author: Mr. Justice White

text:
    ATLAS ROOFING CO., INC. v. OCCUPATIONAL SAFETY AND HEALTH REVIEW COMMISSION et al.
    No. 75-746.
    Argued November 29, 1976
    Decided March 23, 1977

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

      McNeill Stokes argued the cause for petitioners in both cases. With him on the briefs were Ira J. Smotherman, Jr., Herbert J. Miller, Jr., Nathan Lewin, Martin D. Minsker, and Oliver N. Hormell.

      Solicitor General Bork argued the cause for respondents in both cases. With him on the brief were Assistant Attorney

      General Lee, Louis F. Claiborne, William J. Kilberg, and Michael H. Levin.

      Together with No. 75-748, Frank Irey, Jr., Inc. v. Occupational Safety and Health Review Commission et al., on certiorari to the United States Court of Appeals for the Third Circuit.

        Gerard C. Smetana, Jerry Kronenberg, Howard L. Mocerf, Lawrence B. Kraus, and Richard O’Brecht filed a brief for the Chamber of Commerce of the United States as amicus curiae urging reversal in both cases.

        Warren L. Johns, Philip B. Kurland, and Alan L. Unikel filed a brief for the Seventh-Day Adventist Church as amicus curiae urging affirmance in No. 75-748.

   Mr. Justice White

delivered the opinion of the Court.

The issue in these cases is whether, consistent with the Seventh Amendment, Congress may create a new cause of action in the Government for civil penalties enforceable in an administrative agency where there is no jury trial.

I

After extensive investigation, Congress concluded, in 1970, that work-related deaths and injuries had become a “drastic” national problem. Finding the existing state statutory remedies as well as state common-law actions for negligence and wrongful death to be inadequate to protect the employee population from death and injury due to unsafe working conditions, Congress enacted the Occupational Safety and Health Act of 1970 (OSHA or Act), 84 Stat. 1590, 29 U. S. C. § 651 et seq. The Act created a new statutory duty to avoid maintaining unsafe or unhealthy working conditions, and empowers the Secretary of Labor to promulgate health and safety standards. Two new remedies were provided—permitting the Federal Government, proceeding before an administrative agency, (1) to obtain abatement orders requiring employers to correct unsafe working conditions and (2) to impose civil penalties on any employer maintaining any unsafe working condition. Each remedy exists whether or not an employee is actually injured or killed as a result of the condition, and existing state statutory and common-law remedies for actual injury and death remain unaffected.

Under the Act, inspectors, representing the Secretary of Labor, are authorized to conduct reasonable safety and health inspections. 29 U. S. C. § 657 (a). If a violation is discovered, the inspector, on behalf of the Secretary, issues a citation to the employer fixing a reasonable time for its abatement and, in his discretion, proposing a civil penalty. §§ 658, 659. Such proposed penalties may range from nothing for de minimis and nonserious violations, to not more than $1,000 for serious violations, to a maximum of $10,000 for willful or repeated violations, §§ 658 (a), 659 (a), 666 (a)-(c) and (j).

If the employer wishes to contest the penalty or the abatement order, he may do so by notifying the Secretary of Labor within 15 days, in which event the abatement order is automatically stayed. §§ 659 (a), (b), 666 (d). An evidentiary hearing is then held before an administrative law judge of the Occupational Safety and Health Review Commission. The Commission consists of three members, appointed for six-year terms, each of whom is qualified “by reason of training, education or experience” to adjudicate contested citations and assess penalties. §§ 651 (3), 659 (c), 661, 666 (i). At this hearing the burden is on the Secretary to establish the elements of the alleged violation and the propriety of his proposed abatement order and proposed penalty; and the judge is empowered to affirm, modify, or vacate any or all of these items, giving due consideration in his penalty assessment to “the size of the business of the employer . . . , the gravity of the violation, the good faith of the employer, and the history of previous violations.” § 666 (i). The judge’s decision becomes the Commission’s final and appealable order unless within 30 days a Commissioner directs that it be reviewed by the full Commission. §§ 659 (c), 661 (i); see 29 CFR §§ 2200.90, 2200.91 (1976).

If review is granted, the Commission’s subsequent order directing abatement and the payment of any assessed penalty becomes final unless the employer timely petitions for judicial review in the appropriate court of appeals. 29 U. S. C. § 660 (a). The Secretary similarly may seek review of Commission orders, § 660 (b), but, in either case, “[t]he findings of the Commission with respect to questions of fact, if supported by substantial evidence on the record considered as a whole, shall be conclusive.” § 660 (a). If the employer fails to pay the assessed penalty, the Secretary may commence a collection action in a federal district court in which neither the fact of the violation nor the propriety of the penalty assessed may be retried. § 666 (k). Thus, the penalty may be collected without the employer’s ever being entitled to a jury determination of the facts constituting the violation.

II

Petitioners were separately cited by the Secretary and ordered immediately to abate pertinent hazards after inspections of their respective worksites conducted in 1972 revealed conditions that assertedly violated a mandatory occupational safety standard promulgated by the Secretary under § 5 (a) (2) of the Act, 29 U. S. C. § 654 (a) (2). In each case an employee’s death had resulted. Petitioner Irey was cited for a willful violation of 29 CFR § 1926.652 (b) and Table P-1 (1976)—a safety standard promulgated by the Secretary under the Act requiring the sides of trenches in “unstable or soft material” to be “shored, . . . sloped, or otherwise supported by means of sufficient strength to protect the employees working within them.” The Secretary proposed a penalty of $7,500 for this violation and ordered the hazard abated immediately.

Petitioner Atlas was cited for a serious violation of 29 CFR §§ 1926.500 (b) (1) and (f) (5) (ii) (1976), which require that roof opening covers, be “so installed as to prevent accidental displacement.” The Secretary proposed a penalty of $600 for this violation and ordered the hazard abated immediately.

Petitioners timely contested these citations and were afforded hearings before Administrative Law Judges of the Commission. The judges, and later the Commission, affirmed the findings of violations and accompanying abatement requirements and assessed petitioner Irey a reduced civil penalty of $5,000 and petitioner Atlas the civil penalty of $600 which the Secretary had proposed. Petitioners respectively thereupon sought judicial review in the Courts of Appeals for the Third and Fifth Circuits, challenging both the Commission’s factual findings that violations had occurred and the constitutionality of the Act’s enforcement procedures.

A panel of the Court of Appeals for the Third Circuit affirmed the Commission’s orders in the Irey case over petitioner’s and a dissenter’s contention that the failure to afford the employer a jury trial on the question whether he had violated OSHA was in violation of the Seventh Amendment to the United States Constitution which provides for jury trial in most civil suits at common law. 519 F. 2d 1200. On rehearing en banc, the Court of Appeals for the Third Circuit, over four dissents, adhered to the original panel’s decision. Id., at 1215. It concluded that this Court’s rulings to date “leave no doubt that the Seventh Amendment is not applicable, at least in the context of a case such as this one, and that Congress is free to provide an administrative enforcement scheme without the intervention of a jury at any stage.” Id., at 1218.

The Court of Appeals for the Fifth Circuit also affirmed the Commission’s order in the Atlas case over a similar claim that the enforcement scheme violated the Seventh Amendment. 518 F. 2d 990. It stated:

“Where adjudicative responsibility rests only in the administering agency, 'jury trials would be incompatible with the whole concept of administrative adjudication and would substantially interfere with the [agency’s] role in the statutory scheme.’” Id., at 1011.

We granted the petitions for writs of certiorari limited to the important question whether the Seventh Amendment prevents Congress from assigning to an administrative agency, under these circumstances, the task of adjudicating violations of OSHA. 424 U. S. 964.

Ill

The Seventh Amendment provides that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .” The phrase “Suits at common law” has been construed to refer to cases tried prior to the adoption of the Seventh Amendment in courts of law in which jury trial was customary as distinguished from courts of equity or admiralty in which jury trial was not. Parsons v. Bedford, 3 Pet. 433 (1830). Petitioners claim that a suit in a federal court by the Government for civil penalties for violation of a statute is a suit for a money judgment which is classically a suit at common law, Whitehead v. Shattuck, 138 U. S. 146, 151 (1891); and that the defendant therefore has a Seventh Amendment right to a jury determination of all issues of fact in such a case, see Hepner v. United States, 213 U. S. 103, 115 (1909) (dictum) ; United States v. Regan, 232 U. S. 37, 47 (1914) (dictum). Petitioners then claim that to permit Congress to assign the function of adjudicating the Government’s rights to civil penalties for violation of the statute to a different forum—an administrative agency in which no jury is available—would be to permit Congress to deprive a defendant of his Seventh Amendment jury right. We disagree. At least in cases in which “public rights” are being litigated—e. g., cases in which the Government sues in its sovereign capacity to enforce public rights created by statutes within the power of Congress to enact—the Seventh Amendment does not prohibit Congress from assigning the factfinding function and initial adjudication to an administrative forum with which the jury would be incompatible.

Congress has often created new statutory obligations, provided for civil penalties for their violation, and committed exclusively to an administrative agency the function of deciding whether a violation has in fact occurred. These statutory schemes have been sustained by this Court, albeit often without express reference to the Seventh Amendment. Thus taxes may constitutionally be assessed and collected together with penalties, with the relevant facts in some instances being adjudicated only by an administrative agency. Phillips v. Commissioner, 283 U. S. 589, 599-600 (1931); Murray’s Lessee v. Hoboken Land Co., 18 How. 272, 284 (1856). Neither of these cases expressly discussed the question whether the taxation scheme violated the Seventh Amendment. However, in Helvering v. Mitchell, 303 U. S. 391 (1938), the Court said, in rejecting a claim under the Sixth Amendment that the assessment and adjudication of tax penalties could not be made without a jury, that “the determination of the facts upon which liability is based may be by an administrative agency instead of a jury,” id., at 402. Similarly, Congress has entrusted to an administrative agency the task of adjudicating violations of the customs and immigration laws and assessing penalties based thereon. Lloyd Sabaudo Societa v. Elting, 287 U. S. 329, 335 (1932) (“[D]ue process of law does not require that the courts, rather than administrative officers, be charged . . . with determining the facts upon which the imposition of [fines] depends”); Oceanic Nav. Co. v. Stranahan, 214 U. S. 320 (1909). See also Ex parte Bakelite Corp., 279 U. S. 438, 451, 458 (1929).

In Block v. Hirsh, 256 U. S. 135 (1921), the Court sustained Congress’ power to pass a statute, applicable to the District of Columbia, temporarily suspending landlords’ legal remedy of ejectment and relegating them to an administrative factfinding forum charged with determining fair rents at which tenants could hold over despite the expiration of their leases. In that case the Court squarely rejected a challenge to the statute based on the Seventh Amendment, stating:

“The statute is objected to on the further ground that landlords and tenants are deprived by it of a trial by jury on the right to possession of the land. If the power of the Commission established by the statute to regulate the relation is established, as we think it is, by what we have said, this objection amounts to little. To regulate the relation and to decide the facts affecting it are hardly separable.” Id., at 158. (Emphasis added.)

In Crowell v. Benson, 285 U. S. 22 (1932), apparently referring to the above-cited line of authority, the Court stated:

“[T]he distinction is at once apparent between cases of private right and those which arise between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments. . . . [T]he Congress, in exercising the powers confided to it may establish ‘legislative’ courts ... to serve as special tribunals ‘to examine and determine various matters, arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.’ But ‘the mode of determining matters of this class is completely within congressional control. Congress may reserve to itself the power to decide, may delegate that power to executive officers, or may commit it to judicial tribunals.’ . . . Familiar illustrations of administrative agencies created for the determination of such matters are found in connection with the exercise of the congressional power as to interstate and foreign commerce, taxation, immigration, the public lands, public health, the facilities of the post office, pensions and payments to veterans.” Id., at 50-51. (Emphasis added.)

In NLRB v. Jones & Laughlin Steel Corp., 301 U. S. 1 (1937), the Court squarely addressed the Seventh Amendment issue involved when Congress commits the factfinding function under a new statute to an administrative tribunal. Under the National Labor Relations Act, Congress had committed to the National Labor Relations Board, in a proceeding brought by its litigating arm, the task of deciding whether an unfair labor practice had been committed and of ordering backpay where appropriate. The Court stated:

“The instant case is not a suit at common law or in the nature of such a suit. The proceeding is one unknown to the common law. It is a statutory proceeding. Reinstatement of the employee and payment for time lost are requirements [administratively] imposed for violation of the statute and are remedies appropriate to its enforcement. The contention under the Seventh Amendment is without merit.” Id., at 48-49. (Emphasis added.)

This passage from Jones & Laughlin has recently been explained in Curtis v. Loether, 415 U. S. 189 (1974), in which the Court held the Seventh Amendment applicable to private damages suits in federal courts brought under the housing discrimination provisions of the Civil Rights Act of 1968. The Court rejected the argument that Jones & Laughlin held the Seventh Amendment inapplicable to any action based on a statutorily created right even if the action was brought before a tribunal which customarily utilizes a jury as its factfinding arm. Instead, we concluded that Jones & Laughlin upheld

“congressional power to entrust enforcement of statutory rights to an administrative process or specialized court of equity [] free from the strictures of the Seventh Amendment.” 415 U. S., at 194-195. (Emphasis added.)

Finally, in Pernell v. Southall Realty, 416 U. S. 363 (1974), in discussing Block v. Hirsh, 256 U. S. 135 (1921), and Jones & Laughlin, we stated:

“Block v. Hirsh merely stands for the principle that the Seventh Amendment is generally inapplicable in administrative proceedings, where jury trials would be incompatible with the whole concept of administrative adjudication. . . . We may assume that the Seventh Amendment would not be a bar to a congressional effort to entrust landlord-tenant disputes, including those over the right to possession, to an administrative agency. Congress has not seen fit to do so, however, but rather has provided that actions under § 16-1501 be brought as ordinary civil actions in the District of Columbia’s court of general jurisdiction. Where it has done so, and where the action involves rights and remedies recognized at common law, it must preserve to parties their right to a jury trial.” 416 U. S., at 383. (Emphasis added.)

In sum, the cases discussed above stand clearly for the proposition that when Congress creates new statutory “public rights,” it may assign their adjudication to an administrative agency with which a jury trial would be incompatible, without violating the Seventh Amendment’s injunction that jury trial is to be “preserved” in “suits at common law.” Congress is not required by the Seventh Amendment to choke the already crowded federal courts with new types of litigation or prevented from committing some new types of litigation to administrative agencies with special competence in the relevant field. This is the case even if the Seventh Amendment would have required a jury where the adjudication of those rights is assigned to a federal court of law instead of an administrative agency. Petitioners would nevertheless have us disregard the interpretation of Jones & Laughlin which we recently espoused in Curtis v. Loether and Pernell v. Southall Realty, reading it instead as a holding solely that the entire proceeding before the NLRB was really equitable in nature; and they would have us entirely disregard Block v. Hirsh, supra. They would have us disregard the dictum in Crowell v. Benson, 285 U. S. 22 (1932), that the adjudication of congressionally created public rights may be assigned to administrative agencies, as well as the similar holdings in Lloyd Sabaudo Societa v. Elting, 287 U. S. 329 (1932); Oceanic Nav. Co. v. Stranahan, 214 U. S. 320 (1909); Murray’s Lessee v. Hoboken Land Co., 18 How. 272 (1856); Phillips v. Commissioner, 283 U. S. 589 (1931); and Helvering v. Mitchell, 303 U. S. 391 (1938).

None of the grounds tendered for so reinterpreting the Seventh Amendment is convincing. It is suggested that in some of the cases, Elting, Oceanic, Murray’s Lessee, Phillips, and Helvering, the Seventh Amendment was not expressly put in issue. But these cases are clear enough that in the context involved, there was no requirement that the courts be involved at all in the factfinding process in the first instance. It is difficult to believe that these holdings or dicta did not subsume the proposition that a jury trial was not required. Furthermore, there are the remaining cases where the Court expressly held or observed that the Seventh Amendment did not bar administrative factfindings. Jones & Laughlin, Block, Pernell, and Curtis.

Second, it is argued with some force that cases such as Murray’s Lessee, Elting, Oceanic, Phillips, and Helvering all deal with the exercise of sovereign powers that are inherently in the exclusive domain of the Federal Government and critical to its very existence—the power over immigration, the importation of goods, and taxation—and that the theory of those cases is inapplicable where the Government exercises other powers that petitioners apparently regard as less fundamental, less exclusive, and less vital to the existence of the Nation, such as the power to regulate commerce among the several States, the latter being the power Congress sought to exercise in enacting the statute at issue here. The difficulty with this argument is that the Court in these cases, and in others, did not appear to confine its holdings in this manner. In Murray’s Lessee the Court referred to “matters, involving public rights [that] congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper.” 18 How., at 284. In Oceanic, which sustained the administrative imposition of a fine for the wrongful importation of aliens, the Court said that its ruling was in accordance with “settled judicial construction” that “not only as to tariff but as to internal revenue, taxation and other subjects” Congress could “impose appropriate obligations and sanction their enforcement by reasonable money penalties, giving to executive officers the power to enforce such penalties without the necessity of invoking the judicial power.” 214 U. S., at 339. (Emphasis added.) Crowell spoke broadly of the distinction between cases of private right and those which arise between the Government and persons subject to its authority “in connection with the performance of the constitutional functions of the executive or legislative departments,” see supra, at 452, and gave “familiar illustrations” of the permissible use of administrative agencies in connection with the exercise of such congressional powers as “interstate and foreign commerce.” 285 U. S., at 51. Helvering v. Mitchell, supra, at 402-403, relying on Oceanic and similar cases, stated simply that “the determination of the facts upon which liability is based may be by an administrative agency instead of a jury.” It is also apparent that Jones & Laughlin, Pernell, and Curtis are not amenable to the limitations suggested by petitioners.

Third is the assertion that the right to jury trial was never intended to depend on the identity of the forum to which Congress has chosen to submit a dispute; otherwise, it is said, Congress could utterly destroy the right to a jury trial by always providing for administrative rather than judicial resolution of the vast range of cases that now arise in the courts. The argument is well put, but it overstates the holdings of our prior cases and is in any event unpersuasive. Our prior cases support administrative factfinding in only those situations involving “public rights,” e. g., where the Government is involved in its sovereign capacity under an otherwise valid statute creating enforceable public rights. Wholly private tort, contract, and property cases, as well as a vast range of other cases, are not at all implicated.

More to the point, it is apparent from the history of jury trial in civil matters that factfinding, which is the essential function of the jury in civil cases, Colgrove v. Battin, 413 U. S. 149, 157 (1973), was never the exclusive province of the jury under either the English or American legal systems at the time of the adoption of the Seventh Amendment; and the question whether a fact would be found by a jury turned to a considerable degree on the nature of the forum in which a litigant found himself. Critical factfinding was performed without juries in suits in equity, and there were no juries in admiralty, Parsons v. Bedford, 3 Pet. 433 (1830); nor were there juries in the military justice system. The jury was the factfinding mode in most suits in the common-law courts, but it was not exclusively so: Condemnation was a suit at common law but constitutionally could be tried without a jury, Kohl v. United States, 91 U. S. 367, 375-376 (1876); Bauman v. Ross, 167 U. S. 548, 593 (1897); United States v. Reynolds, 397 U. S. 14, 18 (1970). “[M]any civil as well as criminal proceedings at common law were without a jury.” Kohl v. United States, supra, at 376. The question whether a particular case was to be tried in a court of equity—without a jury—or a court of law—with a jury—did not depend on whether the suit involved factfinding or on the nature of the facts to be found. Factfinding could be a critical matter either at law or in equity. Rather, as a general rule, the decision turned on whether courts of law supplied a cause of action and an adequate remedy to the litigant. If it did, then the case would be tried in a court of law before a jury. Otherwise the case would be tried to a court of equity sitting without a jury. Thus, suits for damages for breach of contract, for example, were suits at common law with the issues of the making of the contract and its breach to be decided by a jury; but specific performance was a remedy unavailable in a court of law and where such relief was sought the case would be tried in a court of equity with the facts as to making and breach to be ascertained by the court.

The Seventh Amendment was declaratory of the existing law, for it required only that jury trial in suits at common law was to be “preserved.” It thus did not purport to require a jury trial where none was required before. Moreover, it did not seek to change the factfinding mode in equity or admiralty or to freeze equity jurisdiction as it existed in 1789, preventing it from developing new remedies where those available in courts of law were inadequate. Ross v. Bernhard, 396 U. S. 531 (1970), is instructive in this respect. We there held that a jury trial is required in stockholder derivative suits where, if the corporation itself had sued, a jury trial would have been available to the corporation. It is apparent, however, that prior to the 1938 Federal Rules of Civil Procedure merging the law and equity functions of the federal courts, the very suit involved in Bernhard would have been in a court of equity sitting without a jury, not because the underlying issue was any different at all from the issue the corporation would have presented had it sued, but because the stockholder plaintiff who was denied standing in a court of law to sue on the issue was enabled in proper circumstances, starting in the early part of the 19th century, to sue in equity on behalf of the company.

The point is that the Seventh Amendment was never intended to establish the jury as the exclusive mechanism for factfinding in civil cases. It took the existing legal order as it found it, and there is little or no basis for concluding that the Amendment should now be interpreted to provide an impenetrable barrier to administrative factfinding under otherwise valid federal regulatory statutes. We cannot conclude that the Amendment rendered Congress powerless—when it concluded that remedies available in courts of law were inadequate to cope with a problem within Congress’ power to regulate—to create new public rights and remedies by statute and commit their enforcement, if it chose, to a tribunal other than a court of law—such as an administrative agency—in which facts are not found by juries. Indeed, as the Oceanic opinion said, the “settled judicial construction” was to the contrary “from the beginning.” 214 U. S., at 339. That case indicated, as had Hepner v. United States, 213 U. S. 103 (1909), that the Government could commit the enforcement of statutes and the imposition and collection of fines to the judiciary, in which event jury trial would be required, see also United States v. Regan, 232 U. S. 37 (1914), but that the United States could also validly opt for administrative enforcement, without judicial trials. See also Helvering v. Mitchell, 303 U. S., at 402-403, and Crowell v. Benson, 285 U. S., at 50-51.

Thus, history and our cases support the proposition that the right to a jury trial turns not solely on the nature of the issue to be resolved but also on the forum in which it is to be resolved. Congress found the common-law and other existing remedies for work injuries resulting from unsafe working conditions to be inadequate to protect the Nation’s working men and women. It created a new cause of action, and remedies therefor, unknown to the common law, and placed their enforcement in a tribunal supplying speedy and expert resolutions of the issues involved. The Seventh Amendment is no bar to the creation of new rights or to their enforcement outside the regular courts of law.

The judgments below are affirmed.

It is so ordered.

Mr. Justice Blackmun took no part in the decision of these cases.

       The Senate Report stated:
      “The problem of assuring safe and healthful workplaces for our working men and women ranks in importance with any that engages the national attention today. . . . 14,500 persons are killed annually as a result of industrial accidents; accordingly, during the past four years more Americans have been killed where they work than in the Vietnam war. By the lowest count, 2.2 million persons are disabled on the job each year, resulting in the loss of 250 million man days of work-many times more than are lost through strikes.
      “In addition to the individual human tragedies involved, the economic impact of industrial deaths and disability is staggering. Over $1.5 billion is wasted in lost wages, and the annual loss to the Gross National Product is estimated to be over $8 billion. Vast resources that could be available for productive use are siphoned off to pay workmen’s compensation benefits and medical expenses.
      “This ‘grim current scene’ . . . represents a worsening trend, for the fact is that the number of disabling injuries per million man hours worked is today 20% higher than in 1958.” S. Rep. No. 91-1282, p. 2 (1970), Leg. Hist. 142.
      See also H. R. Rep. No. 91-1291, pp. 14-15 (1970); Leg. Hist. 844-845 (“The issue of the health and safety of the American, working man and woman is the most crucial one in the whole environmental question . . . the worst problem confronting American workers”).
      House and Senate debates are reprinted, along with the House, Senate, and Conference Reports, in a one-volume Committee Print entitled Legislative History of the Occupational Safety and Health Act of 1970, Subcommittee on Labor of the Senate Committee on Labor and Public Welfare, 92d Cong., 1st Sess. (June 1971) (cited supra and hereafter as Leg. Hist.).

       The statute provides in § 5 (a), 29 U. S. C. § 654 (a), that each employer:
      “(1) shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees;
      “(2) shall comply with occupational safety and health standards promulgated under this Act.”

       Petitioners make no challenge to the absence of mandatory review by the Commission of the administrative law judge’s findings of fact.

       The other Courts of Appeals which have passed on this issue have uniformly (and without a dissent) agreed with these results. Mohawk

        Excavating, Inc. v. Occupational Safety & Health Rev. Comm’n, 549 F. 2d 859 (CA2 1977); Beall Constr. Co. v. Occupational Safety & Health Rev. Comm’n, 507 F. 2d 1041 (CA8 1974); Brennan v. Winters Battery Mfg. Co., 531 F. 2d 317 (CA6 1975); Clarkson Constr. Co. v. Occupational Safety & Health Rev. Comm’n, 531 F. 2d 451 (CA10 1976). See also Underhill Constr. Corp. v. Secretary of Labor, 526 F. 2d 53, 57 n. 10 (CA2 1975).

       Each petitioner also argued below that the enforcement scheme violates the constitutional requirements that juries decide fact issues in criminal cases—arguing that the fines involved are “penal” in nature. Each petitioner asked this Court in its petition for a writ of certiorari to review the unfavorable rulings of the courts below on this issue.

       In light of our disposition of these cases we decline the respondents’ invitation to decide whether the dictum in these cases correctly divines the intent of the Seventh Amendment or whether, as the respondents argue, the Seventh Amendment has no application to Government litigation and leaves solely to the Sixth Amendment the function of interposing a jury between the Federal Government and an individual from whom it wishes to exact a fine. See Muniz v. Hoffman, 422 U. S. 454 (1975).

       These cases do not involve purely “private rights.” In cases which do involve only “private rights,” this Court has accepted factfinding by an administrative agency, without intervention by a jury, only as an adjunct to an Art. III court, analogizing the agency to a jury or a special master and permitting it in admiralty cases to perform the function of the special master. Crowell v. Benson, 285 U. S. 22, 51-65 (1932). The Court there said: “On the common law side of the federal courts, the aid of juries is not only deemed appropriate but is required by the Constitution itself.” Id., at 51.

       In Murray’s Lessee, the Court stated:
      “[T]here are matters, involving public rights, which may be presented in such form that the judicial power is capable of acting on them, and which are susceptible of judicial determination, but which congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper." 18 How., at 284. (Emphasis added.)

       In Oceanic, the Court stated:
      “In accord with this settled judicial construction the legislation of Congress from the beginning, not only as to tariff, but as to internal revenue, taxation, and other subjects, has proceeded on the conception that it was within the competency of Congress, when legislating as to matters exclusively within its control, to impose appropriate obligations and sanction their enforcement by reasonable money penalties, giving to executive officers the power to enforce such penalties without the necessity of invoking the judicial power.” 214 U. S., at 339. (Emphasis added.)

       The Court also rejected the Seventh Amendment claim in Jones & Laughlin on the separate ground that that Amendment is inapplicable where “recovery of money damages is an incident to [nonlegal] relief even though damages might have been recovered in an action at law,” 301 U. S., at 48-49, since in such cases courts of equity would historically have granted monetary relief. In Jones & Laughlin, the NLRB ordered reinstatement of a dismissed employee, an order analogous to injunctive relief historically obtainable only in a court of equity, and consequently this alternative ground was an adequate one to decide Jones & Laughlin. However, this alternative ground would have been insufficient to decide the more general question of the NLRB’s power to order backpay where, for one reason or another, no such equitable order was sought. See Radio Officers v. NLRB, 347 U. S. 17, 54 (1954); NLRB v. National Garment Co., 166 F. 2d 233 (CA8 1948); NLRB v. Brookside Industries, Inc., 308 F. 2d 224 (CA4 1962); Bon Hennings Logging Co. v. NLRB, 308 F. 2d 548 (CA9 1962); NLRB v. West Coast Casket Co., Inc., 205 F. 2d 902 (CA9 1953); Reliance Mfg. Co. v. NLRB, 125 F. 2d 311 (CA7 1941); NLRB v. Carpenters, 238 F. 2d 832 (CA5 1956); Indianapolis Power & Light Co. v. NLRB, 122 F. 2d 757 (CA7 1941).

       The Court had reference to Katchen v. Landy, 382 U. S. 323 (1966), in which this Court sustained the power of a bankruptcy court, exercising summary jurisdiction without a jury, to adjudicate the otherwise legal issues of voidable preferences. The Court did so on the ground that a bankruptcy court, exercising its summary jurisdiction, was a specialized court of equity and constituted a forum before which a jury would be out of place and would go far to dismantle the statutory scheme.

       The holding in Pernell was that the Seventh Amendment applies to resolution of disputes of a “legal” nature—those regarding right to possession of real property when the resolution is entrusted to a forum which customarily employs a jury.

       We note that the decision of the administrative tribunal in these cases on the law is subject to review in the federal courts of appeals, and on the facts is subject to review by such courts of appeals under a substantial-evidence test. Thus, these cases do not present the question whether Congress may commit the adjudication of public rights and the imposition of fines for their violation to an administrative agency without any sort of intervention by a court at any stage of the proceedings.

       The Judiciary Act of 1789, 1 Stat. 82, which was in this respect declaratory of existing law, provided:
      “Sec. 16. And be it further enacted, That suits in equity shall not be sustained in either of the courts of the United States, in any case where plain, adequate and complete remedy may be had at law.”

       Finally, it should be noted that, if the fines involved in these cases were made criminal fines instead of civil fines, the Seventh Amendment would be inapplicable by its terms. The Sixth Amendment would then govern the employer’s right to a jury and under our prior cases no jury trial would be required. Muniz v. Hoffman, 422 U. S. 454 (1975). It would be odd to hold that Congress could avoid the jury-trial requirement by labeling the civil penalties criminal fines but not by assigning their adjudication to an administrative agency.

       Petitioners claim that permitting Congress to control the jury-right question by picking the forum is to delegate to it, rather than this Court, the final power to decide Seventh Amendment issues. The claim is incorrect. The Seventh Amendment prevents Congress from depriving a litigant of a jury trial in a “legal” action before a tribunal customarily utilizing a jury as its factfinding arm, Pernell v. Southall Realty, 416 U. S. 363 (1974), and this Court has the final decision on the question whether a jury is required.


source: Caselaw Access Project

author: Mr. Justice White Mr. Justice Blackmun, Mr. Justice Stevens,

license: Public Domain

text:
    SANTA FE INDUSTRIES, INC., et al. v. GREEN et al.
    No. 75-1753.
    Argued January 18-19, 1977
    Decided March 23, 1977

      White, J., delivered the opinion of the Court, in which Burger, C. J., and Stewart, Marshall, Powell, and Rehnquist, JJ., joined, and in all but Part IV of which Blackmun and Stevens, JJ., joined. Blackmun, J., post, p. 480, and Stevens, J., post, p. 480, filed opinions concurring in part. Brennan, J., filed a dissenting statement, post, p. 480.

      William R. Glendon argued the cause for petitioners. With him on the briefs were Robert D. Larsen and Guy C. Quinlan.

      Sidney Bender argued the cause for respondents. With him on the brief was Aaron Lewittes.

   Mr. Justice White

delivered the opinion of the Court.

The issue in this case involves the reach and coverage of § 10 (b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in the context of a Delaware short-form merger transaction used by the majority stockholder of a corporation to eliminate the minority interest.

I

In 1936, petitioner Santa Fe Industries, Inc. (Santa Fe), acquired control of 60% of the stock of Kirby Lumber Corp. (Kirby), a Delaware corporation. Through a series of purchases over the succeeding years, Santa Fe increased its control of Kirby’s stock to 95%; the purchase prices during the period 1968-1973 ranged from $65 to $92.50 per share. In 1974, wishing to acquire 100% ownership of Kirby, Santa Fe availed itself of § 253 of the Delaware Corporation Law, known as the “short-form merger” statute. Section 253 permits a parent corporation owning at least 90% of the stock of a subsidiary to merge with that subsidiary, upon approval by the parent’s board of directors, and to make payment in cash for the shares of the minority stockholders. The statute does not require the consent of, or advance notice to, the minority stockholders. However, notice of the merger must be given within 10 days after its effective date, and any stockholder who is dissatisfied with the terms of the merger may petition the Delaware Court of Chancery for a decree ordering the surviving corporation to pay him the fair value of his shares, as determined by a court-appointed appraiser subject to review by the court. Del. Code Ann., Tit. 8, §§ 253, 262 (1975 ed. and Supp. 1976).

Santa Fe obtained independent appraisals of the physical assets of Kirby—land, timber, buildings, and machinery—and of Kirby’s oil, gas, and mineral interests. These appraisals, together with other financial information, were submitted to Morgan Stanley & Co. (Morgan Stanley), an investment banking firm retained to appraise the fair market value of Kirby stock. Kirby’s physical assets were appraised at $320 million (amounting to $640 for each of the 500,000 shares); Kirby’s stock was valued by Morgan Stanley at $125 per share. Under the terms of the merger, minority stockholders were offered $150 per share.

The provisions of the short-form merger statute were fully complied with. The minority stockholders of Kirby were notified the day after the merger became effective and were advised of their right to obtain an appraisal in Delaware court if dissatisfied with the offer of $150 per share. They also received an information statement containing, in addition to the relevant financial data about Kirby, the appraisals of the value of Kirby’s assets and the Morgan Stanley appraisal concluding that the fair market value of the stock was $125 per share.

Respondents, minority stockholders of Kirby, objected to the terms of the merger, but did not pursue their appraisal remedy in the Delaware Court of Chancery. Instead, they brought this action in federal court on behalf of the corporation and other minority stockholders, seeking to set aside the merger or to recover what they claimed to be the fair value of their shares. The amended complaint asserted that, based on the fair market value of Kirby’s physical assets as revealed by the appraisal included in the information statement sent to minority shareholders, Kirby’s stock was worth at least $772 per share. The complaint alleged further that the merger took place without prior notice to minority stockholders; that the purpose of the merger was to appropriate the difference between the “conceded pro rata value of the physical assets,” App. 103a, and the offer of $150 per share—to “freez[e] out the minority stockholders at a wholly inadequate price,” id., at 100a; and that Santa Fe, knowing the appraised value of the physical assets, obtained a “fraudulent appraisal” of the stock from Morgan Stanley and offered $25 above that appraisal “in order to lull the minority stockholders into erroneously believing that [Santa Fe was] generous.” Id., at 103a. This course of conduct was alleged to be “a violation of Rule 10b-5 because defendants employed a 'device, scheme, or artifice to defraud’ and engaged in an 'act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.' ” Ibid. Morgan Stanley assertedly participated in the fraud as an accessory by submitting its appraisal of $125 per share although knowing the appraised value of the physical assets.

The District Court dismissed the complaint for failure to state a claim upon which relief could be granted. 391 F. Supp. 849 (SDNY 1975). As the District Court understood the complaint, respondents’ case rested on two distinct grounds. First, federal law was assertedly violated because the merger was for the sole purpose of eliminating the minority from the company, therefore lacking any justifiable business purpose, and because the merger was undertaken without prior notice to the minority shareholders. Second, the low valuation placed on the shares in the cash-exchange offer was itself said to be a fraud actionable under Rule 10b-5. In rejecting the first ground for recovery, the District Court reasoned that Delaware law required neither a business purpose for a short-form merger nor prior notice to the minority shareholders who the statute contemplated would be removed from the company, and that Rule 10b-5 did not override these provisions of state corporate law by independently placing a duty on the majority not to merge without prior notice and without a justifiable business purpose.

As for the claim that actionable fraud inhered in the allegedly gross undervaluation of the minority shares, the District Court observed that respondents valued their shares at a minimum of $772 per share, “basing this figure on the pro rata value of Kirby’s physical assets.” Id., at 853. Accepting this valuation for purposes of the motion to dismiss, the District Court further noted that, as revealed by the complaint, the physical asset appraisal, along with other information relevant to Morgan Stanley’s valuation of the shares, had been included with the information statement sent to respondents within the time required by state law. It thought that if “full and fair disclosure is made, transactions eliminating minority interests are beyond the purview of Rule 10b-5,” and concluded that the “complaint fail[ed] to allege an omission, misstatement or fraudulent course of conduct that would have impeded a shareholder’s judgment of the value of the offer.” Id., at 854. The complaint therefore failed to state a claim and was dismissed.

A divided Court of Appeals for the Second Circuit reversed. 533 P. 2d 1283 (1976). It first agreed that there was a double aspect to the case: first, the claim that gross undervaluation of the minority stock itself violated Rule 10b-5; and second, that “without any misrepresentation or failure to disclose relevant facts, the merger itself constitutes a violation of Rule 10b-5” because it was accomplished without any corporate purpose and without prior notice to the minority stockholders. Id., at 1285. As to the first aspect of the case, the Court of Appeals did not disturb the District Court’s conclusion that the complaint did not allege a material misrepresentation or nondisclosure with respect to the value of the stock; and the court declined to rule that a claim of gross undervaluation itself would suffice to make out a Rule 10b-5 case. With respect to the second aspect of the case, however, the court fundamentally disagreed with the District Court as to the reach and coverage of Rule 10b-5. The Court of Appeals' view was that, although the Rule plainly reached material misrepresentations and nondisclosures in connection with the purchase or sale of securities, neither misrepresentation nor nondisclosure was a necessary element of a Rule 10b-5 action; the Rule reached “breaches of fiduciary duty by a majority against minority shareholders without any charge of misrepresentation or lack of disclosure." Id., at 1287. The court went on to hold that the complaint, taken as a whole, stated a cause of action under the Rule:

“We hold that a complaint alleges a claim under Rule 10b-5 when it charges, in connection with a Delaware short-form merger, that the majority has committed a breach of its fiduciary duty to deal fairly with minority shareholders by effecting the merger without any justifiable business purpose. The minority shareholders are given no prior notice of the merger, thus having no opportunity to apply for injunctive relief, and the proposed price to be paid is substantially lower than the appraised value reflected in the Information Statement.” Id., at 1291.

See also id., at 1289.

We granted the petition for certiorari challenging this holding because of the importance of the issue involved to the administration of the federal securities laws. 429 U. S. 814 (1976). We reverse.

II

Section 10 (b) of the 1934 Act makes it “unlawful for any person ... to use or employ . . . any manipulative or deceptive device or contrivance in contravention of [Securities and Exchange Commission rules]”; Rule 10b-5, promulgated by the SEC under § 10 (b), prohibits, in addition to nondisclosure and misrepresentation, any “artifice to defraud” or any act “which operates or would operate as a fraud or deceit.” The court below construed the term “fraud” in Rule 10b-5 by adverting to the use of the term in several of this Court’s decisions in contexts other than the 1934 Act and the related Securities Act of 1933, 15 U. S. C. § 77a et seq. The Court of Appeals’ approach to the interpretation of Rule 10b-5 is inconsistent with that taken by the Court last Term in Ernst & Ernst v. Hochfelder, 425 U. S. 185 (1976).

Ernst & Ernst makes clear that in deciding whether a complaint states a cause of action for “fraud” under Rule 10b-5, “we turn first to the language of § 10 (b), for ‘[t]he starting point in every case involving construction of a statute is the language itself.’ ” Id., at 197, quoting Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 756 (1975) (Powell, J., concurring). In holding that a cause of action under Rule 10b-5 does not lie for mere negligence, the Court began with the principle that “[ascertainment of congressional intent with respect to the standard of liability created by a particular section of the [1933 and 1934] Acts must . . . rest primarily on the language of that section,” 425 U. S., at 200, and then focused on the statutory language of § 10 (b)—“[t]he words ‘manipulative or deceptive’ used in conjunction with ‘device or contrivance.’ ” Id., at 197. The same language and the same principle apply to this case.

To the extent that the Court of Appeals would rely on the use of the term “fraud” in Rule 10b-5 to bring within the ambit of the Rule all breaches of fiduciary duty in connection with a securities transaction, its interpretation would, like the interpretation rejected by the Court in Ernst & Ernst, “add a gloss to the operative language of the statute quite different from its commonly accepted meaning.” Id., at 199. But, as the Court there held, the language of the statute must control the interpretation of the Rule:

“Rule 10b-5 was adopted pursuant to authority granted the [Securities and Exchange] Commission under § 10 (b). The rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather, it is ‘ “the power to adopt regulations to carry into effect the will of Congress as expressed by the statute.” ’. . . [The scope of the Rule] cannot exceed the power granted the Commission by Congress under § 10 (b).” Id., at 212—214.

The language of § 10 (b) gives no indication that Congress meant to prohibit any conduct not involving manipulation or deception. Nor have we been cited to any evidence in the legislative history that would support a departure from the language of the statute. “When a statute speaks so specifically in terms of manipulation and deception, . . . and when its history reflects no more expansive intent, we are quite unwilling to extend the scope of the statute . . ." Id., at 214. Thus the claim of fraud and fiduciary breach in this complaint states a cause of action under any part of Rule 10b-5 only if the conduct alleged can be fairly viewed as “manipulative or deceptive” within the meaning of the statute.

III

It is our judgment that the transaction, if carried out as alleged in the complaint, was neither deceptive nor manipulative and therefore did not violate either § 10 (b) of the Act or Rule 10b-5.

As we have indicated, the case comes to us on the premise that the complaint failed to allege a material misrepresentation or material failure to disclose. The finding of the District Court, undisturbed by the Court of Appeals, was that there was no “omission” or “misstatement” in the information statement accompanying the notice of merger. On the basis of the information provided, minority shareholders could either accept the price offered or reject it and seek an appraisal in the Delaware Court of Chancery. Their choice was fairly presented, and they were furnished with all relevant information on which to base their decision.

We therefore find inapposite the cases relied upon by respondents and the court below, in which the breaches of fiduciary duty held violative of Rule 10b-5 included some element of deception. Those cases forcefully reflect the principle that “[§] 10 (b) must be read flexibly, not technically and restrictively” and that the statute provides a cause of action for any plaintiff who “suffer[s] an injury as a result of deceptive practices touching its sale [or purchase] of securities . . ." Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 12-13 (1971). But the cases do not support the proposition, adopted by the Court of Appeals below and urged by respondents here, that a breach of fiduciary duty by majority stockholders, without any deception, misrepresentation, or nondisclosure, violates the statute and the Rule.

It is also readily apparent that the conduct alleged in the complaint was not “manipulative” within the meaning of the statute. “Manipulation” is “virtually a term of art when used in connection with securities markets.” Ernst & Ernst, 425 U. S., at 199. The term refers generally to practices, such as wash sales, matched orders, or rigged prices, that are intended to mislead investors by artificially affecting market activity. See, e. g., § 9 of the 1934 Act, 15 U. S. C. § 78i (prohibiting specific manipulative practices); Ernst & Ernst, supra, at 195, 199 n. 21, 205; Piper v. Chris-Craft Industries, Inc., ante, at 43 (Rule 10b-6, also promulgated under § 10 (b), is “an antimanipulative provision designed to protect the orderliness of the securities market during distributions of stock” and “to prevent stimulative trading by an issuer in its own securities in order to create an unnatural and unwarranted appearance of market activity”); 2 A. Bromberg, Securities Law: Fraud § 7.3 (1975); 3 L. Loss, Securities Regulation 1541-1570 (2d ed. 1961); 6 id., at 3755-3763 (Supp. 1969). Section 10 (b)’s general prohibition of practices deemed by the SEC to be “manipulative”—in this technical sense of artificially affecting market activity in order to mislead investors—is fully consistent with the fundamental purpose of the 1934 Act “‘to substitute a philosophy of full disclosure for the philosophy of caveat emptor Affiliated Ute Citizens v. United States, 406 U. S. 128, 151 (1972), quoting SEC v. Capital Cains Research Bureau, 375 U. S. 180, 186 (1963). Indeed, nondisclosure is usually essential to the success of a manipulative scheme. 3 Loss, supra, at 1565. No doubt Congress meant to prohibit the full range of ingenious devices that might be used to manipulate securities prices. But we do not think it would have chosen this “term of art” if it had meant to bring within the scope of § 10 (b) instances of corporate mismanagement such as this, in which the essence of the complaint is that shareholders were treated unfairly by a fiduciary.

IV

The language of the statute is, we think, “sufficiently clear in its context” to be dispositive here, Ernst & Ernst, supra, at 201; but even if it were not, there are additional considerations that weigh heavily against permitting a cause of action under Rule 10b-5 for the breach of corporate fiduciary duty alleged in this complaint. Congress did not expressly provide a private cause of action for violations of § 10 (b). Although we have recognized an implied cause of action under that section in some circumstances, Superintendent of Insurance v. Bankers Life & Cas. Co., supra, at 13 n. 9, we have also recognized that a private cause of action under the antifraud provisions of the Securities Exchange Act should not be implied where it is “unnecessary to ensure the fulfillment of Congress’ purposes” in adopting the Act. Piper v. Chris-Craft Industries, ante, at 41. Cf. J. I. Case Co. v. Borak, 377 U. S. 426, 431-433 (1964). As we noted earlier, supra, this page, the Court repeatedly has described the “fundamental purpose” of the Act as implementing a “philosophy of full disclosure”; once full and fair disclosure has occurred, the fairness of the terms of the transaction is at most a tangential concern of the statute. Cf. Mills v. Electric Auto-Lite Co., 396 U. S. 375, 381-385 (1970). As in Cort v. Ash, 422 U. S. 66, 80 (1975), we are reluctant to recognize a cause of action here to serve what is “at best a subsidiary purpose” of the federal legislation.

A second factor in determining whether Congress intended to create a federal cause of action in these circumstances is “whether ‘the cause of action [is] one traditionally relegated to state law Piper v. Chris-Craft Industries, Inc., ante, at 40, quoting Cort v. Ash, supra, at 78. The Delaware Legislature has supplied minority shareholders with a cause of action in the Delaware Court of Chancery to recover the fair value of shares allegedly undervalued in a short-form merger. See supra, at 465-466. Of course, the existence of a particular state-law remedy is not dispositive of the question whether Congress meant to provide a similar federal remedy, but as in Cort and Piper, we conclude that “it is entirely appropriate in this instance to relegate respondent and others in his situation to whatever remedy is created by state law.” 422 U. S., at 84; ante, at 41.

The reasoning behind a holding that the complaint in this case alleged fraud under Rule 10b-5 could not be easily contained. It is difficult to imagine how a court could distinguish, for purposes of Rule 10b-5 fraud, between a majority stockholder’s use of a short-form merger to eliminate the minority at an unfair price and the use of some other device, such as a long-form merger, tender offer, or liquidation, to achieve the same result; or indeed how a court could distinguish the alleged abuses in these going private transactions from other types of fiduciary self-dealing involving transactions in securities. The result would be to bring within the Rule a wide variety of corporate conduct traditionally left to state regulation. In addition to posing a “danger of vexatious litigation which could result from a widely expanded class of plaintiffs under Rule 10b-5,” Blue Chip Stamps v. Manor Drug Stores, 421 U. S., at 740, this extension of the federal securities laws would overlap and quite possibly interfere with state corporate law. Federal courts applying a “federal fiduciary principle” under Rule 10b-5 could be expected to depart from state fiduciary standards at least to the extent necessary to ensure uniformity within the federal system. Absent a clear indication of congressional intent, we are reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities, particularly where established state policies of corporate regulation would be overridden. As the Court stated in Cort v. Ash, supra: “Corporations are creatures of state law, and investors commit their funds to corporate directors on the understanding that, except where federal law expressly requires certain responsibilities of directors with respect to stockholders, state law will govern the internal affairs of the corporation.” 422 U. S., at 84 (emphasis added).

We thus adhere to the position that “Congress by § 10 (b) did not seek to regulate transactions which constitute no more than internal corporate mismanagement.” Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S., at 12. There may well be a need for uniform federal fiduciary standards to govern mergers such as that challenged in this complaint. But those standards should not be supplied by judicial extension of § 10 (b) and Rule 10b-5 to “cover the corporate universe.”

The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

So ordered.

Mr. Justice Brennan dissents and would affirm for substantially the reasons stated in the majority and concurring opinions in the Court of Appeals, 533 F. 2d 1283 (CA2 1976).

Mr. Justice Blackmun,

concurring in part.

Like Mr. Justice Stevens, I refrain from joining Part IV of the Court’s opinion. I, too, regard that part as unnecessary for the decision in the instant case and, indeed, as exacerbating the concerns I expressed in my dissents in Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 761 (1975), and in Ernst & Ernst v. Hochfelder, 425 U. S. 185, 215 (1976). I, however, join the remainder of the Court’s opinion and its judgment.

Mr. Justice Stevens,

concurring in part.

For the reasons stated by Mr. Justice Blackmun in his dissenting opinion in Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 761, and those stated in my dissent in Piper v. Chris-Craft Industries, ante, p. 53, I believe both of those cases were incorrectly decided. I foresee some danger that Part IV of the Court's opinion in this case may incorrectly be read as extending the holdings of those cases. Moreover, the entire discussion in Part IV is unnecessary to the decision of this case. Accordingly, I join only Parts I, II, and III of the Court’s opinion. I would also add further emphasis to the fact that the controlling stockholders in this case did not breach any duty owed to the minority shareholders because (a) there was complete disclosure of the relevant facts, and (b) the minority are entitled to receive the fair value of their shares. The facts alleged in the complaint do not constitute “fraud” within the meaning of Rule 10b-5.

       Section 10 of the Securities Exchange Act of 1934, 15 U. S. C. § 78j, provides in relevant part:
      “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—

      “(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
      Rule 10b-5, 17 CFR § 240.10b-5 (1976), provides:
      “Employment of manipulative and deceptive devices.
      “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
      “(a) To employ any device, scheme, or artifice to defraud,
      “(b) To make any untrue statement of a material fact or to omit 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
      “(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
      “in connection with the purchase or sale of any security.”

       App. 33a (merger information statement, considered by parties and court below as part of the amended complaint). Sante Fe controlled Kirby through its wholly owned subsidiary, Santa Fe Natural Resources, Inc., which owned the Kirby stock.

       The merger became effective on July 31, 1974, and was accomplished in the following way. A new corporation, Forest Products, Inc., was organized as a Delaware corporation. The Kirby stock, together with cash, was transferred from Santa Fe’s wholly owned subsidiary (see n. 2, supra) to Forest Products in exchange for all of the Forest Products stock. The new corporation was then merged into Kirby, with Kirby as the surviving corporation. The cash transferred to Forest Products was used to make the purchase offer for the Kirby shares not owned by the Santa Fe subsidiary.

       On August 21, 1974, respondents petitioned for an appraisal of their Kirby stock, but they withdrew that petition on September 9 and the next day commenced this lawsuit.

         The figure of $772 per share was calculated as follows:
      “The difference of $311,000,000 ($622 per share) between the fair market value of Kirby’s land and timber, alone, as per the defendants’ own appraisal thereof at $320,000,000 and the $9,000,000 book value of said land and timber, added to the $150 per share, yields a pro rata share of the value of the physical assets of Kirby of at least $772 per share. The value of the stock was at least the pro rata value of the physical assets.” App. 102a.

       The complaint also alleged a breach of fiduciary duty under state law and asserted that the federal court had both diversity and pendent jurisdiction over this claim. The District Court found an absence of complete diversity of citizenship between the plaintiffs and defendants because of the defendant Morgan Stanley and refused to exercise pendent jurisdiction because it held that the complaint failed to state a claim under the federal securities laws. 391 F. Supp. 849, 855 (SDNY 1975).

       The District Court also based its holding on the alternative ground that the injuries alleged in the complaint were not causally related to any deception by the majority shareholder:
      “Assuming arguendo that the merger information statement did not constitute adequate disclosure, the amended complaint does not demonstrate a causal connection between the alleged deception and plaintiffs’ damages. Plaintiffs did not tender their shares for cancellation and payment pursuant to this merger plan. . . . From the outset, plaintiffs recognized the alleged deception and did not rely upon it.” 391 F. Supp., at 855.

       The court concluded its discussion thus:
      “Whether full disclosure has been made is not the crucial inquiry since it is the merger and the undervaluation which constituted the fraud, and not whether or not the majority determines to lay bare their real motives. If there is no valid corporate purpose for the merger, then even the most brazen disclosure of that fact to the minority shareholders in no way mitigates the fraudulent conduct.” 533 F. 2d, at 1292.

       The Court of Appeals affirmed, however, the dismissal of the complaint against Morgan Stanley. As the Court of Appeals understood it, Morgan Stanley had not been charged with participating in the majority shareholder’s breach of fiduciary duty; it had been involved only in evaluation of the stock and the compilation of its report with respect thereto. The complaint contained “no allegation that Morgan Stanley & Co. engaged in any misrepresentation or nondisclosure such as would support its liability under Rule 10b-5 (2).” Ibid.

       See n. 1, supra.

       The Court of Appeals quoted passages from Pepper v. Litton, 308 U. S. 295, 306, 311 (1939) (where this Court upheld the disallowance of a bankruptcy claim of a controlling stockholder who violated his fiduciary obligation to the other stockholders), and from 1 J. Story, Equity Jurisprudence § 187 (1853); the court also cited cases that quoted the passage from Mr. Justice Story’s treatise—Moore v. Crawford, 130 U. S. 122, 128 (1889) (a diversity suit to compel execution of a deed held in constructive trust), and SEC v. Capital Gains Research Bureau, 375 U. S. 180, 194 (1963) (Investment Advisers Act of 1940 prohibits, as a “fraud or deceit upon any client,” a registered investment adviser’s failure to disclose to his clients his own financial interest in his recommendations). Although Capital Gains involved a federal securities statute, the Court’s references to fraud in the “equitable” sense of the term were premised on its recognition that Congress intended the Investment Advisers Act to establish federal fiduciary standards for investment advisers. See id., at 191-192, 194. Moreover, the fraud that the SEC sought to enjoin in Capital Gains was, in fact, a nondisclosure.

       The case for adhering to the language of the statute is even stronger here than in Ernst & Ernst, where the interpretation of Rule 10b-5 rejected by the Court was strongly urged by the Commission. See also Piper v. Chris-Craft Industries, Inc., ante, p. 1, and Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723 (1975) (rejecting interpretations of Rule 10b-5 urged by the SEC as amicus curiae). By contrast, the Commission apparently has not concluded that Rule 10b-5 should be used to reach “going private” transactions where the majority stockholder eliminates the minority at an allegedly unfair price. See SEC Securities Act Release No. 5567 (Feb. 6, 1975), CCH Fed. Sec. L. Rep. ¶ 80,104 (proposing Rules 13e-3A and 13e-3B dealing with “going private” transactions, pursuant to six sections of the 1934 Act including § 10 (b), but stating that the Commission “has reached no conclusions with respect to the proposed rules”). Because we are concerned here only with § 10 (b), we intimate no view as to the Commission’s authority to promulgate such rules under other sections of the Act.

       As the Court noted in Ernst & Ernst: “Neither the intended scope of § 10 (b) nor the reasons for the changes in its operative language are revealed explicitly in the legislative history of the 1934 Act, which deals primarily with other aspects of the legislation.” 425 U. S., at 202. The only specific reference to § 10 in the Senate Report on the 1934 Act merely states that the section was “aimed at those manipulative and deceptive practices which have been demonstrated to fulfill no useful function.” S. Rep. No. 792, 73d Cong., 2d Sess., 6 (1934).

       In addition to their principal argument that the complaint alleges a fraud under clauses (a) and (c) of Rule 10b-5, respondents also argue that the complaint alleges nondisclosure and misrepresentation in violation of clause (b) of the Rule. Their major contention in this respect is that the majority stockholder’s failure to give the minority advance notice of the merger was a material nondisclosure, even though the Delaware short-form merger statute does not require such notice. Brief for Respondents 27. But respondents do not indicate how they might have acted differently had they had prior notice of the merger. Indeed, they accept the conclusion of both courts below that under Delaware law they could not have enjoined the merger because an appraisal proceeding is their sole remedy in the Delaware courts for any alleged unfairness in the terms of the merger. Thus, the failure to give advance notice was not a material nondisclosure within the meaning of the statute or the Rule. Cf. TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438 (1976).

       The decisions of this Court relied upon by respondents all involved deceptive conduct as part of the Rule 10b-5 violation alleged. Affiliated Ute Citizens v. United States, 406 U. S. 128 (1972) (misstatements of material fact used by bank employees in position of market maker to acquire stock at less than fair value); Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U. S. 6, 9 (1971) (“seller [of bonds] was duped into believing that it, the seller, would receive the proceeds”). Cf. SEC v. Capital Gains Research Bureau, 375 U. S. 180 (1963) (injunction under Investment Advisers Act of 1940 to compel registered investment adviser to disclose to his clients his own financial interest in his recommendations).
      We have been cited to a large number of cases in the Courts of Appeals, all of which involved an element of deception as part of the fiduciary misconduct held to violate Rule 10b-5. E. g., Schoenbaum v. Firstbrook, 405 F. 2d 215, 220 (CA2 1968) (en banc), cert. denied, 395 U. S. 906 (1969) (majority stockholder and board of directors “were guilty of deceiving” the minority stockholders); Drachman v. Harvey, 453 F. 2d 722, 733, 736, 737 (CA2 1972) (en banc) (Rule 10b-5 violation alleged on facts found “indistinguishable” from Superintendent of Insurance v. Bankers Life & Cas. Co.); Schlick v. Penn-Dixie Cement Corp., 507 F. 2d 374 (CA2 1974), cert. denied, 421 U. S. 976 (1975) (scheme of market manipulation and merger on unfair terms, one aspect of which was misrepresentation); Pappas v. Moss, 393 F. 2d 865, 869 (CA3 1968) (“if a 'deception' is required in the present context [of § 10 (b) and Rule 10b-5], it is fairly found by viewing this fraud as though the 'independent' stockholders were standing in the place of the defrauded corporate entity,” where the board of directors passed a resolution containing at least two material misrepresentations and authorizing the sale of corporate stock to the directors at a price below fair market value); Shell v. Hensley, 430 F. 2d 819, 825 (CA5 1970) (derivative suit alleging that corporate officers used misleading proxy materials and other reports to deceive shareholders regarding a bogus employment contract intended to conceal improper payments to the corporation president and regarding purchases by the corporation of certain securities at excessive prices); Rekant v. Desser, 425 F. 2d 872, 882 (CA5 1970) (as part of scheme to cause corporation to issue Treasury shares and a promissory note for grossly inadequate consideration, corporate officers deceived shareholders by making affirmative misrepresentations in the corporation’s annual report and by failing to file any such report the next year). See Recent Cases, 89 Harv. L. Rev. 1917, 1926 (1976) (stating that no appellate decision before that of the Court of Appeals in this case and in Marshel v. AFW Fabric Corp., 533 F. 2d 1277 (CA2), vacated and remanded for a determination of mootness, 429 U. S. 881 (1976), “had permitted a 10b-5 claim without some element of misrepresentation or nondisclosure”) (footnote omitted).

       For example, some States apparently require a “valid corporate purpose” for the elimination of the minority interest through a short-form merger, whereas other States do not. Compare Bryan v. Brock & Blevins Co., 490 F. 2d 563 (CA5), cert. denied, 419 U. S. 844 (1974) (merger arranged by controlling stockholder for no business purpose except to eliminate 15% minority stockholder violated Georgia short-form merger statute) with Stauffer v. Standard Brands, Inc., 41 Del. Ch. 7, 187 A. 2d 78 (1962) (Delaware short-form merger statute allows majority stockholder to eliminate the minority interest without any corporate purpose and subject only to an appraisal remedy). Thus to the extent that Rule 10b-5 is interpreted to require a valid corporate purpose for elimination of minority shareholders as well as a fair price for their shares, it would impose a stricter standard of fiduciary duty than that required by the law of some States.

       Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L. J. 663, 700 (1974) (footnote omitted). Professor Cary argues vigorously for comprehensive federal fiduciary standards, but urges a “frontal” attack by a new federal statute rather than an extension of Rule 10b-5. He writes: “It seems anomalous to jig-saw every kind of corporate dispute into the federal courts through the securities acts as they are presently written.” Ibid. See also Note, Going Private, 84 Yale L. J. 903 (1975) (proposing the application of traditional doctrines of substantive corporate law to problems of fairness raised by “going private” transactions such as short-form mergers).

       See also Eason v. General Motors Acceptance Corp., 490 F. 2d 654 (CA7 1973), cert. denied, 416 U. S. 960.

       The motivation for the merger is a matter of indifference to the minority stockholders because they retain no interest in the corporation after the merger is consummated.