Opinion ID: 692264
Heading Depth: 3
Heading Rank: 1

Heading: Does the 1940 Act limit agency discretion?

Text: 16 The petitioners advance three arguments to the effect that the Investment Company Act itself limits the Commission's discretion not to enforce Sec. 2(a)(19). First, they draw an analogy between Secs. 2(a)(19) and 2(a)(9) of the Act, the latter of which defines control of an investment company. They reason as follows: Sec. 2(a)(9) provides that any interested person (not necessarily in the sense of Sec. 2(a)(19)) may file an application to determine whether a person controls an investment company, and a controlling person is an affiliated person per Sec. 2(a)(3) and therefore also an interested person within the definition in Sec. 2(a)(19); therefore, Secs. 2(a)(9) and 2(a)(19) play a similar role in protecting investors from self-dealing; therefore Sec. 2(a)(19) should be read implicitly to contemplate a process like that provided explicitly in Sec. 2(a)(9). Under the usual norms of statutory construction, of course, the contrast between the two sections cuts against the petitioners' position. See, e.g., B.F.P. v. Resolution Trust Corp., --- U.S. ----, ----, 114 S.Ct. 1757, 1761, 128 L.Ed.2d 556 (1994) (it is generally presumed that Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another). Even if we take Sec. 2(a)(9) to be instructive, however, it does not avail the petitioners, for not even that section provides any means by which a private party can compel the Commission to initiate an investigation or to issue an order. 17 Second, the petitioners argue that because the Commission entertained an application for an investigation under Sec. 2(a)(19) in another proceeding some years ago, Matter of Fidelity Daily Income Trust, Investment Company Act Release No. 11078, 1980 WL 29743, 1980 SEC Lexis 1900, (March 12, 1980), the Commission has acknowledged that it is required to initiate such an investigation upon the filing of an application therefor. In the earlier case, an investor submitted an application under Sec. 2(a)(9), which, as we noted above, expressly provides for an application process; the Commission seems to have treated the investor's Sec. 2(a)(19) claim as pendent to the underlying Sec. 2(a)(9) matter. In any event, that the Commission chose, in its discretion, to address the Sec. 2(a)(19) issue in Fidelity does not, as the Commission here points out, bind it to act upon an application submitted solely under Sec. 2(a)(19). 18 Finally, the petitioners maintain that the Act must provide a means by which an investor can obtain from the Commission a determination that someone is an interested person under Secs. 2(a)(19)(A)(vi) and (B)(vi) or else the investor's private right of action to enforce Sec. 15(f)(1) of the Act, 15 U.S.C. Sec. 80a-15(f)(1), to challenge the assignment of an investment advisory contract, see Meyer v. Oppenheimer Mgt. Corp., 764 F.2d 76, 87-88 (2d Cir.1985), would be set to naught. In such an action, the plaintiff must demonstrate that more than 25 percent of the directors of an investment company are interested persons, and (as can be seen in the margin above) a person is interested within the meaning of Secs. 2(a)(19)(A)(vi) or (B)(vi) only if the Commission has so held. 19 We assume that the petitioners are correct in maintaining that a private action to enforce Sec. 15(f)(1) cannot go forward without the SEC having first issued an order declaring that more than 25 percent of the directors are interested persons under Sec. 2(a)(19). It simply does not follow, however, as the petitioners would have it, that a mechanism must exist for investors to obtain from the Commission the necessary determinations of 'interested person' status. The private right of action to enforce Sec. 15(f) was implied not as an end in itself but rather as a supplement to the express enforcement provisions of the statute, Meyer, 764 F.2d at 87, which was meant to incorporate [the] common law prohibition [against the sale of a fiduciary office for profit] and impose a uniform national standard of conduct. Id. Therefore, the Congress seems reasonably to have conditioned the private plaintiff's right to enforce Sec. 15(f) in court upon the sole public body expert in such matters first having determined that the national standard has been violated. Indeed, the petitioners have no quarrel with that gatekeeping conception of the SEC's role in the enforcement of Sec. 15(f). Once that much is conceded, however, then the need to apply Chaney cannot be gainsaid. For there would be no hope of preserving the SEC's enforcement resources for matters it deems more pressing if the agency were obliged to respond to every application for a declaratory order under Sec. 15(f). 20 Not surprisingly, the petitioners are unable to cite any authority for the proposition that where an administrative order is a prerequisite to the maintenance of a private action, the potential plaintiffs also have a private right to commandeer agency resources to act upon their application for such an order. The petitioners' representation to the contrary notwithstanding, the court in United States v. Markgraf, 736 F.2d 1179, 1182-83 (7th Cir.1984), most assuredly did not hold that an agency must create a mechanism whereby interested parties can satisfy the administrative prerequisites to judicial enforcement of their rights in a private cause of action. In Markgraf, the Secretary of Agriculture had refused to implement a statute under which he could forego foreclosing upon loans made by the Farmers Home Administration. The court held only that the Secretary was required to implement the statute because the Congress so intended, id. at 1184, an unremarkable proposition if ever there was one. See also State Highway Commission of Missouri v. Volpe, 479 F.2d 1099, 1109 (8th Cir.1973) (Secretary may not impound funds where statute requires apportionment to States); but cf. Pennsylvania v. Lynn, 501 F.2d 848 (D.C.Cir.1974) (Secretary may suspend housing programs for time to determine whether purpose of programs is being frustrated). Furthermore, because the statute involved in Markgraf did not provide, either expressly or by implication, for a private cause of action, that case is no support for the petitioners' proposition, viz., that the agency must punch their ticket of admission to court so that they can pursue their implied private rights in litigation. On the contrary, theMarkgraf court recognized that once he had implemented the statute generally, the Secretary would have the discretion not to apply it in any individual case. Id. at 1185. Thus, Markgraf, to the extent it is relevant, is contrary to the petitioners' position. 21