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June 2, 1983


The opinion of the court was delivered by: SOFAER



The Securities and Exchange Commission ("SEC") is presently conducting a formal investigation of PepsiCo, Inc. for possible fraudulent disclosures of its financial status in certain SEC filings and in various other financial documents. Pursuant to its investigatory powers, 15 U.S.C. § 78u (1976), the SEC has issued and intends to continue to issue subpoenas to third parties that may possess information relevant to the possible wrongdoings of PepsiCo.

 PepsiCo has filed a complaint asserting that it is entitled to an injunction requiring the SEC to give PepsiCo notice of all third party subpoenas issued by the SEC. PepsiCo notes without contradiction that the SEC and the public first learned of the apparent accounting fraud in the company's international division from PepsiCo itself. Furthermore the record indicates that PepsiCo has thus far cooperated fully with the SEC, and has agreed to supply the agency with the extensive information it seeks from PepsiCo. Thus the company can in this particular case claim with at least facial credibility that its insistence that it be notified "timely" of the subjects and contents of all third-party subpoenas is not motivated by a desire to impede the SEC, but only to ensure that PepsiCo's rights are protected.

 PepsiCo claims that without adequate notice it cannot ensure that the SEC limits the scope of its third party subpoenas by the standards set in United States v. Powell, 379 U.S. 48, 57-58, 13 L. Ed. 2d 112, 85 S. Ct. 248 (1964), and that it will be unable to prevent the disclosure of privileged information in the hands of third parties, particularly former employees. Citing the recent Ninth Circuit opinion in Jerry T. O'Brien, Inc. v. SEC, [current] Fed. Sec. L. Rep (CCH) P99,182 (9th Cir. Apr. 25, 1983), in which that court awarded the relief PepsiCo now seeks, PepsiCo requests a temporary restraining order ("TRO") barring the SEC from issuing further third-party subpoenas without first giving "timely notice to PepsiCo of the person to whom the subpoena is directed, its return date and its contents," until the parties can fully brief, and the Court can decide, the merits of PepsiCo's suit for permanent injunctive relief. For the reasons that follow, PepisCo's request for temporary relief is denied, and the complaint is dismissed, with leave to complete the record for appeal.


 Considerable doubt exists as to this Court's jurisdiction to hear PepsiCo's claim. The complaint rests jurisdiction upon section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa, and upon 28 U.S.C. § 1331. Complaint P2. The former section simply places in the district courts of the United States exclusive jurisdiction to hear claims arising under the Securities Exchange Act. It provides no basis for the target of an SEC investigation to demand, by way of a declaratory order, injunctive relief requiring notice of third-party subpoenas. The federal question statute may provide some theoretical justification for an action such as this one, however, since Powell may be based on due process considerations, and because the attorney-client and work-product privileges are part of federal law. See, Fed. R. Evid. 501; Upjohn Co. v. United States, 449 U.S. 383, 389, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981). But the claimed need to protect these rights in the present context seems to lack sufficient concreteness to constitute a proper case or controversy, and moreover lacks the substance and form that the ripeness requirement serves to ensure. See, e.g., Abbott Laboratories v. Gardner, 387 U.S. 136, 148-49, 18 L. Ed. 2d 681, 87 S. Ct. 1507 (1967) (ripeness doctrine avoids premature entanglement by courts in agency decisions).

 PepsiCo has not identified a single subpoena issued by the SEC that even arguably violates the principles in Powell, or that seeks information on a subject or from a source that could possible lead to the revelation of privileged material. PepsiCo concedes that the SEC is engaged in a bona fide investigation, and has so far treated the broad subpoena issued for PepsiCo's records as proper. This is not, in short, alleged to be an "unnecessary" investigation, the issue addressed by the Court in Powell. Furthermore, with respect to PepsiCo's privilege claim, the company has failed even to suggest how the SEC is likely to cause violations of its rights. It has failed to describe, for example, the type of privileged information that is likely to be disclosed, or to name former employees who might make improper disclosures. The context in which such problems will arise, and their content, is at this point largely a mystery. See, e.g., Wearly v. Federal Trade Commission, 616 F.2d 662, 666-67 (3d Cir.)(mere issuance of FTC Subpoena does not create concrete risk of disclosure of trade secrets), cert. denied, 449 U.S. 822, 66 L. Ed. 2d 25, 101 S. Ct. 81 (1980). Nor is it true that PepsiCo lacks any way of safely raising its claims in a concrete context. No evidence or authority has been offered to suggest that PepsiCo will lack opportunities to object to the enforcement of particular subpoenas issued to third persons, or to move for relief as a result of the SEC's violations of PepsiCo's rights, if such violations occur.

 The parties have yet to brief the jurisdictional issues, but on the basis of the facts presented, and general jurisdictional principles, PepsiCo may well have no justiciable claim in the present context.

 II. Requirements for TRO or Injunction

 PepsiCo has failed to satisfy the rigorous standard that must be met to warrant restraining a federal government agency presumptively acting in the public interest. To obtain such relief, a party must make "a clear showing of (a) irreparagble harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Sperry International Trade, Inc. v. Government of Israel, 670 F.2d 8, 11 (2d Cir. 1982); See Union Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 1018 (2d Cir. 1980), cert. denied, 450 U.S. 996, 68 L. Ed. 2d 196, 101 S. Ct. 1698 ,reh'g. denied, 451 U.S. 976, 68 L. Ed. 2d 358, 101 S. Ct. 2059 (1981); Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979).

 The mere possibility of confidential disclosures does not satisfy the irreparable harm requirement and hence justify even a TRO. See State of New york v. Nuclear Regulatory Commission, 550 F.2d 745, 755 (2d Cir. 1977). The risk that the SEC will in fact obtain confidential information seems insubstantial. At the hearing held on May 31, 1983, the SEC described its policy and procedure of refraining from inquiring into subject matter that is likely to be subject to a privilege. PepsiCo can further reduce any risk of improper disclosure by supplying the SEC with a list of names of those former employees that are likely to possess confidential information. The SEC has offered to work with PepsiCo to avoid improper disclosures, and is fully cognizant both that PepsiCo has asserted its potential privileges in information held by third parties and that the breach of any privilege could have serious consequences.

 The SEC agrees, in fact, with PepsiCo that no third person in possession of information can waive any attorney-client or work-product privilege that PepsiCo may have in that information. While this circumstances would tend to justify permitting PepsiCo to intervene in a subpoena enforcement proceeding, or to appeal a decision enforcing a subpoena for such information, it also tends to establish that the company will be able to vindicate its rights if a privilege is violated. The remedies appropriate for such a violation will no doubt depend upon the surrounding circumstances, and might well include sanctions designed to deter improper inquiries conducted without notice. In this particular case, the SEC will be unable to claim later, if a breach of privilege occurs, that the agency was unaware that its third-party subpoenas might cause a violation of PepsiCo's rights. The SEC could avoid these risks through a modest degree of cooperation with a company that thus far has demonstrated its willingness to cooperate in the uncovering of all the relevant facts. These circumstances do ...

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