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Levy v. United States Securities and Exchange Commission

November 28, 2006

MARK LEVY, MARC BRUH AND ELLIOT Y. SCHEIER, PLAINTIFFS,
v.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document No.: 7

MEMORANDUM OPINION

DENYING THE DEFENDANT'S MOTION TO TRANSFER

I. INTRODUCTION

This matter comes before the court on the defendant's motion to transfer. Plaintiffs Mark Levy, Marc Bruh, and Elliot Scheier are respective shareholders of Fairchild Semiconductor International, Inc., VistaCare, Inc., and AdvancePCS (now Caremark Rx, Inc.). The plaintiffs collectively bring suit alleging that the Securities and Exchange Commission ("SEC") adopted amendments to SEC rules 16b-3(d) and 16b-7 ("16b Amendments") in violation of its rulemaking authority under Section 16(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78s et seq, and provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. § 551 et seq. The defendant moves to transfer this action to the United States Court of Appeals for the District of Columbia Circuit pursuant to 28 U.S.C. § 1631. Because the District of Columbia Circuit does not have original jurisdiction over challenges to the rules at issue in this case, this court has jurisdiction to consider the plaintiffs' claims pursuant to the APA. Accordingly, the court denies the defendant's motion to transfer. Because the plaintiffs are litigating a closely related question in three other federal cases, however, the court, sua sponte, orders the parties to submit supplemental briefing on the issues of comity, equitable restraint, estoppel, and any other relevant principles which may warrant transfer of this case, a stay or dismissal.

II. BACKGROUND

The plaintiffs are shareholders in three companies. Levy owns shares in Fairchild Semiconductor International, Inc., Bruh owns shares in VistaCare, Inc., and Scheier owns shares in AdvancePCS (now Caremark Rx, Inc.). Compl. ¶¶ 10, 12, 14. The plaintiffs are parties in three insider trading actions currently proceeding in other federal districts (collectively the "Insider Trading Actions").*fn1 Id. In these pending actions, the plaintiffs, as corporate shareholders, sued the defendant companies for realizing short-swing profits (i.e. profits realized from any purchase and sale, or any sale and purchase, of their company's publicly traded securities within a six month period) from the purchase and sale of common stock. Id. Under the Exchange Act, corporate insiders are strictly liable for short-swing profits. 15 U.S.C. § 78p(b) ("Strict Liability Requirement"). In the Insider Trading Actions, the plaintiffs seek disgorgement of the short-swing profits allegedly gained by the defendant companies. Compl. ¶ 16.

As a defense, the defendant companies argue that the transactions challenged by the plaintiffs are exempt from the Strict Liability Requirement of the Exchange Act under the recently promulgated 16b Amendments.*fn2 Compl. ¶¶ 12, 14. The SEC may only exempt, through rules or regulations, transactions that are "not comprehended within the purpose of [Section 16(b)]." 15 U.S.C. § 78p(b). In this case, the plaintiffs seek a legal ruling that the SEC violated the Exchange Act and the APA by adopting the 16b Amendments. Compl. ¶¶ 74, 80, 84, 88.

The plaintiffs filed their complaint against the SEC on February 14, 2006. Thedefendant have moved to transfer the case pursuant to 28 U.S.C. § 1631, arguing that the United States Court of Appeals for the District of Columbia Circuit has original jurisdiction under 15 U.S.C. § 78y. The court turns now to the defendant's motion.

III. ANALYSIS

A. Legal Standard for Transfer to Cure a Want of Jurisdiction

Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir. 2004) (noting that "[a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction").

Because "subject-matter jurisdiction is an 'Art. III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.'" Akinseye v. Dist. of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxite de Guinea, 456 U.S. 694, 702 (1982)).

When a court lacks subject-matter jurisdiction, it "shall, if it is in the interest of justice, transfer such action . . . to any other such court in which the action . . . could have been brought at the time it was filed or noticed." 28 U.S.C. § 1631; Hayward v. U.S. Tax Court, 762 F.2d 706, 707 (8th Cir. 1985). The legislative history of ยง 1631 indicates that Congress contemplated that it would provide assistance to those parties who were "confused about ...


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