Opposition Brief — Blinder, Robinson & Co. v. Securities & Exchange Commission

c T, Uses, F yy

ne ». 20543

— WAY 3 i985

ALEXANDER Ls TEV;

In the Supreme Court of the Hnited States

OCTOBER TERM, 1984

No. 84-1563

BLINDER, ROBINSON & Co. INC. AND

MEYER BLINDER, PETITIONERS

V.

SECURITIES AND EXCHANGE COMMISSION, ET AL.

ON PETITION FORA WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

Rex E. Lee

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

DANIEL L. GOELZER

General Counsel

ROSALIND C. COHEN

Assistant General Counsel

RutuH E. ElseNnsperG

Special Counsel

PAMELA T. PARRISH

RICHARD A. LEVINE

Attorneys

Securities and Exchange Commission

Washington, D.C. 20549

BEST AVAILABLE COPY

QUESTIONS PRESENTED

1. Whether petitioners’ claims for injunctive and declar-

atory relief challenging a formal administrative order of

investigation became moot when the order was terminated.

2. Whether the district court abused its discretion in

denying petitioners’ motion for relief from judgment under

Fed. R. Civ. P. 60(b)(6).

(I)

np A ERE

Opinions below

Jurisdiction

Statement

Argument

Conclusion

TABLE OF CONTENTS

TABLE OF AUTHORITIES

Cases:

Ackermann v. United States, 340 U.S. 193 ...

Ashcroft v. Mattis, 431 U.S. 171 ..........:

Butz v. Economou, 438 U.S. 478 ...........

Haring v. Prosise, 462 U.S. 306 ............

Harlow v. Fitzgerald, 457 U.S. 800 ........ ‘

Link v. Wabash R.R., 370 U.S. 626 .........

Mekdeci v. Merrell National Laboratories,

CE I hay pduiva nes Oak waaay oe + a

Murphy v.. Hunt,.455-U:S. 478 ........0005-

Polk County v. Dodson, 454 U.S. 312 ........

Preiser v. Newkirk, 422 U.S. 395 ...1....5..

Ramirez v. INS, 550 F.2d ee eee

SEC vy. Arthur Young & Co., 584 F.2d 1018,

cort. dented, 499 U.S. 1071 o.. ae ceca cce

SEC v. C.M. Joiner Leasing Corp.,

LS | BPP Eee Pere EER eT ET Ee

(111)

oeeoveeevreeeeeeereeseeeereeeeeeeeeeeee

SFeeaeenascaeoeeoeceoea se. @oevwsee1eeaeegee seed @ 6 6 6 0.6 6

oeoeeveeeveeseeeeeeeeeeeeveeeeeeeeeeeeeeee

IV

Page

Cases—Continued:

SEC v. Jerry T. O’Brien, Inc., No. 83-751

:*; Te SE v0 Cae ndna hehe eee eeeae ss 3, 6,8

SEC y. Sloan, 436 U.S. 103 ©. 6.560208 .e2k cy 7

Sprecher v. Graber, 716 F.2d 968 .............. 6

Steadman v. SEC, 450 U.S.91 .....0.e00ceeee. 9

Wainwright v. Torna, 455 U.S. 586 ............ 9

Watson v. Moss, 619 F.2d 775 beeen eee ee eees 9

Constitution, statutes, regulations and rule: |

U.S. Const. :

Fh Te ea oe ce a a eae 7

NS ame reer rarar sta nny ere maga 7

WI We oe es eos eee kasanei scans aues 9

Securities Act of 1933, $ 17(a),

SP FE iia ne hanes dad een ssnsd ne tans y

Securities Exchange Act of 1934, 15 U.S.C.

78a et seq. :

§ 10(b), 15 U.S.C. 78j(b) ... 2.0... cece eee. 2

§$ 15(b), 15 U.S.C. (& Supp. 1)

FRE: esa cceu tease PEC Se aE eee Te ee 6

ek 2 ee: re 2

BING) OF UBS. TOG) ik 6 ican cb ca teawns 6

De Be RG POE 3h ks eed evaanawes es 6

Oe Wes CUE aac teapinsnkaneasaceveac seared 7

V

Page

Constitution, statutes, regulations and rule—Continued:

17 <P, ¢

Section-200.30-4(aM 1) onc cccicccvasecscdye 5

UCI Be 4a FO 0 RR ek eee 5

UCI FE AS acts woke c en deedas soos 2

oe eR Pree rere ey rrr rrr eT 2

ee ee re er er re Pree 2

Section 240.15c24 ....... cece eee ee eee ees 2

Fed. R. Civ. P. 60(b)(6) .....0e0eeeeeeeeees 3, 4,8

Miscellaneous:

L. Loss, Fundamentals of Securities Regulation

‘(ees Pow rer errr err ren 9

In > Supreme Court of the Hnited States

OCTOBER TERM, 1984

No. 84-1563

BLINDER, ROBINSON & Co. INC. AND

MEYER BLINDER, PETITIONERS

Vv.

SECURITIES AND EXCHANGE COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-1 1a) is

reported at 748 F.2d 1415. The opinion of the district court

and order granting summary judgment (Pet. App. 12a-18a)

are reported at 565 F. Supp. 74. The order of the district ,

court denying petitioners’ motion under Fed. R. Civ: P.

60(b)(6) (Pet. App. 19a) is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

November 27, 1984. A petition for rehearing was denied on

January 2, 1985. The petition for a writ of certiorari was

fily’ on April 2, 1985. The jurisdiction of this Court is

invoked under 28 U.S.C. 1254(1).

(1)

2

STATEMENT

1. Petitioner Blinder, Robinson & Company (Blinder,

Robinson) is a broker-dealer registered with the Securities

and Exchange Commission. Petitioner Meyer Blinder is

Blinder, Robinson’s president and principal shareholder.

Pet. App. 12a-13a. On August 27, 1980, the Commission

brought a civil enforcement action in the United States

Districi Court for the District of Colorado, charging that

petitioners and others had violated antifraud and anti-

manipulation provisions of the Securities Act of 1933 and

the Securities Exchange Act of 1934 and regulations there-

under in connection with a $25 million public offering of

securities of Ametican Leisure Corporation, a new issuer

with no operating history (Pet. App. 2a).! In their answer to

the Commission’s complaint, petitioners alleged as an

affirmative defense that the Commission’s case resulted

from an illegal investigation (id. at 14a n.2). The Commis-

sion’s enforcement action was tried in July 1981 (id. at 14a).

Petitioners did not seek to introduce any evidence relating

to their purported illegality defense, nor did they object to

the Commission’s introduction of any evidence derived

from its investigation (id. at 3a, 14a).

The district court found that petitioners had violated

each of the charged provisions and enjoined them from

further violations. The court of appeals affirmed in all

respects, and this Court denied certiorari. 542 F. Supp. 468.

(D. Colo. 1982), aff'd, 748 F.2d 1415 (10th Cir. 1984), cert.

denied, No. 84-649 (Jan. 7, 1985).

'The complaint charged violations of the following provisions: Sec-

tion 17(a) of the Securities Act of 1933, 15 U.S.C. 77q(a); Sections

10(b), 15(c) of the Securities Exchange Act of 1934, 15 U.S.C. 78)(b),

780(c); and Rules 10b-5, 10b-6, 10b-9, 15c2-4, 17 C.F.R. 240.10b-5,

240.10b-6, 240.10b-9, 240.15¢2-4.

3

2. Twelve days before the Commission brought its

enforcement action, Blinder, Robinson filed suit against the

Commission in the same district court, challenging the

agency’s formal order of investigation that led to the

enforcement action. The formal order (Pet. App. 20a-22a)

authorized Commission. staff to issue subpoenas during the

course of their investigation of petitioners, but the order did

not itself compel petitioners to disclose any information or

to produce any documents. See generally SEC v. Jerry T.

O’Brien, Inc., No. 83-751 (June 18, 1984), slip op. 1-2 n.1.

After the enforcement action was initiated, the district court

dismissed Blinder, Robinson’s action on the ground that it

was moot. See Pet. App. 13a-14a. The court of appeais

reversed, concluding that the action was not moot because

the order of investigation was still in effect, and remanded

to the district court for further proceedings. 692 F.2d 102,

106 (10th Cir. 1982).

On remand, Meyer Blinder joined the action, and peti-

tioners amended their complaint to seek damages from

unnamed officers and agents of the Commission as well as

an injunction against the Commission’s use of unconstitu-

tional formal orders to investigate petitioners and a declara-

tion that the order at issue exceeded the Commission’s

constitutional and statutory authority (Pet. App. 14a-15a).

The district court granted summary judgment in favor of

the Commission (id. at 12a-18a), reasoning that petitioners

were collaterally estopped by their failure to pursue their

challenge to the legality of the Commission’s investigation

in the enforcement action (id. at 17a-18a). Petitioners

appealed (C.A. No. 83-2041).

3. While their petition for rehearing in the enforcement

action was pending in the court of appeals, petitioners

moved in the district court under Fed. R. Civ. P. 60(b)(6)

for relief from the judgment in that action entered against

them 19 months earlier. The sole basis for their motion was

4

the asserted gross negligence of their counsel in not object-

ing to the admission of allegedly tainted-evidence at trial.

The district court denied the motion (Pet. App. 19a). Based

on the records of the trial of the enforcement proceeding

and petitioners’ action against the Commission, the district

court conciuded that petitioners “were vigorously repre-

sented by competent and experienced lawyers who made a

tactical decision which binds.their clients” (ibid.). Petition-

ers appealed (C.A. No. 84-1483).

4. The court of appeals consolidated the two appeals and

affirmed both judgments (Pet. App. la-1 1a).

a. With respect to petitioners’ challenge to the Commis-

sion’s investigation, the court held that their claims for

declaratory and injunctive relief had become moot because

the formal order of investigation was terminated in Sep-

tember 1982: “[w]hen the investigatory order terminated,

there no longer existed a substantial controversy of suffi-

cient immediacy and reality to justify the issuance of a

declaratory judgment bécause the SEC could no longer

investigate Blinder, Robirson under that order” (Pet. App.

6a). The court determined (ibid. (citation omitted)) that no

live controversy exists as to any future investigation of

petitioners by the Commission because “ ‘there is no

reasonable expectation that the alleged wrongs will be re-

peated.’ ”? The court also concluded (id. at 7a) that peti-

tioners had not sufficiently stated a claim for damages for

alleged constitutional violations by unnamed Commission

employees.

b. In affirming the denial of petitioners’ Rule 60(b)(6)

motion, the court of appeals agreed with the district court

?Contrary to petitioners’ characterization (Pet. 3,10), the formal

order has never been adjudicated “illegal”; indeed, when petitioners had

._ the opportunity to seek such an adjudicatior in the enforcement action,

they failed to do so.

5

that petitioners were bound by the tactical decision of their

competent counsel (Pet. App. lla). Thé court of appeals

reasoned that even if trial counsel had been negligent in

failing to object to the Commission’s allegedly improper

evidence, “this would not constitute a sufficient showing to

warrant .2e extraordinary relief” of setting aside the judg-

ment (id. at 10a).

ARGUMENT

The decision of the court of appeals rejecting petitioners’

factbound claims is correct and does not conflict with any

decision of this Court or any other court of appeals. Peti-

tioners’ contentions, which mischaracterize the law and the

facts, do not merit further review.

1. The court of appeals correctly applied settled law to

the facts of this case in holding (Pet. App. 5a-62) that

petitioners’ claims for injunctive and declaratory relief with

respect to the Commission’s formal order of investigation

became moot after the order had been terminated.? When

the Commission terminated the order in 1982, it was no

longer of any effect—the Commission’s staff could no

longer issue subpoenas or take other investigatory action

pursuant to the order. See generally 17 C.F.R. 200.30-

4(a)(1), 202.5. Accordingly, an injunction or declaration

with respect to the order could not now benefit petitioners

—in particular, it could not relieve them of the injunction

imposed in the enforcement action, where they raised no

3The court of appeals also correctly affirmed (Pet. App. 7a) the

dismissal of petitioners’ Bivens claim for their failure to plead specific

facts supporting a constitutional claim for damages. Petitioners’ mere

reference (Pet. 13 n.15) to the breadth of the formal order hardly

suffices to show its unconstitutionality or the other elements of the

cause of action. See generally Harlow v. Fitzgerald, 457 U.S. 800, 808

(1982); Butz v. Economou, 438 U.S. 478, 507-508 (1978). Petitioners’

conclusory argument to the contrary raises no issue worthy of further

review.

6

objection to the introduction of evidence obtained in the

course of the Commission’s investigation. In the absence of

an immediate, real controversy in which the parties have an

actual, personal interest, petitioners’ action is moot. See,

e.g., Murphy v. Hunt, 455 U.S. 478, 481-482 (1982); Ash-

croft v. Mattis, 431 U.S. 171, 172 (1977); Preiser v. New-

kirk, 422 U.S. 395, 402 (1975).!

This case does not fit within the exception to the require-

ment of a live controversy for those claims “ ‘capable of

repetition, yet evading review’ ” (Murphy v. Hunt, 455

U.S. at 482 (citation omitted)). First, as the court of appeals

noted (Pet. App. 5a-6a), any future illegality is unlikely

because it is presumed that administrative agencies such as

the Commission will act within the law. Moreover, as the

court also stated (id. at 6a), petitioners have alleged no facts

supporting their bare allegation that the Commission will

violate their rights in the future. Finally, and most funda-

mentally, the issue, if it arises in the future, will not evade

review. Because the Commission’s subpoenas are not self-

enforcing (Jerry T. O’Brien, Inc., slip op. 5), petitioners may

obtain judicial review by refusing, for good cause, to

comply with any subpoena directed to them, thereby forc-

ing the Commission to bring a subpoena enforcement

action (see 15 U.S.C. 78u(c)). In such an action, petitioners

could challenge the legality of the subpoena and underlying

investigation. See generally Sprecher v. Graber, 716 F.2d

968, 975 (2d Cir. 1983) (subpoena enforcement proceeding

is exclusive avenue for testing validity of Commission

‘Petititioners recently have sought to challenge the terminated formal

order in a Commission administrative proceeding brought pursuant to

15 U.S.C. (& Supp. I) 780(b) based on the injunction entered by. the _

district court in the enforcement action and on the underlying facts (Pet. —

App. 23a-37a). As the court of appeals noted (id. at 11a), petitioners

may seek judicial review of any final adverse decision in the administra-

tive proceeding. See 15 U.S.C. 78y(a).

: 7

subpoena). Indeed, petitioners could have adopted this

approach in connection with this very investigation when

the Commission issued subpoenas to them. Having failed to

\. assert their claims when there was a live controversy,° they

“have no right to do so now when the issue has been mooted

by termination of the challenged order.®

This Court’s decision in Haring v. Prosise, 462 U.S. 306

(1983), relied on heavily by petitioners (Pet. i, 11-13), is

completely inapposite. In Haring, the Court held that a

criminal defendant’s plea of guilty (and consequent failure

to challenge the legality of a search) did not collaterally

estop. him from mainteining a subsequent action for dam-

ages under 42 U.S.C. 1983 based on the alleged unconstitu-

tionality of the search under the Fourth Amendment. Har-

ing has nothing to do with mootness, and surely does not

stand for the proposition that Fourth Amendment chal-

lenges are somehow exempt from the Article III require-

ment of a live controversy.’

5The conflict among the circuits noted by petitioners (Pet. 15-16) with

respect to whether compliance with a subpoena renders moot a chal-

lenge to the subpoena is irrelevant to the instant case, where petitioners

failed to challenge any Commission subpoena.

Petitioners’ reliance (Pet. 15) on SEC v. Sloan, 436 U.S. 103 (1978),

is decidedly misplaced. In that case, the Commission had “tacked”

consecutive ten-day suspension orders, thus continuously suspending

trading in acompany’s stock. Although at the time of review no suspen-

- gion order was in effect, the Court held that the challenge was not moot

because each order’s duration was too short to alle w full judicial review

and because there was a reasonable expectation that the same party

would be subject to the same action in the future (id. at 109). Neither

factor is present here.

7In any event, petitioners’ constitutional claim (see Pet. 17-20) is

meritless. Petitioners erroneously equate the Commission’s formal

order with a search or with a warrant or subpoena that itself compels

disclosure of information or production of documents. In fact, a formal

order merely authorizes the Commission staff to issue subpoenas dur-

ing an investigation; these subpoenas, much less formal orders, cannot

compel a person to do anything because they are not self-enforcing

8

2. Petitioners’ argument (Pet. 20-24) that the district

court abused its discretion in denying their Rule 60(b)(6)

motion is without merit. The gravamen of that motion was,

that petitioners’ trial counsel! had been grossly negligent in

not objecting to the admission of “tainted evidence” at the

trial of the Commission’s enforcement action. The conclu-

sion of both courts below that the failure to object was a

calculated tactical choice is supported by petitioner Blind-

er’s own affidavit in support of the Rule 60(b)(6) motion,

which averred (paras. 9, 19) that the failure to challenge

evidence at trial was a considered decision resulting from

counsel’s conclusion as to the proper means for challenging

the investigation. Petitioners’ claim that they are entitled to

the extraordinary remedy of relief from judgment—a

judgment whose merits this Court has already declined to

review (see page 2, supra)—obviously does not warrant

further attention. |

_ Petitioners’ belated and unsupported claim of a conflict

of interest on the part of their counsel fails to demonstrate

any error in the denial of their Rule 60(b)(6) motion. Peti-

tioners assert (Pet. 24 & n.50) that the conflict surfaced

when one of their trial counsel joined another brokerage

firm more than two years after the trial at which the “tainted

evidence” was introduced. Petitioners failed to raise this

conflict claim in the district court in their Rule 60(b)(6)

motion or in their opening brief on appeal, mentioning it for

the first time only in a footnote in their reply brief on appeal

(Jerry T. O’Brien, Inc., slip op. 1-2 nn.1, 5). Inasubpoena enforcement

action, the subpoenaed party may object on any appropriate ground.

See generally SEC v. Arthur Young & Co., 584 F.2d 1018 (D.C. Cir.

1978), cert. denied, 439 U.S. 1071 (1979). Thus, contrary to petitioners’

ill-founded claim (Pet. 19-20), a formal order does not give the Com-

mission “carte blanche to subpoena documents and coerce testimony.”

‘The subpoena enforcement procedure guarantees that the Commis-

sion’s requests for documents and testimony are subject to judicial

review and to full constitutional protections.

9

filed on August 30, 1984. No evidence has ever been pre-

sented below in support of their argument, which was not

made until-one year after their former counsel’s change in

position. During that year, petitioners filed five submis-

sions attacking the injunction, not one of which referred to

the asserted conflict. Moreover, contrary to petitioners’

suggestion (Pet. 11), the attorney in question did not pre-

sent oral argument on behalf of petitioners on their appeal

from the injunction. There is no basis for further review of

petitioners’ latest effort at avoiding the consequences of

their wrongdoing. As the Court stated in Ackermann v.

United States, 340 U.S. 193, 198 (1950), “[t]here must be an

end to litigation someday.”®

Petitioners’ attempt to endow their claim with a constitutional aura

is, in any event, utterly without foundation. Petitioners had no Sixth

Amendment right to effective assistance of counsel because the Com-

mission’s enforcement action was civil, not criminal. See, e.g., SEC v.

C.M. Joiner Leasing Corp., 320 U.S. 344, 355 (1943); L. Loss, Funda-

mentals of Securities Regulation 801 & n.7 (1983); see also Steadman v.

SEC, 450 U.S. 91 (1981). See generally Mekdeci v. Merrell National

Laboratories, 711 F.2d 1510, 1522-1523 (11th Cir. 1983); Watson v.

Moss, 619 F.2d 775, 776 (8th Cir. 1980); Ramirez v. INS, 550 F.2d 560,

563 (9th Cir. 1977). Nor does the adequacy of petitioners’ privately

retained counsel impiicate due process concerns, for their attorney’s

conduct cannot be laid at the door of the government.See Wainwright

v. Torna, 455 U.S. 586, 588 n.4 (1982) (deprivation was caused by

counsel, not by the state); cf. Polk County v. Dodson, 454 U.S. 312,

317-325 (1981) (public defender whose salary is paid by the state does

not act “under color of state law”). The Constitution obviously does not

require that civil judgments be subject to attack on grounds of inade-

quacy of representation by privately retained counsel. See generally

Link v. Wabash R.R., 370 U.S. 626, 633-634 (1962). -

10

CONCLUSION

The petition for a writ of certiorar should be denied.

Respectfully submitted.

Rex E. LEE

Solicitor General —

DANIEL L. GOELZER

General Counsel

ROSALIND C. COHEN

Assistant General Counsel

RUTH E. EISENBERG

Special Counsel

PAMELA T. PARRISH

RICHARD A. LEVINE

Attorneys |

Securities and Exchange Commission

May 1985

DOJ-1985-05 -