LEVENTHAL, Circuit Judge:
In October, 1968, the members of the New York Stock Exchange voted to abolish customer-directed give-ups of brokerage fees. Appellants, an unincorporated association of securities brokers and dealers and several of its members, brought this action in the District Court for declaratory and injunctive relief. They claimed that the Securities and Exchange Commission had in effect ordered the Exchange to abolish give-ups, in a letter dated August 30, 1968, and that this order was beyond the scope of the Commission's power and was issued without notice or adequate hearing required by statute. Motions for summary judgment were filed by appellants and by the Commission. On November 21, 1968, the District Court dismissed appellants' complaint for lack of jurisdiction over the subject matter. The District Court stated that the SEC's action had amounted to a mere suggestion, which neither required notice and hearing, nor was subject to judicial review. This appeal followed.
We hold that the record presents a case of agency action entitling the broker and dealer plaintiffs to limited judicial review,
When a securities broker surrenders a portion of his commission on a transaction to another broker, the surrendered portion is referred to as a "give-up."
The practice of give-ups developed largely as a result of the securities exchange's rigid minimum rate schedule, which did not permit volume discounts on large securities transactions. Thus "the commissions charged on an order for 10,000 shares of a given security * * * will be exactly 100 times the commission for a 100-share order,"
Give-ups, among other practices, posed problems of conflict of interest if not outright violation of fiduciary duty by managers of mutual funds. Give-ups also highlighted a serious question of whether a rigid minimum rate structure, such as the NYSE's, could be considered reasonable, if brokers were willing to surrender a large part of their commissions.
The record discloses that the matter of give-ups and the NYSE rate structure were subjects of concern to the Commission long before the Exchange's 1968 action that gave rise to this litigation. On July 18, 1966, the Commission wrote to all national securities exchanges and the National Association of Securities Dealers and expressed its concern over the give-up problem. In its report to the House Commerce Committee, dated December 2, 1966, the Commission reiterated this concern and recommended once
The first significant response came on January 2, 1968, in a letter from Robert W. Haack, president of the NYSE, to its members. (App. 24-28). Explaining the need for a change in the minimum rate structure, Mr. Haack declared that the "minimum commission rate is ceasing to be a `minimum'" because of give-ups and related practices. He recommended, among other things, the incorporation of a volume discount in the rate schedule, but also supported the continuation of customer-directed give-ups, "with a limitation on the percentage amount which may be so given-up." President Haack also stated that the NYSE proposals had been presented to the Commission for consideration.
On January 26, 1968, the Commission issued its Release No. 8239, announcing the submission of proposals by the Exchange. The Commission also announced that it had under consideration a proposal to adopt Rule 10b-10 under the Securities Exchange Act of 1934. The proposed rule was the product of Commission concern over the effect of give-ups on the ability of investment company managers to fulfill their fiduciary obligations. The rule, if adopted, would prohibit give-ups at the direction of these managers "unless the benefits of such division accrue to the investment company and its shareholders." The Commission invited all interested persons to submit their views on the Exchange proposals and the proposed rule.
The comments submitted by the Justice Department on April 1, 1968, set forth that the proposed Rule 10b-10 did not go far enough, and urged the Commission to hold hearings on the advisability of eliminating minimum rates altogether. On May 28, 1968, the Commission issued an Order directing a public hearing and investigation on several subjects, including "give-ups and reciprocal practices among different categories of members and nonmembers."
On the same day, May 28, 1968, Chairman Manuel Cohen of the SEC wrote to President Haack, making "written request pursuant to Section 19(b) of the Securities Exchange Act" that the Exchange amend its rate structure either by following a minimum fee schedule which the Commission had prepared, or by eliminating minimum rates entirely on orders of more than $50,000. (App. 31). Mr. Haack answered this letter on August 8, accepting the first of the SEC's requests, with some revisions in the Commission's proposed schedule. In addition, President Haack went on to propose the abolition of customer-directed give-ups.
The Commission accepted these counter-proposals of the Exchange in its letter of August 30, 1968. The Commission stated that in view "of the considerations set forth in your letters of August 8 and 20 and subject to confirmation of the understanding stated in the preceding paragraph of this letter, we hereby modify the direction to you, pursuant to Section 19(b) of the Exchange Act contained in the Commission's letter of May 28, 1968 to the effect that: alternative (a) of such direction will be satisfied by the adoption of the specific interim non-member commission schedule described in your letters of August 8 and 20, the specific interim intra-member commission schedule also described therein, and the additional language to the Exchange constitution prohibiting customer-directed give-ups. * * * We wish to emphasize that these changes are interim steps." (App. 52-53). The Exchange proposals were then submitted to a vote of the membership and were adopted, effective December 5, 1968.
Section 19(b) of the Securities Exchange Act of 1934
Appellants contend that the Commission's action on give-ups — especially the August 30 letter with its repeated references to "direction" — amounted to an Order under Section 19(b) of the 1934 Act. They further contend that the Commission's failure to hold public hearings on give-ups before issuing this Order was a violation of statutory duty and thus subject to judicial review. The Commission, on the other hand, argues that the Exchange alone abolished give-ups, that the Commission did no more than "request" voluntary action by the Exchange, and that it has neither violated any procedural requirements nor taken "agency action" subject to review under the Administrative Procedure Act.
We agree with appellants that the District Court had jurisdiction to review the validity of the Commission's action in this case. However, we do not conclude, as appellants would argue, that the use of the word "direction" by the Commission in one of its letters establishes that its action is tantamount to a mandate. Rather we look at the events more broadly, and conclude that the Commission was significantly involved in the Exchange's decision to prohibit give-ups, and involved in a way and to an extent that cannot be ignored as devoid of legal materiality. That involvement of a government agency is meaningful enough to call for application of vital principles of judicial review, to consider appellants' claim that the action was not lawfully taken. We sustain jurisdiction in the District Court on the ground that this agency involvement constitutes "agency action" within the meaning of the Administrative Procedure Act, 5 U.S.C. §§ 702, 704 (1964), and alternatively by reference to the court's general equity jurisdiction.
It is true, as the Commission insists, that the Administrative Procedure Act does not provide review for everything done by an administrative agency. See, e. g., Hearst Radio, Inc. v. FCC, 83 U.S. App.D.C. 63, 167 F.2d 225 (1948) (FCC publication of report, "Public Service Responsibility of Broadcast Licensees"). But we do not think immunity from judicial consideration and correction may be claimed for the agency activity before us.
We begin our analysis with a closer examination of some of the events preceding the abolition of give-ups by the Exchange. Especially significant is the
The Exchange was fully aware of the inter-relatedness of give-ups and minimum rates. As stated in Mr. Haack's letter of January 2, 1968, the "minimum commission rate is ceasing to be a `minimum'" because of give-ups and related practices. The August 8 proposal of the Exchange reflected its awareness of the Commission's views, its conclusion that the Commission would in the long run be opposed to continuance of minimum rates as long as give-ups were still in effect, and its judgment that its August 8 counter-proposal was merely a bow to the inevitable that secured acceptability and credence for the dominant interests of the Exchange (on minimum rates) through the technique of making a formal offer to the Commission on give-ups and relieving the Commission of the burden of making a formal demand. This reasoning was rather plainly expressed in the Membership Bulletin of October 10, 1968, where the Board of Governors of the Exchange stated (App. 62-63):
It is important to bear in mind that while the Commission's direct Request of May 28 was limited to the subject of rate structures, the Exchange was on notice of the Commission Staff's well-developed position, following the rate structure hearings in the summer of 1968, that minimum rate schedules could not meaningfully be retained without elimination of give-ups.
It is in this context that we must read the Commission's formal reply dated August 30 accepting the Exchange proposals. The Commission stated that "alternative (a) of such direction will be satisfied by the adoption of the specific interim non-member commission schedule * * *, and the additional language to the Exchange Constitution prohibiting customer-directed give-ups." (App. 53, emphasis added). In context, the Chairman's reference to elimination of give-ups cannot fairly be described as mere acquiescence by the Commission in something that was being initiated by the Exchange but which it did not deem material to the subject of its Request.
The question before us cannot be disposed of by referring to captions or labels. Thus we do not agree with appellants in predicating reviewability on the use of "direction" in the August 30 letter. On the other hand, we cannot agree that a conclusion of nonreviewability is mandated by the fact that the procedure set forth in § 19(b) of the 1934 Act begins with the Commission's presentation of written "Requests," and that it so captioned its letters to the New York Stock Exchange. This word — and the SEC's observation in this court that the New York Stock Exchange's reaction was "voluntary compliance" — fail to recognize, much less account for, the pressures which caused the Exchange to abandon its give-up practices.
The fact that an agency has not issued a command does not mean that the step by which it initiated a procedure, or informal activity, leading up to the exercise of its powers may be relegated to the area of mere unreviewable "suggestion." In Medical Committee for Human Rights v. SEC, 139 U.S.App.D.C. 226, 432 F.2d 659 (1970), the Commission has simply refused to compel Dow Chemical to include in its proxy materials certain of petitioners' proposals relating to the manufacture of napalm. Despite protests from the Commission that it had ordered nothing to be done, and therefore had taken no action subject to review, this court sustained jurisdiction and remanded. In Moss v. CAB, 139 U.S. App.D.C. 150, 430 F.2d 891 (1970), the issue was whether the Board's actions amounted to ratemaking such that it was liable to follow certain statutory procedures which it had concededly ignored, or whether the Board had merely refused to suspend rates proposed by the airlines themselves, in which case the procedures would not apply. The Board's major assertion was that it had simply "suggested," not ordered, that the airlines submit a certain rate schedule, and that "as long as the Board only `suggests' and does not order the future rates, the rates remain carrier-made." 430 F.2d at 898. The court took account of the practicalities rather than the theory or form of the situation, and found that the Board had in effect made new rates without following the prescribed route of decision.
Likewise here it cannot be said to appellants that the Commission had not yet taken effective action. On the contrary, its action was all too effective. The elimination of give-ups which confront appellants with pecuniary harm was accomplished,
It is these practicalities that establish the jurisdiction of the District Court. In considering the need for or propriety of judicial review in a particular case, we must recognize that terms like "order" or "request" may be terms of conclusion rather than analysis. "Whether or not the statutory requirements of finality are satisfied in any given case depend not upon the label affixed to its action by the administrative agency but rather upon a realistic appraisal of the
Had the Exchange refused to follow the Commission's policies with regard to give-ups, and instead brought immediate court action to test their validity, its action would likely have been premature. Since the Act specified procedures, including a full hearing, before the Commission could mandate the effectiveness of these policies over the objection of the Exchange, we would likely have required exhaustion of these administrative proceedings before exercising judicial authority.
That is not the case before us, however. Here the Exchange did not resist; it submitted to what it considered positions of the Commission that constituted a threat to the Exchange's policy of minimum rates, and in doing so cut off a source of income to appellant broker-dealers. See Columbia Broadcasting System, Inc. v. United States, 316 U.S. 407, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942). The vitality of the CBS doctrine, in finding finality and reviewability of agency actions not issued as regulations or orders but having the consequence and contemplation of "expected conformity," is unmistakable. The pertinent Supreme Court decisions, covering a wide array of policy pronouncements, include, in addition to CBS, Frozen Food Express v. United States, 351 U.S. 40, 76 S.Ct. 569, 100 L.Ed. 910 (1956); United States v. Storer Broadcasting Co., 351 U.S. 192, 76 S.Ct. 763, 100 L.Ed. 1081 (1956);
Significant in this case are factors that parallel features that were significant in establishing jurisdiction in our recent precedents. Here, as in Medical Committee, there was finality as to the impact of the Commission's position on complainant, plus an absence of any ongoing administrative proceeding, and absence of any claim that court jurisdiction would or might interfere with such proceedings. Here, as in Moss, there is recognition that if the form of agency policy formation succeeds in concealing or recasting the agency's involvement in a structure of a purely private proposal, there would be an effective preclusion of judicial review. The case of Fay v. Miller,
We do not rest jurisdiction on the fact that the Exchange's response to the Commission's pressures was involuntary. For all we know, the Exchange might have taken the same action in the absence of any urging by the Commission. What we are saying is that the use of these pressures by the Commission amounts to more than a mere invitation to voluntary compliance, and carries with it both an element of undue influence and sufficient dangers of intrusion into matters beyond the scope of the Commission's power as to require some judicial review of their propriety.
Moreover, the steps taken by the Commission satisfy the statutory definition of reviewable action. 5 U.S.C. § 704 says, "final agency action for which there is no other adequate remedy in a court [is] subject to judicial review." The term "agency action" is defined in § 551(13) to include "rule," and "rule" under § 551(4) includes "an agency statement of general or particular applicability and future effect designed to implement * * * or prescribe law or policy."
These concepts are broad enough to cover the present case. The statute does not allow review of every abstract statement of policy. See Attorney General's Manual on the Administrative Procedure Act 101-103 (1947). However, where the statement of policy was intended to result in and does result in action on the part of companies that are regulated or subject to regulation, and this terminates or modifies outstanding business relationships with complainants, who have no further administrative recourse or other adequate remedy in court, there is "agency action" that is subject to at least limited judicial review on the issue whether the agency was acting ultra vires when it injected itself into the situation.
A footnote in the Commission's brief expresses the thought that if the Commission's correspondence constitutes a reviewable "order" then the review provisions of § 25(a) of the Securities Exchange Act, 15 U.S.C. § 78y (1964), give exclusive jurisdiction to the courts of appeals, not the district courts. Compare SEC v. Andrews, 88 F.2d 441 (2d Cir. 1937) with R. A. Holman & Co. v. SEC, 112 U.S.App.D.C. 43, 299 F.2d 127, cert. denied, 370 U.S. 911, 82 S.Ct. 1257, 8 L.Ed.2d 404 (1962). This issue would relate not to whether there is judicial review, but whether Congress intended to concentrate it as set forth in § 25 of the SEC Act. We discern no such intent, and conclude that to the extent the SEC's actions in regard to Requests are reviewable they are reviewable in the District Court, either by an equity
Section 25(a) applies in terms only to "orders," a narrower concept than that of "agency action" reviewable in district courts, and is available only to persons who were "parties" to actual agency "proceedings." It was intended to provide direct review in cases wherein a clear, formal record of an administrative hearing would be before the reviewing court without the need for presentation to a court of evidence (or affidavit) of the agency's action. While the concept of an order subject to direct review is not frozen, and may be extended if necessary to preserve some element of judicial supervision, it is not fairly available to preclude familiar district court review in the case at bar.
If the court in the exercise of its jurisdiction were to determine on the merits that the Commission acted ultra vires, its order, whether for injunctive or declaratory relief, could only be addressed to the Commission as the party before it. But such an order would permit the Exchange to reevaluate its position without the influence of the Commission's pressure or its intervention. If the Exchange would have taken the same action without Commission pressure, it would be free to maintain the status quo, subject only to such action as might be maintained against the Exchange on the ground that its voluntary action infringed the legal rights of others, an issue not before us. The possibility that the Exchange might have taken the same action on its own provides no basis for declining jurisdiction over pressures by the Commission that may wrongfully influence and intrude on its decision-making.
Accordingly, we sustain the jurisdiction of the District Court to hear appellant's substantive and procedural complaints.
Although we conclude the district court erred in disclaiming jurisdiction we see no need for remand for we conclude on the record before us, established on the cross-motions for summary judgment, that although appellants are entitled to judicial consideration of their claims, they should be dismissed on the merits.
Appellants challenge the validity of the Commission's action on four grounds — (1) the Commission has no statutory power "to alter the compensation distributing structure as distinguished from its brokerage commission oversight authority;" (2) the Commission is estopped from ordering the abolition of give-ups by 28 years of tacit consent to the practice; (3) the Commission failed to comply with the procedural requirements of Section 19(b) before ordering the abolition of give-ups; and (4) the abolition of give-ups will cause loss to investors and chaos in the markets.
We regard the first two grounds as patently frivolous. The Commission has a general jurisdiction to fix "reasonable rates of commission" under Section 19(b) (9). We have no doubt that, assuming the underlying facts warrant exercise of that power, the Commission has the power under its charter to alter or abolish a minimum rate schedule; or to determine that it would be unreasonable to maintain a minimum rate structure together with give-ups.
Appellants' procedural claim deserves fuller treatment but we conclude that it, too, is without merit. Appellants developed
We have held that the pressures exerted by the Commission with regard to give-ups constituted agency action that was sufficient to invoke judicial review despite the use of the caption "Request." However, to hold that such action, falling short of an Order, requires absolute adherence to the procedures set forth in § 19(b) for a mandatory order, would be to eliminate the mechanism of informal agency action, and response thereto, that is fairly contemplated by § 19(b) itself. There is room in responsible government to achieve results in the public interest through requests of industry, without the use of mandate or the procedures of mandate, just as there is room to proceed by informal advisory rulings,
This kind of request action was not subject to a general requirement of notice and opportunity for hearing. We now consider whether in certain particular matters it was incumbent on the Commission to provide such notice as a matter of elementary fairness even though that was not a universal requirement. American Airlines, Inc. v. CAB, 123 U.S.App.D.C. 310, 359 F.2d 624 (en banc), cert. denied, 385 U.S. 843, 87 S.Ct. 73, 17 L.Ed.2d 75 (1966). Elementary fairness may well require that reasonable opportunity be given for submission of views by those materially affected as a condition of maintaining a government policy that stimulates private action, — at least where, as here, the action proposed for the Exchange lays a burden on persons, like plaintiffs, who are not members of the Exchange and are entitled to no voice before the Exchange.
Whatever might be required in another situation, the record establishes that in the matter before us there had been ample opportunity for submission of such views. On January 26, 1968, the SEC issued its Release No. 8239, inviting comment on a proposal to adopt Rule 10b-10 under the Securities Exchange Act of 1934. The Rule would have prohibited investment company managers from directing give-ups that did not accrue to the investment company. Comments were invited also on a NYSE proposal as to give-ups. In the press release the SEC discussed various aspects of the problems of give-ups and reciprocal business. It noted that the SEC in its 1966 Mutual Fund Report
In this context, it would carry abstraction to aridity to hold that the Commission's procedure lacked fairness because of the lack of opportunity to interested persons to make a presentation to the Commission of views favorable to the maintenance of give-ups.
Appellants' final contention, that of chaos resulting from the abolition of give-ups, is directed more to the wisdom of the Commission's policy than to its power to act. Appellants have not pressed their contentions on the value of give-ups before this court, but are not to be faulted for this because they seek remand to present these points to the Commission. We have considered the need for remand in the preceding discussion. However, we think it necessary to add our views on the limited judicial review available to appellants on the merits of the SEC's give-up policy.
We have given careful consideration to the other grounds for reversal raised by appellants because they concern the statutory authority of the Commission to take action in the area of give-ups, either at all or without following certain prescribed procedures. In essence the plaintiffs, we have held, may seek the court's assistance on the claim that the agency has injected itself, without legal justification, into an area of business relationships and has asked one of the parties to the relationship to terminate or modify it. Plaintiffs' action may be compared to that of a businessman who seeks relief against a threatened interference with a business relationship and expectancy. A can sue B to enjoin B from telling C to exercise C's lawful right to terminate his contract with A or business relationship with A, and plaintiff will succeed if he shows that B has no proper basis for injecting himself into the A-C relationship. See Restatement of Torts § 766.
In like vein a businessman may sue to enjoin the SEC from injecting itself, by a request to the Exchange that is ultra vires, into a modification of the business relationships between the Exchange and its members, or customers of its members, etc. Air Reduction Co. v. Hickel, 137 U.S.App.D.C. 24, 420 F.2d 592 (1969). And the fact that the SEC's action takes the form of a "Request" does not preclude a judicial determination whether that action was taken outside the scope of the Commission's power.
However, the type of action taken does effect the scope of review where the issue is not power but rather the wisdom of the Commission's policy. If the Commission had ordered the Exchange to abolish give-ups, it would have had to conclude on the basis of evidence before the Commission that give-ups were not consistent with public interest in reasonable commissions. This finding would have been subject to review on the basis of substantial evidence or some equivalent test. On the other hand, the Commission need not make an ultimate finding in order to lodge a preliminary Request with the Exchange, even if the Request is accompanied by certain pressures toward compliance. If the Exchange agrees that the practice should be ended, then the deed is done, even though there has been no agency finding as to its advisability.
In such a case it is obviously impossible to evaluate the outcome of the Request and response on the basis of record evidence. The most that the reviewing court can do is to decide whether there was some factual basis on which the Commission might reasonably believe that the practice of give-ups should be abandoned, and such basis will be presumed to exist unless negatived by the challenger. Cf. IAMAW v. National Mediation Bd., 138 U.S.App.D.C. 96, 425 F.2d 527 (January 30, 1970). Since
The judgment of the District Court dismissing the action for lack of jurisdiction is vacated and the cause is remanded with instructions to enter a summary judgment for defendants on the merits.
ROBB, Circuit Judge:
I would affirm the judgment of the district court.
The appellant (plaintiff) Independent Broker-Dealers' Association is an unincorporated group of securities brokers and dealers who are subject to the federal securities laws. The appellants (plaintiffs) Oxford Securities, Inc., and James C. Butterfield, Inc., are broker-dealers registered with the Securities and Exchange Commission. The plaintiffs filed an action against the Commission in the district court seeking (1) a declaratory judgment to the effect that a letter dated August 30, 1968 from the Commission to the New York Stock Exchange (Exchange) was "an unlawful order or direction" depriving plaintiffs of substantial property rights without due process of law, and (2) a mandatory injunction to enjoin the operation and enforcement of this alleged order or direction. In substance the plaintiffs claim that the Commission's letter of August 30, 1968 unlawfully directed the Exchange to change its constitution so as to prohibit customer directed broker's commission sharing ("give-ups") and to adopt a new and reduced minimum broker's commission structure. The New York Stock Exchange is not a party to the action and none of the plaintiffs is a member of the Exchange. The district judge granted the Commission's motion to dismiss for lack of jurisdiction over the subject matter. I think the district judge was right.
In my opinion it is plain from the record that the prohibition of "give-ups" was not the result of a Commission order but was a voluntary act of the Exchange resulting from a request by the Commission pursuant to Section 19(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78s(b) (1964).
The plaintiffs' action is based upon the theory that the Commission's letter of August 30, 1968 was "an unlawful order or direction" from the Commission to the Exchange. In particular, the plaintiffs rely upon the use by the Commission of the word "direction" in describing the Commission's request pursuant to Section 19(b) of the Exchange Act. The plaintiffs contend that under Section 19(b) they were entitled to notice and an opportunity to be heard prior to the issuance of the letter.
The Securities Exchange Act of 1934, 15 U.S.C. §§ 78a-78hh (1964) imposes upon the various exchanges the duty of
The plaintiffs contend that the Commission's letter of August 30, 1968 was an order under Section 19(b), so that the plaintiffs were entitled to notice and opportunity for hearing with respect to the changes in the rules and practice of the Exchange. I cannot agree. The machinery of a hearing with notice and opportunity to be heard was not required unless and until the Exchange failed or refused to comply with the request of the Commission, made in its letter of May 28, 1968.
In my judgment the correspondence between the Commission and the Exchange and the releases and bulletins issued by them demonstrate that the prohibition of give-ups was the voluntary act of the Exchange, resulting from the Commission's request of May 28. There is no suggestion in the record that the Commission covertly or clandestinely initiated the action of the Exchange in amending its rules with respect to give-ups. On the contrary, it is apparent that long before the letter of August 30, 1968 was written the Exchange was considering the problems generated by customer directed give-ups; and in particular the Exchange was troubled by the impact of such give-ups upon the minimum commission schedule. The concern of the Exchange with respect to these matters was reflected in its proposal of changes in its rate structure, submitted to the Commission on January 2, 1968.
Properly and reasonably the Commission gave public circulation to the Exchange proposals of January 2, 1968, together with a rule proposed by the Commission which would have prohibited investment company managers from directing give-ups; and the Commission invited comments on both proposals. The Department of Justice responded by questioning the need for any minimum commission schedule in the securities business. As a result of this and other comments the Commission ordered an investigation and hearing with respect to commission rate structures, including customer directed give-ups. On the same day, May 28, 1968, the Commission by letter to the Exchange, pursuant to Section 19(b) of the Act, requested that the Exchange "on its own behalf" adopt one of two alternate modifications in its rules concerning minimum commission rates. The first alternative was a revision of minimum commission rates, the second was the elimination of minimum rates on orders in excess of $50,000.
By its letter of August 8, 1968 the Exchange responded to the Commission with its own proposal. Expressing a preference for the Commission's first alternative — the revised minimum rate schedule — the Exchange noted that on June 27 its Board of Governors had approved in principle a volume discount, a step-by-step abolition of customer directed give-ups, and a one-third discount to
The Commission's letter of August 30, 1968, about which the plaintiffs complain, accepted the Exchange's proposals as a substitute for the first alternative specified in the Commission's letter of May 28. Thereafter, the Board of Governors of the Exchange adopted the proposals and, in accordance with its constitution, submitted them to its members for a vote; and the constitutional amendment prohibiting give-ups was approved by a vote of 925 to 266. There can be no doubt that the Exchange, a private unincorporated organization governed by its own constitution and by-laws, had the power to adopt such rules.
In summary, I think it plain that the Commission's letter of August 30, 1968 did not order the Exchange to do anything; it merely accepted a proposal, formulated by the Exchange on its own behalf and in its own best interest, and submitted in response to the Commission's request of May 28.
The majority finds that there was "agency action" subject to judicial review on the merits. The reasoning is that pressure or urging by the Commission may have exerted an "undue influence" on the decision of the Exchange to abolish give-ups. I cannot accept this theory. The Commission requested a revision of minimum rates. The request was made pursuant to the statutory scheme which contemplates that exchanges will regulate themselves, subject to intervention by the Commission only if they fail to act as requested. True, the Commission had made known its position with respect to give-ups, but it took no action by rule or order on either give-ups or minimum rates. In the absence of any rule or order by the Commission, its amorphous "influence" did not in my judgment convert its request and its acceptance of the Exchange's counter-proposal into "agency action" subject to judicial scrutiny.
The application of the theory of the majority to this case puzzles me for another reason. The plaintiffs seek a mandatory injunction to enjoin the operation and enforcement of the alleged order or direction contained in the Commission's letter of August 30, 1968. The plaintiff's target, however, is not the Commission's letter but the amendment to the constitution of the New York Stock Exchange, adopted by vote of its members, which prohibited customer directed give-ups. If the court, after reviewing the Commission's action on the merits, had concluded that it was invalid, could the court have set aside the Exchange's constitutional amendment? I think the obvious answer is no, since the Exchange is not a party to this action and has never been heard. This being the case, I am unable to see any occasion for the district court to consider the issuance of an injunction.
5 U.S.C. §§ 702, 704.
The word "immune" in the foregoing paragraph is intended in a practical rather than precise legal significance. It may be that in a particular action the Exchange would be required to answer and even go to trial, and that its defense would be sustained not in terms of an outright (though implied) repeal of the anti-trust laws, but of a ruling that the use of the restraint by the regulatory mechanism provided by the Act (partly self-regulation, partly regulation by the SEC) provides justification under the flexible reasonableness conceptions of antitrust law. See 373 U.S. at 360-61.
Our opinion does not undertake to pass on the antitrust issue. It is conceivable that an antitrust action could be grounded on the consideration that in a particular case, notwithstanding a formal request for a rule change by the SEC, the Exchange and its members had a choice and exercised discretion that were tainted by anti-competitive purpose and impact which could not be justified by the regulatory approach. Nevertheless, the scheme of this Act obviously dilutes the prospects of success for an action based on ordinary antitrust principles of responsibility of the Exchange and its members to avoid competitive restraints, — a dilution at least for the case where the restraint is not in the day-to-day enforcement of a rule by the Exchange (as in Silver), but in the very issuance of a rule whose text would be subject to scrutiny by the SEC. Hence we conclude that the limits we develop in case of a rule change ascribable in significant measure to SEC impropriety cannot be gainsaid on the ground that this prospect, of an antitrust action based on impropriety of the Exchange and its members, is itself sufficient to assure an overall judicial surveillance that is meaningful and adequate.
Indeed Fay provides affirmative support for our conclusion, in view of the court's ruling that the prosecutor would have been a "proper" party, even though he only made a request. It dismissed the suit on grounds of sovereign immunity since there was no allegation that the prosecutor's action was in violation of either the Constitution or his statutory duty. Here there is an allegation that the Commission's actions violated statutory duty, and we think that charge is reviewable at least where, as here, (1) there has been "acquiescence" so that there will be no review of the Commission's actions in another proceeding, (2) there is present harm to plaintiffs and (3) there is no other available action for vindication of plaintiffs' statutory right to be free of ultra vires action by the Commission.
The reservation of a right to bring a subsequent antitrust action against the Exchange, after the damage is done, cf.Silver, supra, is not a comparable opportunity.
On October 10, 1968 the Exchange issued a bulletin to its membership, recommending the adoption of the proposed constitutional amendment authorizing a new interim commission rate schedule and prohibiting customer directed give-ups. Stating that a "great deal of work and painstaking negotiation has gone into this amendment", the bulletin reviewed the background of the proposal, including the comments of the Department of Justice on the Commission's proposed Rule 10b-10. With respect to the prohibition of customer-directed give-ups the bulletin stated:
"The Board [of Governors] is strongly of the opinion that the minimum commission can be preserved only if customer directed give-ups are abolished. It is not reasonable to argue for retention of minimum commissions and in the same breath defend the give-up practices that have arisen in recent years, and which have been exhaustively described during the SEC hearings. For this reason, the Exchange made the prohibition of customer directed give-ups an integral part of the commission rate proposal to the SEC, even though the SEC had not made such a prohibition part of their May 28 request. Of course, the SEC has been urging all exchanges for several years to prohibit customer directed give-ups."