apply, there is no private right of action under the statute.
Implied Private Right of Action Under Section 6(c)(1)
In Cort v. Ash, 422 U.S. 66, 78, 45 L. Ed. 2d 26, 95 S. Ct. 2080 (1975), the Supreme Court set forth four factors to be considered in determining whether a private right of action should be implied from a statute: (1) whether the plaintiff is a member of the class for whose "especial benefit" the statute was enacted; (2) whether there is any indication of legislative intent, explicit or implicit, to create or deny such a remedy; (3) whether it is consistent with the underlying purposes of the legislative scheme to imply such a remedy; and (4) whether the cause of action is one traditionally relegated to state law.
More recent Supreme Court cases, however, have emphasized that the ultimate issue is one of legislative intent. In Touche Ross & Co. v. Redington, 442 U.S. 560, 61 L. Ed. 2d 82, 99 S. Ct. 2479 (1979), the Court held that there was no implied private right of action under the 1972 version of § 17(a) of the Exchange Act, which required broker-dealers to file certain financial reports. In reaching its holding, the Court noted that the four Cort factors were not entitled to equal weight but that "the central inquiry remains whether Congress intended to create, either expressly or by implication, a private cause of action." Id. at 575. The Court first analyzed the language of the statute, which did not provide for any private right of action. Next, the Court turned to the legislative history, which was silent as to any private remedy. The Court noted that "implying a private right of action on the basis of congressional silence is a hazardous enterprise, at best." Id. at 571. Finally, the Court found justification for its decision not to imply a private remedy in the statutory scheme of which § 17(a) was a part. Since surrounding provisions explicitly granted private rights of action, "obviously, then, when Congress wished to provide a private damage remedy, it knew how to do so and did so expressly." Id. at 572.
Subsequent Supreme Court cases have agreed that "what must ultimately be determined is whether Congress intended to create the private remedy asserted." Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15-16, 62 L. Ed. 2d 146, 100 S. Ct. 242 (1979). The Cort factors are "guides to discerning that intent." Thompson v. Thompson, 484 U.S. 174, 98 L. Ed. 2d 512, 108 S. Ct. 513 (1988). Legislative silence "is not inevitably inconsistent with an intent on its part to make [a private] remedy available," since intent "may appear implicitly in the language or structure of the statute, or in the circumstances of its enactment." Transamerica at 18; Thompson at 179. But for a private remedy to exist, it must be possible to infer congressional intent to create such a remedy from "the language of the statute, the statutory structure, or some other source." Id. at 179.
There is no basis in the language of § 6(c)(1) from which to infer that Congress intended a private remedy to exist; the provision by its terms merely sets forth a requirement that self-regulatory organizations deny membership to persons who are not registered broker-dealers. Furthermore, the legislative history of the 1975 Amendments is silent on the specific issue of whether a private right of action is available under the section. Courts should be wary of implying rights of action in the absence of affirmative evidence of congressional intent. Touche Ross, 442 U.S. at 571.
Moreover, the overall purpose of the 1975 Amendments was to increase the SEC's oversight of securities exchanges and to provide the SEC with better enforcement tools in order to "ensure that there is no gap between self-regulatory performance and regulatory need." Senate Report at 181; Feins v. American Stock Exchange, Inc., 81 F.3d 1215, 1222 (2d Cir. 1996). Congress believed that the SEC needed more flexible regulatory options in addition to the available sanctions of suspension and deregistration. Therefore, it gave the SEC powers not previously available, such as the power to censure and place restrictions on the activities of a self-regulatory organization, to censure or remove from office an officer or director of a self-regulatory organization who willfully failed to enforce compliance with the Exchange Act, or the rules thereunder, and to apply to a federal court for injunctive relief. 15 U.S.C. §§ 78s(h), 78u(d) & (e). The Senate Report explains that these newly available enforcement mechanisms "[were] intended to provide more usable sanctions than the SEC's traditional 'big stick.'" Senate Report at 212. The thrust of these changes was to increase the SEC's ability to oversee and regulate the activities of the exchanges. As the Second Circuit explained in holding that there is no private right of action under §§ 19(d) & (f) of the Exchange Act, these changes and the reasoning behind them "do not suggest Congressional intent to use private parties to enforce the statute through private causes of action." Feins, 81 F.3d at 1222. Furthermore, "the addition of these expanded and more flexible powers argues that Congress selected the experience and the expertise of the SEC as the preferred source of remedies for [a self-regulatory organization's] shortcomings." Brawer v. Options Clearing Corp., 633 F. Supp. 1254, 1260 (S.D.N.Y. 1986), aff'd on other grounds, 807 F.2d 297 (2d Cir. 1986), cert. denied, 484 U.S. 819, 98 L. Ed. 2d 39, 108 S. Ct. 76 (1987). Thus, the legislative history does not support an inference that Congress intended a private right of action under § 6(c)(1); rather, it provides affirmative evidence that Congress viewed the SEC as the sole agent for enforcing the § 6 duties of self-regulatory organizations and did not intend to create a private remedy for violations of § 6(c)(1).
This conclusion is not undermined by Baird v. Franklin, 141 F.2d 238 (2d Cir. 1944), cert. denied, 323 U.S. 737, 89 L. Ed. 591, 65 S. Ct. 38 (1944). In that case, the Second Circuit held that there was an implied right of action under § 6(b) as it existed before the 1975 Amendments. Baird, however, did not deal with the provision at issue here. Section 6(c)(1) was inserted into the statute by the 1975 Amendments. Thus, even if Baird continues to be good law, it does not govern this case.
For the foregoing reasons, defendant's motion to dismiss the complaint is granted.
Dated: New York, New York
November 26, 1996
MIRIAM GOLDMAN CEDARBAUM
United States District Judge