Law School Case Brief
Blue Chip Stamps v. Manor Drug Stores - 421 U.S. 723, 95 S. Ct. 1917 (1975)
The principal express nonderivative private civil remedies, created by Congress contemporaneously with the passage of § 10(b) of the Securities Exchange Act of 1934 (1934 Act), for violations of various provisions of the Securities Act of 1933 and the 1934 Act are by their terms expressly limited to purchasers or sellers of securities. Thus § 11 (a) of the 1933 Act confines the cause of action it grants to "any person acquiring such security" while the remedy granted by § 12 of that Act is limited to the "person purchasing such security." Section 9 of the 1934 Act, prohibiting a variety of fraudulent and manipulative devices, limits the express civil remedy provided for its violation to "any person who shall purchase or sell any security" in a transaction affected by a violation of the provision. Section 18 of the 1934 Act, prohibiting false or misleading statements in reports or other documents required to be filed by the 1934 Act, limits the express remedy provided for its violation to "any person who shall have purchased or sold a security at a price which was affected by such statement." It would indeed be anomalous to impute to Congress an intention to expand the plaintiff class for a judicially implied cause of action beyond the bounds it delineated for comparable express causes of action.
As part of an antitrust consent decree, petitioner corporation was required to offer shares of common stock to a group of retailers, which included respondent drug store. The drug store did not purchase any stock, but later sued the corporation and its shareholders under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, 17 C.F.R. § 240.10b-5, alleging it had not purchased stock due to a prospectus that was misleading as it was overly pessimistic regarding the corporation's status. The district court dismissed respondent's complaint. But on appeal, the court of appeals reversed holding that respondent drug store could maintain an action.
Could respondent drug store maintain an action?
The United States Supreme Court reversed and concluded respondent was not entitled to sue for a violation of Rule 10b-5, and held that a plaintiff class, for purposes of a private action under § 10(b) and Rule 10b-5, was limited to actual purchasers and sellers of securities. Moreover, the Court declined to create an exception to that rule, as the court of appeals had, that would permit an offeree of securities pursuant to a consent decree, such as respondent, to sue under Rule 10b-5 regardless of whether it had purchased securities, at least in the absence of a contractual right or duty to purchase.
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