Buntrock, Dean L. v. SEC

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-1890
DEAN L. BUNTROCK,
Plaintiff-Appellant,
v.
SECURITIES AND EXCHANGE COMMISSION, et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 1274—Wayne R. Andersen, Judge.
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ARGUED SEPTEMBER 23, 2003—DECIDED OCTOBER 29, 2003
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Before POSNER, MANION, and EVANS, Circuit Judges.
POSNER, Circuit Judge. In February of 2002, shortly after
the Securities and Exchange Commission had authorized
its legal staff to sue Dean Buntrock—the controversial
former chief executive officer of the controversial Waste
Management corporation (see, e.g., Peter Elkind, “Garbage
in Garbage Out: Waste Management Used to Be a Wall
Street Darling…,” Fortune, May 25, 1998, p. 130; Peter
Carbonara, “The Greening of Waste Management,” Ameri-
can Lawyer, Dec. 1990, p. 42; Kim Foltz, “Still Down in the
Dumps,” Newsweek, Apr. 16, 1984, p. 70)—charging him
with violations of federal securities law, Buntrock filed
this suit against the Commission and its members in the
2 No. 03-1890
federal district court in Chicago. The suit asks the court
to stay the filing of the SEC’s suit on the ground that
the Commission failed to investigate Buntrock in an impar-
tial manner before deciding to sue him, in violation of the
agency’s own regulations and (implicitly) of due process
of law. Buntrock did not move for a preliminary injunc-
tion, and in March the SEC filed its suit against Buntrock
in the same court. That case, originally assigned to an-
other judge, was reassigned to Judge Andersen, the judge
in Buntrock’s suit, on Buntrock’s unopposed motion be-
cause the two cases are so closely related. N.D. Ill. R. 40.4.
Buntrock had already amended his complaint to ask that the
SEC’s suit be stayed. But he had not indicated what it
should be stayed for. At argument, Buntrock’s lawyer told
us that what his client really wants is a dismissal of the
SEC’s suit without prejudice to its being reinstated if and
when the SEC decides to do so after conducting a brand-
new investigation of Buntrock, one purged of the taint of
partiality that he has alleged.
The SEC moved to dismiss Buntrock’s complaint both
for lack of federal subject-matter jurisdiction and for fail-
ure to state a claim. Judge Andersen granted the motion
to dismiss on the first ground, and Buntrock appeals.
Discovery has begun in the SEC’s suit, and trial is sched-
uled for the beginning of 2005. Buntrock has not yet moved
in that suit to dismiss it on the basis of the alleged taint.
He believes with good reason both that Judge Andersen
would give such a motion short shrift and that its denial
would not be appealable until the final judgment in the case
was entered.
Buntrock’s attempt to derail the SEC’s suit by filing his
own suit against the SEC rather than seeking relief in that
suit has no basis in law or common sense, and indeed is
(if an oxymoron is permissible) seriously frivolous; and a
No. 03-1890 3
frivolous suit does not engage the jurisdiction of the dis-
trict court. Crowley Cutlery Co. v. United States, 849 F.2d
273, 276-78 (7th Cir. 1988), and cases cited there. Buntrock
contends that two senior employees of the SEC—one is
the Commission’s chief accountant and the other the
chief accountant of its enforcement division—had before
coming to work for the Commission participated in au-
dits of Waste Management and that they used what they
learned in those audits to influence the Commission to
sue Buntrock. Even if this is true, and even if the alleged
impropriety would be a bar to the Commission’s suit,
there would be no justification for Buntrock’s suing the
Commission rather than urging the impropriety as a de-
fense in the SEC’s suit. If A knows that B is about to sue
him and thinks that B’s suit is barred by the statute
of limitations, A cannot file suit against B asking that B
be enjoined from bringing his suit on the ground that A
has a good defense to it. The “reason” that the cases give
for this result is that A has an adequate remedy at
law—to interpose the statute of limitations as a defense
in the case brought by B—and lack of an adequate rem-
edy at law is a prerequisite to obtaining equitable relief.
Sokolow v. United States, 169 F.3d 663, 665 (9th Cir. 1999);
see also Georgia v. City of Chattanooga, 264 U.S. 472, 484
(1924); Arkebauer v. Kiley, 985 F.2d 1351, 1358 (7th Cir. 1993).
There is a simpler route to this result: defendants must
not be allowed to turn every case in which there is a de-
fense into two cases.
But, says Buntrock, his remedy by way of defense in the
SEC’s suit is inadequate because if Judge Andersen re-
jected it, as is apparent from his opinion in the present
case that he would, the ruling would be interlocutory and
so in all likelihood (given the limitations on the appeal-
ability of interlocutory orders) Buntrock would have to
go through the agonies and expense of a full district court
4 No. 03-1890
proceeding before he could challenge the ruling in this
court. But that amounts to saying that interlocutory ap-
peals should be available more freely in the federal sys-
tem than they are, which may be a good argument but
is addressed to the wrong body. We cannot expand the
appealability of interlocutory orders—and we cannot per-
mit defendants to circumvent the limitations on appeal-
ability by recycling defenses as claims so that the rejec-
tion of a defense will be a final order in a separate case.
City of Parma v. Levi, 536 F.2d 133 (6th Cir. 1976). Anything
Buntrock could achieve in the present suit he could
achieve by interposing an identical defense in the SEC’s
suit—except an immediate appeal from an adverse ruling
by the district judge, and the policy against the promiscu-
ous appealability of interlocutory orders must not be
thwarted by allowing defendants to recharacterize de-
fenses as claims. If Buntrock’s claim of impropriety, made
as a defense in the SEC’s suit, would have no merit as the
basis of an independent suit, it would have no merit as a de-
fense; if it would have merit as the basis of an independent
suit, it would be a meritorious defense as well.
The SEC presents an alternative ground for affirmance:
that its decision to sue Buntrock is not judicially reviewable
because it is not final. An agency’s action in issuing a
complaint is not a final, appealable order; judicial review
must await the agency’s decision concluding the proceed-
ing kicked off by the complaint. FTC v. Standard Oil Co.
of California, 449 U.S. 232, 246 (1980); R.R. Donnelley & Sons
Co. v. FTC, 931 F.2d 430 (7th Cir. 1991); Reliable Automatic
Sprinkler Co. v. Consumer Product Safety Comm’n, 324 F.3d
726, 732 (D.C. Cir. 2003). But the SEC in this case did not
issue an administrative complaint, that is, a complaint that
kicks off a proceeding before the agency. It filed a suit in
federal court, which it turned over to its lawyers to prose-
cute. The administrative phase has ended, just as an or-
No. 03-1890 5
der to arbitrate made in a suit seeking such an order and
nothing more terminates proceedings in the district court
and so is treated as the final decision of the court, American
Int’l Specialty Lines Ins. Co. v. Electronic Data Systems
Corp., No. 03-1526, 2003 WL 22389816, at *2 (7th Cir. Oct. 21,
2003), even though it merely shunts the proceeding to
a different forum. The SEC’s decision to sue is not prop-
erly before us, but not because of lack of finality; rather,
because Buntrock has challenged that decision in an im-
proper manner, by suing the SEC.
Since his case was properly dismissed without an adjudi-
cation of the merits, Buntrock is free to replead his com-
plaint as a defense to the SEC’s suit and to seek an im-
mediate ruling. But we don’t want to raise false hopes. If
the SEC or its staff violated legal or ethical rules govern-
ing its investigations in deciding to bring suit against
Buntrock, that may be sanctionable conduct, but it is not,
without more, a defense to the SEC’s suit. Police who ar-
rest a person in violation of the Fourth Amendment are
subject to suit for violating his constitutional rights, and
any evidence they obtain as a result of a search incident
to the arrest cannot be used against him at his trial. But
the violation is not a defense to a prosecution for the crime
that he was arrested for. United States v. Morrison, 449
U.S. 361, 365-66 (1981); United States v. Rogers, 751 F.2d 1074,
1078 (9th Cir. 1985). No more does a lesser irregular-
ity—a conflict of interest of a prosecutor, or of any other
plaintiff’s lawyer—warrant dismissal even if it results in
the institution of a criminal proceeding, see Havens v.
Indiana, 793 F.2d 143, 144-45 (7th Cir. 1986); United States
v. Terry, 17 F.3d 575, 579 (2d Cir. 1994); United States ex
rel. Kelly v. Boeing Co., 9 F.3d 743, 759 (9th Cir. 1993); United
States v. Lilly, 983 F.2d 300, 309-10 (1st Cir. 1992); United
States v. Wallach, 935 F.2d 445, 460 (2d Cir. 1991), unless,
as in United States v. Schell, 775 F.2d 559, 565-66 (4th
6 No. 03-1890
Cir. 1985), the irregularities carry over to the conduct of
the proceeding itself. (Which may be inevitable if an
interested party’s lawyer was appointed to prosecute a
criminal contempt. Young v. United States ex rel. Vuitton et
Fils S.A., 481 U.S. 787, 814 (1987) (plurality opinion); see
also United States ex rel. SEC v. Carter, 907 F.2d 484 (5th
Cir. 1990); In re Hipp, Inc., 895 F.2d 1503, 1508-09 (5th
Cir. 1990).) If an impartial tribunal determines that the
suit was meritorious even though it might not have
been brought had it not been for a malicious employee
or one who had furnished information to the agency in
breach of his fiduciary obligations to a former client, the
public should not be deprived of a remedy against an
adjudicated wrongdoer.
It is true that Buntrock is formally seeking a stay, not a
dismissal, of the SEC’s suit. But it is a distinction without
a difference, as his lawyer made clear when he said at
argument that what he really wanted was a dismissal. Call
it a stay or call it a dismissal, Buntrock wants the SEC
halted in its tracks until the agency conducts a new inves-
tigation and makes a new decision to sue. Such relief
if granted would be the equivalent of a dismissal even if
it were denominated a stay.
The cases involving prosecutors’ conflicts of interest have,
as our choice of terminology (“prosecutors”) indicates,
mainly been criminal. The concern with such conflicts may,
however, extend to civil cases brought by government
agencies—“civil prosecutions,” we may call them—in view
of the power of government to harass. Thus in EEOC v.
Sears, Roebuck & Co., 839 F.2d 302, 356-60 (7th Cir. 1988), we
said that an egregious conflict of interest on the part of
employees of a federal agency might require dismissal of
the agency’s civil suit—but we quickly added: “if the
conflict is found to have infected the whole judicial pro-
cess.” Id. at 359. Obviously it is too soon, before trial, for us
No. 03-1890 7
or the district judge to determine that the trial of Buntrock
has been contaminated by an alleged conflict of interest that
occurred before the judicial proceeding was instituted.
Another route to our conclusion is that while Buntrock
has a right to a fair trial, a right that could be undermined
by a conflict of interest manifested at trial, and a federal
criminal defendant has a right not only to a fair trial but also
to the presentment of the government’s case before trial
to a grand jury, a civil defendant like Buntrock does not
have a constitutional right to a conflict-free agency determi-
nation of whether to sue him civilly unless the conflict laps
over into the trial. Cf. Marshall v. Jerrico, Inc., 446 U.S. 238,
247-52 (1980). To insist that the SEC’s suit be dismissed
(in effect) as a sanction for a conflict of interest not yet
shown to have affected the conduct of the suit to the defen-
dant’s detriment, and so not yet shown to have denied
him due process of law, would be to adopt without any
statutory basis an exclusionary rule—a rule forbidding
the use of a fruit of improper behavior, in this case the use
of the results of the investigation of Buntrock as a prem-
ise for the SEC’s filing suit against him—as a sanction for
a nonconstitutional violation. The exclusionary rule is a
strongly disfavored sanction for such a violation unless
prescribed by statute. E.g., United States v. Caceres, 440
U.S. 741, 755-56 (1979); United States v. Newell, 239 F.3d 917,
921 (7th Cir. 2001); United States v. Chaparro-Alcantara, 226
F.3d 616, 621 (7th Cir. 2000); United States v. Gilbert, 942
F.2d 1537, 1542 (11th Cir. 1991). In arguing that the SEC
committed improprieties, Buntrock relies on regulations
of the agency that require impartiality on the part of its
staff. See 17 C.F.R. §§ 200.66, .69, .735-2, 3(a)(2)(iii), (b)(8).
Consistently with the cases just cited, we and other courts
have made clear that the exclusionary rule is not a proper
remedy for a violation of agency regulations. United States
v. Kontny, 238 F.3d 815, 818 (7th Cir. 2001); United States v.
8 No. 03-1890
Hinton, 222 F.3d 664, 674-75 (9th Cir. 2000); United States v.
Felipe, 148 F.3d 101, 109 (2d Cir. 1998); United States v.
Hensel, 699 F.2d 18, 29 (1st Cir. 1983).
But since Buntrock cannot obtain relief equivalent to what
he is seeking by this suit by interposing a defense at the
threshold of the SEC’s suit—cannot, that is, avoid the
expense and, it may be, the humiliation of a trial even if
the outcome should be favorable to him—it may appear
that his remedy at law is inadequate after all. But that
would be to confuse adequacy as a matter of procedure with
having a substantive right to the relief sought. The victim of
a breach of contract could not defend his request for
injunctive relief by arguing that his suit for damages
would be barred by the statute of limitations. To repeat
an earlier point, were Buntrock entitled to head off the
trial upon a showing that the SEC’s decision to institute
a suit against him was contaminated by a conflict of inter-
est, he could obtain that relief just as well by filing a mo-
tion in the SEC’s suit as by filing an independent suit. If
as we believe he is not entitled to head it off by a motion
to be heard and decided before trial, he is not entitled
to head it off by putting the SEC and the courts to the
burden of a separate lawsuit.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-29-03