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SECURITIES AND EXCHANGE COMMISSION v. BUNTROCK

January 29, 2003

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
DEAN L. BUNTROCK, PHILLIP B. ROONEY, JAMES E. KOENIG, THOMAS C. HAU, HERBERT A. GETZ, AND BRUCE D. TOBECKSEN, DEFENDANTS.



The opinion of the court was delivered by: Wayne R. Anderson, United States District Judge

MEMORANDUM OPINION AND ORDER

This case is before the Court on the motion of the defendants for certification pursuant to 28 U.S.C. § 1292(b). In the motion, the defendants have asked this Court to do something it has never agreed to do — certify an interlocutory appeal. For the following reasons, the motion for certification is granted.

BACKGROUND

The defendants in this case have been investigated and sued by the United States Securities and Exchange Commission ("SEC"), a process which is expensive and debilitating to them in many respects. It is uncontested that this action was originally brought in the name of the SEC without a concurrence of a majority of the SEC Commissioners and that the subsequent ratification of this action by a majority of SEC Commissioners came well after the statute of limitations had run on the substantive federal securities law claims. The circumstances surrounding the initiation of the SEC's enforcement action prompted the defendants to move to dismiss the complaint for lack of subject matter jurisdiction. This Court denied that motion on November 21, 2002.

On December 13, 2002, the defendants filed the instant motion requesting that we certify to the United States Court of Appeals for the Seventh Circuit an interlocutory appeal of the issues raised in their motion to dismiss. Specifically, they seek an order certifying the following two questions: 1) If the SEC invokes this Court's jurisdiction under the duty officer rule, may the Court assume that the duty officer formed an opinion regarding urgency at the time the action was authorized as required under Rule 43(b)(1), 17 C.F.R. § 200.43(b)(1)?; and 2) Does Rule 43(c), 17 C.F.R. § 200.43(c), allow the SEC to cure an action of the duty officer which was taken in violation of Rule 43(b)(1) in the first instance? Both parties submitted briefs on the motion and the issue is now ripe for decision.

DISCUSSION

The denial of a motion to dismiss for lack of subject matter jurisdiction is not a "final decision" from which an immediate appeal is available under 28 U.S.C. § 1291. Cherry v. University of Wisc. Sys. Bd. of Regents, 265 F.3d 541, 546 (7th Cir. 2001). However, 28 U.S.C. § 1292(b) provides for interlocutory appeals of certain otherwise non-appealable orders. Pursuant to this provision, a litigant may not file a petition for permission to appeal with the circuit court until the district court judge has certified that, in his or her opinion, the order at issue satisfies the following four statutory criteria: "there must be a question of law, it must be controlling, it must be contestable, and its resolution must promise to speed up the litigation." Ahrenholz v. Board of Trustees of the Univ. of Ill., 219 F.3d 674, 675 (7th Cir. 2000). The Seventh Circuit has instructed district courts not to certify interlocutory orders under Section 1292(b) "[u]nless all these criteria are satisfied. . . ." Id. at 676. Because interlocutory appeals "tend to cause unnecessary delays in the lower court's proceedings and tend to waste overburdened judicial resources," "`permission to take [such] an . . . appeal should be granted sparingly and with discrimination.'" Lakeside Feeders, Ltd. v. Chicago Meat Processors, Inc., 35 F. Supp.2d 638, 643 (N.D.Ill. 1999) (citing Herdrich v. Pegram, 154 F.3d 362, 368 (7th Cir. 1998)); Coopers & Lybrand v. Livesay, 437 U.S. 463, 473-74, 98 S.Ct. 2454 (1978).

I. Are there questions of law?

The first statutory requirement for an interlocutory appeal pursuant to Section 1292(b) is that there must be a question of law. In Ahrenholz, the Seventh Circuit stated that a "question of law" for purposes of Section 1292(b) "has reference to a question of the meaning of a statutory or constitutional provision, regulation, or common law doctrine. . . ." 219 F.3d at 676. The court then stated that interlocutory appeals should be reserved for "`pure' question[s] of law rather than merely to an issue that might be free from a factual contest." Id. at 677. "To summarize its holding on this point, the court stated that a `question of law means an abstract legal issue. . . .'" Gierum v. Kontrick, 2002 WL 226857, at *3 (N.D. Ill. Feb. 14, 2002) (quoting Ahrenholz, 219 F.3d. at 677).

There is little doubt that the issues presented in the motion to dismiss with respect to the SEC's invocation of the "duty officer rule" (Rule 43) are questions of law. Unlike in Ahrenholz, where the district court certified the question of whether it was correct in denying summary judgment for the defendant, our conclusions regarding the SEC's urgency determination as well as our finding that the ratification of the enforcement action by the full SEC was proper are "pure" questions of law. Either the authorization of the enforcement action by Commissioner Hunt was sanctioned by the SEC regulations or it was not. Similarly, the ratification of the enforcement action by the full SEC was either legally proper or it was not. We are confident the Court of Appeals will be able to analyze these legal issues without needing to study the developed record in this case. II. Are the issues controlling?

Federal courts are courts of limited jurisdiction. See Hay v. Indiana State Bd. of Tax Comm'rs., 312 F.3d 876, 878 (7th Cir. 2002). They may exercise jurisdiction only over matters authorized by the Constitution and by statute. See Turner/Ozanne v. Hyman/Power, Ill F.3d 1312, 1316 (7th Cir. 1997). If the procedural requirements of a statute under which a party seeks to invoke a federal court's jurisdiction are not satisfied, then the court logically does not have subject matter jurisdiction to consider the case.

In this case, we ruled that the SEC did comport with the procedural dictates of the duty officer rule as well as the Securities and Exchange Act when it filed the enforcement action against the defendants. In other words, we concluded that we had subject matter jurisdiction over this case. However, as the defendants have made clear, they respectfully contend that this threshold finding was in error. They may be right. If the Seventh Circuit decides to accept this interlocutory appeal and concludes that our jurisdictional ruling was incorrect, then this case will be dismissed. Therefore, we find that the issues presented for interlocutory appeal are controlling questions of law.

III. Is there substantial grounds for a difference of opinion?

The third Section 1292(b) factor requires an analysis of whether the issues presented for certification are contestable, or, in other words, that substantial grounds for a difference of opinion on the issues exist. In this case, there is no doubt that this factor is satisfied. There is a dearth of caselaw addressing both the legality of regulatory actions initiated by fewer than a majority of commissioners and the efficacy of subsequent ratification by a fully constituted regulatory entity. This alone should be sufficient to demonstrate that there could be a difference. of opinion on the issues we addressed ...


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