M. G. Davis & Co. v. Cohen (256 F. Supp. 128, 1966)

FREDERICK van PELT BRYAN, District Judge:

This is an action pursuant to 28 U.S.C. §§ 1361 and 2201 for a declaratory judgment and relief in the nature of mandamus. Plaintiffs are presently respondents in two administrative proceedings now pending before the Securities and Exchange Commission. They have moved in this court for a preliminary injunction restraining the members of the S.E.C. from conducting these proceedings. Rule 65, F.R.Civ.P. Defendants have cross-moved for a summary judgment dismissing the complaint. Rule 56, F.R.Civ.P.

Plaintiff M. G. Davis & Co., Inc. (Davis & Co.) is a New York corporation with its principal place of business in that state. Plaintiffs Levine and Wax are officers and since May 1, 1964 have been the sole stockholders of Davis & Co. Plaintiff Kopel formerly was employed as a salesman by Davis. The five individuals named as defendants are the present commissioners of the S.E.C.

FACTS

On March 18, 1961, Davis & Co. registered with the Commission as a broker and dealer in securities. 15 U.S.C. § 78o (b). In November 1963 the staff of the Commission commenced an investigation pursuant to § 21(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(a), to determine whether there had been violations of the securities acts by persons associated with Davis & Co. On May 4, 1964, however, the Commission received a letter from Davis & Co. giving notice of its withdrawal from registration as a broker-dealer. 15 U.S.C. § 78o (b). Under Commission Rule 15b-6 this notice would have become automatically effective within 30 days unless the S.E.C. initiated a proceeding to revoke or suspend registration. Accordingly, on June 2 the Commission issued an order instituting a “private” proceeding against Davis & Co. to determine whether “remedial action” would be “appropriate in the public interest pursuant to Section 15(b) and 15A of the Exchange Act.” 15 U.S.C. § 78o(b), 78o-3. On June 3 the Secretary of the Commission sent a telegram to Davis & Co., Wax, and a third party Rosenberg who is not a party here, notifying them of the commencement of the proceeding. On the following day copies of the order were sent by registered mail to the three respondents.

On June 22 Davis & Co. filed an answer generally denying the allegations of the order and asserting that it was entitled to have “its application for withdrawal of registration granted forthwith.” In the following two years the only step taken by the Commission in pursuit of the private proceeding has been to appoint a hearing examiner charged with general responsibility for ruling on pre-trial matters.

On August 4, 1965, as a result of further investigation the Commission by order also initiated a “public” proceeding against plaintiffs and others. The matters complained of in the order initiating this second proceeding involve additional parties and different facts than those in the private proceeding. On August 18 1965, Davis & Co., Wax and Levine filed their respective answers. Kopel filed his answer on the 23rd. These four are the plaintiffs in the present action.

On January 10, 1966, plaintiffs commenced an action in this court against the Commission without naming its members individually.^ They sought to enjoin it from continuing the public proceeding and to obtain an order dismissing the private proceeding. Upon motion of the Commission Judge Levet on March 4 dismissed the complaint without prejudice on the ground that the agency as such was immune from suit.

On March 21 the plaintiffs instituted the instant action against the individual Commissioners of the S.E.C. The complaint seeks a declaration that the withdrawal of Davis & Co. as a registered broker-dealer became unconditionally effective on June 3, 1964, and that therefore the S.E.C. is without authority to continue prosecution of the private proceeding. It also seeks a permanent injunction restraining the members of the Commission from continuing the public proceeding. The motions before me were argued on June 7.

j

As is conceded, preliminary determinations by the g.E.C. wm ordinarily be reviewabie in the courts of appeal only when they haye become the bagig of a , _ or whether the restriction of the individual comes about as a relevant incident to a regulation of a present situation, such as the proper qualifications for a profession, quoting De Veau v. Braisted, 363 U.S. 144, 160, 80 S.Ct. 1146, 4 L.Ed.2d 1109 (1960).

Thus even if this statute could be deemed to penalize the individual plaintiffs here in their professional lives for past conduct the provision would, in all likelihood, constitute a proper and “relevant incident to a regulation of a present sitúation.” That is to say, salesmen who have committed securities violations in the past could with justification be excluded or suspended from a profession demanding the utmost in probity from its members. See Hawker v. People of State of New York, 170 U.S. 189, 18 S.Ct. 573, 42 L.Ed. 1002 (1898). See also Cases v. United States, 131 F.2d 916 (1 Cir. 1942), cert. den. sub nom. Velaquez v. United States, 319 U.S. 770, 63 S.Ct. 1431, 87 L.Ed. 1718 (1943).

Thus I find no occasion here for con-eluding that the Commission’s institution of the two proceedings sought to be enjoined was contrary to clear legislative directives. This is not a case where there has been “an attempted exercise of power that had been specifically withheld” Leedom v. Kyne, supra, 358 U.S. 184 at 189, 79 S.Ct. 180 at 184, 3 L.Ed.2d 210. Like so many other “preliminary, procedural, or intermediate agency action[s]” review here may ultimately be Lad only “upon the review of the final agency action.” 5 U.S.C. § 1009(c); see Stardust, Inc. v. Securities & Exchange Comm’n, 225 F.2d 255 (9 Cir. 1955); Eastern Utilities Assoc, v. Securities & Exchange Comm’n, 162 F.2d 385 (1 Cir. 1947) (per curiam); Resources Corp. Int'l v. Securities & Exchange Comm’n, 97 F.2d 788 (7 Cir. 1938); Jones v. Securities & Exchange Comm’n, 79 F.2d 617 (2 Cir. 1935), cert. den. 297 U.S. 705, 56 S.Ct. 497, 80 L.Ed. 993 (1936).

Plaintiffs have made no case for departing from normal administrative channels, including ultimate review jn the court of appeals. This procedure affords them adequate remedy. Whatever onus may attach to plaintiffs as a result of the pendency of the S.E.C. proceedings — which is the only “injury” claimed here — can best be eliminated by pressing for full vindication in defense the administrative proceedings,

Accordingly, defendants’ motion for . summary judgment dismissing the complaint is granted — whether for want of subject matter jurisdiction or for failure to state a claim upon which relief can be granted is of no great consequence, E. G., Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). It follows that plaintiffs’ motion for a preliminary injunction is in all respects denied.

Judgment will be entered accordingly.

The foregoing opinion constitutes my findings of fact and conclusions of law pursuant to Rule 52(a), F.R.Civ.P.

It is so ordered.

. 17 C.F.R. § 240.15b-6 reads as follows:

“If a notice to withdraw from registration is filed by a broker or dealer pursuant to section 15(b), it shall become effective on the 30th day after the filing thereof with the Commission, unless prior to its effective date the Commission institutes a proceeding pursuant to section 15(b) to revoke or suspend the registration of such broker or dealer or to impose terms and conditions upon such withdrawal. If the Commission institutes such a proceeding, or if a notice to withdraw from registration is filed with the Commission at any time subsequent to the date of the issuance of a Commission order instituting proceedings pursuant to section 15(b) to revoke or suspend the registration of the broker or dealer filing such notice, and during the pendency of such a proceeding, the notice to withdraw shall not become effective except at such time and upon such terms and conditions as the Commission deems necessary or appropriate in the public interest or for the protection of investors.”

. Sperry & Hutchinson Co. v. Federal Trade Comm’n, 256 F.Supp. 136, 141 (S.D.N.Y. June 14, 1966), citing Local 130, Intern. Union of Electrical, etc., Workers v. McCulloch, 345 F.2d 90 (D.C. Cir. 1965) (McGowan, J.); Long Island Rd. v. United States, 193 F.Supp. 795 (E.D.N.Y.1961) (Friendly, J.). See also Leedom v. Intern. Broth, of Electrical Workers, Local Union No. 108, 107 U.S. App.D.C. 357, 278 F.2d 237 (1959).

. The sovereign immunity argument which has been strenuously urged by the Commission here has been decisively rejected by the Court of Appeals in Toilet Goods Ass’n v. Gardner, 360 F.2d 677, 683 n. 6 (2 Cir. April 13, 1966) :

“We need not discuss in the text the surprising contention that an action for a declaration that federal regulatory officers have acted in excess of their authority constitutes an unconsented suit against the United States. The contrary is clearly established' by Philadelphia Co. v. Stimson, 223 U.S. 605, 619-620, 32 S.Ct. 340, 56 L.Ed. 570 (1912), see Stark v. Wickard, 321 U.S. 288, 290, 64 S.Ct. 559, 88 L.Ed. 733 (1944), and indeed' follows inevitably from Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908); law officers of the Government ought not to take the time of busy judges or of opposing parties by advancing an argument so plainly foreclosed by Supreme Court decisions.”

. In the Matter of M. G. Davis & Co., Inc., File No. 8-9237.

. This rule reads as follows:

“(a) Notice of proceedings; order for proceedings. Whenever an order for proceeding is issued by the Commission, appropriate notice thereof shall be given by the Secretary or other duly designated officer of the Commission to each party to the proceeding and any other person entitled to notice or to the person designated by any such party or person as being authorized to receive on his behalf notices issued by the Commission. The parties or persons entitled to notice shall be timely informed of the time, place and nature of any hearing and the legal authority and .'Jurisdiction under which the hearing is to be held, and furnished a short and simple statement of the matters of fact and law to be considered and determined. In proceedings in which an answer is directed pursuant to § 201.7, the order for proceeding shall set forth the action proposed and the factual and legal basis alleged therefor in such detail as will permit a specific response thereto.”

. Plaintiffs’ argument that Davis & Co.’s revocation could not be premised upon “conduct of its employees while associated with a former employer,” Brief for Plaintiff, p. 12, is quite wide of the mark. Section 15(b), 15 U.S.C. § 78o(b), at the time of the institution of the private proceeding, provided in pertinent part: “The Commission shall * * * by order * ■ * * revoke the registration of any broker or dealer if it finds that * * * any person directly or indirect ly controlling or controlled by such broker or dealer, whether prior or subsequent to becoming such * * * (D) has willfully violated any provision of the Securities Act of 1933, or of this chapter, or of any rule or regulation thereunder.” (Emphasis added.)

Comparable provisions are now found in § 15(b) (5), 15 U.S.C. § 78o(b) (5).

. Plaintiffs’ unarticulated assumption in this action is that the S.E.C. has unduly delayed its decision with respect to Davis & Co.’s withdrawal from registration. Even if this were so, however, any complaint that the agency has not proceeded with “reasonable dispatch” must first be made to the Commission. See Gearhart & Otis, Inc. v. Securities and Exchange Commission, 348 F.2d 798, 800-801 (D.C. Cir. 1965). If a party to an administrative proceeding is still unable to obtain relief from a dilatory agency his remedy is to seek a court order to expedite the proceeding, not to have it terminated. See Deering Milliken, Inc. v. Johnston, 295 F.2d 856 (4 Cir. 1961); 5 U.S.C. § 1009(e).

. The Commission, however, permitted voluntary intervention by salesmen in proceedings against registered broker-dealers; and as a practical matter a salesman who failed to take advantage of this opportunity might have “seriously prejudiced his own interests.” 202 F.2d at 464 n. 8.

. Plaintiffs maintain that since this section also specifically authorizes the suspension of a person who “has been convicted of any offense * * * within ten years of the commencement of the proceedings” (emphasis added), a Congressional purpose eschewing retroactivity with respect to the other specified derelictions can be ascertained. But this “ten year” provision may just as well be read as a specific limitation on the otherwise absolutely retroactive directives.

. See note 8, supra.