When the U.S. Court of Appeals for the D.C. Circuit ends its summer recess on Sept. 12, a range of complex issues await the judges, including cases that examine securities fraud enforcement, U.S. Department of Justice leaks and the subpoena power of federal trade regulators.
Several agencies, including the Securities and Exchange Commission, Federal Trade Commission and DOJ, will be defending district court wins in the D.C. Circuit’s fall session. The disputes include a disgorgement matter and a privacy action against DOJ in which a federal drug agent accidentally shot himself in a videotaped discussion with kids.
For the first time since 2006 the make-up of the court — with its eight active judges and soon-to-be five senior members — could change this fall. Judge Douglas Ginsburg is taking senior status in October, creating a third vacancy. President Barack Obama’s lone nomination, Caitlin Halligan, is pending a confirmation vote in the U.S. Senate. Sen. Chuck Grassley (R-Iowa) questioned in March the need for another D.C. Circuit judge, and gun rights advocates have lined up in opposition to Halligan.
Retired D.C. Circuit Judge Patricia Wald, a former chief judge who was appointed to the bench under President Jimmy Carter, said it’s important to take the long view. The appeals court, Wald said, will need additional judges to handle potential regulatory challenges from the administration’s health care initiative — assuming its survival — and Wall Street reform. “There will be a host of regulations that those acts form, and most of those regulations will come up to the D.C. Circuit,” Wald said. “You very likely are going to have an uptick in cases.”
In the meantime, the court has its hands full. A tab of key cases in the D.C. Circuit’s fall session follows.
Businessman Peter Cahill of Houston is trying to get out from under a court order that required him to shell out about $1 million to the government in a civil securities fraud case.
The SEC in 2005 filed civil charges against Cahill that alleged he participated in a so-called “pump and dump” scheme that involved the broadcast of hundreds of thousands of voice messages touting the stock of a Houston oil and gas exploration and production company.
Cahill, who controlled Clearlake Venture Group, settled without admitting wrongdoing, and Judge Rosemary Collyer of U.S. District Court for the District of Columbia last year ordered him to disgorge money he made in selling shares of the company.
Cahill’s attorney, King & Spalding partner Russell Ryan, who practices in SEC enforcement investigations, contends that Cahill did not personally benefit from the scheme. Cahill, according to Ryan, should not be liable for funds he transferred to the client account of a corporate lawyer in Texas.
Ryan declined to comment. In court papers he said the SEC and Collyer’s order run afoul of the limitations on the ability of securities regulators to disgorge profit. He called the judge’s decision “classically punitive” because the order required Cahill to turn over money that “indisputably enriched others…and thus it puts him in an economic position infinitely worse than the position he was in before the relevant misconduct began.”
“This appeal presents the court with an opportunity to reiterate and clarify the limitations it has previously placed on use of the equitable remedy of disgorgement in SEC law enforcement cases,” Ryan said in a brief.
SEC attorney Nicholas Bronni, who will argue for the commission, said Cahill refused to testify or provide any evidence about his involvement in the oil company’s stock. A wrongdoer, Bronni said, must pay up whether or not the person “pockets, reinvests or doles out” proceeds.
Former Cendant Chairman Walter Forbes, convicted in a multibillion-dollar corporate accounting scandal, is more than four years into a 12-year prison term. A team of lawyers at Williams & Connolly — Forbes is a longtime client — hasn’t stopped fighting for him on several fronts to overturn his conviction, including using the Freedom of Information Act to squeeze documents from investigators.
Forbes’ lawyers, including Robert Cary, a lead defense attorney for former Alaska Sen. Ted Stevens, said a Washington federal trial judge got it wrong when she refused to force the SEC to turn over 114 sets of handwritten notes rooted in the Cendant investigation.
U.S. District Judge Colleen Kollar-Kotelly ruled last August that the SEC’s notes of witnesses and their lawyers were not material in the prosecution of Forbes in federal district court in Connecticut. Forbes’ lawyers said the judge at least should have looked at the documents in chambers.
Ginsburg and senior judges Harry Edwards and A. Raymond Randolph are scheduled to hear the case Sept. 19. Williams & Connolly associate Simon Latcovich, who also worked on the Stevens public-corruption case in Washington, will argue for Forbes.
“During the criminal trial of Walter Forbes, the government selectively disclosed certain notes of conversations between SEC attorneys and third parties,” Forbes’ attorneys said. “Notwithstanding this disclosure, the SEC is now withholding similar notes from production under FOIA solely on the basis of privilege.”
Lawyers for the SEC, represented by Assistant U.S. Attorney Michelle Lo in the appeals court, argue the attorney work-product privilege protects the notes. “Williams & Connolly offers only the unadorned speculation that the remaining notes may contain potentially exculpatory information, which cannot overcome the SEC’s properly justified withholdings,” Lo said in court papers.
The Federal Trade Commission (FTC) and the Trojan brand condom maker are head to head in a subpoena spat in the D.C. Circuit. The commission is investigating whether Church & Dwight Co., which also makes Arm & Hammer brand baking soda, is monopolizing the condom market. Church & Dwight’s legal team, including DLA Piper partner Carl Hittinger, said the company should be allowed to redact noncondom information from material that is responsive to agency subpoenas. The commission began its formal inquiry in June 2009.
The Princeton, N.J.-based company’s lawyers said the FTC is using an ambiguous agency resolution to unfairly gather information about other company products, including cat litter, toothpaste and household cleaning agents. The sale of those products, the company’s lawyers said, does not affect how Church & Dwight markets and sells condoms.
“In the district court, the FTC refused to substantiate a connection between condoms and these obviously unrelated products,” said Hittinger, chairman of the firm’s Philadelphia litigation department. (Hittinger, who declined to comment, will argue for the company on Oct. 11 in the D.C. Circuit.)
FTC attorney Mark Hegedus said Church & Dwight “has sought to delay and frustrate the Commission’s legitimate law enforcement activities.”
The FTC said it wants to review noncondom information “to provide context documents used in the investigation.” The commission, Hegedus said, can use the information to assess sales to determine whether Church & Dwight had any incentive to violate antitrust laws.
Veteran federal drug agent Lee Paige was standing in front of a group of Orlando, Fla.-area kids in a community center in April 2004 when he pulled out a handgun. “I am the only one in the room professional enough, that I know of, to carry this Glock .40,” said Paige, moments before he accidentally shot himself in a leg. A parent in the audience captured the shooting on video.
The Drug Enforcement Administration (DEA) investigated the shooting and ultimately suspended Paige for five days. A video clip of the incident found its way onto the Internet and into news stories. YouTube has logged hundreds of thousands of views of the video.
The DEA Office of Professional Responsibility conducted a two-year investigation into the release of the video, but did not uncover the identity of the leak, DOJ lawyers said. Paige sued the government in April 2006, alleging that the DEA improperly disclosed the video internally and to the public. A trial judge dismissed Paige’s claim that the video was “highly offensive.”
“[T]here is no doubt that the incident is an embarrassment to both [Paige] as well as the DEA,” Senior Judge Jack Shanstrom of Montana federal district court said in an opinion in December 2010. “However, ‘highly offensive’ matters generally relate to the intimate details of a person’s life, sexual relations and other personal matters and does not generally include the present situation.”
To show the government acted intentionally, Shanstrom said, Paige must identify the source of the disclosure. And that hasn’t happened.
Paige’s attorney, Ward Meythaler of Tampa, Fla.’s Merkle Magri & Meythaler, did not return messages seeking comment. “[T]he illegal, wholesale failure of the DEA to keep required records and to protect the security of the video makes it less than easy to pinpoint the leaker,” Meythaler said in a brief.
Justice Department Civil Division lawyers Mark Stern and Helen Gilbert said in court papers submitted in August that the shooting was not a private fact. The shooting, DOJ said, “occurred while plaintiff was on duty, in a public place, before an audience that owed him no duty of confidentiality, and plaintiff consented to the videotaping of his presentation.”
Mike Scarcella can be contacted at firstname.lastname@example.org.