Securities Investor Protection Corp. v. Barbour – Oral Argument – March 18, 1975

Media for Securities Investor Protection Corp. v. Barbour

Audio Transcription for Opinion Announcement – May 19, 1975 in Securities Investor Protection Corp. v. Barbour
Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


Warren E. Burger:

We’ll resume arguments in number 73-2055.

Mr. Caron, you may proceed, you have 17 minutes remaining.

Wilfred R. Caron:

Mr. Chief Justice and may it please the Court.

At the close of yesterday’s argument, I was at the point of discussing briefly the supervisory powers of the commission and its Section 7 (b) enforcement remedy which is so directly involved in this particular case and from that point to discuss the cases which is sited by the respondent in support of his position.

We have emphasized in the brief the overall supervisory responsibilities of the commission over SIPC.

They’re extensive and they are detailed at least 10 specifications at pages 10 to 12 of our brief and I would not burden the Court will a repetition of those items.

I would illustrate one now to indicate the under the swipe the commission does have the power under the statute to disapprove any by law or any rule of regulation which SIPC might adopt and more than that it has the power to compel SIPC to adopt the by law at desire be adopted with the same applies to rules and has the power to require SIPC to repeal or amend any existing by law.

So, that is one illustration of the pervasive control which the Congress has saw to lodge and properly so in the commission and there are other examples.

And we find that Section 7 (b) which relates the enforcement of SIPC’s statutory responsibilities to the investing public.

We find that provision is part in puzzle of packages of supervision.

It’s clear from the remarks of the members of the Congress or at least some of them and we report to some of those that Footnote 30 or page 11 of our brief that they well understood and intended that the commission assume on exclusive basis responsibility the suit was that the purposes of the Act would carried out in every respect.

I would point to one just to illustrate one Congressman in these words, “The bill gives to the Securities and Exchange Commission continuing over side and rule making authority over the affairs of the corporation to ensure that the public interest is served.”

In light of the receivers authorities cited in support of an implied right of action, I would focus just for a moment on the extraordinary character of the remedy and enforcement power which the commission has.

Section 7 (b) in the first instance would authorize the commission to substitute its judgment for that of SIPC Board of Directors in the event that disagree and on the basis of that difference of view, authorizes the commission to go the Federal District Court where our principal office is located and commence an action, perhaps describable as in the nature of mandamus or mandatory injunction.

But not quite the one I don’t believe and it authorizes the Court after reviewing the positions of SIPC and the commission to determine within some parameters not yet establish that either the commission is correct and that SIPC should be compelled to do something under the Act namely commission liquidation proceeding or otherwise.

And if the relief is granted what is happening as I indicated yesterday is the compulsion of a proceeding on an involuntary basis to liquidate a broker dealer with all the impact that has and then the process triggering the release of the funds in SIPC for the purposes of the proceeding and in the event that its on funds should proven adequate either by reason of that case or a combination circumstances triggering a call by way of a barrowing on the US Treasury.

Those are the dimension of the remedy which the commission enjoys by express grant.

The receivers position, if I understand correctly, is that by reason of the broad purposes of the 70 Act an equivalent and duplicate remedy for precise in the same purposes should be implied and that’s the term I believe should be implied in favor of the customers of a firm which may in their judgment feel that the firm is in certain — die a circumstances and that SIPC should commence a liquidation proceeding.

It brings to bare two principles cases really.

One on which, we rely and namely the National Railroad Passenger Corporation case driver forged and when the brief is the Amtrak case.

On the other hand, the receiver would focus on J.I. case against Borak reported at 377 US.

Borak is one of a line of cases, the receiver also site Allen against the Board of Education.

We in turn supply on that line of cases, Warned that Transportation Co. against United State, Bivens against Six Unknown Named Agents, Texas against and Pacific against Rigsby, Fleishman Distilling and we do that for the purpose of attempting an analysis of what these cases really mean.

So far as I can determine, that analysis indicates that they involve a determination of whether a remedy traditionally recognized by the judiciary should be denied a particular litigant who was agreed by the Act of another in violation of the statutory duty, a wrong and a traditional sense of tort.

Allen for example, involved a deprivation for a voting right, Bivens the violation of the Fourth Amendment right against search and seizure, Borak, a violation of the proxy requirements of Section 14 (a) of the 34 Act, Fleishman, a violation of the provision to the land of Act which prohibit infringement on trademarks.

Rigsby, a violation of federal Safety Appliance Act and wind that a violation by reason of the negligence seeking of a vessel, a violation in the Section 15 who delivers on Harbor Act, so on all these cases and I’m certainly there are others.

Essentially, what is involved is a wrong in the classic sense of Tort, committed against one in violation of law and the search in the cases has been whether be a constitutional provision as in Bivens or a statutory provision as in the other cases.

The inquiry has been has Congress accept from Bivens has Congress by prescribing particular remedies foreclose available traditional remedies for example, damages, recession, injunction.

In Bivens, there was — in my opinion this is because there was a right and no particular remedy prescribed hence on, I think traditional basis, a cause of action for damages forth injury committed and all the other cases I’ve cited except Fleishman.

While there were certain remedies of a penal of civil nature.

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


Wilfred R. Caron:

The fact was as this Court found that the prescription of certain remedies was on a sufficient indication of a congressional intent to foreclose existing traditional remedies.

In Fleishman, because of what this Court describe as the prescription of intricate remedies, it felt that Congress had indeed intended to foreclose the possibility of considering in award for attorneys fees in an action under that statute.

So, that we have this suitable tread of rational; I would refer to some language in Bivens and Wind up for example in Bivens.

The Court stated historically damages had been regardless of the ordinary remedy for invasion of personal interest and liberty presiding cases.

And elsewhere it was sudden Bivens the question is merely whether petitioner is entitle to address this injury to a particular remedial mechanism normally available in the Federal Courts and for that proposition siding Borak.

Wyandotte much the same just does the Court said referring to Borak case and Rigsby case which incidentally I believe is the first case in this Court to hold the existence of a private right of action when the framework of the Safety Appliance Act.

The Court stated the —

Potter Stewart:

That was the —

Wilfred R. Caron:


Potter Stewart:

That was the Texas Railroad case?

Wilfred R. Caron:

Texas and Pacific, yes sir.

Potter Stewart:

Back in the 20th, isn’t it?

Wilfred R. Caron:

There abouts I haven’t taken somewhere to maybe earlier a case — maybe early as matter.

But this language I find relevant again refer to Borak and Rigsby the Court in Wyandotte said that, “conclusion was in accordance with the general rule of the Law of Torts and elsewhere stated denial of such remedy to the United States will permit the result extraordinary in our jurisprudence of a wrong to a shifting responsibility for the consequences of his negligence on to a victim.”

I would submit to the Court of that the analysis of Justice Harlan in this concurring opinion, in Bivens represents a very sound and correct analysis and he said and we quote in our reply brief the notion of implying a remedy therefore has applied to cases like Borak can only refer to a process whereby the federal judiciary exercises the choice among traditionally available judicial remedies according to reasons related to substantive social policy embodied in the act of positive law.

There was an article which I’ve found of interest in preparation which is not cited in our brief that its historical development at 117 Pennsylvania law review page one, which was written in the wake of Bell v. Hood and it does in my opinion a good job of exploring the common law back to the 13th and 14 century England, and reaching the conclusion I believe that remedies recognized which I traditional are really the old form of action or rather two one action on the statute the other trespass on the case.

And I think that this is really what is going on in the Borak line of cases.

Rigsby itself refers to actions on the statute on holding which common law.

We believe that the Amtrak case represent some jurisprudence of course this Court believes.

It involves the different proposition, a different problem.

It relates to a remedy entrusted to a particular federal agency to exercise supervision and a control over quasi public corporation.

There are many implications and we believe that congressional choices clear and or to be given deference under accepted principles of statutory construction.

The test in Amtrak as I read it was that given the exclusive grant of such authority, absent any clear contrary evidence of legislative intent that a private remedy coexist thereby placing supervision of the general public.

The statute must be deemed as grantly an exclusive remedy.

And we think the principle applies here for certiorari for reasons we indicate in the brief one of which is that the commission by reason of his expertise and working with SIPC under this 33 or 34 Act and the 70 Act is most confident, most aware of situations, Congress repossess trusts in the commission, and we therefore think that guided by the authority in the Amtrak case.

But more important, on a common sense of appraisal of the 70 Act and what it attempts to do.

The act itself, the legislative history, the effectuation of a plan of congress, the recognition of the difference between the legislative and judicial branches and taking into account all the available Presidents.

We do believe that the Court of Appeals committed error and that a right might not be implied in the circumstances of this case.

On the second point concerning the receivers standing, I would not develop that an oral argument, I think that the concessions in the receivers brief two.

One, that if he were successful there would no benefit to the state of guarantee bond; And secondly, guarantee bond had no right of action in its own right.

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


Wilfred R. Caron:

I think they make the Chaplin case which will rely upon perfectly applicable in sound — I was only add that — we believe that it’s for customers to decide whether in a situation where both SIPC and the commission feel the statute should not be applied it for those individual to decide what are their rights.

We think the receiver has obligations to win a state, his duties to marshal and collect assets.

He has other credit to be concern about.

The chance of victory probably is not that great, we do believe that it is on the customers right if it exist and that’s the assumption for the purpose of the second point and that the receiver should be denied standing in any event.

I’d like to reserve whatever time I have for rebuttal, Your Honors.

Warren E. Burger:

Very well Mr. Caron.

Mr. Collins.

W. Ovid Collins, Jr.:

Mr. Chief Justice and may it please the Court.

The two issues upon which says certiorari was granted in this case were briefly first whether or not customers of a member of SIPC have an implied right of action to require SIPC to discharge its obligation under the Act.

In spite of the provisions of Section 7 (b) which extend that right to the SEC.

Briefly, the receivers position on the first issue is that it is both necessary and appropriate under the facts of this case to the imply such the right of action, in order for the customers of guided by in Securities Corporation to receive and its benefits from the Act and in order for the stated and designated purpose of the Act to be effectuated.

In that instance, we rely upon the case of J.I. case against Borak.

We also rely upon the doctrine of common law which is quoted in the Rigsby case which has been referred to the effect that in every case where a statute enacts, and this is the pertinent part, “enacts a thing for the benefit of a person, he shall have a remedy upon the same statute for the thing enacted for his advantage.

It is our position that in this instance unless the customers through their representative the receiver are accorded some remedy.

They will not receive any benefits under the Act and the manifest legislative purpose will be frustrated as to the right of the SEC to do this same thing.

Now, I call attention to the fact that 7 (b) is a part of a Section listing the functions of the SEC.

The legislative history of the Act indicates that the commission have a hand in the drafting and the sponsoring of the legislation.

I suggest that that Section was put in there to make certain that the SEC did have the right to take such action if it shows but the Court will note that 7 (b) does not require the SEC to do this.

If the SEC finds that SIPC has not met its obligations the statute does not say it shall seek an order of the Court but it may seek an order of the Court.

So, that it seems to me —

Warren E. Burger:

Does that not contemplate that there are other steps that could be taken preliminary, would that explain the absence of mandatory language?

W. Ovid Collins, Jr.:

Did Your Honor mean pursuing other remedies to protect —

Warren E. Burger:

To correct the situation to be fine.

W. Ovid Collins, Jr.:

— protect the customers.

I think that is always available to both the SIPC and the SEC.

Warren E. Burger:

But the language of statute was mandatory to take your suggestion on the absence of shall, would that to leave the very much flexibility?

W. Ovid Collins, Jr.:

Well, I’m not suggesting that it should have been shall.

I’m saying that the way it is now worth it the customers, the investors are left with nothing but a hope for an active grace on the part of SIPC with the concurrence of the commission.

Unless the customers have some remedy in the event that both the SIPC and the commission elect not to take any action.

And I submit that this Act was never pass that Congress to invest in SIPC and the commission a discretion as to whether or not they would protect customers, but rather a discretion as Your Honor suggest as to the means by which they will protect customers, so that there is the flexibility.

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


W. Ovid Collins, Jr.:

But now, the facts of the case before this Court are such that they have done nothing.

And we have gotten no cooperation or assistance, or protection from SIPC and no enforcement from the commission.

And we have no prospect in this case unless the Court finds that when this splendid supervisory procedure breaks down for whatever reason the customers can do something.

Now, this Act was passed in lieu of an Insurance Act in the nature of the FDIC and it appear that Congress was concern that investors would get to return of their securities and their money that was on deposit with a failed broker-dealer.

There is no suggestion that Congress meant this to be a discretionary matter with SIPC and the commission but rather that if they could protect those customers in some other way if they could effect then infusion of the additional capital or merger or anything else they didn’t have to put the broker-dealer and receivership.

William H. Rehnquist:

Well, you’re not suggesting that the language of the Act can be fairly read as insuring the customers, are you?

W. Ovid Collins, Jr.:

It doesn’t say that Your Honor.

I have to simply argue of that this was the intent of Congress.

That Congress could have gone the insurance wrap but that it shows to require the industry to accept responsibility which had already been attempted and made themselves insurers, so to speak.

But Your Honor it’s correct, the statute does not in so many words insure customers that they will be protected up to a certain level as the FDIC act that.

But I say as a matter of argument I think was the intent and the flexibility was written in that to give the commission and the SIPC the opportunity to effect that some other way but other the facts of this case they’ve done nothing and we tried for months to even get an indication as to whether or not they would intervene in this case and then finally we found that they would not.

Now as to the standing of the receiver of course, he has no standing accept as a representative of the customers and I must conceive that in the order that —

William J. Brennan, Jr.:

Mr. Collins, when you said they would not to mean they being the SEC would not intervene?

W. Ovid Collins, Jr.:

The SIPC would not intervene and the SEC would not compel them to intervene by 70 Act.

William J. Brennan, Jr.:

I thought they take no conflict from the suggestion of the applied brief of SEC and if you have them standing but they will force with before the receiver and SIPC a hearing —

W. Ovid Collins, Jr.:


William J. Brennan, Jr.:

— to decide whether or you to bring those SIPC.

W. Ovid Collins, Jr.:

I do take some conflict from that.

I receive that Saturday before I left Nashville and it was the first —

William J. Brennan, Jr.:

But not enough come from that?

W. Ovid Collins, Jr.:

I would like not to be dependant upon the goodwill of the commission.

We’ve been in this matter for four years and this is the first indication that they’ve given us that they would give us a hearing or any opportunity we’ve been completely shot up.

Byron R. White:

We were, before you —

W. Ovid Collins, Jr.:


I do up.

As to the standing of —

Byron R. White:

Did you claim with that – what is this the commission’s position here, is it respondent or?

W. Ovid Collins, Jr.:

Technically, it is a respondent but they support position of the SIPC.

They say that the receiver has no standing and the customers have no implied cause of action.

Byron R. White:

Well, now in the District Court it was –- you sued both the —

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


W. Ovid Collins, Jr.:

I brought both end because I frankly, I don’t know what to do.

Byron R. White:

So they were on the other side from you?

W. Ovid Collins, Jr.:


Byron R. White:

How did they get on the respondents side here?

W. Ovid Collins, Jr.:

From that the commission agreed with the receivers as to the applicability to Act.

This was really the question on the merits and the —

William J. Brennan, Jr.:

So, we didn’t take?

W. Ovid Collins, Jr.:

That’s correct sir.

And they agreed with the receiver on that and of course the District Court decided against the receiver the Sixth Circuit decided before the receiver.

Byron R. White:

What if we agreed with you on the private action that or we would have to reach the standing of the receiver?

W. Ovid Collins, Jr.:

Yes, sir.

Byron R. White:

And did the commission takes the position on that in the Court of Appeal?

W. Ovid Collins, Jr.:

My recollection is that they cited with SIPC and said that the receiver had no standing that.

In this —

Byron R. White:

In it there was private right of action?

W. Ovid Collins, Jr.:

I believe that’s correct with Your Honor please.

Here, they have not argued with because they say we won’t get to that point.

Now as to the standing of the receiver, I have not been able to find this in the Court with much authority and the ordinary liquidation procedure that the receiver does represent the failed corporation and it’s his obligation to marshal assets, and he passes its own claims in that sort of thing.

I submit that this is not the ordinary liquidation and that the truth of the matter is that this proceeding was very similar to SIPC liquidation.

Now, although, when we started into it we didn’t even know about the Act but the first thing we did under the in fact instructions of the Court was try to device a plan to get back to the customers they’re bonds, that’s where we dealing with the charge bonds and the net cash balances which is precisely what an SIPC trustee would have had to do.

And certainly on SIPC trustee would have had an obligation to those customers and a duty to protect them and to get their property not just the property of the failed broker-dealer and this — what we’ve undertaken to do.

Now, it someone embarrassing to be cast in the role of antelope here but we sincerely believe and the District Court certainly agreed with us that we had an obligation to seek the benefits of this Act for these customers and we could be wrong.

It just seem to us that we had not succeeded in doing what the Court had instructed us to do and that was to get all those bonds back and all those funds back.

We had to create in SIPC fund.

We didn’t have an SIPC fund.

We adopted a mechanism of the 5% assessment to create a fund.

At that time, we didn’t have enough money to pay all the net cash balances.

The first American National Bank there Nashville had set offer with $250,000.00 of the funds of this broker-dealer which we convince them what actually trust funds much of which with this net cash balances, so that when we went into this plan of 5%, we didn’t now whether we going to get that money back or not.

Some people had net cash balances, some had deficits, some had large balances and so on, and are equalize them all we adopted this mechanism.

But it seems to me that having pursued this plan the receiver has an obligation to pursue whatever remedy the customers have under this Act.

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


W. Ovid Collins, Jr.:

Now, it’s also true that the cases that the SIPC has analyzed to Your Honors involved prohibitive acts and torture type of conduct and that’s not what we have here.

And I’ve not been able to cite Your Honors to a case which is precise to like this but I say that we’re not here seeking damages because somebody violated an Act.

We are here because we understand that Congress are set up a plan to protect people just like those that the receiver represent here and we’ve been frustrated and so, we’re not seeking damages as in these other cases.

We are simply seeking some method either through the commission or the SIPC.

We’re no respect to your presence to get the benefits of the Act to these customers.

William O. Douglas:

Being what?

Precisely what?

W. Ovid Collins, Jr.:

The return of their money, that’s all they’re entitled to.

The general creditors are not in it, they’re not going to get a dime.

We read everything in cite in order to be able to pay these people their money and the general creditors are going to get nothing.

It’s also true, I think as pointed out in the commission’s brief and in the brief of SIPC that perhaps this won’t happen again.

There was a breakdown as Your Honors know, if you read the briefs, and perhaps it won’t happen again.

I’m sure that the system is perfected now.

But where did that leave the people that we are representing.

This is the only chance they’ve got and the fact that it may not happen again is small comfort to them plus that fact that it seems to me it could happen again if the commission and the SEC were to take the same position they have taken here.

You see, when the SEC came in and file this petition they said, “Well, you might not sustain the law, as you can sue the principles and you get money from them and you might not have a loss.”

Well, they could say that the next time a proceeding like this comes on you can sue the President.

He — you can get money back then and costumers won’t have any loss.

The trouble that is that if this is upheld and the receiver prior to any SIPC liquidation sues the President and fails or gets the judgment and doesn’t collect it, and the customers do sustain a loss.

Then the customers comeback to SIPC and said, “Now we’ve got a loss, how about coming on it.”

They say, “Oh no, It’s too late now you’ve gone way down the road with the receivership, you returned bonds, you’ve done this and you’ve that, too late now we can’t come in.”

Now, all of that is precisely what is happened here.

The only difference being that they would not be this confusion about the original notice and the issue as to retroactivity of the Act.

So, that it does seem to me that it is important that customers have some remedy if everything else breaks down.

I can understand that it would certainly make the administration of the Act more difficult if every customer along the line will bring a law suit.

But in any event, a Court has got to make an adjudication as to whether it is the proper case whether the SIPC goes in or customer or somebody else, the Court has got to decide whether it’s a proper case.

If the SIPC comes in and it says, “We don’t want to liquidate this broker-dealer and now we think we can get somebody to put some money in it or we think we can work out in a merge.”

Then the Court can exercise its right then to hold offer a receivership and the flexibility of the Act is sufficient for that purpose, so that we don’t that the granting to the customers a day in Court.

When the facts justify will embarrass the administration of the Act and that in this case it’s necessary and it could be important in some future case.

Thank you sir.

Audio Transcription for Oral Argument – March 17, 1975 in Securities Investor Protection Corp. v. Barbour


Warren E. Burger:

Thank you, Mr. Collins.

You have three minutes left Mr. Caron.

Wilfred R. Caron:

Thank Your Honor.

I think our brief, our reply brief, sufficiently responds to the fabric of equitable coloration which seems to be the emphasis of the receiver’s argument.

I did say an objective view of the few facts which the pleadings disclose will not support the source of breakdown, some shout outs, and everything else has been disclose to here today.

Byron R. White:

You know Mr. Caron —

Wilfred R. Caron:

Yes, sir.

Byron R. White:

— the SEC contemplates as suggest at page 3 of the reply brief.

Some formal procedure for hearing or something formal about this when they suggest that they’ll force with afford most receiver and as SIPC an opportunity and so forth, if the you prevail?

Wilfred R. Caron:

It’s difficult for me to answer Your Honor.

I had only brief discussion with the commission on this point.

I really couldn’t response to the detail of procedure whatever the special both to that informal and in formal.

I myself have questions to whether or not formal procedures are appropriate in the situation where you have the sort of discretion large in the commission which is intended to be exercise in its supervision over us which I’m afraid that I quite honestly could not be definite on that point.

I think if we must get into the equities, there is a fair enough indication in the record that part of the problem here was the dormancy of the receiver in communicating with separate for four months after we knew when we existed.

The fact that he carried the liquidation through the completion practically and then decided to write a letter and ask for the remainder to pay the fees involved.

I think though discussion of this sort is not appropriate for the purpose of the important question of legislative intent and the construction that ought to be brought to bear on the statute.

I simply suggest to the Court that issue were to be answered in such way as to hold the 70 remedy accordance to the commission was meant to be exclusive and that was a proper exercise of congressional judgment.

Warren E. Burger:

Thank you, gentlemen.

The case submitted.