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"The question of waiver or consent under
the Eleventh Amendment was found in those
cases (Parden and Employees) to turn on
whether Congress had intended to abrogate
the immunity in question, and whether the
State by its participation in the program
authorized by Congress had in effect con-

sented to the abrogation of that immunity." Edelman, however, did not even involve "the threshold fact of

congressional authorization to sue a class of defendants which

literally incudes States," id., since the AABB statute did not

contain any civil remedy provision. Accordingly, the suit for

damages was barred.

The lower federal courts have reached differing answers

to the question whether private rights of action against state

agencies may be maintained under the present Section 10b of the

Securities Exchange Act of 1934, and Rule 10b-5 thereunder.

Compare Forman v. Community Services, Inc., 500 F.2d 1246, 1256

(2d Cir. 1974), rev'd on other grounds sub nom. United Housing

Foundation v. Forman, 421 U.S.

837 (1975) with Yeomans v. Kentucky,

514 F.2d 993 (6th Cir.), cert. denied, 96 s. Ct. 404 (1975): These cases turned on the question whether Congress expressed with sufficient clarity an intention to require a state to waive its sovereign immunity as a condition of offering or selling its

securities in interstate commerce.

None of these cases, nor

others in different contexts,

raises any doubt, however,

* Compare Intracoastal Transportation, Inc. v. Decatur County, 482 F.2d 361 (5th Cir. 1973) with Chesapeake Bay Bridge & Tunnel Dist. v. Lauritzen, 404 F.2d 1001 (4th Cir. 1968); see Daye v. Pennsylvania, 483 F.2d 294 (3d Cir. 1973), cert. denied sub nom. Meyers v. Pennsylvania, 416 U.S. 946 (1974); Dawkins v. Craig, 483 F.2d 1191 (4th Cir. 1973), cert. denied, 415 U.S. 938 (1974). In Fitzpatrick v. Bitzer, 519 F.2d 559 (2d Cir. 1975), the court found

(footnote continued)

that under Parden Congress may, by expressing its intention with sufficient clarity, provide that any state that thereafter offers or sells municipal securities in interstate commerce shall be deemed to have consented to suits in federal courts by investors

damaged by the state's incomplete or inaccurate disclosure.

Issuers of Municipal Securities Other Than States

It is even clearer that Congress can provide for civil

damage actions against issuers of municipal securities other than


Units of local governments, such as cities and counties,

are not protected by the Eleventh Amendment, e.g., Lincoln County

v. Luning, 133 U.S. 529 (1980); Hopkins v. Clemson Agricultural

College, 221 U.S. 636, 645 (1911); Hander v. San Jacinto Jr. College, 519 F.2d 273, supplemented, 522 F.2d 203 (5th Cir. 1975). Thus there is no legal prohibition that might preclude Congress from permitting investors to sue subsidiary units of government in the federal courts in a cause of action similar to that created for

private investors against corporate issuers in Section 11 of the

1933 Act.

Tfootnote continued from previous page) that Congress had intended, in legislation passed after the lawsuit began, to authorize private suits for back pay by state employees under Title VII of the Civil Rights Act of 1964, but that no such suit could be maintained in federal court, 519 F.2d at 568. The case involved an attack on a state retirement plan established before the amendments to Title VII, 519 F.2d at 561, and the court declined to find a waiver because the state had no choice but to hire employees, 510 F.2d at 568. The Supreme Court has granted certiorari, 96 s. Ct. 561 (1975). The statute at issue in Fitzpatrick is, in any event, far different from the statute described in this memorandum, for presumably any liability provisions included in s. 2969 would apply only with respect to municipal securities issued after its effective date, and issuers of municipal securities have numerous alternative sources of funds if they refuse to consent to be sued in federal court for damages caused by omissions or misstatements in their disclosure documents. Indeed, though the Fitzpatrick court did not cite it, Forman, which is also a Second Circuit case, holds that under Parden a state does consent to suit by engaging in regulated securities transactions.

Nor, for reasons described above, would there be any other defense arising out of its governmental status that a unit of local government could interpose in the face of an

explicit federal statute to the contrary.

But even if there

were, it would be of no avail.

For if, as demonstrated above,

Congress can require as a condition of offering or selling

securities in interstate commerce that a state agree to be sued

in the federal courts, a fortiorari Congress may do so with respect to a local government unit subordinate to the state


Issuer Officials

Officials of state and local governments do not have, in their individual capacities, any protection under the Eleventh Amendment and may be sued in their individual capacities for actions taken within the sphere of their official responsibilities which violate the constitution or federal laws. E.9., Ex parte Young, 209 U.S. 123 (1908); Scheuer v. Rhodes, 416 U.S. 232 (1974). Thus, Congress could constitutionally provide that an issuer official can be sued personally by an investor to recover damages

suffered on account of a material misstatement or omission in dis

*/ closure documents for which the issuer official was responsible.

*/ A suit is against an issuer official in his individual capa-city when it seeks money damages from him. When money damages are sought from the state, even though the suit is in form against a state official, the Eleventh Amendment is applicable and the question or waiver must be determined in accordance with the principles stated above. See Edelman v. Jordan, supra, 415 U.S. at 663; Ford Motor Co. v. Department of Treasury, supra, 323 0.s. at 464.

There is, of course, a common law doctrine that provides a "qualified immunity" or a special defense to officials of the executive branch of government who act in good faith to carry out their duties. The Supreme Court relied on this doctrine in a


series of cases construing a civil rights statute that protects

federal constitutional rights from invasion by state or local

officials, 42 U.S.c. S 1983 (1970). The Court held in wood v. Strickland, 420 U.S. 308, 322 (1975), for example, that a school board member could be sued for damages in his personal capacity for invading the plaintiff's constitutional rights, but that the official would be liable "only if he knew or reasonably should have known that the action he took within the sphere of his

official responsibility would violate the constitutional rights

of the student affected, or if he took the action with the

malicious intention to cause a deprivation of constitutional


A similar standard has been employed by lower courts with respect to both federal and state executive officers in other contexts. See Bivens v. Six Unknown Named Agents, 456

F.2d 1339 (2d Cir. 1971); Safeguard Mut. Ins. co. v. Miller, 472

F.2d 732 (3d Cir. 1973).

There is no indication in the cases, and no apparent

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reason to believe, that this old common law doctrine has federal constitutional stature. Accordingly, Congress could, notwithstand

ing this doctrine, impose the same liability on issuer officials

* An absolute immunity prevents a lawsuit from being maintained āt all, but a qualified immunity is in the nature of a defense that "depends upon the circumstances and motivations of (defendant's) actions, as established by the evidence at trial," Imbler v. Pachtman, 44 U.S.L.W. 4250, 4253 n. 13 (March 2, 1976).

that it could impose on states or units of local government for

damages caused by misstatements or omissions in disclosure docu

ments they prepare.

However, the point is a theoretical one only.

For under Section 11 (and presumably under a comparable provision in any municipal disclosure legislation), an issuer official can avoid all liability if he shows that after reasonable investigation he had reasonable ground to believe and did believe in the completeness and accuracy of the information. Section 11, in short, already embodies the kind of "good faith" defense that has been found applicable, though not constitutionally required, in other contexts.


For the reasons stated above, Congress has the con

stitutional authority to provide, in a manner similar to Section

ll of the 1933 Act, for civil actions in federal courts against

issuers of municipal securities, and issuer officials, for damages

incurred on account of false or misleading disclosure in connec

tion with the offer or sale of municipal securities in interstate


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