Amicus Curiae Brief — Stoneridge Inv. Partners v. Scientific-Atl.

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AUE «> 2007

OFFICE OF THE CLERK

SURE ME COURT, U.S

No. 06-43

IN THE

Supreme Court of the United States

STONERIDGE INVESTMENT PARTNERS, LLC,

Petitioner,

SCIENTIFIC-ATLANTA, INC. AND MOTOROLA, INC.,

Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR BUSINESS ROUNDTABLE AS

AMICUS CURIAE IN SUPPORT OF RESPONDENTS

ROBERT B. MCCAW SETH P. WAXMAN

CHRISTOPHER J. MEADE Counsel of Record

ANNE K. SMALL LOUIS R. COHEN

WILMER CUTLER PICKERING STUART F. DELERY

HALE AND DORR LLP BRENT R. BICKLEY

399 Park Avenue WILMER CUTLER PICKERING

New York, NY 10022 HALE AND DORR LLP

(212) 230-8800 1875 Pennsylvania Ave., NW

Washington, DC 20006

(202) 663-6000

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .cecesscoscccccccscsscssccossscesccssesseseeseee iii

INTEREST OF AMICUS CURIAE oecssescsssssscsssssssssssscosseeseees 1

SUMMARY OF ARGUMENT. ...sescsssssssssscssssssssccssssstsssssssssssees 2

"SEER ava aR Nea ae aT 5

I. THE PRIVATE RIGHT OF ACTION UNDER

§10(b) IS A JUDICIAL CREATION THAT

SHOULD BE NARROWLY CONSTRUED TO RE-

Pe ee 5

A. The Implied Private Right Of Action Was

Created Under A Practice The Court Has

EEE ee te ae 5

B. While Never Abandoning The § 10(b) Im-

plied Private Right Of Action, The Court

Has Repeatedly Declined To Extend It.................... 8

C. “Scheme Liability” Would Reach Beyond

The Classes Of Persons And Conduct Cov-

ered By The Statute And Prior Decisions

Se IE ccepiiinecenstntsienesaihcnitindatstitantanibietedsntniisinmees 11

D. Congress’s Response To Central Bank

Also Supports A Narrow Interpretation Of

The Implied Private Right Of Action Un-

der § 10(b) To Exclude “Scheme Liability” ............ 13

E. The Statutory Limitations on the Express

Causes Of Action In The Securities Laws

Support A Narrow Reading Of The Im-

plied Right Of Action Under § 10(b) That

Does Not Extend To “Scheme Liability”................ 18

Il. THE SEC LACKS AUTHORITY TO DETERMINE

THAT THERE IS A PRIVATE RIGHT OF ACTION

FOR “SCHEME LIABILITY” .......cscsccssscssssssssssecssesenseceseereses 20

TABLE OF CONTENTS—Continued

A. SEC Support For An Extension Of The

§ 10(b) Private Right Of Action Is Con-

trary To Congressional Intent .............::ssessseesereeees 21

B. Principles Of Deference To Administrative

Agencies Do Not Apply To The Question

Whether To Extend The § 10(b) Private

Right Of Action To “Scheme Liability” .................. 23

CEFF OCA IIET ccsrnesenscerevtnssessenrveraresmsnaeneememnanessentenmeansiennennenses 27

iil

TABLE OF AUTHORITIES

CASES

| Page(s)

Aaron v. SEC, 446 U.S. 680 (1980) .........cccscscsseeseeseesseseeeneeee 11

Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990) ............ 23, 24

Affiliated Ute Citizens v. United States, 406 U.S.

UTI tiiiiiibihiiaie ie lll ean itebneaiensetntonienbte 6

Alexander v. Sandoval, 582 U.S. 275 (2001).... 7, 13, 16, 23, 24

Basic Inc. v. Levinson, 485 U.S. 224 (1988)...........00000 6, 23, 27

Blue Chip Stamps v. Manor Drug Stores, 421 U.S.

Si ETE ices tnbiecceenniohmiscabesintinniebiiiadeanatiestubiatetatind 6, 8, 9, 10, 25

California v. Sierra Club, 451 U.S. 287 (1981) ........ccccsessesevees 7

Central Bank of Denver, N.A. v. First Interstaie

Bank of Denver, N.A, 511 US. 164

Go ccniisnpeiniscsennnsensinniisnnnctotattebinsisemsstacevenstnmneteneueeenes passim

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984)... cecesesseeeteneeeeeees 21

Dura Pharmaceuticals, Inc. v. Broudo, 544 US.

SU hiaciescieuiiasniciathetpcudesianinteitubiesinionhioneteniaeapeibiasssenmneshas 10

Ernst & Ernst v. Hochfelder, 425 US. 185

TTI ciniesshisennctiiniahceamiasiasssditinteiindieenmneincaeneidis .6, 10, 11, 19, 25

FDA v. Brown & Williamson Tobacco Corp.,

ee TIED ciniisscinimnisicetaininctincgsstnianeniiunpiensinennesenseseteds 22

Gonzaga University v. Doe, 536 U.S. 273 (2002) ...........scceeees 7

HUD vy. Rucker, 585 U.S. 125 (2002) 20.0... ccccssssssesesssessesesesses 22

Herman & MacLean v. Huddleston, 459 U.S. 375

RRR ESTE est ice do oF ee ne ST OO CO 6

Holmes v. Securities Investor Protection Corp.,

a Or a I reccnsiveccesscnssecnsenssnatnentessasnetenececensccsvessees 7

Iverson v. City of Boston, 452 F.3d 94 (ist Cir.

SEED Syec Peart ave sae ae oT 25

Kardon v. National Gypsum Co., 69 F. Supp. 512

SN, SU, TI clash desdnniiennitenecensiidinntatinasedndenidamiucietdsicenseseen 6

Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350 (1991).........eeseee 6, 8, 19, 23, 25

Massachusetts Mutual Life Insurance Co. v. Rus-

ee Ci Fr Ce eiteercctinnccncccecnncsennnasinaieeemmnnnnannin 16

TABLE OF AUTHORITIES—Continued

Page(s)

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. |

Dabit, 547 U.S. 71, 126 S. Ct. 1508 (2006)... 6, 16

Murphy Exploration & Production Co. v. Depart-

ment of Interior, 252 F.3d 473 (D.C. Cir. 2001).............. 25

Musick, Peeler & Garret v. Employers Insurance

of Wausar, 508 U.S. 286 (1998) .......cccccsecssseesessesessees 13, 25

Pharmaceutical Research & Manufacturers of

America v. Walsh, 588 U.S. 644 (2008) .0.......sccsceeeseeseseees 7

Pinter v. Dahl, 486 U.S. 622 (1988) .......ceccessseseescsseeeseeeeees 19, 20

Piper v. Chris-Craft Industries, Inc., 430 U.S. 1

GRIFF canesncsennsmianinninitininntginiinamaeannens 10, 24, 26

Superintendent of Insurance of New York v. Bank-

ers Life & Casualty Co., 404 U.S. 6 (1971)..........cccccsesseeee 6

TSC Industries, Inc. v. Northway, Inc., 426 U.S.

GRE GT ccctntnisnscnttenstreninimmibsiisinniidiniehaiaiiiannabindiiiiiaie 10

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

gg A | ___s TE ONT T END 8, 10, 15

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

GI Pe onesescnssnerescasnimeensnennmntnnnnieieinninndienaiti 7,11, 24

Transamerica Mortgage Advisors, Inc. v. Lewis,

OER Cae BS Gaaeie vtorsctesesertcctinciiinaincssibetriniasiatelensmuiiieall 26

United States v. Mead Corp., 533 U.S. 218 (2001)................ 24

Virginia Bankshares, Inc. v. Sandberg, 501 U.S.

SE Gare) cccervscaceperissinsnvnsniocinaibesisusiiianbaicasdabiapiinaite 7, 8,9, 10

| STATUTES AND RULES

BB TBA, 6 Fi ceeresesscosssorcsesietcenninissiniantensenininiinmmmeiteaeanel 19

BD a © FUE cnircscrrccrsreseristsinsinncitinnsimsitaninneieiieeaee 19

SD CA te ccnrcststinevesnscrsneinincenmnenaupeitinpantainmasaaidinia 13, 15

Private Securities Litigation Reform Act of 1995,

BD WEES, B Te cectcnscencsccnseunestonsincnpecitensiiin 8, 13, 15, 17, 18

Migrant and Seasonal Agricultural Worker Protec-

tion Act, 29 U.S.C. §§ 1801] et 80g. .......c.sccccceseseesssceseseers 24

Civil Rights Act of 1964, tit. VI, § 602, 78 Stat. 252,

as amended, 42 U.S.C. §§ 2000d et S€q. .........ccsscerseeseeeeees 7

TABLE OF AUTHORITIES—Continued

Page(s)

Securities Litigation Uniform Standards Act of

1998, Pub. L. No. 105-353, 112 Stat. 3227.........ccccseceeee 16

Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204,

CS ES es 16

8 18

LEGISLATIVE MATERIALS

H.R. Conf. Rep. 104-369 (1995) ...............cccssessscsesssesssscssceserecees 18

H.R. Rep. No. 107-414 (2002) .............ssssssrsccssesessssersssssssseeseeees 16

I I snsccccncesintnetimanenatennenssnasieentnscansncete 14, 15

Tie ncetinnnapcnnennenneocnnsnnennnetnnnenscnnenetn 16

Supreme Court of the United States

No. 06-43

STONERIDGE INVESTMENT PARTNERS, LLC,

Petitioner,

SCIENTIFIC-ATLANTA, INC. AND MOTOROLA, INC.,

_ Respondents.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR BUSINESS ROUNDTABLE AS

AMICUS CURIAE IN SUPPORT OF RESPONDENTS

INTEREST OF AMICUS CURIAE'

Business Roundtable is an association of chief executive

officers of leading U.S. companies. The companies repre-

sented have $4.5 trillion in annual revenues and more than

10 million employees and comprise nearly one third of the

total value of the U.S. stock market. Business Roundtable

was founded in 1972 to increase the role of business execu-

' Pursuant to Rule 37.6 of the Rules of this Court, amicus states that

no counsel for a party authored this brief in whole or in part. No person

or entity, other than amicus or its members, made any monetary contribu-

tion to the preparation or submission of this brief. Petitioner has filed a

letter with the Clerk of Court giving blanket consent to the filing of all

amicus curiae briefs in this case. A letter of consent from respondents has

been filed in the Court with this brief.

tives in public policy debates and to advance the goals of

economic growth, a dynamic global economy, and a work-

force capable of future competitiveness. Since its founding,

Business Roundtable has conducted research, authored nu-

merous white papers addressing a range of significant cor-

porate matters, and lobbied Congress on such issues. It

regularly files amicus curiae briefs in cases raising legal is-

sues of significance to its members.

The question presented in this case is of great impor-

tance to Business Roundtable. The Court is asked to deter-

mine whether there is a private right of action under § 10(b)

of the Securities Exchange Act of 1934 for “scheme liability.”

By extending the reach of liability to companies that made

no misstatement (or omission) on which the plaintiffs relied,

“scheme liability” would be a broad expansion of the private

right of action under § 10(b). Because it is a particularly un-

cabined form of liability, it would increase the risk of frivo-

lous lawsuits aimed at extracting settlements—a form of

vexatious litigation against which Congress and this Court

have sought to guard. The increased scope of liability and

the threat of meritless suits threaten the interests of Busi-

ness Roundtable, its members, and the companies that its

members lead.

SUMMARY OF ARGUMENT

Neither § 10(b) of the Securities Exchange Act of 1934

nor SEC Rule 10b-5 promulgated thereunder explicitly men-

tions private civil liability, and this Court has often stated

that neither Congress nor the Commission intended to cre-

ate a right of action for private litigants. Nevertheless, dec-

ades ago, the courts implied such a right of action for mate-

rial misstatements or omissions on which a plaintiff investor

relied, provided that the plaintiff can establish that the mis-

statement or omission caused a loss. In this case, petitioner

asks this Court to extend the § 10(b) private right of action

to reach a new set of defendants: participants in a “scheme

to defraud.” Under petitioner’s view, persons who them-

selves did not employ a deceptive device on which a plaintiff

relied could be held liable if they knowingly contributed to

another person’s violation. This broad expansion should be

rejected because it would extend liability beyond the per-

sons and conduct covered by the text of the statute and

would substantially increase the dangers of vexatious litiga-

tion.

This brief will not make all of the arguments in opposi-

tion to petitioner’s proposed new form of § 10(b) liability but

will instead focus on two issues.

1. The courts created the § 10(b) private right of ac-

tion without any consideration, or evidence, of congressional

intent to authorize private enforcement of this antifraud

provision. The Court has long since acquiesced in the exis-

tence of the private right, even as it has repeated that the

right of action would not be “implied” today if the question

were presented now for the first time. The Court should not

extend the private right into new territory without any indi-

cation that Congress has authorized or approved such an ex-

tension. In practice, this Court has repeatedly declined to

expand the private right of action, stressing both its non-

statutory origins and the high potential for vexatious litiga-

tion that Rule 10b-5 actions present. Expansion of the pri-

vate right of action to reach the boundless class of “scheme”

participants that did not themselves engage in any deceptive

device would seriously exacerbate that risk.

Petitioner’s suggestion that § 10(b) be read to authorize

private actions for “scheme” liability is inconsistent with the

securities laws as written by Congress and prior decisions of

this Court. The text of § 10(b) describes persons who en-

gage in deceptive devices on which investors rely. But peti-

tioner here seeks to hold liable entities that concededly did

not engage in any deceptive device—i.e., made no misrepre-

sentation (by words or actions) or omission—on which peti-

tioner relied. Central Bank of Denver, N.A. v. First Inter-

state Bank of Denver, N.A., 511 U.S. 164, 173 (1994), re-

jected a similar extension of the private right of action to

aiders and abettors, “conclud[ing] that the statute prohibits

only the making of a material misstatement.” Jd. at 177.

Moreover, Congress, in response to Central Bank, made

clear that it did not want to provide a § 10(b) private right of

action against persons that did not themselves make mis-

statements or omissions on which investors relied. After

Central Bank, the SEC and certain professional groups

urged Congress to extend the § 10(b) private right of action

to reach aiders and abettors. Congress refused but gave the

SEC public enforcement authority against aiders and abet-

tors. At the same time, Congress also placed additional lim-

its on private § 10(b) suits in an effort to mitigate the risks of

abusive litigation.

The “schemers” covered by petitioner’s theory would

include most or all of the aiders and abettors that this Court

and Congress already found beyond the reach of § 10(b) and

would also include a limitless range of additional persons

who dealt with the person making the misstatement or

omission in any way that a plaintiff can allege knowingly ad-

vanced the “scheme.” Moreover, “scheme liability” as a legal

concept is largely undefined; current requirements to state a

cause of action under § 10(b)—including concrete allegations

of materiality, reliance, and causation—would not translate

to the “scheme” context, and the concept of a “scheme” is

less well defined in the law than aiding and abetting. The

courts would thus be required to create a new framework of

requirements. In the meantime, the uncertainty as to the

scope of liability would aggravate litigation abuses, increas-

ing the pressure to settle. Congress’s rejection of the re-

quest by the SEC and others to extend private liability to

aiders and abettors forecloses the even broader judicial ex-

pansion sought here.

Finally, creation of private “scheme liability” would aiso

be inconsistent with the express causes of action in the secu-

rities laws to which the Court has looked for guidance in de-

fining the contours of the § 10(b) private right of action. In

particular, each of the express causes of action carefully lim-

its the scope of persons subject to liability and none would

extend so broadly to reach those who participated in an ill-

defined way in the illegal conduct at issue.

2. Petitioner and certain amici have argued that the

SEC’s support for “scheme liability’—as expressed in

amicus briefs in other cases—shoulid play a major role in this

Court’s determination of the question presented. Contrary

to these suggestions, the Court does not owe deference to

the SEC’s amicus positions on this legal issue.

First, deference to agency views is appropriate only

where Congress has not spoken to the precise question at

issue. Here, Congress has made its intent clear: in the wake

of Central Bank, Congress rejected the SEC’s request to

extend private liability beyond those who themselves en-

gaged in deceptive devices on which plaintiff investors re-

lied. Second, agency deference is predicated on the delega-

tion of authority to the agency to interpret the statute on

the point at issue. Here, Congress has plainly given no such

authority to the SEC: since Congress never intended the

private right of action, it certainly did not give the SEC the

authority to determine its contours. And this Court has

made clear that it will not infer a congressional delegation of

authority to an agency to create or extend a judicial cause of

action not created or extended by the statute itself.

ARGUMENT

I. THE PRIVATE RIGHT OF ACTION UNDER § 10(b) Is A JUDI-

CIAL CREATION THAT SHOULD BE NARROWLY CONSTRUED TO

REJECT “SCHEME LIABILITY”

A. The Implied Private Right Of Action Was Created

Under A Practice The Court Has Since Abandoned

Petitioner asks the Court to extend the private right of

action under § 10(b) of the Securities Exchange Act and

Rule 10b-5 to reach participants in a “scheme to defraud,”

i.e., persons who did not themselves employ a deceptive de-

vice on which plaintiff relied. But the private right of action

under this antifraud provision is itself a judicial creation of a

kind the courts would not engage in today, and for the same

reasons the courts would not today create the right of action

from scratch, they should not now extend it into new terri-

tory.

This Court has detailed the origins of the implied right

of action under § 10(b) and Rule 10b-5. See, e.g., Herman &

MacLean v. Huddleston, 459 U.S. 375, 380 (1983). Neither

the statute nor the Commission’s rule makes any mention of

actions by private parties. A district court first found an

implied private right of action in 1946. Kardon v. National

Gypsum Co., 69 F. Supp. 512, 514 (E.D. Pa. 1946). Many

other courts followed, and this Court ultimately endorsed

the approach in Superintendent of Ins. of N.Y. v. Bankers

Life & Casualty Co., 404 U.S. 6 (1971). But the Court has

repeatedly recognized that the private right of action was

solely the creation of the Judicial Branch: “[WJe have made

no pretense that it was Congress’ design to provide the rem-

edy afforded.” Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350, 358-359 (1991). The Court has re-

peatedly described the private right of action as a “judicial

oak which ha[d) grown from little more than a legislative

acorn.” Merrill Lynch, Pierce, Fenner & Smith v. Dabit,

547 U.S. 71, 126 S. Ct. 1508, 1510 (2006) (quoting Blue Chip

Stamps v. Manor Drug Stores, 421 U.S. 723, 737 (1975)) (al-

teration in original); see also Basic Inc. v. Levinson, 485 U.S.

224, 231 (1988) (explaining that the Court continued the pri-

vate right of action because of “legislative acquiescence and

the passage of time”); Ernst & Ernst v. Hochfelder, 425 U.S.

185, 196 (1976) (“[TJhere is no indication that Congress or

the Commission, when adopting Rule 10b-5, contemplated

such a remedy.” (footnotes omitted)).

If the question whether to imply a private right of ac

tion under § 10(b) were to arise from scratch today, it is

clear that the Court’s answer would be “no,” and it is incon-

ceivable that the Court would “confirm[] with virtually no

discussion ... that such a right of action did exist.” Blue

Chip Stamps, 421 U.S. at 730 (citing Superintendent of Ins.,

404 US. at 13 n.9; Affiliated Ute Citizens v. United States,

406 U.S. 128, 150-154 (1972)). As Justice Scalia has put it,

“(Tjhe contours of a Rule 10b-5 action” were initially “im-

plied’ (i.e., created) by the Court itself—a practice we have

since happily abandoned[.]” Holmes v. Securities Investor

Protection Corp., 503 U.S. 258, 289 (1992) (Scalia, J., concur-

ring in judgment) (citing Touche Ross & Co. v. Redington,

442 U.S. 560, 568-571, 575-576 (1979)).

This Court’s more recent cases have consistently held

that “any private right of action for violating a federal stat-

ute must ultimately rest on congressional intent to provide a

private remedy.” Virginia Bankshares, Inc. v. Sandberg,

501 U.S. 1083, 1102 (1991) (citing Redington, 442 US. at

575). In Alexander v. Sandoval, 532 U.S. 275 (2001), the

Court found no private right of action under § 602 of Title V1

of the Civil Rights Act of 1964, 78 Stat. 252, as amended, 42

U.S.C. § 2000d et seq., to enforce regulations promulgated by

the Department of Justice pursuant to that section. The

Court said:

Like substantive federal law itself, private rights of

action to enforce federal law must be created by

Congress .... The judicial task is to interpret the

statute Congress has passed to determine whether

it displays an intent to create not just a private

right but also a private remedy. Statutory intent

on this latter point is determinative. Without it, a

cause of action does not exist and courts may not

create one, no matter how desirable that might be

as a policy matter, or how compatible with the stat-

ute.

Sandoval, 5382 U.S. at 286-287 (citations omitted); see also

California v. Sierra Club, 451 U.S. 287, 297 (1981) (“The

federal judiciary will not engraft a remedy on a statute, no

matter how salutary, that Congress did not intend to pro-

vide.”); Pharmaceutical Research & Mfrs. of Am. v. Walsh,

538 U.S. 644, 683 (2003) (Thomas, J., concurring in judgment)

(“(P]rivate parties may employ .. . an implied private right

of action only if they demonstrate an ‘unambiguously con-

ferred right.””) (quoting Gonzaga Univ. v. Doe, 536 U.S. 273,

283 (2002)); Redington, 442 U.S. at 578 (“The ultimate ques-

tion is one of congressional intent, not one of whether this

Court thinks that it can improve upon the statutory

scheme.”).

It follows directly from this abandonment of the prac-

tice of implying rights of action Congress itself has never

authorized, that the Court should not extend a right of action

into new territory without any indication that Congress

wished to go there. “Scheme liability” represents just such

an extension, to persons and actions that are not mentioned

in the statute.

B. While Never Abandoning The § 10(b) Implied Pri-

vate Right Of Action, The Court Has Repeatedly

Declined To Extend I:

Prior to the Private Securities Litigation Reform Act of

1995, 15 U.S.C. § 78u-4 (“PLSRA”), “Congress . . . had no

occasion to provide guidance about the elements of a private

liability scheme [under § 10(b)],” Central Bank of Denver,

N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164,

173 (1994), so the particular features and contours of the

§ 10(b) right of action had been almost entirely “of judicial

creation,” Lampf, 501 U.S. at 358. As this Court explained,

“[wle are dealing with a private right of action which has

been judicially found to exist, and which will have to be judi-

cially delimited one way or another unless and until Con-

gress addresses the question.” Blwe Chip Stamps, 421 U.S.

at 748-749. The Court has approached this task cautiously,

noting that it is ultimately not the Court’s, but rather “the

federal lawmaker’s prerogative ... to allow, disallow, or

shape the contours of—including the pleading and proof re-

quirements for—§ 10(b) private actions.” Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007).

The Court has therefore noted that “the breadth of [a]

right once recognized should not, as a general matter, grow

beyond the scope congressionally intended.” Sandberg, 501

U.S. at 1102. In the context of a right of action entirely lack-

ing a foundation in congressional intent, such as the § 10(b)

private right of action, any expansion of the claim is neces-

sarily beyond the scope that Congress intended. As a prac-

tical matter, of course, the courts must fill the interstices of

a previously recognized right of action. See, e.g., Lampf, 501

U.S. at 359 (selecting a statute of limitations for actions

brought under § 10(b)). But when asked to endorse at-

tempts to expand the class of persons and conduct for which

judicially-implied causes of action are available, the answer

must be “no.”

In fact, the Court has repeatedly cabined the implied

private right of action under § 10(b) since first recognizing it.

See, e.g., Blue Chip Stamps, 421 U.S. at 737 (limiting the

private right to purchasers and sellers); Ernst & Ernst, 425

U.S. at 193 (requiring that private actions brought under

Rule 10b-5 require “scienter’ : . . intent to deceive, manipu-

late, or defraud”); Sandberg, 501 U.S. at 1104-1105 (rejecting

respondents’ theory of causation and noting that “[tJhis is

not the first effort in recent years to expand the scope of an

action originally inferred from the Act without conclusive

guidance from Congress.”); Central Bank, 511 US. at 188-

189 (concluding that Rule 10b-5 does not provide a private

right of action against aiders and abettors).

The Court has read the § 10(b) right of action narrowly

not only because of the lack of congressional authorization

but also out of concern “that litigation under Rule 10b-5 pre-

sents a danger of vexatiousness different in degree and in

kind from that which accompanies litigation in general.”

Blue Chip Stamps, 421 U.S. at 739. As the Court explained,

“in this type of litigation ... the mere existence of an unre-

solved lawsuit has settlement value to the plaintiff not only

because of the possibility that he may prevail on the merits

... but because of the threat of extensive discovery and dis-

ruption of normal business activities which may accompany a

lawsuit which is groundless in any event, but cannot be

proved so before trial[.]” Jd. at 742-743.

These policy considerations underlie many other deci-

sions of this Court concerning the scope of conduct action-

able under § 10(b) and the elements of such claims. In hold-

ing that a Rule 10b-5 private plaintiff must allege scienter,

“a mental state embracing intent to deceive, manipulate or

defraud,” the Court pointed to the procedural restrictions on

the express civil remedies in the 1933 Act that allowed for

recovery for negligent conduct and explained that “one of

the purposes” of those restrictions “was to deter actions

brought solely for their potential settlement value.” Ernst

& Ernst, 425 U.S. at 210 n.30. More recently, the Court ex-

plained that a private plaintiff's expansive approach to alle-

gations of loss causation under Rule 10b-5 “would permit a

plaintiff ‘with a largely groundless claim to simply take up

the time of a number of other people, with the right to do so

representing. an tn terrorem increment of the settlement

value, rather than a reasonably founded hope that the dis-

covery process will reveal relevant evidence.” Dura Phar-

ms., Inc. v. Broudo, 544 U.S. 336, 347 (2005) (quoting Blue

Chip Stamps, 421 U.S. at 741) (alteration incorporated); see

also Sandberg, 501 U.S. at 1104-1105 (rejecting respondents’

theory of causation after recalling Blue Chip Stamps and

expressing concern about “the same threats of speculative

claims”); Piper v. Chris-Craft Indus., Inc., 480 U.S. 1, 40

(1977) (“More likely is the prospect that shareholders may

be prejudiced because some tender offers may never be

made if there is a possibility of massive damages claims for

what courts subsequently hold to be an actionable viola-

tion.”); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449

(1976) (rejecting the materiality standard petitioner urged

because it was “too suggestive of mere possibilty” and might

force management to make decisions out of “fear of exposing

itself to substantial liability” “for insignificant omissions or

misstatements”).

Similar concerns animated this Court’s decision in Cen-

tral Bank. There, the Court considered petitioner’s request

to extend the reach of the § 10(b) private right of action to

aiders and abettors. Rejecting that invitation, the Court re-

peated that “litigation under 10b-5 presents a danger of

vexatiousness different in degree and in kind from that

which accompanies litigation in general.” 511 U.S. at 189.

The Court cautioned, moreover, that such litigation “re-

quires secondary actors to expend large sums even for pre-

trial defense and the negotiation of settlements.” I/d.; see

also Tellabs, Inc., 127 S. Ct. at 2509 (explaining that

“(pjrivate securities fraud actions, if not adequately con-

tained, can be employed abusively to impose substantial cost

on companies and individuals whose conduct conforms to the

law”).

This concern over vexatious litigation is also consistent

with the Court’s more limited views of private securities ac-

tions as compared to SEC enforcement actions, in which

abuse is much less of a concern. In Aaron v. SEC, 446 U.S.

680 (1980), the Court addressed SEC enforcement authority

under § 10(b) as well as § 17(a) of the 1933 Act. Notwith-

standing that the language of § 17(a) is almost identical to

that of Rule 10b-5, and the Court’s conclusion that all claims

under § 10(b) require an allegation of scienter, the Court de-

termined that the SEC could premise an enforcement action

under subsections § 17(a)(2) and § 17(a)(8) based on negli-

gence. Jd. at 697. Although the SEC may bring claims un-

der § 17(a) based on mere negligence, the Court has refused

to permit private claims under § 17(a). See Redington, 442

US. at 578.

These cases reflect the Court’s conclusion that the dan-

gers of vexatiousness inherent in § 10(b) litigation necessi-

tate particular judicial vigilance in crafting the contours of

§ 10(b) liability. Petitioner’s “scheme liability” would sub-

stantially increase the risk of vexatious litigation that has

previously concerned this Court.

C. “Scheme Liability” Would Reach Beyond The

Classes Of Persons And Conduct Covered By The

Statute And Prior Decisions Of This Court

The reasons for this Court’s refusal to expand the

§ 10(b) private cause of action that the courts created are

particularly powerful here, given that “scheme liability”

would expand liability beyond the classes of persons and

conduct covered by the text of the statute. Section 10(b) is

concerned with intentional deception of investors who rely

on the deception, and the Court has recognized an implied

private right of action by such investors against the deceiv-

ers on whom they relied. But when litigants have attempted

to extend the reach of § 10(b) liability beyond that core—

whether to negligent actors, see Ernst & Ernst, or to aiders

and abettors, see Central Bank—this Court has repeatedly

rejected their claims.

A “private plaintiff may not bring a 10b-5 suit against a

defendant for acts not prohibited by the text of § 10(b),”

Central Bank, 511 U.S. at 178, which makes it unlawful “[t]jo

use or employ, in connection with the sale of any security ...

any manipulative or deceptive device or contrivance.” As

this Court described in Central Bank, the implied private

civil liability under § 10(b) for “those who commit a manipu-

lative or deceptive act in connection with the purchase or

sale of securities” has never been extended to allow suit

where the plaintiff cannot “show reliance on the defendant’s

misstatement or omission.” Jd. at 167, 179; see also Lampf,

501 U.S. at 376-377 (noting that a private action under

§ 10(b) requires proof of a false or misleading statement, re-

liance, and causation).

Although petitioner has packaged its claim artfully, the

type of conduct of which it complains cannot fit within the

bounds of the present § 10(b) right of action. Instead, by

asking this Court to extend liability to parties who “them-

selves made no public statements [or omissions and engaged

in no expressive conduct] concerning those transactions,”

Pet. Br. i., and therefore to parties on whom petitioner can-

not have relied, petitioner requests a judicial expansion of

private liability to parties and conduct never intended by

Congress. In Central Bank, the Court refused to recognize

a similar extension after looking to “earlier cases considering

conduct prohibited by § 10(b)” and “again conclud[ing] that

the statute prohibits only the making of a material mis-

statement.” 511 U.S. at 177 (emphasis added). The Court

also explained that its “reasoning [was] confirmed by the

fact that [plaintiffs’] argument would impose 10b-5 aiding

and abetting liability when at least one element critica! for

recovery under 10b-5 is absent: reliance.” Jd. at 180. After

all, a private plaintiff bringing claims for aiding and abetting

under § 10(b) could not meet the requirement of demonstrat-

ing “reliance on the defendant’s misstatement or omission to

recover under 10b-5.” Jd. at 180. “Having sworn off the

habit of venturing beyond Congress’s intent,” this Court

should not accept petitioner’s “invitation to have one last

drink.” Sandoval, 532 U.S. at 287.

D. Congress’s Response To Central Bank Also Sup-

ports A Narrow Interpretation Of The Implied Pri-

vate Right Of Action Under § 10(b) To Exclude

“Scheme Liability”

Legislation in the wake of Central Bank reinforces the

conclusion that the private right of action under § 10(b)

should not be extended to “scheme liability.” After Central

Bank, Congress considered proposals to override that deci-

sion and expand the private right of action by adding private

liability for aiding and abetting. In enacting the Private Se-

curities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4

(“PSLRA”), however, Congress rejected those proposals

and chose to authorize only SEC enforcement against aiders

and abettors and not private claims, see id. § 78t(e). Far

from expanding the private right of action, the PSLRA and

legislation that followed recognized the same concerns ex-

pressed by this Court about abusive § 10(b) litigation and

took steps to restrict private suits under the statute. See,

e.g., id. § 78u-4(b). On the question presented here, the

Court need not “attempt to infer ‘how the 1934 Congress

would have addressed the issue had the 10b-5 action been

included as an express provision in the 1934 Act.”” Central

Bank, 511 US. at 178 (quoting Musick, Peeler, & Garret v.

Employers Ins. of Wasau, 508 U.S. 286, 294 (1993)). Con-

gress has confirmed that private claims (as opposed to civil

enforcement actions by the SEC) should not extend to per-

sons who did not themselves engage in the deception on

which the plaintiff investors relied.

Following Central Bank, the SEC argued to Congress

that private liability under § 10(b) should be extended to

aiders and abettors. Chairman Arthur Levitt testified to

Congress that, in light of Central Bank:

Persons who knowingly or recklessly assist the

perpetration of a fraud may be insulated from liabil-

ity to private parties if they act behind the scenes

and do not themselves make statements, directly or

indirectly, that are relied upon by investors. Be-

cause this is conduct that should be deterred, Con-

gress should enact legislation to restore aiding and

abetting liability in private actions.

S. Rep. No. 104-98, at 49 (1995). Groups — the North

American Securities Administrators Association and the As-

sociation of the Bar of the City of New York agreed with the

SEC that Congress should create private aiding and abet-

ting liability. See id. The Senate Report on the PSLRA

noted that when Congress chose not to add private aiding

and abetting liability to the draft bill, Chairman Levitt sub-

mitted a letter “express[ing] his disappointment” that such

liability was not added. /d. at 48.

Notwithstanding the SEC’s urgings, Congress chose not

- to expand the scope of the private right of action under

§ 10(b). Congress recognized the role of private suits in com-

plementing SEC enforcement as ensuring the “integrity and

efficiency of our markets,” S. Rep. No. 104-98, at 8, but the

PSLRA rejected “the recommendation made by the SEC,

the State securities regulators and the bar association that

aiding and abetting liability be fully restored for the SEC

and private litigants as well,” id. at 48. It did so because

“private aiding and abetting liability actions under Section

10(b) would be contrary to [the PSLRA’s} goal of reducing

meritless securities litigation.” /d. at 8, 19.

The Senate Report recognized the coercive effects of

such suits:

The dynamics of private securities litigation create

powerful incentives to settle, causing securities

class actions to have a much higher settlement rate

than other types of class actions. Many such actions

are brought on the basis of their settlement value.

The settlement value to defendants turns more on

the expected costs of defense than the merits of the

underlying claim.

S. Rep. No. 104-98, at 6. Even Chairman Levitt conceded

that “investors and markets are being hurt by litigation ex-

cesses.” Jd. at 5.

Motivated by the ame concerns about vexatious litiga-

tion that this Court has identified, see supra pp. 9-11, Con-

gress took other steps in the PSLRA “to curb frivolous, law-

yer-driven litigation,” Tellabs, 127 S. Ct. at 2509. Not only

did Congress refuse to extend the private right of action un-

der § 10(b), but it also imposed several additional “require-

ments for securities fraud actions,” 15 U.S.C. § 78u-4(b). In

particular, the PSLRA imposed heightened pleading re-

quirements for the allegations of misstatements and omis-

sions and allegations of the required state of mind. /d.

The PSLRA did, however, grant enforcement authority

against aiders and abettors to the SEC. S. Rep. No. 104-98,

at 48. Section 20(e) of the Securities Exchange Act, 15

U.S.C. 78t(e), now provides:

Prosecution of persons who aid and abet violations

For purposes of any action brought by the Commis-

sion under paragraph (1) or (3) of section 78u(d) of

this title, any person that knowingly provides sub-

stantial assistance to another person in violation of

a provision of this chapter, or of any rule or regula-

tion issued under this chapter, shall be deemed to

be in violation of such provision to the same extent

as the person to whom such assistance is provided.

Congress’s chosen approach balances competing inter-

ests, giving the SEC but not private plaintiffs the power to

act against parties who did not themselves make a material

misrepresentation or omission on which investors relied, so

that—in cases deemed appropriate by the expert agency—

action can be taken to deter and compensate for fraudulent

conduct, but there is no encouragement to private, lawyer-

driven, and often meritless litigation. The PSLRA thus re-

flects Congress’s own determination that concerns about

abusive litigation outweighed the benefits of allowing pri-

vate claims against aiders and abettors and that SEC en-

forcement is sufficient. As this Court has explained, “[(tJhe

express provision of one method of enforcing a substantive

rule suggests that Congress intended to preclude others.”

Sandoval, 532 U.S. at 290; see also Massachusetts Mut. Life

Ins. Co. v. Russell, 473 U.S. 134, 147 (1985) (when “a statute

expressly provides a particular remedy or remedies, a court

must be chary of reading others into it” (internal quotation

. When Congress has revisited the issues implicated by

the PSLRA, moreover, it has declined to expand the scope of

the private right of action under § 10(b).’ To the contrary, in

the period since the PSLRA’s enactment, legislation regard-

ing private actions under § 10(b) has focused on shoring up

the protections against vexatious litigation. See Securities

Litigation Uniform Standards Act of 1998, Pub. L. No. 105-

353, 112 Stat. 3227; Dabit, 126 S. Ct. at 1510-1512 (detailing

Congress’s response through SLUSA to litigants’ efforts to

frustrate the goals of the PSLRA).

Allowing an expansion of private rights of action under

a “scheme liability” theory would disrupt the balance that

Congress has struck. Petitioner seeks the creation of a pri-

vate right of action to remedy respondents’ alleged acts; the

acts alleged, however, do not include misstatements or omis-

sions on which petitioner relied, but merely actions that al-

legedly had “the purpose and effect of furthering the fraudu-

lent scheme.” Pet. Br. 14; see id. at 12. The “schemers” that

? In 2002, Congress again considered and rejected efforts to extend

the private right of action to reach aiders and abettors. Senator Shelby

proposed an amendment to the bill that became the Sarbanes-Oxley Act of

2002 that would have added a “private litigation” provision stating that

“persons that aid or abet violations . . . shall be deemed to be in violation

of such provision to the same extent as the person to whom such assis-

tance is provided.” 148 Cong. Rec. S6584 (daily ed. July 10, 2002). No

such provision appears in the Sarbanes-Oxley Act of 2002, Pub. L. No.

107-204, 116 Stat. 745. See also H.R. Rep. No. 107-414, at 54 (2002) (mi-

nority views observing that the SEC and others had urged Congress to

overturn Central Bank’s bar on private suits against aiders and abettors

and lamenting that Congress did not “now heed these recommendations”

and expand the private right of action).

petitioner’s theory would reach include most if not all the

aiders and abettors that Congress dealt with in a different

manner, plus an unbounded set of other persons who dealt

with the primary violator in any way that a plaintiff can al-

lege furthered the fraudulent scheme.

To the extent that the “scheme liability” alleged in this

. case can be distinguished at all from the aiding and abetting

liability rejected in Central Bank, it poses even more serious

dangers of vexatious litigation. “Aiding and abetting” is at

least a legal category with a long history and extensive

statutory and common law definitions in various contexts.

See, e.g., Central Bank, 511 U.S. at 180-183 (describing his-

tory of aiding and abetting liability). “Scheme liability”

would, presumably, potentially reach anyone who dealt in

any pertinent way with the person who is alleged to have

engaged in the fraud, a much wider range of potential defen-

dants. Since defendants are jointly and severally liable, see

15 U.S.C. § 78u-4(f)(2), the plaintiff can threaten any person

with an assertable connection to the “scheme” with the mas-

sive damages often involved in securities fraud cases.

Moreover, the scope of “scheme liability,” like the aiding

and abetting liability at issue in Central Bank, is

“unclear, in an area that demands certainty and predictabil-

ity.” Central Bank, 511 U.S. at 188 (internal quotation

marks omitted). A “scheme liability” theory would be

untethered to the accepted elements of § 10(b) actions—

particularly reliance, loss causation, and materiality. The

courts would need to develop a whole new body of law to de-

termine how Rule 10b-5 will work with respect to individu-

als and entities, such as suppliers, lenders, and professional

advisers, with even simple and peripheral relationships with

the entity making the misstatements or omissions. In the

meantime, market participants will have inadequate guid-

ance regarding the legality of a variety of conduct. “(Such a

shifting and highly fact-oriented disposition of the issue of

who may [be liable for] a damages claim for violation of Rule

10b-5 is not a satisfactory basis for a rule of liability imposed

on the conduct of business transactions.” /d. (internal quota-

tion marks omitted) (alterations in original). And this sort of

amorphous liability threat and disproportionate exposure

will not only aggravate the dangers of vexatious litigation

but also cannot help but distort business relations.

The PSLRA’s particular steps to deter vexatious pri-

vate suits are also inconsistent with a private “scheme liabil-

ity” theory. Key among the constraints placed on private

suits were heightened pleading requirements in § 78u-4(b)(1)

for claims involving “misleading statements and omissions.”

A complaint must “specify each statement alleged to have

been misleading, the reason or reasons why the statement is

misleading, and, if an allegation regarding the statement or

omission is made on information and belief, the complaint

shall state with particularity all facts on which that belief is

formed.” 15 U.S.C. § 78u-4(b)(1). A suit based on “scheme

liability,” however, would evade these requirements. The

defendant may, as in this case, never have deceived anyone

with whom it dealt, and never have made any statement or

omission on which any relevant investor relied. Accordingly,

these additional requirements—Congress’s chosen protec-

tions against frivolous suits—would have no deterrent effect

on such suits.’ Permitting private suits based on “scheme

liability” would circumvent protections against abuse estab-

lished by the PSLRA while greatly expanding the scope of

potential defendants.

E. The Statutory Limitations On The Express Causes

Of Action In The Securities Laws Support A Narrow

Reading Of The Implied Right Of Action Under

§ 10(b) That Does Not Extend To “Scheme Liability”

As part of its analysis of the scope of private rights of

action under § 10(b), this Court has considered “the express

causes of action in the securities Acts as the primary model

* The pleading requirements of Fed. R. Civ. P. 9(b), including the re-

quirement to plead fraud with particularity, would apply to “scheme” li-

ability claims, but as the Conference Report on the PSLRA recognized,

“{tJhe Rule has not prevented abuse of the securities laws by private liti-

gants.” H.R. Conf. Rep. No. 104-369, at 41 (1995).

for the 10(b) action,” on the theory that “{hjad the 73rd Con-

gress enacted a private § 10(b) right of action, it likely would

have designed it in a. manner similar to the other private

rights of action in the Securities Acts.” Central Bank, 511

U.S. at 178. Using that mode of analysis and recognizing the

care with which Congress d. ‘neated the express causes of

action, this Court has repeatedly refused to expand implied

rights of action in a way that would effectively override the

limits on the express remedies. See, e.g., id.; Ernst & Ernst,

425 U.S. at 200-201; Lampf, 501 U.S. at 359-360. After all, it

would be “anomalous to impute to Congress an intention in

effect to expand the defendant class for 10b-5 actions beyond

the bounds delineated for comparable express causes of ac-

tion.” Central Bank, 511 U.S. at 180. An analysis of the ex-

press causes of action confirms that the private right of ac-

tion under § 10(b) should not be extended to “scheme liabil-

ity.”

It is apparent from the careful crafting of the express

causes of action that the 1933 and 1934 Congresses did not

intend to give investors wide open private rights of action

‘against indirect participants in an alleged fraud. The ex-

press causes of action each strictly cabins the scope of poten-

tial defendants or the unlawful conduct, and some of the ex-

press causes of action do both. For example, only persons

who sign the registration statement, express an expert opin-

ion on the statement, or served as a director of the issuer or

underwriter in the offering may be liable under Section 11 of

the 1933 Act. 15 U.S.C. § 77k. Likewise, Section 12(2) of the

1933 Act extends liability only to persons who utilize a false

or misleading prospectus to “offer{] or sell{] a security.” Jd.

§ 771. In Pinter v. Dahl, 486 U.S. 622 (1988), the Court found

no textual basis or “congressional intent to incorporate tort

law doctrines,” id. at 652, and rejected arguments that par-

ties should be liable “whose participation in the buy-sell

transaction is a substantial factor in causing the transaction

to take place,” id. at 649 (footnote and citation omitted). The

Court also refused to extend the reach of the statute to

“persons who ‘participate in soliciting the purchase.” /d. at

651 n.27. Similarly, persons are liable under Section 18 of

the 1934 Act only if the plaintiff actually relied on the per-

son’s false statements in documents filed with the Commis-

sion. Significantly, Section 18 also reaches only persons

“who shall make or cause to be made” a false or misleading

statement in an SEC filing.

The petitioner in this case has requested an expansion

of the § 10(b) implied right of action to a nebulous category

of conduct and an undefined class of parties. Just as this

Court rejected the invitation in Pinter to extend liability to a

indirect participants, it should refuse to endorse petitioner’s

theory of “scheme liability,” which would render liable ac-

tors only obliquely connected to allegedly fraudulent

schemes. This Court should continue to take guidance from

the approach that Congress chose of precisely delineating

the scope of the express causes of action under the federal

securities laws.

Il. THE SEC LACKS AUTHORITY TO DETERMINE THAT THERE IS

A PRIVATE RIGHT OF ACTION FOR “SCHEME LIABILITY”

The Petition for a Writ of Certiorari and Amici Former

SEC Commissioners make much of the SEC’s support, ex-

pressed in other courts, for a private right of action for

“scheme liability,” implying a major role for the SEC in as-

sessing the scope of the § 10(b) private right of action. See

Pet. 23-24; Br. of Former SEC Comm’rs 2, 6-7. Contrary to

this suggestion, the SEC’s views on private rights of action

for “scheme liability” are due no deference from this Court.

First, the SEC’s requests for judicial extension of the

private right of action to “scheme liability” run contrary to

Congress’s judgments on the matter. In the legislation fol-

lowing Central Bank, Congress considered and rejected

SEC proposals to extend private rights of action beyond

claims of misstatements and omissions on which a plaintiff

relied to actions that merely had the goal and effect of ad-

vancing the fraudulent scheme. Accordingly, the SEC’s ex-

pressions of support for private “scheme liability” are con-

trary to a clear congressional determination. Second, re-

gardless of the particulars of the SEC’s views, the SEC is

not entitled to deference on this question because Congress

has not delegated authority to the SEC to resolve questions

concerning the existence or scope of private rights of action

under § 10(b).

- A. SEC Support For An Extension Of The § 10(b) Pri-

vate Right Of Action Is Contrary To Congressional

Intent

In amicus briefs filed in other courts, the SEC has sup-

ported the expansion of the § 10(b) private right of action to

include “scheme liability.” Br. of Amicus Curiae the Securi-

ties Exchange Commission 16, Simpson v. AOL Time War-

mer Inc., 452 F.3d 1040 (9th Cir. 2006) (No. 04-55665) (SEC

Simpson Amicus Br.); see also Reply Br. of Amicus Curiae

the Securities Exchange Commission 5, Simpson v. AOL

Time Warner Inc., 452 F.3d 1040 (9th Cir. 2006) (No. 04-

55665) (SEC Simpson Amicus Reply). The SEC opined that

private liability should apply to “[aJny person who directly

or indirectly engages in a manipulative or deceptive act as

part of a scheme to defraud.” SEC Simpson Amicus Br. 16.

The Commission’s proposed test transparently “include[d]

conduct beyond the making of false statements or misleading

omissions” and contemplated that “(t]he reliance element

should be viewed as satisfied whenever a plaintiff relies on a

material deception flowing from a deceptive act, even

though the conduct of other participants in the scheme may

have been a subsequent link in the causal chain leading to

the plaintiffs securities transaction.”. Jd. at 8. The Court

need not defer to the SEC’s views.

The familiar two-part test of Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837

(1984), provides that a court must first ask whether “Con-

gress has directly spoken to the precise question at issue”

and, if not, whether the agency’s view “is based on a permis-

sible construction of the statute.” Jd. at 842-843. The SEC’s

views in Simpson, however, do not satisfy the first step of

the Chevron analysis.

Under Chevron step one, Congress has “directly spoken

to the question at issue.” As the SEC itself and Congress

both acknowledged, in enacting the PSLRA Congress re-

jected the SEC’s efforts to extend private liability beyond

those making misstatements and omissions on which a plain-

tiff relied to include aiders and abettors. See supra pp. 13-

15. In the PSLRA and ensuing legislation, Congress has fo-

cused on limiting private suits not expanding them; the lim-

its placed on private suits, moreover, operate on the as-

sumption that such suits are limited to claims of misstate-

ments or omissions on which the plaintiff relied. See supra

p. 18.

When applying the first step of the Chevron analysis,

this Court has looked to the “plain language of the statute,”

HUD vy. Rucker, 535 U.S. 125, 130 (2002), and has also con-

sidered the broader context of Congress’s legislation in the

area, see, e.g., FDA v. Brown & Williamson Tobacco Corp.,

529 U.S. 120, 160-161 (2000) (rejecting the FDA’s view that

it had the authority to regulate tobacco on the ground that it

required a “strained” reading of the statute and would “ig-

nore the plain implication of Congress’s tobacco-specific leg-

islation”). When the 1934 Act is coupled with Congress’s

more recent legislation, “the intent of Congress is clear’—to

limit private rights of action to persons making the mis-

statements or omissions on which the plaintiff relied.

“Scheme liability,” like aiding and abetting, does not in-

volve misstatements or omissions on which the plaintiff re-

lied. Rather, it concerns actions that had “the purpose and

effect of furthering the fraudulent scheme.” Pet. Br. 14; 2d.

at 12. As noted above, the “schemers” would include most if

not all the aiders and abettors that Congress has already

determined should not be subject to § 10(b) private liability,

plus a potentially limitless group of additional persons who

acted with the primary violator in a way that a plaintiff

might argue advanced the “scheme.” Congress’s rejection of

the SEC’s request to extend private liability to aiders and

abettors must therefore foreclose any deference to the

SEC’s efforts to obtain in the courts even broader private

enforcement than the aiding and abetting cause of action

that Congress would not provide.’

B. Principles Of Deference To Administrative Agencies

Do Not Apply To The Question Whether To Extend

The § 10(b) Private Right Of Action To “Scheme Li-

ability”

The SEC’s views on the question whether to extend the

§ 10(b) private right of action to “scheme liability” are not

due any deference under traditional administrative law prin-

ciples for an additional reason: Chevron provides deference

to an agency’s reasonable interpretation of a statute, but

only where Congress has delegated authority to the agency

to interpret the statute. “A precondition to deference under

Chevron is a congressional delegation of administrative au-

thority.” Adams Fruit Co. v. Barrett, 494 U.S. 638, 649

(1990).

There is plainly no express delegation of authority to

the SEC on the present issue. See supra pp. 5-8; cf. Lampf,

501 U.S. at 359 (“(W]Je have made no pretense that it was

Congress’ design to provide the remedy afforded.”). Nor can

there be any implicit delegation of authority on this ques-

tion. While administrative law recognizes that Congress can

delegate authority to an agency implicitly as well as explic-

* These arguments based on congressional intent should not be dis-

counted as resting on congressional inaction. Congress did act upon the

question of liability for aiding and abetting, giving the SEC enforcement

authority but declining to give private litigants a complementary right of

action. Cf. Sandoval, 5382 U.S. at 290 (“The express provision of one

method of enforcing a substantive rule suggests that Congress intended to

preclude others.”). Given Central Bank and the purposes of the PSLRA,

moreover, Congress plainly did not decline to create private liability for

aid ng and abetting because it deemed such liability already fairly in-

cluded in the statute. In any event, although this Court has cautioned

against reliance on congressional inaction in discerning Congress’s intent,

it has nonetheless cited “legislative acquiescence” in cases concerning the

private right of action under § 10(b). See, e.g., Basic Inc., 485 U.S. at 230-

231 (1988); Central Bank, 511 U.S. at 186-187.

itly,’ this Court has made clear that it will not infer Con-

gress’s delegation of authority to an agency, such as the

SEC, to create or extend a judicial cause of action not cre-

ated or extended by the statute itself, at least where such

delegation is not Congress’s own discernible intent. See, e.g.,

Piper, 430 U.S. at 41 n.27, 43 (1977) (explaining that “admin-

istrative deference” was inappropriate on the question of the

availability of a private right of action under § 14(e) of the

Securities Exchange Act because the SEC’s “presumed ‘ex-

pertise’ in the securities-law field is of limited value when

the narrow legal issue is one peculiarly reserved for judicial

resolution”); Adams Fruit, 494 U.S. at 649-650 (rejecting

Chevron deference to agency views on the availability of a

private right of action under the Migrant and Seasonal Agri-

cultural Worker Protection Act (AWPA), 29 U.S.C. §$§ 1861

et seq., on the ground that “[nJo such delegation regarding

AWPA’s enforcement provisions is evident in the statute”).

Even where the agency has been authorized to adminis-

ter the statute, the Court will not infer a delegation of au-

thority over questions regarding the existence of a private

right of action. See, e.g., Adams Fruit, 494 U.S. at 649 (ob-

serving that Congress “expressly mandated a role for the

Department of Labor in administering the statute ... [but]

[t]his delegation, ... does not empower the Secretary to

regulate the scope of the judicial power.”)’

* See, e.g., United States v. Mead Corp., 533 U.S. 218, 229 (2001).

® See also Sandoval, 532 U.S. at 291 (rejecting agency efforts to cre-

ate a private right of action under § 602 of the Civil Rights Act by regula-

tion and noting that it “is most certainly incorrect to say that language in

a regulation can conjure up a private cause of action that has not been

authorized by Congress [because] [a]gencies may play the sorcerer’s ap-

prentice but not the sorcerer himself.”); Redington, 442 at 577 n.18 (“SIPC

and the Trustee also appear to suggest that the rules adopted under

§ 17(a) can themselves provide the source of an implied damages remedy

even if § 17(a) itself cannot. It suffices to say, however, that the language

of the statute and not the rules must control.” (citations omitted)).

” Lower courts have followed the Supreme Court’s lead and declined

to defer to agency positions on questions regarding private rights of ac-

In resolving the various questions regarding private ac-

tions under § 10(b), this Court has consistently held that the

judiciary has the responsibility for defining the contours of

the right of action, see, e.g., Musick, 508 U.S. at 292-2938

(“(t]he federal courts have accepted and exercised the prin-

cipal responsibility for the continuing elaboration of the

scope of the 10b-5 right and the definition of the duties it im-

poses”), and demonstrated that it will not defer to the SEC

on questions regarding private rights of action under § 10(b).

In Blue Chip Stamps, 421 U.S. at 738, 743, 746 n.10, for ex-

ample, the Court emphasized the “judicial role of interpret-

ing” the implied private right of action under § 10(b), and

held that the cause of action under § 10(b) was limited to

“ourchasers” or “sellers” of securities. In so holding, the

Court acknowledged that “a great majority of the many

commentators on the issue” including the SEC (in an amicus

brief), supported a more expansive private liability scheme.

The Court described the SEC’s views but treated them no

differently from the other commentatvrs’ opinions, not ac-

cording the SEC’s position any particular deference.

Likewise, in Ernst & Ernst, 425 U.S. at 198, 197-198,

207-208, the Court acknowledged the SEC’s arguments in an

amicus brief in support of permitting a private right of ac-

tion or to permit agencies to manufacture causes of action. In Murphy

Exploration & Production Co. v. Department of Interior, 252 F.3d 473

(D.C. Cir. 2001), the D.C. Circuit determined that “Chevron deference was

inappropriate” on the question of what may trigger a statute of limitations

on a judicial remedy provided by Congress. /d. at 478. The court ex-

plained that a “principal reason” for the lack of deference is that the statu-

tory provisions establishing the remedy “do not grant powers to agen-

cies”: “Unless the agency is the recipient of congressionally delegated

power, there is no reason to defer to its interpretations of the statute that

does the delegating.” Jd. at 478-479. The court further remarked that

“administrative agencies have no particular expertise” in questions of the

scope of judicial authority over private claims. /d. at 479; see also Iverson

v. City of Boston, 452 F.3d 94, 100 (1st Cir. 2006) (rejecting the suggestion

that an agency regulation may give rise to a private right of action and

observing that “the power to create a private cause of action, like the

power to create a positive federal law itself, lies exclusively with Con-

gress”).

tion under § 10(b) “in the absence of any allegation of ‘sci-

enter,” but rejected the arguments without any suggestion

that it might defer to the SEC view. See also Central Bank,

511 U.S. at 188-191 (dismissing SEC arguments in support of

an implied private right of action over aiding and abetting

without discussion of any deference due); Lampf, 501 U.S. at

361 (rejecting SEC view regarding statute of limitations for

private right of action).*

The Court has explicitly rejected deference to the SEC

on questions concerning the existence of private rights of

action under parallel provisions of the securities laws. In

Piper, 430 U.S. at 43, the Court declined to create an implied

right of action for tender offerors under § 14(e) of the Secu-

rities Exchange Act. In so doing, the Court rejected the

SEC’s support for this right of action, finding that the SEC’s

view was due no deference: “[TJhe narrow legal issue is one

peculiarly reserved for judicial resolution, namely whether a

cause of action should be implied by judicial interpretation in

favor of a particular class of litigants.” Jd. at 41 n.27; see

also id. (“{Ijn our prior cases relating to implied causes of

action, the Court has understandably not invoked the ‘ad-

ministrative deference’ rule, even when the SEC supported

the result reached in the particular case.”); Transamerica

Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 23 (1979) (re-

* This is not to suggest that the Court never affords the SEC’s views

deference on questions concerning § 10(b) or Rule 10b-5. For example, in

Basic Inc., 485 U.S. 224, the Court addressed the materiality requirement

of Rule 10b-5. There, the Court explained the SEC’s view and stated:

“The SEC’s insights are helpful, and we accord them due deference.” /d.

at 239 n.16. Basic did not address the proposition that the Court deter-

mines the existence of private rights of action. Section 10(b) makes cer-

tain acts unlawful only to the extent that they violate SEC rules and regu-

lations. Giving “due deference” to “helpful” SEC views on questions of

the meaning of certain terms in the Commission’s own rules, as the Court

did in Basic, is not the same as deferring on the question whether there is

a private right of action available under the statute; as explained in

Sandoval, the regulation itself cannot give rise to a cause of action not

created by Congress.

jecting SEC views on whether a private right of action

should be implied under the Investment Advisers Act).

CONCLUSION

For these reasons, the decision below should be af-

firmed. .

Respectfully submitted.

ROBERT B. MCCAW SETH P. WAXMAN

CHRISTOPHERJ.MEADE _ Counsel of Record