Kay Hollinger Richard Llewelyn Jones Edward E. Nissen Judy D'Arcy K-Judy, Ltd. v. Titan Capital Corp. Emil Wilkowski Painter Financial Group, Ltd.

Emil Wilkowski, a dishonest securities salesman, embezzled money entrusted to him by four clients. As a result, Wilkow-ski was convicted of criminal securities fraud and grand theft. In this civil action for alleged violations of federal securities and state laws, the victimized investors seek to recover their losses from a brokerage firm and a financial counseling firm with which Wilkowski was associated. The district court granted summary judgment to both defendants, which plaintiffs now appeal.

On appeal, the panel called sua sponte for the case to be heard en banc to review various questions of Ninth Circuit securities law raised by this case. They are as follows:

We will address each of these questions in the course of considering appellants’ various claims under the federal securities laws.

*1567 I

Defendant/appellee Painter Financial Group, Ltd. (“Painter”) was formed in May 1983 to provide financial counseling and to sell insurance to individuals and small businesses. Shortly thereafter, Emil Wilkow-ski rented space in Painter’s office in Belle-vue, Washington, from which he sold insurance and counseled individuals as a Painter representative. During the summer of…

with whom RYMER, Circuit Judge, joins dissenting:

I concur in all but section IV of the majority opinion. I would hold that section 20(a) of the Act, which already imposes vicarious liability upon all employers for the fraudulent acts of their employees, precludes the grafting of the common law doctrine of respondeat superior onto a federal securities law action. The inclusion in the securities laws of statutory provisions which expressly impose controlling person liability indicates that Congress intended to exclude other forms of vicarious liability. If we impose secondary liability under re-spondeat superior upon Titan for Wilkow-ski’s rule 10b-5 fraud, we effectively nullify the exculpatory provision of section 20(a) as well as the scienter element of a 10(b) claim. The majority bases its holding on an analysis of the legislative history behind section 20(a) and on policy arguments regarding the remedial nature of the Act. Majority opinion at 1577-1578. Both of these arguments are unpersuasive for a number of reasons.

A more comprehensive examination of the legislative history behind section 20(a) reveals the majority’s conclusion to be somewhat facile. While preventing…

914 F.2d 1564 59 USLW 2222 , Fed. Sec. L. Rep. P 95,500 Kay HOLLINGER; Richard Llewelyn Jones; Edward E. Nissen; Judy D'Arcy; K-Judy, Ltd., Plaintiffs-Appellants, v. TITAN CAPITAL CORP.; Emil Wilkowski; Painter Financial Group, Ltd., Defendants-Appellees. No. 87-3837. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 22, 1990. Decided Sept. 27, 1990. As Amended on Denial of Rehearing Nov. 13, 1990. Peter B. Camp, Seattle, Wash., for plaintiffs-appellants. Christopher B. Wells, Lane, Powell, Moss & Miller, Seattle, Wash., for defendant-appellee, Titan Capital Corp. James S. Scott and James M. Shaker, Scott & Scott, Yakima, Wash., for defendant-appellee Painter Financial Group, Ltd. Paul Gonson, S.E.C., Washington, D.C., for amicus curiae, S.E.C. W. Reese Bader and Barbara Moses, Orrick, Herrington & Sutcliffe, San Francisco, Cal., for amicus curiae, Securities Industry Ass'n. Appeal from the United States District Court for the Western District of Washington. Before GOODWIN, Chief Judge, SCHROEDER, ALARCON, NORRIS, NELSON, CANBY, HALL, WIGGINS, BRUNETTI, THOMPSON, and RYMER, Circuit Judges. WILLIAM A. NORRIS, Circuit Judge: 1 Emil Wilkowski, a…