Guy Gentile v. SEC ( 2020 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 19-2252
____________
GUY GENTILE,
Appellant
v.
SECURITIES & EXCHANGE COMMISSION
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-19-cv-05155)
District Judge: Honorable Jose L. Linares
____________
Argued: January 15, 2020
Before: HARDIMAN, PORTER, and PHIPPS,
Circuit Judges.
(Filed: September 10, 2020)
Adam C. Ford [Argued]
Ford O’Brien
575 5th Avenue, 17th Floor
New York, NY 10017
Counsel for Appellant
Matthew S. Ferguson [Argued]
Samuel M. Forstein
United States Securities & Exchange Commission
100 F. Street, N.E.
Washington, DC 20549
Counsel for Appellee
____________
OPINION OF THE COURT
____________
PHIPPS, Circuit Judge.
Congress often confers significant investigative powers
upon administrative agencies, such as the Securities and
Exchange Commission. Those powers commonly include the
ability to seek testimony and documents through
administrative subpoena. In this case, Guy Gentile asserts that
the SEC abused its investigative authority through several
unauthorized administrative subpoenas, to the detriment of his
businesses. He sues under the Administrative Procedure Act
(APA) to hold unlawful and set aside the SEC’s investigation
under which the subpoenas were issued. But his suit cannot
proceed because sovereign immunity shields federal agencies
from suit. And although the APA broadly waives sovereign
immunity, that waiver does not extend to challenges to an
agency’s decision to investigate. For that reason, on de novo
review, we will affirm the order dismissing Gentile’s
complaint for lack of subject matter jurisdiction.
2
I.
Guy Gentile and the Securities and Exchange
Commission are not strangers. Their acquaintance dates back
to 2012 when the SEC investigated Gentile for his role in a
penny-stock manipulation scheme in 2007-08. Later, the SEC
civilly sued Gentile, and he was indicted for securities fraud
violations. Gentile challenged both suits, leading to their
dismissals on timeliness grounds, but this Court reinstated the
SEC’s civil suit. See SEC v. Gentile, 939 F.3d 549, 552-53,
566 (3d Cir. 2019).
This case involves a separate SEC investigation, one
related to securities transactions through an unregistered
broker-dealer in violation of Section 15 of the Securities and
Exchange Act of 1934. See 15 U.S.C. § 78o(a). The subject
of that investigation – Traders Café LLC, a day-trading firm –
maintained an account with Gentile’s Bahamian broker-dealer,
which was not registered in the United States. The SEC issued
a Formal Order of Investigation into Traders Café on
November 25, 2013. But later, without issuing a new Formal
Order of Investigation, the SEC informed Gentile that he was
a target in that investigation.
As part of its investigation, the SEC has twice
subpoenaed Gentile for testimony – once in March 2016 and
again in December 2017. He refused to comply with those
subpoenas, and despite having the ability under the Exchange
Act to initiate an action to enforce those subpoenas, see
15 U.S.C. § 78u(c), the SEC has not done so.
Instead, the SEC has pursued other options for obtaining
information, and it has not been shy about serving subpoenas
3
on other entities associated with Gentile. Two subpoena
recipients – Gentile’s personal attorney and an entity affiliated
with Gentile’s Bahamian broker-dealer – refused to comply
with the SEC’s subpoenas. The SEC commenced enforcement
actions against those entities in the Southern District of Florida
in February 2019.1
Gentile saw those actions as an opportunity to challenge
the legitimacy of the SEC’s then six-year investigation, which
he alleges was ruining his businesses,2 and he moved to
intervene in those cases. The District Court in Florida denied
Gentile’s motions, reasoning that Gentile lacked a sufficient
interest in the subpoenas to merit intervention.3 The Court
1
See SEC v. Marin, No. 1:19-mc-20493-UU, Application for
Order, (S.D. Fla. Feb. 6, 2019) (seeking to compel non-
privileged testimony and documents from Gentile’s personal
attorney); SEC v. MinTrade Techs., LLC, No. 1:19-mc-20496-
KMW, Application for Order, (S.D. Fla. Feb. 6, 2019) (seeking
to compel documents from an affiliate of Gentile’s Bahamian
broker-dealer).
2
See, e.g., Compl. ¶ 10 (App. 26) (“Several banks and vendors
have stopped doing business with Mr. Gentile as a result of
receiving these subpoenas.”), ¶ 57 (App. 36) (“As a result of
receiving the SEC subpoenas, [two] banks decided to close all
bank accounts related to Mr. Gentile.”), ¶ 85 (App. 42)
(“Similarly, Citibank and Key Bank dropped Mr. Gentile as a
client as a result of the subpoenas that the SEC sent to them
during or prior to September 2017.”).
3
See Marin, No. 19-20493 at ECF No. 55, pg. 9 (May 31,
2019) (“[T]he undersigned finds that Gentile has not shown
that he has a legally protected interest in this matter.”);
4
explained that Gentile would have other, more concrete
opportunities to challenge the legitimacy of the SEC’s
investigation, such as if the SEC brought an action to enforce
the subpoenas served on him or if the SEC initiated a civil suit
against him.4 Gentile did not appeal those rulings, and the
District Court in Florida ordered compliance with each
subpoena.5
Gentile challenged the legitimacy of the SEC’s
investigation on another front as well. On February 8, 2019,
two days after the SEC commenced the subpoena enforcement
actions in Florida, Gentile filed this lawsuit in the District of
New Jersey. See Compl. (App. 23-46). His complaint sought
a declaration that the Traders Café investigation was unlawful.
See id. at 24 (App. 46). It also requested the quashing of the
SEC’s investigative subpoenas served in connection with the
Traders Café investigation and an injunction to prevent the
SEC from using the fruits of that investigation against him. See
id.
In response, the SEC moved to dismiss that action for
lack of subject matter jurisdiction. It argued that the doctrine
MinTrade, No. 19-20496 at ECF No. 27, pg. 5 (May 28, 2019)
(“First, we find that Gentile has failed to show that he possesses
a legally protectable interest in these proceedings.”).
4
See Marin, No. 19-20493, at ECF No. 64 (Sept. 30, 2019);
MinTrade, No. 19-20496 at ECF No. 34 (July 17, 2019); see
also App. 1027; App. 1227.
5
See Marin, Order, No. 19-20493, at ECF No. 63 (Sept. 30,
2019); MinTrade, Order, No. 19-20496, at ECF No. 39
(Nov. 13, 2019).
5
of sovereign immunity barred Gentile’s suit for three reasons:
(i) Gentile was not challenging a final agency action, see
5 U.S.C. § 704; (ii) the APA did not allow judicial review
because the Exchange Act provided the exclusive mechanism
for challenging an SEC-issued investigative subpoena, see
15 U.S.C. § 78u(c); and (iii) the SEC’s investigation was a
matter committed to agency discretion by law, see 5 U.S.C.
§ 701(a)(2).
The District Court granted the SEC’s motion to dismiss
and denied a preliminary injunction motion that Gentile had
also filed. In doing so, the District Court rejected the SEC’s
finality argument. But the Court dismissed Gentile’s suit on
sovereign immunity grounds by following a chain of reasoning
from the Second Circuit in Sprecher v. Graber, 716 F.2d 968
(2d Cir. 1983). The Sprecher sequence begins by accounting
for a proviso in the APA’s waiver of sovereign immunity, see
5 U.S.C. § 702, which makes explicit that the APA’s waiver
does not affect other limitations on judicial review. The next
step in the analysis determines that an SEC-initiated
enforcement action under the Exchange Act, see 15 U.S.C.
§ 78u(c), provides the exclusive mechanism for disputing
SEC-issued investigative subpoenas. Under the Sprecher
reasoning, by providing the exclusive method for challenging
a subpoena, the Exchange Act limits judicial review. Thus, due
to the proviso, the APA’s waiver of sovereign immunity could
not expand the Exchange Act’s limitation on judicial review –
leaving Gentile’s complaint barred by sovereign immunity.
With that conclusion, the District Court did not address the
SEC’s final argument, that sovereign immunity insulated its
actions from judicial review because they were committed to
agency discretion by law.
6
The District Court’s order dismissing for lack of
jurisdiction was final for purposes of appeal. Gentile timely
appealed that order, bringing this case within the appellate
jurisdiction of this Court. See 28 U.S.C. § 1291; Gould Elecs.
Inc. v. United States, 220 F.3d 169, 174 n.2 (3d Cir. 2000). He
now argues that the District Court erred by following the
Sprecher analysis. The SEC counters first by defending the
Sprecher reasoning and second by contending that its decision
to investigate is unreviewable as a matter committed to agency
discretion by law. On that second point, the SEC prevails.
II.
A. THE APA’S WAIVER OF SOVEREIGN IMMUNITY IS
BROAD, BUT IT IS SUBJECT TO CONDITIONS AND
EXCEPTIONS.
Because the SEC’s subpoenas have harmed his
businesses, Gentile sues the SEC to challenge the legitimacy
of its investigation. But the United States and its agencies are
generally immune from suit under the doctrine of sovereign
immunity. See FDIC v. Meyer, 510 U.S. 471, 475 (1994). And
absent congressional authorization – through an unequivocal
statutory waiver – it is “unquestioned” that the federal
government retains sovereign immunity. Alden v. Maine,
527 U.S. 706, 749 (1999); see also FAA v. Cooper, 566 U.S.
284, 290 (2012) (“We have said on many occasions that a
waiver of sovereign immunity must be ‘unequivocally
expressed’ in statutory text.”). A statutory waiver of sovereign
immunity thus defines the scope of a “court’s jurisdiction to
7
entertain the suit.” United States v. Sherwood, 312 U.S. 584,
586 (1941); see also Meyer, 510 U.S. at 475.
In light of that jurisdictional limitation, Gentile attempts
to bring claims for declaratory and injunctive relief under the
APA’s waiver of sovereign immunity, codified at 5 U.S.C.
§ 702. As originally enacted, § 702 did not contain an
unequivocal waiver of sovereign immunity.6 Instead, it
imposed a ‘statutory standing’ requirement on judicial review,
which, as amended, provides that:
A person suffering legal wrong because of
agency action, or adversely affected or aggrieved
by agency action within the meaning of a
relevant statute, is entitled to judicial review
thereof.
5 U.S.C. § 702.
Statutory standing under § 702 depends on agency
action. To have such standing, a person must suffer a legal
wrong because of agency action or, under the zone-of-interests
test, a person must be “adversely affected or aggrieved by
agency action within the meaning of a relevant statute.”
6
See Administrative Procedure Act, Pub. L. No. 79-404,
§ 10(a), 60 Stat. 237, 243 (June 11, 1946); see also Pub. L. No.
89-554, 80 Stat. 378, 392 (Sept. 6, 1966) (codifying the
provision at 5 U.S.C. § 702).
8
5 U.S.C. § 702; Ass’n of Data Processing Serv. Orgs., Inc. v.
Camp, 397 U.S. 150, 153 (1970).7
The 1976 amendments to the APA supplemented § 702.
The added text explicitly waived sovereign immunity to sue
the United States for “relief other than money damages”:
An action in a court of the United States seeking
relief other than money damages and stating a
claim that an agency or an officer or employee
thereof acted or failed to act in an official
capacity or under color of legal authority shall
not be dismissed nor relief therein be denied on
the ground that it is against the United States or
that the United States is an indispensable party.
Pub. L. No. 94-574, 90 Stat. 2721, 2721 (Oct. 21, 1976); see
also 5 U.S.C. § 702.
To ensure that that broad waiver of sovereign immunity
did not overtake pre-existing limitations on judicial review, the
1976 amendments conditioned the waiver through two
provisos:
Nothing herein (1) affects other limitations on
judicial review or the power or duty of the court
to dismiss any action or deny relief on any other
appropriate legal or equitable ground; or
(2) confers authority to grant relief if any other
7
See also Clarke v. Sec. Indus. Ass’n, 479 U.S. 388, 395-96
(1987); Shalom Pentecostal Church v. Acting Sec’y U.S. Dep’t
of Homeland Sec., 783 F.3d 156, 163-64 (3d Cir. 2015).
9
statute that grants consent to suit expressly or
impliedly forbids the relief which is sought.
Pub. L. No. 94-574, 90 Stat. 2721, 2721 (Oct. 21, 1976); see
also 5 U.S.C. § 702.
Putting the pieces together, to proceed under the APA’s
waiver of sovereign immunity a person must (i) possess
statutory standing; (ii) seek relief other than money damages;
and (iii) not be excluded by the waiver’s two provisos.
As a further limitation, two exceptions apply to the
APA’s waiver of sovereign immunity. See Heckler v. Chaney,
470 U.S. 821, 828 (1985) (“[B]efore any review at all may be
had, a party must first clear the hurdle of [5 U.S.C.] § 701(a).”).
Under the first exception, the APA’s waiver of sovereign
immunity does not apply when “statutes preclude judicial
review,” either for an entire subject matter8 or for a specific
class of persons.9 5 U.S.C. § 701(a)(1). The second exception
8
See Dunlop v. Backowski, 421 U.S. 560, 567-68 (1975)
(requiring evidence that Congress meant to preclude “all
judicial review” of a decision of the Secretary of Labor); see
also Traynor v. Turnage, 485 U.S. 535, 543-45 (1988)
(reversing a determination that a statute, 38 U.S.C. § 211(a),
precluded review of a claim to extend the period for obtaining
veterans education benefits); Lindahl v. Office of Pers. Mgmt.,
470 U.S. 768, 779-80 (1985) (declining preclusion because the
statute did not bar judicial review of all aspects of civil service
claims for disability).
9
See, e.g., Block v. Cmty. Nutrition Inst., 467 U.S. 340, 345-
48 (1984) (interpreting the Agricultural Marketing Adjustment
10
prevents judicial review of “agency action [that] is committed
to agency discretion by law.” 5 U.S.C. § 701(a)(2).
B. THE ONLY DISCRETE AGENCY ACTION CHALLENGED IN
GENTILE’S COMPLAINT IS THE SEC’S FORMAL ORDER
OF INVESTIGATION OF TRADERS CAFÉ.
Gentile seeks very broad relief. His complaint prays
that the SEC’s investigation be deemed an unauthorized abuse
of process, that all subpoenas be quashed, and that the SEC be
barred from using any evidence obtained from the subpoenas
“for any purpose in any future proceeding.” Compl. at 24
(App. 46). Each of those requests for relief other than money
damages depends on the legal question of whether the SEC has
legal authority to investigate him. Without such authority, the
SEC could not permissibly investigate Gentile, issue
subpoenas, or initiate further proceedings.
But the APA’s statutory standing requirement excludes
from judicial review legal questions untethered to agency
action. 5 U.S.C. § 702. Rather, the APA’s waiver of sovereign
immunity extends only to challenges to agency action. See id.
To that end, the APA enumerates several specific categories of
agency action. See 5 U.S.C. § 551(13) (defining “agency
action” so that it “includes the whole or a part of an agency
rule, order, license, sanction, relief, or the equivalent or denial
thereof, or failure to act”). Those categories are exemplary, not
Act to preclude consumers from challenging milk marketing
orders).
11
exhaustive,10 and the APA also enables a person to challenge
“some particular ‘agency action.’” Lujan v. Nat’l Wildlife
Fed’n, 497 U.S. 871, 891 (1990). Thus, the APA allows
challenges to discrete agency action, but not broad challenges
to the administration of an entire program. Such programmatic
challenges “cannot be laid before the courts for wholesale
correction under the APA.” Id. at 893.
Under those standards, Gentile’s complaint challenges
only one discrete agency action: the SEC’s Formal Order of
Investigation of Traders Café. Gentile argues that the Formal
Order of Investigation exceeds the SEC’s authority because it
does not have a sufficient nexus to his conduct and because it
allows a retributive investigation.11 By attacking the Formal
10
See, e.g., U.S. Army Corps of Eng’rs v. Hawkes Co.,
136 S. Ct. 1807, 1811, 1813 (2016) (permitting judicial review
under the APA of a “jurisdictional determination” by Army
Corps of Engineers); Bennett v. Spear, 520 U.S. 154, 177-78
(1997) (permitting judicial review under the APA of a
“biological opinion” issued by the Fish and Wildlife Service).
But see Norton v. S. Utah Wilderness All., 542 U.S. 55, 62-63
(2004) (holding that a “failure to act” means only “a failure to
take one of the agency actions (including their equivalents)
earlier defined in § 551(13)”).
11
See Compl. ¶ 101 (App. 45) (describing the controversy as
concerning “(a) the authority of the [SEC] to investigate
individuals under a [Formal Order of Investigation] which has
no nexus to them, and (b) the authority of the [SEC] to
investigate an individual for more than five years after a
[Formal Order of Investigation] has issued for purposes that
are plainly punitive and retributive . . . .”).
12
Order of Investigation, Gentile seeks to invalidate the entire
Traders Café investigation including the administrative
subpoenas served in connection with the investigation.
Those administrative subpoenas also constitute a
discrete agency action. But Gentile’s complaint does not seek
to quash those subpoenas based on any attribute of any
individual subpoena. Rather, Gentile aspires to undermine the
SEC’s authority for this investigation – with the consequence
of nullifying all subpoenas in the matter. Without challenging
any individual subpoena or disputing any other discrete agency
action, the only agency action challenged by Gentile’s
complaint is the SEC’s Formal Order of Investigation.
C. THE FIRST PROVISO IN THE APA’S WAIVER OF
SOVEREIGN IMMUNITY DOES NOT BAR GENTILE’S
CHALLENGE TO THE FORMAL ORDER OF
INVESTIGATION.
To defend itself, the SEC leads with the Sprecher
argument. The SEC starts with the Second Circuit’s
conclusion that subpoena enforcement actions under the
Exchange Act, “are the exclusive method by which the validity
of SEC investigations and subpoenas may be tested in federal
courts.” Sprecher, 716 F.2d at 975. From that premise, the
SEC argues that by providing the exclusive dispute
mechanism, the Exchange Act imposes a limitation on judicial
review. Thus, according to the SEC, Gentile’s action falls
outside the APA’s waiver of sovereign immunity due to the
first proviso, which ensures that the APA’s waiver does not
13
override “other limitations on judicial review.” 5 U.S.C.
§ 702.
But that argument supposes that Gentile’s complaint
challenges individual SEC subpoenas. And while Gentile does
seek to quash every subpoena, he does so not due to any
particularized defect in any subpoena. Rather, he does so by
challenging the legality of the Formal Order of Investigation.
And by directing his challenge to the SEC’s Formal Order of
Investigation, Gentile avoids the SEC’s Sprecher argument,
which involved a challenge to individual subpoenas – not
solely a direct challenge to the agency’s decision to open an
investigation. Thus, regardless of whether § 78u(c) of the
Exchange Act provides the exclusive mechanism for
challenging a subpoena, it does not bar Gentile’s challenge to
a Formal Order of Investigation.
D. THE SEC’S DECISION TO OPEN A FORMAL
INVESTIGATION IS NOT SUBJECT TO JUDICIAL REVIEW.
The SEC next argues that due to the exception for
“agency action committed to agency discretion by law,”
5 U.S.C. § 701(a)(2), sovereign immunity prevents judicial
review of its Formal Order of Investigation. That is correct: an
agency decision to exercise its investigative power overcomes
the “basic presumption” in favor of judicial review of agency
action. Abbott Labs. v. Gardner, 387 U.S. 136, 140 (1967).
The § 701(a)(2) exception applies only in “those rare
circumstances where the relevant statute is drawn so that a
court would have no meaningful standard against which to
judge the agency’s exercise of discretion.” Lincoln v. Vigil,
508 U.S. 182, 191 (1993) (internal quotation marks and
14
citations omitted); see also Weyerhaeuser Co. v. U.S. Fish &
Wildlife Serv., 139 S. Ct. 361, 370 (2018). Those situations
often involve “a complicated balancing of a number of factors
which are peculiarly within [the agency’s] expertise.” Chaney,
470 U.S. at 831. And precedent has identified several classes
of agency decisions governed by a “tradition of
nonreviewability.” ICC v. Bhd. of Locomotive Eng’rs,
482 U.S. 270, 282 (1987). Those include decisions to refrain
from enforcement or investigative activity,12 decisions
12
Chaney, 470 U.S. at 838 (“[A]gency refusals to institute
investigative or enforcement proceedings [are committed to
agency discretion], unless Congress has indicated otherwise.”);
S. Ry. Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 461-
64 (1979); Am. Disabled for Attendant Programs Today v. U.S.
Dep’t of Housing & Urban Dev., 170 F.3d 381, 384 (3d Cir.
1999) (opining, in a failure to investigate case, that Chaney
“established a presumption against judicial review of agency
decisions that involve whether to undertake investigative or
enforcement actions” (emphasis in original)); see also Webster
v. Doe, 486 U.S. 592, 608 (1988) (Scalia, J., dissenting) (“A
United States Attorney’s decision to prosecute, for example,
will not be reviewed on the claim that it was prompted by
personal animosity.”); United States v. Nixon, 418 U.S. 683,
693 (1974) (“[T]he Executive Branch has exclusive authority
and absolute discretion to decide whether to prosecute a case .
. . .”); see generally Sec. & Exchange Comm’n v. Wheeling-
Pittsburgh Steel Corp., 648 F.2d 118, 127 n.12 (3d Cir. 1981)
(collecting cases); Leighton v. Sec. & Exchange Comm’n,
221 F.2d 91, 91-92 (D.C. Cir. 1955) (per curiam) (“The
discretionary character of the [SEC]’s action [to refuse to
investigate] likewise removes it from Section 10 of the [APA],
15
implicating intelligence and national security concerns,13 and
the spending of lump-sum appropriations.14
As with those scenarios, a decision to investigate
involves a complicated balancing of several factors peculiarly
within the agency’s expertise, including the allocation of
scarce resources. Most acutely bearing on this case are the
Supreme Court’s holdings that agency decisions not to
investigate, Seaboard Allied Milling, 442 U.S. at 461-64, and
not to prosecute, Chaney, 470 U.S. at 838, are committed to
agency discretion by law.
Yet the same set of considerations governs both
decisions to investigate and decisions not to investigate. And
without judicially manageable standards to evaluate those
considerations, an agency decision to investigate is similarly
committed to agency discretion by law. Nor has Congress by
statute or the SEC by regulation articulated specific standards
governing a decision to initiate an investigation under the
Exchange Act.15 Thus, without judicially manageable
which excepts from its provisions for judicial review agency
action committed by law to agency discretion.”).
13
Webster, 486 U.S. at 600-01.
14
Lincoln, 508 U.S. at 192-93; see also State of N.J. v. United
States, 91 F.3d 463, 471 (3d Cir. 1996).
15
See 15 U.S.C. § 78u(a) (“The Commission may, in its
discretion, make such investigations as it deems necessary to
determine whether any person has violated, is violating, or is
about to violate any provisions of [the SEC].”); 17 C.F.R.
§ 200.66 (stating only that “[t]he requirements of the particular
16
standards, an agency’s decision on whether to investigate is a
matter committed to agency discretion by law.
Gentile attempts to avoid this outcome by limiting his
challenges to two components of the SEC’s investigation: its
nexus to him and its allegedly retributive motive. See Compl.
¶ 101 (App. 45). But the exception in § 701(a)(2) pertains to
“agency action [that] is committed to agency discretion by
law,” and thus it shields the entirety of an agency action that is
committed to agency discretion by law. 5 U.S.C. § 701(a)(2)
(emphasis added). A litigant cannot, therefore, avoid the
exception by challenging only the most problematic
component of an agency action that is committed to agency
discretion by law. And here, because an agency decision to
investigate fits within the § 701(a)(2) exception, targeted
piecemeal challenges to that action fall outside of the APA’s
waiver of sovereign immunity.
In sum, while even the SEC recognizes that its “power
to investigate carries with it the power to defame and destroy,”
17 C.F.R. § 200.66, the doctrine of sovereign immunity bars
Gentile’s direct challenge under the APA to the SEC’s decision
to open an investigation.
***
For these reasons, Gentile’s complaint had to be
dismissed for lack of subject matter jurisdiction, and we will
affirm the judgment of the District Court.
case alone should induce the exercise of the [SEC’s]
investigatory power”).
17