Page - 113 - in Austrian Law Journal, Volume 1/2015

ALJ 1/2015 Observations on Judicial Approaches to Discerning Investment Adviser Status 113 conditions for assigning the advisory contract,95 and limitations on contractual waiver of certain rights under the Advisers Act.96 Section 205 authorizes and regulates the circumstances under which an investment advisory contract may permit an adviser to receive a performance-based fee.97 In addition, certain Commission rules promulgated under § 203 rely on the date the advi- sory contract is executed98 as the trigger for requiring delivery of Form ADV (or its equivalent) to a client. Written advisory contracts must be maintained as a record available for Commis- sion examination.99 Under § 215, a private client action against an investment adviser requires that a contract be formed between the client and the investment adviser100 and limits standing to initiate an action to the parties to the contract.101 Based in part on these provisions, the contract analysis approach is consistent with cannons of statutory construction requiring that every provision of a statute be given effect102 and, at least initially, both language itself along with the specific context used and broader context of the statute as a whole103 be considered. A contract analysis approach would build on this statutorily created contract framework. The essential inquiry would focus on whether an advisory contract was formed between the advis- er and the client. Consistent with the Supreme Court’s decision in Transamerica Mortgage Advi- sors, Inc. v. Lewis,104 this inquiry will be guided by the application of state law concepts of contract 95 See § 205(a)(2), 15 U.S.C. § 80b-5(a)(2) (prohibits assignment of an investment advisory contract without the consent of the other party to the contract); see also § 202(a)(1), Assignment, 15 U.S.C. § 80b-2(a)(1); Rule 202(a)(1)-1, Certain Transactions Not Deemed Assignments, 17 C.F.R. § 275.2(a)(1)-1. 96 See § 215, Validity of Contracts, 15 U.S.C. § 80b-15 (limits waiver of provisions of the Advisers Act in invest- ment advisory contracts). 97 15 U.S.C. § 80b-5. 98 Rule 204-3(b), Delivery of Brochures and Brochure Supplements, 17 C.F.R. § 275.3(b) (requires an investment adviser provide Form ADV to a client at least forty eight hours before entering into an investment advisory contract or, if not provided forty eight hours before entering into a contract, the client is permitted, without charge, to terminate the contract within five days of entering into the contract). 99 Rule 204-2(a)(10), Books and Records to Be Maintained by Investment Advisers, 17 C.F.R. § 275.4-2(a)(10) (requiring written agreements between an investment adviser and a client be maintained). 100 See, e.g., Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 17 (1979). 101 See id. § 214, Jurisdiction of Offenses and Suits, 15 U.S.C. § 80b-14; § 215, Validity of Contracts, 15 U.S.C. § 80b- 15; see also Clark v. Nevis Capital Mgmt., LLC, 2005 WL 488641 1, 2-3 (S.D.N.Y. 2005) (“Only parties to an in- vestment advisory contract may sue for rescission under section 215. See Zurich Capital Markets, Inc. v. Coglianese, 332 F. Supp. 2d 1087, 1114 (N.D. Ill. 2004) (‘In order to sue under the Act and seek rescission of the contract, [a plaintiff investor] must be a party to the contract.’) (citing Shahidi v. Merrill Lynch, Pierce, Fen- ner & Smith, Inc., No. 2:02CV483FTM29SC, 2003 WL 21488228, at 3 (M.D. Fla. Apr. 28, 2003) (concluding that the plaintiff ‘shareholders have no standing to individually sue either defendant in this case to void the con- tracts’); Soderberg v. Gens, 652 F. Supp. 560, 564 (N.D. Ill. 1987) (observing that the courts limit claims to ‘per- sons actually in an advise/client relationship’)); Neely v. Bar Harbor Bankshares, 240 F. Supp. 2d 44, 49 (D. Me. 2003) (observing that ‘there is no right of action under the Act unless there is first an investment adviser con- tract between the parties’) (citing Paul S. Mullin & Assoc., Inc. v. Bassett, 632 F. Supp. 532, 537 (D. Del. 1986) (stating that ‘only the parties to [an investment adviser] contract can avail themselves of the remedy of rescis- sion’)); Washington, 656 F. Supp. at 1178 (holding that only parties to an investment adviser contract are proper parties in a claim brought under section 215).”). 102 Corley v. U.S., 556 U.S. 303, 314 (2009) (quotations omitted) (Under this “most basic [of] interpretative can- nons [...] [a] statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant [...].”). But see Marx v. Gen. Revenue Corp., 133 S.Ct. 1166 (2013) (discussing limitations on application of cannon against surplusage). 103 Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) (citation omitted) (In determining whether statutory lan- guage has a plain and unambiguous meaning, courts should refer “to the language itself, the specific context in which the language is used, and the broader context of the statute as a whole.”). 104 444 U.S. 11 (1979).