Small Business Administration v. Barron

• Decision Date: 31 March 1965
• Docket Number: 4772 and 4921.,Civ. A. No. 4771
• Citation: 240 F. Supp. 434
• Parties: SMALL BUSINESS ADMINISTRATION, Petitioner, v. Lewis W. BARRON, Respondent. SMALL BUSINESS ADMINISTRATION, Petitioner, v. Robert B. KAY, Respondent. SMALL BUSINESS ADMINISTRATION, Petitioner, v. Merle S. LONG, Respondent.
• Court: U.S. District Court — District of South Carolina

240 F. Supp. 434

SMALL BUSINESS ADMINISTRATION, Petitioner, v. Lewis W. BARRON, Respondent.

SMALL BUSINESS ADMINISTRATION, Petitioner, v. Robert B. KAY, Respondent.

SMALL BUSINESS ADMINISTRATION, Petitioner, v. Merle S. LONG, Respondent.

Civ. A. Nos. 4771, 4772 and 4921.

United States District Court W. D. South Carolina, Greenville Division.

Heard March 9, 1965.

Decided March 31, 1965.

COPYRIGHT MATERIAL OMITTED

Philip F. Zeidman, Gen. Counsel, Roger L. Campbell, Asst. Gen. Counsel, Charles Barth, Asst. Gen. Counsel, Small Business Administration, Washington, D. C., and Ernest J. Howard, Asst. U. S. Atty., Greenville, S. C., for petitioner.

I. H. Wachtel, Wachtel, Wiener & Schlezinger, Washington, D. C., and Robert B. Kay, Greenville, S. C., for respondents.

HEMPHILL, District Judge.

Petitioner has applied to this Court for enforcement of certain subpoenas duces tecum issued during the course of an investigation pursuant to Section 310 of the Small Business Investment Act of 1958, as amended, 15 U.S.C. § 687b.

Respondents opposed the enforcement on grounds of breadth, relevance and materiality of the subpoenas; that compliance therewith would constitute an unreasonable search and seizure; that, with respect to Respondent Barron, compliance would violate the privilege against self-incrimination; and that, with respect to Respondent Kay, an attorney, compliance would violate an attorney-client relationship.

To fully understand the problems involved herein, the nature of the Small Business Investment program should be considered. Congress enacted the Small Business Investment Act in 1958 (P.L. 85-699, 15 U.S.C. § 661 et seq.) to provide an additional source of long term equity capital and long term loans for small business concerns. That Act authorizes the Small Business Administration to license, regulate and lend money to small business investment companies which in turn would make equity investments in, and long term loans to, small business concerns for the purpose of providing those cencerns with funds for growth, expansion and modernization.

It soon became apparent to Congress that reasonable and intelligent administration of the program and regulation of the industry required that the Small Business Administration be empowered to gather information concerning the operation of its licensed small bsuiness investment companies. In the course of gathering such information, the Administration was authorized to make proper inquiry, not only into the affairs of its licensed small business investment companies, but also to obtain information from any other persons with information relevant to the inquiry. Therefore, Congress amended the Act in 1961 P.L. 86-502, authorizing, among other things, the Small Business Administration to gather information necessary to administer the program and regulate the industry. In order to obtain information the Small Business Administration was authorized to conduct investigations and to subpoena witnesses and the production of books, papers and documents. Section 310 of the Act, 15 U.S.C. § 687b, provides as follows:

"Sec. 310. The Administration may make such investigations as it deems necessary to determine whether a licensee or any other person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this Act, or of any rule or regulation under this Act, or of any order issued under this Act. The Administration shall permit any person to file with it a statement in writing, under oath or otherwise as the Administration shall determine, as to all the facts and circumstances concerning the matter to be investigated. For the purpose of any investigation, the Administration is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, and documents which are relevant to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in the United States. In case of contumacy by, or refusal to obey a subpoena issued to, any person, including a licensee, the Administration may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, and documents; and such court may issue an order requiring such person to appear before the Administration, there to produce records, if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such person is an inhabitant or wherever he may be found."

On December 3, 1963, the Small Business Administration issued an Order Directing Investigation pursuant to § 310 of the Act, to determine whether certain small business investment companies named in the Order, or other persons, had engaged in or were about to engage in any acts or practices which constituted or would constitute a violation of any provision of the Act or of the Administration's Rules or Regulations adopted thereunder. The Order Directing Investigation included 18 designated small business investment companies, their principals or other persons and designated Stanley M. Levy, and others, as officers of the Administration and empowered each of them to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda or other records deemed relevant and material to the inquiry, and to perform all other duties in connection therewith as prescribed by law. The Order was variously amended, and reads as of May 8, 1964, as follows:

"UNITED STATES OF AMERICA Before The SMALL BUSINESS ADMINISTRATION

In the Matter of Catawba Capital Corp 04-0033 Confederate Capital Corp 04-0028 Eastern Capital Corp 04-0066 Empire Capital Corp 04-0022 First Carolina Fund 04-0058 First Financial Corp 05-0013 Florida Equity Investments, Inc. 05-0032 Granite Capital Corp. 04-0035 Maritime Investment Corp. 05-0079 Merchants Investment Corp. 04-0014 Mutual Capital Corp. 05-0078 Pinnacle Investment Corp. 04-0024 Southern Growth Industries, Inc. 04-0018

"I.

"The Administration's official files disclose that examination and reports of the titled Licensees set forth various activities of these companies, some of which may be collusive, and which appear to be in violation of the Small Business Investment Act of 1958, as amended, (hereinafter called the Act), and the Regulations promulgated thereunder.

"II.

"Information available to the Administration indicates that the titled Licensees invested in small business concerns in which principals of other titled Licensees had a financial interest.

"Information available to the Administration indicates that the investments of titled Licensees are so interwoven with other financial interests of principals of the titled Licensees as to indicate a pattern of self-dealing and collusion in violation of the Act and Regulations.

"Information available to the Administration indicates that some principals of the titled Licensee may have obtained funds from other titled Licensees which they in turn utilized as initial paid-in capital in obtaining a license.

"Information available to the Administration indicates that the principals of the titled Licensees in their obtaining of a license may have acted in concert with and upon the advice and suggestion of others in a manner as to circumvent and violate the requirements for obtaining a license as set forth in the Act and Regulations.

"Information available to the Administration indicates that the titled Licensees and the principals thereof in conducting the affairs of the titled Licensees may have acted in concert with and upon the advice and suggestion of others in such a manner as to circumvent and violate the Act and Regulations.

"III.

"The information available to the Administration, if true, tends to show that the titled Licensee and principals thereof violated the provisions of Sections 301(a), 302(a), 303 (a) and (b), 304(a), and 305(a) and (b) of the Act and Sections 107.102 (d), 107.104(d), (e), (j) and (n), 107.202(c), 107.301(b), 107.501(a), 107.601(a), 107.704(a) and 107.716 (a), (b) and (c) of the Regulations promulgated thereunder.

"IV.

"The Administration, having considered the aforementioned Examination Reports and other reports of Licensee's activities, and for the purpose of (1) determining whether Licensees have violated the Small Business Investment Act of 1958, as amended, and Regulations thereunder; and (2) aiding in the enforcement of said Act, deems it necessary and appropriate that an investigation be made, as provided for by Section 310 of the Small Business Investment Act of 1958, as amended.

"It is ordered pursuant to the provision of Section 310 of the Small Business Investment Act of 1958, as amended, that an investigation be made to determine the matters as set forth in Section II hereof.

"IT IS FURTHER ORDERED, pursuant to the provisions of Section 310 of the Small Business Investment Act of 1958, as amended, that for the purposes of such investigation, Stanley M. Levy, Jack J. Schutz and Omar Valldejuli are each hereby designated as officers of this Administration and each is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda or other records deemed relevant and material to the inquiry, and to perform all other duties in connection thereof as prescribed by law."

Pursuant to the Order, Officer Levy issued subpoenas to Lewis W. Barron and Robert B. Kay on...