McMann v. Securities and Exchange Commission

• Decision Date: 18 January 1937
• Docket Number: No. 157.,157.
• Citation: 87 F.2d 377
• Parties: McMANN v. SECURITIES AND EXCHANGE COMMISSION.
• Court: U.S. Court of Appeals — Second Circuit

87 F.2d 377 (1937)

McMANN v. SECURITIES AND EXCHANGE COMMISSION.

No. 157.

Circuit Court of Appeals, Second Circuit.

January 18, 1937.

Garey & Garey, of New York City (Eugene L. Garey, Earl J. Garey, Milton I. Hauser, and Edward J. McGoldrick, Jr., all of New York City, of counsel), for appellant.

John J. Burns, of Washington, D. C., and Ernest Angell, of New York City (William V. Holohan and Pierce W. Bradley, both of New York City, and Charles R. Kaufman, of Washington, D. C., of counsel), for appellees.

Before MANTON, L. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from a decree denying an injunction pendente lite in a suit brought by the plaintiff, McMann, against his brokers, Engel & Co., in which the Securities & Exchange Commission has intervened. The application was to prevent the brokers from complying with two subpœnas duces tecum issued by the Commission, the first requiring them to produce before one of its examiners a copy of McMann's account between December 1, 1935, and March, 1936; and the second, a copy of the same account from August 1, 1935, to November 30th, together with "the opening position" on the first day, and "the closing position" on the last. McMann had been a customer of Engel & Co. for some time and had employed them in numerous transactions in stocks, among them in shares of the Budd Wheel Company and of the Wil-Low Cafeterias, Inc.; the Commission had begun an investigation into transactions in the shares of these companies, and more particularly into the conduct of McMann and others who were suspected of having paid persons, ostensibly disinterested, to recommend the purchase of these stocks by the public. These payments did not appear from the execution of McMann's orders for the purchase and sale of the stocks in question; the whole account was necessary to disclose them. Engel & Co. were ready to obey the subpœnas, and will do so if not enjoined; but McMann asserts a constitutional immunity against any disclosure to the Commission of information contained in the books. He argues that, as all the transactions were confidential, the information was privileged and protected by the Fourth Amendment; it was "property" in which he alone was interested. Furthermore, the subpœnas independently infringe his immunity as "unreasonable searches." Finally, he asserts that he may protect himself by injunction, because, if the information be once disclosed, the injury is irreparable. The judge denied the motion and McMann appealed.

A broker is indeed an agent, and as such a fiduciary; he is bound to act for his customer, and not to betray to others what he may learn in the course of his duties. Restatement of Agency, § 395, Comment b. On the other hand the duty to disclose in a court all pertinent information within one's control, testimonially or by the production of documents, is usually paramount over any private interest which may be affected. Wigmore, §§ 2192, 2193. There are of course the traditional privileges touching communications made in certain confidential relations; but a broker's customer is not a client, a penitent, a patient or a spouse. Therefore, although we assume, as we do, that the conduct of investigations under these statutes is subject to the same testimonial privileges as judicial proceedings, it will not serve McMann; he must erect a new privilege ad hoc. The suppression of truth is a grievous necessity at best, more especially when as here the inquiry concerns the public interest; it can be justified at all only when the opposed private interest is supreme. Very near the end in the hierarchy of values which might dictate such a privilege would be the secrecy of a man's speculations upon a stock market in an inquiry into the existence of trade practices which a statute has condemned. Capital Company v. Fox, 85 F.(2d) 97, 101 (C.C.A. 2). Thus, the contents of McMann's accounts would have been available to the Commission, though he had communicated it to Engel & Company. But he had not done even that; the accounts in part merely recorded events upon a public market, the "Curb Exchange," and in part payments or deliveries by one party to the other; matters which would not be within even the privilege arising from one of the recognized confidential relations. We do not forget that, when the proposed disclosure is not for a public purpose, courts have frequently forbidden the betrayal of information acquired under promise of secrecy or as a fiduciary; and at times they have spoken of such information as "property" of the principal. Board of Trade v. Christie G. & S. Co., 198 U.S....