In re S.E.C. ex rel. Glotzer

• Decision Date: 06 July 2004
• Docket Number: Docket No. 03-3125.
• Citation: 374 F.3d 184
• Parties: In re: SECURITY AND EXCHANGE COMMISSION ex rel. Helene GLOTZER and Jill Slansky, and Helene Glotzer and Jill Slansky, Petitioners. Securities and Exchange Commission, ex rel. Helene Glotzer and Jill Slansky, Movants, Todd Semon, On behalf of himself and all others similarly situated, Thomas Pratt, Rex Weimer, Howard Rosen, on behalf of himself and all others similarly situated, Donald Mackinnon, on behalf of himself and all others similarly situated, Ivan Crnkovich, on behalf of himself and all others similarly situated, Barbara Crnkovich, on behalf of herself and all others similarly situated, Plaintiffs, v. Martha Stewart, Living Omnimedia, Inc., Defendant.
• Court: U.S. Court of Appeals — Second Circuit

374 F.3d 184

In re: SECURITY AND EXCHANGE COMMISSION ex rel. Helene GLOTZER and Jill Slansky, and Helene Glotzer and Jill Slansky, Petitioners Securities and Exchange Commission, ex rel. Helene Glotzer and Jill Slansky, Movants Todd Semon, On behalf of himself and all others similarly situated, Thomas Pratt, Rex Weimer, Howard Rosen, on behalf of himself and all others similarly situated, Donald Mackinnon, on behalf of himself and all others similarly situated, Ivan Crnkovich, on behalf of himself and all others similarly situated, Barbara Crnkovich, on behalf of herself and all others similarly situated, Plaintiffs, v. Martha Stewart, Living Omnimedia, Inc., Defendant.

Docket No. 03-3125.

United States Court of Appeals, Second Circuit.

Argued December 23, 2003.

Decided July 6, 2004.

Samuel M. Forstein, Assistant General Counsel (Giovanni P. Prezioso, General Counsel, Thomas J. Karr, Special Trial Counsel, and Kathleen Cody, Senior Counsel, on the brief), Securities and Exchange Commission, Washington, D.C., for Petitioners.

Barbara Moses (Robert G. Morvillo, Tracey Kitzman, and Gregory Morvillo, on the brief), Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York, NY, for Defendant.

Before: WALKER, Chief Judge, CALABRESI and CABRANES, Circuit Judges.

JOHN M. WALKER, Jr., Chief Judge.

The Securities and Exchange Commission ("SEC") petitioned on behalf of and along with SEC attorneys Helene Glotzer and Jill Slansky for a writ of mandamus to vacate the order of the United States District Court for the Southern District of New York (John E. Sprizzo, Judge) granting Martha Stewart's motion to compel compliance with a subpoena ad testificandum. On December 24, 2003, we issued an order granting the petition on the ground that the district court lacked subject matter jurisdiction to consider Ms. Stewart's motion to compel. This opinion sets forth the reasons for that ruling.

BACKGROUND

The underlying securities fraud action was brought in August 2002 by shareholders of Martha Stewart Living Omnimedia, Inc. ("MSO") against MSO and several MSO executives, including Martha Stewart herself. The plaintiffs in that action allege that Stewart made false statements concerning her sale of shares in an unrelated company, ImClone Systems, Inc., and that those statements artificially inflated the value of MSO's shares, in violation of the federal securities laws.

On June 4, 2003, while the class action was pending, Stewart and her stockbroker, Peter Bacanovic, were indicted by the United States Attorney's Office for the Southern District of New York. On the same day, the SEC commenced a civil enforcement proceeding against Stewart and Bacanovic. The criminal indictment and the SEC's complaint contained many of the same allegations that appear in the class action complaint.

In view of these developments, the parties in the class action suit agreed to stay any discovery by and against Stewart until the criminal case against her had been resolved. The district judge, however, rejected their agreement and directed that Stewart conduct any discovery she desired. On October 21, 2003, Stewart¹ served subpoenas ad testificandum on Slansky and Glotzer, who had interviewed Stewart and Bacanovic in connection with the SEC enforcement proceeding and who had been designated as witnesses for the United States in the criminal case against Stewart.

On November 3, 2003, the SEC's Assistant General Counsel, Samuel M. Forstein, wrote a letter to Stewart informing her that, under SEC regulations, Slansky and Glotzer could not testify unless authorized by the SEC. In his letter, Forstein questioned both the propriety of seeking to depose these witnesses and the relevance of any testimony they might offer. Nevertheless, Forstein requested that Stewart "set forth in writing the questions that [she] intend[ed] to cover in each of these depositions." Stewart's attorneys declined to comply with this request, but explained orally that they wished to inquire about the witnesses' knowledge of the allegations contained in the class action complaint and their recollection of the interviews they had conducted with Stewart, Bacanovic, and Bacanovic's assistant, Douglas Faneuil.

By letter dated November 4, 2003, the SEC's Associate General Counsel, Richard M. Humes, transmitted his decision declining to authorize the depositions of Glotzer and Slansky. Humes explained that depositions of opposing counsel are disfavored, see United States v. Yonkers Bd. of Educ., 946 F.2d 180, 185 (2d Cir.1991) (citing Shelton v. Am. Motors Corp., 805 F.2d 1323, 1327 (8th Cir.1986)), and that, in the SEC's opinion, the prerequisites for permitting such depositions had not been met in this case. Principal among the SEC's concerns was that the information gleaned from Glotzer and Slansky's testimony would be subject to the attorney work product privilege.

On November 17, 2003, Stewart moved the district court to compel compliance with the subpoena. In opposing the motion, the SEC argued that Stewart's failure to exhaust her administrative remedies under § 704 of the Administrative Procedure Act ("APA"), 5 U.S.C. § 704, precluded her from bringing a motion to compel. Immediately following oral argument on December 5, 2003, the district judge granted Stewart's motion. He concluded, among other things, that the APA's administrative exhaustion requirement did not apply. He then ordered the witnesses to appear, on pain of contempt, and indicated that he would deal with any particular claims of privilege as they arose.

On December 15, 2003, the SEC filed an emergency motion with this court seeking a stay of the district court's order and a petition for a writ of mandamus. On December 23, 2003, we heard oral argument. The next day, we issued an order granting the petition for a writ of mandamus, vacating the district court's order for lack of jurisdiction, and dismissing as moot the motion for a stay. We also announced that this opinion would follow.

DISCUSSION

I. Availability of the Writ of Mandamus

The writ of mandamus is "meant to be used only in the exceptional case." In re von Bulow, 828 F.2d 94, 96 (2d Cir.1987) (internal quotation marks omitted). Pretrial discovery orders like the one issued by the district court in this case generally are not reviewable on direct appeal, and "`we have expressed reluctance to circumvent this salutary rule by use of mandamus.'" United States v. Coppa (In re United States), 267 F.3d 132, 137 (2d Cir.2001) (quoting In re W.R. Grace & Co., 984 F.2d 587, 589 (2d Cir.1993)). Nevertheless, mandamus may be available where "`a discovery question is of extraordinary significance or there is extreme need for reversal of the district court's mandate before the case goes to judgment.'" von Bulow, 828 F.2d at 97 (quoting Am. Express Warehousing, Ltd. v. Transamerica Ins. Co., 380 F.2d 277, 282 (2d Cir.1967)). More specifically, "we will entertain a petition for a writ of mandamus ... to cure a defective pretrial discovery order if the petitioner demonstrates '(1) the presence of a novel and significant question of law; (2) the inadequacy of other available remedies; and (3) the presence of a legal issue whose resolution will aid in the administration of justice.'" Coppa, 267 F.3d at 137-38 (quoting In re United States, 903 F.2d 88, 89 (2d Cir.1990)); see Chase Manhattan Bank, N.A. v. Turner & Newall, PLC, 964 F.2d 159, 163 (2d Cir.1992).

Applying these criteria to the case before us, we conclude that the extraordinary writ of mandamus is available here. First, as discussed more fully below, the question of law presented by this petition is both novel and significant. Neither this circuit nor any other has squarely addressed whether the APA's administrative exhaustion requirement, 5 U.S.C. § 704, applies to a motion to compel a government agency to comply with a subpoena ad testificandum, and resolution of that question will lend structure to the procedural framework for adjudicating discovery disputes involving government agencies.

Second, because the district court's order is not immediately appealable, mandamus is the only adequate means available to the SEC for protecting its interests. Absent mandamus, the SEC would either have to comply with the district court's order and forgo enforcement of its own administrative procedures or risk contempt for failure to comply. See Coppa, 267 F.3d at 138-39 (noting similar dilemma faced by the Government in a criminal case). We recognize that, generally, a litigant who wants to challenge a discovery order must disobey the order, be held in contempt of court, then bring an appeal; mandamus is not usually appropriate where such path is available. See, e.g., In re Dep't of Investigation of City of New York, 851 F.2d 65, 69 (2d Cir.1988). But, under these somewhat unusual circumstances, the disobedience-and-contempt route to appeal does not present an adequate remedy. First, the SEC is not just arguing that the district court abused its discretion; it is asserting that the court entirely lacked jurisdiction to consider the motion to compel. If the SEC is correct in its assertion, then the district court improperly interfered with agency authority, and the need for relief is more pressing than it would be absent a jurisdictional issue. Second, and relatedly, there is a marked difference between requiring a private litigant to submit to a contempt order before seeking appellate relief and requiring executive agency officials to do so; the latter case raises the prospect of "`serious repercussions for the relationship between two coequal branches of government.'" In re FDIC, 58 F.3d 1055, 1060 n. 7 (5th Cir.1995) (quoting In re United States, 985 F.2d 510, 513 (11th Cir.) (per curiam), cert. denied, 510 U.S. 989, 114 S.Ct. 545, 126 L.Ed.2d 447 (1993)). We think these two factors, taken together, render the disobedience-and-contempt route inadequate to protect the SEC's interests.²

Third,...