Block v. S.E.C., No. 94-1333

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtBefore SILBERMAN, GINSBURG, and HENDERSON; GINSBURG
Citation50 F.3d 1078
Docket NumberNo. 94-1333
Decision Date24 March 1995
Parties, 63 USLW 2604, Fed. Sec. L. Rep. P 98,648 Dana BLOCK; Martin H. Olesh; Deborah W. Olesh; Ruth Rae Wiener; Nancy Grossman; Hannah Obstfeld, Petitioners, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.

Page 1078

50 F.3d 1078
311 U.S.App.D.C. 126, 63 USLW 2604, Fed.
Sec. L. Rep. P 98,648
Dana BLOCK; Martin H. Olesh; Deborah W. Olesh; Ruth Rae
Wiener; Nancy Grossman; Hannah Obstfeld, Petitioners,
v.
SECURITIES AND EXCHANGE COMMISSION, Respondent.
No. 94-1333.
United States Court of Appeals,
District of Columbia Circuit.
Argued Oct. 17, 1994.
Decided March 24, 1995.

Page 1080

Petition for Review of a Decision of the Securities and Exchange Commission.

H. Adam Prussin, argued the cause for petitioners. With him on the briefs was Stephen T. Gannon.

Randall W. Quinn, argued the cause for respondent. With him on the brief were Paul Gonson, Solicitor, Jacob H. Stillman, Associate Gen. Counsel, and Susan K. Straus, S.E.C.

Marvin G. Pickholz, filed the amicus curiae brief on behalf of the Dreyfus Family of Funds.

Before SILBERMAN, GINSBURG, and HENDERSON, Circuit Judges.

GINSBURG, Circuit Judge:

The petitioners are shareholders in the Dreyfus Family of Funds. They seek review of the Securities and Exchange Commission's decision not to hold a hearing in order to determine whether certain directors of the Dreyfus Funds are "interested persons" within the meaning of Sec. 2(a)(19) of the Investment Advisers Act of 1940, 15 U.S.C. Sec. 80a-2(a)(19). We hold that the decision whether to initiate a hearing under Sec. 2(a)(19) is within the unreviewable discretion of the SEC. Consequently, we dismiss the petition for review.

I. BACKGROUND

The Dreyfus Funds are investment companies registered under the 1940 Act. Originally they were managed by the Dreyfus Corporation (Dreyfus), an investment adviser. On December 5, 1993, Dreyfus and the Mellon Bank Corporation entered into a merger agreement whereby a wholly owned subsidiary of Mellon would acquire all of the stock of Dreyfus. With the consummation of the merger, the investment advisory contracts between Dreyfus and the Dreyfus Funds would terminate automatically, pursuant to Secs. 2(a)(4) and 15(a)(4) of the Act, 15 U.S.C. Secs. 80a-2(a)(4), 80a-15(a)(4). Any new advisory contract between a Dreyfus Fund and the merged corporation would require the approval of a majority of the directors of the fund who were not "interested persons," see 15 U.S.C. Sec. 80a-15(c), as that term is defined in Secs. 2(a)(19)(A)(vi) and (B)(vi) of the Act. *

In the wake of the merger announcement, the petitioners filed an "application" with the Commission requesting that it hold a hearing and determine whether any directors of the Dreyfus Funds were "interested persons" under Sec. 2(a)(19). The petitioners claimed

Page 1081

that "virtually all" of the "so-called 'independent' directors serving on boards of the Dreyfus Family of Funds ... [were] in fact 'interested' [persons]" with respect to Dreyfus (the Funds' investment advisor) because they served on the boards of multiple Dreyfus Funds and received substantial compensation for doing so. Accordingly, they urged that those directors "should not be permitted to meet the requirement[ ]" that a majority of non-interested directors approve any investment advisory contract. 15 U.S.C. Sec. 80a-15(c). The petitioners also maintained that "substantially more than 60 percent of the members of the Dreyfus Fund boards [were] 'interested persons,' in violation of the Act." See 15 U.S.C. Sec. 80a-10(a).

In a letter dated April 1, 1994, the Commission rejected the petitioners' application, holding that "Section 2(a)(19) does not provide a mechanism ... by which shareholders may initiate a proceeding to determine whether a person is an interested person, nor does any other provision of the federal securities laws." "Rather, the discretion to initiate such a hearing rests with the Commission, and the Commission has determined not to hold a hearing." The petitioners then filed this petition for review, asking the court to require the Commission to opine one way or the other upon the Dreyfus Funds' compliance with the 1940 Act.

II. ANALYSIS

The petitioners argue that because they submitted an application so requesting, the Commission was required to initiate a proceeding under Sec. 2(a)(19) of the Act. The Commission maintains that its decision not to act upon the petitioner's application is a decision not to enforce that is "committed to agency discretion by law," see 5 U.S.C. Sec. 701(a)(2), and as such is insulated from judicial review under the teaching of Heckler v. Chaney, 470 U.S. 821, 835, 105 S.Ct. 1649, 1657, 84 L.Ed.2d 714 (1985).

A. Does Chaney apply?

The petitioners would avoid the presumptive bar of Chaney by characterizing what they ask of the Commission as a "factual determination" rather than as an enforcement action, noting that Sec. 2(a)(19) of the Act is strictly definitional and does not itself contain any prohibition. The petitioners also point out that there is a presumption in favor of the reviewability of agency inaction that does not involve enforcement. See, e.g., Robbins v. Reagan, 780 F.2d 37, 45 (D.C.Cir.1985); but see Lincoln v. Vigil, --- U.S. ----, ----, 113 S.Ct. 2024, 2032, 124 L.Ed.2d 101 (1993) (recognizing that Sec. 701(a)(2) applies outside of enforcement context).

The Supreme Court in Chaney provided no formula by which to determine whether agency decisions of a particular type are "decisions to refuse enforcement." Chaney, 470 U.S. at 831, 105 S.Ct. at 1655. The Court clearly included within that set, however, not only an agency's determination not to proceed against a recognized violation, but also its antecedent judgment upon the question "whether a violation has occurred." Id.

Having in mind that conception of the decision not to enforce, it is impossible to see the Commission's application of Sec. 2(a)(19) to the facts of a particular case as anything other than a part of the enforcement process. Under the 1940 Act, the lawfulness of various transactions depends utterly upon whether certain parties are "interested persons"; indeed, the petitioners' whole point in going to the SEC was to establish that the Funds were in violation of the requirements that at least 60 percent of the directors of an investment company be "non-interested," 15 U.S.C. Sec. 80a-10(a), and that a majority of the non-interested directors approve any investment advisory contract, 15 U.S.C. Sec. 80a-15(c). In addition, we note that the investment adviser to an investment company may not lawfully profit from its assignment of an investment advisory contract to another adviser if more than 25 percent of the directors of the investment company are "interested persons" of either investment adviser, 15 U.S.C. Sec. 80a-15(f). With respect to such a transaction, the determination whether a person is "interested" may be in effect a determination "whether a violation has occurred." See Chaney, 470 U.S. at 831, 105 S.Ct. at 1656. In this case, a determination that the directors of the Dreyfus Funds were "interested persons" would be tantamount to holding that

Page 1082

the Dreyfus Funds violated several sections of the Act. Viewed in context, then, it simply blinks reality to say that a determination under Sec. 2(a)(19) is anything other than an enforcement decision.

The rationale underlying Chaney further supports its application to this case. The Supreme Court in Chaney noted that "an agency decision not to enforce often involves a complicated balancing of a number of factors which are peculiarly within its expertise." For example, reviewing the Commission's decision not to enforce Sec. 2(a)(19) would involve this court "in decisions about [the SEC's] resource allocation and enforcement policy"; the Commission, however, not the court, "is best situated to evaluate the costs and benefits of enforcement." See Kisser v. Cisneros, 14 F.3d 615, 620-21 (D.C.Cir.1994) (holding agency decision not to initiate debarment action against particular persons unreviewable per Chaney ). The Court in Chaney also emphasized that, in contrast to a decision to enforce, a decision not to enforce results in no exercise of the agency's coercive power "over an individual's liberty or property rights" and, as a result, provides no focus for judicial review. 470 U.S. at 832, 105 S.Ct. at 1656; see also Kisser, 14 F.3d at 621.

In sum, the petitioners' characterization of Sec. 2(a)(19) as providing only for a factual inquiry is based upon too grudging a reading of Chaney, one that both disregards the rationale of that decision and ignores the actual role of Sec. 2(a)(19) in the enforcement of the 1940 Act. Where the only purpose of an investigatory hearing would be to lay the foundation for a potential enforcement action, there is a presumption against judicial review of the agency's decision not to conduct such a hearing.

B. Does an exception to Chaney apply?

The...

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43 practice notes
  • Partners v. U.S.A, No. CV 09-9061 SVW (FMOx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • April 20, 2010
    ...of courts have held that SEC decisions are unreviewable under the FTCA and/or the Administrative Procedures Act. See, e.g., Block v. SEC, 50 F.3d 1078, 1084 (D.C.Cir.1995) (rejecting an Administrative Procedures Act action seeking to compel SEC action, because “[s]o far, it appears, the Com......
  • Young v. Nationwide Life Ins. Co., Civil Action No. G-97-628.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • April 27, 1998
    ...of which address only the term "interested persons" under 15(f) of the ICA, and are not, therefore, directly on point. See Block v. SEC, 50 F.3d 1078 (D.C.Cir.1995); Olesh v. Dreyfus Corp., No. CV-94-1664, 1995 WL 500491 (E.D.N.Y. Aug. 8, Plaintiffs argue that an implied private right of ac......
  • Association of Irritated Residents v. E.P.A., No. 05-1177.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 17, 2007
    ...citation omitted). Here, however, there is no indication that EPA has abandoned its responsibility to enforce the Acts. Cf. Block v. SEC, 50 F.3d 1078, 1084 (D.C.Cir. 1995) (rejecting an argument that the SEC, by granting exemptions, had abdicated its responsibility to enforce another subse......
  • Policy & Research, LLC v. U.S. Dep't of Health & Human Servs., No. 18–cv–00346 (KBJ)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • May 11, 2018
    ...binding policies that provide meaningful standards for a court to employ when reviewing agency decisions under the APA. See Block v. SEC , 50 F.3d 1078, 1082 (D.C. Cir. 1995) ; Padula v. Webster , 822 F.2d 97, 100 (D.C. Cir. 1987) ; Seeger , 306 F.Supp.3d at 282–83, 2018 WL 1568883, at *12.......
  • Request a trial to view additional results
43 cases
  • Partners v. U.S.A, No. CV 09-9061 SVW (FMOx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • April 20, 2010
    ...of courts have held that SEC decisions are unreviewable under the FTCA and/or the Administrative Procedures Act. See, e.g., Block v. SEC, 50 F.3d 1078, 1084 (D.C.Cir.1995) (rejecting an Administrative Procedures Act action seeking to compel SEC action, because “[s]o far, it appears, the Com......
  • Young v. Nationwide Life Ins. Co., Civil Action No. G-97-628.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • April 27, 1998
    ...of which address only the term "interested persons" under 15(f) of the ICA, and are not, therefore, directly on point. See Block v. SEC, 50 F.3d 1078 (D.C.Cir.1995); Olesh v. Dreyfus Corp., No. CV-94-1664, 1995 WL 500491 (E.D.N.Y. Aug. 8, Plaintiffs argue that an implied private right of ac......
  • Association of Irritated Residents v. E.P.A., No. 05-1177.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 17, 2007
    ...citation omitted). Here, however, there is no indication that EPA has abandoned its responsibility to enforce the Acts. Cf. Block v. SEC, 50 F.3d 1078, 1084 (D.C.Cir. 1995) (rejecting an argument that the SEC, by granting exemptions, had abdicated its responsibility to enforce another subse......
  • Policy & Research, LLC v. U.S. Dep't of Health & Human Servs., No. 18–cv–00346 (KBJ)
    • United States
    • United States District Courts. United States District Court (Columbia)
    • May 11, 2018
    ...binding policies that provide meaningful standards for a court to employ when reviewing agency decisions under the APA. See Block v. SEC , 50 F.3d 1078, 1082 (D.C. Cir. 1995) ; Padula v. Webster , 822 F.2d 97, 100 (D.C. Cir. 1987) ; Seeger , 306 F.Supp.3d at 282–83, 2018 WL 1568883, at *12.......
  • Request a trial to view additional results

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