Securities and Exchange Commission v. Sloan (1978)

436 U.S. 103

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

The Securities and Exchange Commission (Commission) has the authority under § 12(k) of the Securities Exchange Act of 1934 (Act) “summarily to suspend trading in any security . . . for a period not exceeding ten days” if “in its opinion the public interest and the protection of investors so require.” Acting pursuant to § 12(k) and its predecessor, the Commission issued a series of summary 10-day orders continuously suspending trading in the common stock of a certain corporation for over a year. Respondent, who owned 13 shares of the stock and who had engaged in substantial purchases and short sales of shares of the stock, filed a petition pursuant to the Act in the Court of Appeals for a review of the orders, contending, inter alia, that the “tacking” of the 10-day summary suspension orders exceeded the Commission’s authority under § 12(k). Because shortly after the suit was brought no suspension order remained in effect and the Commission asserted that it had no plans to issue such orders in the foreseeable future, the Commission claimed that the case was moot. The court rejected that claim and upheld respondent’s position on the merits. In this Court, the Commission contends that the facts on the record are inadequate to allow a proper resolution of the mootness issue, and that, in any event, it has the authority to issue consecutive 10-day summary suspension orders.

Held:

1. The case is not moot, since it is “capable of repetition, yet evading review,” Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515. Effective judicial review is precluded during the life of the orders because a series of consecutive suspension orders may last no more than 20 days. In view of the numerous violations ascribed to the corporation involved, there is a reasonable probability that its stock will again be subjected to consecutive summary suspension orders; thus, there is a “reasonable expectation that the same complaining party” will be subjected to the same action again. Cf. Weinstein v. Bradford, 423 U.S. 147. Pp. 108-110.

2. The Commission does not have the authority under § 12(k), based upon a single set of circumstances, to issue a series of summary orders that would suspend trading in a stock beyond the initial 10-day period, [436 U.S. 104] even though the Commission periodically redetermines that such action is required by “the public interest” and for “the protection of investors.” Pp. 110-123.

(a) The language of the statute establishes the 10-day period as the maximum time during which stock trading can be suspended for any single set of circumstances. Pp. 111-112.

(b) In view of congressional recognition in other sections of the Act that any long-term sanctions or continuation of summary restrictions must be accompanied by notice and an opportunity for a hearing, the absence of any provision in § 12(k) for extending summary suspensions beyond the initial 10-day period must be taken as a clear indication that extended summary restrictions are not authorized under § 12(k). Pp. 112-114.

(c) The statutory pattern leaves little doubt that § 12(k) is designed to empower the Commission to prepare to deploy such other remedies as injunctive relief or a suspension or revocation of security registration, not to empower the Commission to reissue a summary order absent the discovery of a new manipulative scheme. Pp. 114-115.

(d) Those other remedies are not as unavailable as the Commission claims, as is evidenced by this very case, where the Commission during the first series of suspension orders actually sought an injunction against the corporation involved and certain of its principals, and, during the second series of suspensions, approved the filing of an injunction action against its management. Moreover, though the Commission contends that the suspension of trading is necessary for the dissemination in the marketplace of information about manipulative schemes, the Commission is at liberty to reveal such information at the end of the 10-day period and let investors make their own judgments. And in any event, the mere claim that a broad summary suspension power is necessary cannot persuade the Court to read § 12(k) more broadly than its language and the statutory scheme reasonably permit. Pp. 115-117.

(e) Though the Commission’s view that the Act authorizes successive suspension orders may be entitled to deference, that consideration cannot overcome the clear contrary indications of the statute itself, especially when the Commission has not accompanied its administrative construction with a contemporaneous well reasoned explanation of its action. Adamo Wrecking Co. v. United States, 434 U.S. 275, 287-288, n. 5. Pp. 117-119.

(f) There is no convincing indication that Congress has approved the Commission’s construction of the Act. Pp. 119-123.

547 F.2d 152, affirmed. [436 U.S. 105]

REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, POWELL, and STEVENS, JJ., joined. BRENNAN, J., filed an opinion concurring in the judgment, in which MARSHALL, J., joined, post, p. 123. BLACKMUN, J., filed an opinion concurring in the judgment, post, p. 126.

EXCERPTS FROM MAJORITY OPINION BY JUSTICE REHNQUIST:

“….

[This section concerned whether the court should hear the case even thought the suspension was lifted, a matter of standing for Sloan. MH]

The court then decided that the statutes which authorized summary suspensions — § 12(k) and its predecessors — did not empower the Commission to issue successive orders to curtail trading in a security for a period beyond the initial 10-day period. 547 F.2d at 157-158. We granted certiorari, specifically directing the attention of the parties to the question of mootness, 434 U.S. 901 (1977), to which we now turn.

II

Respondent argues that this case is not moot because, as the Court of Appeals observed, it is “capable of repetition, yet evading review.”{3} The Commission, on the other hand, does not urge that the case is demonstrably moot, but rather that there simply are not enough facts on the record to allow a proper determination of mootness. It argues that there is no “reasonable expectation” that respondent will be harmed by further suspensions because,

“the investing public now ha[ving] been apprised of the relevant facts, the concealment of which had threatened to disrupt the market in CJL stock, there is no reason to believe that it will be necessary to suspend trading again.”

Brief for Petitioner 15, quoting from Pet. for Cert. 12 n. 7. Cf. Weinstein v. Bradford, 423 U.S. 147, 149 (1975). The Commission concedes, however, that respondent, in his capacity as a diversified investor, might be harmed in the future by the suspension of some other [436 U.S. 109] security which he owns. But it further contends that respondent has not provided enough data about the number or type of securities in his portfolio to enable the Court to determine whether there is a “reasonable” likelihood that any of those securities will be subjected to consecutive summary suspension orders.{4}

Contrary to the Commission’s contention, we think even on the record presently before us this case falls squarely within the general principle first enunciated in Southern Pacific Terminal Co. v. ICC, supra, and further clarified in Weinstein v. Bradford, supra, that, even in the absence of a class action, a case is not moot when

(1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there was a reasonable expectation that the same complaining party would be subjected to the same action again.

….

In sum, had Congress intended the Commission to have the power to summarily suspend trading virtually indefinitely, we expect that it could and would have authorized it more clearly than it did in § 12(k). The sweeping nature of that power supports this expectation. The absence of any truly persuasive legislative history to support the Commission’s view, [436 U.S. 123] and the entire statutory scheme suggesting that, in fact, the Commission is not so empowered, reinforce our conclusion that the Court of Appeals was correct in concluding no such power exists.

….”