| Dissent [ Thomas ] | Dissent [ Ginsburg ] | Opinion [ Kennedy ] | Syllabus |
|---|---|---|---|
| HTML version WordPerfect version | HTML version WordPerfect version | HTML version WordPerfect version | HTML version WordPerfect version |
No.
ARTHUR L. GUSTAFSON, et al., PETITION ERS v.
on writ of certiorari to the united states court of appeals for the seventh circuit
[
Justice
As we have emphasized in our recent decisions, " `[t]he starting point in every case involving construction of a statute is the language itself.' " Landreth Timber Co. v. Landreth, 471 U.S. 681, 685 (1985) (quoting Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756 (1975) (Powell, J., concurring)). See also Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U. S. ___ (1994) (slip op., at 7-9). Unfortunately, the majority has decided to interpret the word "prospectus" in §12(2) by turning to sources outside the four corners of the statute, rather than by adopting the definition provided by Congress.
Section 12(2) creates a cause of action when the seller of a security makes a material omission or misstatement to the buyer by means of a prospectus or oral communication. If the seller acted negligently in making the misstatements, the buyer may sue to rescind the sale. I agree with the majority that the only way to interpret §12(2) as limited to initial offerings is to read "by means of a prospectus or oral communication" narrowly. I also agree that in the absence of any other statutory command, one could understand "prospectus" as "a term of art which describes the transmittal of information concerning the sale of a security in an initial distribution." But the canon that "we construe a statutory term in accordance with its ordinary or natural meaning," applies only "[i]n the absence of [a statutory] definition." FDIC v. Meyer, 510 U. S. ___ (1994) (slip op., at 4-6).
There is no reason to seek the meaning of "prospectus" outside of the 1933 Act, because Congress has supplied just such a definition in §2(10). That definition is extraordinarily broad:
"When used in this subchapter, unless the context otherwise requires--
. . . . .
"(10) The term `prospectus' means any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security." 15 U.S.C. § 77b(10).
For me, the breadth of these terms forecloses the majority's position that "prospectus" applies only in the context of initial distributions of securities. Indeed, §2(10)'s inclusion of a prospectus as only one of the many different documents that qualify as a "prospectus" for statutory purposes indicates that Congress intended "prospectus" to be more than a mere "term of art." Likewise, Congress' extension of prospectus to include documents that merely confirm the sale of a security underscores Congress' intent to depart from the term's ordinary meaning. Section 2(10)'s definition obviously concerns different types of communications rather than different types of transactions. Congress left the job of exempting certain classes of transactions to §§3 and 4, not to §2(10). We should use §2(10) to define "prospectus" for the 1933 Act, rather than, as the majority does, use the 1933 Act to define "prospectus" for §2(10).
The majority seeks to avoid this reading by attempting to create ambiguities in §2(10). According to the majority, the maxim noscitur a sociis (a word is known by the company it keeps) indicates that the circulars, advertisements, letters, or other communications referred to by §2(10) are limited by the first word in the list: "prospectus." Thus, we are told that these words define the forms a prospectus may take, but the covered communications still must be "prospectus like" in the sense that they must relate to an initial public offering. Noscitur a sociis, however, does not require us to construe every term in a series narrowly because of the meaning given to just one of the terms. See Russell Motor Car Co. v. United States, 261 U.S. 514, 519 (1923); cf. Reves v. Ernst & Young, 494 U.S. 56, 64 (1990).
The majority uses the canon in an effort to create doubt, not to reduce it. The canon applies only in cases of ambiguity, which I do not find in §2(10). "Noscitur a sociis is a well established and useful rule of construction where words are of obscure or doubtful meaning; and then, but only then, its aid may be sought to remove the obscurity or doubt by reference to the associated words." Russell, supra, at 520. There is obvious breadth in "notice, circular, advertisement, letter, or communication, written or by radio or television." To read one word in a long list as controlling the meaning of all the other words would defy common sense; doing so would prevent Congress from giving effect to expansive words in a list whenever they are combined with one word with a more restricted meaning. Section 2(10)'s very exhaustiveness suggests that "prospectus" is merely the first item in a long list of covered documents, rather than a brooding omnipresence whose meaning cabins that of all the following words. The majority also argues that a broad definition of prospectus makes much of §2(10) redundant. See ante, at 12. But the majority fails to see that "communication, written or by radio or television" is a catch all. It operates as a safety net that Congress used to sweep up anything it had forgotten to include in its definition. This is a technique Congress employed in several other provisions of the 1933 and 1934 Acts. See, e.g., 15 U.S.C. § 77b(1) ("term `security' means any note, stock, treasury stock, bond, debenture . . . or, in general, any interest or instrument commonly known as a `security' "); 15 U.S.C. § 77b(9) ("term `write' or `written' shall included printed, lithographed, or any means of graphic communication"); 15 U.S.C. § 78c(a)(6) ("term `bank' means (A) a banking institution organized under the laws of the United States, (B) a member bank of the Federal Reserve System, (C) any other banking institution"). In fact, it is the majority's approach that creates redundancies. The majority cannot account for Congress' decision to begin its definition of "prospectus" with the term prospectus, which is then followed by the rest of §2(10)'s list. As a result, the majority must conclude that the use of the term is a "partial circularity," ante, at 13, a reading that deprives the word of its meaning.
The majority correctly argues that other sections of the 1933 Act employ a narrower understanding of "prospectus" as a document related to an initial public offering. See §10 of the 1933 Act, 15 U.S.C. § 77j(a)(3) (detailing information required in prospectus); §5 of the 1933 Act, 15 U.S.C. § 77e(b) (requiring prospectus to be sent to buyers). In fact, the majority builds its entire argument on the proposition that it must give "prospectus" the same meaning in both §§10 and 12. Since §10 assumes a narrower definition of prospectus, the majority believes that its definition must control that of §12. Although the majority denies that it reads §10 as a definitional section, it admits that §10 "does instruct us what a prospectus cannot be if the Act is to be interpreted as a symmetrical and coherent regulatory scheme." Ante, at 6.
I agree with the majority that §§5 and 10 cannot embrace fully the broad definition of prospectus supplied by §2(10) and used by §12(2). I also recognize the general presumption that a given term bears the same meaning throughout a statute. See Brown v. Gardner, 513 U. S. ___, ___ (1994) (slip op., at 3). But this presumption is overcome when Congress indicates otherwise. Here, there are several indications that Congress did not use the word "prospectus" in the same sense throughout the statute. First, §2(10) defines "prospectus" to include not only a document that "offers any security for sale" (which is consistent with the majority's reading), but also one that "confirms the sale of any security." But the majority does not claim that §10 uses the term "prospectus" to include confirmation slips. It would be radical to say that every confirmation slip must contain all the information that §10 requires; only the documents accompanying an initial public offering must contain that information. Despite the majority's protestations, it is absolutely clear that the 1933 Actuses "prospectus" in two different ways. As a result, any justification for the majority's twisted reading of §2(10) disappears.
Second, this understanding is reinforced by §2's preface that its definitions apply "unless the context otherwise requires," 15 U.S.C. § 77b. This phrase indicates that Congress intended simply to provide a "default" meaning for "prospectus." Further, nothing in §12(2) indicates that the "context otherwise requires" the use of a definition of "prospectus" other than the one provided by §2(10). If anything, it is §10's "context" that seems to require the use of a definition which is different from that of §2(10).
Third, the dual use of "prospectus" in §2(10), which both defines "prospectus" broadly and uses it as a term of art, makes clear that the statute is using the word in at least two different senses, and paves the way for such variations in the ensuing provisions. To adopt the majority's argument would force us to eliminate §2(10) in favor of some narrower, common law definition of "prospectus." Our mandate to interpret statutes does not allow us to recast Congress' handiwork so completely.
The majority transforms §10 into the tail that wags the 1933 Act dog. An analogy will illustrate the point. Suppose that the Act regulates cars, and that §2(10) of the Act defines a "car" as any car, motorcycle, truck, or trailer. Section 10 of this hypothetical statute then declares that a car shall have seatbelts, and §5 states that it is unlawful to sell cars without seatbelts. Section 12(2) of this Act then creates a cause of action for misrepresentations that occur during the sale of a car. It is reasonable to conclude that §§5 and 10 apply only to what we ordinarily refer to as "cars," because it would be absurd to require motorcycles and trailers to have seatbelts. But the majority's reasoning would lead to the further conclusion that §12(2) does not cover sales of motorcycles, when it is clear that the Act includes such sales.
Contrary to the majority's conclusion, it seems to me that the surrounding text of §12(2) supports my reading. On its face, §12(2) makes none of the usual distinctions between initial public offerings and aftermarket trading, or between public trading and privately negotiated sales. The provision does not mention initial public offerings, as do other provisions of the Act. See, e.g., §4 of the 1933 Act, 15 U.S.C. § 77d(2) (exempting "transactions by an issuer not involving any public offering"). Nor did Congress limit §12(2) to issuers, as it chose to do with other provisions that are limited to initial distributions. See §11 of the 1933 Act, 15 U.S.C. § 77k(a)(2) (holding liable for a false registration statement "every person who was a director of . . . or partner in the issuer" at time of filing). Instead, §12(2) refers more broadly to "any person who . . . offers or sells a security." [n.1] If, as the majority suggests, Congress had intended to limit §12(2) to initial public offerings, it presumably would have used words such as "issuer," "public offering," or "private," or "resale," or at least discussed trading on the exchanges or the liability of dealers, underwriters, and issuers. But on this score, §12(2) is notable for its silence.
I assume that when Congress chose to define liability under the securities laws, it used precise language that it was familiar with to make its meaning clear. Just last Term, in holding that §10(b) of the 1934 Act did not create liability for aiders and abettors, we said: "[i]f . . . Congress intended to impose aiding and abetting liability, we presume it would have used the words `aid' and `abet' in the statutory text. But it did not." Central Bank of Denver, 511 U. S., at ___ (slip op., at 12). This rule of construction can cut both ways. If in Central Bank of Denver Congress' failure to use "aid" or "abet" limited liability under the securities laws, then here the absence of "public offering," "issuers," or some similar limitation surely suggests that Congress sought to extend §12(2) to private and secondary transactions.
The dearth of limiting language in §12(2) is all the more striking in light of the 1933 Act's detailed exemption provisions. Section 4 of the 1933 Act, appropriately entitled "Exempted Transactions," specifically excludes from §5's registration requirements both "transactions by any person other than an issuer, underwriter, or dealer" and "transactions by an issuer not involving any public offering." 15 U.S.C. §§ 77d(1) and (2). If Congress had intended §12(2) to govern only initial public offerings, it would have been simple for Congress to have referred to the §4 exemptions in §12(2). As we have noted, "although §4(2) of the 1933 Act . . . exempts transactions not involving any public offering from the Act's registration provisions, there is no comparable exemption from the antifraud provisions." Landreth Timber Co., 471 U. S., at 692. Section 12(2)'s explicit exception only for government securities shows that Congress knew how to exempt certain securities and transactions when it wanted to.
The majority argues that §4's exemption suggests a contrary conclusion. Ante, at 11. According to the majority, if Congress had intended §12(2) to apply to private, secondary transactions, it would have said so explicitly. This reasoning goes too far, for it would render §4 superfluous. After all, if the majority applied its approach to §5 (which prohibits the sale of a security without first registering the security or without first sending a prospectus), then it would conclude--even in the absence of §4--that §5 refers only to initial offerings. But this would have precluded any need to include §4 at all.
The majority claims that under my reading, "there is no ready explanation for exempting" government securities from §12(2). Ante, at 8. But Congress could have concluded that it was unnecessary to impose liability on the private or secondary sellers of a government security because information concerning government securities is already available either from the markets or from government entities. Or Congress could have chosen not to burden government securities with the costs that might accrue from additional liabilities on initial or secondary sales.
The majority argues that the 1933 Act's central focus on initial public offerings requires us to read its provisions as extending only to those distributions. We have recognized, however, that not all of the provisions of the 1933 Act are limited to initial public offerings, nor are all of the provisions of the Securities Exchange Act of 1934 (1934 Act) limited to secondary transactions. Thus, §10(b) of the 1934 Act and SEC Rule 10b-5 reach both initial and secondary distributions. Similarly, we have held that §17 of the 1933 Act reaches beyond initial distributions to aftermarket trading. United States v. Naftalin, 441 U.S. 768 (1979).
In reaching our holding in Naftalin, we rejected two arguments relevant here. First, we were not swayed by the contention that the structure of the 1933 Act limited §17 to new issues. As we noted, the statutory language "makes no distinctions between the two kinds of transactions [initial distributions and ordinary market trading]." Id., at 778. Second, the 1934 Act's prohibition of fraud in the secondary sale of securities did not lead us to infer that the 1933 Act's provisions apply solely to new offerings. " `The fact that there may well be some overlap is neither unusual nor unfortunate.' " Ibid. (quoting SEC v. National Securities, Inc., 393 U.S. 453, 468 (1969)).
Here, §12(2) contains no distinction between initial and secondary transactions, or public and private sales. Thus, if the majority wished to remain faithful to Naftalin, it would hold that the provision reaches both secondary and private transactions. To be sure, §10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5 provide a cause of action for misstatements made in connection with secondary and private securities transactions. However, "it is hardly a novel proposition that the [1933 and 1934 Acts] `prohibit some of the same conduct.' " Herman & MacLean v. Huddleston, 459 U.S. 375, 383 (1983). Naftalin counsels the Court to reject arguments that we should read §12(2) narrowly in order to avoid redundancy in securities regulation. 441 U. S., at 778.
In fact, it is quite possible that the Congress of 1933-1934 originally intended no overlap between §12(2) and the 1934 Act, but instead expected §12(2) to serve as the only cause of action for the private or secondary sale of securities. As we have noted before, neither the text of §10(b) nor that of SEC Rule 10b-5 provides for private claims, and "we have made no pretense that it was Congress' design to provide the remedy afforded." Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 359 (1991). Only §12(2) explicitly provided a broad remedy for private or aftermarket sales. It seems unlikely that Congress would have failed to provide any cause of action for investors based on misstatements in market transactions. 9 L. Loss & J. Seligman, Securities Regulation 4220 (3d ed. 1992).
Instead of reading Naftalin properly, the majority attempts to narrow the case to its facts. According to the majority, Naftalin requires that no provision of the 1933 Act should be interpreted to extend liability to secondary transactions unless either the statutory language or the legislative history clearly indicate that Congress intends to do so. If anything, Naftalin implements the opposite rule: that a provision of the 1933 Act extends to both initial offerings and secondary trading unless the text makes a "distinctio[n] between the two kinds of transactions." 441 U. S., at 778. In any event, the statutory language seems clear enough to me. [n.2]
The majority's analysis of §12(2) is motivated by its policy preferences. Underlying its reasoning is the assumption that Congress could never have intended to impose liability on sellers engaged in secondary transactions. Adopting a chiding tone, the majority states that "[w]e are reluctant to conclude that §12(2) creates vast additional liabilities that are entirely independent of the new substantive obligations that the Act enumerates." Ante, at 9. Yet, this is exactly what Congress did in §17(a) of the 1933 Act as well as in §10(b) of the 1934 Act. Later, the majority says: "[i]t is not plausible to infer that Congress created this extensive liability for every casual communication between buyer and seller in the secondary market." Ante, at 16. It is not the usual practice of this Court to require Congress to explain why it has chosen to pursue a certain policy. Our job simply is to apply the policy, not to question it.
I share the majority's concern that extending §12(2) to secondary and private transactions might result in an unwanted increase in securities litigation. But it is for Congress, and not for this Court, to determine the desired level of securities liability. As we said last Term in Central Bank of Denver, policy considerations " `cannot override our interpretation of the text and structure of the Act, except to the extent that they may help to show that adherence to the text and structure would lead to a result `so bizarre' that Congress could not have intended it.' " 511 U. S. ___ (1994) (slip op., at 24), quoting Demarest v. Manspeaker, 498 U.S. 184, 191 (1991). The majority is concerned that a contrary reading would have a drastic impact on the thousands of private and secondary transactions by imposing new liabilities and new transaction costs. But the majority forgets that we are only enforcing Congress' decision to impose such standards of conduct and remedies upon sellers. If the majority believes that §12(2)'s requirements are too burdensome for the securities markets, it must rely upon the other branches of government to limit the 1933 Act.
Unfortunately, the majority's decision to pursue its policy preferences comes at the price of disrupting the process of statutory interpretation. The majority's method turns on its head the common sense approach to interpreting legal documents. The majority begins by importing a definition of "prospectus" from beyond the four corners of the 1933 Act that fits the precise use of the term in §10. Initially ignoring the definition of "prospectus" provided at the beginning of the statute by Congress, the majority finally discusses §2(10) to show that it does not utterly preclude its preferred meaning. Only then does the majority decide to parse the language of the provision at issue. However, when one interprets a contract provision, one usually begins by reading the provision, and then ascertaining the meaning of any important or ambiguous phrases by consulting any definitional clauses in the contract. Only if those inquiries prove unhelpful does a court turn to extrinsic definitions or to structure. I doubt that the majority would read in so narrow and peculiar a fashion most other statutes, particularly one intended to restrict causes of action in securities cases.
The majority's methodology also has the effect of frustrating Congress' will. In the majority's view, there seems to be little reason for Congress to have defined "prospectus," or to have included a §2 definition at all. If all the key words of the 1933 Act are to be defined by the meanings imparted to them by the securities industry, there should be no need for Congress to attempt to define them by statute. The majority does not permit Congress to implement its intent unless it does so exactly as the Court wants it to.
For the foregoing reasons, I respectfully dissent.
Notes
1 "Sell" is defined broadly to include "every contract of sale or disposition of a security or interest in a security, for value," while offer refers to "every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value." 15 U.S.C. § 77b(3).
2 The majority responds that the legislative history must also clearly indicate that Congress intended to expand liability. Naftalin itself imposed no such requirement. Moreover, the legislative history relied upon by the majority and by the Court in Naftalin does not support the conclusion that Congress wanted to extend §17(a) to secondary sales. The passage cited by the majority and by Naftalin, S. Rep. No. 47, 73d Cong., 1st Sess., 4 (1933), see ante, at 15, was unrelated to §17(a), and instead discussed a Senate proposal which was replaced by the House bill as the basis for the 1933 Act. In fact, the §§11 and 12 referred to in the Senate Report were originally extensive exemption, rather than liability, provisions that did not survive the legislative process. See S. 875, 73d Cong., 1st Sess., 20-24 (1933). The majority's approach seriously undermines this Court's holding and methodology in Naftalin.