The opinion of the court was delivered by: Will, District Judge.
Professor Loss reads the section similarly, lending
considerable credence to the statements of Commissioner Landis
who played a dominant role in the drafting of the 1933 Act. In
a November 1933 address, Commissioner Landis commented:
The suggestion has been made on occasion that
civil liabilities arise also from a violation of
Section 17, the first subsection of which makes
unlawful the circulation of falsehoods and
untruths in connection with the sale of a
security in interstate commerce or through the
mails. But a reading of this section in the light
of the entire Act leaves no doubt but that
violations of its provisions give rise only to a
liability to be restrained by injunctive action
or, if wilfully done, to a liability to be
Loss goes on to stress that there is a significant difference
between the 1934 Securities and Exchange Act, which does have
a private right of action, and § 17 of the 1933 Act.
It is one thing to imply a private right of
action under § 10(b) or the other provisions of the
1934 Act, because the specific liabilities created
by §§ 9(e), 16(b), and 18 do not cover all of the
variegated activities with which the act is
concerned. But it is quite another thing to add an
implied remedy under § 17(a) of the 1933 Act to the
detailed remedies specifically created by §§ 11 and
12. The 1933 Act is a much narrower statute. It
deals only with disclosure and fraud in the sale of
securities. It has but two important substantive
provisions, §§ 5 and 17(a). Noncompliance with § 5
results in civil liability under § 12(1). Faulty
compliance results in liability under § 11. And §
17(a) has its counterpart in § 12(2). It all makes
a rather neat pattern. Within the area of §§ 5 and
17(a), §§ 11 and 12 (unlike §§ 9(e), 16(b) and 18
of the 1934 Act) are all-embracing. This is not to
say that the remedies afforded by §§ 11 and 12 are
complete. But the very restrictions in those
sections and the differences between them . . .
make it seem less justifiable to permit plaintiffs
to circumvent the limitations of § 12 by resort to
§ 17(a). Particularly is this so in view of the
fact that § 11, together with the statute of
limitations in § 13, was actually tightened in the
1934 amendments to the Securities Act. 3 Loss,
Securities Regulation 1784-85 (2d ed. 1961).
Professor Ruder also reaches the same conclusion,
The most reasonable view regarding Section
17(a) of the 1933 Act is that Congress intended
that the Commission would use it to deal with
flagrant cases of abuses. Evidence of this point
of view appears in connection with an amendment
offered by Senator Fletcher to Title II of the
1934 Act, which was an amendment to the 1933
Act. . . . Senator Fletcher then asked to have a
memorandum explaining the amendment printed in
the Congressional Record. At the end of the
memorandum the following statement appears: "It is
to be noted that enforcement of the provisions of
the new subsection is left to injunction, stop
order, and criminal prosecution. No civil liability
attaches for any violation thereof." [Emphasis in
the original]. Ruder, Civil Liability under Rule
10b-5: Judicial Revision of Legislative Intent? 57
Nw.U.L.Rev. 627, 656 (1963).
Drawing upon such analysis, several courts have determined
that § 17 was not intended to be used as a basis for private
civil remedies. Hardy v. Sanson, 356 F. Supp. 1034 (N.D.Ga.
1973); Dyer v. Eastern Trust and Banking Co., 336 F. Supp. 890
(D.Me. 1971); Trussell v. United Underwriters, Ltd.,
228 F. Supp. 757 (D.Colo. 1964). See also, Donlon Industries, Inc.
(2d Cir. 1968); Greater Iowa Corp. v.
(8th Cir. 1967); Weber. v. C.M.P. Corp.,
242 F. Supp. 321 (S.D.N.Y. 1965).While we
adhere to their view, we are aware that there remains a
divergence of opinion on the subject. The Supreme Court has
not, as yet, considered the question, and several courts have
purposely avoided dealing with this most "vexing question."
Unicorn Field, Inc. v. Cannon Group, Inc., 60 F.R.D. 217
Those courts which have accepted the existence of a private
right of action, have generally done so without considering
substantively whether the right has any statutory foundation.
Many of these cases have relied on the holding in Osborne v.
Mallory, 86 F. Supp. 869 (S.D.N.Y. 1949), which was the first
case to accept a private right of action under § 17(a). In
Osborne, the court paralleled § 17(a) with 10b-5 of the 1934
Act, for which a private right of action had already been
recognized. The court simply applied the rationale supporting
an implied right of action in the 1934 Act, and concluded that
there was little justification for not allowing the same rights
and remedies under each act. Thereafter, the courts finding a
private right of action have generally assumed, without
deciding, that the Osborne application of § 17(a) is
controlling. We do not agree.
First, it is well accepted that those protected by a
prohibitory statute have a private right of action unless the
legislature clearly indicates that no such right exists. Texas
& P. Ry. v. Rigsby, 241 U.S. 33, 39, 36 S.Ct. 482, 60 L.Ed.
874 (1916); J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct.
1555, 12 L.Ed.2d 423 (1964). Consistent with this general
rule, an analysis of the drafters' intent, as expressed
supra, strongly indicates that no such right was intended.
Secondly, while the courts deal with the two securities acts in
pari materia and construe them as one comprehensive scheme of
regulation, important jurisdictional distinctions exist between
the acts. Claims falling within the parameter of the 1933 Act
could be brought before either a state or federal forum, while
violations of the 1934 Act are only maintainable in federal
courts. Allowing a private right of action where the latter Act
is the basis of jurisdiction therefore is essential for
complete coverage of the wrongs proscribed by the 1934 Act.
Alternatively, an aggrieved party may bring an action for
violations of the 1933 Act in federal court under §§ 11 or 12,
if appropriate, or may seek redress in the state courts under
state securities regulations or general fraud statutes. Also,
since many claims which appear to arise out of § 17(a) are
encompassed by 10b-5, this provides yet another federal
jurisdictional alternative. Denial of a private right of action
under § 17(a) by no means leaves a party without an available
Finally, neither the litigants nor the court have been able
to discover a single case in which a private right of action
under § 17(a) was permitted where the plaintiff did not also
allege a 10b-5 claim for the same conduct. Under such
circumstances, federal courts have permitted a § 17(a) claim to
be included. dupont v. Wyly, 61 F.R.D. 615 (D.Del. 1973);
Unicorn Field, Inc. v. Cannon Group, Inc., supra. We are faced
in the instant case, however, with a naked § 17(a) claim devoid
of any 10b-5 allegations. Accordingly, because we have
concluded that § 17(a) does not give rise to any federal
private right of action, the defendant's motion to dismiss must
An appropriate order will enter dismissing this action for
lack of jurisdiction.
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