Opinion ID: 369670
Heading Depth: 2
Heading Rank: 1

Heading: The Doctrine of Exhaustion of Remedies

Text: 15 In Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938), the Supreme Court stated that it is a long settled rule of judicial administration that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted. (footnote omitted). The primary purpose of this well-established doctrine is the avoidance of premature interruption of the administrative process, McKart v. United States, 395 U.S. 185, 193, 89 S.Ct. 1657, 1662, 23 L.Ed.2d 194 (1969), a concern which confronts us here. Furthermore, the principle allows the administrative agency to utilize its discretion and apply its expertise; it gives the agency the opportunity to correct its own errors; and it minimizes piecemeal appeals of agency actions. Parisi v. Davidson, 405 U.S. 34, 37, 92 S.Ct. 815, 31 L.Ed.2d 17 (1972). Finally, it is possible that frequent and deliberate flouting of administrative processes could weaken the effectiveness of an agency by encouraging people to ignore its procedures. McKart v. United States, supra, 395 U.S. at 195, 89 S.Ct. at 1663; McGee v. United States, 402 U.S. 479, 484, 91 S.Ct. 1565, 29 L.Ed.2d 47 (1971); K. Davis, Administrative Law of the Seventies §§ 20.01-20.08 (1976). 3 Courts have frequently required dissatisfied litigants to exhaust their administrative remedies before the SEC as well as other agencies before coming into federal district court. In Touche Ross & Co. v. SEC, No. 78-6095 (2d Cir. May 10, 1979), an accounting firm attempted to enjoin an SEC proceeding commenced to determine whether the firm had engaged in unethical or illegal conduct. The district court dismissed the suit and the Second Circuit affirmed, holding that a claim of agency bias will not preclude application of the exhaustion doctrine. 16 We emphasize at the outset that normally we will not tolerate the interruption of the administrative process to hear piecemeal appeals of a litigant's claims on the merits. This is exactly what the exhaustion doctrine (is) designed to prevent. Accordingly, we wish to make it clear that Touche Ross must exhaust their administrative remedies by submitting to the Rule 2(e) proceedings before we will consider any challenges which they may assert with respect to any disciplinary action that the Commission may determine is appropriate under the circumstances. 17 Id. at 2568 (slip opinion). 18 Another case holding that judicial interference in an ongoing SEC proceeding was improper involved the allegation that one of the commission members participating in the proceeding should have been disqualified. Although preceding the decision in Touche Ross, the court also held: The administrative proceedings cannot be stopped to allow for excursions in the courts with prolonged evidentiary hearings; the time for that in a proper case is when an aggrieved litigant seeks judicial review of agency action having preserved the point of claimed disqualification in the administrative hearing. SEC v. R. A. Holman & Co., 116 U.S.App.D.C. 279, 282, 323 F.2d 284, 287 (D.C.Cir.), Cert. denied, 375 U.S. 943, 84 S.Ct. 350, 11 L.Ed.2d 274 (1963). See also R. A. Holman & Co. v. SEC, 112 U.S.App.D.C. 43, 299 F.2d 127 (D.C.Cir. 1962), Cert. denied, 370 U.S. 911, 82 S.Ct. 1257, 8 L.Ed.2d 404 (1963). 19 We believe that the doctrine of exhaustion of administrative remedies applies with equal force to the disciplinary proceedings of the NASD. See II L. Loss, Securities Regulation 1376 n.73 (1961). The relevant statutes have established a comprehensive review procedure. The disciplinary proceeding begins with the District Business Conduct Committee and advances, if appealed, to the NASD Board of Governors, to the SEC, and finally to the United States Court of Appeals. This structure allows the agency to gather evidence, exercise its discretion, and apply its expertise at more than one level. It also gives the agency the opportunity to correct its own errors without resort to the courts and an opportunity for litigants to raise and preserve the issue of claimed bias. For administrative procedure to operate effectively, it is essential that courts refrain from interfering with the process unnecessarily. See Nader v. Volpe, 151 U.S.App.D.C. 90, 94-97, 466 F.2d 261, 265-68 (D.C.Cir. 1972). Ultimate review by the court of appeals ensures that constitutional or statutory errors will not go unremedied.