Amicus Curiae Brief — AZL Resources, Inc. v. Margaret Hall Foundation, Inc.

__. OcroBer TERM, 1986

AZL RESOURCES, INC., PETITIONER

Vv.

MARGARET HALL FOUNDATION, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE.FIRST CIRCUIT

BRIEF FOR THE UNITED STATES

_. AS AMICUS CURIAE

CHARLES FRIED ;

Solicitor General .

Department of Justice \y

Washington, D.C. 20530 e

; (202) 633-2217 7

DANt&eL L. GOELZER ;

General Counsel

PAUL GONSON -

Solicitor —

Jacos H. STILLMAN |

Associate General Counsel a

Davip A. SIRIGNANO '

Assistant General Counsel

ANNE H. SULLIVAN | ) :

Securities and Exchange Commission oe

Washington, D.C. 20549 |

QUESTION PRESENTED

Whether the alleged liability of petitioner, a cor-

poration, for securities fraud in the circumstances of

this case is primary or secondary liability and, if it

is secondary, whether Section 20(a) of the Securities

Exchange Act of 1934, 15 U.S.C. 78t(a), precludes

the application of common law vicarious liability

principles to impose secondary liability on a corpora-

tion.

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TABLE OF AUTHORITIES

Page

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lia ncaa ct incbet edlinceantiimnabininibiigendsinme-sstiadin 6

Aan stanpnnnetibelnipenas 12

TABLE OF AUTHORITIES

Cases:

Armstrong, Jones & Co. v. SEC, 421 F.2d 359 (6th

Cir.), cert. denied, 398 U.S. 958 (1970) .............. 7

Carpenter v. Harris, Upham & Co., 594 F.2d 388

(4th Cir.), cert. denied, 444 U.S. 868 (1979)...... 8

Carras V. Burns, 516 F.2d 251 (4th Cir. 1975) ........ 8

Commerford v. Olson, 794 F.2d 1319 (8th Cir.

8 RAE A ele 7

Fey v. Walston & Co., 493 F.2d 1036 (7th Cir.

a swilalian anmisameeaton 7

Frankel v. Wyllie & Thornhill, Inc., 537 F. Supp.

4. Be SR eee paea eee 8

Haynes v. Anderson & Strudwick, Inc., 508 F.

OU IE Us UR IID mccain g

Henricksen v. Henricksen, 640 F.2d 880 (7th

Cir.), cert. denied, 454 U.S. 1097 (1981) ~.......... 7

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

ES RENGISD Alig tan atc na nce ten OOO ee a 9

Holloway v. Howerdd, 536 F.2d 690 (6th Cir.

a a aha ia Sl ol ciel tslcigiccccinene 7

Holmes v. Bateson, 583 F.2d 542 (1st Cir. 1978) .... 10

Johns Hopkins University v. Hutton, 422 F.2d 1124

(4th Cir. 1970), cert. denied, 416 U.S. 916

a RE ata clea lahat cvcidcdioentliceisatiedbutieantana 8

Kamen & Co. v. Paul H. Aschkar & Co., 382 F.2d

689 (9th Cir. 1967), cert. dismissed, 393 U.S.

RIERA SPT SEE Ps “A Me sen a 8

Kerbs v. Fall River Industries, Inc., 502 F.2d 731

I iilicdannaee 7-8

Marbury Management, Inc. v. Kohn, 629 F.2d 705

(2d Cir.), cert. denied, 449 U.S. 1011 (1980) ...... 7

(II)

Cases—Continued : Page

Marx v. Computer Sciences Corp., 507 F.2d 485

PR EE BRD sisctaeiscunansntaaiteoninecostabeciaaaumuatiianan 10

Mills v. Electric Auto-Lite Co., 396 U.S. 375

I: aichaiheamtthgncchdecoonn SPO Ee CE eC EIN 9

Paul F. Newton & Co. v. Texas Commerce Bank,

GO Fe FETE CO Ce, BOD evi cikicnsss 7

Rochez Bros. v. Rhoades, 527 F.2d 880 (3d Cir.

BPI cesses huscspesicactsthicssceetncaeaptavabcnisloassieeibesddlasialanahatiis 8

SEC v. Blazon Corp., 609 F.2d 960 (9th Cir.

SID sissies ah st ca iitaiealibiedaialeaallgactonicdabitee 10

SEC v. Goldfield Deep Mines Co., 758 F.2d 459 (9th

| ee ores SIA NO ee 10

SEC v. Management Dynamics, Inc., 515 F.2d 801

Ue Mi BD sits cscealpiacnsadcnseocananiguigenninaioliienns 7

SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d

Cir. 1968), after remand, 446 F.2d 1301 (2d

Cir.), cert. denied, 404 U.S. 1005 (1971) ............ 9,11

Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d

Cir. 1981), cert. denied, 455 U.S. 938 (1982) ...... 8, 10

Zweig V. Hearst Corp., 521 F.2d 1129 (9th Cir.),

cert. denied, 423 U.S. 1025 (1975)........................ 8

Statutes and regulation:

Securities Act of 1933, 15 U.S.C. (& Supp. III)

FEE cca achieitasinaniattireonsimindei tings aaneeinaiiaanneaiassniiaheliieibienin 8

OE i I FI nthe nnntecpinrnosshtanntinnaiintatienn ikl 9

Oe Fig A EG TE sscscnneressnnisneeinensteeslansainblaneichblatiactouls 9

a BO nbc isi danaitdascisanaalbelgcnnbash itil 7-8

Securities Exchange Act of 1934, 15 U.S.C. (&

Supp. IIT) 78a:

§ 8(a) (9), 15 U.S.C. T8c(a) (9) ......................... 8

S100); 36 OB. Peete) ...~................... 3, 8, 9, 10

OB Be RL, ne ae 10

OR Be Me PID inclines seen. 9

BRAG g ie re PION asians scence ccecccccsnens ss 9

§ 15, 15 U.S.C. (& Supp. ITI) 780 .............000000.... 9

Oe I sae 9

ys Be es PI icons 10

§ 20(a), 15 U.S.C. 78t(a) -...7....-.-.... 3, 5, 6, 7, 8, 11, 12

Vv

Statutes and regulations—Continued : Page

SS FR)” ERED art Ce eee 5

py geh A BS Penance een en 3

Miscellaneous:

Cohen, “Truth in Securities” Revisited, 79 Harv. L.

Sse i seaceherina ccaananicciteelsinnsnenseniensesinn 9

Restatement (Second) of Agency (1958) ............... 10

S. Rep. 792, 73d Cong., 2d Sess. (1934) -................. 9

S. Rep. 1455, 73d Cong., 2d Sess. (1934) -............. poe 9

W. Seavey, Handbook of the Law of Agency (West

| ETL AE TE TE 8 I AT SARE TOE 10

Ju the Suprenw Court of the United States

OCTOBER TERM, 1986

No. 85-1877

AZL RESOURCES, INC., PETITIONER

Vv.

MARGARET HALL FOUNDATION, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is filed in response to the Court’s invita-

tion to the Solicitor General to express the views of

the United States.

STATEMENT

1. This case involves an alleged scheme to manip-

ulate the price of the common stock of AZL Re-

sources, Inc. (AZL), a company engaged in oil and

gas exploration whose stock is listed on the American

(1)

2

and Pacific Stock Exchanges. The complaint,’ whose

allegations have not yet been tested at trial, asserted

that senior AZL officials induced Atlantic Financial

Management, Inc. (Atlantic), a registered invest-

ment adviser, to purchase AZL stock for respondents

by making false and misleading statements about

AZL’s merger and acquisition prospects.

In particular, the complaint alleged that, beginning

in April 1981, Maurice Strong, AZL’s chairman,

made repeated statements, both privately to Atlantic

and publicly to other investment advisers and insti-

tutional investors, to the effect that AZL was ac-

tively exploring merger and acquisition possibilities

(Complaint {ff 30-61). The complaint further al-

leged that AZL issued a press release on November -

6, 1981, representing that it was “actively pursuing

acquisition and/or merger opportunities which would

add significantly to the Company’s income and pro-

spects in the petroleum business” (Complaint { 44).

It also alleged that Strong made fraudulent public

statements about the discovery of oil near property

in which AZL had an interest (Complaint § 35), as

well as other fraudulent private statements (Com-

plaint J 40).

The complaint alleged that these optimistic state-

ments about AZL’s prospects induced Atlantic to pur-

chase a substantial quantity of AZL stock for re-

spondents in 1981 and early 1982 (Complaint {{ 36,

39, 50, 51, 60). During that same period, however,

several of AZL’s officers and directors, as well as a

10% corporate shareholder controlled by Strong, are ——

1Six different damage actions were consolidated for the

purpose of ruling on the defendants’ motions to dismiss. All

the complaints are substantially the same and will be referred

to as “the complaint.”

i eeemmninniencaiemaanel

3

alleged to have sold more than 154,000 shares of

AZL’s outstanding securities at prices ranging from

$23 to almost $29 a share (Complaint { 42). In Jan-

uary 1982, the price of AZL’s shares began to drop

sharply, falling to $17.87 by February 8, 1982 (Com-

plaint {J 55, 58). On February 9, 1982, AZL issued

a second press release, which stated that “recent in-

formation * * * has caused AZL to reevaluate its

position regarding potential mergers or acquisitions”

(Complaint { 57). By July 7, 1982, AZL stock was

trading at $4.62 a share (Complaint { 60).

2. The complaint as originally filed alleged that

Strong, AZL, and other defendants had violated Sec-

tion 10(b) of the Securities Exchange Act of 1934

(Exchange Act), 15 U.S.C. 78j(b), and Rule 10b-5

thereunder, 17 C.F.R. 240.10b-5.2, AZL moved to dis-

miss on the ground that it could not be liable for

Strong’s conduct because that conduct did not benefit

AZL. AZL also asserted, in the alternative, that Sec-

tion 20(a) of the Exchange Act, 15 U.S.C. 78t(a),

which provides that a person who “controls” any

person liable under the Exchange Act is liable jointly

and severally with the controlled person “unless the

controlling person acted in good faith and did not

directly or indirectly induce the act or acts constitut-

ing the violation,” provides the sole basis for second-

ary liability under the Exchange Act. Respondents

answered, inter alia, that tic corporate liability here

is primary, not secondary. See C.A. App. 169-170.

2The complaint also alleged (Complaint {{[ 62-72) that

Strong and other defendants were secondarily liable for AZL’s

violations as “controlling persons” of AZL under Section

20(a) of the Exchange Act, 15 U.S.C. 78t(a). The complaint

did not allege that AZL was a controlling person of any liable

person or entity.

4

The district court dismissed the claim against AZL.

The court asserted that “for a corporation to be held

liable as a principal for the fraud of one of its offi-

cers, a party must show both that the fraud occurred

in the course of the officer’s employment and for the

benefit of the corporation” (Pet. App. 23a). Here,

the court concluded, the alleged fraudulent conduct

could not have benefited AZL, so “[t]he only possible

view of the facts as alleged is that the individual

defendants were pursuing their own selfish ends”

(ibid.).

Respondents then sought to amend the complaint

to assert both that AZL could have benefited from

Strong’s activities (see C.A. App. 174-191) and that

Strong acted with “ ‘at least apparently authority’ ”

in conducting the fraudulent scheme (Pet. App. 30a).

The court again rejected the first of these theories

(ibid.). But it granted leave to amend the complaint

to assert the apparent authority theory of liability,

stating that, “[u]nder general agency principles, a

corporation is liable for the fraud of its agent com-

mitted with apparent authority even if the agent’s

conduct was effected for his benefit alone” (ibid.).

The court added (id. at 31a) that

AZL’s liability for Strong’s fraud would be es-

tablished by proof that Strong appeared to be

acting within the scope of his authority when he

disseminated allegedly false or material [sic]

information, and that AZL had put him in a

position to commit this fraud upon [respond-

ents]. At this stage, the allegations that Strong

was AZL’s chairman, a position customarily al-

lowing the officeholder to speak for and negotiate

on behalf of the corporation, and that ostensibly

he was pursuing the corporate goal of raising

5

capital, sufficiently support the assertion that

Strong acted with apparent authority.

The district court subsequently denied AZL’s mo-

tion for reconsideration, explaining that respond-

ents’ “allegation of Strong’s apparent authority [is]

legally sufficient [to establish liability] on the basis

of a corporate principal’s direct liability for the

binding acts of its agents, not respondeat superior’

(Pet. App. 38a). But the court did certify its order

as appropriate for interlocutory appeal pursuant to

28 U.S.C. 1292(b) (Pet. App. 39a).

8. On appeal, AZL contended that apparent au-

thority principles may only support secondary liabil-

ity, and renewed its contention that a corporation

may be held secondarily liable for a corporate offi-

cer’s violation of the Exchange Act only under Sec-

tion 20(a), 15 U.S.C. 78t(a). AZL therefore main-

tained that it could escape liability by demonstrating

that it acted in good faith and did not induce Strong’s

fraudulent conduct (see AZL C.A. Br. 12-19). While

AZL recognized that Section 20(a) does not come

into play when the corporation’s liability is primary,

AZL contended that the corporation’s liability is pri-

mary only when the fraud is committed for its bene-

fit (AZL C.A. Reply Br. 3). Respondents replied

that a corporation is primarily, rather than vicari-

ously, liable for frauds committed by its agents act-

ing within the scope of their apparent authority

(C.A. Br. 8-12); respondents also contended that,

even if AZL were viewed as being only secondarily

liable here, Section 20(a) does not provide the ex-

clusive vehicle for imposing vicarious liability under

the Exchange Act.

Although it ruled for respondents, the court of ap-

peals did not address their threshold contention that

6

AZL should be viewed as primarily, rather than

secondarily, liable for Strong’s alleged fraud. In-

stead, the court posed the issue before it as whether

“the existence of [Section 20(a)] foreclose[s] hold-

ing a principal (say, a corporation) or an employer

(who ‘controls’ an agent or employee) ‘vicariously

liable’ when the proviso’s two conditions [that the

controlling person acted in good faith and did not di-

rectly or indirectly induce the violation] are not met”

(Pet. App. 4a). The court answered this question by

holding that “section 20(a) does not constitute an

exclusive substitute for vicarious liability that might

otherwise exist” (ibid.), “at least in respect to the

common law ‘apparent authority’ theory here at is-

sue” (id. at 5a). Looking to the legislative history

and background of Section 20(a), the court of ap-

peals concluded that the provision was not intended

to displace common law liability (Pet. App. 9a-15a).

DISCUSSION

As posed by AZL, the question in this case is

whether Section 20(a), which makes a “controlling

person” liable for the violations of a controlled per-

son but gives the controlling person a good faith de-

fense, precludes the application of common law vi-

carious liability principles to hold a corporation lia-

ble for its agent’s violations of the Exchange Act.

That question is a significant one, and one on which

the circuits are divided. In our view, however, that

question is not squarely presented in this case. To

the contrary, respondents’ complaint alleges, and

makes out a colorable claim, that AZL is directly or

primarily, rather than vicariously or secondarily,

liable for the fraud at issue here. In these circum-

stances, review of the interlocutory decision below—

7

which, like the petition, fails to address the possibil-

ity of primary liability in this case—may not pro-

vide this Court with an opportunity to decide whether

Section 20(a) displaces common law principles of vi-

carious liability.

1. The United States has previously urged the

Court to decide whether Section 20(a) provides the

exclusive remedy against controlling persons and pre-

cludes holding a corporation vicariously liable on

common law theories for its agent’s violations of the

Exchange Act. 80-2211 U.S. Br., Smith Barney,

Harris, Upham & Co. v. Henricksen. The circuits are

divided on this question, which arises with consid-

erable frequency. The majority view—adopted by

the Second, Fifth, Sixth, Seventh, Eighth, Tenth, and

now the First Circuits—is that common law agency

principles apply in cases brought against corporations

and other employers under the securities laws.* The

Ninth Circuit, on the other hand, has held that

agency principles are inapplicable in such cases, so

that the liability of employers for the fraudulent

acts of their employees must be determined exclu-

sively by application of the controlling-person provi-

sions contained in Section 20(a) of the Exchange

Act and in the parallel Section 15 of the Securities

* See, e.g., Marbury Management, Inc. v. Kohn, 629 F.2d

705 (2d Cir.), cert. denied, 449 U.S. 1011 (1980); SEC v.

Management Dynamics, Inc., 515 F.2d 801, 812-813 (2d Cir.

1975); Paul F. Newton & Co. v. Texas Commerce Bank, 630

F.2d 1111 (5th Cir. 1980); Holloway v. Howerdd, 536 F.2d

690, 694-695 (6th Cir. 1976); Armstrong, Jones & Co. v. SEC,

421 F.2d 359, 362 (6th Cir.), cert. denied, 398 U.S. 958

(1970) ; Henricksen v. Henricksen, 640 F.2d 880 (7th Cir.),

cert. denied, 454 U.S. 1097 (1981); Fey v. Walston & Co., 493

F.2d 1086, 1052 (7th Cir. 1974); Commerford v. Olson, 794

F.2d 1819 (8th Cir. 1986); Kerbs v. Fall River Industries,

8

Act, 15 U.S.C. 770.4 The Third Circuit has also held

that as a general matter the liability of a principal

under the securities laws may not be grounded on

respondeat superior, although it has recognized an

exception to this rule in cases involving accounting

and broker-dealer firms.°

2. The question whether Section 20(a) precludes

other theories of secondary liability arises, however,

only when the plaintiff seeks to impose liability on

the corporate principal vicariously, for the acts of

its agents, rather than directly for its own acts.

Congress plainly intended corporations to be directly

and primarily liable under the securities laws for

violative conduct that constitutes an act of the corpo-

ration itself. In particular, a corporation can plainly

be held directly liable for its misstatements: Section

10(b) of the Exchange Act makes it unlawful for

any “person” to engage in fraudulent conduct, and

the term “person” is in turn defined in Section

3(a) (9), 15 U.S.C. 78e(a) (9), to include a “com-

Inc., 502 F.2d 731, 741 (10th Cir. 1974). The Fourth Circuit

appears to have adopted this approach as well. See Johns

Hopkins University v. Hutton, 422 F.2d 1124, 1130 (1970),

cert. denied, 416 U.S. 916 (1974); Carras v. Burns, 516 F.2d

251, 259, 261 (1975). But see Carpenter v. Harris, Upham &

Co., 594 F.2d 388 (4th Cir.), cert. denied, 444 U.S. 868 (1979).

Compare Frankel v. Wyllie & Thornhill, Inc., 587 F. Supp. 730

(W.D. Va. 1982), with Haynes v. Anderson & Strudwick, Inc.,

508 F. Supp. 1303 (E.D. Va. 1981).

4 See Zweig v. Hearst Corp., 521 F.2d 1129 (9th Cir.), cert.

denied, 423 U.S. 1025 (1975); Kamen & Co. v. Paul H. Asch-

kar & Co., 382 F.2d 689, 696-697 (9th Cir. 1967), cert. dis-

missed, 393 U.S. 801 (1968).

5 See Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir.

1981), cert. denied, 455 U.S. 988 (1982); Rochez Bros. v.

Rhoades, 527 F.2d 880 (3d Cir. 1975).

9

pany.” Other provisions, including Sections 13(a),

15 and 17, 15 U.S.C. (& Supp. Ill) 78m(a), 780 and

78q, impose obligations upon “issuers,” “brokers” and

“dealers,” which often are corporate entities.* In-

deed, AZL recognizes that corporations may be

deemed directly liable under the securities laws for

certain acts of their employees that were not ex-

pressly authorized or ratified by the shareholders.’

Several courts, including this Court *—and includ-

* The legislative history of the Exchange Act demonstrates

that it was designed in large part to curb abuses committed

by corporations and other entities. See S. Rep. 792, 73d Cong.,

2d Sess. 10 (1934) (corporate reports) ; id. at 12 (proxy state-

ments); id. at 11-12 (brokerage firms); S. Rep. 1455, 73d

Cong., 2d Sess. 68-74 (1934) (corporate reports) ; id. at 74-77

(proxy statements); id. at 163-221 (investment banking);

id. at 333-384 (holding companies). The Securities Act of

1933, 15 U.S.C. (& Supp. III) 77a, requires a registration

statement to be signed by the issuer (§ 6, 15 U.S.C. 77f), and

makes each signer liable for any material misstatement of fact

therein (§ 11, 15 U.S.C. 77k). It was a central purpose of

both the Securities Act and the Exchange Act to impose dis-

closure obligations (and liabilities) directly on the issuer of

the securities. See Cohen, “Truth in Securities” Revisited, 79

Harv. L. Rev. 1340, 1346, 13861 (1966).

= inane

7 Before the court of appeals, AZL argued that a corporation

is directly liable under Section 10(b) for the acts of its

employees when those acts are committed for the corporation’s

benefit. See AZL C.A. Reply Br. 5.

8 See, e.g., Herman & MacLean Vv. Huddleston, 459 U.S. 375

(1982) (accounting firm’s certification of balance sheet in

case involving Section 10(b)); Mills v. Electric Auto-Lite Co.,

396 U.S. 875 (1970) (false proxy materials in case under

Section 14(a), 15 U.S.C. 78n(a)); SEC v. Texas Gulf Sulphur

Co., 401 F.2d 8338 (2d Cir. 1968) (en banc), after remand,

446 F.2d 1301, 13804-1306 (2d Cir.), cert. denied, 404 U.S.

1005 (1971) (misleading press release in Section 10(b) case).

10

ing the Ninth Circuit,° which has rejected “vicari-

ous” corporate liability under the securities laws—

have held corporations liable under Section 10(b)

and other provisions of the securities laws, in cases

where false statements or documents were issued in

the corporation’s name, without any suggestion that

the liability of the corporation was merely derivative

of the liability of another person. And the Third Cir-

cuit, which also has generally rejected Section 10(b)

“vicarious” liability, has held that corporations may

be “primarily” liable when the misconduct is that of

a senior officer: “fH]igh ranking officers in a corpo-

ration, or partners in a partnership, present a differ-

ent situation from lower level employees. Officers

are able to make policy and generally carry author-

ity to bind the corporation. Their action on behalf

of the corporation is therefore primary, and holding

a corporation liable for their actions does not require

respondeat superior.” Sharp v. Coopers & Lybrand,

649 F.2d 175, 182 n.8 (3d Cir. 1981), cert. denied,

455 U.S. 9388 (1982). See also Holmes v. Bateson,

583 F.2d 542, 561 (1st Cir. 1978) .*

®See SEC v. Goldfield Deep Mines Co., 758 F.2d 459 (9th

Cir. 1985) (false registration statement in case -involving

15 U.S.C. 78l(g)); SEC v. Blazon Corp., 609 F.2d 960 (9th

Cir. 1979) (false offering circular in case involving Section

17(a) of the Securities Act); Marx v. Computer Sciences

Corp., 507 F.2d 485 (9th Cir. 1974) (inflated earnings projec-

tion in case involving Section 10(b) of the Exchange Act).

1° This conclusion draws some support from the treatment

of corporate directors under the common law. Directors “are

not agents since they are the controllers rather than the

controlled * * *. Their position makes them sui generis in

the hierarchy of legal conceptions.” W. Seavey, Handbook

of the Law of Agency § 10, at 18-19 (West 1964). See also

Restatement (Second) of Agency §14C (1958). Because

11

To be sure, corporate conduct invariably involves

one or more human actors. But a false statement

can be the act of a corporation (although a human

actor is required), just as a promissory note can be

the act of a corporation, and in either case the lia-

bility thereon is direct and not derivative, so there is

no need to rely on either common law vicarious lia-

bility principles or a statute imputing liability, as

Section 20(a) imputes liability to controlling per-

sons. There may, of course, be a question whether a

given action is the act of the corporation, but where

the answer to that question is yes, there is no occa-

sion to determine which theories of vicarious liability

may be valid and available.

In the present case respondents have made a color-

able claim of primary liability on the part of AZL,

as the district court recognized (see Pet. App. 38a).

AZL issued a misleading press release in its own

name. Compare SEC v. Texas Gulf Sulphur Co.,

401 F.2d 833, 845, 861 (2d Cir. 1968) (en banc),

after remand, 446 F.2d 1301, 1304-1306 (2d Cir)

cert. denied, 404 U.S. 1005 (1971). The fraud

here, moreover, was conducted largely by AZL’s

chairman, who issued public statements and dealt

with investors on AZL’s behalf. And respondents as-

serted below that the fraud was committed for AZL’s

benefit;™* while the district court rejected that con-

tention (see Pet. App. 23a, 30a), it did not consider

whether such a benefit is necessary to create primary

liability. Respondents’ argument also has not been

such officials control the corporation, it is entirely fictitious

to view their actions as anything other than the actions of

the corporation. |

11 Respondents repeat that assertion before this Court.

See Br. in Opp. 4 n.2.

12

addressed by the court of appeals, which evidently

viewed the issue as outside the question certified for

interlocutory appeal.

In these circumstances, review of the decision be-

low is not justified. Because AZL’s liability here

may be primary, resolution of the question presented

in the petition—whether Section 20(a) precludes

common law vicarious liability under the Exchange

Act—may be irrelevant to the outcome of this case.

Indeed, before reaching the question presented, the

Court would have to decide whether the liability al-

leged is primary or secondary, an issue that is not

addressed by the petition, was not discussed by the

court of appeals here, and has not yet been analyzed

in depth by other courts of appeals. Its consideration

by this Court in this case accordingly would be pre-

mature.

CONCLUSION

The petition for a writ of certiorari should be de-

nied. |

Respectfully submitted.

CHARLES FRIED

Solicitor General

DANIEL L. GOELZER

General Counsel

PAUL GONSCN

Solicitor

JACOB H. STILLMAN

Associate General Counsel

DAVID A. SIRIGNANO

Assistant General Counsel

ANNE H. SULLIVAN

Attorney

Securities and Exchange Commission

APRIL 1987

W oc. 8. covenmment printine orrice; 1967 181483 40302