(Slip Opinion) OCTOBER TERM, 2007 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE EIGHTH CIRCUIT
No. 06–43. Argued October 9, 2007—Decided January 15, 2008
Alleging losses after purchasing Charter Communications, Inc., com
mon stock, petitioner filed suit against respondents and others under
§10(b) of the Securities Exchange Act of 1934 and Securities and Ex
change Commission (SEC) Rule 10b–5. Acting as Charter’s custom
ers and suppliers, respondents had agreed to arrangements that al
lowed Charter to mislead its auditor and issue a misleading financial
statement affecting its stock price, but they had no role in preparing
or disseminating the financial statement. Affirming the District
Court’s dismissal of respondents, the Eighth Circuit ruled that the al
legations did not show that respondents made misstatements relied
upon by the public or violated a duty to disclose. The court observed
that, at most, respondents had aided and abetted Charter’s mis
statement, and noted that the private cause of action this Court has
found implied in §10(b) and Rule 10b–5, Superintendent of Ins. of
N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6, 13, n. 9, does not
extend to aiding and abetting a §10(b) violation, see Central Bank of
Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164,
191.
Held: The §10(b) private right of action does not reach respondents be
cause Charter investors did not rely upon respondents’ statements or
representations. Pp. 5–16.
(a) Although Central Bank prompted calls for creation of an ex
press cause of action for aiding and abetting, Congress did not follow
this course. Instead, in §104 of the Private Securities Litigation Re
form Act of 1995 (PSLRA), it directed the SEC to prosecute aiders
and abettors. Thus, the §10(b) private right of action does not extend
to aiders and abettors. Because the conduct of a secondary actor
2 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Syllabus
must therefore satisfy each of the elements or preconditions for
§10(b) liability, the plaintiff must prove, as here relevant, reliance
upon a material misrepresentation or omission by the defendant.
Pp. 5–7.
(b) The Court has found a rebuttable presumption of reliance in
two circumstances. First, if there is an omission of a material fact by
one with a duty to disclose, the investor to whom the duty was owed
need not provide specific proof of reliance. Affiliated Ute Citizens of
Utah v. United States, 406 U. S. 128, 153–154. Second, under the
fraud-on-the-market doctrine, reliance is presumed when the state
ments at issue become public. Neither presumption applies here: Re
spondents had no duty to disclose; and their deceptive acts were not
communicated to the investing public during the relevant times. Pe
titioner, as a result, cannot show reliance upon any of respondents’
actions except in an indirect chain that is too remote for liability.
P. 8.
(c) Petitioner’s reference to so-called “scheme liability” does not, ab
sent a public statement, answer the objection that petitioner did not
in fact rely upon respondents’ deceptive conduct. Were the Court to
adopt petitioner’s concept of reliance—i.e., that in an efficient market
investors rely not only upon the public statements relating to a secu
rity but also upon the transactions those statements reflect—the im
plied cause of action would reach the whole marketplace in which the
issuing company does business. There is no authority for this rule.
Reliance is tied to causation, leading to the inquiry whether respon
dents’ deceptive acts were immediate or remote to the injury. Those
acts, which were not disclosed to the investing public, are too remote
to satisfy the reliance requirement. It was Charter, not respondents,
that misled its auditor and filed fraudulent financial statements;
nothing respondents did made it necessary or inevitable for Charter
to record the transactions as it did. The Court’s precedents counsel
against petitioner’s attempt to extend the §10(b) private cause of ac
tion beyond the securities markets into the realm of ordinary busi
ness operations, which are governed, for the most part, by state law.
See, e.g., Marine Bank v. Weaver, 455 U. S. 551, 556. The argument
that there could be a reliance finding if this were a common-law
fraud action is answered by the fact that §10(b) does not incorporate
common-law fraud into federal law, see, e.g., SEC v. Zandford, 535
U. S. 813, 820, and should not be interpreted to provide a private
cause of action against the entire marketplace in which the issuing
company operates, cf. Blue Chip Stamps v. Manor Drug Stores, 421
U. S. 723, 733, n. 5. Petitioner’s theory, moreover, would put an un
supportable interpretation on Congress’ specific response to Central
Bank in PSLRA §104 by, in substance, reviving the implied cause of
Cite as: 552 U. S. ____ (2008) 3
Syllabus
action against most aiders and abettors and thereby undermining
Congress’ determination that this class of defendants should be pur
sued only by the SEC. The practical consequences of such an expan
sion provide a further reason to reject petitioner’s approach. The ex
tensive discovery and the potential for uncertainty and disruption in
a lawsuit could allow plaintiffs with weak claims to extort settle
ments from innocent companies. See, e.g., Blue Chip, supra, at 740–
741. It would also expose to such risks a new class of defendants—
overseas firms with no other exposure to U. S. securities laws—
thereby deterring them from doing business here, raising the cost of
being a publicly traded company under U. S. law, and shifting securi
ties offerings away from domestic capital markets. Pp. 8–13.
(d) Upon full consideration, the history of the §10(b) private right of
action and the careful approach the Court has taken before proceed
ing without congressional direction provide further reasons to find no
liability here. The §10(b) private cause of action is a judicial con
struct that Congress did not direct in the text of the relevant stat
utes. See, e.g., Lampf, Pleva, Lipkind, Prupis & Petigrow v.
Gilbertson, 501 U. S. 350, 358–359. Separation of powers provides
good reason for the now-settled view that an implied cause of action
exists only if the underlying statute can be interpreted to disclose the
intent to create one, see, e.g., Alexander v. Sandoval, 532 U. S. 275,
286–287. The decision to extend the cause of action is thus for the
Congress, not for this Court. This restraint is appropriate in light of
the PSLRA, in which Congress ratified the implied right of action af
ter the Court moved away from a broad willingness to imply such
private rights, see, e.g., Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Curran, 456 U. S. 353, 381–382, and n. 66. It is appropriate for the
Court to assume that when PSLRA §104 was enacted, Congress ac
cepted the §10(b) private right as then defined but chose to extend it
no further. See, e.g., Alexander, supra, at 286–287. Pp. 13–15.
443 F. 3d 987, affirmed and remanded.
KENNEDY, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and SCALIA, THOMAS, and ALITO, JJ., joined. STEVENS, J., filed a
dissenting opinion, in which SOUTER and GINSBURG, JJ., joined.
BREYER, J., took no part in the consideration or decision of the case.
Cite as: 552 U. S. ____ (2008) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 06–43
_________________
STONERIDGE INVESTMENT PARTNERS, LLC,
PETITIONER v. SCIENTIFIC-ATLANTA,
INC., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE EIGHTH CIRCUIT
[January 15, 2008]
JUSTICE KENNEDY delivered the opinion of the Court.
We consider the reach of the private right of action the
Court has found implied in §10(b) of the Securities Ex
change Act of 1934, 48 Stat. 891, as amended, 15 U. S. C.
§78j(b), and SEC Rule 10b–5, 17 CFR §240.10b–5 (2007).
In this suit investors alleged losses after purchasing com
mon stock. They sought to impose liability on entities
who, acting both as customers and suppliers, agreed to
arrangements that allowed the investors’ company to
mislead its auditor and issue a misleading financial state
ment affecting the stock price. We conclude the implied
right of action does not reach the customer/supplier com
panies because the investors did not rely upon their
statements or representations. We affirm the judgment of
the Court of Appeals.
I
This class-action suit by investors was filed against
Charter Communications, Inc., in the United States Dis
trict Court for the Eastern District of Missouri. Ston
eridge Investment Partners, LLC, a limited liability com
2 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
pany organized under the laws of Delaware, was the lead
plaintiff and is petitioner here.
Charter issued the financial statements and the securi
ties in question. It was a named defendant along with
some of its executives and Arthur Andersen LLP, Char
ter’s independent auditor during the period in question.
We are concerned, though, with two other defendants,
respondents here. Respondents are Scientific-Atlanta,
Inc., and Motorola, Inc. They were suppliers, and later
customers, of Charter.
For purposes of this proceeding, we take these facts,
alleged by petitioner, to be true. Charter, a cable operator,
engaged in a variety of fraudulent practices so its quar
terly reports would meet Wall Street expectations for cable
subscriber growth and operating cash flow. The fraud
included misclassification of its customer base; delayed
reporting of terminated customers; improper capitaliza
tion of costs that should have been shown as expenses; and
manipulation of the company’s billing cutoff dates to
inflate reported revenues. In late 2000, Charter execu
tives realized that, despite these efforts, the company
would miss projected operating cash flow numbers by $15
to $20 million. To help meet the shortfall, Charter decided
to alter its existing arrangements with respondents, Sci
entific-Atlanta and Motorola. Petitioner’s theory as to
whether Arthur Andersen was altogether misled or, on the
other hand, knew the structure of the contract arrange
ments and was complicit to some degree, is not clear at
this stage of the case. The point, however, is neither
controlling nor significant for our present disposition, and
in our decision we assume it was misled.
Respondents supplied Charter with the digital cable
converter (set top) boxes that Charter furnished to its
customers. Charter arranged to overpay respondents $20
for each set top box it purchased until the end of the year,
with the understanding that respondents would return the
Cite as: 552 U. S. ____ (2008) 3
Opinion of the Court
overpayment by purchasing advertising from Charter.
The transactions, it is alleged, had no economic substance;
but, because Charter would then record the advertising
purchases as revenue and capitalize its purchase of the set
top boxes, in violation of generally accepted accounting
principles, the transactions would enable Charter to fool
its auditor into approving a financial statement showing it
met projected revenue and operating cash flow numbers.
Respondents agreed to the arrangement.
So that Arthur Andersen would not discover the link
between Charter’s increased payments for the boxes and
the advertising purchases, the companies drafted docu
ments to make it appear the transactions were unrelated
and conducted in the ordinary course of business. Follow
ing a request from Charter, Scientific-Atlanta sent docu
ments to Charter stating—falsely—that it had increased
production costs. It raised the price for set top boxes for
the rest of 2000 by $20 per box. As for Motorola, in a
written contract Charter agreed to purchase from Mo
torola a specific number of set top boxes and pay liqui
dated damages of $20 for each unit it did not take. The
contract was made with the expectation Charter would fail
to purchase all the units and pay Motorola the liquidated
damages.
To return the additional money from the set top box
sales, Scientific-Atlanta and Motorola signed contracts
with Charter to purchase advertising time for a price
higher than fair value. The new set top box agreements
were backdated to make it appear that they were negoti
ated a month before the advertising agreements. The
backdating was important to convey the impression that
the negotiations were unconnected, a point Arthur Ander
sen considered necessary for separate treatment of the
transactions. Charter recorded the advertising payments
to inflate revenue and operating cash flow by approxi
mately $17 million. The inflated number was shown on
4 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
financial statements filed with the Securities and Ex
change Commission (SEC) and reported to the public.
Respondents had no role in preparing or disseminating
Charter’s financial statements. And their own financial
statements booked the transactions as a wash, under
generally accepted accounting principles. It is alleged
respondents knew or were in reckless disregard of Char
ter’s intention to use the transactions to inflate its reve
nues and knew the resulting financial statements issued
by Charter would be relied upon by research analysts and
investors.
Petitioner filed a securities fraud class action on behalf
of purchasers of Charter stock alleging that, by participat
ing in the transactions, respondents violated §10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b–5.
The District Court granted respondents’ motion to dis
miss for failure to state a claim on which relief can be
granted. The United States Court of Appeals for the
Eighth Circuit affirmed. In re Charter Communications,
Inc., Securities Litigation, 443 F. 3d 987 (2006). In its
view the allegations did not show that respondents made
misstatements relied upon by the public or that they
violated a duty to disclose; and on this premise it found no
violation of §10(b) by respondents. Id., at 992. At most,
the court observed, respondents had aided and abetted
Charter’s misstatement of its financial results; but, it
noted, there is no private right of action for aiding and
abetting a §10(b) violation. See Central Bank of Denver,
N. A. v. First Interstate Bank of Denver, N. A., 511 U. S.
164, 191 (1994). The court also affirmed the District
Court’s denial of petitioner’s motion to amend the com
plaint, as the revised pleading would not change the
court’s conclusion on the merits. 443 F. 3d, at 993.
Decisions of the Courts of Appeals are in conflict re
specting when, if ever, an injured investor may rely upon
§10(b) to recover from a party that neither makes a public
Cite as: 552 U. S. ____ (2008) 5
Opinion of the Court
misstatement nor violates a duty to disclose but does
participate in a scheme to violate §10(b). Compare Simp
son v. AOL Time Warner Inc., 452 F. 3d 1040 (CA9 2006),
with Regents of Univ. of Cal. v. Credit Suisse First Boston
(USA), Inc., 482 F. 3d 372 (CA5 2007). We granted certio
rari. 549 U. S. ___ (2007).
II
Section 10(b) of the Securities Exchange Act makes it
“unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate
commerce or of the mails, or of any facility of any na
tional securities exchange . . . [t]o use or employ, in
connection with the purchase or sale of any security
. . . any manipulative or deceptive device or contriv
ance in contravention of such rules and regulations as
the Commission may prescribe as necessary or appro
priate in the public interest or for the protection of in
vestors.” 15 U. S. C. §78j.
The SEC, pursuant to this section, promulgated Rule 10b–
5, which makes it unlawful
“(a) To employ any device, scheme, or artifice to de
fraud,
“(b) To make any untrue statement of a material
fact or to omit to state a material fact necessary in or
der to make the statements made, in the light of the
circumstances under which they were made, not mis
leading, or
“(c) To engage in any act, practice, or course of busi
ness which operates or would operate as a fraud or
deceit upon any person,
“in connection with the purchase or sale of any secu
rity.” 17 CFR §240.10b–5.
Rule 10b–5 encompasses only conduct already prohibited
by §10(b). United States v. O’Hagan, 521 U. S. 642, 651
6 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
(1997). Though the text of the Securities Exchange Act
does not provide for a private cause of action for §10(b)
violations, the Court has found a right of action implied in
the words of the statute and its implementing regulation.
Superintendent of Ins. of N. Y. v. Bankers Life & Casualty
Co., 404 U. S. 6, 13, n. 9 (1971). In a typical §10(b) private
action a plaintiff must prove (1) a material misrepresenta
tion or omission by the defendant; (2) scienter; (3) a con
nection between the misrepresentation or omission and
the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6)
loss causation. See Dura Pharmaceuticals, Inc. v. Broudo,
544 U. S. 336, 341–342 (2005).
In Central Bank, the Court determined that §10(b)
liability did not extend to aiders and abettors. The Court
found the scope of §10(b) to be delimited by the text, which
makes no mention of aiding and abetting liability. 511
U. S., at 177. The Court doubted the implied §10(b) action
should extend to aiders and abettors when none of the
express causes of action in the securities Acts included
that liability. Id., at 180. It added the following:
“Were we to allow the aiding and abetting action pro
posed in this case, the defendant could be liable with
out any showing that the plaintiff relied upon the
aider and abettor’s statements or actions. See also
Chiarella [v. United States, 445 U. S. 222, 228 (1980)].
Allowing plaintiffs to circumvent the reliance re
quirement would disregard the careful limits on 10b–5
recovery mandated by our earlier cases.” Ibid.
The decision in Central Bank led to calls for Congress to
create an express cause of action for aiding and abetting
within the Securities Exchange Act. Then-SEC Chairman
Arthur Levitt, testifying before the Senate Securities
Subcommittee, cited Central Bank and recommended that
aiding and abetting liability in private claims be estab
Cite as: 552 U. S. ____ (2008) 7
Opinion of the Court
lished. S. Hearing No. 103–759, pp. 13–14 (1994). Con
gress did not follow this course. Instead, in §104 of the
Private Securities Litigation Reform Act of 1995 (PSLRA),
109 Stat. 757, it directed prosecution of aiders and abet
tors by the SEC. 15 U. S. C. §78t(e).
The §10(b) implied private right of action does not ex
tend to aiders and abettors. The conduct of a secondary
actor must satisfy each of the elements or preconditions
for liability; and we consider whether the allegations here
are sufficient to do so.
III
The Court of Appeals concluded petitioner had not
alleged that respondents engaged in a deceptive act
within the reach of the §10(b) private right of action,
noting that only misstatements, omissions by one who
has a duty to disclose, and manipulative trading prac
tices (where “manipulative” is a term of art, see, e.g.,
Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 476–
477 (1977)) are deceptive within the meaning of the rule.
443 F. 3d, at 992. If this conclusion were read to suggest
there must be a specific oral or written statement before
there could be liability under §10(b) or Rule 10b–5, it
would be erroneous. Conduct itself can be deceptive, as
respondents concede. In this case, moreover, respon
dents’ course of conduct included both oral and written
statements, such as the backdated contracts agreed to by
Charter and respondents.
A different interpretation of the holding from the Court
of Appeals opinion is that the court was stating only that
any deceptive statement or act respondents made was not
actionable because it did not have the requisite proximate
relation to the investors’ harm. That conclusion is consis
tent with our own determination that respondents’ acts or
statements were not relied upon by the investors and that,
as a result, liability cannot be imposed upon respondents.
8 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
A
Reliance by the plaintiff upon the defendant’s deceptive
acts is an essential element of the §10(b) private cause of
action. It ensures that, for liability to arise, the “requisite
causal connection between a defendant’s misrepresenta
tion and a plaintiff’s injury” exists as a predicate for liabil
ity. Basic Inc. v. Levinson, 485 U. S. 224, 243 (1988); see
also Affiliated Ute Citizens of Utah v. United States, 406
U. S. 128, 154 (1972) (requiring “causation in fact”). We
have found a rebuttable presumption of reliance in two
different circumstances. First, if there is an omission of a
material fact by one with a duty to disclose, the investor to
whom the duty was owed need not provide specific proof of
reliance. Id., at 153–154. Second, under the fraud-on-the
market doctrine, reliance is presumed when the state
ments at issue become public. The public information is
reflected in the market price of the security. Then it can
be assumed that an investor who buys or sells stock at the
market price relies upon the statement. Basic, supra, at
247.
Neither presumption applies here. Respondents had no
duty to disclose; and their deceptive acts were not commu
nicated to the public. No member of the investing public
had knowledge, either actual or presumed, of respondents’
deceptive acts during the relevant times. Petitioner, as a
result, cannot show reliance upon any of respondents’
actions except in an indirect chain that we find too remote
for liability.
B
Invoking what some courts call “scheme liability,” see,
e.g., In re Enron Corp. Securities, Derivative, & “ERISA”
Litigation, 439 F. Supp. 2d 692, 723 (SD Tex. 2006), peti
tioner nonetheless seeks to impose liability on respondents
even absent a public statement. In our view this approach
does not answer the objection that petitioner did not in
Cite as: 552 U. S. ____ (2008) 9
Opinion of the Court
fact rely upon respondents’ own deceptive conduct.
Liability is appropriate, petitioner contends, because
respondents engaged in conduct with the purpose and
effect of creating a false appearance of material fact to
further a scheme to misrepresent Charter’s revenue. The
argument is that the financial statement Charter released
to the public was a natural and expected consequence of
respondents’ deceptive acts; had respondents not assisted
Charter, Charter’s auditor would not have been fooled,
and the financial statement would have been a more
accurate reflection of Charter’s financial condition. That
causal link is sufficient, petitioner argues, to apply Basic’s
presumption of reliance to respondents’ acts. See, e.g.,
Simpson, 452 F. 3d, at 1051–1052; In re Parmalat Securi
ties Litigation, 376 F. Supp. 2d 472, 509 (SDNY 2005).
In effect petitioner contends that in an efficient market
investors rely not only upon the public statements relating
to a security but also upon the transactions those state
ments reflect. Were this concept of reliance to be adopted,
the implied cause of action would reach the whole market
place in which the issuing company does business; and
there is no authority for this rule.
As stated above, reliance is tied to causation, leading to
the inquiry whether respondents’ acts were immediate or
remote to the injury. In considering petitioner’s argu
ments, we note §10(b) provides that the deceptive act must
be “in connection with the purchase or sale of any secu
rity.” 15 U. S. C. §78j(b). Though this phrase in part
defines the statute’s coverage rather than causation (and
so we do not evaluate the “in connection with” require
ment of §10(b) in this case), the emphasis on a purchase or
sale of securities does provide some insight into the decep
tive acts that concerned the enacting Congress. See Black,
Securities Commentary: The Second Circuit’s Approach to
the ‘In Connection With’ Requirement of Rule 10b–5, 53
Brooklyn L. Rev. 539, 541 (1987) (“[W]hile the ‘in connec
10 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
tion with’ and causation requirements are analytically
distinct, they are related to each other, and discussion of
the first requirement may merge with discussion of the
second”). In all events we conclude respondents’ deceptive
acts, which were not disclosed to the investing public, are
too remote to satisfy the requirement of reliance. It was
Charter, not respondents, that misled its auditor and filed
fraudulent financial statements; nothing respondents did
made it necessary or inevitable for Charter to record the
transactions as it did.
The petitioner invokes the private cause of action under
§10(b) and seeks to apply it beyond the securities mar
kets—the realm of financing business—to purchase and
supply contracts—the realm of ordinary business opera
tions. The latter realm is governed, for the most part, by
state law. It is true that if business operations are used,
as alleged here, to affect securities markets, the SEC
enforcement power may reach the culpable actors. It is
true as well that a dynamic, free economy presupposes a
high degree of integrity in all of its parts, an integrity that
must be underwritten by rules enforceable in fair, inde
pendent, accessible courts. Were the implied cause of
action to be extended to the practices described here,
however, there would be a risk that the federal power
would be used to invite litigation beyond the immediate
sphere of securities litigation and in areas already gov
erned by functioning and effective state-law guarantees.
Our precedents counsel against this extension. See Ma
rine Bank v. Weaver, 455 U. S. 551, 556 (1982) (“Congress,
in enacting the securities laws, did not intend to provide a
broad federal remedy for all fraud”); Santa Fe, 430 U. S.,
at 479–480 (“There may well be a need for uniform federal
fiduciary standards . . . . But those standards should not
be supplied by judicial extension of §10(b) and Rule 10b–5
to ‘cover the corporate universe’ ” (quoting Cary, Federal
ism and Corporate Law: Reflections Upon Delaware, 83
Cite as: 552 U. S. ____ (2008) 11
Opinion of the Court
Yale L. J. 663, 700 (1974))). Though §10(b) is “not ‘limited
to preserving the integrity of the securities markets,’ ”
Bankers Life, 404 U. S., at 12, it does not reach all com
mercial transactions that are fraudulent and affect the
price of a security in some attenuated way.
These considerations answer as well the argument that
if this were a common-law action for fraud there could be a
finding of reliance. Even if the assumption is correct, it is
not controlling. Section 10(b) does not incorporate com
mon-law fraud into federal law. See, e.g., SEC v. Zand
ford, 535 U. S. 813, 820 (2002) (“[Section 10(b)] must not
be construed so broadly as to convert every common-law
fraud that happens to involve securities into a violation”);
Central Bank, 511 U. S., at 184 (“Even assuming . . . a
deeply rooted background of aiding and abetting tort
liability, it does not follow that Congress intended to apply
that kind of liability to the private causes of action in the
securities Acts”); see also Dura, 544 U. S., at 341. Just as
§10(b) “is surely badly strained when construed to provide
a cause of action . . . to the world at large,” Blue Chip
Stamps v. Manor Drug Stores, 421 U. S. 723, 733, n. 5
(1975), it should not be interpreted to provide a private
cause of action against the entire marketplace in which
the issuing company operates.
Petitioner’s theory, moreover, would put an unsupport
able interpretation on Congress’ specific response to Cen
tral Bank in §104 of the PSLRA. Congress amended the
securities laws to provide for limited coverage of aiders
and abettors. Aiding and abetting liability is authorized
in actions brought by the SEC but not by private parties.
See 15 U. S. C. §78t(e). Petitioner’s view of primary liabil
ity makes any aider and abettor liable under §10(b) if he
or she committed a deceptive act in the process of provid
ing assistance. Reply Brief for Petitioner 6, n. 2; Tr. of
Oral Arg. 24. Were we to adopt this construction of §10(b),
it would revive in substance the implied cause of action
12 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
against all aiders and abettors except those who commit
ted no deceptive act in the process of facilitating the fraud;
and we would undermine Congress’ determination that
this class of defendants should be pursued by the SEC and
not by private litigants. See Alexander v. Sandoval, 532
U. S. 275, 290 (2001) (“The express provision of one
method of enforcing a substantive rule suggests that
Congress intended to preclude others”); FDA v. Brown &
Williamson Tobacco Corp., 529 U. S. 120, 143 (2000) (“At
the time a statute is enacted, it may have a range of plau
sible meanings. Over time, however, subsequent acts can
shape or focus those meanings”); see also Seatrain Ship
building Corp. v. Shell Oil Co., 444 U. S. 572, 596 (1980)
(“[W]hile the views of subsequent Congresses cannot
override the unmistakable intent of the enacting one, such
views are entitled to significant weight, and particularly
so when the precise intent of the enacting Congress is
obscure” (citations omitted)).
This is not a case in which Congress has enacted a
regulatory statute and then has accepted, over a long
period of time, broad judicial authority to define substan
tive standards of conduct and liability. Cf. Leegin Creative
Leather Products, Inc. v. PSKS, Inc., 551 U. S. ___, ___
(2007) (slip op., at 19–20). And in accord with the nature
of the cause of action at issue here, we give weight to
Congress’ amendment to the Act restoring aiding and
abetting liability in certain cases but not others. The
amendment, in our view, supports the conclusion that
there is no liability.
The practical consequences of an expansion, which the
Court has considered appropriate to examine in circum
stances like these, see Virginia Bankshares, Inc. v.
Sandberg, 501 U. S. 1083, 1104–1105 (1991); Blue Chip,
421 U. S., at 737, provide a further reason to reject peti
tioner’s approach. In Blue Chip, the Court noted that
extensive discovery and the potential for uncertainty and
Cite as: 552 U. S. ____ (2008) 13
Opinion of the Court
disruption in a lawsuit allow plaintiffs with weak claims
to extort settlements from innocent companies. Id., at
740–741. Adoption of petitioner’s approach would expose
a new class of defendants to these risks. As noted in
Central Bank, contracting parties might find it necessary
to protect against these threats, raising the costs of doing
business. See 511 U. S., at 189. Overseas firms with no
other exposure to our securities laws could be deterred
from doing business here. See Brief for Organization for
International Investment et al. as Amici Curiae 17–20.
This, in turn, may raise the cost of being a publicly traded
company under our law and shift securities offerings away
from domestic capital markets. Brief for NASDAQ Stock
Market, Inc., et al. as Amici Curiae 12–14.
C
The history of the §10(b) private right and the careful
approach the Court has taken before proceeding without
congressional direction provide further reasons to find no
liability here. The §10(b) private cause of action is a judi
cial construct that Congress did not enact in the text of the
relevant statutes. See Lampf, Pleva, Lipkind, Prupis &
Petigrow v. Gilbertson, 501 U. S. 350, 358–359 (1991);
Blue Chip, supra, at 729. Though the rule once may have
been otherwise, see J. I. Case Co. v. Borak, 377 U. S. 426,
432–433 (1964), it is settled that there is an implied cause
of action only if the underlying statute can be interpreted
to disclose the intent to create one, see, e.g., Alexander,
supra, at 286–287; Virginia Bankshares, supra, at 1102;
Touche Ross & Co. v. Redington, 442 U. S. 560, 575 (1979).
This is for good reason. In the absence of congressional
intent the Judiciary’s recognition of an implied private
right of action
“necessarily extends its authority to embrace a dis
pute Congress has not assigned it to resolve. This
runs contrary to the established principle that ‘[t]he
14 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
jurisdiction of the federal courts is carefully guarded
against expansion by judicial interpretation . . . ,’
American Fire & Casualty Co. v. Finn, 341 U. S. 6, 17
(1951), and conflicts with the authority of Congress
under Art. III to set the limits of federal jurisdiction.”
Cannon v. University of Chicago, 441 U. S. 677, 746
(1979) (Powell, J., dissenting) (citations and footnote
omitted).
The determination of who can seek a remedy has signifi
cant consequences for the reach of federal power. See
Wilder v. Virginia Hospital Assn., 496 U. S. 498, 509, n. 9
(1990) (requirement of congressional intent “reflects a
concern, grounded in separation of powers, that Congress
rather than the courts controls the availability of remedies
for violations of statutes”).
Concerns with the judicial creation of a private cause of
action caution against its expansion. The decision to
extend the cause of action is for Congress, not for us.
Though it remains the law, the §10(b) private right should
not be extended beyond its present boundaries. See Vir
ginia Bankshares, supra, at 1102 (“[T]he breadth of the
[private right of action] once recognized should not, as a
general matter, grow beyond the scope congressionally
intended”); see also Central Bank, supra, at 173 (deter
mining that the scope of conduct prohibited is limited by
the text of §10(b)).
This restraint is appropriate in light of the PSLRA,
which imposed heightened pleading requirements and a
loss causation requirement upon “any private action”
arising from the Securities Exchange Act. See 15 U. S. C.
§78u–4(b). It is clear these requirements touch upon the
implied right of action, which is now a prominent feature
of federal securities regulation. See Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit, 547 U. S. 71, 81–82 (2006);
Dura, 544 U. S., at 345–346; see also S. Rep. No. 104–98,
Cite as: 552 U. S. ____ (2008) 15
Opinion of the Court
p. 4–5 (1995) (recognizing the §10(b) implied cause of
action, and indicating the PSLRA was intended to have
“Congress . . . reassert its authority in this area”); id., at
26 (indicating the pleading standards covered §10(b)
actions). Congress thus ratified the implied right of action
after the Court moved away from a broad willingness to
imply private rights of action. See Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Curran, 456 U. S. 353, 381–382,
and n. 66 (1982); cf. Borak, supra, at 433. It is appropriate
for us to assume that when §78u–4 was enacted, Congress
accepted the §10(b) private cause of action as then defined
but chose to extend it no further.
IV
Secondary actors are subject to criminal penalties, see,
e.g., 15 U. S. C. §78ff, and civil enforcement by the SEC,
see, e.g., §78t(e). The enforcement power is not toothless.
Since September 30, 2002, SEC enforcement actions have
collected over $10 billion in disgorgement and penalties,
much of it for distribution to injured investors. See SEC,
2007 Performance and Accountability Report, p. 26,
http://www.sec.gov/about/secpar2007.shtml (as visited
Jan. 2, 2008, and available in Clerk of Court’s case file).
And in this case both parties agree that criminal penalties
are a strong deterrent. See Brief for Respondents 48;
Reply Brief for Petitioner 17. In addition some state
securities laws permit state authorities to seek fines and
restitution from aiders and abettors. See, e.g., Del. Code
Ann., Tit. 6, §7325 (2005). All secondary actors, further
more, are not necessarily immune from private suit. The
securities statutes provide an express private right of
action against accountants and underwriters in certain
circumstances, see 15 U. S. C. §77k, and the implied right
of action in §10(b) continues to cover secondary actors who
commit primary violations. Central Bank, supra, at 191.
Here respondents were acting in concert with Charter in
16 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
Opinion of the Court
the ordinary course as suppliers and, as matters then
evolved in the not so ordinary course, as customers. Un
conventional as the arrangement was, it took place in the
marketplace for goods and services, not in the investment
sphere. Charter was free to do as it chose in preparing its
books, conferring with its auditor, and preparing and then
issuing its financial statements. In these circumstances
the investors cannot be said to have relied upon any of
respondents’ deceptive acts in the decision to purchase or
sell securities; and as the requisite reliance cannot be
shown, respondents have no liability to petitioner under
the implied right of action. This conclusion is consistent
with the narrow dimensions we must give to a right of
action Congress did not authorize when it first enacted the
statute and did not expand when it revisited the law.
The judgment of the Court of Appeals is affirmed, and
the case is remanded for further proceedings consistent
with this opinion.
It is so ordered.
JUSTICE BREYER took no part in the consideration or
decision of this case.
Cite as: 552 U. S. ____ (2008) 1
STEVENS, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 06–43
_________________
STONERIDGE INVESTMENT PARTNERS, LLC,
PETITIONER v. SCIENTIFIC-ATLANTA,
INC., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE EIGHTH CIRCUIT
[January 15, 2008]
JUSTICE STEVENS, with whom JUSTICE SOUTER and
JUSTICE GINSBURG join, dissenting.
Charter Communications, Inc., inflated its revenues by
$17 million in order to cover up a $15 to $20 million ex
pected cash flow shortfall. It could not have done so ab
sent the knowingly fraudulent actions of Scientific-
Atlanta, Inc., and Motorola, Inc. Investors relied on Char
ter’s revenue statements in deciding whether to invest in
Charter and in doing so relied on respondents’ fraud,
which was itself a “deceptive device” prohibited by §10(b)
of the Securities Exchange Act of 1934. 15 U. S. C. §78j(b).
This is enough to satisfy the requirements of §10(b) and
enough to distinguish this case from Central Bank of
Denver, N. A. v. First Interstate Bank of Denver, N. A., 511
U. S. 164 (1994).
The Court seems to assume that respondents’ alleged
conduct could subject them to liability in an enforcement
proceeding initiated by the Government, ante, at 15, but
nevertheless concludes that they are not subject to liabil
ity in a private action brought by injured investors be
cause they are, at most, guilty of aiding and abetting a
violation of §10(b), rather than an actual violation of the
statute. While that conclusion results in an affirmance of
the judgment of the Court of Appeals, it rests on a rejec
2 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
tion of that court’s reasoning. Furthermore, while the
Court frequently refers to petitioner’s attempt to “expand”
the implied cause of action,1—a conclusion that begs the
question of the contours of that cause of action—it is to
day’s decision that results in a significant departure from
Central Bank.
The Court’s conclusion that no violation of §10(b) giving
rise to a private right of action has been alleged in this
case rests on two faulty premises: (1) the Court’s overly
broad reading of Central Bank, and (2) the view that
reliance requires a kind of super-causation—a view con
trary to both the Securities and Exchange Commission’s
(SEC) position in a recent Ninth Circuit case2 and our
holding in Basic Inc. v. Levinson, 485 U. S. 224 (1988).
These two points merit separate discussion.
I
The Court of Appeals incorrectly based its decision on
the view that “[a] device or contrivance is not ‘deceptive,’
within the meaning of §10(b), absent some misstatement
or a failure to disclose by one who has a duty to disclose.”
In re Charter Communications, Inc., Securities Litigation,
443 F. 3d 987, 992 (CA8 2006). The Court correctly ex
plains why the statute covers nonverbal as well as verbal
deceptive conduct. Ante, at 7. The allegations in this
case—that respondents produced documents falsely claim
——————
1 See
ante, at 10 (“[w]ere the implied cause of action to be extended to
the practices described here . . . ”); ante, at 12 (“[t]he practical conse
quences of an expansion”); ante, at 14 (“Concerns with the judicial
creation of a private cause of action caution against its expansion. The
decision to extend the cause of action is for the Congress, not for us”).
2 See Brief for SEC as Amicus Curiae in Simpson v. AOL Time War
ner Inc., No. 04–55665 (CA9), p. 21 (“The reliance requirement is
satisfied where a plaintiff relies on a material deception flowing from a
defendant’s deceptive act, even though the conduct of other participants
in the fraudulent scheme may have been a subsequent link in the
causal chain leading to the plaintiff’s securities transaction”).
Cite as: 552 U. S. ____ (2008) 3
STEVENS, J., dissenting
ing costs had risen and signed contracts they knew to be
backdated in order to disguise the connection between the
increase in costs and the purchase of advertising—plainly
describe “deceptive devices” under any standard reading of
the phrase.
What the Court fails to recognize is that this case is
critically different from Central Bank because the bank in
that case did not engage in any deceptive act and, there
fore, did not itself violate §10(b). The Court sweeps aside
any distinction, remarking that holding respondents liable
would “revive in substance the implied cause of action
against all aiders and abettors except those who commit
ted no deceptive act in the process of facilitating the
fraud.” Ante, at 11–12. But the fact that Central Bank
engaged in no deceptive conduct whatsoever—in other
words, that it was at most an aider and abettor—sharply
distinguishes Central Bank from cases that do involve
allegations of such conduct. 511 U. S., at 167 (stating that
the question presented was “whether private civil liability
under §10(b) extends as well to those who do not engage in
the manipulative or deceptive practice, but who aid and
abet the violation”).
The Central Bank of Denver was the indenture trustee
for bonds issued by a public authority and secured by liens
on property in Colorado Springs. After default, purchas
ers of $2.1 million of those bonds sued the underwriters,
alleging violations of §10(b); they also named Central
Bank as a defendant, contending that the bank’s delay in
reviewing a suspicious appraisal of the value of the secu
rity made it liable as an aider and abettor. Id., at 167–
168. The facts of this case would parallel those of Central
Bank if respondents had, for example, merely delayed
sending invoices for set-top boxes to Charter. Conversely,
the facts in Central Bank would mirror those in the case
before us today if the bank had knowingly purchased real
estate in wash transactions at above-market prices in
4 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
order to facilitate the appraiser’s overvaluation of the
security. Central Bank, thus, poses no obstacle to peti
tioner’s argument that it has alleged a cause of action
under §10(b).
II
The Court’s next faulty premise is that petitioner is
required to allege that Scientific-Atlanta and Motorola
made it “necessary or inevitable for Charter to record the
transactions as it did,” ante, at 10, in order to demonstrate
reliance. Because the Court of Appeals did not base its
holding on reliance grounds, see 443 F. 3d, at 992, the
fairest course to petitioner would be for the majority to
remand to the Court of Appeals to determine whether
petitioner properly alleged reliance, under a correct view
of what §10(b) covers.3 Because the Court chooses to
rest its holding on an absence of reliance, a response is
required.
In Basic Inc., 485 U. S., at 243, we stated that “[r]eliance
provides the requisite causal connection between a defen
dant’s misrepresentation and a plaintiff’s injury.” The
Court’s view of the causation required to demonstrate
reliance is unwarranted and without precedent.
In Basic Inc., we held that the “fraud-on-the-market”
theory provides adequate support for a presumption in
private securities actions that shareholders (or former
——————
3 Thoughrespondents did argue to the Court of Appeals that reliance
was lacking, see Brief for Appellee Motorola, Inc., in No. 05–1974
(CA8), p. 15, that argument was quite short and was based on an
erroneously broad reading of Central Bank of Denver, N. A. v. First
Interstate Bank of Denver, N. A., 511 U. S. 164 (1994), as discussed,
supra, at 3 and this page. The Court of Appeals mentioned reliance
only once, stating that respondents “did not issue any misstatement
relied upon by the investing public.” 443 F. 3d, at 992. Furthermore,
that statement was made in the context of the Court of Appeals’ hold
ing that a deceptive act must be a misstatement or omission—a holding
which the Court unanimously rejects.
Cite as: 552 U. S. ____ (2008) 5
STEVENS, J., dissenting
shareholders) in publicly traded companies rely on public
material misstatements that affect the price of the com
pany’s stock. Id., at 248. The holding in Basic is surely a
sufficient response to the argument that a complaint
alleging that deceptive acts which had a material effect on
the price of a listed stock should be dismissed because the
plaintiffs were not subjectively aware of the deception at
the time of the securities’ purchase or sale. This Court
has not held that investors must be aware of the specific
deceptive act which violates §10b to demonstrate reliance.
The Court is right that a fraud-on-the-market presump
tion coupled with its view on causation would not support
petitioner’s view of reliance. The fraud-on-the-market
presumption helps investors who cannot demonstrate that
they, themselves, relied on fraud that reached the market.
But that presumption says nothing about causation from
the other side: what an individual or corporation must do
in order to have “caused” the misleading information that
reached the market. The Court thus has it backwards
when it first addresses the fraud-on-the-market presump
tion, rather than the causation required. See, ante, at 8.
The argument is not that the fraud-on-the-market pre
sumption is enough standing alone, but that a correct view
of causation coupled with the presumption would allow
petitioner to plead reliance.
Lower courts have correctly stated that the causation
necessary to demonstrate reliance is not a difficult hurdle
to clear in a private right of action under §10(b). Reliance
is often equated with “ ‘transaction causation.’ ” Dura
Pharmaceuticals, Inc. v. Broudo, 544 U. S. 336, 341, 342
(2005). Transaction causation, in turn, is often defined as
requiring an allegation that but for the deceptive act, the
plaintiff would not have entered into the securities trans
action. See, e.g., Lentell v. Merrill Lynch & Co., 396 F. 3d
161, 172 (CA2 2005); Binder v. Gillespie, 184 F. 3d 1059,
1065–1066 (CA9 1999).
6 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
Even if but-for causation, standing alone, is too weak to
establish reliance, petitioner has also alleged that respon
dents proximately caused Charter’s misstatement of in
come; petitioner has alleged that respondents knew their
deceptive acts would be the basis for statements that
would influence the market price of Charter stock on which
shareholders would rely. Second Amended Consolidated
Class Action Complaint ¶¶ 8, 98, 100, 109, App. 19a, 55a–
56a, 59a. Thus, respondents’ acts had the foreseeable
effect of causing petitioner to engage in the relevant securi
ties transactions. The Restatement (Second) of Torts §533,
pp. 72–73 (1977), provides that “[t]he maker of a fraudu
lent misrepresentation is subject to liability . . . if the
misrepresentation, although not made directly to the other,
is made to a third person and the maker intends or has
reason to expect that its terms will be repeated or its sub
stance communicated to the other.” The sham transactions
described in the complaint in this case had the same effect
on Charter’s profit and loss statement as a false entry
directly on its books that included $17 million of gross
revenues that had not been received. And respondents are
alleged to have known that the outcome of their fraudulent
transactions would be communicated to investors.
The Court’s view of reliance is unduly stringent and
unmoored from authority. The Court first says that if the
petitioner’s concept of reliance is adopted the implied cause
of action “would reach the whole marketplace in which the
issuing company does business.” Ante, at 9. The answer to
that objection is, of course, that liability only attaches
when the company doing business with the issuing com
pany has itself violated §10(b).4 The Court next relies on
——————
4 Because the kind of sham transactions alleged in this complaint are
unquestionably isolated departures from the ordinary course of busi
ness in the American marketplace, it is hyperbolic for the Court to
conclude that petitioner’s concept of reliance would authorize actions
“against the entire marketplace in which the issuing company oper
Cite as: 552 U. S. ____ (2008) 7
STEVENS, J., dissenting
what it views as a strict division between the “realm of
financing business” and the “ordinary business operations.”
Ante, at 10. But petitioner’s position does not merge the
two: A corporation engaging in a business transaction with
a partner who transmits false information to the market is
only liable where the corporation itself violates §10(b).
Such a rule does not invade the province of “ordinary”
business transactions.
The majority states that “[s]ection 10(b) does not incor
porate common-law fraud into federal law,” citing SEC v.
Zandford, 535 U. S. 813 (2002). Ante, at 11. Of course,
not every common-law fraud action that happens to touch
upon securities is an action under §10(b), but the Court’s
opinion in Zandford did not purport to jettison all refer
ence to common-law fraud doctrines from §10(b) cases. In
fact, our prior cases explained that to the extent that “the
antifraud provisions of the securities laws are not coexten
sive with common-law doctrines of fraud,” it is because
common-law fraud doctrines might be too restrictive.
Herman & MacLean v. Huddleston, 459 U. S. 375, 388–
389 (1983). “Indeed, an important purpose of the federal
securities statutes was to rectify perceived deficiencies in
the available common-law protections by establishing
higher standards of conduct in the securities industry.”
Id., at 389. I, thus, see no reason to abandon common-law
approaches to causation in §10(b) cases.
Finally, the Court relies on the course of action Con
gress adopted after our decision in Central Bank to argue
that siding with petitioner on reliance would run contrary
to congressional intent. Senate hearings on Central Bank
were held within one month of our decision.5 Less than
one year later, Senators Dodd and Domenici introduced
S. 240, which became the Private Securities Litigation
——————
ates.” Ante, at 11.
5 See S. Rep. No. 104–98, p. 2 (1995) (hereinafter S. Rep.).
8 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
Reform Act of 1995 (PSLRA), 109 Stat. 737.6 Congress
stopped short of undoing Central Bank entirely, instead
adopting a compromise which restored the authority of the
SEC to enforce aiding and abetting liability.7 A private
right of action based on aiding and abetting violations of
§10(b) was not, however, included in the PSLRA,8 despite
support from Senator Dodd and members of the Senate
Subcommittee on Securities.9 This compromise surely
provides no support for extending Central Bank in order to
immunize an undefined class of actual violators of §10(b)
from liability in private litigation. Indeed, as Members of
Congress—including those who rejected restoring a pri
vate cause of action against aiders and abettors—made
clear, private litigation under §10(b) continues to play a
vital role in protecting the integrity of our securities mar
kets.10 That Congress chose not to restore the aiding and
——————
6 Id.,at 1.
7 The opinion in Central Bank discussed only private remedies, but its
rationale—that the text of §10(b) did not cover aiding and abetting—
obviously limited the authority of public enforcement agencies. See 511
U. S., at 199–200 (STEVENS, J., dissenting); see also S. Rep., at 19 (“The
Committee does, however, grant the SEC express authority to bring
actions seeking injunctive relief or money damages against persons who
knowingly aid and abet primary violators of the securities laws”).
8 PSLRA, §104, 109 Stat. 757; see also S. Rep., at 19 (“The Committee
believes that amending the 1934 Act to provide explicitly for private
aiding and abetting liability actions under Section 10(b) would be
contrary to S. 240’s goal of reducing meritless securities litigation”).
9 See id., at 51 (additional views of Sen. Dodd) (“I am pleased that the
Committee bill grants the Securities and Exchange Commission explicit
authority to bring actions against those who knowingly aid and abet
primary violators. However, I remain concerned about liability in
private actions and will continue work with other Committee members
on this issue as we move to floor consideration”). Senators Sarbanes,
Boxer, and Bryan also submitted additional views in which they stated
that “[w]hile the provision in the bill is of some help, the deterrent
effect of the securities laws would be strengthened if aiding and abet
ting liability were restored in private actions as well.” Id., at 49.
10 Id., at 8 (“The success of the U. S. securities markets is largely the
Cite as: 552 U. S. ____ (2008) 9
STEVENS, J., dissenting
abetting liability removed by Central Bank does not mean
that Congress wanted to exempt from liability the broader
range of conduct that today’s opinion excludes.
The Court is concerned that such liability would deter
overseas firms from doing business in the United States or
“shift securities offerings away from domestic capital
markets.” Ante, at 13. But liability for those who violate
§10(b) “will not harm American competitiveness; in fact,
investor faith in the safety and integrity of our markets is
their strength. The fact that our markets are the safest in
the world has helped make them the strongest in the
world.” Brief for Former SEC Commissioners as Amici
Curiae 9.
Accordingly, while I recognize that the Central Bank
opinion provides a precedent for judicial policymaking
decisions in this area of the law, I respectfully dissent
from the Court’s continuing campaign to render the pri
vate cause of action under §10(b) toothless. I would re
——————
result of a high level of investor confidence in the integrity and effi
ciency of our markets. The SEC enforcement program and the avail
ability of private rights of action together provide a means for de
frauded investors to recover damages and a powerful deterrent against
violations of the securities laws”); see also Bateman Eichler, Hill
Richards, Inc. v. Berner, 472 U. S. 299, 310 (1985) (“Moreover, we
repeatedly have emphasized that implied private actions provide ‘a
most effective weapon in the enforcement’ of the securities laws and are
‘a necessary supplement to Commission action’ ”); Brief for Former SEC
Commissioners as Amici Curiae 4 (“[L]iability [of the kind at issue
here] neither results in undue liability exposure for non-issuers, nor an
undue burden upon capital formation. Holding liable wrongdoers who
actively engage in fraudulent conduct that lacks a legitimate business
purpose does not hinder, but rather enhances, the integrity of our
markets and our economy. We believe that the integrity of our securi
ties markets is their strength. Investors, both domestic and foreign,
trust that fraud is not tolerated in our nation’s securities markets and
that strong remedies exist to deter and protect against fraud and to
recompense investors when it occurs”).
10 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
verse the decision of the Court of Appeals.
III
While I would reverse for the reasons stated above, I
must also comment on the importance of the private cause
of action that Congress implicitly authorized when it
enacted the Securities Exchange Act of 1934. A theme
that underlies the Court’s analysis is its mistaken hostil
ity towards the §10(b) private cause of action.11 Ante, at
13. The Court’s current view of implied causes of action is
that they are merely a “relic” of our prior “heady days.”
Correctional Services Corp. v. Malesko, 534 U. S. 61, 75
(2001) (SCALIA, J., concurring). Those “heady days” per
sisted for two hundred years.
During the first two centuries of this Nation’s history
much of our law was developed by judges in the common-
law tradition. A basic principle animating our jurispru
dence was enshrined in state constitution provisions guar
anteeing, in substance, that “every wrong shall have a
remedy.”12 Fashioning appropriate remedies for the viola
——————
11 The Court does concede that Congress has now ratified the private
cause of action in the PSLRA. See ante, at 15.
12 Today, the guarantee of a remedy for every injury appears in nearly
three-quarters of state constitutions. Ala. Const., Art. I, §13; Ark.
Const., Art. II, §13; Colo. Const., Art. II, §6; Conn. Const., Art. I, §10;
Del. Const., Art. I, §9; Fla. Const., Art. I, §21; Idaho Const., Art. I, §18;
Ill. Const., Art. I, §12; Ind. Const., Art. I, §12; Kan. Const., Bill of
Rights, §18; Ky. Const., §14; La. Const., Art. I, §22; Me. Const., Art. I,
§19; Md. Const., Declaration of Rights, Art. 19; Mass. Const., pt. I, Art.
11; Minn. Const., Art. 1, §8; Miss. Const., Art. III, §24; Mo. Const., Art.
I, §14; Mont. Const., Art. II, §16; Neb. Const., Art. I, §13; N. H. Const.,
pt. I, Art. 14; N. C. Const., Art. I, §18; N. D. Const., Art. I, §9; Ohio
Const., Art. I, §16; Okla. Const., Art. II, §6; Ore. Const., Art. I, §10; Pa.
Const., Art. I, §11; R. I. Const., Art. I, §5; S. C. Const., Art. I, §9; S. D.
Const., Art. VI, §20; Tenn. Const., Art. I, §17; Tex. Const., Art. I, §13;
Utah Const., Art. I, §11; Vt. Const., ch. I, Art. 4; W. Va. Const., Art. III,
§17; Wis. Const., Art. I, §9; Wyo. Const., Art. I, §8; see also Phillips, The
Constitutional Right to a Remedy, 78 N. Y. U. L. Rev. 1309, 1310, n. 6
(2003) (hereinafter Phillips).
Cite as: 552 U. S. ____ (2008) 11
STEVENS, J., dissenting
tion of rules of law designed to protect a class of citizens
was the routine business of judges. See Marbury v. Madi
son, 1 Cranch 137, 166 (1803). While it is true that in the
early days state law was the source of most of those rules,
throughout our history—until 1975—the same practice
prevailed in federal courts with regard to federal statutes
that left questions of remedy open for judges to answer. In
Texas & Pacific R. Co. v. Rigsby, 241 U. S. 33, 39 (1916),
this Court stated the following:
“A disregard of the command of the statute is a wrong
ful act, and where it results in damage to one of the
class for whose especial benefit the statute was en
acted, the right to recover the damages from the party
in default is implied, according to a doctrine of the
common law expressed in 1 Com. Dig., tit. Action upon
Statute (F), in these words: ‘So, in every case, where a
statute enacts, or prohibits a thing for the benefit of a
person, he shall have a remedy upon the same statute
for the thing enacted for his advantage, or for the rec
ompense of a wrong done to him contrary to the said
——————
The concept of a remedy for every wrong most clearly emerged from
Sir Edward Coke’s scholarship on Magna Carta. See 1 Second Part of
the Institutes of the Laws of England (1797). At the time of the ratifi
cation of the United States Constitution, Delaware, Massachusetts,
Maryland, New Hampshire, and North Carolina had all adopted
constitutional provisions reflecting the provision in Coke’s scholarship.
Del. Declaration of Rights and Fundamental Rules §12 (1776), re
printed in 2 W. Swindler, Sources and Documents of United States
Constitutions 198 (1973) (hereinafter Swindler); Mass. Const., pt. I,
Art. XI (1780), reprinted in 3 Federal and State Constitutions, Colonial
Charters, and Other Organic Laws 1891 (F. Thorpe ed. 1909) (reprinted
1993) (hereinafter Thorpe); Md. Const., Declaration of Rights, Art. XVII
(1776), in id., at 1688; N. H. Const., Art. XIV (1784), in 4 id., at 2455;
N. C. Const., Declaration of Rights, Art. XIII (1776), in 5 id., at 2787,
2788; see also Phillips 1323–1324. Pennsylvania’s Constitution of 1790
contains a guarantee. Pa. Const., Art. IX, §11, in 5 Thorpe 3101.
Connecticut’s 1818 Constitution, Art. I, §12, contained such a provision.
Reprinted in Swindler 145.
12 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
law.’ (Per Holt, C. J., Anon., 6 Mod. 26, 27.)”
Judge Friendly succinctly described the post-Rigsby,
pre-1975 practice in his opinion in Leist v. Simplot, 638
F. 2d 283, 298–299 (CA2 1980):
“Following Rigsby the Supreme Court recognized im
plied causes of action on numerous occasions, see, e.g.,
Wyandotte Transportation Co. v. United States, 389
U.S. 191 . . . (1967) (sustaining implied cause of action
by United States for damages under Rivers and Har
bors Act for removing negligently sunk vessel despite
express remedies of in rem action and criminal penal
ties); United States v. Republic Steel Corp., 362 U.S.
482 . . . (1960) (sustaining implied cause of action by
United States for an injunction under the Rivers and
Harbors Act); Tunstall v. Locomotive Firemen & En
ginemen, 323 U.S. 210 . . . (1944) (sustaining implied
cause of action by union member against union for
discrimination among members despite existence of
Board of Mediation); Sullivan v. Little Hunting Park,
Inc., 396 U.S. 229 . . . (1969) (sustaining implied pri
vate cause of action under 42 U.S.C. §1982); Allen v.
State Board of Elections, 393 U.S. 544 . . . (1969) (sus
taining implied private cause of action under §5 of the
Voting Rights Act despite the existence of a complex
regulatory scheme and explicit rights of action in the
Attorney General); and, of course, the aforementioned
decisions under the securities laws. As the Supreme
Court itself has recognized, the period of the 1960’s
and early 1970’s was one in which the ‘Court had con
sistently found implied remedies.’ Cannon v. Univer
sity of Chicago, 441 U.S. 677, 698 . . . (1979).”
In a law-changing opinion written by Justice Brennan in
1975, the Court decided to modify its approach to private
causes of action. Cort v. Ash, 422 U. S. 66 (constraining
courts to use a strict four-factor test to determine whether
Cite as: 552 U. S. ____ (2008) 13
STEVENS, J., dissenting
Congress intended a private cause of action). A few years
later, in Cannon v. University of Chicago, 441 U. S. 677
(1979), we adhered to the strict approach mandated by
Cort v. Ash in 1975, but made it clear that “our evaluation
of congressional action in 1972 must take into account its
contemporary legal context.” 441 U. S., at 698–699. That
context persuaded the majority that Congress had in
tended the courts to authorize a private remedy for mem
bers of the protected class.
Until Central Bank, the federal courts continued to
enforce a broad implied cause of action for the violation of
statutes enacted in 1933 and 1934 for the protection of
investors. As Judge Friendly explained:
“During the late 1940’s, the 1950’s, the 1960’s and
the early 1970’s there was widespread, indeed almost
general, recognition of implied causes of action for
damages under many provisions of the Securities Ex
change Act, including not only the antifraud provi
sions, §§ 10 and 15(c)(1), see Kardon v. National Gyp
sum Co., 69 F.Supp. 512, 513–14 (E.D.Pa.1946);
Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 787 (2
Cir. 1951) (Frank, J.); Fratt v. Robinson, 203 F.2d 627,
631–33 (9 Cir. 1953), but many others. These in
cluded the provision, § 6(a)(1), requiring securities ex
changes to enforce compliance with the Act and any
rule or regulation made thereunder, see Baird v.
Franklin, 141 F.2d 238, 239, 240, 244–45 (2 Cir.), cert.
denied, 323 U.S. 737 . . . (1944), and provisions gov
erning the solicitation of proxies, see J. I. Case Co. v.
Borak, 377 U.S. 426, 431–35 . . . (1964). . . . Writing in
1961, Professor Loss remarked with respect to viola
tions of the antifraud provisions that with one excep
tion ‘not a single judge has expressed himself to the
contrary.’ 3 Securities Regulation 1763–64. See also
Bromberg & Lowenfels, supra, §2.2 (462) (describing
14 STONERIDGE INVESTMENT PARTNERS, LLC v.
SCIENTIFIC-ATLANTA, INC.
STEVENS, J., dissenting
1946–1974 as the ‘expansion era’ in implied causes of
action under the securities laws). When damage ac
tions for violation of §10(b) and Rule 10b–5 reached
the Supreme Court, the existence of an implied cause
of action was not deemed worthy of extended discus
sion. Superintendent of Insurance v. Bankers Life &
Casualty Co., 404 U.S. 6 . . . (1971).” Leist, 638 F. 2d,
at 296–297 (footnote omitted).
In light of the history of court-created remedies and
specifically the history of implied causes of action under
§10(b), the Court is simply wrong when it states that
Congress did not impliedly authorize this private cause of
action “when it first enacted the statute.” Ante, at 16.
Courts near in time to the enactment of the securities laws
recognized that the principle in Rigsby applied to the
securities laws.13 Congress enacted §10(b) with the under
standing that federal courts respected the principle that
every wrong would have a remedy. Today’s decision sim
ply cuts back further on Congress’ intended remedy. I
respectfully dissent.
——————
13 See, e.g., Slavin v. Germantown Fire Ins. Co., 174 F. 2d 799 (CA3
1949); Baird v. Franklin, 141 F. 2d 238, 244–245 (CA2) (“The fact that
the statute provides no machinery or procedure by which the individual
right of action can proceed is immaterial. It is well established that
members of a class for whose protection a statutory duty is created may
sue for injuries resulting from its breach and that the common law will
supply a remedy if the statute gives none”), cert. denied, 323 U. S. 737
(1944); Kardon v. National Gypsum Co., 69 F. Supp. 512, 514 (ED Pa.
1946) (“[T]he right to recover damages arising by reason of violation of
a statute . . . is so fundamental and so deeply ingrained in the law that
where it is not expressly denied the intention to withhold it should
appear very clearly and plainly”).