OCTOBER TERM, 1994
Syllabus
GUSTAFSON ET AL.
v. ALLOYD CO., INC., FKA ALLOYD
HOLDINGS, INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH
CIRCUIT
No. 93-404. Argued November 2, 1994-Decided February 28,1995
Petitioners (collectively Gustafson), the sole shareholders of
Alloyd, Inc., sold substantially all of its stock to respondents
and other buyers in a private sale agreement. The purchase price
included a payment reflecting an estimated increase in the
company's net worth from the end of the previous year through the
closing, since hard financial data were unavailable. The contract
provided that if a year-end audit and financial statements revealed
variances between estimated and actual increased value, the
disappointed party would receive an adjustment. As a result of the
audit, respondents were entitled to recover an adjustment, but
instead sought relief under § 12(2) of the Securities Act of 1933
(1933 Act or Act), which gives buyers an express right of
rescission against sellers who make material misstatements or
omissions "by means of a prospectus." In granting Gustafson's
motion for summary judgment, the District Court held that § 12(2)
claims can only arise out of initial stock offerings and not a
private sale agreement. The Court of Appeals vacated the judgment
and remanded the case in light of its intervening decision that the
inclusion of the term "communication" in the Act's definition of
prospectus meant that the latter term includes all written
communications offering a security for sale, and, thus, a § 12(2)
right of action applies to private sale agreements.
Held: Section 12(2) does not extend to a private sale
contract, since a contract, and its recitations, that are not held
out to the public are not a "prospectus" as the term is used in the
1933 Act. Pp. 567-584.
(a) On the assumptions that must be made as the case reaches
this Court, respondents would have a right to obtain rescission if
Gustafson's misstatements were made "by means of a prospectus or
oral communication" related to a prospectus. Three sections of the
1933 Act are critical in resolving the issue whether the contract
is a "prospectus": § 2(10), which defines a prospectus as "any
prospectus, notice, circular, advertisement, letter, or
communication, written or by radio or television" that offers any
security for sale or confirms its sale; § 10, which specifies what
information must be contained in a prospectus; and § 12, which
imposes liability based on misstatements in a prospectus. The
term
562
Syllabus
"prospectus" should be construed, if at all possible, to give it
a consistent meaning throughout the Act. Pp. 567-568.
(b) The contract in this case is not a "prospectus" as that term
is defined in § 10. Whatever else "prospectus" may mean, § 10
confines it to a document that, absent an overriding exemption,
must include "information contained in the registration statement."
By and large, only public offerings by an issuer or its controlling
shareholders require the preparation and filing of such a
statement. Thus, it follows that a prospectus is confined to such
offerings. Since there is no dispute that the contract in question
was not required to carry information contained in a registration
statement, it also follows that the contract is not a prospectus
under § 10. Pp. 568-570.
(c) The term "prospectus" has the same meaning and refers to the
same types of communications in both §§ 10 and 12. The normal rule
of statutory construction that identical words used in different
parts of the same Act are intended to have the same meaning applies
here. The Act's structure and § 12's language reinforce this view.
In addition, since the primary innovation of the Act was the
creation of federal duties-for the most part registration and
disclosure obligations-in connection with public offerings, it is
reasonable to conclude that the liability provisions were designed
primarily to provide remedies for violations of these obligations
rather than to conclude that § 12(2) creates vast additional
liabilities that are quite independent of them. Congress would have
been specific had it intended "prospectus" to have a different
meaning in § 12. Pp. 570-573.
(d) The term "communication" in § 2(1O)'s definition of
"prospectus" does not mean that any written communication offering
a security for sale is a "prospectus" for purposes of § 12.
"Communication" is but one word in a list, which read in its
entirety yields the interpretation that "prospectus" refers to a
document soliciting the public to acquire securities. Respondents'
argument to the contrary is inconsistent with two rules of
statutory construction. First, this Court will avoid a reading
which renders some words altogether redundant. However, reading
"communication" to include every written communication would render
"notice, circular, advertisement, [and] letter" redundant, since
each is a form of written communication. A word is also known by
the company it keeps. From the terms used in the list, it is
apparent that "communication" refers to documents of wide
dissemination. Similarly, the list includes radio and television
communications but not face-to-face or telephonic conversations.
Moreover, at the time the 1933 Act was passed, "prospectus" was a
term of art understood to refer to a document soliciting the public
to acquire securities. Pp. 573-576.
563
(e) The holding in this case draws support from the decision in
United States v.
Naftalin, 441 U. S. 768, that §
17(a)-which makes unlawful fraudulent transfers of
securities-extends beyond the regulation of public offerings. That
decision was based on § 17(a)'s language-which suggested no
limitation of the scope of liability-and its legislative
history-which showed that Congress made a deliberate departure from
the Act's general scheme in § 17(a). In contrast, § 12(2)'s
reference to "prospectus" limits its coverage to public offerings,
and nothing in its legislative history hints that it was intended
to effect expansion of the Act's coverage. Pp. 576-578.
(f) Statements by commentators and judges written after the Act
was passed are not reliable indicators of what Congress intended.
By and large, the writings presented in support of respondents'
construction of the Act are of little value in determining the
issue presented here: the extent of § 12(2)'s coverage. The Act's
legislative history clearly indicates that Congress contemplated
that § 12(2) would apply only to public offerings by an issuer or
controlling shareholder, and nothing in that history suggests that
Congress intended to create a formal prospectus required to comply
with both §§ 10 and 12, and a second, less formal prospectus, to
which only § 12 would be applicable. Pp. 578-584.
Reversed and remanded.
KENNEDY, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and STEVENS, O'CONNOR, and SOUTER, JJ., joined.
THOMAS, J., filed a dissenting opinion, in which SCALIA, GINSBURG,
and BREYER, JJ., joined,
post, p. 584. GINSBURG, J., filed a
dissenting opinion, in which BREYER, J., joined,
post, p.
596.
Donald W Jenkins argued the cause for petitioners.
With him on the briefs were Harold C. Wheeler, Debra A.
Winiarski, Thomas P. Desmond, and Jennifer R. Evans.
Robert J. Kopecky argued the cause for
respondents.
With him on the brief were Brian D. Sieve, Kenneth W Starr, and
Paul T. Cappuccio.
Michael R. Dreeben argued the cause for the Securities and
Exchange Commission as amicus curiae urging affirmance. With him on
the brief were Solicitor General Days, Deputy Solicitor General
Kneedler, Simon M. Lorne, Paul
564
Gonson, Jacob H. Stillman, Brian D. Bellardo, and Mark
Pennington.
*
JUSTICE KENNEDY delivered the opinion of the Court. Under §
12(2) of the Securities Act of 1933 buyers have an express cause of
action for rescission against sellers who make material
misstatements or omissions "by means of a prospectus." The question
presented is whether this right of rescission extends to a private,
secondary transaction, on the theory that recitations in the
purchase agreement are part of a "prospectus."
I
Petitioners Gustafson, McLean, and Butler (collectively
Gustafson) were in 1989 the sole shareholders of Alloyd, Inc., a
manufacturer of plastic packaging and automatic heat sealing
equipment. Alloyd was formed, and its stock was issued, in 1961. In
1989, Gustafson decided to sell Alloyd and engaged KPMG Peat
Marwick to find a buyer. In response to information distributed by
KPMG, Wind Point Partners II, L. P., agreed to buy substantially
all of the issued and outstanding stock through Alloyd Holdings,
Inc., a new corporation formed to effect the sale of Alloyd's
stock. The shareholders of Alloyd Holdings were Wind Point and a
number of individual investors.
In preparation for negotiating the contract with Gustafson, Wind
Point undertook an extensive analysis of the company, relying in
part on a formal business review prepared by
* Robert L. Schnell, Jr., Wendy J.
Wildung, and
Stuart J. Kaswell filed a
brief for the Securities Industry Association, Inc., as
amicus
curiae urging reversal.
Patrick E. Cafferty and
Jonathan W Cuneo filed a
brief for the N ational Association of Securities and Commercial
Law Attorneys as
amicus curiae urging affirmance.
Karen M. O'Brien filed a brief for North American
Securities Administrators Association, Inc., as
amicus
curiae.
565
KPMG. Alloyd's practice was to take inventory at year's end, so
Wind Point and KPMG considered taking an earlier inventory to use
in determining the purchase price. In the end they did not do so,
relying instead on certain estimates and including provisions for
adjustments after the transaction closed.
On December 20,1989, Gustafson and Alloyd Holdings executed a
contract of sale. Alloyd Holdings agreed to pay Gustafson and his
coshareholders $18,709,000 for the sale of the stock plus a payment
of $2,122,219, which reflected the estimated increase in Alloyd's
net worth from the end of the previous year, the last period for
which hard financial data were available. Article IV of the
purchase agreement, entitled "Representations and Warranties of the
Sellers," included assurances that the company's financial
statements "present fairly ... the Company's financial condition"
and that between the date of the latest balance sheet and the date
the agreement was executed "there ha[d] been no material adverse
change in ... [Alloyd's] financial condition." App. 115, 117. The
contract also provided that if the yearend audit and financial
statements revealed a variance between estimated and actual
increased value, the disappointed party would receive an
adjustment.
The year-end audit of Alloyd revealed that Alloyd's actual
earnings for 1989 were lower than the estimates relied upon by the
parties in negotiating the adjustment amount of $2,122,219. Under
the contract, the buyers had a right to recover an adjustment
amount of $815,000 from the sellers. Nevertheless, on February 11,
1991, the newly formed company (now called Alloyd Co., the same as
the original company) and Wind Point brought suit in the United
States District Court for the Northern District of Illinois,
seeking outright rescission of the contract under § 12(2) of the
Securities Act of 1933 (1933 Act or Act). Alloyd (the new company)
claimed that statements made by Gustafson and his coshareholders
regarding the financial data of their company
566
were inaccurate, rendering untrue the representations and
warranties contained in the contract. The buyers further alleged
that the contract of sale was a "prospectus," so that any
misstatements contained in the agreement gave rise to liability
under § 12(2) of the 1933 Act. Pursuant to the adjustment clause,
the defendants remitted to the purchasers $815,000 plus interest,
but the adjustment did not cause the purchasers to drop the
lawsuit.
Relying on the decision of the Court of Appeals for the Third
Circuit in
Ballay v.
Legg Mason Wood Walker, Inc.,
925 F.2d
682 (1991), the District Court granted Gustafson's motion for
summary judgment, holding "that section 12(2) claims can only arise
out of the initial stock offerings." App. 20. Although the sellers
were the controlling shareholders of the original company, the
District Court concluded that the private sale agreement "cannot be
compared to an initial offering" because "the purchasers in this
case had direct access to financial and other company documents,
and had the opportunity to inspect the seller's property."
Id., at 21.
On review, the Court of Appeals for the Seventh Circuit vacated
the District Court's judgment and remanded for further
consideration in light of that court's intervening decision in
Pacific Dunlop Holdings Inc. v.
Allen &
Co.
Inc., 993 F.2d
578 (1993). In
Pacific Dunlop the court reasoned that
the inclusion of the term "communication" in the Act's definition
of prospectus meant that the term "prospectus" was defined "very
broadly" to include all written communications that offered the
sale of a security.
Id., at 582. Rejecting the view of the
Court of Appeals for the Third Circuit in
Ballay, the Court
of Appeals decided that § 12(2)'s right of action for rescission
"applies to any communication which offers any security for sale
... including the stock purchase agreement in the present case."
993 F. 2d, at 595. We granted certiorari to resolve this Circuit
conflict, 510 U. S. 1176 (1994), and we now reverse.
567
II
The reSCISSIOn claim against Gustafson is based upon § 12(2) of
the 1933 Act, 48 Stat. 84, as amended, 15 U. S. C. §
77l(2).
In relevant part, the section provides that any person who
"offers or sells a security (whether or not exempted by the
provisions of section 77c of this title, other than paragraph (2)
of subsection (a) of said section), by the use of any means or
instruments of transportation or communication in interstate
commerce or of the mails, by means of a prospectus or oral
communication, which includes an untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they
were made, not misleading (the purchaser not knowing of such
untruth or omission), and who shall not sustain the burden of proof
that he did not know, and in the exercise of reasonable care could
not have known, of such untruth or omission,
"shall be liable to the person purchasing such security from
him, who may sue either at law or in equity in any court of
competent jurisdiction, to recover the consideration paid for such
security with interest thereon, less the amount of any income
received thereon, upon the tender of such security, or for damages
if he no longer owns the security."
As this case reaches us, we must assume that the stock purchase
agreement contained material misstatements of fact made by the
sellers and that Gustafson would not sustain its burden of proving
due care. On these assumptions, Alloyd would have a right to obtain
rescission if those misstatements were made "by means of a
prospectus or oral communication." The Courts of Appeals agree that
the phrase "oral communication" is restricted to oral
communications
568
that relate to a prospectus. See
Pacific Dunlop, supra,
at 588;
Ballay, supra, at 688. The determinative question,
then, is whether the contract between Alloyd and Gustafson is a
"prospectus" as the term is used in the 1933 Act.
Alloyd argues that "prospectus" is defined in a broad manner,
broad enough to encompass the contract between the parties. This
argument is echoed by the dissents. See
post, at 585-586
(opinion of THOMAS, J.);
post, at 596 (opinion of GINSBURG,
J.). Gustafson, by contrast, maintains that prospectus in the 1933
Act means a communication soliciting the public to purchase
securities from the issuer. Brief for Petitioners 17-18.
Three sections of the 1933 Act are critical in resolving the
definitional question on which the case turns: § 2(10), which
defines a prospectus; § 10, which sets forth the information that
must be contained in a prospectus; and § 12, which imposes
liability based on misstatements in a prospectus. In seeking to
interpret the term "prospectus," we adopt the premise that the term
should be construed, if possible, to give it a consistent meaning
throughout the Act. That principle follows from our duty to
construe statutes, not isolated provisions. See
Philbrook v.
Glodgett, 421
U. S. 707, 713
(1975); Kokoszka v.
Belford,
417 U. S. 642,
650 (1974).
A
We begin with § 10. It provides, in relevant part:
"Except to the extent otherwise permitted or required pursuant
to this subsection or subsections (c), (d), or (e) of this
section-
"(1) a prospectus relating to a security other than a security
issued by a foreign government or political subdivision thereof,
shall contain the information contained in the registration
statement ... ;
"(2) a prospectus relating to a security issued by a foreign
government or political subdivision thereof shall
569
contain the information contained in the registration statement
.... " 15 U. S. C. § 77j(a).
Section 10 does not provide that some prospectuses must contain
the information contained in the registration statement. Save for
the explicit and well-defined exemptions for securities listed
under § 3, see 15 U. S. C. § 77c (exempting certain classes of
securities from the coverage of the Act), its mandate is
unqualified: "[A] prospectus ... shall contain the information
contained in the registration statement."
Although § 10 does not define what a prospectus is, it does
instruct us what a prospectus cannot be if the Act is to be
interpreted as a symmetrical and coherent regulatory scheme, one in
which the operative words have a consistent meaning throughout.
There is no dispute that the contract in this case was not required
to contain the information contained in a registration statement
and that no statutory exemption was required to take the document
out of § 10's coverage. Cf. 15 U. S. C. § 77c. It follows that the
contract is not a prospectus under § 10. That does not mean that a
document ceases to be a prospectus whenever it omits a required
piece of information. It does mean that a document is not a
prospectus within the meaning of that section if, absent an
exemption, it need not comply with § 10's requirements in the first
place.
An examination of § 10 reveals that, whatever else "prospectus"
may mean, the term is confined to a document that, absent an
overriding exemption, must include the "information contained in
the registration statement." By and large, only public offerings by
an issuer of a security, or by controlling shareholders of an
issuer, require the preparation and filing of registration
statements. See 15 U. S. C. §§ 77d, 77e, 77b(ll). It follows, we
conclude, that a prospectus under § 10 is confined to documents
related to public offerings by an issuer or its controlling
shareholders.
This much (the meaning of prospectus in § 10) seems not to be in
dispute. Where the courts are in disagreement is
570
with the implications of this proposition for the entirety of
the Act, and for § 12 in particular. Compare
Ballay v.
Legg Mason Wood Walker, Inc., 925 F. 2d, at 688-689
(suggesting that the term "prospectus" is used in a consistent
manner in both §§ 10 and 12), with
Pacific Dunlop Holdings
Inc. v.
Allen &
Co., 993 F. 2d, at 584
(rejecting that view). We conclude that the term "prospectus" must
have the same meaning under §§ 10 and 12. In so holding, we do not,
as the dissent by JUSTICE GINSBURG suggests, make the mistake of
treating § 10 as a definitional section. See
post, at 597.
Instead, we find in § 10 guidance and instruction for giving the
term a consistent meaning throughout the Act.
The 1933 Act, like every Act of Congress, should not be read as
a series of unrelated and isolated provisions. Only last Term we
adhered to the "normal rule of statutory construction" that
"identical words used in different parts of the same act are
intended to have the same meaning."
Department of Revenue of
Ore. v.
ACF Industries, Inc., 510 U. S. 332, 342 (1994)
(internal quotation marks and citations omitted); see also
Brooke Group Ltd. v.
Brown &
Williamson
Tobacco Corp., 509 U. S. 209, 230
(1993);
Atlantic Cleaners &
Dyers, Inc. v.
United States, 286 U. S. 427, 433
(1932). That principle applies here. If the contract before us is
not a prospectus for purposes of § lO-as all must and do concede-it
is not a prospectus for purposes of § 12 either.
The conclusion that prospectus has the same meaning, and refers
to the same types of communications (public offers by an issuer or
its controlling shareholders), in both §§ 10 and 12 is reinforced
by an examination of the structure of the 1933 Act. Sections 4 and
5 of the Act together require a seller to file a registration
statement and to issue a prospectus for certain defined types of
sales (public offerings by an issuer, through an underwriter). See
15 U. S. C. §§ 77d, 77e. Sections 7 and 10 of the Act set forth the
information required in the registration statement and the
prospectus.
571
See §§ 77g, 77j. Section 11 provides for liability on account of
false registration statements; § 12(2) for liability based on
misstatements in prospectuses. See 15 U. S. C. §§ 77k,
77l.
Following the most natural and symmetrical reading, just as the
liability imposed by § 11 flows from the requirements imposed by §§
5 and 7 providing for the filing and content of registration
statements, the liability imposed by § 12(2) cannot attach unless
there is an obligation to distribute the prospectus in the first
place (or unless there is an exemption).
Our interpretation is further confirmed by a reexamination of §
12 itself. The section contains an important guide to the correct
resolution of the case. By its terms, § 12(2) exempts from its
coverage prospectuses relating to the sales of government-issued
securities. See 15 U. S. C. §
77l (excepting securities
exempted by § 77c(a)(2)). If Congress intended § 12(2) to create
liability for misstatements contained in any written communication
relating to the sale of a security-including secondary market
transactions-there is no ready explanation for exempting
government-issued securities from the reach of the right to rescind
granted by § 12(2). Why would Congress grant immunity to a private
seller from liability in a rescission suit for no reason other than
that the seller's misstatements happen to relate to securities
issued by a governmental entity? No reason is apparent. The anomaly
disappears, however, when the term "prospectus" relates only to
documents that offer securities sold to the public by an issuer.
The exemption for government-issued securities makes perfect sense
on that view, for it then becomes a precise and appropriate means
of giving immunity to governmental authorities.
The primary innovation of the 1933 Act was the creation of
federal duties-for the most part, registration and disclosure
obligations-in connection with public offerings. See,
e.
g., Ernst &
Ernst v.
Hochfelder,
425 U. S. 185,
195 (1976) (the 1933 Act "was designed to provide investors with
full disclosure of material information concerning public
offerings");
572
Blue Chip Stamps v.
Manor Drug Stores, 421 U. S. 723, 752 (1975)
("The 1933 Act is a far narrower statute [than the Securities
Exchange Act of 1934 (1934 Act)] chiefly concerned with disclosure
and fraud in connection with offerings of securities-primarily, as
here, initial distributions of newly issued stock from corporate
issuers");
United States v.
Naftalin, 441 U. S. 768, 777-778
(1979) ("[T]he 1933 Act was primarily concerned with the regulation
of new offerings");
SEC v.
Ralston Purina Co.,
346 U. S. 119,
122, n. 5 (1953) (" '[T]he bill does not affect transactions beyond
the need of public protection in order to prevent recurrences of
demonstrated abuses' "), quoting H. R. Rep. No. 85, 73d Cong., 1st
Sess., 7 (1933). We are reluctant to conclude that § 12(2) creates
vast additional liabilities that are quite independent of the new
substantive obligations the Act imposes. It is more reasonable to
interpret the liability provisions of the 1933 Act as designed for
the primary purpose of providing remedies for violations of the
obligations it had created. Indeed, §§ 11 and 12(1)-the statutory
neighbors of § 12(2)afford remedies for violations of those
obligations. See § 11, 15 U. S. C. § 77k (remedy for untrue
statements in registration statements); § 12(1), 15 U. S. C. §
77l(l) (remedy for sales in violation of § 5, which
prohibits the sale of unregistered securities). Under our
interpretation of "prospectus," § 12(2) in similar manner is linked
to the new duties created by the Act.
On the other hand, accepting Alloyd's argument that any written
offer is a prospectus under § 12 would require us to hold that the
word "prospectus" in § 12 refers to a broader set of communications
than the same term in § 10. The Court of Appeals was candid in
embracing that conclusion: "[T]he 1933 Act contemplates many
definitions of a prospectus. Section 2(10) gives a single, broad
definition; section 10(a) involves an isolated, distinct document-a
prospectus within a prospectus; section 10(d) gives the Commission
authority to classify many."
Pacific Dunlop Holdings Inc.
v.
573
Allen &
Co., 993 F. 2d, at 584. The dissents
take a similar tack. In the name of a plain meaning approach to
statutory interpretation, the dissents discover in the Act two
different species of prospectuses: formal (also called § 10)
prospectuses, subject to both §§ 10 and 12, and informal
prospectuses, subject only to § 12 but not to § 10. See
post, at 598599 (opinion of GINSBURG, J.); see also
post, at 588-589 (opinion of THOMAS, J.). Nowhere in the
statute, however, do the terms "formal prospectus" or "informal
prospectus" appear. Instead, the Act uses one
term-"prospectus"throughout. In disagreement with the Court of
Appeals and the dissenting opinions, we cannot accept the
conclusion that this single operative word means one thing in one
section of the Act and something quite different in another. The
dissenting opinions' resort to terms not found in the Act belies
the claim of fidelity to the text of the statute.
Alloyd, as well as JUSTICE THOMAS in his dissent, respond that
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). See Brief for Respondents 25-26;
post, at 590 (THOMAS, J., dissenting). The argument gets the
presumption backwards. Had Congress meant the term "prospectus" in
§ 12(2) to have a different meaning than the same term in § 10,
that is when one would have expected Congress to have been
explicit. Congressional silence cuts against, not in favor of,
Alloyd's argument. The burden should be on the proponents of the
view that the term "prospectus" means one thing in § 12 and another
in § 10 to adduce strong textual support for that conclusion. And
Alloyd adduces none.
B
Alloyd's contrary argument rests to a significant extent on §
2(10), or, to be more precise, on one word of that section. Section
2(10) provides that "[t]he term 'prospectus' means any prospectus,
notice, circular, advertisement, letter, or
574
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). Concentrating on the word "communication," Alloyd
argues that any written communication that offers a security for
sale is a "prospectus." Inserting its definition into § 12(2),
Alloyd insists that a material misstatement in any communication
offering a security for sale gives rise to an action for
rescission, without proof of fraud by the seller or reliance by the
purchaser. In AIloyd's view, § 2(10) gives the term "prospectus" a
capacious definition that, although incompatible with § 10,
nevertheless governs in § 12.
The flaw in Alloyd's argument, echoed in the dissenting
opinions,
post, at 587 (opinion of THOMAS, J.);
post,
at 597 (opinion of GINSBURG, J.), is its reliance on one word of
the definitional section in isolation. To be sure, § 2(10) defines
a prospectus as,
inter alia, a "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). The word
"communication," however, on which Alloyd's entire argument rests,
is but one word in a list, a word Alloyd reads altogether out of
context.
The relevant phrase in the definitional part of the statute must
be read in its entirety, a reading which yields the interpretation
that the term "prospectus" refers to a document soliciting the
public to acquire securities. We find that definition controlling.
Alloyd's argument that the phrase "communication, written or by
radio or television," transforms any written communication offering
a security for sale into a prospectus cannot consist with at least
two rather sensible rules of statutory construction. First, the
Court will avoid a reading which renders some words altogether
redundant. See
United States v.
Menasche, 348 U. S. 528, 538-539
(1955). If "communication" included every written communication, it
would render "notice, circular, advertisement, [and] letter"
redundant, since each of these are forms of writ-
575
ten communication as well. Congress with ease could have drafted
§ 2(10) to read: "The term 'prospectus' means any communication,
written or by radio or television, that offers a security for sale
or confirms the sale of a security." Congress did not write the
statute that way, however, and we decline to say it included the
words "notice, circular, advertisement, [and] letter" for no
purpose.
The constructional problem is resolved by the second principle
Alloyd overlooks, which is that a word is known by the company it
keeps (the doctrine of
noscitur a sociis). This rule we rely
upon to avoid ascribing to one word a meaning so broad that it is
inconsistent with its accompanying words, thus giving "unintended
breadth to the Acts of Congress."
Jarecki v. G.
D.
Searle &
Co., 367 U. S. 303, 307
(1961). The rule guided our earlier interpretation of the word
"security" under the 1934 Act. The 1934 Act defines the term
"security" to mean,
inter alia, "any note." We concluded,
nevertheless, that in context "the phrase 'any note' should not be
interpreted to mean literally 'any note,' but must be understood
against the background of what Congress was attempting to
accomplish in enacting the Securities Acts."
Reves v.
Ernst &
Young, 494 U. S. 56, 63 (1990).
These considerations convince us that Alloyd's suggested
interpretation is not the correct one.
There is a better reading. From the terms "prospectus, notice,
circular, advertisement, [or] letter," it is apparent that the list
refers to documents of wide dissemination. In a similar manner, the
list includes communications "by radio or television," but not
face-to-face or telephonic conversations. Inclusion of the term
"communication" in that list suggests that it too refers to a
public communication.
When the 1933 Act was drawn and adopted, the term "prospectus"
was well understood to refer to a document soliciting the public to
acquire securities from the issuer. See Black's Law Dictionary 959
(2d ed. 1910) (defining "prospectus" as a "document published by a
company ... or by per-
576
sons acting as its agents or assignees, setting forth the nature
and objects of an issue of shares ... and inviting the public to
subscribe to the issue"). In this respect, the word "prospectus" is
a term of art, which accounts for congressional confidence in
employing what might otherwise be regarded as a partial circularity
in the formal, statutory definition. See 15 U. S. C. § 77b(10)
("The term 'prospectus' means any prospectus ... "). The use of the
term "prospectus" to refer to public solicitations explains as well
Congress' decision in § 12(2) to grant buyers a right to rescind
without proof of reliance. See H. R. Rep. No. 85, 73d Cong., 1st
Sess., 10 (1933) ("The statements for which [liable persons] are
responsible, although they may never actually have been seen by the
prospective purchaser, because of their wide dissemination,
determine the market price of the security ... ").
The list of terms in § 2(10) prevents a seller of stock from
avoiding liability by calling a soliciting document something other
than a prospectus, but it does not compel the conclusion that
Alloyd urges us to reach and that the dissenting opinions adopt.
Instead, the term "written communication" must be read in context
to refer to writings that, from a functional standpoint, are
similar to the terms "notice, circular, [and] advertisement." The
term includes communications held out to the public at large but
that might have been thought to be outside the other words in the
definitional section.
C
Our holding that the term "prospectus" relates to public
offerings by issuers and their controlling shareholders draws
support from our earlier decision interpreting the one provision of
the Act that extends coverage beyond the regulation of public
offerings, § 17(a) of the 1933 Act. * See
United
*Section 17(a) provides:
"It shall be unlawful for any person in the offer or sale of any
securities by the use of any means or instruments of transportation
or com-
577
States v.
Naftalin, 441 U. S. 768 (1979). In
Naftalin, though noting that "the 1933 Act was primarily
concerned with the regulation of new offerings," the Court held
that § 17(a) was "intended to cover any fraudulent scheme in an
offer or sale of securities, whether in the course of an initial
distribution or in the course of ordinary market trading." The
Court justified this holding-which it termed "a major departure
from thee] limitation [of the 1933 Act to new offerings]"-by
reference to both the statutory language and the unambiguous
legislative history.
Id., at 777-778. The same
considerations counsel in favor of our interpretation of §
12(2).
The Court noted in
Naftalin that § 17(a) contained no
language suggesting a limitation on the scope of liability under §
17(a). See
id., at 778 ("[T]he statutory language ... makes
no distinctions between the two kinds of transactions"). Most
important for present purposes, § 17(a) does not contain the word
"prospectus." In contrast, as we have noted, § 12(2) contains
language, i.
e., "by means of a prospectus or oral
communication," that limits § 12(2) to public offerings. Just as
the absence of limiting language in § 17(a) resulted in broad
coverage, the presence of limiting language in § 12(2) requires a
narrow construction.
Of equal importance, the legislative history relied upon in
Naftalin showed that Congress decided upon a deliberate
departure from the general scheme of the Act in this one instance,
and "made abundantly clear" its intent that § 17(a) have broad
coverage. See
ibid. (quoting legislative history
munication in interstate commerce or by the use of the mails,
directly or indirectly-
"(1) to employ any device, scheme, or artifice to defraud,
or
"(2) to obtain money or property by means of any untrue
statement of a material fact or any omission to state a material
fact necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading,
or
"(3) to engage in any transaction, practice, or course of
business which operates or would operate as a fraud or deceit upon
the purchaser." 15 U. S. C. § 77q(a).
578
stating that" 'fraud or deception in the sale of securities may
be prosecuted regardless of whether ... or not it is of the class
of securities exempted under sections 11 or 12,'" S. Rep. No. 47,
73d Cong., 1st Sess., 4 (1933)). No comparable legislative history
even hints that § 12(2) was intended to be a freestanding provision
effecting expansion of the coverage of the entire statute. The
intent of Congress and the design of the statute require that §
12(2) liability be limited to public offerings.
D
It is understandable that Congress would provide buyers with a
right to rescind, without proof of fraud or reliance, as to
misstatements contained in a document prepared with care, following
well-established procedures relating to investigations with due
diligence and in the context of a public offering by an issuer or
its controlling shareholders. It is not plausible to infer that
Congress created this extensive liability for every casual
communication between buyer and seller in the secondary market. It
is often difficult, if not altogether impractical, for those
engaged in casual communications not to omit some fact that would,
if included, qualify the accuracy of a statement. Under Alloyd's
view any casual communication between buyer and seller in the
aftermarket could give rise to an action for rescission, with no
evidence of fraud on the part of the seller or reliance on the part
of the buyer. In many instances buyers in practical effect would
have an option to rescind, impairing the stability of past
transactions where neither fraud nor detrimental reliance on
misstatements or omissions occurred. We find no basis for
interpreting the statute to reach so far.
III
The Securities and Exchange Commission (SEC), as
amicus,
and JUSTICE GINSBURG in dissent, rely on what they
579
call the legislative background of the Act to support Alloyd's
construction. With a few minor exceptions, however, their reliance
is upon statements by commentators and judges written after the Act
was passed, not while it was under consideration. See Brief for SEC
as
Amicus Curiae 19-23; post, at 599-601 (GINSBURG, J.,
dissenting). Material not available to the lawmakers is not
considered, in the normal course, to be legislative history.
After-the-fact statements by proponents of a broad interpretation
are not a reliable indicator of what Congress intended when it
passed the law, assuming extratextual sources are to any extent
reliable for this purpose.
The SEC does quote one contemporaneous memorandum prepared by
Dean Landis. See Brief for SEC as
Amicus Curiae 13-14
(citing James M. Landis, Reply to Investment Bankers Association
Objections of May 5, 1933, p. 5). The statement is quite consistent
with our construction. Landis observed that, in contrast to the
liabilities imposed by the Act" 'that flow from the fact of
non-registration or registration,'" dealings may violate § 12(2)
"'even though they are not related to the
fact of
registration.'" See Brief for SEC as
Amicus Curiae 13
(emphasis added). This, of course, is true. The liability imposed
by § 12(2) has nothing to do with the
fact of registration,
that is, with the failure to file a registration statement that
complies with §§ 7 and 11 of the Act. Instead, the liability
imposed by § 12(2) turns on misstatements contained in the
prospectus. And, one might point out, securities exempted by § 3 of
the Act do not require registration, although they are covered by §
12. Landis' observation has nothing to do with the question
presented here: whether a prospectus is a document soliciting the
public to purchase securities from the issuer.
The SEC also relies on a number of writings, the most prominent
a release by the Federal Trade Commission, stating that § 12(2)
applied to securities outstanding on the effective date of the 1933
Act. See
id., at 19-20. Again, this
580
is an issue not in dispute. Although the Act as passed exempted
securities from registration if sold by the issuer within 60 days
of the passage of the Act, see 1933 Securities Act, § 3(a)(1), the
limitation did not apply to § 12(2). See 15 U. S. C. §
77l.
Instead, actions brought under § 12(2) are subject to the
limitation of actions provision in § 13. See 15 U. S. C. § 77m (one
year from the date of discovery). A buyer who discovered a material
omission in a prospectus after the passage of the Act could sue for
rescission under § 12(2) even though the prospectus had been issued
before enactment of the statute. This tells us nothing one way or
the other, however, about whether the term "prospectus" is limited
to a document soliciting the public to purchase securities from the
issuer.
In large measure the writings on which both the SEC and JUSTICE
GINSBURG rely address a question on which there is no disagreement,
that is, "to what securities does § 12(2) apply?" We agree with the
SEC that § 12(2) applies to every class of security (except one
issued or backed by a governmental entity), whether exempted from
registration or not, and whether outstanding at the time of the
passage of the Act or not. The question before us is the coverage
of § 12(2), and the writings offered by the SEC are of little value
on this point.
If legislative history is to be considered, it is preferable to
consult the documents prepared by Congress when deliberating. The
legislative history of the Act concerning the precise question
presented supports our interpretation with much clarity and force.
Congress contemplated that § 12(2) would apply only to public
offerings by an issuer (or a controlling shareholder). The House
Report stated: "The bill affects only new offerings of securities
.... It does not affect the ordinary redistribution of securities
unless such redistribution takes on the characteristics of a new
offering." H. R. Rep. No. 85, 73d Cong., 1st Sess., 5 (1933). The
observation extended to § 12(2) as well. Part II, § 6 of the
581
House Report is entitled "Civil Liabilities." See
id., at
9. It begins: "Sections 11 and 12 create and define the
civilliabilities imposed by the act .... Fundamentally, these
sections entitle the buyer of securities sold upon a registration
statement ... to sue for recovery of his purchase price."
Ibid. It will be recalled that as to private transactions,
such as the Alloyd purchase, there will never have been a
registration statement. If § 12(2) liability were imposed here, it
would cover transactions not within the contemplated reach of the
statute.
Even more important is the Report's discussion, and
justification, of the liabilities arising from omissions and
misstatements in "the prospectus":
"The Committee emphasizes that these liabilities attach only
when there has been an untrue statement of material fact or an
omission to state a material fact in the registration statement or
the prospectus-the basic information by which the public is
solicited. All who sell securities with such a flaw, who cannot
prove that they did not know-or who in the exercise of due care
could not have known-of such misstatement or omission, are liable
under sections 11 and 12. For those whose moral responsibility to
the public is particularly heavy, there is a correspondingly
heavier legal liability-the persons signing the registration
statement, the underwriters, the directors of the issuer, the
accountants, engineers, appraisers, and other professionals
preparing and giving authority to the prospectus-all these are
liable to the buyer ... if they cannot prove [the use of due care].
This throws upon originators of securities a duty of competence as
well as innocence .... " Ibid.
The House Report thus states with clarity and with specific
reference to § 12 that § 12 liability is imposed only as to a
document soliciting the public.
582
In light of the care that Congress took to justify the
imposition of liability without proof of either fraud or reliance
on "those whose moral responsibility to the public is particularly
heavy"-the "originators of securities"-we cannot conclude that
Congress would have extended that liability to every private or
secondary sale without a whisper of explanation. The conspicuous
absence in the legislative history is not the absence of an
explicit statement that § 12(2) applied only to public offerings,
see
post, at 600 (GINSBURG, J., dissenting), but the lack of
any explicit reference to the creation of liability for private
transactions.
JUSTICE GINSBURG argues that the omission from the 1933 Act of
the phrase "offering to the public" that appeared in the definition
of "prospectus" in the British Companies Act of 1929 suggests that
the drafters of the American bill intended to expand its coverage.
See
post, at 599-600 (dissenting opinion). We consider it
more likely that the omission reflected instead the judgment that
the words "offering to the public" were redundant in light of the
understood meaning of "prospectus." Far from suggesting an intent
to depart in a dramatic way from the balance struck in the British
Companies Act, the legislative history suggests an intent to
maintain it. In the context of justifying the "civilliabilities"
provisions that hold "all those responsible for statements upon the
face of which the public is solicited ... to standards like those
imposed by law upon a fiduciary," the House Report stated: "The
demands of this bill call for the assumption of no impossible
burden, nor do they involve any leap into the dark. Similar
requirements have for years attended the business of issuing
securities in other industrialized nations." H. R. Rep. No. 85, at
5. So, too, the Report provided: "The committee is fortified in
these sections [that is, §§ 11 and 12] by similar safeguards in the
English Companies Act of 1929. What is deemed necessary for sound
financing in conservative England ought not be unnecessary
583
for the more feverish pace which American finance has
developed."
Id., at 9. These passages confirm that the
civilliability provisions of the 1933 Act, §§ 11 and 12, impose
obligations on those engaged in "the business of issuing
securities," in conformance, not in contradiction to, the British
example.
Nothing in the legislative history, moreover, suggests Congress
intended to create two types of prospectuses, a formal prospectus
required to comply with both §§ 10 and 12, and a second, less
formal prospectus, to which only § 12 would be applicable. The Act
proceeds by definitions more stable and precise. The legislative
history confirms what the text of the Act dictates: § 10's
requirements govern all prospectuses defined by § 2(10) (although,
as we pointed out earlier, certain classes of securities are
exempted from § 10 by operation of § 3). In discussing § 10, the
House Report stated:
"Section 10 of the bill requires that any 'prospectus' used in
connection with the sale of any securities, if it is more than a
mere announcement of the name and price of the issue offered and an
offer of full details upon request [the exception codified at §
2(10)(b)], must include a substantial portion of the information
required in the 'registration statement.' ...
"'Prospectus' is defined in section 2(1) [now § 2(10)] to
include 'any prospectus, notice, circular, advertisement, letter,
or other communication offering any security for sale.'
"The purpose of these sections is to secure for potential buyers
the means of understanding the intricacies of the transaction into
which they are invited." Id., at 8.
Nothing in the Report suggests that Congress thought that § 10
would apply only to formal prospectuses required to be produced by
§ 5. See 15 U. S. C. § 77e. Cf.
post, at 589 (THOMAS, J.,
dissenting). The Report undermines the dis-
584
sents' self-contradicting conclusion that the contract here is a
prospectus under § 2(10) even though not subject to the
requirements of § 10.
***
In sum, the word "prospectus" is a term of art referring to a
document that describes a public offering of securities by an
issuer or controlling shareholder. The contract of sale, and its
recitations, were not held out to the public and were not a
prospectus as the term is used in the 1933 Act.
The judgment of the Court of Appeals is reversed, and the case
is remanded for further proceedings consistent with this
opinion.
It is so ordered.
JUSTICE THOMAS, with whom JUSTICE SCALIA, JUSTICE GINSBURG, and
JUSTICE BREYER join, dissenting.
From the majority's opinion, one would not realize that § 12(2)
of the Securities Act of 1933 (1933 Act or Act) was involved in
this case until one had read more than halfway through. In contrast
to the majority's approach of interpreting the statute, I believe
the proper method is to begin with the provision actually involved
in this case, § 12(2), and then turn to the 1933 Act's definitional
section, § 2(10), before consulting the structure of the Act as a
whole. Because the result of this textual analysis shows that §
12(2) applies to secondary or private sales of a security as well
as to initial public offerings, I dissent.
I A
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.,
585
concurring)). See also
Central Bank of Denver, N.
A. v.
First Interstate Bank of Denver, N.
A.,
511 U. S. 164,
173175 (1994). 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. 471, 476 (1994).
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 ini-
586
tial 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 "prospectuslike" 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
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,
587
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
574-575. But the majority fails to see that "communication, written
or by radio or television," is a catchall. 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 Act and the Securities
Exchange Act of 1934 (1934 Act). See,
e. g., 15 U. S.
C. § 77b(l) ("term 'security' means any note, stock, treasury
stock, bond, debenture ... or, in general, any interest or
instrument commonly known as a 'security' "); § 77b(9) ("term
'write' or 'written' shall include printed, lithographed, or any
means of graphic communication"); § 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 576, a reading
that deprives the word of its meaning.
B
The majority correctly argues that other sections of the 1933
Act employ a narrower understanding of "prospectus"
588
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 569.
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, ante, at 118. 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 Act uses "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 re-
589
quires," 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 that 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.
C
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
590
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." 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: "If ... 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 177. 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.
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).
591
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 573. 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 571. 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 enti-
592
ties. Or Congress could have chosen not to burden government
securities with the costs that might accrue from
additionalliabilities on initial or secondary sales.
II
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 1934 Act limited to
secondary transactions. Thus, § 10(b) of the 1934 Act and
Securities and Exchange Commission (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
SEe
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
593
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 &
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. H 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.2
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 conc1u-
594
III
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 quite independent of
the new substantive obligations that the Act imposes."
Ante,
at 572. 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: "It 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 578. 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 Con-
sion 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 577-578,
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.
595
gress could not have intended it.'" 511 U. S., at 188 (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 commonsense 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 "pro spec-
596
tus," 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.
JUSTICE GINSBURG, with whom JUSTICE BREYER joins,
dissenting.
A seller's misrepresentation made "by means of a prospectus or
oral communication" is actionable under § 12(2) of the Securities
Act of 1933, 15 U. S. C. § 77l(2). To limit the scope of this civil
liability provision, the Court maintains that a communication
qualifies as a prospectus only if made during a public offering. 1
Communications during either secondary trading or a private
placement are not "prospectuses," the Court declares, and thus are
not covered by § 12(2).
As JUSTICE THOMAS persuasively demonstrates, the statute's
language does not support the Court's reading. Section 12(2)
contains no terms expressly confining the provision to public
offerings, and the statutory definition of "pro spectus"-"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," § 2(10),
15 U. S. C. § 77b(10)-is capacious.
The Court presents impressive policy reasons for its
construction, but drafting history and the longstanding scholarly
and judicial understanding of § 12(2) caution against judicial
resistance to the statute's defining text. I would leave any
alteration to Congress.
1 I understand the Court's definition of a public offering to
encompass both transactions that must be registered under § 5, 15
U. S. C. § 77e, and transactions that would have been registered
had the securities involved not qualified for exemption under § 3,
15 U. S. C. § 77 c.
597
I
To construe a legislatively defined term, courts usually start
with the defining section. Section 2(10) defines prospectus
capaciously as "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). The items listed in the defining provision,
notably "letters" and "communications," are common in private and
secondary sales, as well as in public offerings. The § 2(10)
definition thus does not confine the § 12(2) term "prospectus" to
public offerings.
The Court bypasses § 2(10), and the solid support it gives the
Court of Appeals' disposition. Instead of beginning at the
beginning, by first attending to the definition section, the Court
starts with § 10, 15 U. S. C. § 77j, a substantive provision. See
ante, at 568-569. The Court correctly observes that the term
"prospectus" has a circumscribed meaning in that context. A
prospectus within the contemplation of § 10 is a formal document,
typically a document composing part of a registration statement; a
§ 10 prospectus, all agree, appears only in public offerings. The
Court then proceeds backward; it reads into the literally and
logically prior definition section, § 2(10), the meaning
"prospectus" has in § 10.
To justify its backward reading-proceeding from § 10 to § 2(10)
and not the other way round-the Court states that it "cannot accept
the conclusion that [the operative word 'prospectus'] means one
thing in one section of the Act and something quite different in
another." See
ante, at 573. Our decisions, however,
constantly recognize that "a characterization fitting in certain
contexts may be unsuitable in others."
NationsBank of N. c.,
N.
A. v.
Variable Annuity Life Ins. Co., ante, at
262. In
Atlantic Cleaners & Dyers, Inc. v.
United States, 286 U. S. 427 (1932), we
held that the word "trade" has a more encompassing meaning in
598
§ 3 than in § 1 of the Sherman Act, see
id., at 433-435,
and explained:
"Undoubtedly, there is a natural presumption that identical
words used in different parts of the same act are intended to have
the same meaning .... But the presumption is not rigid and readily
yields whenever there is such variation in the connection in which
the words are used as reasonably to warrant the conclusion that
they were employed in different parts of the act with different
intent ....
"It is not unusual for the same word to be used with different
meanings in the same act, and there is no rule of statutory
construction which precludes the courts from giving to the word the
meaning which the legislature intended it should have in each
instance." Id., at 433.
See also Cook, "Substance" and "Procedure" in the Conflict of
Laws, 42 Yale L. J. 333, 337 (1933) ("The tendency to assume that a
word which appears in two or more legal rules, and so in connection
with more than one purpose, has and should have precisely the same
scope in all of them, runs all through legal discussions. It has
all the tenacity of original sin and must constantly be guarded
against.").
According "prospectus" discrete meanings in § 10 and § 12(2) is
consistent with Congress' specific instruction in § 2 that
definitions apply "unless the context otherwise requires," 15 U. S.
C. § 77b. As the Court of Appeals construed the Act, § 2(10)'s
definition of "prospectus" governs § 12(2), which accommodates
without strain the definition's broad reach; by contrast, the
specific context of § 10 requires a correspondingly specific
reading of "prospectus."
Indeed, in the Investment Company Act of 1940, Congress
explicitly recognized that the Securities Act uses "prospectus" in
two different senses-one in § 10, and another in the rest of the
Act:
599
" 'Prospectus,' as used in [§ 22 of the Investment Company Act],
means a written prospectus intended to meet the requirements of
section 10(a) of the Securities Act of 1933 ... and currently in
use. As used elsewhere, 'prospectus' means a prospectus as defined
in the Securities Act of 1933." § 2(31), 54 Stat. 794, as amended,
15 U. S. C. § 80a-2(31).2
II
Most provisions of the Securities Act govern only public
offerings, and the legislative history pertaining to the Act as a
whole shares this orientation. See
ante, at 580 (citing H.
R. Rep. No. 85, 73d Cong., 1st Sess., 5 (1933)). Section 17(a) of
the Act, 15 U. S. C. § 77q(a), however, is not limited to public
offerings; that enforcement provision, this Court has recognized,
also covers secondary trading. See
United States v.
Naftalin, 441
U. S. 768 (1979). The drafting history is at least consistent
with the conclusion that § 12(2), like § 17(a), is not limited to
public offerings.
The drafters of the Securities Act modeled this federal
legislation on the British Companies Act, 19 & 20 Geo. 5, ch.
23 (1929). See Landis, The Legislative History of the Securities
Act of 1933, 28 Geo. Wash. L. Rev. 29, 34 (1959) (Landis and the
other drafters "determined to take as the base of [their] work the
English Companies Act"); see also
SEC v.
Ralston Purina
Co., 346 U. S.
119, 123 (1953) (characterizing the Companies Act as a
"statutory anteceden[t]" of federal securities laws). The Companies
Act defined "prospectus" as "any prospectus, notice, circular,
advertisement, or other invitation,
offering to the public
for subscription or purchase any shares or debentures of a
company," 19 & 20 Geo. 5, ch. 23, § 380(1) (1929) (emphasis
added). Though the drafters of the Securities Act borrowed the
first four
2 Although the Court finds our reading of § 2(10) redundant, see
ante, at 574-575, the Court recognizes that Congress built
redundancy into the definition by defining a "prospectus" as a
"prospectus." See
ante, at 575-576.
600
terms of this definition, they did not import from the British
legislation the language limiting prospectuses to communications
"offering [securities] to the public." This conspicuous omission
suggests that the drafters intended the defined term "prospectus"
to reach beyond communications used in public offerings.3
The House Conference Report, which explains the Act in its final
form, describes § 12(2) in broad terms, and nowhere suggests that
the provision is limited to public offerings:
"The House bill (sec. 12) imposes civil liability for using the
mails or the facilities of interstate commerce to sell securities
(including securities exempt, under section 3, from other
provisions of the bill) by means of representations which
are untrue or are misleading by reason of omissions of material
facts." H. R. Conf. Rep. No. 152, 73d Cong., 1st Sess., 26-27
(1933) (emphasis added).
Nor does the Report mention the word "prospectus," even though
one would expect that word to figure prominently if it were the
significant limitation the Court describes. See also Rapp, The
Proper Role of Securities Act Section 12(2) as an Aftermarket
Remedy for Disclosure Violations, 47 Bus. Law. 711, 719-724 (1992)
(offering detailed analysis oflegislative history).4
3 Though the Court cites legislative history to show Congress'
intent to follow, rather than depart from, the British statute,
these sources suggest an intention to afford
at least as
much protection from fraud as the British statute provides. See
ante, at 582-583 (quoting H. R. Rep. No. 85, 73d Cong., 1st
Sess., 9 (1933)) ("What is deemed necessary for sound financing in
conservative England ought not be unnecessary for the more feverish
pace which American finance has developed."). Congress' provision
for liability beyond "offering[s] to the public," however, suggests
a legislative conclusion that the "feverish pace" of American
finance called for greater protection from fraud than the British
Act supplied.
4 Though House Report No. 85 affords support for the reading
advanced by the Court, it predates the Conference Report. Moreover,
I do not share the Court's view that Report No. 85 speaks with
clarity and specific-
601
Commentators writing shortly after passage of the Act understood
§ 12(2) to cover resales and private sales, as well as public
offerings. Felix Frankfurter, organizer of the team that drafted
the statute, firmly stated this view. See Frankfurter, The Federal
Securities Act: II, 8 Fortune 53, 108 (1933) (Act "seeks to
terminate the facilities of the mails and of interstate commerce
for dishonest or unfair dealings in the sale of
all private
or foreign government securities,
new or old") (emphasis
added). William O. Douglas expressed the same understanding. See
Douglas & Bates, The Federal Securities Act of 1933, 43 Yale L.
J. 171, 183 (1933) (noting that, except for transactions involving
securities exempt under § 3(a)(2), 15 U. S. C. § 77c(a)(2), no
securities or transactions are exempt from § 12(2)).
Most subsequent commentators have agreed that § 12(2), like §
17(a), is not confined to public offerings. See,
e.
g., H. Bloomenthal, Securities Law Handbook § 14.05, pp.
14-13, 14-38 (1991); 2 A. Bromberg & L. Lowenfels, Securities
Fraud and Commodities Fraud § 5.2(600) (1993); 1 T. Hazen, Law of
Securities Regulation § 7.5, p. 318 (2d ed. 1990); 17A J. Hicks,
Civil Liabilities: Enforcement and Litigation under the 1933 Act
§6.01[3], pp. 6-12 to 6-39 (1994); 9 L. Loss & J. Seligman,
Securities Regulation 4217-4222 (3d ed. 1992); Maynard, Section
12(2) of the Securities Act of 1933: A
ity to the question at hand-§ 12(2)'s scope. See
ante, at
581. In suggesting that registration statements and prospectuses
are "the basic information by which the public is solicited," and
that the Act's liability provisions penalize the "originators of
securities," see H. R. Rep. No. 85, 73d Cong., 1st Sess., 1, 9
(1933), the Report does not focus on § 12(2), but on "[sJections 11
and 12" in general.
Ibid. The Report's broad address thus
takes in § 11, 15 U. S. C. § 77k, which is directed at
misstatements in registration statements, and § 12(1), 15 U. S. C.
§ 77l(1), which targets sales and offers to sell securities in
violation of the Act's registration provisions. There is no dispute
that the latter two provisions apply only to public offeringsor, to
be precise, to transactions subject to registration. The dominant
point made by the Report, moreover, is that the civil liability
sections are exacting.
602
Remedy for Fraudulent Postdistribution Trading?, 20 Sec. Reg. L.
J. 152 (1992); Rapp,
supra, at 711; Comment, Applying
Section 12(2) of the 1933 Securities Act to the Aftermarket, 57 U.
Chi. L. Rev. 955 (1990). But see Weiss, The Courts Have It Right:
Securities Act Section 12(2) Applies Only to Public Offerings, 48
Bus. Law. 1 (1992).
While Courts of Appeals have divided on § 12(2)'s application to
secondary transactions,5 every Court of Appeals to consider the
issue has ruled that private placements are subject to § 12(2). See
Metromedia Co. v.
Fugazy, 983 F.2d
350, 360-361 (CA2 1992), cert. denied, 508 U. S. 952 (1993);
Haralson v.
E. F. Hutton Group, Inc., 919 F.2d
1014, 1032 (CA5 1990);
Nor-Tex Agencies, Inc. v.
Jones, 482 F.2d
1093, 1099 (CA5 1973);
Pacific Dunlop Holdings Inc. v.
Allen & Co. Inc., 993
F.2d 578, 587 (CA7 1993) (exemptions in §4, 15 U. S. C. § 77d,
do not limit § 12(2)'s reach); see also
Adalman v.
Baker,
Watts &
Co., 807 F.2d
359 (CA4 1986) (applying § 12(2) to private sale).
"[L]ongstanding acceptance by the courts [of a judicial
interpretation], coupled with Congress' failure to reject" that
interpretation, "argues significantly in favor of accept[ing]" it.
Blue Chip Stamps v.
Manor Drug Stores, 421 U. S. 723, 733
(1975).
The drafters of the Uniform Securities Act, in 1956, modeled §
410(a)(2) of that Act 6 on § 12(2) of the federal Securi-
5 Compare
Pacific Dunlop Holdings Inc. v.
Allen
&
Co. Inc., 993 F. 2d
578 (CA7 1993) (applying §
12(2) to secondary transactions), cert. granted, 510 U. S. 1083,
cert. dism'd, 510 U. S. 1160 (1994), with
First Union Discount
Brokerage Services, Inc. v.
Milos, 997
F.2d 835, 842-844 (CAll 1993) (holding § 12(2) inapplicable to
secondary transactions);
Ballay v.
Legg Mason Wood
Walker, Inc., 925 F.2d
682 (CA3) (same), cert. denied, 502 U. S. 820
(1991).
6 Section 410(a)(2) imposes liability on "[a]ny person who"
"(2) offers or sells a security by means of any untrue statement
of a material fact or any omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading (the buyer
not knowing of the untruth or omission), and who does not sustain
the burden of proof that he
603
ties Act. Notably, the Uniform Act drafters did not read § 12(2)
as limited to public offerings. Accordingly, they did not so limit
§410(a)(2). Bloomenthal,
supra, § 14.05, at 1438 to 14-39;
see also § 410(a)(2) comment, 7B U. L. A. 644 (1985) (describing as
comparable scope of § 410(a)(2) and scope of Uniform Securities Act
§ 101, the Uniform Act's analog to Securities Act § 17(a)).7
Section 410, it is true, does not contain the "prospectus or oral
communication" language, perhaps because "prospectus" is not a
defined term in the Uniform Securities Act. See §401, 7B U. L. A.
578-581 (1985) (listing definitions). There is scant doubt,
however, that the drafters of Uniform Act § 410(a)(2) intended the
provision to have the same meaning as Securities Act § 12(2). See §
410(a)(2) comment, 7B U. L. A. 644 ("This clause is almost
identical with § 12(2) of the Securities Act of 1933 .... "); L.
Loss, Commentary on the Uniform Securities Act 147 (1976) ("The
resemblance [of § 410(a)(2) of the Uniform Act] to § 12(2) of the
Securities Act of 1933, 15 U. S. C. §
77l(2), will once more
make for an interchangeability of federal and state judicial
preceden[ts] in this very important area.").
***
In light of the text, drafting history, and longstanding
scholarly and judicial understanding of § 12(2), I conclude that §
12(2) applies to a private resale of securities. If adjustment is
in order, as the Court's opinion powerfully
did not know, and in the exercise of reasonable care could not
have known, of the untruth or omission .... " 7B U. L. A. 643
(1985).
7 State adaptations of § 410(a)(2) have been applied
consistently beyond public offerings; they have been read to cover
secondary transactions, see,
e. g., Banton v.
Hackney, 557 So. 2d 807 (Ala. 1989);
Bradley v.
Hullander, 272 S. C. 6, 249 S. E. 2d 486 (1978); S &
F Supply Co. v.
Hunter, 527 P. 2d 217 (Utah 1974), as
well as private transactions, see,
e. g., Towery v.
Lucas, 128 Ore. App. 555, 876 P. 2d 814 (1994);
Jenkins v.
Jacobs, 748 P. 2d 1318 (Colo. App. 1987);
Gaudina v.
Haberman, 644 P. 2d 159 (Wyo. 1982);
Foelker v.
Kwake, 279 Ore. 379, 568 P. 2d 1369
(1977).
604
suggests it is,s Congress is equipped to undertake the
alteration. Accordingly, I dissent from the Court's opinion and
judgment.
8 Section 12(2) did not become prominent in Securities Act
litigation until this Court held in
Ernst &
Ernst
v.
Hochfelder, 425 U. S. 185 (1976),
that an action for civil damages under § lO(b) of the Securities
Exchange Act of 1934, 48 Stat. 891, 15 U. S. C. § 78j(b), and
Securities and Exchange Commission Rule lOb-5, 17 CFR § 240.10b-5
(1975), requires proof of scienter. See Loss, The Assault on
Securities Act Section 12(2), 105 Harv.
Though the Court of Appeals' reading of § 12(2) shows fidelity
to the statute Congress passed, this Court's opinion makes
noteworthy practical and policy points. As the Court observes,
ante, at 578, under the Court of Appeals' reading, § 12(2)
would equip buyers with a rescission remedy for a negligent
misstatement or omission even if the slip did not cause the buyer's
disenchantment with the investment. And, in light of the "free
writing" provision of § 2(10)(a), 15 U. S. C. § 77b(10)(a) (a
communication will not be deemed a "prospectus" if its recipient
was previously sent a prospectus meeting the requirements of § 10),
the Court of Appeals' reading, ironically, would leave a seller
more vulnerable in private transactions than in public ones.
605
The next page is purposely numbered 801. The numbers between 604
and 801 were intentionally omitted, in order to make it possible to
publish the orders with
permanent page numbers, thus making
the official citations available upon publication of the
preliminary prints of the United States Reports.
606
OCTOBER 3, 1994 Certiorari Granted-Vacated and Remanded
No. 93-1510. ALABAMA
V. BROWN. Ct. Crim. App. Ala.
Certiorari granted, judgment vacated, and case remanded for further
consideration in light of
Davis v.
United States,
512 U. S. 452
(1994). Reported below: 630 So. 2d 481.
No. 93-1707. SCHMIDT ET AL.
V. Espy, SECRETARY OF
AGRICULTURE. C. A. 8th Cir. Certiorari granted, judgment vacated,
and case remanded for further consideration in light of the
position presently asserted by the Solicitor General in his brief
for the United States filed August 1, 1994. Reported below:
9 F.3d
1352.
No. 93-1748. SOLOMON ET AL.
V. RESOLUTION TRUST
CORPORATION, AS RECEIVER FOR NASSAU SAVINGS & LOAN ASSN.,
No. 93-1757. PATTULLO ET AL.
V. RESOLUTION TRUST
CORPORATION, AS RECEIVER FOR NASSAU SAVINGS & LOAN ASSN., F. A.
C. A. 2d Cir. Certiorari granted, judgment vacated, and cases
remanded for further consideration in light of
O'Melveny
& Myers v.
FDIC, 512 U. S. 79 (1994).
Reported below:
18 F.3d
111.
No. 93-1896. WOODS
V. CANDELA. C. A. 2d Cir. Certiorari
granted, judgment vacated, and case remanded for further
consideration in light of
Heck v.
Humphrey, 512 U. S. 477 (1994).
Reported below:
13 F.3d
574.
No. 93-1915. ALTIMUS ET AL.
V. OREGON. Ct. App. Ore.
Certiorari granted, judgment vacated, and case remanded for
further consideration in light of
Dolan v.
City of
Tigard, 512 U. S.
374 (1994). Reported below: 124 Ore. App. 61, 862 P. 2d
109.
No. 93-1985. ARIZONA
V. COOK. Ct. App. Ariz. Certiorari
granted, judgment vacated, and case remanded for further
consideration in light of
United States v.
Dixon,
509 U. S. 688
(1993). Reported below: 177 Ariz. 595, 870 P. 2d 413.
Comments
Be the first to comment
Leave a Comment