Opinion ID: 692264
Heading Depth: 2
Heading Rank: 1

Heading: Does Chaney apply?

Text: 7 The petitioners would avoid the presumptive bar of Chaney by characterizing what they ask of the Commission as a factual determination rather than as an enforcement action, noting that Sec. 2(a)(19) of the Act is strictly definitional and does not itself contain any prohibition. The petitioners also point out that there is a presumption in favor of the reviewability of agency inaction that does not involve enforcement. See, e.g., Robbins v. Reagan, 780 F.2d 37, 45 (D.C.Cir.1985); but see Lincoln v. Vigil, --- U.S. ----, ----, 113 S.Ct. 2024, 2032, 124 L.Ed.2d 101 (1993) (recognizing that Sec. 701(a)(2) applies outside of enforcement context). 8 The Supreme Court in Chaney provided no formula by which to determine whether agency decisions of a particular type are decisions to refuse enforcement. Chaney, 470 U.S. at 831, 105 S.Ct. at 1655. The Court clearly included within that set, however, not only an agency's determination not to proceed against a recognized violation, but also its antecedent judgment upon the question whether a violation has occurred. Id. 9 Having in mind that conception of the decision not to enforce, it is impossible to see the Commission's application of Sec. 2(a)(19) to the facts of a particular case as anything other than a part of the enforcement process. Under the 1940 Act, the lawfulness of various transactions depends utterly upon whether certain parties are interested persons; indeed, the petitioners' whole point in going to the SEC was to establish that the Funds were in violation of the requirements that at least 60 percent of the directors of an investment company be non-interested, 15 U.S.C. Sec. 80a-10(a), and that a majority of the non-interested directors approve any investment advisory contract, 15 U.S.C. Sec. 80a-15(c). In addition, we note that the investment adviser to an investment company may not lawfully profit from its assignment of an investment advisory contract to another adviser if more than 25 percent of the directors of the investment company are interested persons of either investment adviser, 15 U.S.C. Sec. 80a-15(f). With respect to such a transaction, the determination whether a person is interested may be in effect a determination whether a violation has occurred. See Chaney, 470 U.S. at 831, 105 S.Ct. at 1656. In this case, a determination that the directors of the Dreyfus Funds were interested persons would be tantamount to holding that the Dreyfus Funds violated several sections of the Act. Viewed in context, then, it simply blinks reality to say that a determination under Sec. 2(a)(19) is anything other than an enforcement decision. 10 The rationale underlying Chaney further supports its application to this case. The Supreme Court in Chaney noted that an agency decision not to enforce often involves a complicated balancing of a number of factors which are peculiarly within its expertise. For example, reviewing the Commission's decision not to enforce Sec. 2(a)(19) would involve this court in decisions about [the SEC's] resource allocation and enforcement policy; the Commission, however, not the court, is best situated to evaluate the costs and benefits of enforcement. See Kisser v. Cisneros, 14 F.3d 615, 620-21 (D.C.Cir.1994) (holding agency decision not to initiate debarment action against particular persons unreviewable per Chaney ). The Court in Chaney also emphasized that, in contrast to a decision to enforce, a decision not to enforce results in no exercise of the agency's coercive power over an individual's liberty or property rights and, as a result, provides no focus for judicial review. 470 U.S. at 832, 105 S.Ct. at 1656; see also Kisser, 14 F.3d at 621. 11 In sum, the petitioners' characterization of Sec. 2(a)(19) as providing only for a factual inquiry is based upon too grudging a reading of Chaney, one that both disregards the rationale of that decision and ignores the actual role of Sec. 2(a)(19) in the enforcement of the 1940 Act. Where the only purpose of an investigatory hearing would be to lay the foundation for a potential enforcement action, there is a presumption against judicial review of the agency's decision not to conduct such a hearing. 12