Sec. & Exch. Comm'n v. Comm. on Ways

• Decision Date: 13 November 2015
• Docket Number: 14 Misc. 193 (PGG)
• Parties: Securities and Exchange Commission, Applicant, v. The Committee on Ways and Means of the U.S. House of Representatives and Brian Sutter, Respondents.
• Court: U.S. District Court — Southern District of New York

161 F.Supp.3d 199

Securities and Exchange Commission, Applicant,

v.The Committee on Ways and Means of the U.S. House of Representatives and Brian Sutter, Respondents.

14 Misc. 193 (PGG)

United States District Court, S.D. New York.

Signed November 13, 2015

Amanda Lynn Straub, Richard G. Primoff, Sanjay Wadhwa, Michael David Birnbaum, U.S. Securities and Exchange Commission, New York, NY, for Applicant.

Kerry William Kircher, William Pittard, Office of General Counsel, U.S. House of Representatives, Thomas G. Hungar, Gibson, Dunn & Crutcher, LLP, Washington, DC, for Respondents.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE

, UNITED STATES DISTRICT JUDGE:

This case concerns, inter alia , the scope of Congressional immunity under the Speech or Debate Clause of the United States Constitution, art. I, § 6, cl. 1

.

The Securities and Exchange Commission (“SEC”) seeks an order, pursuant to Section 21(c) of the Exchange Act, 15 U.S.C. § 78u(c)

, requiring the Committee on Ways and Means of the U.S. House of Representatives (the “Committee”) and Brian Sutter—the former Staff Director of the Committee's Health Subcommittee—to comply with investigative subpoenas served on them pursuant to a Formal Order issued by the SEC under Section 21(a) of the Exchange Act, 15 U.S.C. § 78u(a).

In response to an Order to Show Cause issued by this Court—which directed the Committee and Sutter (collectively, “Respondents”) to show cause why they should not be ordered to comply with the SEC subpoenas—Respondents have moved to dismiss the SEC's enforcement application pursuant to Fed. R. Civ. P. 12(b)(1), (2), (3), and (6)

. (Dkt. No. 14) Respondents argue that (1) the application is barred by the doctrine of sovereign immunity; (2) this Court lacks personal jurisdiction over Respondents; (3) venue is improper in this District; and (4) even if venue is proper here, the case should be transferred to the U.S. District Court for the District of Columbia under 28 U.S.C. § 1404(a)

. (Resp. Br. (Dkt. No. 17) at 2) Respondents also contend that the SEC's application should be denied because (1) the information sought in the subpoenas is protected from disclosure under the Speech or Debate Clause; and (2) the SEC has not established the “exceptional circumstances” necessary under United States v. Morgan , 313 U.S. 409, 61 S.Ct. 999, 85 L.Ed. 1429 (1941), to justify an SEC deposition of Sutter. (Id. ) For the reasons stated below, Respondents' motion to dismiss or transfer will be denied, and the SEC's application for an order requiring Respondents to comply with the investigative subpoenas will be granted in part and denied in part.

BACKGROUND

I. THE HUMANA INVESTIGATION

The SEC's application relates to In the Matter of Humana Inc. (SEC Internal File No. NY-8910) (the “Humana Investigation”), a non-public SEC investigation. The investigation is aimed at determining “whether any persons or entities have violated Section 10(b) of the Securities Exchange Act of 1934 ..., and Rule 10b-5 promulgated thereunder, ... by, among other things, trading in the securities of Humana or other issuers on the basis of material nonpublic information, or disclosing to others material nonpublic information regarding Humana or other issuers, in breach of a fiduciary or other duty arising out of a relationship of trust and confidence.” (Straub Decl. (Dkt. No. 3) ¶ 3)

The Humana Investigation is being conducted by the SEC's New York Regional Office. That Office has issued “[a]ll subpoenas, informal requests for information, and other investigational correspondence in [the] investigation.” (Wadhwa Decl. (Dkt. No. 22) ¶ 3) The material non-public information at issue concerns payment rates for physicians serving Medicare patients.

On April 1, 2013, at approximately 4:15 p.m., the U.S. Centers for Medicare and Medicaid Services (“CMS”)—a federal agency within the U.S. Department of Health and Human Services (“HHS”)—issued the final 2014 Medicare Advantage (“MA”) rate announcement (the “CMS Rate Announcement”). (Straub Decl. (Dkt. No. 3) ¶ 9, Ex. A) The CMS Rate Announcement informs all MA organizations, prescription drug plan sponsors, and other interested parties of the annual MA “capitation rate”¹ for the calendar year 2014. (Id. at 1) In the CMS Rate Announcement, CMS states that “[t]he basis for the [National Per Capita Medicare Advantage and the National Medicare Fee-for-Service] Growth Percentage for 2014 has been changed to incorporate an assumption that Congress will act to prevent the scheduled 25-percent reduction in Medicare physician payment rates from occurring.” According to CMS, this assumption was a “more reasonable expectation than the reduction required under the statutory ‘sustainable growth rate’ (SGR) formula.” (Id. )

The CMS Rate Announcement differs significantly from preliminary Medicare payment rates that CMS had announced six weeks earlier (the “Advance Notice”). (Straub Decl. (Dkt. No. 3) ¶¶ 9-11) In the February 15, 2013 Advance Notice, CMS applied the statutory SGR formula, which resulted in a 25-percent reduction in physician payment rates. (Straub Decl. (Dkt. No. 3), Ex. A, at 1) In the April 1, 2013 final CMS Rate Announcement, however, CMS assumed that Congress would override the use of the SGR formula and prevent the reduction in physician payment rates. (Id. ) This change in methodology results in payment rates that are more favorable to insurers than the preliminary payment rates that CMS had announced in the Advance Notice. (Straub Decl. (Dkt. No. 3) ¶ 10) (“According to the Advance Notice, certain payments from Medicare Advantage to insurers would have declined by 2.3% from the prior year. According to the rates released in the final Rate Announcement on April 1, those payments, in contrast, were set to increase by 3.5% from the prior year.”)

II. THE ALLEGED MATERIAL NON-PUBLIC INFORMATION

At 3:11 p.m. on April 1, 2013—approximately one hour before the release of the CMS Rate Announcement—a lobbyist at Greenberg Traurig, LLP (“Greenberg”) sent an email to an analyst at Height Securities, LLC, stating:

Our intel is that a deal was already hatched by [Senator] Hatch to smooth the way for Tavenner² as long as they address the MA rates in the final notice. We have heard from very credible sources that the final notice will adjust the phase in on risk adjustment and take into account the likelihood/certainty of an SGR fix.

(Id. ¶ 12)

At 3:40 p.m. on April 1, 2013, the Height Securities analyst sent a “flash report” by email and instant message to nearly 200 clients. The “flash report” states:

(1) We now believe that a deal has been hatched to protect Medicare Advantage rates from the -2.3% rate update issued in the advanced notice mid-February

(2) We believe that the SGR will be assumed in the trends going forward resulting in roughly a 4% increase in cost trends

(3) This is a drastic change in historical policy aimed to smooth the confirmation of Marylyn Tavernier [sic]

(4) We are supportive of MA related stocks (HUM, HNT) under this circumstance[.]

(Id. ¶ 13)

Within five minutes of the release of this “flash report”—and before the CMS Rate Announcement was issued at 4:15 p.m.—the prices and trading volume of stocks of certain health insurers rose dramatically. Humana's stock appreciated by approximately seven percent within twelve minutes of the issuance of the “flash report.” (Id. ¶ 14, Ex. B)

III. THE SEC'S ALLEGATIONS CONCERNING BRIAN SUTTER

During the time period at issue in the Humana Investigation, Brian Sutter served on the Professional Staff of the House Ways and Means Committee's Health Subcommittee. As of April 1, 2013, Sutter was performing many of the duties of the Subcommittee's Staff Director, and on April 22, 2013, he was named to that position. (Straub Decl. (Dkt. No. 3) ¶ 6; see also Resp. Br. (Dkt. No. 17) at 45 n. 28) On December 16, 2014, Sutter resigned. (Dec. 19, 2014 Comm. Ltr. (Dkt. No. 28) at 1)

The SEC represents that it possesses information and emails indicating that—in March 2013—Sutter spoke several times with a colleague of the Greenberg lobbyist who sent the April 1, 2013 email to the Height Securities analyst. Sutter also communicated with at least two CMS employees in the week before the CMS Rate Announcement.³ (Straub Decl. (Dkt. No. 3) ¶¶ 16-17) Moreover, at 11:07 a.m. on April 1, 2013—the day of the CMS Rate Announcement—Sutter emailed the Greenberg lobbyist “about the termination of one of the lobbyist's clients from the Medicare Advantage program.” (Id. ¶ 18) The Greenberg lobbyist states that he and Sutter spoke by telephone at approximately 3:00 p.m. on April 1, 2013—ten minutes before the Greenberg lobbyist emailed the Height Securities analyst—and that they discussed the CMS Rate Announcement at that time. (Id. ¶¶ 19-20)

A few weeks after the CMS Rate Announcement, an agent of the Federal Bureau of Investigation (“FBI”) and an investigator from the Office of the Inspector General at HHS (“HHS OIG”) interviewed Sutter about these communications. During the interview, Sutter said that “he did not recall speaking to the [Greenberg] [l]obbyist about the Rate Announcement.” (Id. ¶ 21)

A few days after the Sutter interview, William Pittard—Deputy Counsel of the U.S. House of Representatives—sent a letter to the FBI and HHS OIG stating the following:

I understand that you may have asked Mr. Sutter whether he ever had used his mobile telephone to speak with [the Greenberg lobbyist]. Mr. Sutter may have answered that he could not recall doing so, which would have been a correct statement of Mr. Sutter's memory at the time. With the benefit of some time for reflection, Mr. Sutter's best recollection now is that he previously may have used his mobile telephone to speak with [the Greenberg lobbyist], although he is not certain. It is also possible that Mr. Sutter may have made other statements in the course of his interrogation that, while an accurate reflection of his memory at the time, might merit clarification if, for example, Mr.

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