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INTERNATIONAL WASTE CONTROLS, INC. v. SEC

July 24, 1973

INTERNATIONAL WASTE CONTROLS, INC., et al., Plaintiffs,
v.
SECURITIES AND EXCHANGE COMMISSION et al., Defendants


Tenney, District Judge.


The opinion of the court was delivered by: TENNEY

MEMORANDUM

TENNEY, District Judge.

 Plaintiffs, International Waste Controls, Inc. ("IWC"), Trans-Delta Corp. ("T-D"), Jack Yetman and Jay Schafrann, proceeding by order to show cause, have moved this Court, pursuant to Fed. R. Civ. P. 65, for a preliminary injunction enjoining defendants Securities and Exchange Commission ("SEC"), Hugh Owens, Philip Loomis and John Evans, Commissioners, from (a) proceeding with an investigation authorized by the SEC into alleged violations of the securities laws, (b) instituting any action against the named plaintiffs or the Security National Bank ("SNB") to enforce subpoenae issued under the order of investigation, or (c) using any information obtained by the SEC from the investigation or from any of the subpoenae served thereunder. Defendants, in turn, have moved this Court, pursuant to Fed. R. Civ. P. 12(b)(1), (2) and (6), to dismiss the underlying action.

 Briefly, the verified complaint alleges the following facts. On June 1, 1973, the SEC issued an order of investigation pursuant to §§ 8(e) and 20(a) of the Securities Act of 1933, 15 U.S.C. §§ 77h(e) and 77t(a) (1970), and § 21(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(a) (1970), authorizing an investigation of Yetman, IWC, Timkin C.A. and Financial Planning Associates GMBH to determine whether they, or any other persons, have engaged or are about to engage in actions in violation of § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (1970), §§ 10(b), 12(g) and 13(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78 l (g) (1970), and Rules 10b-5, 10b-6 and 13a-1 promulgated thereunder. The order of investigation also appointed Stuart Allen and Fred Berman, among others, as officers of the SEC for the purpose of conducting the investigation. Pursuant to the order of investigation, subpoenae duces tecum were served upon plaintiffs Yetman, Schafrann and T-D, and upon SNB.

 The gravamen of the complaint -- which, in addition to requesting permanent status for the injunctive relief sought pendente lite, prays for declaratory relief, damages and the production of a certain "computer run" under the Freedom of Information Act, 5 U.S.C. § 552 (1970) -- is that, upon information and belief,

 
"the aforesaid order of investigation . . . is without legal foundation, the result of bias, prejudice and prejudgment, concerns matters outside the jurisdiction of the Commission (SEC) and is based upon false or misleading information, knowingly, wilfully, and maliciously supplied to the Commission by certain members of its staff, Fred R. Berman and Stuart R. Allen in order to . . . embarrass and otherwise harass the plaintiffs . . .." (Verified Complaint, P14.)

 In addition, plaintiffs allege that the subpoenae issued under the order fail to state the relevance of the records sought, fail to state the relationship of the persons served to the investigation, fail to limit their scope of inquiry and are oppressive, burdensome and designed solely to harass, embarrass and prejudice the persons served. The complaint is particularly vehement in its attack on the subpoena served upon plaintiff Schafrann, who is counsel to various plaintiffs and other persons served with subpoenae, claiming that the only purpose of the subpoena was to intimidate him in his role as legal counsel. Finally, plaintiffs contend that the order of investigation and subpoenae issued thereunder are void because both Allen and Berman are biased and prejudiced against plaintiffs.

 Jurisdiction to attack the order of investigation and subpoenae is alleged under the Administrative Procedure Act, 5 U.S.C. § 701 et seq. (1970). It is this jurisdictional allegation which is the prime target of defendants' motion to dismiss. Plaintiffs assert that § 702 provides this Court with an adequate jurisdictional basis.

 
"Right of review
 
"A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof." 5 U.S.C. § 702 (1970).

 Plaintiffs, however, omit any reference to § 704 which provides, in pertinent part,

 
"Actions reviewable
 
"Agency actions made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action." 5 U.S.C. § 704 (1970) (emphasis added).

 Ordinarily, orders initiating investigations are interlocutory in nature and are not reviewable until a final order is entered as a result of the investigation, and then only in the Circuit Courts of Appeal. See, e.g., SEC v. Andrews, 88 F.2d 441, 442 (2d Cir. 1937); Gellis v. Casey, 338 F. Supp. 651, 652 (S.D.N.Y. 1972); 15 U.S.C. § 78y(a) (1970). It is true, however, that the courts have recognized that under certain extreme circumstances, such orders of investigation may be challenged in the district courts prior to the entry of a ...


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