TOUCHE ROSS & CO. v. REDINGTON

MR. JUSTICE REHNQUIST delivered the opinion of the Court.

Once again, we are called upon to decide whether a private remedy is implicit in a statute not expressly providing one. During this Term alone, we have been asked to undertake this task no fewer than five times in cases in which we have granted certiorari.1 Here we decide whether customers of securities brokerage firms that are required to file certain financial reports with regulatory authorities by § 17 (a) of the Securities Exchange Act of 1934 (1934 Act), 48 Stat. 897, as amended, 15 U. S. C. § 78q (a), have an implied cause of action for damages under § 17 (a) against accountants who audit such reports, based on misstatements contained in the reports.2

I

Petitioner Touche Ross & Co. is a firm of certified public accountants. Weis Securities, Inc. (Weis), a securities brokerage firm registered as a broker-dealer with the Securities and Exchange Commission (Commission) and a member of the New York Stock Exchange (Exchange), retained Touche Ross to serve as Weis' independent certified public accountant from 1969 to 1973. In this capacity, Touche Ross conducted audits of Weis' books and records and prepared for filing with the Commission the annual reports of financial condition required by § 17 (a) of the 1934 Act, 15 U. S. C. § 78q (a), and the rules and regulations adopted thereunder. 17 CFR § 240.17a-5 (1972).3 Touche Ross also prepared for Weis responses to financial questionnaires required by the Exchange of its member firms.

This case arises out of the insolvency and liquidation of Weis. In 1973, the Commission and the Exchange learned of Weis' precarious financial condition and of possible violations of the 1934 Act by Weis and its officers. In May 1973, the Commission sought and was granted an injunction barring Weis and five of its officers from conducting business in violation of the 1934 Act.4 At the same time, the Securities Investor Protection Corporation (SIPC), pursuant to statutory authority, applied in the United States District Court for the Southern District of New York for a decree adjudging that Weis' customers were in need of the protection afforded by the Securities Investor Protection Act of 1970 (SIPA), 84 Stat. 1636, 15 U. S. C. § 78aaa et seq.5 The District Court granted the requested decree and appointed respondent Redington (Trustee) to act as trustee in the liquidation of the Weis business under SIPA.

During the liquidation, Weis' cash and securities on hand appeared to be insufficient to make whole those customers who had left assets or deposits with Weis. Accordingly, pursuant to SIPA, SIPC advanced the Trustee $14 million to satisfy, up to specified statutory limits, the claims of the approximately 34,000 Weis customers and certain other creditors of Weis. Despite the advance of $14 million by SIPC, there apparently remain several million dollars of unsatisfied customer claims.6

In 1976, SIPC and the Trustee filed this action for damages against Touche Ross in the District Court for the Southern District of New York. The "common allegations" of the complaint, which at this stage of the case we must accept as true, aver that certain of Weis' officers conspired to conceal substantial operating losses during its 1972 fiscal year by falsifying financial reports required to be filed with regulatory authorities pursuant to § 17 (a) of the 1934 Act. App. 8. SIPC and the Trustee seek to impose liability upon Touche Ross by reason of its allegedly improper audit and certification of the 1972 Weis financial statements and preparation of answers to the Exchange financial questionnaire. Id., at 15-19. The complaint alleges that because of its improper conduct, Touche Ross breached duties that it owed SIPC, the Trustee, and others under the common law, § 17 (a) and the regulations thereunder, and that Touche Ross' alleged dereliction prevented Weis' true financial condition from becoming known until it was too late to take remedial action to forestall liquidation or to lessen the adverse financial consequences of such a liquidation to the Weis customers. App. 8-9. The Trustee seeks to recover $51 million on behalf of Weis in its own right and on behalf of the customers of Weis whose property the Trustee was unable to return. SIPC claims $14 million, either as subrogee of Weis' customers whose claims it has paid under SIPA or in its own right. The federal claims are based on § 17 (a) of the 1934 Act; the complaint also alleges several state common-law causes of action based on accountants' negligence, breach of contract, and breach of warranty.7

The District Court dismissed the complaint, holding that no claim for relief was stated because no private cause of action could be implied from § 17 (a). 428 F.Supp. 483 (SDNY 1977).8 A divided panel of the Second Circuit reversed. 592 F.2d 617 (1978). The court first found that § 17 (a) imposes a duty on accountants. 592 F. 2d, at 621. It next concluded, based on the factors set forth in Cort v. Ash, 422 U.S. 66, 78 (1975), that an accountant's breach of his § 17 (a) duty gives rise to an implied private right of action for damages in favor of a broker-dealer's customers, even though it acknowledged that the "legislative history of the section is mute on the issue." 592 F. 2d, at 622. The court held that SIPC and the Trustee could assert this implied cause of action on behalf of the Weis customers.9 We granted certiorari, 439 U.S. 979 (1978), and we now reverse.

II

The question of the existence of a statutory cause of action is, of course, one of statutory construction. Cannon v. University of Chicago, 441 U.S. 677, 688 (1979); see National Railroad Passenger Corp. v. National Association of Railroad Passengers, 414 U.S. 453, 458 (1974) (hereinafter Amtrak). SIPC's argument in favor of implication of a private right of action based on tort principles, therefore, is entirely misplaced. Brief for Respondent SIPC 22-23. As we recently have emphasized, "the fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person." Cannon v. University of Chicago, supra, at 688. Instead, our task is limited solely to determining whether Congress intended to create the private right of action asserted by SIPC and the Trustee. And as with any case involving the interpretation of a statute, our analysis must begin with the language of the statute itself. Cannon v. University of Chicago, supra, at 689; Teamsters v. Daniel, 439 U.S. 551, 558 (1979); Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472 (1977); Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 24 (1977); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197 (1976).

At the time pertinent to the case before us, § 17 (a) read, in relevant part, as follows:

In terms, § 17 (a) simply requires broker-dealers and others to keep such records and file such reports as the Commission may prescribe. It does not, by its terms, purport to create a private cause of action in favor of anyone. It is true that in the past our cases have held that in certain circumstances a private right of action may be implied in a statute not expressly providing one. But in those cases finding such implied private remedies, the statute in question at least prohibited certain conduct or created federal rights in favor of private parties. E. g., Cannon v. University of Chicago, supra (20 U. S. C. § 1681); Johnson v. Railway Express Agency, Inc., 421 U.S. 454 (1975) (42 U. S. C. § 1981); Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6 (1971) (15 U. S. C. § 78j (b)); Sullivan v. Little Hunting Park, Inc., 396 U.S. 229 (1969) (42 U. S. C. § 1982); Allen v. State Board of Elections, 393 U.S. 544 (1969) (42 U. S. C. § 1973c); Jones v. Alfred H. Mayer Co., 392 U.S. 409 (1968) (42 U. S. C. § 1982); J. I. Case Co. v. Borak, 377 U.S. 426 (1964) (15 U. S. C. § 78n (a)). By contrast, § 17 (a) neither confers rights on private parties nor proscribes any conduct as unlawful.

The intent of § 17 (a) is evident from its face. Section 17 (a) is like provisions in countless other statutes that simply require certain regulated businesses to keep records and file periodic reports to enable the relevant governmental authorities to perform their regulatory functions. The reports and records provide the regulatory authorities with the necessary information to oversee compliance with and enforce the various statutes and regulations with which they are concerned. In this case, the § 17 (a) reports, along with inspections and other information, enable the Commission and the Exchange to ensure compliance with the "net capital rule," the principal regulatory tool by which the Commission and the Exchange monitor the financial health of brokerage firms and protect customers from the risks involved in leaving their cash and securities with broker-dealers.10 The information contained in the § 17 (a) reports is intended to provide the Commission, the Exchange, and other authorities with a sufficiently early warning to enable them to take appropriate action to protect investors before the financial collapse of the particular broker-dealer involved. But § 17 (a) does not by any stretch of its language purport to confer private damages rights or, indeed, any remedy in the event the regulatory authorities are unsuccessful in achieving their objectives and the broker becomes insolvent before corrective steps can be taken. By its terms, § 17 (a) is forward-looking, not retrospective; it seeks to forestall insolvency, not to provide recompense after it has occurred. In short, there is no basis in the language of § 17 (a) for inferring that a civil cause of action for damages lay in favor of anyone. Cort v. Ash, 422 U. S., at 79.

As the Court of Appeals recognized, the legislative history of the 1934 Act is entirely silent on the question whether a private right of action for damages should or should not be available under § 17 (a) in the circumstances of this case. 592 F. 2d, at 622. SIPC and the Trustee nevertheless argue that because Congress did not express an intent to deny a private cause of action under § 17 (a), this Court should infer one. But implying a private right of action on the basis of congressional silence is a hazardous enterprise, at best. See Santa Clara Pueblo v. Martinez, 436 U.S. 49, 64 (1978). And where, as here, the plain language of the provision weighs against implication of a private remedy, the fact that there is no suggestion whatsoever in the legislative history that § 17 (a) may give rise to suits for damages reinforces our decision not to find such a right of action implicit within the section. See Cort v. Ash, supra, at 82-84; cf. Securities Investor Protection Corp. v. Barbour, 421 U.S. 412 (1975); Amtrak, 414 U.S. 453 (1974); T. I. M. E. Inc. v. United States, 359 U.S. 464 (1959).11

Further justification for our decision not to imply the private remedy that SIPC and the Trustee seek to establish may be found in the statutory scheme of which § 17 (a) is a part. First, § 17 (a) is flanked by provisions of the 1934 Act that explicitly grant private causes of action. § 16 (b), 15 U. S. C. § 78p (b); § 18 (a), 15 U. S. C. § 78r (a). Section 9 (e) of the 1934 Act also expressly provides a private right of action. 15 U. S. C. § 78i (e). See also § 20, 15 U. S. C. § 78t. Obviously, then, when Congress wished to provide a private damages remedy, it knew how to do so and did so expressly. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 734 (1975); see Amtrak, supra, at 458; T. I. M. E. Inc. v. United States, supra, at 471.

Second, § 18 (a) creates a private cause of action against persons, such as accountants, who "make or cause to be made" materially misleading statements in any reports or other documents filed with the Commission, although the cause of action is limited to persons who, in reliance on the statements, purchased or sold a security whose price was affected by the statements.12 15 U. S. C. § 78r (a); see Ernst & Ernst v. Hochfelder, 425 U. S., at 211 n. 31; Blue Chip Stamps v. Manor Drug Stores, supra, at 736. Since SIPC and the Trustee do not allege that the Weis customers purchased or sold securities in reliance on the § 17 (a) reports at issue, they cannot sue Touche Ross under § 18 (a).13 Instead, their claim is that the Weis customers did not get the enforcement action they would have received if the § 17 (a) reports had been accurate.14 SIPC and the Trustee argue that § 18 (a) cannot provide the exclusive remedy for misstatements made in § 17 (a) reports because the cause of action created by § 18 (a) is expressly limited to purchasers and sellers. They assert that Congress could not have intended in § 18 (a) to deprive customers, such as those whom they seek to represent, of a cause of action for misstatements contained in § 17 (a) reports.

There is evidence to support the view that § 18 (a) was intended to provide the exclusive remedy for misstatements contained in any reports filed with the Commission, including those filed pursuant to § 17 (a).15 Certainly, SIPC and the Trustee have pointed to no evidence of a legislative intent to except § 17 (a) reports from § 18 (a)'s purview. Cf. Securities Investor Protection Corp., 421 U. S., at 419-420; Amtrak, 414 U. S., at 458. But we need not decide whether Congress expressly intended § 18 (a) to provide the exclusive remedy for misstatements contained in § 17 (a) reports. For where the principal express civil remedy for misstatements in reports created by Congress contemporaneously with the passage of § 17 (a) is by its terms limited to purchasers and sellers of securities, we are extremely reluctant to imply a cause of action in § 17 (a) that is significantly broader than the remedy that Congress chose to provide. Blue Chip Stamps v. Manor Drug Stores, supra, at 735-736; see Ernst & Ernst v. Hochfelder, supra, at 210; Securities Investor Protection Corp. v. Barbour, supra, at 421-423; Amtrak, supra, at 458; cf. T. I. M. E. Inc. v. United States, 359 U. S., at 471.16

SIPC and the Trustee urge, and the Court of Appeals agreed, that the analysis should not stop here. Relying on the factors set forth in Cort v. Ash, 422 U. S., at 78, they assert that we also must consider whether an implied private remedy is necessary to "effectuate the purpose of the section" and whether the cause of action is one traditionally relegated to state law. SIPC and the Trustee contend that implication of a private remedy is essential to the goals of § 17 (a) and that enforcement of § 17 (a) is properly a matter of federal, not state, concern. Brief for Respondent Redington 30-35; Brief for Respondent SIPC 42-52. We need not reach the merits of the arguments concerning the "necessity" of implying a private remedy and the proper forum for enforcement of the rights asserted by SIPC and the Trustee, for we believe such inquiries have little relevance to the decision of this case. It is true that in Cort v. Ash, the Court set forth four factors that it considered "relevant" in determining whether a private remedy is implicit in a statute not expressly providing one. But the Court did not decide that each of these factors is entitled to equal weight. The central inquiry remains whether Congress intended to create, either expressly or by implication, a private cause of action. Indeed, the first three factors discussed in Cort—the language and focus of the statute, its legislative history, and its purpose, see 422 U. S., at 78—are ones traditionally relied upon in determining legislative intent. Here, the statute by its terms grants no private rights to any identifiable class and proscribes no conduct as unlawful. And the parties as well as the Court of Appeals agree that the legislative history of the 1934 Act simply does not speak to the issue of private remedies under § 17 (a). At least in such a case as this, the inquiry ends there: The question whether Congress, either expressly or by implication, intended to create a private right of action, has been definitely answered in the negative.

Finally, SIPA and the Trustee argue that our decision in J. I. Case Co. v. Borak, 377 U.S. 426 (1964), requires implication of a private cause of action under § 17 (a). In Borak, the Court found in § 14 (a) of the 1934 Act, 15 U. S. C. § 78n (a), an implied cause of action for damages in favor of shareholders for losses resulting from deceptive proxy solicitations in violation of § 14 (a). SIPC and the Trustee emphasize language in Borak that discusses the remedial purposes of the 1934 Act and § 27 of the Act, which, inter alia, grants to federal district courts the exclusive jurisdiction of violations of the Act and suits to enforce any liability or duty created by the Act or the rules and regulations thereunder.17 They argue that Touche Ross has breached its duties under § 17 (a) and the rules adopted thereunder and that in view of § 27 and of the remedial purposes of the 1934 Act, federal courts should provide a damages remedy for the breach.18

The reliance of SIPC and the Trustee on § 27 is misplaced. Section 27 grants jurisdiction to the federal courts and provides for venue and service of process. It creates no cause of action of its own force and effect; it imposes no liabilities. The source of plaintiffs' rights must be found, if at all, in the substantive provisions of the 1934 Act which they seek to enforce, not in the jurisdictional provision. See Securities Investor Protection Corp. v. Barbour, 421 U. S., at 424. The Court in Borak found a private cause of action implicit in § 14 (a). See Cannon v. University of Chicago, 441 U. S., at 690-693, n. 13; Piper v. Chris-Craft Industries, Inc., 430 U. S. at 25; Allen v. State Board of Elections, 393 U. S., at 557. We do not now question the actual holding of that case, but we decline to read the opinion so broadly that virtually every provision of the securities Acts gives rise to an implied private cause of action. E. g., Piper v. Chris-Craft Industries, Inc., supra.19

The invocation of the "remedial purposes" of the 1934 Act is similarly unavailing. Only last Term, we emphasized that generalized references to the "remedial purposes" of the 1934 Act will not justify reading a provision "more broadly than its language and the statutory scheme reasonably permit." SEC v. Sloan, 436 U.S. 103, 116 (1978); see Ernst & Ernst v. Hochfelder, 425 U. S., at 200. Certainly, the mere fact that § 17 (a) was designed to provide protection for brokers' customers does not require the implication of a private damages action in their behalf. Cannon v. University of Chicago, supra, at 688, and n. 9; Securities Investor Protection Corp. v. Barbour, supra, at 421. 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. Cannon v. University of Chicago, supra, at 688-709. The ultimate question is one of congressional intent, not one of whether this Court thinks that it can improve upon the statutory scheme that Congress enacted into law.

III

SIPC and the Trustee contend that the result we reach sanctions injustice. But even if that were the case, the argument is made in the wrong forum, for we are not at liberty to legislate. If there is to be a federal damages remedy under these circumstances, Congress must provide it. "[I]t is not for us to fill any hiatus Congress has left in this area." Wheeldin v. Wheeler, 373 U.S. 647, 652 (1963). Obviously, nothing we have said prevents Congress from creating a private right of action on behalf of brokerage firm customers for losses arising from misstatements contained in § 17 (a) reports. But if Congress intends those customers to have such a federal right of action, it is well aware of how it may effectuate that intent.

The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

MR. JUSTICE POWELL took no part in the consideration or decision of this case.

MR. JUSTICE BRENNAN, concurring.

I join the Court's opinion. The Court of Appeals implied a cause of action for damages under § 17 (a) of the Securities Exchange Act of 1934, 15 U. S. C. § 78q (a), in favor of respondents, who purport to represent customers of a bankrupt brokerage firm, against petitioner accounting firm, which allegedly injured those customers by improperly preparing and certifying the reports on the brokerage firm required by § 17 (a) and the rules promulgated thereunder. Under the tests established in our prior cases, no cause of action should be implied for respondents under § 17 (a). Although analyses of the several factors outlined in Cort v. Ash, 422 U.S. 66 (1975), may often overlap, I agree that when, as here, a statute clearly does not "create a federal right in favor of the plaintiff," id., at 78, i. e., when the plaintiff is not "`one of the class for whose especial benefit the statute was enacted,'" ibid., quoting Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39 (1916), and when there is also in the legislative history no "indication of legislative intent, explicit or implicit, . . . to create such a remedy," 422 U. S., at 78, the remaining two Cort factors cannot by themselves be a basis for implying a right of action.

MR. JUSTICE MARSHALL, dissenting.

In determining whether to imply a private cause of action for damages under a statute that does not expressly authorize such a remedy, this Court has considered four factors:

Applying these factors, I believe respondents are entitled to bring an action against accountants who have allegedly breached duties imposed under § 17 (a) of the Securities Exchange Act of 1934, 15 U. S. C. § 78q (a).

Since respondents seek relief on behalf of brokerage firm customers, the first inquiry is whether those customers are the intended beneficiaries of the regulatory scheme. Under § 17 (a), brokers must file such reports "as the [SEC], by rule, prescribes as necessary or appropriate . . . for the protection of investors." 15 U. S. C. § 78q (a) (1) (emphasis added). Cf. J. I. Case Co. v. Borak, 377 U.S. 426, 432 (1964). Pursuant to this authority, the SEC requires brokers to provide a battery of financial statements, and directs independent accountants to verify the brokers' reports. 17 CFR § 240.17a-5 (1978); see also ante, at 563-564, n. 3. The purpose of these requirements, as the Commission has consistently emphasized, is to enable regulators to "monitor the financial health of brokerage firms and protect customers from the risks involved in leaving their cash and securities with broker-dealers." Ante, at 570.1 In addition, at the time of the events giving rise to this suit, the rules implementing § 17 mandated that brokers disclose to customers whether an accountant's audit had revealed any "material inadequacies" in financial procedures. 37 Fed. Reg. 14608 (1972). Thus, it is clear that brokerage firm customers are the "favored wards" of § 17, 592 F.2d 617, 623 (CA2 1978), and that the initial test of Cort v. Ash is satisfied here.2

With respect to the second Cort factor, the legislative history does not explicitly address the availability of a damages remedy under § 17. The majority, however, discerns an intent to deny private remedies from two aspects of the statutory scheme. Because unrelated sections in the 1934 Act expressly grant private rights of action for violation of their terms, the Court suggests that Congress would have made such provision under § 17 had it wished to do so. But as we noted recently in Cannon v. University of Chicago, 441 U.S. 677, 711 (1979), "that other provisions of a complex statutory scheme create express remedies has not been accepted as a sufficient reason for refusing to imply an otherwise appropriate remedy under a separate section." The Court finds a further indication of congressional intent in the interaction between §§ 17 and 18 of the 1934 Act. Section 18 (a), 15 U. S. C. § 78r (a), affords an express remedy for misstatements in reports filed with the Commission, apparently including reports required by § 17, but limits relief to purchasers or sellers of securities whose price was affected by the misstatement. In light of this limitation, the majority reasons, we should not imply a remedy under § 17 which embraces a broader class of plaintiffs. However, § 18 pertains to investors who are injured in the course of securities transactions, while § 17 is concerned exclusively with brokerage firm customers who may be injured by a broker's insolvency. Given this divergence in focus, § 18 does not reflect an intent to restrict the remedies available under § 17. Indeed, since false reports regarding a broker's financial condition would not affect the price of securities held by the broker's customers, § 18 would provide these persons with no remedy at all. I am unwilling to assume that "Congress simultaneously sought to protect to class and deprived [it] of the means of protection." 592 F. 2d, at 623.

A cause of action for damages here is also consistent with the underlying purposes of the legislative scheme. Because the SEC lacks the resources to audit all the documents that brokers file, it must rely on certification by accountants. See J. I. Case Co. v. Borak, supra, at 432; Allen v. State Board of Elections, 393 U.S. 544, 556 (1969); see also 592 F. 2d, at 623 n. 12. Implying a private right of action would both facilitate the SEC's enforcement efforts and provide an incentive for accountants to perform their certification functions properly.

Finally, enforcement of the 1934 Act's reporting provisions is plainly not a matter of traditional state concern, but rather relates solely to the effectiveness of federal statutory requirements. And, as the Court of Appeals held, since the problems caused by broker insolvencies are national in scope, so too must be the standards governing financial disclosure. Id., at 623.

In sum, straightforward application of the four Cort factors compels affirmance of the judgment below. Because the Court misapplies this precedent and disregards the evident purpose of § 17, I respectfully dissent.