HERMAN & MACLEAN & HUDDLESTON, 459 U. S. 375 (1983)

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U.S. Supreme Court

Herman & MacLean & Huddleston, 459 U.S. 375 (1983)

Herman & MacLean & Huddleston

No. 81-680

Argued November 9, 1982

Decided January 24, 1983*

459 U.S. 375


Alleging that they were defrauded by misrepresentations in a registration statement and prospectus for certain securities, purchasers of such securities brought a class action in Federal District Court against most of the participants in the offering, seeking recovery under § 10(b) of the Securities Exchange Act of 1934 (1934 Act), which makes it unlawful for "any" person to use "any" manipulative or deceptive device or contrivance in the purchase or sale of "any" security. The trial judge instructed the jury to determine whether the plaintiffs had proved their cause of action by a preponderance of the evidence, and judgment was entered on the basis of a jury verdict in plaintiffs' favor. The Court of Appeals held that a cause of action may be maintained under § 10(b) for fraudulent misrepresentations and omissions even when, as in this case, that conduct might also be actionable under § 11 of the Securities Act of 1933 (1933 Act), which expressly allows purchasers of a registered security to sue certain enumerated parties who play a direct role in a registered offering when false or misleading information is included in a registration statement. However, the Court of Appeals concluded that a plaintiff seeking recovery under § 10(b) of the 1934 Act must prove his case by "clear and convincing" evidence, and reversed and remanded on other grounds.


1. The availability of an express remedy under § 11 of the 1933 Act does not preclude defrauded purchasers of registered securities from maintaining an action under § 10(b) of the 1934 Act. Pp. 459 U. S. 380-387.

(a) The two provisions involve distinct causes of action, and were intended to address different types of wrongdoing. Under § 11, a plaintiff need only show a material misstatement or omission in a registration statement to establish a prima facie case. Such an action must be brought by a purchaser of a registered security, and can only be brought against certain parties. In contrast, § 10(b) is a "catch-all" antifraud provision, and requires a purchaser or seller of a security, in order to establish

Page 459 U. S. 376

a cause of action, to prove that the defendant acted with scienter. Pp. 459 U. S. 380-382.

(b) To exempt conduct actionable under § 11 from liability under § 10(b) would conflict with the basic purpose of the 1933 Act: to provide greater protection to purchasers of registered securities. It is hardly a novel proposition that the two Acts prohibit some of the same conduct. Cf. Ernst & Ernst v. Hochfelder, 425 U. S. 185. A cumulative construction of the remedies under the Acts is also supported by the fact that, when Congress comprehensively revised the securities laws in 1975, federal courts had consistently recognized an implied private right of action under § 10(b) even where express remedies under § 11 or other provisions were available. A cumulative construction of the securities laws also furthers their broad remedial purposes. Pp. 459 U. S. 382-387.

2. Persons seeking recovery under § 10(b) need prove their cause of action by a preponderance of the evidence only, not by clear and convincing evidence. The preponderance standard has been consistently employed in private actions under the securities laws. Cf. SEC v. C.M. Joiner Leasing Corp., 320 U. S. 344. Reference to the traditional use of a higher burden of proof in civil fraud actions at common law is unavailing here. 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. The balance of the parties' interests in this case warrants use of the preponderance standard, which allows both parties to share the risk of error in roughly equal fashion. While defendants face the risk of opprobrium that may result from a finding of fraudulent conduct, defrauded investors are among the very individuals Congress sought to protect in the securities laws, and if they prove that it is more likely than not that they were defrauded, they should recover. Pp. 459 U. S. 387-391.

640 F.2d 534, affirmed in part, reversed in part, and remanded.

MARSHALL, J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the decision of the cases.

Page 459 U. S. 377

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