Summary
The Supreme Court held that 18 U.S.C. § 610, a criminal statute prohibiting certain corporate campaign expenditures, did not imply a private federal cause of action for derivative damages by a corporate shareholder. The Court also held that the 1974 Federal Election Campaign Act Amendments required future requests for injunctive relief to proceed through the Federal Election Commission and Attorney General. Any shareholder remedy for the alleged 1972 violation was left to Delaware law.
Topics
Practice areas
Questions Presented
- Whether a private cause of action for damages may be implied under 18 U.S.C. § 610 in favor of a corporate shareholder suing derivatively.
- Whether a private citizen or shareholder may obtain injunctive relief against alleged future violations of § 610 after the Federal Election Campaign Act Amendments of 1974 created an administrative enforcement mechanism.
- Whether the Court should address the underlying question whether the challenged expenditures violated § 610 or were unconstitutional.
Holdings
- No private federal cause of action for derivative damages is available to a corporate shareholder under § 610 for the alleged 1972 violation. Any relief available to the shareholder must arise, if at all, under Delaware corporate law rather than by implication from § 610.
- After the 1974 Federal Election Campaign Act Amendments, a private complainant seeking injunctive relief against alleged future violations of § 610 must pursue the statutory complaint procedure before the Federal Election Commission and invoke the statutory enforcement authority provided by the Amendments.
Key quotations
“In determining whether a private remedy is implicit in a statute not expressly providing one, several factors are relevant. First, is the plaintiff "one of the class for whose especial benefit the statute was enacted," Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39 (1916) (emphasis supplied)—that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? See, e. g., National Railroad Passenger Corp. v. National Assn. of Railroad Passengers, 414 U.S. 453, 458, 460 (1974) (Amtrak). Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? See, e. g., Amtrak, supra; Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 423 (1975); Calhoon v. Harvey, 379 U.S. 134 (1964). And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?” (422 U.S. at 78-79)
“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)
“Because injunctive relief is not presently available in light of the Amendments, and because implication of a federal right of damages on behalf of a corporation under § 610 would intrude into an area traditionally committed to state law without aiding the main purpose of § 610, we reverse.” (422 U.S. at 85)
Factual background
Bethlehem Steel used corporate funds to publish political advertisements and distribute materials during the 1972 Presidential election, including statements by its chairman criticizing a presidential candidate's position on corporate taxation and encouraging readers to organize 'truth squads.' Ash owned 50 shares of Bethlehem stock and sued individually and derivatively on behalf of the corporation. He alleged that the expenditures violated 18 U.S.C. § 610 and constituted unlawful corporate conduct.
Procedural history
Ash, a Bethlehem Steel shareholder, brought a citizen and derivative action seeking injunctive and monetary relief based on corporate expenditures allegedly violating 18 U.S.C. § 610. The Eastern District of Pennsylvania denied preliminary injunctive relief, and the Third Circuit affirmed that denial on irreparable-harm grounds. After Ash dropped his pendent Delaware-law claim, the District Court granted summary judgment for the defendants; the Third Circuit reversed, holding that private injunctive and derivative damages actions were available. The Supreme Court granted certiorari and reversed.