. 1969), cert. denied, 397 U.S. 913 (1970) (same argument applied when implying remedy under section 17(a) of the 1933 Act). Moreover, according to the view urged by cross- appellants, section 10(b) would serve no useful function because fraud is included within the broad proscription of section 11. Indeed, if no remedies may be implied under 10(b), investors defrauded in a purchase of unregistered securities are left less protected than investors suffering losses as the result of typographical errors in a registra- tion statement. For the same reasons, implying a remedy under section 10(b) creates no danger of circumvention of section 12(2) of the 1933 Act,*1 which deals with false prospectuses and 31 Any person who— (2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or in- struments of transportation or communication in interstate commerce or of the mails, by means of & prospectus or oral communication, which in- cludes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the cir- cumstances under which they were made, not misleading (the purchaser not knowing of such Z A-30 oral communications. The cause of action expressly pro- vided by that section is available in the event of negligent misstatements, and again the more stringent fraud re- quirement of section 10(b) serves as a trade-off for section 12(2)’s short statute of limitations and apparent restriction of defendants to sellers of securities. See Wachovia Bank & Trust Co. v. National Student Marketing Corp., 461 F. Supp. 999, 1006 (D.D.C. 1978). See also In re New York City Municipal Securities Litigation, MDL No. 314 M 21-22, slip op. at 16 & n.20(S.D.N.Y. Jan. 25, 1980) (using similar analysis to approve section 10(b) suit by pur- chasers of municipal securities foreclosed from using ex- press remedy of section 12(2), which exempts government securities). Finally, cross-appellants point to section 18 of the 1934 Act®2 as providing an express remedy that precludes im- untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at l [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_IA40385007_1594%3A1. Public record. Not legal advice.