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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1986
- **Citation:** 479 U.S. 808

## Text

__. 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.

(1)

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TABLE OF AUTHORITIES

Page
a tid ersneialibiceiagipennnaknincdianiaionte 1
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_0378%3A4. Public record. Not legal advice.