Petition — Arthur Young & Co. v. Securities & Exchange Commission

Supreme Court brief1979

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IN THE Mlouagi

Supreme Court of the United States

OcTOBER TERM,

1978

No. t? y

ARTHUR YOUNG & COMPANY, Petitioner,

Vv.

SECURITIES AND EXCHANGE COMMISSION, Respondent.

PETITION OF ARTHUR YOUNG & COMPANY FOR

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

Cart D. Liccio

JOHN E. MATSON

ARTHUR YOUNG & COMPANY

277 Park Avenue

New York, New York 10017

212-922-2465

MILTON V. FREEMAN

STEPHEN M. SACKS

ARNOLD & PORTER

1229 19th Street, N.W.

Washington, D.C. 20036

202-872-6681

Attorneys for Petitioner

Arthur Young & Company

October 20, 1978

Supreme Court, U. &

r RILED

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW

SAD TIPO ccscccccactscvccssescscccsssees penneneqentenesnaseceueun

NIE AP WIS GID cccccnncnsiscescnensosecheccceccnniéccessessses

The Procedural Background of the Case ................

The Court of Appeals’ Decision In Issue ................

REASONS Way THE Writ SHOULD BE GRANTED ..........

I. THe Court or Avrcats ImMprorerty Per-

MITTED THE SEC Starr to CONDUCT AN

ADMITTED FisHinG Expeprrion THaouGH

ARTHUR YOUNG'S FILES .........ccccccccccescssesseseeees

Il. THe Court or APPEALS ImMproperLy PeEr-

MITTED THE COMMISSION TO ABDICATE ITS

STATUTORY RESPONSIBILITIES with ReE-

SPECT TO AN INVESTIGATION BY ITS STAFF .....

lil, Tue Court or AprpeEALS ImMproperty REN-

DERED JuDICIAL REVIEW OF AGENCY Com-

PULSORY PROCESS MEANINGLESS ...................

IV. Tue Court or Apreacs’ DECISION SQUARELY

Conruicrs with A SEVENTH Circurr Dect-

SION CONSIDERING THE SAME ISSUES ............

I tek es dandineaibiomnounibniiieimidiuniscus

eon fs BY BY SY N WN

APPENDICES

Appendix A

Opinion Of The United States Court Of

Appeals For The District Of Columbia .......

Modification Of Opinion Of The United

States Court Of Appeals For The District

Be ME IIIIID sncscccccccsccnscossenncnsvcesosscasonssascasssace

Appendix B

Text Of Securities And Exchange Commis-

sion Private Order Of Investigation “In The

Matter Of SCA Services, Inc.” File No.

REIOIIIITTT sc asakannsaccccabsdssannnsanevscnnsheesniiabisasciaonss ses

Appendix C

Attachment To Subpoena Duces Tecum

Served On Arthur Young & Company By

The Securities And Exchange Commission

BE By UO ease caverskecisessanssondancisésesntenerninneene

Page

TABLE OF AUTHORITIES

Cases:

Air Line Pilots Ass’n v. CAB, 475 F.2d 900 (D.C. Cir.

RUPTIEI <scncsenvactacbceanlinedadiosaddeetat tei en tiadi ens cniad be pala: gina

American Smelting & Refining Co. v. FPC, 494 F.2d 925

(D.C. Cir. ), cert. denied, 419 U.S. 882 (1974) wooo...

CAB v. Delta Air Lines, Inc., 367 U.S. 316 (1961) ........

CAS v, earmnaene, B53 UB. S22 CIOS) ccescncccccsecesscccoceesss

CAB v. United Airlines, Inc., 542 F.2d 394 (7th Cir.

PEI: siiscccebladissiavaslsanncticosieidiadcticeestabibdesdsdenbaebiasendunscecs

Endicott Johnson Corp. v. Perkins, 317 U.S. 501 (1943)

Fisher v. United States, 425 U.S. 391 (1976) voccccccccceee

FTC v. American Tobacco Co., 264 U.S. 298 (1924) .....

FTC v. Crowther, 430 F.2d 510 (D.C. Cir. 1970) wo...

FTC v. Texaco, Inc., 555 F.2d 862 (D.C. Cir.), cert.

denied, 431 U.S. 974, reh. denied, 434 U.S. 883

EDI Wa tndiasesatsannicainesaial ea sompiannca ebcknbsdstetadskisone aateees

Hawaiian Tel. Co. v. FCC, 498 F.2d 771 (D.C. Cir.

a TEID scidicligint ch cies cencanietaniecadtcnamabiciewikigaksecanaminiedcannine

Marshall v. Barlow’s, Inc., 46 U.S.L.W. 4483 (U.S.

eR) RRC REE SR cites sks ie

Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186

LIT sinbisdedbishneeehiuctorlstine odteaaaubsiasinisnibedesnasbabenasiobiedssaapents

Pub. Serv. Comm. v. FPC, 436 F.2d 904 (D.C. Cir.

es RN NE TRESS EERIE Oe LE OS 2 STO To

Relco, Inc. v. Consumer Product Safety Comm., 391 F.

MOU. GE CEB. HO, CFD ncncs resenensessccecesescsnsennsine

SEC v. SCA Services, Inc., 77 Civ. 1374 (D.D.C.) ........

Stanford v. Texas, 379 U.S. 476, reh. denied, 380 U.S.

IEE sae nhaidahesithaas ld hiasceadslasinapitinsiadetiaintionantnvadincns

United States v. Armour, 376 F. Supp. 318 (D. Conn.

Pa Pe steinesicie eephddaipeitadcdaceds aawmbdadabicsibaicatsdadsiasigdanioshianas

United States v. Bisceglia, 420 U.S. 141 (1975) wo...

Page

Bu, ae Bd

24, 24n.19

13, 14

'2, §9

11, 12, 13

15 n.16

3 n.5

11 n.14

11, 20, 21

Page

United States v. Dauphin Deposit Trust Co., 385 F.2d

129 (3d Cir. 1967), cert. denied, 390 U.S. 921

CRIED wiciencancscersevsinitinsttunsscusiannasuaiatemamnadsiaaadaan 13

United States v. Humble Oil & Refining Co., 518 F.2d

Poke > |). |; mie in ern sf <5 11 n.14

United States v. LaSalle Nat’l Bank, 57 L. Ed. 2d 221

( FIPFEED accrennsuiséasnsacenncannscenigncbaiiisiatidesmdeceeiaiaaaaeanene 20

United States v. Morton Salt Co., 338 U.S. 632 (1950)... 11, 12,

13,14

United States v. Powell, 379 U.S. 48 (1964) ooo... 20, 21

United States v. Theodore, 479 F.2d 749 (4th Cir.

DOPED ‘sssosnsscantasdinniesnasatasansintiieiédcaaeidaeene ata 13

Statutes and Regulations:

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14, 15

BD Riis HPD: cinacesocnsscimcucccnsaarintiaieaotasnesuiaaaeenanne 3 n. 4,

14, 15

BOP Tees © REPO ED. siscinsisinssinineaseeibsasneiae eee 2

OP UA, © RSPAS cicsssssssrsscscincnadaene eee 24

97 Ge I bivcsekiniicsckessisteoemmaseneeae 12

Oe GBR BA FORD cscriassnrscnaccnennssedsleumaataalen aaa 19

Other Authorities:

W. Douc tas, Go East, YOUNG MAN (1974) oo..cc.eceeeeee 16

Friendly, The Federal Administrative Agencies: The

Need for Better Definition of Standards, 75 Harv. L.

eB. BGS € ROBY sonscccccdeanicesccee ee 2 n.1

3 L. Loss, Securities REGULATION (2d ed. 1961) ......... 19

In THE

Supreme Court of the United States

OCTOBER TERM, 1978

ARTHUR YOUNG & COMPANY,

Petitioner,

wis

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

PETITION OF ARTHUR YOUNG & COMPANY FOR

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

This petition involves the decision of the Court of Appeals

to allow agency staff personnel virtually unchecked power

without any effective review by the agency or the courts to

conduct an admitted fishing expedition and compel a private

citizen to produce every piece of paper in his files.

Although both the District Court and Court of Appeals

were concerned by the scope and burden of the staffs “unde-

niably broad” subpoena and sought to limit the burden im-

posed by the staff's subpoena, both courts failed to recognize

that the Constitution and statutes require more than cosmetic or

financial limitations imposed on a staffs broad subpoena. As

we will show while it is proper for the Commission staff to seek

access to documents relevant to the specified subjects of its

investigation, it is wholly improper, at odds with the decisions

of this Court, and squarely in conflict with a recent Seventh

Circuit decision for the District of Columbia Circuit to compel

compliance with a subpoena in which neither the agency nor

the court specified standards or otherwise reviewed or con-

trolled the untrammeled discretion of the agency staff. As

Judge Friendly has put it, while delegation to administrative

agency staffs is “inevitable; definition of standards is required if

the agency members are to be the masters of the staff rather

than the slaves of anonymous Neros, each fiddling his own

tune.”’! Here, both the agency itself and the Court of Appeals

have permitted the “anonymous Neros” to rule, unchecked by

either administrative or judicial review.

If the Fourth Amendment and the system of judicia!

enforcement of administrative subpoenas is to have any mean-

ing, we believe that the instant decision must be reviewed and

reversed by this Court.

OPINION BELOW

The instant petition concerns an opinion and judgment

entered by the United States Court of Appeals for the District

of Columbia Circuit. That opinion is not yet officially report-

ed.@

JURISDICTIONAL STATEMENT

The opinion and judgment of the Court of Appeals were

entered on july 24, 1978.3 Jurisdiction to review the judgment

by writ of certiorari is conferred on this Court by 28 U.S.C.

§ 1254(1).

' Friendly, The Federal Administrative Agencies: The Need for

Better Definition of Standards, 75 Harv. L. Rev. 863, 882 (1962).

2 The text of the opinion 1s set forth in the appendix herein. All

Citations in this petition to the Court of Appeals’ opinion are to the

Appendix (“A. —”). The District Court’s Opinion is reported at

[1976-1977 Transfer Binder] Fep. Sec. L. Rep. (CCH) § 95,655

(D.D.C. July 13, 1976).

3On August 3, 1978, the Securities and Exchange Commission

filed with the Court of Appeals a “Suggestion of the Securities and

Exchange Commission for Modification of Opinion of July 24, 1978.”

On September 14, 1978, the Court of Appeals modified its opinion in

certain respects not relevant here. These modifications are reflected in

the decision as reproduced here at A. 34a-35a.

enema

ee NR te see Oe

QUESTIONS PRESENTED FOR REVIEW

1. Whether an administrative agency must reasonably set

forth the specific matters under investigation or otherwise

control the discretion of its staff before compulsory process

served by the agency staff may appropriately be enforced by a

court?

2. Whether an administrative agency must establish that a

subpoena duces tecum reaching all of the documents in the

possession of a private citizen is reasonably relevant to matters

actually under investigation before it may be enforced by a

court?

STATUTES INVOLVED

Section 19(b), Securities Act of 1933:

For the purpose of all investigations which, in the

opinion of the Commission, are necessary and proper for

the enforcement of this subchapter, any member of the

Commission or any Officer or officers designated by it are

empowered to...subpena witnesses, take evidence, and

require the production of any books, papers, or other

documents which the Commission deems relevant or mate-

rial to the inquiry.

15 U.S.C. § 77s(b).4

STATEMENT OF THE CASE

This case arises from an SEC private investigation of SCA

Services, Inc. (“SCA”), a company providing waste disposal

services in the United States. As SCA’s principal independent

4 Section 21(b) of the Securities Exchange Act of 1934, 15 U.S.C.

§ 78u(b), also in issue in this appeal, is virtually identical to § 19(b).

5 The investigation resulted in filing an action against SCA and

certain former SCA officers and directors. SEC v. SCA Services, Inc.,

Christopher P. Recklitis, Berton Steir, Carlton House Corp., Nicholas

V. Liakas, Anthony Bentrovato a/k/a Anthony Bentro, Lad Landfill,

Inc., Stanton L. Kurzman, 77 Civ. 1374 (D.D.C.)

auditor, Arthur Young & Company (“Arthur Young”) con-

ducted an audit and rendered an opinion on SCA’s financial

statements for SCA’s 1973 and 1974 fiscal years. In conducting

its audits, Arthur Young reviewed pertinent SCA documents

and financial records in the various locations where SCA

transacted business and prepared workpapers and other docu-

ments reflecting the audit work performed. These workpapers

and documents, contained in over 2,000 work binders and files

totalling at least 275 linear feet, were maintained by Arthur

Young in its offices in more than 15 different cities in the United

States.

On September 25, 1975, Arthur Young received an infor-

ma! request from the Commission staff for five specific cate-

gories of documents pertaining to SCA. By letter dated October

4, 1975, Arthur Young agreed to produce the requested infor-

mation. Its personnel reviewed between 300 and 400 files,

identified documents responsive to the staff's requests, and then

promptly produced the documents at a cost to Arthur Young of

more than $15,000. Subsequently a subpoena was served and

the matters in dispute in this case arose.

The Procedural Background of the Case

On October 2, 1975, the SEC issued an “Order Directing

Examination and Private Investigation and Designating Off-

cers to Take Testimony” pertaining to SCA (the “Order of

Private Investigation”).”? This Order, which commenced the

6 Arthur Young’s cooperation with the investigation of SCA

continued after these documents were produced. In April 1976, a

Commission staff accountant requested that Arthur Young produce

documents relating to three specific transactions involving SCA. By

letter dated May 14, 1976, Arthur Young produced from its files 227

differert documents which were responsive to the staff's specific

request.

‘The text of the Order of Private Invesugation has been

reproduced in the Appendix. A. 1b-3b.

on mene ot ON

Commission’s formal investigation of SCA, empowered certain

named Commission staff employees to “subpoena witnesses,

compel their attendance, take evidence, [and] require produc-

tion of any books, papers, correspondence, memoranda, or

other records deemed relevant or material to the inquirv....”

According to the Order of Private Investigation, the staff was

empowered to investigate whether:

[t]he aforementioned registration statements [of

SCA] ...include untrue statements of material facts or omit

to state material facts...concerning among other things:

1. Interest of management and others in certain transac-

tions

2. Financial statements

3. Description of business and property

4. Acquisition or disposition of assets.

On April 26, 1976, the Commission staff served the sub-

poena duces tecum in issue on Arthur Young.® This subpoena is

“undeniabiy broad.” A. 4a. As a Commission attorney advised

the District Court, the subpoena was intended to reach every

document in Arthur Young’s files pertaining to SCA and at least

29 other designated entities and persons:

What we are basically looking for are their audit and

tax workpapers and every document relied upon in pre-

paring the audit and tax reports. 9

The subpoena expressly sought 14 different types of docu-

ments (e.g., memoranda, letters) generated or maintained by

Arthur Young over a six-year period with respect to its audits of

8 The text of the documentary request in the subpoena is set forth

in the Appendix. A. Ic-3c.

8 Transcript of Oral Argument before District Court, June 29,

1976, pp. 16-17.

SCA. 1° But, it did not stop there. Each of the 14 requests were

then repeated for any similar documents in Arthur Young’s files

pertaining to 29 additional individuals, corporations, and trusts.

Then, the 14 requests were repeated once again for any similar

documents pertaining to “[aJll officers, directors and employ-

ees ( present and past)” of SCA.'! Finally, on top of all this, the

14 requests were repeated for “‘all documents” relating to “any

special engagements, projects or management consulting ser-

vices” performed by Arthur Young for SCA.

Arthur Young objected to the sweeping nature of the

subpoena, refused to comply, and resisted an enforcement

10 Item | of the subpoena reads in part as follows:

All documents including but not limited to:

(1) audit programs;

(2) internal control evaluation;

(3) schedules prepared by personnel of Arthur Young

..and/or SCA...subsidiaries or affiliates;

(4) documents received by Arthur Young & Company

in the course of the audit:

(5) memoranda relative to the audit, audit conclusions,

technical matters, policy, accounting theory, or auditing

problems;

(6) review notes or point sheets;

(7) interoffice correspondence and/or memoranda...;

(8) permanent files;

(9) correspondence to and from SCA...its officers,

directors, shareholders, employees or other persons related

directly or indirectly with SCA...;

(10) separate financial statements...of SCA..., subsi-

diaries and affiliates;

(11) engagement letters;

(12) all billings and time records;

(13) papers...used in the preparation of tax returns...;

and

(14) other documents in...[ Arthur Young’s] possession

or under [its] control relating to the examination of the

financial statements of SCA....

'! The Form 10-K filed by SCA with the SEC for its 1975 fiscal

year shows that SCA then had approximately 6,900 employees.

action by the Commission in the United States District Court

for the District of Columbia. On July 13, 1976 that Court

entered a Memorandum Order enforcing the subpoena subject

to certain limitations. Arthur Young then appealed.

The Court of Appeals’ Decision In Issue

On July 24, 1978, the Court of Appeals (per Bazelon,

Leventhal, and Robinson, JJ.) entered an opinion affirming the

order of the District Court, subject to certain modifications. A.

la-33a. After setting forth the facts, the Court of Appeals

recognized that the pertinent provisions of the securities laws

specified that compulsory process could be issued by the

Commission staff only with respect to “ ‘the »soduction of any

books, papers, correspondence, memoranda, or other records

which the Commission deems relevant or material to the

inquiry.”” A. 7a. Nevertheless, the Court of Appeals held that

the Order of Private Investigation by which the Commission

authorized its staff to use compulsory process with respect to an

investigation of, inter alia, SCA’s “financial statements” was

not an abdication by the Commission of its statutory responsi-

bility to set reasonable parameters for investigations.

According to the Court of Appeals, the Commission had

decided to conduct a broad investigation of SCA on the basis of

“‘a preliminary indication of falsifications or misleading omis-

sions in...periodic reports filed with the Commission...” by SCA.

A. 10a. Thus, reasoned the Court of Appeals, it was not

“unreasonable” for the Commission to authorize its staff to

investigate and use compulsory process with respect to SCA’s

“financial statements” even though this reached virtually every

scrap of paper in Arthur Young’s possessicn pertaining to SCA.

Id. The Court of Appeals concluded that any other result

“would stagnate the Commission and frustrate its statutory

mission.” A. 15a. The Court stated that:

We are unable to shed the belief that in conferring

upon the Commission power to investigate extensively and

to subpoena documents to that end, Congress anticipated

that the Commission’s members would function more

nearly at the level of policy determination, and might

permissibly assign the planning and execution of particular

projects to the staff.

A. 16a.

The Court expressed no concern with the broad nature of

the investigation because, “so long as the courts retain their

power of individual inquiry prior to enforcement of adminis-

trative subpoenas, there is relatively little for anyone to fear.”

A. 18a. The Court held that it was proper for the District Court

to have enforced an SEC staff subpoena to Arthur Young for all

of its documents generated over a six-year period with respect

to its audits of SCA and the many other designated individuals

and entities because of the “ambitious” nature of the Commis-

sion’s investigation. A. 20a. Put another way, the Court held

that, “because the investigation is broad, the subpoena’s pro-

duction effort is broad...[t]hat, we think, is enough.” A. 20a-

21a.

According to the Court of Appeals, the only appropriate

standard for a court to consider in determining whether

documentary demands in a subpoena were relevant is whether

the disclosure sought in the subpoena was unreasonable. A.

24a. As the Court put it, within this general limitation of

‘“reasonableness,”’ an administrative agency staff was licensed

to engage in a “fishing expedition” through a private party’s

files looking for possible violations of law so long as it was

acting within the broad subject matter parameters established

by the Commission for the investigation. A. 22a-24a. Thus, the

Court of Appeals held that all of Arthur Young’s workpapers

and other materials pertaining to SCA or the others named in

the subpoena could be relevant to the broad investigation and

therefore had to be produced by Arthur Young. '2

12 In the final portion of its opinion, not in issue in this petition,

the Court of Appeals held that, where the burden of compliance

REASONS WHy THE Wait SHOULD BE GRANTED

We respectfully submit that review of the Court of Ap-

peals’ decision is necessary to return the federal courts to their

proper role in protecting private citizens from the ever-

increasing intrusion of the federal bureaucracy into private

affairs. Over the past several decades, administrative agencies

have proliferated and the scope of their activities has increased

dramatically. Virtually every administrative agency, whether

old or new, has the authority to conduct investigations and to

secure information from private citizens with compulsory pro-

cess. In almost every instance, however, enforcement of this

compulsory process is left with the courts. Thus, the role of the

courts in protecting private citizens from overly broad govern-

ment demands for information is critical. Yet this responsibility

was totally abdicated by the court below.

It is particularly important for the Court to stop this pattern

of abdication of responsibility by the District of Columbia

Circuit because that court considers a significant majority of the

agency subpoena enforcement cases brought in the federal

courts. It is essential for this Court to make clear that

administrative agencies must abide by the statutory limitations

on their powers and set bounds on the delegation of authority

to their staffs to use compulsory process by confining such

delegation to reasonably discrete topics specified as actually

under investigation. Further the courts thereafter must set

bounds on administrative subpoenas by enforcing only those

agency demands that are shown to be reasonably relevant to

the specified matters.

imposed by a subpoena was unreasonable, a court “may appropriate-

ly insist upon a reasonable measure of reimbursement” to the party

receiving the subpoena. A. 29a. Thus, the Court held that Arthur

Young should be afforded “the opportunity to show that the actual

expense of compliance with the Commission’s subpoena has at any

given time become unreasonable and to seek reimbursement accord-

ingly.” A. 35a.

I. Tue Court or APPEALS IMPROPERLY PERMITTED

THE SEC Starr 10 CONDUCT AN ADMITTED FISHING

EXPEDITION THROUGH ARTHUR YOUNG’S FILES.

There is no dispute that the instant subpoena compelled

Arthur Young to produce every piece of paper in its files with

respect to SCA and the other designated individuals and

entities. As the Commission frankly admitted, it was deman-

ding this enormous number of documents from Arthur Young

because it was “fishing” in Arthur Young’s files for possible

violations of law with respect to SCA.'3 Nevertheless, the

Court of Appeals held that a subpoena may be enforced if the

request is “reasonable” and on its face within the very broad

subject matter of the investigation as specified by the Commis-

sion. A. 24a. According to the Court of Appeals, a court’s

inquiry as to the relevance of documents sought in a subpoena

may be perfunctory because if “the investigation is broad the

subpoena’s production effort is broad...[t]hat we think, is

enough.” A. 20a-2la. Indeed, although the Court of Appeals

implicitly recognized that the subpoena was no more than an

administrative agency “fishing expedition” through all of Art-

hur Young’s files looking for possible violations of law with

respect to SCA, it was unconcerned because an objection so

based “retains scarcely any of its clout today.” A. 22a.

This cavalier approach to the rights of Arthur Young is, we

submit, improper and at odds with this Court’s recognition of

the appropriate limitations on agency compulsory process.

Contrary to the view of the District of Columbia Circuit, while

an administrative agency may appropriately subpoena docu-

ments reasonably deemed to be relevant to a matter actually

under inquiry, it may not simply rummage through a party’s

files looking for possible violations of law. The Court of

Appeals’ decision effectively disregards the long-standing

requirement imposed by this Court that “once a...[subpoena ] is

challenged it must be scrutinized by a court to determine

whether it seeks information relevant to a legitimate in-

13 Commission’s Brief to the Court of Appeals, p. 28 ef seq.

vestigative purpose....”” United States v. Bisceglia, 420 U.S. 141,

146 (1975). Indeed, the law is clear that the Government may

not use compulsory process “to conduct ‘fishing expeditions’

into...private affairs.” Jd. at 150.14

The Court of Appeals read this Court’s opinions in Okla-

homa Press Publishing Co. v. Walling, 327 U.S. 186 (1946),

and United States v. Morton Salt Co., 338 U.S. 632 (1950), as

effectively dispensing with the relevance requirement and as

sanctioning fishing expeditions by administrative agencies. Cit-

ing language in those opinions which hold that agencies need

not establish probable cause to conduct investigations and that

they have a power of inquiry which is “ ‘analogous to the

Grand Jury,’” the Court of Appeals held that it was not

inappropriate for an administrative agency such as the SEC to

examine all of a private party’s files in search of possible

violations of law. A. 23a.

We believe that the Court of Appeals totally misread

Walling, Morton Salt, and subsequent decisions of this Court

relating to administrative subpoenas. In Morton Salt, the FTC

sought only compilations of a single report detailing compliance

with an earlier court decree. Similarly, in Walling, the Wage

and Hour Administration sought production of only “specified

[employment] records” from the company under investigation.

327 U.S. at 195. In neither case did this Court sanction “fishing

expeditions;” rather it made very clear that administrative

subpoenas would be enforced only if the request for documents

was “adequate, but not excessive, for the purposes of the

relevant inquiry.”” Walling, supra 327 U.S. at 209 (emphasis

'4The Courts have recognized that an administrative agency

empowered to require the production of documents must do so only in

connection with actual subjects under investigation and cannot use

compulsion where the agency is engaged in general research or

exploration for potentiai violations of the law. United States vy.

Bisceglia, supra, 420 U.S. at 152 (Blackmun, J., concurring); United

Stetes v. Humble Oil & Ref. Co., 518 F.2d 747 (Sth Cir. 1975);

United States v. Armour, 376 F. Supp. 318 (D. Conn. 1974).

added). Indeed, in Walling, this Court was very careful to

point out the important Fourth Amendment values to be

protected by the courts in reviewing administrative subpoenas:

[T]he interests of men to be free from officious

intermeddling, whether because irrelevant to any lawful

purpose or because unauthorized by law, concerning mat-

ters which on proper occasion and within lawfully con-

ferred authority of broad limits are subject to public

examination in the public interest. Officious examination

can be expensive, so much so that it eats up men’s

substance. It can be time consuming, clogging the pro-

cesses of business. It can become persecution when carried

beyond reason.

327 US. at 213.

The SEC’s own rules relating to investigations make this

pointedly clear:

The power to investigate carries with it the power to

defame and destroy. In determining to exercise their

investigatory power, members should concern themselves

only with the facts known to them and the reasonable

inferences from those facts.... The requirements of the

particular case alone should induce the exercise of the

investigatory power, and no public pronouncement of the

pendency of such an investigation should be made in the

absence of reasonable evidence that the law had been

violated and that the public welfare demands it.

17 C.F.R. § 200.66.

The instant case shows just how far administrative agencies

have come since Morton Salt and Walling. Now, agency staffs

ignore the specificity requirement of those cases and serve

blunderbuss subpoenas demanding production of every piece of

paper in a private party’s files. This practice resembles nothing

more than the issuance of general administrative warrants —- a

practice recognized in Walling as “odious in both English and

American history.” 327 U.S. at 207; accord Marshall v. Bar-

low’s, Inc., 46 U.S.L.W. 4483 (U.S. May 23, 1978); Stanford v.

Texas, 379 U.S. 476, reh. denied, 380 U.S. 926 (1965).

Neither Walling, Morton Salt, nor any other Supreme

Court case sanctions or should sanction this kind of agency

intrusion into a private party’s papers. As one lower court has

stated, the authority to investigate does not give an adminis-

trative agency the “unrestricted license to rummage through

Office files of an accountant in hope of perchance discovering

information...” that may involve a violation of law. United

States v. Theodore, 479 F.2d 749, 750 (4th Cir. 1973). As

another court held: “The Government is not entitled to go on a

fishing expedition through...[someone’s] records. It must

identify with some precision the documents it wishes to in-

spect.” United States v. Dauphin Deposit Trust Co., 385 F.2d

129, 131 (3d Cir. 1967), cert. denied, 390 U.S. 921 (1968).

The importance of protecting private citizens from govern-

ment fishing expeditions is not simply a matter of academic

concern. A court faced with a request to enforce an adminis-

trative agency subpoena must consider the relevance of the

information demanded to matters appropriately under in-

vestigation to ensure that Fourth Amendment rights are pro-

tected and that there is no involuntary disclosure of information

absent a clear governmental purpose for its production. As Mr.

Justice Holmes put it:

Anyone who respects the spirit as well as the letter of

the Fourth Amendment would be loath to believe that

Congress intended to authorize one of its subordinate

agencies to sweep all our traditions into the fire... and to

direct fishing expeditions into private papers on the possi-

bility that they may disclose evidence of crime.... The

interruption of business, the possible revelation of trade

secrets, and the expense that compliance with the Commis-

sion’s wholesale demand would cause are the least consid-

erations. Jt is contrary to the first principles of justice to

alli v a search through all the respondents’ records, relevant

or irrelevant, in the hope that something will turn up.

FTC v. American Tobacco Co., 264 U.S. 298, 305-06

(1924)(emphasis added )( citations omitted ).15

Thus, we believe it wholly improper and inconsistent with

fundamental due process and Arthur Young’s right to privacy

for a court to enforce an administrative subpoena simply

because the agency has said it is conducting a broad in-

vestigation and needs everything in a private party’s possession

to see if any possible violations of law exist. If the Fourth

Amendment is to have any vitality in protecting the public from

abuses by administrative agencies of their subpoena powers,

fishing expeditions through a private party’s files searching for

possible violations of law should be condemned. We believe

that the Court must make this clear to the District of Columbia

Circuit specifically and to lower courts generally.

Il. THe Court oF APPEALS IMPROPERLY PERMITTED

THE COMMISSION TO ABDICATE ITS STATUTORY RE-

SPONSIBILITIES WITH RESPECT TO AN INVESTIGATION

BY ITS STAFF

In its governing statutes, the Commission has been granted

substantial powers to interfere with the rights to privacy of

private parties. Both § 19(b) of the Securities Act, '5 U.S.C. §

77s(b), and § 21(b) of the Securities Exchange Act, 15 U.S.C.

§ 78u(b), authorize the Commission to conduct investigations

“which, in the opinion of the Commission, are necessary and

proper for the enforcement of” the respective acts. (Emphasis

added.) Each statute provides that staff officers empowered by

the Commission may “require the production of any books,

papers, or other documents which the Commission deems

relevant or material to the inquiry.” (Emphasis added. )

The Order of Private Investigation issued by the Commis-

sion here left everything with respect to the investigation of

SCA to the discretion of the SEC staff. There was nothing

specific in the Order. Instead, the Commission authorized the

'S This decision was in fact cited with approval by the Court in

Morton Salt, supra, 338 U.S. at 652.

staff to investigate and use compulsory process for any matters

relating, inter alia, to SCA’s:

...Financial statements

...Description of business and property

... Acquisition or disposition of assets.

Because almost everything a corporation does can be related in

one way or another its “financial statements,” the Commission’s

Order here, in effect, authorized the staff to investigate any

aspect of SCA’s business the staff chose.

According to the Court of Appeals, this kind of order was

neither fatally vague nor an abdication by the Commission of

its statutory responsibilities. As the Court put it, the Commis-

sion may operate “at the level of policy determination” and

leave everything else to its staff. A. 16a. Any result which

required the Commission to do more in the way of controlling

its staff, the Court reasoned, would “stagnate the Commission

and frustrate its statutory mission.” A. 15a. Thus, the Court of

Appeals held, a private order authorizing an investigation of a

corporation’s “financial statements” was proper.

If allowed to stand, this conclusion does violence to the

plain requirements of the securities laws. The text of § 19(b) of

the Securities Act and § 21(b) of the Securities Exchange Act

could not be clearer: the “Commission” must make certain

fundamental determinations about the scope of the in-

vestigation before staff compulsory process is appropriate. As a

creature of statute, the Commission cannot abdicate its impor-

tant statutory responsibilities. See CAB v. Delta Air Lines, Inc.,

367 U.S. 316 (1961).16

16 As one court has noted:

It is not disputed that the agency, embodied by the five

Commissioners, must of necessity delegate a large portion of the

responsibility for administrative fact gathering and fact finding

responsibility to its employees. However, some functions are so

Here, the Commission wholly left to its staff the determina-

tion of what subjects pertaining to SCA would actually be

investigated and when compulsion could be used to secure

documents in connection with the investigation of these sub-

jects As Mr. Justice Douglas has explained, the requirement in

the securities law that the Commission exercise its responsibility

over its staff in connection with the use of the subpoena power

is based on very sound considerations:

One policy consideration kept us [at the Commission }

from a lot of trouble and embarrassment. Eager beavers

on the SEC staff wanted me to sign subpoenas in blank so

that without further ado they could fill in anyone’s name

and any documents or other files they wanted to obtain.

But we always denied those requests, believing that sub-

poenas had to be closely delimited, and in the interests of

even corporate privacy, only select documents should be

subpoenaed.

W. DouG.as, Go East, YOUNG MAN 293 (1974).

primary and so basic to the implementation of the statute as to be

nondelegable. Functions consituting final agency action, such as

admuustrative adjudications and rule making, must be made or

ratified by the Commissioners and may not be delegated to

subordinates under broad grants of authority. Congress did not

intend to provide the Commissioners with the right to effectively

abdicate responsibility in any area. While intra-agency delegation

is a necessity in carrying out some of its functions, such delegation

cannot be excessive. As stated by Professor Davis:

“The single administrator, or the three or five or seven

or eleven commissioners, are not provided with a staff of five

hundred or a thousand and then expected to take all action

without subdelegation. At the same time, the courts stand

guard to prevent undue subdelegation to lowly subordinates

who may act irresponsibly. The courts have often found

judicial intervention desirable to protect against what has

been thought to be excessive delegation.” I Davis, Adminis-

trative Law Treatise, Sec. 9.01, (2nd ed., 1967).

Relco, Inc. v. Consumer Prod. Safety Comm., 391 F. Supp. 841, 845-

46 (S.D. Tex. 1975)(emphasis added )( footnotes omitted ).

The Court of Appeals specified no standard for Commis-

sion orders and it felt “some uncertainty about the precise point

at which... [Arthur Young] would draw the line between the

delegable and the nondelegable.” A. 14a. We respectfully

question how this uncertainty could have developed, for Arthur

Young’s position was clear: under the law the Commission must

establish reasonably discrete topics that are actually under

investigation and authorize its staff to issue compulsory process

only with respect to those topics.

In this case, for example, as the Commission staff advised

the District Court, the investigation of SCA concerned “alleged

looting of SCA assets and self-dealing by SCA insiders through

a scheme of selling over-priced property to SCA by SCA

insiders.” A. 19a. This level of specificity by the Commission in

its Order would, in our view, have been proper under the law.

It would have clearly set forth the exact nature of the in-

vestigation and appropriately served to limit the discretion of

the Commission staff in issuing compulsory process. It would

not have sanctioned staff fishing expeditions for documents with

respect to subjects which ranged far beyond the actual in-

vestigation. It would not have supported the enforcement of

the subpoena by the courts below.

It is no answer to say, as the Court of Appeals did, that if

the Commission must be reasonably specific in its order of

private investigation, it cannot investigate and its statutory

mission would be “frustrated.” A. 15a. Surely, it would not

frustrate the Commission’s statutory mission if the agency were

required to specify reasonably discrete subjects (e.g., looting

and self-dealing) as oppesed to extremely broad and vague

ones (“financial statements”). Indeed, every attorney who

frames discovery requests — whether in private practice or

Government practice — can be, and must be, reasonably

specific. The Commission has clearly shown in this very case

that it can be reasonably specific in its document requests and,

yet, investigate. As set forth above, the Commission staff made

five specific requests to Arthur Young for documents pertaining

to SCA in September 1975 and received a voluminous number

of documents in response. In short, it is not only possible for an

agency to be specific, but even the Commission can do it.

Further, even if the statutory restrictions did, in fact, have

a frustrating effect on Commission inquiries—a suggestion

which has never previously been made by any court—this

would be no excuse for the agency to violate the statute.

Plainly its obligation would be to report the situation to the

Congress to seek to be relieved of the restrictions if con-

stitutionally permissible.

Accordingly, there was no basis for finding that the

Commission’s broad and vague Order of Private Investigation

was lawful and that the Commission exercised proper control

over its staff.

I1.THe Court or APPEALS IMPROPERLY RENDERED

JUDICIAL REVIEW OF AGENCY COMPULSORY PROCESS

MEANINGLESS

This case presents a perfect example of how judicial

acceptance of a vague Commission order of private in-

vestigation renders meaningless judicial review of a subpoena

issued pursuant to that order. The Court of Appeals justified

the broad demands in the subpoena on the grounds that the

Commission’s Order of Private Investigation set forth very

broad subjects for review. A. 20a-21la. Under the Court of

Appeals’ standard, as announced in both this case and in

another recent decision, the only function of a reviewing court

in considering the relevance of agency demands for documents

is to compare the subpoena with the “general purposes

of...[{the] investigation...as announced by the agency.” FTC v.

Texaco, Inc., 555 F.2d 862 (D.C. Cir.), cert. denied, 431 U.S.

974, reh. denied., 434 U.S. 883 (1977).

By accepting a vague Commission order and enforcing

demands for documents in the subpoena which extended well

beyond the matters actually under investigation, the Court of

Appeals has abdicated its responsibilities and deprived Arthur

Young of the important protections provided by Congress when

it injected the judiciary into the enforcement process. The

Court of Appeals has reduced the judiciary’s role to the one

empty step: matching an agency staff demand for documents

with a broad agency order of private investigation. The result is

that the broader the agency description of the investigation, the

breader the demand for documents which may be without

meaningful judicial scrutiny.'7 Thus every piece of paper in a

citizen’s file is automatically reachable under the court’s 1ormu-

lation if the agency says the investigation is broad. For

example, if the Commission says that it is investigating General

Motor’s “financial statements,” under the standards formulated

by the Court of Appeals, General Motors, its independent

accountant, and virtually anyone else transacting business with

General Motors must produce for agency staff personnel every

piece of paper in its files.

17 In another casc, the court below recognized that a vague and

ambiguous administrative agency decision “makes meaningful [{ judi-

cial] review of that decision impossible.” Am. Smelting & Ref. Co. v.

FPC, 494 F.2d 925, 945 (D.C. Cir.), cert. denied, 419 U.S. 882

(1974); Hawaiian Tel. Co. v. FCC, 498 F.2d 771 (D.C. Cir. 1974);

Air Line Pilots Ass’n v. CAB, 475 F.2d 900 (D.C. Cir. 1973); FTC vy.

Crowther, 430 F.2d 510 (D.C. Cir. 1970).

Further, Commission regulations require that a person served

with a subpoena be shown the Commission’s Order of Private

Investigation. 17 C.F.R. § 203.7(a). The purpose of this requirement

is to enable the person served with the subpoena to “have the fullest

opportunity to determine his rights with respect to... producing

documents.” 3 L. Loss, Securities Regulation 1950 (2d ed. 1961).

This right is also effectively frustrated when the Commission is not

specific in its private order. As the Court below once put it, an agency

must articulate what it is doing because, while the Court is “required

to give proper weight to such [agency] expertise...it is not entitled to

rely blindly on such purported expertise...[the agency] cannot take

refuge in its alleged expertise....” Pub. Serv. Comm. v. FPC, 436 F.2d

4, 906-07 (D.C. Cir. 1970) (footnote omitted ).

This Court has repeatedly made clear that such judicial

abdication is improper. In a subpoena enforcement action the

burden of establishing the relevance of documentary requests is

on the agency. See United States v. Powell, 379 US. 48

(1964); United States v. Bisceglia, supra; United States v.

LaSalle Nat’l Bank, 57 L. Ed. 2d 221 (1978); Fisher v. United

States, 425 U.S. 391 (1976); CAB v. Hermann, 353 U.S. 322

(1957); Endicott Johnson Corp. v. Perkins, 317 U.S. 501

(1943). It has also long mandated that “once a...[subpoena ] is

challenged it must be scrutinized by a court to determine

whether it seeks information relevant to a legitimate in-

vestigative purpose” and to ensure that it is “no broader than

necessary to achieve its purpose.” United States v. Bisceglia,

supra, 420 U.S. at 146, 151 (1975).

In the instant case, the Court of Appeals refused to apply

this standard. As we have noted, the Commission’s Order of

Private Investigation authorized an investigation, inter alia, of

SCA’s “financial statements.” The record below, however,

makes clear that the Commission’s actual investigation of SCA

was in fact much narrower. Indeed, the only evidence offered

below by the Commission staff as to the scope of its in-

vestigation, an affidavit from a Commission investigator, in-

dicated that the Commission was investigating limited subjects

pertaining to allegations of looting and self-dealing by SCA, a

foziner officer of SCA, and certain companies which were

controlled by that former officer. As the Commission in-

vestigator put it in his affidavit:

Certain of the information obtained in the in-

vestigation to date indicates that there have been direct

and indirect transactions between SCA and present and

former management of SCA which may involve a diver-

sion or other misuse of SCA’s assets. In this connection, for

example, inquiry is being made into (a) substantial ad-

vances of cash made by SCA to a company controlled by

SCA’s former President and the propriety of reporting such

advances...as receivables arising from services rendered to

that controlled company; (b) the timeliness and adequacy

of the disclosure...that such receivables did not arise from

services rendered...and (c) the timeliness and adequacy of

SCA’s disclosures concerning transactions whereby SCA

purchased parcels of land from its former President

through straw entities and nominees at prices inflated by

about $2.5 million.

Joint Appendix Below p. 17.

If the subpoena issued to Arthur Young had related solely

to those subjects, this case would not have arisen. Arthur

Young not only did not question the Commission’s right to

investigate these subjects, but it also voluntarily produced

documents pertaining to them before the issuance of the

subpoena. But the Commission staff did not limit the subpoena

to documents pertaining to the specific transactions described in

the affidavit or to general subjects reasonably related to looting

or self-dealing. Instead the Commission asked for, and the

Court enforced, a demand for the kitchen sink from Arthur

Young. The staff's subpoena indiscriminately swept up the

unrelated documents in Arthur Young’s files along with those

arguably relevant.

If the requirements of Powell, Bisceglia, and related cases

are to have any substance, we believe that this Court should

reemphasize the prerequisites to court enforcement of an

agency subpoena. The agency must be reasonably specific in its

investigatory orders and must present to the reviewing court

evidence of the matters actually under investigation, and the

court may enforce only those demands that are sustained by

this evidence.

IV. THE Court OF APPEALS’ DECISION SQUARELY CON-

FLICTS WitH A SEVENTH Circuit DECISION CONSID-

ERING THE SAME ISSUES

In our reply brief to the Court of Appeals, we called the

Court’s attention to a then recent decision of the Seventh Circuit

considering virtually identical issues. CAB v. United Airlines,

Inc., 542 F.2d 394 (7th Cir. 1976). The Court below, without

even citing this decision, entered a decision squarely in conflict

with the Seventh Circuit’s holding.

In United, the Civil Aeronautics Board requested that

United Airlines produce six broad types of documents not

limited by specific subject matter (e.g., reading files, expense

reports, memoranda) in connection with a CAB investigation of

United.'8 United offered to provide the Board with all docu-

ments relating to what it understood to be the subject of the

Board’s investigation — aileged unlawful political contributions

made by the airline. However, as did the Commission here, the

Board refused to limit its requests to the matters actually under

investigation and, instead, demanded access on a virtually

unrestricted basis to all of United’s files. According to the

Board, it was entitled “to unlimited access to all the carrier’s

records” in order to conduct its investigation. 542 F.2d at 396.

The District Court granted summary judgment for United

and refused to enforce the CAB’s broad demands. The Seventh

Circuit affirmed, holding that, notwithstanding the Board’s

broad regulatory charter, the Board was not entitled to conduct

a fishing expedition through a private party’s files. The Court

held that:

[T]he decisions uniformly require that an_ in-

vestigative demand be reasonably definite and reasonably

relevant to some proper investigative purpose. The Board

cites no case, and we have found none, holding that any

statute has conferred a general warrant power on any

agency. Such a statute would at least raise serious prob-

lems under the Fourth Amendment.

542 F.2d at 399 (emphasis added ).

‘8 The subpoena to Arthur Young was in identical form, reques-

ting 14 categories of documents by type (e.g., “‘interoffice correspond-

ence and/or memoranda...; permanent files; correspondence to and

from SCA...”") and not by subject matter.

According to the Seventh Circuit, no administrative agency

is entitled to open access to a private party’s files just because

the agency asserts that it is looking for potential violations of

the law. “[The Board’s] obligation is of course not satisfied by

the recital that the purpose of the investigation is to determine

compliance with the law. The same could be said for any

general warrant.” Jd. at 402 (emphasis added). The Court

held that the agency must, in good faith, set forth:some specific

purpose before it may investigate and then can compel

documentary production only in response to specific demands

relevant to the stated investigatory purpose.

Given the requirement that a demand [by the Board ]

be reasonably relevant to a proper investigative purpose,

the Board must of course have such a purpose...of rele-

vance itself. Further, the Board must disclose its purpose to

enable a court to make a determination of relevance.

Otherwise no inquiry ‘into the underlying reasons for the

examination’...is possible.

Id. at 402 (emphasis added )( citations omitted ).

The Commission’s actions in this case, which were upheld

by the circuit court, are essentially the same as those of the

Board, which were condemned by the Seventh Circuit in

United. First, here, as in United, the Commission had author-

ized its staff to conduct a broad investigation, in effect, “to

determine compliance with the law.” As the Board in United

did not limit its investigation to alleged unlawful political

contributions, so here, the Commission did not specify in its

Order of Private Investigation that the investigation concerned

the allegations of looting and self-dealing which its staff says

are actually the subject of inquiry. According to the Seventh

Circuit, this kind of agency investigation is improper; according

to the D.C. Circuit, it is proper.

Second, as did the CAB in United, the Commission staff

here sought unlimited access to Arthur Young’s documents.

According to the District of Columbia Circuit, this was proper.

However, according to the Seventh Circuit, the CAB could not

simply demand documents in this manner for one broad and

undefined investigation. Instead, the Seventh Circuit held that,

before a court could enforce the Board’s demand, the Board

had to state specifically the purpose of its investigation and then

frame requests for documents relevant to the stated purpose.

According to the court in United, absent such specificity, the

Board’s broad and nonspecific demand to United was unlawful

and would not be enforced by the court.

The Seventh Circuit might well have been speaking of this

case.19 Yet, the District of Columbia Circuit took an exactly

contrary position. Accordingly, we respectfully submit that

review by this Court is necessary to resolve this clear conflict

among the circuits.

19 The situation here is even more compelling than that in United.

United Airlines is a regulated air carrier subject to stringent control by

the CAB. This control is far more pervasive than control by the SEC

over private industry. Indeed, the operative section of the Federal

Aviation Act does not specifically require that the Board give its staff

directions in connection with investigations as does the Securities Act

and the Exchange Act; instead, the Federal Aviation Act provides, in

pertinent part, that “[t]he Board shall at all times have access...to all

accounts, records, and memorandums...kept or required to be kept by

air carriers....” 49 U.S.C. § 1377(e). As we have previously indicated,

under the securities laws, the Commission must do far more that the

Board in connection with investigations. A fortiori, the Commission

must meet the tests of specificity set forth in United.

CONCLUSION

For the foregoing reasons, we respectfully submit that a

petition for certiorari should issue to review the instant decision

of the United States Court of Appeals for the District of

Columbia Circuit.

Dated: October 20, 1978

Respectfully submitted,

Car D. LiGGio

JOHN E. MATSON

ARTHUR YOUNG & COMPANY

277 Park Avenue

New York, New York 10017

MILTON V. FREEMAN

STEPHEN M. SACKS

ARNOLD & PORTER

1229 19th Street, N.W.

Washington, D.C. 20036

Attorneys for Petitioner

Arthur Young & Company

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S. App. D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Cut of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 76-1716

SECURITIES AND EXCHANGE COMMISSION

Vv.

ARTHUR YOUNG & COMPANY, APPELLANT

Appeal from the United States District Court

for the District of Columbia

(D.C. Mise. No. 76-0098)

— —_———~

| DAHA 63.)

Argued May 16, 1977 +__ ate ww,

} << i. 2

Decided July 24, 1978 “= ~--~~‘

Stephen M. Sacks, with whom Milton V. Freeman was

on the brief, for appellant.

Glynn L. Mays, Attorney, Securities and Exchange

Commission, with whom David Ferber, Solicitor, and

David J. Romanski, Assistant General Counsel, Securities

and Exchange Commission, were on the brief, for appel-

lee. Peter M. Sullivan, Attorney, Securities and Exchange

Commission, also entered an appearance for appellee.

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

—_

Before BAZELON, LEVENTHAL and ROBINSON, Circuit

Judges.

Opinion for the Court filed by Circuit Judge ROBINSON.

ROBINSON, Circuit Judge: Arthur Young & Company,

a partnership of certified public accountants, appeals from

an order of the District Court directing it to comply with

a subpoena duces tecum issued by the Securities and

Exchange Commission. Review is sought in this court on

grounds that the investigative order of the Commission

authorizing the subpoena is legally deficient,’ that rele-

vance of the subpoenaed documents to the investigation

does not sufficiently appear,’ and that obedience to the

subpoena will be unduly burdensome.* We find that these

arguments do not withstand scrutiny as justification for

denying enforcement of the subpoena. We conclude, how-

ever, that enforcement should be conditioned upon reim-

bursement of appellant’s costs of compliance to the extent

that otherwise the expenses would become unreasonable.*

We modify the District Court’s enforcement order accord-

ingly, and affirm it as so modified.

The pertinent facts are undisputed. The challenged

subpoena emanates from a Commission investigation of

SCA Services, Inc. (SCA), a publicly-held corporation

engaged primarily in waste disposal services“ and regis-

= Discussed in Part II infra.

2 Discussed in Part TI infra.

’ Discussed in Part IV infra.

* Discussed in Part IV infra.

° Appellant provided these services at 94 different locations

in 28 states and the District of Columbia, deriving revenues

of approximately $149 million during the fiscal year ending

March 31, 1975. Joint Appendix (J. App.) 26.

ale

tering securities with the Commission.’ Appellant has

been SCA’s principal independent auditor since 1973.

On September 25, 1975, the Commission’s staff requested,

and at its own cost appellant supplied, five groups of

materials’ bearing on transactions between SCA and

Christopher Recklitis, its then president and chief operat-

ing officer.” On October 21, 1975, on the basis of informa-

tion presented by the staff, the Commission ordered a

private investigation * into possible violations by SCA and

others of the antifraud provisions of the federal securities

laws.” The order instructed the staff to ascertain whether

there were material factual untruths or omissions in

* Pursuant to Securities Exchange Act of 1934, § 12(b),

15 U.S.C. § 781(b) (1976).

"This response involved review of approximately 300 to

400 work binders and files, and copying of some of the ma-

terial extracted, at a cost of more than $15,000. J. App. 29-30.

* As SCA’s independent auditor, appellant renders opinions

on the company’s financial statements. J. App. 26. Prepara-

tion therefor includes periodic review of SCA’s financial rec-

ords, copying of relevant SCA documents, and preparation

of workpapers and other materials reflecting the review and

audit work performed. J. App. 26-27. SCA maintains the

financial records in fifteen offices. J. App. 27. Appellant’s

records on SCA audits are located primarily in its offices in

ten different cities. J. App. 27-28.

* Pursuant to Securities Act of 1933, §19(b), 15 U.S.C.

§77s(b) (1976), and Securities Exchange Act of 1934,

§ 21(b), 15 U.S.C. § 78u(b) (1976).

*” J. App. 3-4. In normal functioning, the staff conducts a

preliminary inquiry prior to issuance of a ‘ormal order of

investigation. See 17 C.F.R. § 202.5(a) (1977). Since the

staff lacks power to employ compulsory process without spe-

cific authorization from the Commission, preliminary in-

quiries are necessarily limited.

statements filed by SCA with the Commission and dis-

seminated by it to the public; * more specifically, whether

[t]he aforementioned registration statements lof

SCA]... include untrue statements of material

facts or omit to state material facts . . . concerning

among other things:

1. Interest of management and others in certain

transactions.

2. Financial statements.

3. Description of business and property.

4. Acquisition or disposition of assets.’

To carry out its investigative responsibilities, the staff

was empowered to subpoena “any books, papers, corre-

spondence, memoranda, or other records deemed relevant

or material to the inquiry... .” ”

From its beginning as an inquiry into suspected self-

dealing and looting by SCA’s management, the investiga-

tion blossomed into one encompassing the full range of

SCA’s financial affairs, including the caliber of audits

conducted by appellant. So it was that on April 23, 1976,

the Commission’s staff, purportedly pursuant to the in-

vestigative order, issued the undeniably broad subpoena

that precipitated this litigation. The subpoena demands

14 different categories of documents relating to SCA over

11 See Securities Act of 1983, §17(a), 15 U.S.C. § 77q(a)

(1976); Securities Exchange Act of 1934, § 10(b), 15 U.S.C,

§ 78j(b) (1976); 17 C.F.R. § 240.10(b)-5 (1977).

2 J. App. 3-4.

8 J, App. 4.

‘As Commission counsel informed the District Court

“Cw]hat we are’ basically looking for are their audit and tax

work papers and every document relied upon in preparing

the audit and tax reports.” J. App. 56-57.

a six-year period; * and within these 14 categories it calls

for documents pertaining to 29 individuals and entities,”

to “[a]ll officers, directors and employees (present and

past)” of SCA," and to “any special engagements, proj-

ects or management consulting services” performed by

appellant for SCA.”

** Item 1 of the listing annexed to th ;

part reads: e subpoena in relevant

All documents including but not limited to (1) audit

programs; (2) internal control evaluation; (3) schedules

prepared by personnel of Arthur Young & Company and/

or SCA Services, Inc., subsidiaries or affiliates; (4) docu-

ments received by Arthur Young & Company in the course

of the audit; (5) memoranda relative to the audit, audit

conclusions, technical matters, policy, accounting theory

or auditing problems; (6) review notes or point sheets;

(7) interoffice correspondence and/or memoranda relat-

ing to topics mentioned in (5) above; (8) permanent files;

(9) correspondence to and from SCA Services, Inc., its

officers, directors, shareholders, employees or other per-

sons related directly or indirectly with SCA Services, Inc.,

subsidiaries and affiliates; (10) separate financial state-

ments in your possession of SCA Services, Inc., subsidi-

aries and affiliates; (11) engagement letters; (12) all bill-

ings and time records; (13) papers, documents and other

matters used in the preparation of tax returns filed with

federal authorities relating to taxes payable on income;

and (14) other documents in your possession or under

your control relating to the examination of the financial

pe of SCA + A Inc., subsidiaries and affili-

ates for the years ended March 31, 1970, 1971, ‘

1974 and 1975. iia asi

J. App. 10.

* J. App. 10.

"J. App. 11.

* J. App. 10.

Appellant refused to honor the subpoena.” The Com-

mission then sought enforcement in the District Court and

appellant promptly moved to quash. The court, concluding

that the investigation pursued a lawfully authorized pur-

pose and that the subpoenaed materials were relevant

thereto, ordered enforcement,” but subject to two condi-

tions designed to ameliorate the burden of compliance.

One was that the documents be examined at the offices

of appellant wherein they were ordinarily kept;* the

other was that the Commission absorb the expense of

copying all documents that appellant might agree to re-

lease temporarily for that purpose.** The court made

plain, however, that “[f]or those documents that [appel-

lant] determines it cannot allow to leave its possession,

[appellant] shall provide copies to the Commission.” *

Dissatisfied with this disposition, appellant brought the

controversy here.**

The Securities and Exchange Commission is statutorily

authorized to “make such investigations as it deems neces-

sary to determine whether any person has violated, is vio-

In one instance, however, appellant did cooperate in the

investigation, even after service of the subpoena in suit, by

supplying 227 different documents from its files in response

to a request from the Commission’s staff. J. App. 30-81.

” SEC v. Arthur Young & Co., Misc. No. 76-0098 (D.D.C.

July 13, 1976) (unreported), at 2, J. App. 101.

* Id. at 3, J. App. 102.

*2 Id. at 3-4, J. App. 102-103.

** Jd. at 4, J. App. 103.

** A panel of this court denied appellant’s motion for a stay

of the District Court’s order pending appeal. SEC v. Arthur

Young & Co., No. 76-1716 (D.C. Cir. Aug. 20, 1976). Appel-

lant and the Commission’s staff have agreed upon procedures

for production of materials pending resolution of the appeal.

lating, or is about to violate” provisions of the federal

securities laws** or “the rules or regulations thereunder

..’™ For that purpose, “any member of the Commission

or any officer designated by it is empowered to... require

the production of any books, vapers, correspondence,

memoranda, or other records which the Commission deems

relevant or material to the inquiry.”*’ Beyond that, in

the event of disobedience, the Commission ean solicit the

hand of the court to exact compliince.” These weapons,

to be sure, are potent, but hardly dispensible in the pro-

tection of the investing public and the fairness and ‘on-

esty of the Nation’s financial markets.

In the case at bar, however, we are first confronted

with the claim that the order launching the investigation

in suit is fatally lacking in specificity. It is said that the

Commission has the responsibility for setting both the

2° The reference here is to Title 15 of the United States

Code, which embraces the entirety of the Securities Act of

1933, 15 U.S.C. § 77a et seq. (1976), and the Securities Ex-

change Act of 1934, 15 U.S.C. § 78a et seq. (1976), within

which all statutory provisions relevant to this litigation are

to be found.

** Securities Exchange Act of 1934, §21(a), 15 C

§78u(a) (1976). ee

$7 “For the purpose of any such investigation, or any other

proceeding under this chapter, any member of the Commission

or any officer designated by it is empowered to administer

oaths and affirmations, subpena witnesses, compel their attend-

ance, take evidence, and require the production of any books,

papers, correspondence, memoranda, or other records which

the Commission deems relevant or material to the inquiry.”

Securities Exchange Act of 1934, § 21(b), 15 U.S.C. § 78u(b)

(1976). Compare Securities Act of 1938, §19(b), 15 U.S.C.

§77s(b) (1976).

*® Securities Exchange Act of 1934, §21(c), 15 U.S

§ 78u(c) (1976). 8

scope of its investigations and the limits within which its

investigative staff may resort to compulsory process; in

appellant’s words, that “it is the Commission which must

determine what basic subjects will be investigated and

the areas in which private parties can be compelled to

produce documents in eccnnection with such investiga-

tions.” *° By what is termed “a vague order of this

breadth,” *” appellant argues that “the Commission has

left wholly to its staff the determination of what subjects

pertaining to SCA will actually be investigated and when

compulsicn may be used to secure documents in connection

with the investigation of these subjects.”** We do not

agree.

Congress has endowed the Commission, not unlike other

agencies,** with broad power to conduct investigations **—

“such ... as it deems necessary to” ferret out violations

of the federal securities laws and implementing regula-

tions, whether consummated or incipient “*—and in that

connection to call for production of relevant materials by

those who seem to have them.* There are, of course,

*° Brief for Appellant at 18 (emphasis in original).

8° Td. at 19.

1 Td. at 20.

52See 1 K. Davis, Administrative Law Treatise § 3.03

(1958).

83 See In re SEC, 84 F.2d 316, 318 (2d Cir.), rev’d and va-

cated as moot sub nom. Bracken v. SEC, 299 U.S. 504, 57 S.Ct.

18, 81 L.Ed. 374 (1936); Boehm v. United States, 123 F.2d 791,

808 (8th Cir. 1941), cert. denied, 315 U.S. 800, 62 S.Ct. 794,

86 L.Ed. 1223 (1942); Consolidated Mines v. SEC, 97 F.2d

704, 708 (9th Cir. 1988); SEC v. "irst Security Bank, 447

F.2d 166, 168 (10th Cir. 1971), cert. denied, 404 U.S. 1038,

92 S.Ct. 710, 30 L.Ed.2d 729 (1972).

*¢ See text supra at notes 25-26.

8° See note 27 supra.

limits; to begin with, “a governmental investigation into

corporate matters may be of such a sweeping nature and

so unrelated to the matter properly under inquiry as to

exceed the investigatory power.” * Moreover, while the

statutory powers of federal regulatory agencies to inves-

tigate have traditionally been extensive,” “the Fourth

Amendment requires that the subpoena be sufficiently lim-

ited in scope, relevant in purpose, and specific in direc-

tive so that compliance will not be unreasonably burden-

some.” * The federal courts stand guard, of course,

against abuses of their subpoena-enforcement processes ™

3° United States v. Morton Salt Co., 338 U.S. 632, 652, 70

S.Ct. 357, 369, 94 L.Ed. 401, 416 (1950).

87 See 1 K. Davis, Administrative Law Treatise § 3.03

(1958).

38 See v. City of Seattle, 387 U.S. 541, 544, 87 S.Ct. 1737,

1740, 18 L.Ed.2d 948, 947 (1967). See also United States v.

Morton Salt Co., supra note 36, 338 U.S. at 652-653, 70 S.Ct.

at 369, 94 L.Ed. at 416; Oklahoma Press Publishing Co. V.

Walling, 327 U.S. 186, 208, 66 S.Ct. 494, 505, 90 L.Ed. 614,

629 (1946).

3° United States v. Powell, 379 U.S. 48, 58, 85 S.Ct. 248, 255,

13 L.Ed.2d 112, 119-120 (1964); Oklahoma Press Publishing

Co. V. Walling, supra note 38, 327 U.S. at 216, 66 S.Ct. at 509,

90 L.Ed. at 634. “Such an abuse would take place if the sum-

mons had been issued for an improper purpose, such as to

harass the [subpoenaed party] or to put pressure on him to

settle a collateral dispute, or for any other purpose reflecting

on the good faith of the particular investigation.” United

States v. Powell, supra, 379 U.S. at 58, 85 S.Ct. at 255, 13

L.Ed.2d at 120. And while the court’s role in subpoena en-

forcement is narrow, see cases cited supra, within its confines

it is potent:

A court may always consider such questions as unreason-

able searches and seizures, self-incrimination, undue

breadth of the subpena, improper inclusion of irrelevant

information, administrative authority to make the par-

ticular investigation, power to require disclosures con-

10a

but constitutional mandates aside,” “‘[t]he gist of the

protection is in the requirement, expressed in terms, that

the disclosure sought shall not be unreasonable.’” ** Re-

sultantly, it has long been clear that “‘it is sufficient if the

inquiry is within the authority of the agency, the demand

is not too indefinite and the information sought is rea-

sonably relevant.” “

Surely we cannot characterize the challenged investiga-

tion as unreasonable. Its stated purpose is to inquire into

possible infringements of the securities laws or implement-

ing regulations by “SCA, its officers, directors and em-

ployees” ** or by “any other persons.” “ The predicate for

the investigation was a preliminary indication * of falsifi-

cations or misleading omissions in registration state-

ments, proxy materials and periodic reports filed with the

Commission and disseminated to the public.” The sus-

cerning activities outside the agency’s regulatory author-

ity, and proper issuance of the particular subpena.

1 K. Davis, Administrative Law Treatise § 3.12, at 216 (1958)

(footnotes, citing abundant authority, omitted).

“ See text supra at note 38.

41 United States v. Morton Salt Co., supra note 36, 338 U.S.

at 652-653, 70 S.Ct. at 369, 94 L.Ed. at 416, quoting Oklahoma

Press Publishing Co. Vv. Walling, supra note 38, 327 U.S. at

208, 66 S.Ct. at 505, 90 L.Ed. at 629.

“2 United States v. Morton Salt Co., supra note 36, 338 U.S.

at 652, 70 S.Ct. at 369, 94 L.Ed. at 416.

*s J. App. 4.

“J. App. 4.

+ “Wven if one were to regard [a] request for information

... as caused by nothing more than official curiosity, neverthe-

less law-enforcing agencies have a legitimate right to satisfy

themselves that corporate behavior is consistent with the law

and the public interest.” United States v. Morton Salt Co.,

supra note 36, 338 U.S. at 652, 70 S.Ct. at 369, 94 L.Ed. at 416.

“ J. App. 3-4.

te a eg, eee ee —_" —_ — o s

a -

lla

pected violations relate to such matters as the interest of

SCA’s management and others in certain transactions,

SCA’s financial statements and its descriptions of busi-

nesses, properties, acquisitions and dispositions of assets.“

Despite their apparent breadth—which appellant attacks

—these are all areas of legitimate concern to the Commis-

sion in the discharge of js statutory responsibilities, and

categories of data generally required to be submitted to

the Commission and disclosed to the investing public.

“7 J. App. 3-4.

*® See Securities Act of 1938, §§ 5, 7, 15 U.S.C. §§ 77e, 77g

(1976); id. Schedule A(8), (22), (24), (25), (26), 15 U.S.C.

§ 77aa (1976); Securities Exchange Act of 1934, §§ 12, 13,

14(a), 15 U.S.C. §§ 781, 77m, 77n(a) (1976); 17 C.F.R.

§ 20.14a (1977).

The Commission submitted to the District Court the affi-

davit of a staff accountant elucidating lines of inquiry that

the Commission proposes to pursue. The affidavit in part

recites:

Certain of the information obtained in the investigation

to date indicates that there have been direct and indirect

transactions between SCA and present and former man-

agement of SCA which may involve a diversion or other

misuse of SCA’s assets. In this connection, for example,

inquiry is being made into (a) substantial advances of

cash made by SCA to a company controlled by SCA’s

former President and the propriety of reporting such

advances, in SCA’s financial statements for at least fiscal

year 1974, as receivables arising from services rendered

to that controlled company; (b) the timeliness and ade-

quacy of the disclosure in SCA’s annual report for fiscal

year 1975 that such receivables did not arise from serv-

ices rendered and that such receivables were being re-

paid; and (c) the timeliness and adequacy of SCA’s dis-

closures concerning transactions whereby SCA purchased

parcels of land from its former President through straw

entities and nominees at prices inflated by about $2.5

million.

J. App. 17. In oral argument before the District Court, Com-

mission counsel] undertook a similar explanation. J. App. 46-

12a

We must also discard any notion that the Commission’s

investigative order is too indefinite as to the documents

that its staff might apparently subpoena. Indeed, any

such conclusion is foredoomed by our holding that the

scope of the investigation itself is adequately bounded.”

The Commission’s subpoena power is coextensive with its

investigative power; by statute it may “require the pro-

duction of any [document] which the Commission deems

relevant or material to the inquiry,” and we cannot say

that the Commission’s interest in the documents demanded

of appellant is untoward. The investigation focuses on the

financial statements and activities of SCA, a publicly-

held corporation, and during the period under scrutiny

appellant has been the principal independent accountant

for that corporation, examining and certifying what the

Commission believes to be inaccurate financial statements.

The adequacy of the examinations leading to those certifi-

cations thus plainly emerges as a logical and permissible

subject of inquiry. We perceive no legal impropriety in a

probe into files and records prepared and maintained by

appellant in connection with its audits of the questioned

49, 57-61, 64. Appellant does not question the Commission’s

power to investigate the subjects specified in the affidavit, but

complains that the affidavit purports to justify considerably

less than the total demand of the subpoena, with the result

that its enforcement should have been correspondingly limited.

By our assessment, however, the particulars of the Commis-

sion’s investigative order, when coupled with the affidavit’s

disclosure that the investigation extends to the adequacy of

appellant’s audits, sufficiently specifies the scope of the investi-

gation and reveals that it is at least as broad as the subpoena’s

cali for documents. In this view, we need not address appel-

‘ant’s further contention that counsel’s oral representations

to the District Court could not substitute for evidence of in-

vestigative scope.

*? See text supra at notes 29-48.

5° See note 27 supra.

a ee ee eee

in wl

13a

financial practices and disclosures for SCA, or of those

for others thought to be participants in its suspected

misdoings.™

Appellant’s argument, however, takes a somewhat dif-

ferent tack. It is said that the Commission, by allowing

exploration of such of SCA’s activities as its “[f Jinancial

statements,” * “[dJescription[s] of business and prop-

erty” and “[a]quisition[s] or disposition [s] of as-

sets,” ™ has given its staff carte blanche to examine any-

thing it chooses, and thereby has abdicated its statutory

responsibilities. So broadly stated, however, this conten-

tion collides with our earlier conclusion that the informa-

51 “In our complex society the accountant’s certificate and

the lawyer’s opinion can be instruments for inflicting pecuni-

ary loss more potent than the chisel or the crowbar. United

States v. Benjamin, 328 F.2d 854, 863 (2d Cir.), cert. denied,

377 U.S. 953, 84 S.Ct. 1631, 12 L.Ed.2d 497 (1964). The

role of the accountant in securities transactions is vital.

The keystone of the Securities Act of 1933 is its substitution

of a policy of disclosure for one of caveat emptor; it closes

the “channels of .. . commerce to security issues unless and

until a full disclosure of the character of such securities has

been made” through a registration statement filed with the

Commission. H.R. Rep. No. 85, 73d Cong., 1st Sess. 3 (1933).

When Congress pondered the methodology by which disclosure

could be ensured, it at one time considered the idea of a corps

of federal auditors to examine companies proposing to market

securities, but in response to testimony from the accounting

profession, see Hearings on S. 875 Before the Senate Comm. on

Banking and Currency, 73d Cong., 1st Sess. 55-63 (1933),

decided instead to rely on certifications of independent public

or certified accountants. See 15 U.S.C. §§ 77aa(25), (26),

(27) (1976). See also Securities Exchange Act of 1954,

§13(a), 15 U.S.C. § 78m(a) (1976).

52 See text supra at note 12.

53 See text supra at note 12.

4 See text supra at note 12.

l4a

tional categories designated in the investigative order *

sufficiently confine the scope of the investigation.* Nor

can we agree that, to the extent that the task of particu-

larization of documents within those categories involves

some exercise of judgment, delegation of that activity to

staff officers was forbidden.

We remind once again that Congress has ordained

that “(flor the purpose of any .. . investigation . . ., the

production of any [documents] which the Commission

deems relevant or material to the inquiry” may be re-

quired.*’ In its investigative order, the Commission ap-

pointed fifteen staff officers to exercise designated func-

tions in connection with the investigation, including the

issuance of subpoenas for documents.* Appellant concedes

that “the Commission need not describe in detail every-

thing that is being investigated . . . and can give its staff

some discretion and latitude in conducting investiga-

tions.” ** With emphasis on the word “Commission” in

the statutory authorization, however, appellant insists that

“it is the Commission which must determine... the areas

in which private parties can be compelled to produce docu-

ments in connection with such investigations.” *

We would be less than candid if we failed to acknowl-

edge some uncertainty about the precise point at which

appellant would draw the line between the delegable and

the nondelegable. Since the Commission’s investigative

order sets areas—four in number—within which the staff

°> See text supra at note 12.

°° See text supra at notes 29-48.

5? See note 27 supra (emphasis supplied).

8s J. App. 4.

°° Brief for Appellant at 18.

® Brief for Appellant at 18 (emphasis in original).

ee mses lh as etis

that ccdant tie

AV RALEAINS 15) Baiting Easibd Milne.

RDNA eB i Pada edst

15a

purportedly may call for documents," the complaint must

again be that the categories designated do not restrict

staff discretion tightly enough.

Acceptance of appellant’s argument, we think, would

stagnate the Commission and frustrate its statutory mis-

sion. The Commission constantly engages in large num-

bers of investigations, each with its own ramifications of

informational need. To require Commission members to

exercise the substantial amount of supervision that

subpoena-detailing would require is to grind its operations

to a halt. As the Supreme Court observed three decades

ago, “(t]he pyramiding in Washington of all decisions on

law enforcement would be apt to end in paralysis,” “ and

how the more so today. Sheer necessity dictates that sub-

ordinates direct much of the investigative effort, includ-

ing document-production effort, else the agency will court

disaster. We cannot assume that Congress was oblivious

to these considerations, and our duty as judges is to con-

strue the Commission’s governing legislation, if at all

possible, to avoid an absurd result.™

Moreover, provision to a small group of administrators

of a sizeable supporting staff is utterly inconsistent with

the idea that the administrators themselves are to con-

duct their business without subdelegation. As one author-

ity has noted, “‘[t]he single administrator, or the three or

five or seven or eleven commissioners, are not provided

a staff of five hundred or a thousand or two thousand

and then expected to take all action without subdelega-

*t See text supra at note 12.

62 Fleming V. Mohawk Wrecking & Lumber Co., 331 U.S.

111, 123, 67 S.Ct. 1129, 1135, 91 L. 1375, 1885 (1947).

68 Yankee Network v. FCC, 71 App.D.C. 11, 18, 107 F.2d

212, 219 (1949); Porter v. Nowak, 157 F.2d 824, 825-826 (1st

Cir. 1946).

16 a

tion.” “* We are unable to shed the belief that in con-

ferring upon the Commission power to investigate exten-

sively and to subpoena documents to that end, Congress

anticipated that the Commission’s members would func-

tion more nearly at the level of policy determination, and

might permissibly assign the planning and execution of

particular projects to the staff.

So, advertent to these vonsiderations and to our re-

sponsibility to interpret legislation consistently with its

purpose,* we conclude that here no less than elsewhere “

the agency’s statutory charter “should be construed so as

to give it the administrative flexibility necessary for

prompt and expeditious action on a multitude of fronts.” ”

**1 K. Davis, Administrative Law Treatise § 9.01, at 616

(1958).

65 United States v. Bornstein, 423 U.S. 303, 310, 96 S.Ct.

523, 528, 46 L.Ed.2d 514, 522 (1976); First Nat'l Bank v.

Walker Bank & Trust Co., 385 U.S. 252, 261, 87 S.Ct. 492, 497,

17 L.Ed.2d 343, 349 (1966); Hudson Distribs., Inc. Vv. Eli Lilly

& Co., 377 U.S. 386, 395, 84 S.Ct. 1273, 1280, 12 L.Ed.2d 394,

400 (1964); Commissioner Vv. Bilder, 369 U.S. 499, 504, 82

S.Ct. 881, 884, 8 L.Ed.2d 65, 69 (1962).

°° Compare Fleming Vv. Mohawk Wrecking & Lumber Co.,

supra note 62, 331 U.S. at 121-122, 67 S.Ct. at 1134-1135, 91

L.Ed. at 1384-1385, distinguishing Cudahy Packing Co. V.

Holland, 315 U.S. 357, 62 S.Ct. 651, 86 L.Ed. 895 (1942);

Plapao Laboratories, Inc. v. Farley, 67 App.D.C. 304, 305, 92

F.2d 228, 229, cert. denied, 302 U.S. 732, 58 S.Ct. 56, 82 L.Ed.

566 (1937); Edwards v. NLRB, 189 F.2d 970 (4th Cir.),

cert. denied, 342 U.S. 870, 72 S.Ct. 112, 96 L.Ed. 654 (1951);

NLRB v. Anchor Rome Mills, Inc., 197 F.2d 447, 449 (5th

Cir. 1952); NLRB v. John S. Barnes Corp., 178 F.2d 156, 159

(7th Cir. 1949); Penfield Co. v. SEC, 143 F.2d 746, 749-751,

154 A.L.R. 1027 (9th Cir.), cert. denied, 323 U.S. 768, 65

S.Ct. 121, 89 L.Ed. 614 (1944).

87 Fleming V. Mohawk Wrecking & Lumber Co., supra note

62, 331 U.S. at 122, 67 S.Ct. at 1135, 91 L.Ed. at 1385.

Whe etree etl allt oP lien) oa nce ad Me »

iI a A a cA tale anion Dri ct

17a

We thus reject a construction of the statutory specifica-

tions of the Commission’s subpoena power that would fore-

close subdelegation to selected staff officers of the responsi-

bility for detailing its exercise. That reading is fully

harmonious with—indeed, is buttressed by “—a compan-

ion provision. With exceptions not pertinent here, the

Commission has express statutory leave to subdelegate to

subordinates “any of its functions,” including “act|[ions]

as to any work, business, or matter.” ” We have no reason

to assume that this provision is to mean less than what it

seems plainly to say, or that the subpoena power is some-

how impliedly excluded from its ambit.

We realize that in particular instances an administra-

tive subpoena could be overzealous, and we share a natural

concern over potential abuse. But the possibility that a

subpoena may occasionally be ill-advised in its call is not

alone a persuasive reason for introducing impractical

limits on subdelegation, which may well generate more

problems that it would solve.” The Commission is itself

** Compare id. at 120-121, 67 S.Ct. at 1134, 91 L.Ed. at

1384.

** “Tn addition to its existing authority, the Securities and

Exchange Commission, hereinafter referred to as the ‘Com-

mission’, shall have the authority to delegate, by published

order or rule, any of its functions to a division of the Comiuis-

sion, an individual Commissioner, a hearing examiner, or an

employee or employee board, including functions with respect

to hearing, determining, ordering, certifying, reporting, or

otherwise acting as to any work, business, or matter... .” 15

U.S.C. § 78d-1(a) (1976).

In Fleming Vv. Mohawk Wrecking & Lumber Co., supra

note 62, 331 U.S. at 123, 67 S.Ct. at 1135, 91 L.Ed. at 1385,

Justice Douglas, speaking for the majority, observed that

“Tt]o tempt the Administrator to solve the problem by supply-

ing all his offices with subpoenas signed in blank would not

further the development of orderly and responsible adminis-

tration.” Justice Jackson concurring, remarked:

[Continued]

18a

amply equipped, through its inherent powers to control

and rectify the activities of its subordinates, to arrest any

irresponsible uses to which its subpoena may be sought

to be put. And so long as the courts retain their power

of individual inquiry prior to enforcement of adminis-

trative subpoenas, there is relatively little for anyone to

fear.”

Ill

Another precondition to judicial enforcement of an

administrative investigative subpoena is that the docu-

ments demanded bear relevance to some subject of the

investigation.” In the instant case, the District Court was

convinced that in this case of a broadly based in-

vestigation into a complex subject matter, the sub-

7° [Continued]

If the Administrator may not delegate his power to

sign subpoenas but must personally sign all subpoenas

issued in the process of enforcement throughout the

United States, one of two practices would be certain to

result. He must sign large batches of blank subpoenas

and turn them over to subordinates to be filled in over

his signature. Or he might sign batches of subpoenas

already made out by subordinates, probably without read-

ing them and certainly without examining the causes for

their issuance or the scope of the information required.

The personal signature of the Administrator on the sub-

poena under those circumstances is no protection to in-

dividual rights.

Id. at 123-124, 67 S.Ct. at 1135-1136, 91 L.Ed. at 1386.

™ Compare id. at 124, 67 S.Ct. at 1136, 91 L.Ed. at 1386

(concurring opinion).

" United States Vv. Powell, supra.note 39, 379 U.S. at 57, 85

S.Ct. at 255, 18 L.Ed.2d at 119; United States v. Morton Salt

Co., supra note 36, 338 U.S. at 652, 70 S.Ct. at 369, 94 L.Fd.

at 416; Oklahoma Press Publishing Co. v. Walling, supra note

38, 327 U.S. at 209, 66 S.Ct. at 506, 90 L.Ed. at 630: SEC v.

Brigadoon Scotch Distrib. Co., 480 F.2d 1047, 1056 (2d Cir.

1973), cert. denied, 415 U.S. 915, 94 S.Ct. 1410, 39 L.Ed.2d 469

(1974).

dt dagiis Ofte sks

Jatt Rata

an ee a eee) Le oe

19a

poena request is not so overbroad as to reach into

areas irrelevant or immaterial. The materials sought

relate to Arthur Young’s auditing and other work

for SCA and for other individuals, corporations and

trusts with whom SCA may have had dealings. The

Commission is investigating alleged looting of SCA

assets and self-dealing by SCA insiders through a

scheme of selling over-priced property to SCA by

SCA insiders. The Commission has also indicated

that it is investigating Arthur Young’s role in pre-

paring the financial statements of SCA. In this

regard the materials sought are not clearly irrele-

vant or immaterial. This being the case, the Com-

mission has made sufficient showing of the relevancy

of these materials to justify the Court’s enforcement

of the subpoena.”

Appellant attacks this holding on several grounds, in

none of which are we able to concur.

The focal point of the present chalienge, like that

earlier,* is the quantity of data requisitioned by the

Commission’s subpoena. To reiterate, it asks for all docu-

ments in 14 categories amassed over a six-year period in

connection with appellants’ examinations of financial state-

ments of SCA, its subsidiaries and affiliates,” and, to the

extent applicable, (a) for “any special engagements proj-

ects or management consulting services”;* (b) for an-

other named corporation, its subsidiaries and affiliates; ”

(ec) for an additional 28 named individuals and entities; *

73 SEC v. Arthur Young & Co., supra note 20, at 2, J. App.

101 (citations omitted).

™* See Part II supra.

7° J. App. 10.

76 J. App. 10.

tJ. App. 10.

78 J. App. 10-11.

20a

and (d) for all present and past officers, directors, and

employees of SCA.” A closer look reveals, however, that

the scope of the demand is net nearly as broad as at first

blush it might seem. The Commission argues forcefully,

and appellant does not directly refute, that the 14 cate-

gories together comprise but one coherent set of work

papers and ancillary materials routinely generated and

assembled in any audit.” And although the subpoena’s

call extends beyond SCA and its affiliates to 29 persons

and entities and the full range of SCA personnel, the

record discloses that appellant has refused to say whether

it has performed any work for any of them during the

period under investigation,"' and this wall of silence leaves

appellant in much poorer position to press a claim of over-

breath. Obviously no production is required vis-a-vis those

whom appellant has not served; and, on the other hand,

as much of the subpoenaed materials as may be in appel-

lant’s possession lies within the ambit of the investigation

because the entities and persons for whom they are re-

tained—despite their number—are ostensibly implicated

in the questioned SCA financial operations.”

Thus we get to the gist of the matter. The investiga-

tion is ambitious, yet, as we have held, it is within the

Commission’s statutory domain.”' Because the investiga-

tion is broad the subpoena’s production effort is broad, yet

it is no broader. Put another way, though a response to

the subpoena may produce a large volume of data, the

* J. App. 11. We are told that for fiscal year 1975 SCA

had approximately 6,900 employees. Brief for Appellant at 25

n.23.

“ Brief for Appellee at 28.

“' J. App. 56-61,

** See Part II supra.

“* Part II supra.

— ee ee

21a

Commission has established prima facie its potential im-

portance in terms of the investigative objectives. That,

we think, is enough.

To begin with, we disagree with appellant that the

District Court utilized an erroneous standard in passing

on the issue of relevance. The court held th«t “the mate-

rials sought are not clearly irrelevant or immaterial.” “

Appellant asserts that this test stands the burden of

proof on its head—that “before an agency subpoena may

be enforced, the agency must prove, inter alia, that the

documents sought in a subpoena are ‘relevant to the pur-

pose’ of the matter under investigation.” ** For our part,

the difference between the two formulations is chiefly

semantical, and certainly is legally inconsequential. The

Supreme Court has rebuffed a challenge to the scope of

an investigative subpoena when “(t]he evidence sought by

the subpoena was not plainly incompetent or irrelevant to

any lawful purpose... .” We ourselves have enforced

such a subpoena when “we [could] not say that the re-

quested information is plainly irrelevant to the charges

contained in the complaint.” To treat “relevant” and

“not clearly irrelevant” as dichotomous™ is to overlook

** See text supra at note 78.

** Reply Brief for Appellant at 10, quoting United States Vv.

Powell, supra note 89, 379 U.S, at 57, 85 S.Ct. at 255, 18

L.Ed.2d at 119 (emphasis in original).

* Endicott Johnson Corp. V. Perkins, 317 U.S. 501, 509, 63

S.Ct. 339, 343, 87 L.Ed. 424, 429 (1943) (emphasis supplied).

** Moore Business Forms, Inc. v. FTC, 118 U.S.App.D.C.

231, 282, 307 F.2d 188, 189 (1962) (emphasis supplied).

* Surely that should not be done here, where the District

Court’s use of “not clearly irrelevant or immaterial” came

only after it had unambiguously declared that it would “en-

force the Conmmission’s subpoena if ... the materials sought

are relevant to [the] investigation.” SEC v. Arthur Young

& Co., supra note 20, at 2, J. App. 101.

2Za

the role of relevance as merely the refined expression of

one of several elements of a reasonable documental de-

mand.“ It can hardly be seriously suggested that a re-

quest for documents “not plainly irrelevant” is unreason-

able.”

Carefully analyzed, appeilant’s stance on relevance is

largely another outeropping of its distaste for the size of

the production summoned. The essence of its claim is that

the Commission has embarked upon an illegal fishing

expedition into its files. That would have been a potent

argument in the early era of administrative law” but it

retains scarcely any of its clout today. As Professor Davis

observes, “|t|he older cases strongly condemn roving in-

quiries into private books and records, but the recent cases

permit such roving inquiries to whatever extent seems to

be necessary to make the power of investigation effec-

tive.”"" And as far back as a quarter-century the Su-

preme Court, addressing the contention that an agency

was “engaged in a mere ‘fishing expedition’ to see if it

can turn up evidence of guilt,” "* commented expansively:

* See text supra at notes 36-42,

*” Compare CAB v. Hermann, 353 U.S. 322, 77 S.Ct. 804,

1 L.Ed.2d 852 (1957), directing enforcement of subpoenas

when the District Court “found that it could not say ‘that any

of the documents or things called for in any of the subpoenas

are immaterial or irrelevant... .’" Jd. at 328, 77 S.Ct. at 805,

1 L.Ed.2d at 853. As the Supreme Court read the District

Court’s order, “it duly enforced the [agency's] right to call

for documents relevant to the issues of the [agency’s] com-

plaint....” Id.

*' See, e.g., Hale v. Henkel, 201 U.S. 48, 76-77, 26 S.Ct.

370, 379-380, 50 L.Ed, 652, 666 (1906); FTC v. American

Tobacco Co., 264 U.S. 298, 305-307, 44 S.Ct. 386, 837-838, 68

L.Ed. 696, 700-701 (1924).

"1 K. Davis, Administrative Law Treatise § 3.06, at 188

(1958).

" United States v. Morton Salt Co., supra note 38, 338 U.S.

at 641, 70 S.Ct. at 363, 94 L.Ed. at 410.

23a

We will assume for the argument that this is so.

Courts have often disapproved the employment of the

judicial process in such an enterprise. ...

We must not disguise the fact that sometimes, es-

pecially early in the history of the federal adminis-

trative tribunal, the courts were persuaded to en-

graft judicial limitations upon the administrative

process. The courts could not go fishing, and so it

followed neither could anyone else. Administrative

investigations fell before the colorful and nostalgic

slogan “no fishing expedititions.” It must not be

forgotten that the administrative process and its

agencies are relative newcomers in the field of law

and that it has taken and will continue to take ex-

perience and trial and error to fit this process into

our system of judicature. More recent views have

been more tolerant of it than those which underlay

many older decisions.”

Continuing, the Court elucidated:

[A]n administrative agency . . . has a power of in-

quisition, if one chooses to call it that, which is not

derived from the judicial function. It is more analo-

gous to the Grand Jury, which does not depend on

a case or controversy for power to get evidence but

can investigate merely on suspicion that the law

is being violated, or even just because it wants as-

surance that it is not. When investigative and ac-

cusatory duties are delegated by statute to an ad-

ministrative body, it, too, may take steps to inform

itself as to whether there is probable violation of the

law.”

So, “[e]ven if one were to regard the request for infor-

mation . . . as caused by nothing more than official curi-

osity, nevertheless law-enforcing agencies have a legiti-

“Id. at 641-642, 70 S.Ct. at 363-364, 94 L.Ed. at 410.

* Jd. at 642-648, 70 S.Ct. at 364, 94 L.Ed. at 411.

24a

mate right to satisfy themselves that corporate behavior

is consistent with the law and the public interest.” ”

Today, then, “[t]he gist of the protection is in the

requirement ... that the disclosure sought shall not be

unreasonable.” *’ Correspondingly, the need for modera-

tion in the subpoena’s call is a matter of reasonableness:

[T]he requirement of reasonableness . . . comes down

to specification of the documents to be produced

adequate, but not excessive, for the purposes of the

relevant inquiry. Necessarily, ... this cannot be re-

duced to a formula; for relevancy and adequacy or

excess in the breadth of the subpoena are matters

variable in relation to the nature, purposes and scope

of the inquiry.”

We are mindful, too, that investigative breadth and

relevance of sought-after documents—each a vital consid-

eration in subpoena enforcement—are closely related:

The breadth of an investigation is for the investi-

gators to determine. The breadth of a subpoena or

of a search made in records may be excessive, but

the test is relevance to the specific purpose, and the

purpose is determined by the investigators.”

Here, as the District Court correctly stated, the Commis-

sion has launched “a broadly based investigation into a

complex subject matter,” ** and we have found it both

statutorily authorized and reasonable.’*” It is designed to

* Id. at 652, 70 S.Ct. at 369, 94 L.Ed. at 416.

* Oklahoma Press Publishing Co. v. Walling, supra note 38,

327 U.S. at 208, 66 S.Ct. at 505, 90 L.Ed. at 629.

* Id. at 209, 66 S.Ct. at 506, 90 L.Ed. at 630.

* 1 K. Davis, Administrative Law Treatise § 3.06, at 188-

189 (1958).

100 See text supra at note 78.

101 See Part II supra.

sn ne ae ak ae :

Siren it Bena aa time cscs Giddens Wik tes ected HR IRE

25a

ascertain whether the federal securities laws or the Com-

mission’s regulations have been transgressed; '” with that

aim, it will explore the interrelationships, direct and indi-

rect, of SCA and a number of individuals and entities in

a variety of transactions.’ Appellant, as SCA’s chief in-

dependent accountant, prepared and certified for SCA

publicly-filed and -disseminated statements thought to be

inaccurate, a matter upon which appellant’s subpoenaed

work papers and ancilliary materials could be revealing.

They promise to reflect also upon the caliber of appellant’s

performances in SCA’s behalf, and as well upon the

nature and extent of any participation in SCA’s financial

activities by other suspects who might happen to be

clients of appellant. These circumstances forge a prima

facie case of pertinence of the subpoenaed documents to

the ends of the investigation, a showing which appellant,

by choice, has not undertaken to rebut. We hold that the

requirement of relevance has been met.

Lastly, appellant complains that the subpoena in suit

imposes an unconscionable burden, in the constitutional as

well as the ordinary sense. We do not doubt that in par-

ticular instances administrative subpoenas for document-

production could have just that effect. As we have al-

ready observed, the Fourth Amendment demands of

subpoenas not only relevance in purpose and specificity

in command but also such limitation in scope “that com-

pliance will not be unreasonably burdensome.” ** And we

agree that “while the [Commission] is entitled to great

102 J, App. 4.

108 J, App. 4.

4 See text supra at note 38.

26a

freedom in conducting its investigations, it is not at lib-

erty to act unreasonably ... .”

Undeniably, the response to the instant subpoena will

necessitate a great deal of effort. An uncontroverted affi-

davit in the record avows that appellant’s personnel will

have to examine, at more than 15 different offices of the

firm’*** and at a cost estimated at more than $100,000,

some 2,000 work binders and over 200 correspondence

files which when stacked would extend more than 275

lineal feet." On the other side of the ledger, however,

are considerations militating against appellant’s conten-

tion that the subpoena’s call is undue. The Commission’s

investigative power, we have noted, is broad; ** the mate-

rials here sought, we have held, are relevant to an author-

ized inquiry; '° and resultantly a demonstration of exces-

sive burden would be hard to come by.?”°

Moreover, the District Court, recognizing that compli-

ance would impose “a heavy burden ... on a party,

which, though involved in the Commission’s investigation,

is not the primary target of that investigation,” * took

steps to reduce it. The court’s enforcement order compels

appellant to produce documents for Commission inspec-

°° SEC v. Brigadoon Scotch Distrib. Corp. 9

480 F.2d at 1056. orp., supra note 72,

ee This is so notwithstanding that a majority of the ma-

terials are kept at ten of appellant’s offices. J. App. 32-33.

See note 8 supra.

107 J, App. 33.

108 See text supra at notes 32-35.

109 See Part III supra.

*10 Compare SEC v. Brigadoon Scotch Distrib. C

note 72, 480 F.2d at 1056. Soaitiasa

111

= SEC v. Arthur Young & Co., supra note 20, at 3, J. App.

™

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size ‘ Poe ats wetiebias svc = x ;

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27a

tion only at the offices at which in the ordinary course of

business they are kept."* Beyond that, appellant is freed

from any obligation to copy for the Commission’s benefit

any document temporarily released for that purpose.’”

But, as the order explicates, appellant must copy for the

Commission those documents it wishes to retain continu-

ously in its possession.“* For reasons we cannot deem

insubstantial,’ appellant insists that the conaitions im-

posed by the District Court would not accomplish enough.

Momentarily at least, we need not ponder on just what

decision would be proper on burden were it not further

ameliorated, for in our view another factor merits addi-

tional study. The financial cost of compliance with the

subpoena is principally if not entirely the burden com-

plained of, a circumstance accented by appellant’s argu-

ment that enforcement—if forthcoming at all—should be

made to depend upon reimbursement of the expense in-

curred."* No less than the District Court, we recognize

the value of feasible conditions in the effort to minimize

the onus of subpoena-compliance,"” and it is evident that

cost-reimbursement could make a great deal of difference

here. Continuing, then, the process begun by the District

u2 Jd. at 3-4, J. App. 102-103.

118 Td.

14 Jd, at 4, J. App. 103.

115 See text infra at notes 129-133.

16 Brief for Appellant at 33-36; Reply Brief for Appellant

at 12-14.

11 See CAB v. Hermann, supra note 90, 353 U.S. at 323, 77

S.Ct. at 805, 1 L.Ed.2d at 853; Bank of America v. Douglas,

70 App.D.C. 221, 228, 105 F.2d 100, 107, 123 A.L.R. 1266

(1989) ; United States v. Dauphin Deposit Trust Co., 385 F.2d

129, 181 (3d Cir. 1967), cert. denied, 390 U.S. 921, 88 S.Ct.

854, 19 L.Ed.2d 981 (1968); United States v. Continental

Bank & Trust Co., 503 F.2d 45, 48 (10th Cir. 1974).

28a

Court, we pause to consider how far reimbursement of

appellant’s expense of compliance may have a rightful

role in the situation before use.

The power to impose a condition of that sort has

achieved recognition,“* though its source and the predi-

cates for its exercise are less clearly defined. Rationales

Suggested by appellant extend tu contentions that visita-

tion of a heavy burden of obedience amounts to an un-

reasonable search and seizure violative of the Fourth

Amendment, or alternatively to a taking of property with-

out just compensation or due process of law in contraven-

tion of the Fifth.* We need not range so far, however,

to find the authority that appellant invokes.

Enforcement of administrative subpoenas has long been

committed, not to administrative tribunals themselves, but

instead to the courts.” Power to enforce subopenas of

48 See United States v. Davey, 543 F.2d 996, 1000 (2d Cir.

1976); United States v. Davey, 426 F.2d 842, 844-845 (2d Cir.

1970); United States v. Friedman, 532 F.2d 928, 936-937 (3d

Cir. 1976); United States v. Farmers & Merchants Bank, 397

F.Supp. 418, 420-421 (C.D. Cal. 1975), appeal docketed, No.

75-3690 (9th Cir.). Cf. United States v. Dauphin Deposit

Trust Co., supra note 117, 385 F.2d at 130; United States v.

Continental Bank & Trust Co., supra note 117, 503 F.2d at

48; United States v. First Nat’l Bank, 173 F.Supp. 716, 720-

721 (W.D. Ark. 1959).

4° These arguments, upon which we have no occasion to

intimate an opinion, have frequently been discarded, usually

on the facts of the particular case. United States v. Dauphin

Deposit Trust Co., supra note 117, 385 F.2d at 130; United

States v. Friedman, supra note 118, 532 F.2d at 934-935;

United States v. Continental Bank & Trust Co., supra note

117, 503 F.2d at 48. But see United States v. Farmers &

Merchants Eank, supra note 118, 397 F.Supp. at 420-421.

ve “The inquiry whether a witness before the [Interstate

Commerce] Commission is bound to answer a particular ques-

tion propounded to him, or to produce books, papers, ete., in

SARE aS 8 Dah 6S tii Ra ac A NLA Ail tales Cal Sibi Cision ston’! Gia Nm

29a

the Securities and Exchange Commission is cast in this

traditional mold, without limitation on the court’s discre-

tion to set terms ensuring that the enforcement order

does not become an engine of oppression.%* Stated some-

what differently, judicial authority to temper enforcement

with fairness stems inexorably from congressional en-

trustment of subpoena enforcement to the judiciary.

Surely, then, in formulating protective conditions for ad-

ministrative subpoenas, courts may resort analogously to

techniques conventional to judicial subpoenas,‘** and thus

in safeguarding against undue financial outlays may ap-

propriately insist upon a reasonable measure of reim-

bursement.*

i ssession and called for by that body, is one that can-

— - committed to a subordinate administrative or executive

tribunal for final determination.” ICC v. Brimson, 154 U.S.

447, 485, 14 S.Ct. 1125, 1136, 38 L.Ed. 1047, 1060 (1894).

121 See Securities Exchange Act of 1934, § 21(c), 15 U.S.C.

§ 78u(c) (1970).

122 United States v. Friedman, supra note 118, 532 F.2d at

936-937.

123 With respect to the latter, Fed. R. Civ. P. 45(b) specifies:

A subpoena may also command the person to whom it

is pHa cin to produce the books, papers, documents, or

tangible things designated therein; but the court, upon

motion made promptly and in any event at or before the

time specified in the subpoena for compliance therewith,

may (1) quash or modify the subpoena if it is unreason-

able and oppressive or (2) condition denial of the motion

upon the advancement by the person in whose behalf the

subpoena is issued of the reasonable costs of producing

the books, papers, documents, or tangible things.

i i i ision “di broad con-

emphasis supplied). This provision disclos[es] a

pases judgment with respect to fairness in subpoena en-

forcement proceedings.” United States V. Friedman, supra

note 118, 582 F.2d at 937.

124 United States v. Friedman, supra note 118, 582 F.2d at

937.

30a

As appellant readily concedes, considerations of fair-

ness do not cali for reimbursement in every instance, or

necessarily for full reimbursement in any given case."

There is a continuing general duty to respond to govern-

mental process; in consequence, subpoenaed parties can

legitimately be required to absorb reasonable expenses of

compliance with administrative subpoenas.’ It follows

that the power to exact reimbursement as the price of

enforcement is soundly exercised only when the financial

burden of compliance exceeds that which the party ought

reasonably be made to shoulder.’*” And what is reasonable

will depend—as over the legal spectrum it ultimately does

—upon the circumstances of each case.’** With these con-

cerns in mind, we turn to appellant’s claim that the en-

forcement order under review should provide for reim-

bursement in a more generous degree than it does.

Appellant represents that compliance with the subpoena,

even as conditioned by the District Court, potentially

involves costs exceeding $100,000,“° of which $84,000 ex-

pectably will be for document-duplication alone. And

28 Reply Brief for Appellant at 12 n.17.

26 United States v. Davey, supra note 118, 543 F.2d at 1001;

United States v. Dauphin Deposit Trust Co., supra note 117,

385 F.2d at 130; United States v. Friedman, supra note 118,

532 F.2d at 987; United Stctes v. Continental Bank & Trust

Co., supra note 117, 503 F.2d at 48.

27 United States v. Davey, supra note 118, 543 F.2d at 1000-

1001; United States v. Dauphin Deposit Trust Co., supra note

117, 385 F.2d at 180; United States v. Friedman, supra note

118, 5382 F.2d at 938. Cf. United States v. Continental Bank

& Trust Co., supra note 117, 503 F.2d at 48.

28 United States v. Friedman, supra note 118, 5382 F.2d at

937-938. Compare United States v. Davey, supra note 118,

543 F.2d at 1001.

129 J. App. 33.

3° Brief for Appellant at 31-32.

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8la

while under the enforcement order propounded by the

District Court, appellant can reduce and even eliminate

the $84,000 item by turning originais over to the Commis-

sion for copying at its own expense,’ for appellant that

is not an acceptable option. An affidavit presented to the

District Court stated that many of the subpoenaed docu-

ments were needed in connection with a current audit and

that their release, even for a brief period, could seriously

interfere with that effort; '* and we have no basis for an

assumption that such a need for retention does not recur.

To boot, appellant tells us that on previous occasions it

has lent documents to the Commission that were (hen

either lost or destroyed.'** The Commission does not dis-

pute the importance to an independent accounting firm

of ready access to its audit work papers, nor does the

Commission deny the claim that in the past it has failed

to return materials borrowed from appellant. In this

milieu, appellant’s insistence upon retention of its origi-

nals is understandable, and hardly supports an outright

denial of reimbursement for copying costs.

Nonetheless, we are unable at this time to rule affirma-

tively that appellant is entitled to reimbursement, for its

actual future expenses conceivably could fall far short of

its present projection. Its estimate will be vindicated only

if the Commision designates every subpoenaed document

for copying; furthermore, appellant computes duplication

expense at 20 cents per page." We cannot ignore the

possibility that ultimately the Commission may settle for

131 See text supra at notes 22-23. Compare United States v.

Dauphin Deposit Trust Co., supra note 117, 385 F.2d at 131;

United States v. Continental Bank & Trust Co., supra note

117, 503 F.2d at 48.

132 J, App. 33.

133 Brief for Appellant at 31.

1% Brief for Appellant at 32.

82a

a much smaller number of documents, that appellant may

spend less per page than originally anticipated, or that

the rate may not be entirely reasonable.’** These are

among the uncertainties in the present record cautioning

against an undertaking to assess now whether or to what

extent reimbursement might be in order.

There is no need to speculate in this regard. Appellant

has expressed its willingness to postpone recoupment of

its expenses until after full production in response to the

subpoena **—when, of course, the propriety of reimburse-

ment. could readily be determined. More fundamentally,

however, appellant’s offer to defer the day of financial

reckoning is a concession the Commission cannot demand of

right. Judicial power to condition subpoena-enforcement

upon expense-absorption, by its very nature, extends

to requiring advance payment when warranted.’ Once

the agency seeking enforcement has identified the docu-

ments it wishes, the court, upon suitable demonstration

of what the cost of production will likely be, may direct

prepayment in such amount as the situation reasonably

calls for.’ This is but to say that the court may exercise

‘%° The 20-cent per-page estimate is not supported either as

to amount or reasonableness by any evidence in the record.

8° Reply Brief for Appellant at 14.

st Should any analogy be desired, it is to be found in the

subpoena for document-production in civil litigation, a situa-

tion wherein production may be conditioned upon advance-

ment of the reasonable cost thereof. See note 123 supra.

‘8 The parties should first endeavor to reach an understand-

ing on the matter. If they are unable to agree, the court’s

authority to order advance payment can be invoked. Proce-

durally, the court would ascertain (a) as a matter of reason-

able probability, whether agency-sharing of the expense is

appropriate, text supra at notes 116-124, and if so, (b) the

extent to which it should share, text supra at notes 125-128,

and (c) when it should share—prepayment, reimbursement or

33 a

its discretion in favor of payment either before or after

the fact. And it is hardly necessary to point out that need

for a substantial outlay to enable compliance is a circum-

stance arguing powerfully for prepayment in some meas-

ure at least.’*

We modify the District Court’s enforcement order,

then, to afford appellant the opportunity to show that the

actual aggregate expense of compliance with the Commis-

sion’s subpoena will be unreasonable and to seek prepay-

ment or reimburseinent accordingly.’ For reasons earlier

discussed,'*' we affirm the judgment as thus modified.

So ordered.

a combination of.both. Prepayment will necessitate judgments

based on reasonable probability, and can be directed in stages

on periodic application. The theme of cost-sharing orders

should be flexibility, circumscribed only by the bounds of

sound judicial discretion.

139 And it will be recalled that appellant has already pro-

duced some of the subpoenaed materials. See text supra at

note 7 and notes 7, 24 supra.

14° Relevance of the sought-after data appearing, Part III

supra, appellant will have the burden of demonstrating ex-

cessive cost of compliance. United States v. Davey, supra note

118, 543 F.2d at 1000.

1 In Parts II, III.

34a

APPENDIX A

UNITED STATES COURT OF APPEALS

For THE District or CoLumBIA CIRCUIT

No. 76-1716 September Term, 1978

D.C. Misc. No. 76-0098

SECURITIES AND EXCHANGE COMMISSION

ARTHUR YOUNG & COMPANY,

Appellant

Before BAZELON, LEVENTHAL and ROBINSON, Circuit Judges.

ORDER

It is ORDERED by the Court, sua sponte, that the opinion

filed herein on July 24, 1978, be and hereby is amended by

substitution, in lieu of the last two paragraphs of text and

accompanying footnotes on pages 32-33, of the following:

There is no need to speculate in this regard. Appel-

lant has expressed its willingness to postpone recoupment

of its expenses until after full production in response to this

opinion '36—when of course, the problems of reimburse-

ment could readily be determined. More fundamentally,

however, appellant's offer to defer the day of financial

reckoning to that point is a concession the Commission

cannot demand of right. Judicial power to condition

subpoena-enforcement upon expense-absorption, by its

very nature, extends to requiring step-by-step reimburse-

196 Reply Brief for Appellant at 14,

amc, iii

35a

ment concurrently with document-production at any stage

that the producing party has already been put to substan-:

ually more than his fair share of the costs of obedience. '9”

The enforcing court has ample discretic to .aake certain

that one possessing subpoenaed material will not for any

inordinate period be out-of-pocket more than a reasonable

amount, 198

We modify the District Court's enforcement order,

then, to afford apellant the opportunity to show that the

actual expense of compliance with the Commission's sub-

poena has at any given time become unreasonable and to

seek reimbursement accordingly.'°® For reasons earlier

discussed, '4° we affirm the judgment as thus modified.

So ordered.

197 Cf. Fed. R.Civ.P. 45(b), quoted in note 123 supra. We need

not decide whether judicial enforcement of administrative subpoenas

may be conditioned upon advance payment of compliance costs. 31

U.S.C. § 529 (1976) provides in relevant part that “[n]o advance of

public money shall be made in any case unless authorized by the

appropriation concerned or other law.” See Alcoa Steamship Co., Inc.

v. United States, 338 U.S. 421, 425 & n.6, 70 S.Ct. 190, 192 & n.6, 94

L.Ed. 225, 230 & n.6 (1949). See also Warren v. United States, 340

U.S. 523, 526, 71 S.Ct. 432, 434, 95 L.Ed. 503, S08 (1951) (“[t}he

term law in our jurisprudence usually includes rules of court decisions

as well as legislative acts.”’).

198 The parties should first endeavor to reach an understanding

on the matter. If they are unable to agree, the court's authority to

condition enforcement upon expense-sharing can be invoked.

Procedurally, the court would ascertain (a) whether agency-sharing

of the expense is appropriate, text supra at notes 116-124, and if so

(b) the extent to which it should share, text supra at notes 125-128,

and (c) when it should share. The theme of cost-sharing orders

should be flexibility.

199 Relevance of the sought-after data appearing, Part III supra,

appellant will have the burden of demonstrating excessive cost of

compliance. United States v, Davey, supra note 118, 543 F.2d at 1000.

40 In Parts II, III.

APPENDIX B

UNITED STATES OF AMERICA

BEFORE THE

SECURITIES AND EXCHANGE COMMISSION

October 21, 1975

In the Matter of SCA Services, Ine.

File No, HO-867

Order Directing Examination and Private Investigation and

Designating Officers to Take Testimony

The Commission’s public files disclose that SCA Serv-

ices, Inc. (SCA), a Delaware Corporation with executive

offices in Massachusetts, has since 1970 filed as registrant

a number of registration statements on Form S-1 pursuant

to the Securities Act of 1933, as amended (Securities Act).

These registration statements were filed in order to register

shares of common stock of SCA to be issued for various

purposes including issuance from time to time in connection

with acquisitions of businesses by SCA, and to register

shares being offered by certain selling stockholders.

The Commission’s public files further indicate that SCA

has common stock registered pursuant to Section 12(b) of

the Securities Exchange Act of 1934, as amended (Exchange

Act), and has filed annual reports, and other periodic and

current reports and disseminated proxy material since at

least 1970 as required pursuant to the Exchange Act.

Members of the staff have reported information to the

Commission which tends to show that:

A. The aforementioned registration statements, pro-

spectuses included therein, and Exchange Act filings in-

clude untrue statements of matevial facts or omit to state

material facts required to be stated therein and necessary

to make the statements therein not misleading concerning

among other things:

1. Interest of management and others in certain trans-

actions.

2. Financial statements.

3. Description of business and property.

4. Acquisition or disposition of assets.

B. SCA, its officers, directors and employees have vio-

lated or are about to violate Sections 17(a) of the Securi-

ties Act and Sections 13(a), and 10(b) of the Exchange

Act and Rules 13a-1 and 10b-5 promulgated thereunder in

the dissemination and filing of the above mentioned ma-

terials and in connection with the purchase and sale of the

securities of SCA. While engaged in the activities described

above, SCA, its officers, directors and employees directly

and indirectly made use of the mails and means and instru-

mentalities of transportation and communication in inter-

state commerce.

III

The Commission, having considered the staff report and

deeming such acts and practices, if true, to be in possible

violation of Section 17(a) of the Securities Act, and Sec-

tions 10(b) and 13(a) of the Exchange Act and the rules

10b-5 and 13a-1 thereunder, finds it necessary and appro-

priate and hereby

Oxbers, pursuant to the provisions of Sections 8(e) and

20(a) of the Securities Act and Section 21(a) of the Ex-

change Act, that a private investigation be made to de-

termine whether the aforesaid persons or any other per-

sons have engaged or are about to engage in any of the

reported acts or practices of similar purport or object; and

Ir Is FurrHER ORDERED, pursuant to the provisions of

Section 19(b) of the Securities Act and Section 21(b) of

the Exchange Act, that for the purposes of such investi-

gation Irwin M. Borowski, David H. Belkin, Richard S.

Kraut, Peter M. Sullivan, Norman W. Wicks, Jeffrey S.

Rosen, Robert E. Grossman, Richard J. Morvillo, Ian Ding-

wall, Merton B. Goldman, Andrew L. Leventhal, Richard

E. Brodsky, Richard Jessup, Kathleen Gallagher and Rich-

ard L. Osborne and each of them be and hereby is desig-

nated as an officer to administer oaths and affirmations, sub-

poena witnesses, compel their attendance, take evidence,

require production of any books, papers, correspondence,

memoranda, or other records deemed relevant or material

to the inquiry and to perform all duties in connection there-

with or authorized by law.

By the Commission.

/s/ Georce A. FirzsimMons

George A. Fitzsimmons

Secretary

APPENDIX C

Attachment to Subpoena Duces Tecum

1. All documents including but not limited to (1) audit

programs; (2) internal control evaluation; (3) schedules

prepared by personnel of Arthur Young & Company and/

or SCA Services, Inc., subsidiaries or affiliates; (4) docu-

ments received by Arthur Young & Company in the course

of the audit; (5) memoranda relative to the audit, audit

conclusions, technical matters, policy, accounting theory,

or auditing problems; (6) review notes or point sheets;

(7) interoffice correspondence and/or memoranda relating

to topics mentioned in (5) above; (&) permanent files;

(9) correspondence to and from SCA Services, Inc., its

officers, directors, shareholders, employees or other persons

related directly or indirectly with SCA Services, Inc.,

subsidiaries and affiliates; (10) separate financial state-

ments in your possession of SCA Services, Inc., subsidi-

aries and affiliates; (11) engagement letters; (12) all bill-

ings and time records; (13) papers, documents and other

matters used in the preparation of tax returns filed with

federal authorities relating to taxes payable on income;

and (14) other documents in your possession or under

your control relating to the examination of the financial

statements of SCA Services, Inc., subsidiaries and affili-

ates for the years ended March 31, 1970, 1971, 1972, 1973,

1974 and 1975.

2. Same as 1, above, but for any special engagements

projects or management consulting services.

3. Same as 1, above, but for Carlton Hotel Corporation,

subsidiaries and affiliates.

4. Same as 1, above, but for the following persons, if

applicable:

a. Christopher P. Recklitis

b. Nicholas Liakas

- S 7m * oO

. Berton Steir

. Willmac Realty Trust

. Cyrano Corporation

Topkins, Gaffin, Siegal & Krattemaeker

. H. & J. Siegel

. Bay State Federal Sevings & Loan Association

WTT Corporation

Charles H. Chaplin Trust

. M. DeMatteo Construction Company, Ince.

l. Land Trust

P&B

4 2 9

NoW@wH 44s -¢ ow

aa.

bb.

J. C. Development Corporation

. Lad Landfill, Ine.

. Citibank (Central) N.A.

. American Management Enterprises, Inc.

. William Sherman

William A. Wood, Jr.

Maurice A. Chouinard

Arthur N. Trembley

. H. Chester Webster

. Charles E. Burns

. Milton Yakus

. Rocco Salerno

. Anthony Dentro

William Ribyat, Jr.

Anthony Guerriero

Rose Gueniero

ee. All officers, directors and employees (present and

past)

As used hereinabove, the terms ‘‘documents’’ means all

writings, audio and audio recordings, discs and other de-

vices used for storing data in a computer facility, and

all other kinds of records, including but not limited to:

the original or identical copy thereof and all non-identical

copies (whether different from originals by reason of no-

tation made on such copies or otherwise) ; all letters, tele-

grams, memoranda, reports, studies, checks and bank

statements, workpapers, calendar or diary entries, tele-

phone messages and log books, and notes, minutes and

records of conversations, discussions, meetings and con-

ferences; and all drafts and preliminary drafts of the

foregoing.*

1 This is designed to permit each enumerated item of attachment to define sub-

jects or categories of documents without having to specify all the forms in which

they might be found. Obviously if you know the proper name of particular docu-

ments that exist or might exist (e.g.,.minutes of meetings of the Board, cash

journal), it will do no harm to spell it out by stating: ‘‘ Meetings of the Board of

Directors, including but not limited to minutes of formal board meetings’’.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.