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HOGAN & HARTSON v. BUTOWSKY

October 24, 1978

HOGAN & HARTSON, Plaintiff,
v.
David M. BUTOWSKY, Defendant



The opinion of the court was delivered by: STEWART

MEMORANDUM DECISION

Defendant has moved to dismiss plaintiff's Amended and Verified Complaint (First Amended Complaint) for failure to state a claim upon which relief can be granted. Plaintiff has moved to amend and supplement that complaint and add a new cause of action (Third Count). For the reasons stated below, we grant defendant's motion to dismiss. We reserve decision on plaintiff's motion to amend. Defendant also requests that reasonable attorneys' fees be granted on the grounds that plaintiff's action was brought in bad faith. This request is denied.

In November, 1972, the Securities and Exchange Commission brought an action against Robert L. Vesco and a number of other individuals and entities. See: SEC v. Vesco, et al., 72 Civ. 5001. One of the defendants in that action was International Controls Corporation ("ICC"), of which Vesco had been a controlling shareholder. Primary among the SEC's allegations was that Vesco had improperly used ICC to gain control of and defraud various entities of the IOS organization. *fn1" Part of the relief obtained by the SEC in that action was a consent judgment entered into with ICC on March 16, 1973, which included provisions for the appointment of a Special Counsel to ICC and a new interim Board of Directors. Pursuant to that decree, this Court appointed David M. Butowsky, the defendant in this present action, as Special Counsel. Butowsky was authorized and directed to conduct an investigation into the affairs of ICC, particularly those matters related to the allegations of the SEC, and prepare a report of his findings to be filed with the Court and distributed to certain other interested parties. This report was to include an assessment of claims which might be asserted against ICC or by ICC against others as well as Butowsky's "recommendations for action" with respect to those claims. After considerable effort spanning some four and one half years, the "Report of Investigation of Special Counsel" ("Report"), which totals nearly eight hundred pages, was completed.

 Portions of the Report concern the relationship between ICC and the plaintiff herein, Hogan & Hartson, a Washington, D.C. law firm which served as ICC's counsel during the period surveyed in the Report. Many of the statements made in the Report with respect to Hogan & Hartson are highly critical of its work as counsel to ICC and Vesco during the period of time in question. Specifically, plaintiff alleges that:

 
"As it relates to plaintiff Hogan & Hartson (the Report) misstates facts, makes assumptions unsupported by fact, disregards facts reflected in contemporaneous documents, and reaches conclusions unsupported by reason or authority; all of which matters . . . would unfairly and unjustly stigmatize plaintiff Hogan & Hartson as violators of the Federal securities laws and as attorneys who breached their professional duties."

 First Amended Complaint, P 9.

 On November 22, 1977, plaintiff brought an action to enjoin the filing of the Report, originally scheduled for November 25, 1977. The following day we denied plaintiff's application for a preliminary injunction, Hogan & Hartson v. Butowsky, Memorandum Decision dated November 23, 1977. This denial was affirmed on appeal and the Report was filed on November 29, 1977. On that same day, plaintiff filed its First Amended Complaint, which is identical in nearly every particular to the original complaint. The exact same allegations were made and the exact same relief was sought. There was, however, one notable addition. Annexed to the First Amended Complaint as Exhibit B, was a 147-page volume entitled, "Hogan & Hartson's Preliminary Response to the Report of Investigation by Special Counsel", which purported to answer the charges raised against plaintiff in the Report and correct certain factual errors and omissions. Defendant moved to dismiss this complaint. Before resolution of that motion, plaintiff moved for leave to file its proposed Amended and Supplemental Complaint (Second Amended Complaint). Both motions have been fully briefed by the parties and are properly before us at this time.

 MOTION TO DISMISS FIRST AMENDED COMPLAINT

 Plaintiff's First Count alleges that Butowsky, as an officer and agent of this Court pursuant to the consent decree, has injured plaintiff's good name, reputation, business and property through the misrepresentations and material omissions contained in the Report. It is further alleged that Butowsky has "not, in fact, acted in an impartial and disinterested manner in the preparation of his Report." First Amended Complaint, P 12. The thrust of plaintiff's argument in support of its First Count is that its Fifth Amendment right to due process has been violated in that Butowsky did not afford plaintiff the right to cross-examine witnesses against it or the right to present evidence on its own behalf.

 As authority for this argument, plaintiff relies heavily on Jenkins v. McKeithen, 395 U.S. 411, 89 S. Ct. 1843, 23 L. Ed. 2d 404 (1969). Jenkins concerned the activities of the "Labor-Management Commission of Inquiry", a body set up by the State of Louisiana to investigate and find facts relating to violations of state or federal criminal laws in the field of labor-management relations. The Commission was appointed by and could act only upon referral from the Governor, when, "in his opinion, there is substantial indication that there are or may be "widespread or continuing violations of existing criminal laws' affecting labor-management relations." Id. at 415, 89 S. Ct. at 1845. The scope of the Commission's investigatory powers was statutorily limited to criminal matters; the authority to investigate "strictly civil" matters was expressly withheld. Id. The Commission's purpose was to determine, through public findings, "whether there is probable cause to believe violations of the criminal laws have occurred." Id. at 417, 89 S. Ct. at 1846. It was clear, however, that the powers and authority of the Commission did not extend to the rendering of binding adjudications with respect to any violations it discovered. The most it could do was "make such recommendations for action to the governor as it deems appropriate", report its findings to state or federal authorities, and file appropriate charges. Id. at 417, 89 S. Ct. at 1846. The findings were to be a matter of public record, but these findings would not constitute either prima facie or presumptive evidence of guilt or innocence in any court. Id.

 The Commission was given the power to compel the attendance of witnesses, upon notice of the "general subject matter of the investigation." Id. While such a witness had the right to counsel, other rights, such as right to cross-examine other witnesses or the right to call witnesses to testify, were limited. Finally, where it appeared that testimony to be given "may tend to degrade, defame or incriminate any person" the Commission could, but was not required to, call an "executive session." Id. at 418, 89 S. Ct. at 1847.

 Plaintiffs in Jenkins alleged, Inter alia, "that the very purpose of the Commission is to find persons guilty of violating criminal laws without trial or procedural safeguards, and to publicize those findings" and further that the proceedings were "a concerted attempt publicly to brand him a criminal without a trial" in violation of their constitutional right to due process. Id. at 424-25, 89 S. Ct. at 1850. A three-judge District Court dismissed the complaint, holding that Hannah v. Larche, 363 U.S. 420, 80 S. Ct. 1502, 4 L. Ed. 2d 1307 (1960), *fn2" foreclosed relief on the due process issue.

 The Supreme Court (prevailing opinion by Justice Marshall in which the Chief Justice and Justice Brennan joined) reversed and remanded, holding that Hannah, relied on by appellees in Jenkins, was not controlling. 395 U.S. at 425, 89 S. Ct. at 1851. The Court did, however reaffirm the decision in Hannah, id. at 427, 89 S. Ct. 1851, and it relied on the factors established by Chief Justice Warren in that case:

 
"'due process' is an elusive concept. Its exact boundaries are undefinable, and its content varies according to specific factual contexts. . . . Whether the Constitution requires that a particular right obtain in a specific proceeding depends upon a complexity of factors. The nature of the alleged right involved, the nature of the proceeding, and the possible burden on that proceeding, are all considerations which must be taken into account."

 Id. at 426, 89 S. Ct. at 1851, Quoting, 363 U.S. at 442, 80 S. Ct. at 1514, 1515. The Court noted that the result in Hannah, the upholding of the Civil Rights Commission's procedures, was predicated on a finding that the Civil Rights Commission had a purely investigative and fact-finding function. Most importantly, it did not adjudicate or determine anyone's ...


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