# Petition — Arthur Young & Co. v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1940%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1979 - **Citation:** 439 U.S. 1071 ## Text QC] 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 10 14 18 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 la Ib TABLE OF AUTHORITIES Cases: Air Line Pilots Ass’n v. CAB, 475 F.2d 900 (D.C. Cir. RUPTIEI |). |; mie in ern sf 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 eS 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. IV 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. ™ Rie a ABR MSS iE ha aR size ‘ Poe ats wetiebias svc = x ; ie AR 0S abt eed i eens He oe ee a ae Iie ase nL i 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. OI ER ee ae” WF eam ' Fi OG) Gk dla seinen tetra 89 ak a" CO ——— —— KK | 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 ve 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. 1b 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 I 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. Il 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- 2b 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 3b 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 le 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 a - S 7m * oO pe . 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 3c 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’’. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1940%3A1. Public record. Not legal advice.