Gentile v. Sec. & Exch. Comm'n

• Citation: 974 F.3d 311
• Decision Date: 10 September 2020
• Docket Number: No. 19-2252,19-2252
• Parties: Guy GENTILE, Appellant v. SECURITIES & EXCHANGE COMMISSION
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

974 F.3d 311

Guy GENTILE, Appellant

v.SECURITIES & EXCHANGE COMMISSION

No. 19-2252

United States Court of Appeals, Third Circuit.

Argued: January 15, 2020

Filed: September 10, 2020

Adam C. Ford [Argued], Ford O'Brien, 575 5th Avenue, 17th Floor, New York, NY 10017, Counsel for Appellant

Matthew S. Ferguson [Argued], Samuel M. Forstein, United States Securities & Exchange Commission, 100 F. Street, N.E., Washington, DC 20549, Counsel for Appellee

Before: HARDIMAN, PORTER, and PHIPPS, Circuit Judges.

OPINION OF THE COURT

PHIPPS, Circuit Judge.

Congress often confers significant investigative powers upon administrative agencies, such as the Securities and Exchange Commission. Those powers commonly include the ability to seek testimony and documents through administrative subpoena. In this case, Guy Gentile asserts that the SEC abused its investigative authority through several unauthorized administrative subpoenas, to the detriment of his businesses. He sues under the Administrative Procedure Act (APA) to hold unlawful and set aside the SEC's investigation under which the subpoenas were issued. But his suit cannot proceed because sovereign immunity shields federal agencies from suit. And although the APA broadly waives sovereign immunity, that waiver does not extend to challenges to an agency's decision to investigate. For that reason, on de novo review, we will affirm the order dismissing Gentile's complaint for lack of subject matter jurisdiction.

I.

Guy Gentile and the Securities and Exchange Commission are not strangers. Their acquaintance dates back to 2012 when the SEC investigated Gentile for his role in a penny-stock manipulation scheme in 2007-08. Later, the SEC civilly sued Gentile, and he was indicted for securities fraud violations. Gentile challenged both suits, leading to their dismissals on timeliness grounds, but this Court reinstated the SEC's civil suit. See SEC v. Gentile , 939 F.3d 549, 552-53, 566 (3d Cir. 2019).

This case involves a separate SEC investigation, one related to securities transactions through an unregistered broker-dealer in violation of Section 15 of the Securities and Exchange Act of 1934. See 15 U.S.C. § 78o(a). The subject of that investigation – Traders Café LLC, a day-trading firm – maintained an account with Gentile's Bahamian broker-dealer, which was not registered in the United States. The SEC issued a Formal Order of Investigation into Traders Café on November 25, 2013. But later, without issuing a new Formal Order of Investigation, the SEC informed Gentile that he was a target in that investigation.

As part of its investigation, the SEC has twice subpoenaed Gentile for testimony – once in March 2016 and again in December 2017. He refused to comply with those subpoenas, and despite having the ability under the Exchange Act to initiate an action to enforce those subpoenas, see 15 U.S.C. § 78u(c), the SEC has not done so.

Instead, the SEC has pursued other options for obtaining information, and it has not been shy about serving subpoenas on other entities associated with Gentile. Two subpoena recipients – Gentile's personal attorney and an entity affiliated with Gentile's Bahamian broker-dealer – refused to comply with the SEC's subpoenas. The SEC commenced enforcement actions against those entities in the Southern District of Florida in February 2019.¹

Gentile saw those actions as an opportunity to challenge the legitimacy of the SEC's then six-year investigation, which he alleges was ruining his businesses,² and he moved to intervene in those cases. The District Court in Florida denied Gentile's motions, reasoning that Gentile lacked a sufficient interest in the subpoenas to merit intervention.³ The Court explained that Gentile would have other, more concrete opportunities to challenge the legitimacy of the SEC's investigation, such as if the SEC brought an action to enforce the subpoenas served on him or if the SEC initiated a civil suit against him.⁴ Gentile did not appeal those rulings, and the District Court in Florida ordered compliance with each subpoena.⁵

Gentile challenged the legitimacy of the SEC's investigation on another front as well. On February 8, 2019, two days after the SEC commenced the subpoena enforcement actions in Florida, Gentile filed this lawsuit in the District of New Jersey. See Compl. (App. 23-46). His complaint sought a declaration that the Traders Café investigation was unlawful. See id. at 24 (App. 46). It also requested the quashing of the SEC's investigative subpoenas served in connection with the Traders Café investigation and an injunction to prevent the SEC from using the fruits of that investigation against him. See id.

In response, the SEC moved to dismiss that action for lack of subject matter jurisdiction. It argued that the doctrine of sovereign immunity barred Gentile's suit for three reasons: (i) Gentile was not challenging a final agency action, see 5 U.S.C. § 704 ; (ii) the APA did not allow judicial review because the Exchange Act provided the exclusive mechanism for challenging an SEC-issued investigative subpoena, see 15 U.S.C. § 78u(c) ; and (iii) the SEC's investigation was a matter committed to agency discretion by law, see 5 U.S.C. § 701(a)(2).

The District Court granted the SEC's motion to dismiss and denied a preliminary injunction motion that Gentile had also filed. In doing so, the District Court rejected the SEC's finality argument. But the Court dismissed Gentile's suit on sovereign immunity grounds by following a chain of reasoning from the Second Circuit in Sprecher v. Graber , 716 F.2d 968 (2d Cir. 1983). The Sprecher sequence begins by accounting for a proviso in the APA's waiver of sovereign immunity, see 5 U.S.C. § 702, which makes explicit that the APA's waiver does not affect other limitations on judicial review. The next step in the analysis determines that an SEC-initiated enforcement action under the Exchange Act, see 15 U.S.C. § 78u(c), provides the exclusive mechanism for disputing SEC-issued investigative subpoenas. Under the Sprecher reasoning, by providing the exclusive method for challenging a subpoena, the Exchange Act limits judicial review. Thus, due to the proviso, the APA's waiver of sovereign immunity could not expand the Exchange Act's limitation on judicial review – leaving Gentile's complaint barred by sovereign immunity. With that conclusion, the District Court did not address the SEC's final argument, that sovereign immunity insulated its actions from judicial review because they were committed to agency discretion by law.

The District Court's order dismissing for lack of jurisdiction was final for purposes of appeal. Gentile timely appealed that order, bringing this case within the appellate jurisdiction of this Court. See 28 U.S.C. § 1291 ; Gould Elecs. Inc. v. United States , 220 F.3d 169, 174 n.2 (3d Cir. 2000). He now argues that the District Court erred by following the Sprecher analysis. The SEC counters first by defending the Sprecher reasoning and second by contending that its decision to investigate is unreviewable as a matter committed to agency discretion by law. On that second point, the SEC prevails.

II.

A. THE APA'S WAIVER OF SOVEREIGN IMMUNITY IS BROAD, BUT IT IS SUBJECT TO CONDITIONS AND EXCEPTIONS.

Because the SEC's subpoenas have harmed his businesses, Gentile sues the SEC to challenge the legitimacy of its investigation. But the United States and its agencies are generally immune from suit under the doctrine of sovereign immunity. See FDIC v. Meyer , 510 U.S. 471, 475, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994). And absent congressional authorization – through an unequivocal statutory waiver – it is "unquestioned" that the federal government retains sovereign immunity. Alden v. Maine , 527 U.S. 706, 749, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) ; see also FAA v. Cooper , 566 U.S. 284, 290, 132 S.Ct. 1441, 182 L.Ed.2d 497 (2012) ("We have said on many occasions that a waiver of sovereign immunity must be ‘unequivocally expressed’ in statutory text."). A statutory waiver of sovereign immunity thus defines the scope of a "court's jurisdiction to entertain the suit." United States v. Sherwood , 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941) ; see also Meyer , 510 U.S. at 475, 114 S.Ct. 996.

In light of that jurisdictional limitation, Gentile attempts to bring claims for declaratory and injunctive relief under the APA's waiver of sovereign immunity, codified at 5 U.S.C. § 702. As originally enacted, § 702 did not contain an unequivocal waiver of sovereign immunity.⁶ Instead, it imposed a ‘statutory standing’ requirement on judicial review, which, as amended, provides that:

A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.

5 U.S.C. § 702.

Statutory standing under § 702 depends on agency action. To have such standing, a person must suffer a legal wrong because of agency action or, under the zone-of-interests test, a person must be "adversely affected or aggrieved by agency action within the meaning of a relevant statute." 5 U.S.C. § 702 ; Ass'n of Data Processing Serv. Orgs., Inc. v. Camp , 397 U.S. 150, 153, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970).⁷

The 1976 amendments to the APA supplemented § 702. The added text explicitly waived sovereign immunity to sue the United States for "relief other than money damages":

An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is an indispensable party.

Pub. L. No. 94-574, 90 Stat. 2721, 2721 (Oct. 21, 1976); see also 5 U.S.C. § 702.

To ensure that that broad waiver of sovereign immunity did not overtake...