Central Bank of Denver , N. A. v. First Interstate Bank of Denver , N. A. - Oral Argument - November 30, 1993

Central Bank of Denver , N. A. v. First Interstate Bank of Denver , N. A.

Media for Central Bank of Denver , N. A. v. First Interstate Bank of Denver , N. A.

Audio Transcription for Opinion Announcement - April 19, 1994 in Central Bank of Denver , N. A. v. First Interstate Bank of Denver , N. A.

Audio Transcription for Oral Argument - November 30, 1993 in Central Bank of Denver , N. A. v. First Interstate Bank of Denver , N. A.

William H. Rehnquist:

We'll hear argument first this morning in Number 92-854, the Central Bank of Denver v. the First Interstate Bank of Denver.

Mr. Trautman.

Tucker Karl Trautman:

Thank you, Mr. Chief Justice, and may it please the Court:

The two central issues that you are faced with today are whether Congress intended to create a private cause of action for aiding and abetting under 10(b), and secondly, if you so conclude, whether or not recklessness can provide a sufficient level of scienter, even though there is no duty breached either to disclose, or a duty of action.

Resolutions of these issues is shaped by the unique features of this case.

Specifically, Central Bank was not sued as a primary violator who allegedly engaged in deceptive or manipulative practices.

Instead, Central Bank was accused of substantially assisting the primary violation of others by agreeing to delay a new appraisal until after bonds were issued, thereby allowing the fraud to occur.

Central Bank was not involved in selling the bonds or marketing the bonds, but instead acted as indenture trustee, who had specific duties under a contractual document known as an indenture setting out the duties and setting out the bounds of its discretion.

This case was decided originally by the district court on a motion for summary judgment after full discovery, and at that time it was undisputed that the alleged substantial assistance by Central Bank involved no misrepresentation, involved no violation of duty of action or duty to disclose under the indenture, and in fact was a discretionary act under the indenture.

Resolution of the first issue--

William H. Rehnquist:

What was that act?

Tucker Karl Trautman:

--The act that they claim Central Bank engaged in, Your Honor, was to delay, if you will, an appraisal until after the bonds were issued.

The resolution of the first issue on private right of action in our view turns on the very nature of what aiding and abetting is.

John Paul Stevens:

May I just ask one other question--

Tucker Karl Trautman:

Sure.

John Paul Stevens:

--the delay.

It was discretionary.

Did they have the authority under their agreement, under the indenture, to insist that the appraisal not be delayed?

Tucker Karl Trautman:

Yes.

It was a discretionary act.

They could either require a new appraisal, not require a new appraisal, and they could determine the timing of that appraisal.

John Paul Stevens:

And whether they did it or not was entirely discretionary, no standards about whether they had any duty to--

Tucker Karl Trautman:

That's correct, Your Honor.

John Paul Stevens:

--Why, under the agreement, did they have anything to say about the appraisal?

Tucker Karl Trautman:

Well, an indenture trustee essentially has ministerial acts, carries out ministerial acts.

Some courts have characterized this kind of trustee as a stakeholder, essentially owing duties both to the issuer of the bonds and the bondholder, and in this particular case, the indenture set forth what the duties were and what the bounds of discretion were.

John Paul Stevens:

But would the decision of whether to delay or not delay the appraisal be a ministerial act, in your view?

Tucker Karl Trautman:

It would be... I don't know what label you would put on it, but it would be an act that the trustee could decide in its sound discretion, and the whole purpose of doing that--

John Paul Stevens:

It seems to me there's some tension between the notion that it's a discretionary matter and it's a ministerial matter.

It seems to me one of those would be correct, but it's hard for me to see how both could be correct.