Sprecher v. Graber

• Decision Date: 26 August 1983
• Docket Number: D,No. 685,685
• Parties: Fed. Sec. L. Rep. P 99,476 Benjamin G. SPRECHER, Appellant, v. Jacob GRABER, Andrew E. Goldstein, Stanley Sporkin, Phillip A. Loomis, John R. Evans, Barbara S. Thomas and Steven J. Friedman, Individually and in Their Capacities as Officers and/or Commissioners of the United States Securities and Exchange Commission, and the United States Securities and Exchange Commission, Appellees. ocket 82-6188.
• Court: U.S. Court of Appeals — Second Circuit

Page 968

716 F.2d 968

Fed. Sec. L. Rep. P 99,476

Benjamin G. SPRECHER, Appellant, v. Jacob GRABER, Andrew E. Goldstein, Stanley Sporkin, Phillip A. Loomis, John R. Evans, Barbara S. Thomas and Steven J Friedman, Individually and in Their Capacities as Officers and/or Commissioners of the United States Securities and Exchange Commission, and the United States Securities and Exchange Commission, Appellees.

No. 685, Docket 82-6188.

United States Court of Appeals Second Circuit.

Argued March 24, 1983.

Decided Aug. 26, 1983.

Benjamin G. Sprecher, New York City, attorney pro se.

Linda D. Fienberg, Associate Gen. Counsel, S.E.C., Washington, D.C. (Douglas J. Scheidt, Sp. Counsel, Marianne M. Keler, Atty., S.E.C., Paul Gonson, Sol., Washington, D.C., of counsel), for appellees.

Before OAKES, CARDAMONE and WINTER, Circuit Judges.

WINTER, Circuit Judge:

Benjamin G. Sprecher, an attorney appearing pro se, appeals from the dismissal of his complaint alleging various instances of individual and official misconduct on the part of Securities and Exchange Commission officials and the Securities and Exchange Commission ("SEC"). The seven counts of the complaint allege seriatim: (1) that the SEC investigation of Sprecher's activities in relation to American Technical Resources, Inc. ("ATR") violated an earlier agreement under which the SEC purportedly agreed not to subpoena Sprecher absent notice and good cause; (2) that the SEC subpoena in the ATR investigation constituted harassment; (3) that the ATR investigation trenched upon the attorney-client privilege; (4) that the actions of the SEC and individual defendants caused Sprecher loss of business and damage to reputation; (5) that SEC staff attorney Jacob Graber defamed and harassed Sprecher during the course of the ATR investigation due to Graber's prejudice against Orthodox Jews; (6) that an affidavit of Assistant Regional Administrator of the SEC New York Regional Office, Andrew E. Goldstein, which formed a partial basis for the ATR investigative order, was "false and perjurious" and "intended to injure" Sprecher; and (7) that Graber attempted to suborn perjury on the part of a former president of ATR. The complaint seeks declaratory and injunctive relief as well as monetary damages.

The district court dismissed Counts 1-3 and 5 on the ground of collateral estoppel arising from Sprecher's litigation of the same claims in SEC v. Knopfler, Civ. No. M-18-304 (April 28, 1981 S.D.N.Y.), aff'd, 658 F.2d 25 (2d Cir.1981). It also dismissed Counts 4 and 5, which alleged constitutional

torts, for failure to state a claim and Counts 4-7, which alleged common law torts, on grounds of official immunity as to the named plaintiffs, sovereign immunity as to the SEC, and witness immunity as to defendant Goldstein. We adopt the district court's reasoning regarding the dismissal of Counts 3-7. However, we conclude that Counts 1, 2 and 5 were not barred by collateral estoppel. Rather, we believe that Counts 1 and 2 should be dismissed on grounds of sovereign immunity and Count 5 on grounds of official immunity and failure to state a claim. Accordingly, we affirm.

BACKGROUND

In 1979, the SEC filed an action against Sprecher and others arising from their dealings in the securities of Five Star Coal, Co. Securities and Exchange Commission v. Five Star Coal Co., No. C-2-77-832 (S.D.Ohio filed December 31, 1979). That action was terminated with prejudice by the SEC pursuant to a written stipulation in which Sprecher agreed not to engage in certain securities transactions for specific periods of time and to waive any rights of action he might have against the SEC or its employees arising from the Five Star investigation. Sprecher alleges that he reached an additional oral understanding with an SEC official named Levine that the SEC would not harass him or his clients and would not subpoena him without first demonstrating that the subpoena was not a means of harassment.

On April 16, 1980, the SEC entered a formal Order Directing Private Investigation as part of an inquiry into possible violations of the antifraud provisions of the federal securities laws arising from transactions in ATR securities. The SEC subsequently issued subpoenas duces tecum to several individuals involved with ATR, including Sprecher, who was a former president of the company. On December 9, 1980, Sprecher filed a motion to quash the subpoena with the SEC, putting forward essentially the same claims as he presents to this Court. The SEC denied the motion and, on April 16, 1981, Sprecher filed the present suit in the Eastern District of New York.

Shortly thereafter, the SEC applied to the United States District Court for the Southern District of New York for an order enforcing the ATR investigatory subpoenas, including the subpoena against Sprecher. Sprecher vigorously opposed enforcement of the subpoena, arguing that the investigation was improperly motivated by religious bias and a desire to harass him, that the subpoena violated the Five Star Coal agreement, and that it sought to compel him to divulge materials protected by the attorney-client privilege. The district court, finding that these arguments were frivolous and interposed solely for delay, granted enforcement of the subpoena. SEC v. Knopfler, No. M-18-304 (S.D.N.Y. April 28, 1981).

We affirmed that decision in SEC v. Knopfler, 658 F.2d 25 (2d Cir.1981), cert. denied 455 U.S. 908, 102 S.Ct. 1255, 71 L.Ed.2d 446 (1982). In response to Sprecher's argument that he should have been afforded an evidentiary hearing, we stated that "[SEC] enforcement proceedings may be summary in nature, and it is within the discretion of the district court to determine whether or not an evidentiary hearing is required." 658 F.2d at 26 (citations omitted). We further noted that the burden of proof is a "heavy" one for the party opposing enforcement of a subpoena on the grounds of "invalid purpose" and that "[a]n evidentiary hearing is not required in the absence of a meaningful and substantial factual showing." Id. Concluding that Sprecher's factual showing was inadequate, we affirmed the district court's decision.

On May 22, 1981, shortly after the district court's enforcement order was entered but prior to our decision in Knopfler, the SEC moved in the Eastern District to dismiss the present case. The motion lay on the suspense docket until the Supreme Court denied certiorari in Knopfler, 455 U.S. 908, 102 S.Ct. 1255, 71 L.Ed.2d 446 (1982). Then, on July 14, 1982, the district court granted the SEC's motion.

DISCUSSION

1. Collateral Estoppel

Counts 1 and 2 of Sprecher's amended complaint state claims of improprieties, ratified by the individual defendants, on the part of the SEC during the ATR investigation. Count 3 of the complaint alleges that the material under subpoena is protected by the attorney-client privilege. Together, the three counts request as relief: (1) a permanent injunction restraining the SEC and the individual defendants from harassing Sprecher; (2) a writ of mandamus against the SEC requiring adherence to the alleged terms of the Five Star Coal agreement, dissolution of the investigative order, and withdrawal of the subpoenas; (3) a declaratory judgment that the investigative order and the subpoenas are void and illegal; and (4) monetary damages of $10 million. Count 5 states a claim of defamation against individual defendant Graber, alleging that he was motivated by religious prejudice against Orthodox Jews, and requests monetary damages in the amount of $50 million.

The SEC argues that the issues raised in these counts are identical to the issues raised in Knopfler, and are, therefore, subject to collateral estoppel. Collateral estoppel precludes relitigation of an issue where: (1) the issue in the subsequent suit is identical to the issue actually decided in the prior suit, RX Data Corp. v. Department of Social Services, 684 F.2d 192, 197 (2d Cir.1982); (2) the determination of the issue in the prior suit was necessary and essential to the judgment in that action, id.; and (3) the party against whom collateral estoppel is being invoked had a " 'full and fair' opportunity to litigate [his] claims" in the prior action. Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 332-333, 99 S.Ct. 645, 652, 58 L.Ed.2d 552 (1979). In discussing requirement (3), a full and fair prior opportunity to litigate the issue in question, the Parklane Court stated that estoppel may well be unfair to a litigant "where the second action affords the [party against whom estoppel is being invoked] procedural opportunities unavailable in the first action that could readily cause a different result." Id. at 331, 99 S.Ct. at 651.

We believe that Knopfler does not have a preclusive effect as to Counts 1, 2 and 5, since Sprecher's opportunity to litigate the pertinent issues in the earlier proceeding was considerably narrower than the opportunity available in a plenary civil action. As we stated in Knopfler, subpoena enforcement proceedings are summary in nature. 658 F.2d at 26. Once the SEC has complied with the statutory prerequisites for enforcement, the opponent has a "heavy burden" of proving that the subpoena is sought for an invalid purpose, and a meaningful and substantial factual showing must be made even to receive an evidentiary hearing. Id. This evidentiary showing must be made, moreover, without the aid of discovery.

On the other hand, in a plenary action for abuse of process, allegations alone may suffice to obtain discovery and defeat a motion for judgment on the pleadings. Moreover, the defendants would bear the burden of showing the lack of any dispute as to a material fact in a motion for summary judgment.

Sprecher thus bore a "heavy burden" to demonstrate improprieties without the aid of discovery in the enforcement proceeding, while in the instant case, if a valid claim for relief is alleged, the defendants would bear the burden on a motion for...