SUPREME COURT OF THE UNITED STATES

No. 92–854

CENTRAL BANK OF DENVER, N. A., PETITIONER v. FIRST INTERSTATE BANK OF DENVER, N. A. and JACK K. NABER

on writ of certiorari to the united states court of appeals for the tenth circuit

[April 19, 1994]

Justice Stevens, with whom Justice Blackmun, Justice Souter, and Justice Ginsburg join, dissenting.

The main themes of the Court's opinion are that the text of §10(b) of the Securities Exchange Act of 1934, 15 U. S. C. §78j(b), does not expressly mention aiding and abetting liability, and that Congress knows how to legislate. Both propositions are unexceptionable, but neither is reason to eliminate the private right of action against aiders and abettors of violations of §10(b) and the Securities and Exchange Commission's Rule 10b–5. Because the majority gives short shrift to a long history of aider and abettor liability under §10(b) and Rule 10b–5, and because its rationale imperils other well established forms of secondary liability not expressly addressed in the securities laws, I respectfully dissent.

In hundreds of judicial and administrative proceedings in every circuit in the federal system, the courts and the SEC have concluded that aiders and abettors are subject to liability under §10(b) and Rule 10b–5. See 5B A. Jacobs, Litigation and Practice Under Rule 10b–5 §40.02 (rev. ed. 1993) (citing cases). While we have reserved decision on the legitimacy of the theory in two cases that did not present it, all 11 Courts of Appeals to have considered the question have recognized a private cause of action against aiders and abettors under §10(b) and Rule 10b–5. The early aiding and abetting decisions relied upon principles borrowed from tort law; in those cases, judges closer to the times and climate of the 73d Congress than we concluded that holding aiders and abettors liable was consonant with the 1934 Act's purpose to strengthen the antifraud remedies of the common law. One described the aiding and abetting theory, grounded in "general principles of tort law," as a "logical and natural complement" to the private §10(b) action that furthered the Exchange Act's purpose of "creation and maintenance of a post-issuance securities market that is free from fraudulent practices." Brennan v. Midwestern United Life Ins. Co., 259 F. Supp. 673, 680 (ND Ind. 1966) (borrowing formulation from the Restatement of Torts §876(b) (1939)), later opinion, 286 F. Supp. 702 (1968), aff'd, 417 F. 2d 147 (CA7 1969), cert. denied, 397 U. S. 989 (1970). See also Pettit v. American Stock Exchange, 217 F. Supp. 21, 28 (SDNY 1963).

The Courts of Appeals have usually applied a familiar three-part test for aider and abettor liability, patterned on the Restatement of Torts formulation, that requires (i) the existence of a primary violation of §10(b) or Rule 10b–5, (ii) the defendant's knowledge of (or recklessness as to) that primary violation, and (iii) "substantial as- sistance" of the violation by the defendant. See, e.g., Cleary v. Perfectune, Inc., 700 F. 2d 774, 776–777 (CA1 1983); IIT, An Int'l Investment Trust v. Cornfeld, 619 F. 2d 909, 922 (CA2 1980). If indeed there has been "continuing confusion" concerning the private right of action against aiders and abettors, that confusion has not concerned its basic structure, still less its "existence." See ante, at 5. Indeed, in this case, petitioner assumed the existence of a right of action against aiders and abettors, and sought review only of the subsidiary questions whether an indenture trustee could be found liable as an aider and abettor absent a breach of an indenture agreement or other duty under state law, and whether it could be liable as an aider and abettor based only on a showing of recklessness. These questions, it is true, have engendered genuine disagreement in the Courts of Appeals. But instead of simply addressing the questions presented by the parties, on which the law really was unsettled, the Court sua sponte directed the parties to address a question on which even the petitioner justifiably thought the law was settled, and reaches out to overturn a most considerable body of precedent.

Many of the observations in the majority's opinion would be persuasive if we were considering whether to recognize a private right of action based upon a securities statute enacted recently. Our approach to implied causes of action, as to other matters of statutory construction, has changed markedly since the Exchange Act's passage in 1934. At that time, and indeed until quite recently, courts regularly assumed, in accord with the traditional common law presumption, that a statute enacted for the benefit of a particular class conferred on members of that class the right to sue violators of that statute. Moreover, shortly before the Exchange Act was passed, this Court instructed that such "remedial" legislation should receive "a broader and more liberal interpretation than that to be drawn from mere dictionary definitions of the words employed by Congress." Piedmont & Northern R. Co. v. ICC, 286 U. S. 299, 311 (1932). There is a risk of anachronistic error in applying our current approach to implied causes of action, ante, at 12, to a statute enacted when courts commonly read statutes of this kind broadly to accord with their remedial purposes and regularly approved rights to sue despite statutory silence.

Even had §10(b) not been enacted against a backdrop of liberal construction of remedial statutes and judicial favor toward implied rights of action, I would still disagree with the majority for the simple reason that a "settled construction of an important federal statute should not be disturbed unless and until Congress so decides." Reves v. Ernst & Young, 494 U. S. 56, 74 (1990) (Stevens, J., concurring). See Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 733 (1975) (the "longstanding acceptance by the courts" and "Congress' failure to reject" rule announced in landmark Court of Appeals decision favored retention of the rule). A policy of respect for consistent judicial and administrative interpretations leaves it to elected representatives to assess settled law and to evaluate the merits and demerits of changing it. Even when there is no affirmative evidence of ratification, the Legislature's failure to reject a consistent judicial or administrative construction counsels hesitation from a court asked to invalidate it. Cf. Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 406 (1932) (Brandeis, J., dissenting). Here, however, the available evidence suggests congressional approval of aider and abettor liability in private §10(b) actions. In its comprehensive revision of the Exchange Act in 1975, Congress left untouched the sizeable body of case law approving aiding and abetting liability in private actions under §10(b) and Rule 10b–5. The case for leaving aiding and abetting liability intact draws further strength from the fact that the SEC itself has consistently understood §10(b) to impose aider and abettor liability since shortly after the rule's promulgation. See Ernst & Young, 494 U. S., at 75 (Stevens, J., concurring). In short, one need not agree as an original matter with the many decisions recognizing the private right against aiders and abettors to concede that the right fits comfortably within the statutory scheme, and that it has become a part of the established system of private enforcement. We should leave it to Congress to alter that scheme.

The Court would be on firmer footing if it had been shown that aider and abettor liability "detracts from the effectiveness of the 10b–5 implied action or interferes with the effective operation of the securities laws." See Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U. S. ___, ___ (1993) (slip op., at 11). However, the line of decisions recognizing aider and abettor liability suffers from no such infirmities. The language of both §10(b) and Rule 10b–5 encompasses "any person" who violates the Commission's anti-fraud rules, whether "directly or indirectly"; we have read this "broad" language "not technically and restrictively, but flexibly to effectuate its remedial purposes." Affiliated Ute Citizens of Utah v. United States, 406 U. S. 128, 151 (1972). In light of the encompassing language of §10(b), and its acknowledged purpose to strengthen the anti-fraud remedies of the common law, it was certainly no wild extrapolation for courts to conclude that aiders and abettors should be subject to the private action under §10(b). Allowing aider and abettor claims in private §10(b) actions can hardly be said to impose unfair legal duties on those whom Congress has opted to leave unregulated: Aiders and abettors of §10(b) and Rule 10b–5 violations have always been subject to criminal liability under 18 U. S. C. §2. See 15 U. S. C. §78ff (criminal liability for willful violations of securities statutes and rules promulgated under them). Although the Court canvasses policy arguments against aider and abettor liability, ante, at 24–25, it does not suggest that the aiding and abetting theory has had such deleterious consequences that we should dispense with it on those grounds. The agency charged with primary responsibility for enforcing the securities laws does not perceive such drawbacks, and urges retention of the private right to sue aiders and abettors. See Brief for the Securities and Exchange Commission as Amicus Curiae in Support of Respondents 5–17.

As framed by the Court's order redrafting the questions presented, this case concerns only the existence and scope of aiding and abetting liability in suits brought by private parties under §10(b) and Rule 10b–5. The majority's rationale, however, sweeps far beyond even those important issues. The majority leaves little doubt that the Exchange Act does not even permit the Commission to pursue aiders and abettors in civil enforcement actions under §10b and Rule 10b–5. See ante, at 12 (finding it dispositive that "the text of the 1934 Act does not itself reach those who aid and abet a §10(b) violation"). Aiding and abetting liability has a long pedigree in civil proceedings brought by the SEC under §10(b) and Rule 10b–5, and has become an important part of the Commission's enforcement arsenal. Moreover, the majority's approach to aiding and abetting at the very least casts serious doubt, both for private and SEC actions, on other forms of secondary liability that, like the aiding and abetting theory, have long been recognized by the SEC and the courts but are not expressly spelled out in the securities statutes. The principle the Court espouses today—that liability may not be imposed on parties who are not within the scope of §10(b)'s plain language—is inconsistent with long-established Commission and judicial precedent.

As a general principle, I agree, "the creation of new rights ought to be left to legislatures, not courts." Musick, Peeler, 508 U. S., at ___ (slip op., at 5). But judicial restraint does not always favor the narrowest possible interpretation of rights derived from federal statutes. While we are now properly reluctant to recognize private rights of action without an instruction from Congress, we should also be reluctant to lop off rights of action that have been recognized for decades, even if the judicial methodology that gave them birth is now out of favor. Caution is particularly appropriate here, because the judicially recognized right in question accords with the longstanding construction of the agency Congress has assigned to enforce the securities laws. Once again the Court has refused to build upon a "`secure foundation . . . laid by others,'" Patterson v. McLean Credit Union, 491 U. S. 164, 222 (1989) (Stevens, J., dissenting) (quoting B. Cardozo, The Nature of the Judicial Process 149 (1921)).

I respectfully dissent.