Hunter v. SEC, Civ. A. No. 94-5340.

• Decision Date: 15 March 1995
• Docket Number: Civ. A. No. 94-5340.
• Citation: 879 F. Supp. 494
• Parties: Robert W. HUNTER v. SECURITIES EXCHANGE COMMISSION, Arthur Levitt, John Doe Supervisors of John Heffernan, and John Heffernan.
• Court: U.S. District Court — Eastern District of Pennsylvania

879 F. Supp. 494

Robert W. HUNTER v. SECURITIES EXCHANGE COMMISSION, Arthur Levitt, John Doe Supervisors of John Heffernan, and John Heffernan.

Civ. A. No. 94-5340.

United States District Court, E.D. Pennsylvania.

March 15, 1995.

COPYRIGHT MATERIAL OMITTED

G. Alexander Bochetto, Koji F. Fukumura, Philadelphia, PA, for plaintiff.

Richard M. Humes, James A. Brigagliano, S.E.C., Washington, DC, for defendants.

MEMORANDUM

WALDMAN, District Judge.

I. BACKGROUND

This suit by plaintiff against the Securities and Exchange Commission ("SEC"), its chairman and several of its agents arises from an insider trading investigation of plaintiff by the agency. Plaintiff asserts a Bivens claim against John Heffernan, an SEC investigator who allegedly violated plaintiff's constitutional due process and privacy rights during the course of the investigation.¹ Plaintiff also seeks to enjoin the securities investigation which he contends has been tainted by the alleged unconstitutional conduct.

Presently before the court is defendants' motion to dismiss plaintiff's amended complaint for failure to state a cognizable claim and lack of subject matter jurisdiction regarding the injunctive claim.²

II. STANDARD OF LAW

The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of a complaint. See Sturm v. Clark, 835 F.2d 1009, 1011 (3d Cir.1987). In deciding a motion to dismiss for failure to state a claim, the court must "accept as true all the allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party." See Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir.1989). Dismissal is not appropriate unless it clearly appears that plaintiff can prove no set of facts in support of his claim which would entitle him to relief. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Robb v. Philadelphia, 733 F.2d 286, 290 (3d Cir.1984). A complaint may be dismissed when the facts pled and the reasonable inferences drawn therefrom are legally insufficient to support the relief sought. See Pennsylvania ex rel. Zimmerman v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir.1988).

III. FACTS

The following pertinent facts appear from plaintiff's amended complaint. On March 24, 1994, the SEC issued a formal order authorizing an investigation of whether plaintiff and others committed securities fraud by trading in the securities of Independence Bancorp, Inc. ("Independence") while in possession of material, non-public information, specifically the impending merger of Independent with Corestates Financial Corporation. Plaintiff was a director of Independence. Four days before the merger, plaintiff purchased 20,000 shares of Independence stock and two days later, he purchased another 20,000 shares. Within a month after the merger, plaintiff sold these shares for a substantial profit.

In the course of the investigation, defendant Heffernan interviewed plaintiff's then-girlfriend, "Jane Doe," regarding her knowledge of plaintiff's trading in Independence stock. Thereafter, Mr. Heffernan became romantically involved with Jane Doe who then terminated her relationship with plaintiff.

Plaintiff alleges that Mr. Heffernan aided Doe in her effort to extort money from plaintiff. Doe told Montgomery County law enforcement officials that plaintiff had sexually molested her 11 year old daughter over a period of four years. Plaintiff was arrested and charged with sex-related crimes. He was bound over for trial on several of these charges. Doe then filed a civil suit against plaintiff related to the molestation charges and made a demand of $3,000,000 to settle out of court.

In conducting interviews with friends, relatives and acquaintances of plaintiff about his trading of Independence stock, Mr. Heffernan also sought information regarding plaintiff's relationship with Jane Doe and her daughter. Mr. Heffernan also acquired "confidential non-public information" about plaintiff during the investigation from third parties, including documents subpoenaed from financial institutions regarding plaintiff's assets and holdings, which he disclosed to Jane Doe for use in connection with her civil suit.

IV. DISCUSSION

A. Bivens Action

Plaintiff alleges that Mr. Heffernan's abuse of his investigative authority violated plaintiff's Fifth Amendment due process rights and his constitutional right to privacy.

1. Due Process Claim

A plaintiff must allege that he has been deprived of a constitutionally protected "liberty" or "property" interest without due process of law to state a due process claim under the Fifth Amendment. See Weatherford v. Dole, 763 F.2d 392, 393 (10th Cir. 1985); Klein v. Califano, 586 F.2d 250, 257 (3d Cir.1978). Unless accompanied by an alteration in legal status or extinction of some legally protected right, the infliction of damage to one's personal or professional reputation does not infringe a liberty or property interest. See Siegert v. Gilley, 500 U.S. 226, 233-34, 111 S.Ct. 1789, 1794-95, 114 L.Ed.2d 277 (1991); Paul v. Davis, 424 U.S. 693, 711-12, 96 S.Ct. 1155, 1165-66, 47 L.Ed.2d 405 (1976); Sturm v. Clark, 835 F.2d 1009, 1012-13 (3d Cir.1987). Even the "serious impairment of future employment prospects" or loss of business opportunities resulting from an injury to reputation does not elevate a tortious injury to constitutional dimensions. Siegert, 500 U.S. at 234, 111 S.Ct. at 1794. See also Puricelli v. Borough of Morrisville, 820 F.Supp. 908, 915 (E.D.Pa. 1993), aff'd, 26 F.3d 123 (3d Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 321, 130 L.Ed.2d 282 (1994); Defeo v. Sill, 810 F.Supp. 648, 656 (E.D.Pa.1993).

Plaintiff maintains that defendant Heffernan's questioning of witnesses about the criminal proceedings against plaintiff and about knowledge of any prior child molestation caused more than just reputational harm. He alleges that Mr. Heffernan's investigation resulted in damage to then-existing and future contracts, lost profits from potential business opportunities and lost future employment opportunities. Plaintiff also contends that one reasonably may infer that any "goodwill" associated with his name has also been damaged. These allegations are not sufficient to show a violation of a protected liberty or property interest. The alleged lost economic opportunities are a direct consequence of the damage to plaintiff's reputation.³

Plaintiff has failed to set forth a cognizable due process claim.

2. Privacy Claim

The Supreme Court has recognized a right of personal privacy which encompasses two types of interests. "One is the individual interest in avoiding disclosure of personal matters, and another is the interest in independence in making certain kinds of important decisions." Whalen v. Roe, 429 U.S. 589, 599-600, 97 S.Ct. 869, 877, 51 L.Ed.2d 64 (1977). These interests have been termed the "confidentiality" and "autonomy" branches of the right of privacy. The confidentiality branch protects an individual's right not to have his affairs made public by the government. U.S. v. Westinghouse, Elec. Corp., 638 F.2d 570, 577 (3d Cir.1980). The autonomy branch encompasses "matters relating to marriage, procreation, contraception, family relationships, and child rearing and education." Id. This branch is not implicated in the instant case.

Personal financial information is entitled to privacy protection. Fraternal Order of Police, Lodge No. 5 v. City of Philadelphia, 812 F.2d 105, 115 (3d Cir.1987). See also In re McVane v. Federal Deposit Insurance Corp., 44 F.3d 1127, 1140 n. 4 (2d Cir.1995) (rejecting argument that there are no constitutionally protected privacy interests in bank statements and financial data); DeMasi v. Weiss, 669 F.2d 114, 119 (3d Cir.1982) (private individuals have legitimate privacy expectation regarding income); Plante v. Gonzalez, 575 F.2d 1119, 1136 (5th Cir.1978) ("Financial privacy is a matter of serious concern, deserving strong protection.").

Disclosure of confidential personal data may nevertheless be compelled where there is an overriding public interest in obtaining the data. Westinghouse, 638 F.2d at 578 (articulating multi-factor balancing test essentially to weigh need for and risk of harm from disclosure of personal information in determining when governmental intrusion into individual's privacy is justified). Plaintiff, however, does not question the right of defendants to obtain the pertinent personal financial information in the course of their investigation. What he complains of is the alleged subsequent disclosure of such information by defendant Heffernan to Jane Doe, a disclosure which defendants do not suggest would have furthered any legitimate public interest.

The Supreme Court has expressly declined to decide whether a subsequent intentional (or unintentional) unauthorized disclosure of private information properly obtained by government agents supports a cause of action by the aggrieved party. See Whalen, 429 U.S. at 605-06, 97 S.Ct. at 879-80. There is at least one appellate opinion, however, and language in others which suggest that such a subsequent disclosure implicates privacy rights and may be actionable. See Fadjo v. Coon, 633 F.2d 1172, 1175 (5th Cir.1981) (allegation that state official revealed personal information properly obtained from plaintiff in criminal investigation to insurance companies for possible use in resisting benefit claims by him stated constitutional invasion of privacy claim). See also Fraternal Order of Police, 812 F.2d at 118 ("that protected information must be disclosed to party with particular need for it ... does not strip the information of its protection against disclosure" to others without such need); Westinghouse, 638 F.2d at 579 (noting importance of effective measures to prevent subsequent unauthorized disclosure to decision to compel initial disclosure). Also, district courts in the Third Circuit...