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GATEWAY INDUSTRIES v. AGENCY RENT A CAR

June 10, 1980

GATEWAY INDUSTRIES, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
AGENCY RENT A CAR, INC., A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

The defendant Agency has moved to dismiss the complaint on the ground that section 13(d) of the Exchange Act does not give rise to an implied private right of action for equitable relief. For the reasons that follow, the Court agrees private parties may not seek injunctive relief under section 13(d). Accordingly, this action must be dismissed pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction.*fn5

            I. Implied Private Rights of Action — The
                      Governing Principles

At the outset, the Court observes, although the issue has not been addressed directly by the Supreme Court or the Seventh Circuit,*fn6 that the decisional authority unanimously has upheld the existence of a private right of action for injunctive relief under section 13(d).*fn7 See Dan River, Inc. v. Unitex Limited, 624 F.2d 1216 (4th Cir. 1979); GAF Corporation v. Milstein, 453 F.2d 709, 719 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972); Wellman v. Dickinson, 475 F. Supp. 783, 817 (S.D.N Y 1979); W.A. Krueger Co. v. Kirkpatrick, Pettis, Smith, Polian Co., 466 F. Supp. 800, 802-803 (1979); Grow Chemical Corp. v. Uran, 316 F. Supp. 891, 892 (S.D.N.Y. 1970). These decisions based their finding of a private right of action on the authority of J.I Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423, which the Milstein court characterized as "part of the ABC's of securities law." 453 F.2d at 719. In Borak, the Supreme Court relied on the broad remedial purposes of section 14(a) of the Exchange Act as well as the venue provision contained in section 27 to infer a private right of action for damages resulting from deceptive proxy solicitations. 377 U.S. 430-434, 84 S.Ct. at 1558-1560.

Recent Supreme Court decisions dealing with implied private rights of action, however, have abandoned the Borak approach. For example, in Touche Ross & Co. v. Reddington, 442 U.S. 560, 578-579, 99 S.Ct. 2479, 2490, 61 L.Ed.2d 82 (1979), the Court while declining to overturn Borak, clearly limited its precedential authority to the facts of that case:

  To the extent our analysis in today's decision
  differs from that of the Court in Borak, it
  suffices to say that in a series of cases since
  Borak, we have adhered to a stricter standard for
  the implication of private causes of action, and we
  follow that stricter standard today.

See also Cannon v. University of Chicago, 441 U.S. 677, 690-692 n. 12, 99 S.Ct. 1946, 1954-1955, 60 L.Ed.2d 447 (1979) (Borak described as an unexplained deviation from the normal pattern of judicial implication of private rights of action). The decline of Borak renders less than compelling the authority of the above-cited cases finding an implied private right of action existent under section 13(d). Rather, it is in light of the evolving principles of construction that the Court must determine whether section 13(d) impliedly creates a private right of action for injunctive relief.*fn8

As suggested in Touche Ross, the Supreme Court has developed more restrictive principles to govern the implication of private rights of action. Underlying the Borak view of implied private rights of action was the premise that "it is the duty of the courts to be alert to provide such remedies as are necessary to make effective the congressional purpose." 377 U.S. at 433, 84 S.Ct. at 1560. Implicit in this view was the assumption that if a private right of action would be consistent with the remedial purposes of section 14(a), then Congress clearly must have intended that such a right of action be available to aggrieved parties. The four-prong test for determining implied private rights of action set forth in Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2087, 45 L.Ed.2d 26 (1975), moved away from such heavy reliance on the desirability of creating private rights of action. True, two elements of the Cort inquiry — the consistency of a private right of action with the underlying purposes of the statute, and whether an implied right of action in federal court would impinge upon areas traditionally relegated to state law — continued. to focus upon this consideration. However, the other two factors set forth in Cort — whether the statute creates a right in favor of the plaintiff, and whether there is any independent evidence of congressional intent to create an implied private right of action — required courts to undertake a more probing inquiry into whether Congress actually intended that there be such a right.

Similarly, the Supreme Court in Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1980), eschewed any reliance on the desirability of inferring a private right of action. At the outset, the Court observed:

    The question whether a statute creates a cause
  of action, either expressly or by implication, is
  basically a matter of statutory construction.
  [Cites omitted]. While some opinions of the Court
  have placed considerable emphasis upon the
  desirability of implying private rights of action
  in order to provide remedies thought to
  effectuate the purposes of a given statute,
  e.g., J.I Case v. Borak, supra, what must
  ultimately be determined is whether Congress
  intended to create the private remedy asserted, as
  our recent decisions have made clear. [Cites
  omitted]. We accept this as the appropriate inquiry
  to be made in resolving the issues presented by the
  case before us.

100 S.Ct. at 245. In Transamerica, the Court found that section 215 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-15, gave rise to a private right of action for equitable relief, but that section 206 of the same Act, 15 U.S.C. § 80b-6, did not create a private damage action. In reaching these results, the Court looked solely to congressional intent as expressed by the statutory language and legislative history; the statutory scheme of enforcement; and the creation of a class of specially benefitted persons under these sanctions. In denying a right of action under section 206, the Court once again declined to consider the desirability of creating such a right. ...


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