United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 22, 2010 Decided February 4, 2011
No. 10-1053
FULL VALUE ADVISORS, LLC,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
On Petition for Review of Orders
of the Securities & Exchange Commission
Douglas R. Hirsch argued the cause for petitioner. With
him on the briefs was Charles H. Dufresne.
Tracey A. Hardin, Senior Counsel, Securities and
Exchange Commission, argued the cause for respondent.
With her on the brief were David M. Becker, General
Counsel, Jacob H. Stillman, Solicitor, Michael A. Conley,
Deputy Solicitor, and Benjamin L. Schiffrin, Senior Counsel.
2
Before: GINSBURG and BROWN, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
BROWN, Circuit Judge: Full Value Advisors, L.L.C. (Full
Value or the Fund) is an institutional investment manager, as
defined by the Securities and Exchange Act of 1934 (the Act),
see 15 U.S.C. § 78m(f), subject to the disclosure requirements
of section 13(f) of the Act,1 which applies to institutional
investment managers holding at least $100,000,000 in
securities.2 See id. § 78m(f)(1). As an “active investing”
hedge fund, Full Value seeks to purchase stock in publicly
traded companies and to influence management to take
actions that increase stock price. In 2006, Full Value
accumulated over $100,000,000 in securities holdings.
Full Value challenges the Act’s disclosure requirements
because they allegedly compel speech in violation of the First
Amendment and constitute an uncompensated taking in
violation of the Fifth Amendment. According to Full Value,
public disclosure of its investment positions would drive up
the price of a target company’s stock, making it harder for
Full Value to acquire a large enough stake in the company to
pursue proxy contests and effect other changes in corporate
management. Public disclosure is not the only injury Full
1
The Dodd-Frank Wall Street Reform and Consumer Protection
Act renumbered paragraphs (2), (3), (4), and (5) of Section 13(f) as
paragraphs (3), (4), (5), and (6). Pub. L. No. 111-203, § 929X, 124
Stat. 1376, 1870 (2010). This opinion uses the pre-Dodd-Frank
numbering.
2
Section 13(f)(5)(A) defines “institutional investment manager” as
“any person, other than a natural person, investing in or buying and
selling securities for its own account, and any person exercising
investment discretion with respect to the account of any other
person.” 15 U.S.C. § 78m(f)(5)(A).
3
Value anticipates. Full Value also claims disclosure to the
Securities and Exchange Commission (the Commission) is
unconstitutional. To the extent Full Value seeks to avoid
public disclosure, its claims are not ripe. To the extent Full
Value seeks to avoid disclosure to the Commission, its claims
fail on the merits. Accordingly, we dismiss in part and deny
in part Full Value’s petition for review.
I
To comply with § 13(f) of the Act, institutional
investment managers such as Full Value file quarterly
reports—a “Form 13F Report”—with the Commission,
disclosing, among other things, the names, shares, and fair
market value of the securities over which the institutional
managers exercise control. See 17 C.F.R. § 240.13f-1(a)(1)
(requiring quarterly disclosure on Form 13F); 15 U.S.C. §
78m(f)(1) (2010) (delineating disclosure requirements).
The Commission must make 13F information publicly
available unless either of two exemptions applies. First,
under paragraph 13(f)(2), “[t]he Commission, by rule, or
order, may exempt, conditionally or unconditionally, any
institutional investment manager . . . .” 15 U.S.C.
§ 78m(f)(2); see also id. § 78m(f)(4) (requiring subsection
13(f)(2) exemptions to be consistent with the purposes of
section 13(f) and the protection of investors). Second, under
paragraph 13(f)(3), the Commission “may delay or prevent
public disclosure” “as it determines it to be necessary or
appropriate in the public interest or for the protection of
investors.” Id. § 78m(f)(3). Managers seeking a permanent
exemption under paragraph 13(f)(2) or temporary confidential
treatment under paragraph 13(f)(3) must submit enough
information on Form 13F for the Commission to make an
informed judgment as to the merits of the request. Letter
4
from Douglas Scheidt, Assoc. Dir. & Chief Counsel, Div. of
Inv. Mgmt, SEC to Section 13(f) Confidential Treatment
Filers, at 1 (June 17, 1998), available at
http://www.sec.gov/divisions/investment/guidance/13fpt2.ht
m (last visited Dec. 12, 2010) [hereinafter Scheidt, SEC
Letter]; see also 17 C.F.R. § 240.24b-2(b)(2)(ii) (requiring “a
statement of the grounds of objection referring to, and
containing an analysis of, the applicable exemption(s) from
disclosure under the Commission’s rules and regulations
adopted under the Freedom of Information Act”).3 For
example, when seeking temporary confidential treatment,
managers must provide a description of their investment
strategy and explain why disclosure would be detrimental.
See SEC Order Denying Full Value’s Request for
Confidential Treatment, No. 34-61328, at 2 (issued Jan. 11,
2010), 2010 SEC LEXIS 46, at *4–5 (citing Form 13F
instructions).
In October 2006, Full Value filed a request for an
exemption under paragraph 13(f)(2), asserting its investment
positions were trade secrets for which paragraph 13(f)(1)
effectuated an unconstitutional taking by providing the
Commission discretion to place the information in the public
domain. Soon thereafter, Full Value also filed a request for
confidential treatment under paragraph 13(f)(3), seeking
confidential treatment of all securities “that [it] would
otherwise be required to disclose.” Rather than provide the
requisite Form 13F information, however, Full Value asked
“to be excused from complying with certain instructions that
are applicable to routine confidential treatment requests.” In
addition, Full Value claimed the Commission’s filing
3
Under the regulations and Form 13F instructions, information
subject to confidential treatment is nonpublic pending review of the
application. See Scheidt, SEC Letter at n. 4.
5
requirements compelled it to speak, in violation of the First
Amendment.
On January 11, 2010, the Commission denied both Full
Value’s request for a paragraph 13(f)(2) exemption and its
request for paragraph 13(f)(3) confidential treatment of its
investment positions. The Commission held Full Value did
not provide the factual support necessary for an informed
judgment on the merits of Full Value’s confidential treatment
request and therefore denied it. The Commission further held
“absent extraordinary circumstances” an institutional
investment manager may not seek an exemption pursuant to
§ 13(f)(2) in order to avoid public disclosure of its holdings
unless it first seeks in good faith confidential treatment
pursuant to § 13(f)(3). As Full Value did not meet that
requirement, the Commission also denied Full Value’s
request for exemption.
Full Value makes two arguments on appeal. First, the
Fund argues subsection 13(f) compels speech in violation of
the First Amendment. Second, Full Value argues subsection
13(f) constitutes an uncompensated taking in violation of the
Fifth Amendment. Full Value alleges each constitutional
violation with respect to both public disclosure of its
investment position by the Commission and its own
preliminary disclosure to the Commission. Full Value
disclaims any challenge to the Commission’s interpretation of
the Act or any regulation promulgated thereunder.
Appellant’s Reply Br. 2. Thus, we review Full Value’s
petition only insofar as it presents constitutional claims.
II
Article III courts, as courts of limited jurisdiction, must
first consider whether authority exists to hear a case before
6
moving on to the merits. See Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94–95 (1998).
The judicial power extends only to a cognizable case or
controversy. U.S. CONST. art. III, § 2. Therefore, “article III
does not allow a litigant to pursue a cause of action to recover
for an injury that is not ‘certainly impending,’” Wyo. Outdoor
Council v. U.S. Forest Serv., 165 F.3d 43, 48 (D.C. Cir. 1999)
(quoting Nat’l Treasury Emps. Union v. United States, 101
F.3d 1423, 1427 (D.C. Cir. 1996)), and courts have developed
doctrines to “test the fitness of controversies for judicial
resolution,” La. Envtl. Action Network v. Browner, 87 F.3d
1379, 1382 (D.C. Cir. 1996). The ripeness doctrine is one
example.
Ripeness, along with the prohibition against advisory
opinions, stems from the constitutional case or controversy
requirement and “requires us to consider ‘the fitness of the
issues for judicial review and the hardship to the parties of
withholding court consideration.’” Vill. of Bensenville v.
FAA, 376 F.3d 1114, 1119 (D.C. Cir. 2004) (quoting Abbott
Labs. v. Gardner, 387 U.S. 136, 149 (1967), overruled on
other grounds by Califano v. Sanders, 430 U.S. 99 (1977));
see Blanchette v. Conn. Gen. Ins. Corps., 419 U.S. 102, 138
(1974); accord Harris v. FAA, 353 F.3d 1006, 1011–12 (D.C.
Cir. 2004). “In determining the fitness of an issue for judicial
review [after agency action], we look to see whether the issue
is purely legal, whether consideration of the issue would
benefit from a more concrete setting, and whether the
agency’s action is sufficiently final.” Clean Air
Implementation Project v. EPA, 150 F.3d 1200, 1204 (D.C.
Cir. 1998). In evaluating hardship, we do not consider “direct
hardship, but rather whether postponing judicial review would
impose an undue burden on [the parties] or would benefit the
court.” Harris, 353 F.3d at 1012 (quotation marks omitted);
7
accord Bensenville, 376 F.3d at 1120; see also AT&T Corp. v.
FCC, 349 F.3d 692, 700 (D.C. Cir. 2003). Because of the
prudential considerations which innervate the ripeness
doctrine, at times, we “dismiss[] even if there is not a
constitutional bar to the exercise of our jurisdiction.” Wyo.
Outdoor Council, 165 F.3d at 48.
A
Full Value claims the public disclosure mandated by
§ 13(f)(1) compels speech in violation of the First
Amendment. This presents a purely legal question and might
be otherwise “fit for review.” Prudence, however, “restrains
courts from hastily intervening into matters that may best be
reviewed at another time or in another setting, especially
when the uncertain nature of an issue might affect a court’s
‘ability to decide intelligently.’” La. Envtl. Action Network,
87 F.3d at 1382 (citation omitted) (quoting Am. Trucking
Ass’ns v. ICC, 747 F.2d 787, 790 (D.C. Cir. 1984)). This is
especially true when the issue is one of constitutional import.
See Connecticut v. Duncan, 612 F.3d 107, 114 (2d Cir. 2010).
It is not yet certain Full Value will be required to comply with
paragraph 13(f)(1); the Commission may yet grant Full Value
an exemption under paragraph 13(f)(2). If Full Value does
not have to comply with 13(f)(1), the constitutional issue will
not have to be resolved. Cf. Hayburn’s Case, 2 U.S. (2 Dall.)
408 (1792) (declining to issue an advisory opinion).
Moreover, delaying the constitutional decision will
impose no hardship on Full Value. So far, Full Value has
filed only an application for exemption under paragraph
13(f)(2) and a request for confidential treatment under
paragraph 13(f)(3). Because those filings did not reveal
investment positions, the Commission has not yet produced a
13(f)(1) report. Hence, Full Value’s allegedly proprietary
8
information has not been disclosed publicly, and Full Value
has not yet suffered any hardship as a result of the Act’s
disclosure requirements. Full Value may avoid public
disclosure of its holdings in the future by submitting the
requisite information and obtaining confidential treatment or,
thereafter, an exemption from the reporting requirements.
When and if relief is denied, Full Value will be able to seek
judicial review of the Commission’s decision before its filings
are made public. See La. Envtl. Action Network, 87 F.3d at
1381. In sum, Full Value’s First Amendment claim satisfies
neither condition for ripeness and we will not consider it at
this time. See Munsell v. Dep’t of Agric., 509 F.3d 572, 585–
87 (D.C. Cir. 2007).
B
Full Value’s Fifth Amendment claim is not ripe either.
As we have seen, Full Value might avoid the harm it alleges
will follow inevitably from public disclosure of its investment
positions, and avoid the regulatory taking it argues paragraph
13(f)(1) effects, if it obtains confidential treatment or an
exemption. A claim is not ripe where the “possibility that
further consideration will actually occur before
[implementation] is not theoretical, but real.” Ohio Forestry
Ass’n, Inc. v. Sierra Club, 523 U.S. 726, 735 (1998); see
Williamson Cnty. Reg’l Planning Comm’n v. Hamilton Bank
of Johnson City, 473 U.S. 172, 190–91 (1985). Here, the
Commission is free to consider whether Full Value’s
investment positions constitute a trade secret or other
cognizable property interest under the Fifth Amendment
before disclosing the information to the public. Indeed, the
paragraph 13(f)(3) confidential treatment process, and the
procedures established by the Commission thereunder,
specifically contemplate further evaluation. See 17 C.F.R.
§ 240.24b-2(b)(2). Full Value’s takings claim cannot
9
possibly be in a “concrete and final form,” Eagle-Picher
Indus., Inc. v. U.S. EPA., 759 F.2d 905, 915 (D.C. Cir. 1985),
unless and until the Commission denies the Fund’s
satisfactorily detailed request and threatens public disclosure
of its purported property. Only at that juncture will Full
Value’s claims become ripe for review.
C
Before proceeding to the merits, we pause to consider the
intersection between the ripeness and exhaustion doctrines in
this case. As stated above, ripeness concerns the fitness of
issues for review. Exhaustion, on the other hand, focuses on
process—in particular, the process a litigant must go through
at the agency level to ensure the agency has ample
opportunity to “crystallize[] its policy before that policy is
subjected to judicial review.” Ticor Title Ins. Co. v. FTC, 814
F.2d 731, 735 (D.C. Cir. 1987). At times, we have described
these two doctrines as both “analytically distinct,” Unity08 v.
F.E.C., 596 F.3d 861, 865 (D.C. Cir. 2010), and yet “difficult
to distinguish,” John Doe, Inc. v. Drug Enforcement Admin.,
484 F.3d 561, 567 (D.C. Cir. 2007), or “complementary.”
Ticor Title Ins. Co., 814 F.2d at 735. Our inconsistent
description underscores the simple fact that in certain contexts
the two doctrines remain distinct, and in others they blend
together. Full Value arguably exhausted its claim in this case
by filing requests for an exemption under paragraph 13(f)(2)
and confidential treatment under paragraph 13(f)(3). But the
company complied with the form of the exemption rather than
its substance. The agency had no more opportunity to
“crystallize its policy” than had Full Value proceeded directly
to this Court. So, did Full Value fail to exhaust or are its
claims simply unripe? We need not finally decide. Full
Value’s failure to fully comply with the Commission’s
process (i.e. exhaust) has left some of its claims unfit for
10
review (i.e. unripe) and that is perhaps not surprising given
the two doctrines’ common origins; they are both “prudential
doctrines” designed to “respond to pragmatic concerns about
the relationship between courts and agencies.” John Doe,
Inc., 484 F.3d at 567.
III
A
Full Value views its inability to control what the
Commission does with investment information divulged in
the course of an application for confidential treatment or an
exemption request as a form of compelled speech. If the
Commission determines the information is not entitled to
confidential treatment or Full Value does not qualify for an
exemption, the Commission is required to publicly disclose it.
15 U.S.C. S 78m(f)(3).
The freedom of thought protected by the First
Amendment against state action “includes both the right to
speak freely and the right to refrain from speaking at all.”
Wooley v. Maynard, 430 U.S. 705, 714 (1977). First
Amendment concerns are paramount when the Government
compels a speaker to endorse a position contrary to his
beliefs, or to “affirm[] a belief and an attitude of mind” he
opposes. W. Va. Bd. of Educ. v. Barnette, 319 U.S. 624, 633
(1943) (requiring schoolchildren to salute the flag is
unconstitutional); see also, e.g., Pac. Gas & Elec. Co. v. Pub.
Util. Comm’n of Ca., 475 U.S. 1, 20 (1986) (requiring a
utility company to distribute a third party’s newsletter in its
own billing envelopes is unconstitutional); Wooley, 430 U.S.
at 705, 717 (requiring a citizen to display the state motto is
unconstitutional); Miami Herald Publ’g Co. v. Tornillo, 418
U.S. 241, 258 (1974) (requiring newspapers to publish replies
11
from political candidates is unconstitutional). First
Amendment concerns may even be present when the state
compels speech in a content-neutral manner. See Turner
Broad. Sys., Inc. v. FCC, 512 U.S. 622, 642 (1994)
(“regulations that are unrelated to the content of speech are
subject to an intermediate level of scrutiny, because in most
cases they pose a less substantial risk of excising certain ideas
or viewpoints from the public dialogue.”) (citation omitted);
C.N. v. Ridgewood Bd. of Educ., 430 F.3d 159, 188 (3d Cir.
2005).
The disclosure required under paragraphs 13(f)(2) and
13(f)(3) does not raise the same constitutional concerns. Here
the Commission—not the public—is Full Value’s only
audience. The Act is an effort to regulate complex securities
markets, inspire confidence in those markets, and protect
proprietary information in the process. It is not a veiled
attempt to “suppress unpopular ideas or information or
manipulate the public debate through coercion rather than
persuasion.” Turner Broad., 512 U.S. at 641. In this respect,
paragraphs 13(f)(2) and 13(f)(3) are indistinguishable from
other underlying and oft unnoticed forms of disclosure the
Government requires for its “essential operations.” W. Va.
Bd. of Educ., 319 U.S. at 645 (Murphy, J., concurring)
(rejecting First Amendment claim when “essential operations
of government may require [disclosure] for the preservation
of an orderly society,—as in the case of compulsion to give
evidence in court.”) For example, without violating the First
Amendment, the Government requires individuals to submit
income tax information to the IRS. United States v. Sindel,
53 F.3d 874, 878 (8th Cir. 1995) (First Amendment is not
implicated by requirement of disclosure to IRS that entails no
public dissemination of a political or ideological message).
12
Securities regulation involves “a different balance of
concerns” and “calls for different applications of First
Amendment principles.” Nike, Inc. v. Kasky, 539 U.S. 654,
678 (2003) (Breyer, J., dissenting from the dismissal of
certiorari as improvidently granted) (noting Ohralik v. Ohio
State Bar Ass’n, 436 U.S. 447, 456 (1978) (“Numerous
examples could be cited of communications that are regulated
without offending the First Amendment, such as the exchange
of information about securities . . . .”)). This principle applies
a fortiori when disclosure is to the Commission alone.
Congress enacted paragraphs 13(f)(2) and 13(f)(3) to protect
an institutional investor’s confidential information when
doing so is warranted. Compelling disclosure to the
Commission alone so the Commission may determine
whether confidential treatment is warranted is a rational
means of achieving that goal. See Zauderer v. Office of
Disciplinary Counsel, 471 U.S. 626, 651 (rejecting argument
that disclosure requirements are subject to a “strict ‘least
restrictive means’ analysis”); Pharm. Care Mgmt. Ass’n v.
Rowe, 429 F.3d 294, 316 (1st Cir. 2005) (describing the
applicable constitutional scrutiny for government disclosure
as “akin to the general rational basis test governing all
government regulations under the Due Process Clause”).
B
In a similar vein, Full Value argues disclosure to the
Commission is an unconstitutional taking. The Fifth
Amendment prohibits the taking of private property for public
use without just compensation. U.S. CONST. amend. V. A
“regulatory taking” is one in which a government regulation
is “so onerous that its effect is tantamount to a direct
appropriation or ouster.” Lingle v. Chevron U.S.A. Inc., 544
U.S. 528, 537 (2005). To constitute a regulatory taking, the
Government action must (1) affect a property interest and (2)
13
go “too far” in so doing (i.e. amount to a deprivation of all or
most economic use or a permanent physical invasion of
property). Ruckleshaus v. Monsanto Co., 467 U.S. 986,
1000–01, 1005 (1984). In determining how far is too far, we
consider several factors, including “the character of the
governmental action, its economic impact, and its interference
with reasonable investment-backed expectations.” Id. at 1005
(quoting PruneYard Shopping Ctr. v. Robins, 447 U.S. 74, 83
(1980)).
Even if we assume the compilation of Full Value’s
securities holdings constitutes a property interest, disclosure
to the Commission does not constitute a taking because the
regulations requiring disclosure do not go “too far.” First,
paragraphs 13(f)(2) and 13(f)(3) have a legitimate public
purpose—to promote competition and decrease volatility in
the markets, and to mitigate the potential harm in doing so by
“grant[ing] confidential treatment to an ongoing investment
strategy of an investment manager.” S. Rep. No. 94-75, at 87
(April 14, 1975). Second, disclosure to the Commission
produces no economic harm. The Commission ensures that
sensitive information submitted pursuant to paragraph
13(f)(2) or paragraph 13(f)(3), such as trade secrets, remains
confidential, and the value of a trade secret is not destroyed if
it is disclosed to a party that is under obligation to protect it.
Cf. Ruckleshaus, 467 U.S. at 1002 (“[I]f an individual
discloses his trade secret to others who are under no
obligation to protect the confidentiality of the information . . .
his property right is extinguished.”). Lastly, because
paragraphs 13(f)(2) and 13(f)(3) were in effect before Full
Value reached the $100,000,000 statutory threshold triggering
its paragraph 13(f)(1) disclosure requirement, Full Value
could not have reasonable investment-backed expectations.
See Rowe, 429 F.3d 294, 315 (1st Cir. 2005) (no reasonable
expectation because disclosure statute’s effective date
14
predated contract); cf. Phillip Morris, Inc. v. Reilly, 312 F.3d
24, 39–41 (1st Cir. 2002) (reasonable expectation because no
prior regulation).
IV
To the extent Full Value’s claims rest on potential public
disclosures of its investment positions, they are not ripe. Full
Value will not have to disclose its positions to the public if
the Commission grants an exemption or provides confidential
treatment. Of course, for the Commission to properly
consider Full Value’s confidential treatment and exemption
requests, Full Value must provide the Commission with
sufficient information to make an informed judgment. Mere
disclosure to the Commission does not raise First Amendment
concerns. Paragraphs 13(f)(2) and 13(f)(3) have a rational
basis and do not require Full Value to endorse or
acknowledge positions that are anathema to its managers.
There is no public audience Full Value must address. Nor
does disclosure to the Commission raise Fifth Amendment
concerns under Ruckleshaus even assuming Full Value has a
cognizable property interest in knowledge of its investment
positions.
So ordered.