United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Decided February 1, 2002
No. 01-1367
Fund Democracy, LLC,
Petitioner
v.
Securities and Exchange Commission,
Respondent
On Petition for Review of an Order of the
Securities and Exchange Commission
Before: Edwards, Sentelle, and Henderson, Circuit
Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Opinion concurring in part and dissenting in part filed by
Circuit Judge Edwards.
Sentelle, Circuit Judge: Fund Democracy ("petitioner")
petitions for review of an order of the Securities and Ex-
change Commission ("SEC" or "the Commission") denying
petitioner's request for a hearing and granting to an invest-
ment company and its investment advisors an exemption from
certain provisions of the Investment Company Act of 1940, 15
U.S.C. s 80a-1 et seq. The SEC moves to dismiss the
petition for review, arguing that Fund Democracy has no
standing to bring this petition. We agree.
Background
The underlying proceeding before the Commission arose
from the application of Hillview Investment Trust II and its
investment advisor Hillview Capital Advisors, LLC (collec-
tively, "Hillview") seeking exemption from 15 U.S.C.
s 80a-15(a) which provides that no person may serve as an
investment advisor of a registered investment company "ex-
cept pursuant to a written contract [which] has been ap-
proved by the vote of a majority of the outstanding voting
securities" of the company. 15 U.S.C. s 80a-39(a) requires
the Commission, before issuing orders, to provide notice to
"interested persons." 17 C.F.R. s 270.0-5 provides that after
the issuance of such notice the Commission needs to order a
hearing on the matter, inter alia, "upon the request of an
interested person."1 Fund Democracy requested such a
__________
1 "Interested person" is defined in the governing statute, 15
U.S.C. s 80a-2(a)(19):
(19) "Interested person" of another person means--
(A) when used with respect to an investment company--
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural
pe rson who is an affiliated person of such company,
(iii) any interested person of any investment adviser of
or principal underwriter for such company,
(iv) any person or partner or employee of any person
who at any time since the beginning of the last two
completed fiscal years of such company has acted as
legal counsel for such company,
(v) any person or any affiliated person of a person
(other than a registered investment company) that, at
any time during the 6-month period preceding the date
of the determination of whether that person or affiliated
person is an interested person, has executed any portfo-
lio transactions for, engaged in any principal transac-
tions with, or distributed shares for--
(I) the investment company;
(II) any other investment company having the same
investment adviser as such investment company or
holding itself out to investors as a related company for
purposes of investment or investor services; or
(III) any account over which the investment compa-
ny's investment adviser has brokerage placement dis-
cretion,
(vi) any person or any affiliated person of a person
(other than a registered investment company) that, at
any time during the 6-month period preceding the date
of the determination of whether that person or affiliated
person is an interested person, has loaned money or
other property to--
(I) the investment company;
(II) any other investment company having the same
investment adviser as such investment company or
holding itself out to investors as a related company for
purposes of investment or investor services; or
(III) any account for which the investment company's
Investment adviser has borrowing authority,
(vii) any natural person whom the Commission by order
shall have determined to be an interested person by
reason of having had, at any time since the beginning of
the last two completed fiscal years of such company, a
material business or professional relationship with such
company or with the principal executive officer of such
company or with any other investment company having
the same investment adviser or principal underwriter or
with the principal executive officer of such other invest-
ment company:
Provided, That no person shall be deemed to be an interested
person of an investment company solely by reason of (aa) his
being a member of its board of directors or advisory board or
an owner of its securities, or (bb) his membership in the
immediate family of any person specified in clause (aa) of this
proviso; and
(B) when used with respect to an investment adviser of or
principal underwriter for any investment company--
(i)any affiliated person of such investment adviser or
principal underwriter,
hearing, explaining that it "serves as an advocate and infor-
mation resource for mutual fund shareholders through a
multi-faceted advocacy and educational program." The SEC
rejected the request for a hearing and granted the exemption.
Analysis
Before us the Commission moved for dismissal on the
__________
(ii) any member of the immediate family of any natural
person who is an affiliated person of such investment
adviser or principal underwriter,
(iii) any person who knowingly has any direct or indirect
beneficial interest in, or who is designated as trustee,
executor, or guardian of any legal interest in, any securi-
ty issued either by such investment adviser or principal
underwriter or by a controlling person of such invest-
ment adviser or principal underwriter,
(iv) any person or partner or employee of any person
who at any time since the beginning of the last two
completed fiscal years of such investment company has
acted as legal counsel for such investment adviser or
principal underwriter,
(v) any person or any affiliated person of a person
(other than a registered investment company) that, at
any time during the 6-month period preceding the date
of the determination of whether that person or affiliated
person is an interested person, has executed any portfo-
lio transactions for, engaged in any principal transac-
tions with, or distributed shares for--
(I) any investment company for which the investment
adviser or principal underwriter serves as such;
(II) any investment company holding itself out to
investors, for purposes of investment or investor ser-
vices, as a company related to any investment compa-
ny for which the investment adviser or principal un-
derwriter serves as such; or
(III) any account for which the investment adviser
has borrowing authority,
(vii) any natural person whom the Commission by order
shall have determined to be an interested person by
reason of having had at any time since the beginning of
the last two completed fiscal years of such investment
company a material business or professional relationship
with such investment adviser or principal underwriter.
grounds that Fund Democracy has no standing under Article
III of the Constitution to bring this petition. Under Article
III, federal courts only have jurisdiction to resolve cases and
controversies. See, e.g., Chicago and Grand Trunk Ry. Co. v.
Wellman, 143 U.S. 339 (1892). Therefore, in order to bring
an action within our jurisdiction, the party must demonstrate
that it has standing to bring that action. See Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560 (1992). To satisfy
this requirement a plaintiff or petitioner must, at an "irredu-
cible constitutional minimum ... demonstrate that it has
suffered a concrete and particularized injury that is: (1)
actual or imminent, (2) caused by or fairly traceable to an act
that the litigant challenges in the instant litigation, and (3)
redressable by the court." Florida Audubon Soc'y v. Bent-
sen, 94 F.3d 658, 663 (D.C. Cir. 1996) (en banc) (internal
quotation marks and citations omitted). Fund Democracy
does not meet this standard.
Associational Standing
Petitioner argues that it has associational standing to bring
this action. That theory fails. An association only has
standing to bring suit on behalf of its members when its
members would otherwise have standing to sue in their own
right, the interests it seeks to protect are germane to the
organization's purpose, and neither the claim asserted nor the
relief requested requires the participation of individual mem-
bers in the lawsuit. See Friends of the Earth, Inc. v.
Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 181 (2000).
Fund Democracy stumbles on the first step. It does not
appear that Fund Democracy actually has any members. In
any event, Fund Democracy has not shown that any of the
individual mutual fund investors it claims as "members" have
standing to sue in their own right.
First, it is not clear that Fund Democracy has either
members or any equivalent affiliates. Fund Democracy ad-
mitted in another pleading that it is a one-person business,
run by its CEO Mercer E. Bullard, who is also the attorney
representing Fund Democracy in this court. Bullard does
not argue that he personally has standing. Instead, he
argues that Fund Democracy "represents" an "informal con-
sortium" of various groups whose members are individual
mutual fund investors and are threatened with injury by the
SEC order. Fund Democracy describes in detail several
examples of how it has worked closely in the past with other
groups to conduct various "advocacy initiatives" such as chal-
lenging applications for exemptions, petitioning the SEC to
adopt rules, and lobbying against proposed legislation.
Fund Democracy's past work with various groups of indi-
vidual investors does not render these groups the equivalent
of members of Fund Democracy. In determining whether an
organization that has no members in the traditional sense
may nonetheless assert associational standing, the question is
whether the organization is the functional equivalent of a
traditional membership organization. See Hunt v. Washing-
ton State Apple Adver. Comm'n, 432 U.S. 333, 342-45 (1977);
American Legal Found. v. FCC, 808 F.2d 84, 89-90 (D.C. Cir.
1987) ("ALF"). In Hunt, the Court held that a state commis-
sion had standing to assert the claims of apple growers and
dealers. The Court identified three reasons for treating the
state commission like a traditional membership organization.
First, the commission "serve[d] a specialized segment of the
State's economic community which is the primary beneficiary
of its activities, including the prosecution of this kind of
litigation." 432 U.S. at 344. Second, the apple growers and
dealers possessed "all of the indicia of membership in an
organization." Id. For example, the growers and dealers
elected the members of the state commission, they alone
could serve on the commission, and they alone financed the
commission's activities, albeit through mandatory assess-
ments rather than voluntary contributions. See id. at 344-45.
Third, the fortunes of the commission were closely tied to
those of its constituency. See id. at 345.
In ALF we held that a media watchdog group lacked
standing to assert claims on behalf of members of the public
who regularly watch the news. Fund Democracy's case falls
much closer to ALF than to Hunt. In ALF, we noted that
ALF did not serve a "discrete, stable group of persons with a
definable set of common interests." 808 F.2d at 90. Indeed,
ALF could purport to serve all who read newspapers, watch
television, or listen to the radio. See id. Similarly, Fund
Democracy purports to represent "tens of millions of individ-
ual investors." Moreover, ALF did not show that its "sup-
porters" played any role in selecting its leadership, guiding
its activities, or financing those activities. See id. Similarly,
because Fund Democracy's course is steered entirely by
Bullard, and Fund Democracy does not claim to receive
funding from its purported members, it may have reasons for
instituting suit other than to assert the rights of these alleged
supporters. See id. Indeed, Fund Democracy's assertion of
standing appears even weaker than ALF's. ALF specifically
identified certain "supporters" who swore that ALF repre-
sented their views and that they approved of the ALF's
activities. See id. at 88. Fund Democracy has not identified
a single individual investor who fills such a role.
In any event, Fund Democracy lacks associational standing.
Petitioner attempts to fill this gap by alleging that it has
"worked closely" with Institutional Shareholder Services
("ISS"), an entity which does have identifiable clients and
which also objected to the Commission's action though it did
not join the present petition. Even assuming that the mutual
fund investors who are clients of ISS or members of the other
groups with whom Fund Democracy has "worked" are prop-
erly considered "members" of Fund Democracy, petitioner
still cannot qualify for associational standing. Fund Democ-
racy has not sufficiently established that any of these individ-
uals would have standing to sue in his own right. The harm
alleged by Fund Democracy is that investors or prospective
investors will be misled about the true single-manager nature
of the Hillview fund and will suffer a diminution of voting
rights as a result of the SEC order granting an exemption.
Therefore, it appears that the only people who will be directly
affected by the SEC's order granting Hillview's request for
an exemption are those who have purchased shares in Hill-
view or are at least considering doing so. Yet Fund Democ-
racy presents no evidence that any of these "members" own,
intend to purchase, or are even considering purchasing shares
in Hillview. See Lujan, 504 U.S. at 563 (organization must
submit evidence that one or more of its members would be
directly affected apart from their special interest in the
subject).
In a similar case in the Second Circuit, an association
sought to challenge the grant of exemptions under the Act to
certain investment companies. See Independent Investor
Protective League v. SEC, 495 F.2d 311 (2d Cir. 1974). The
court held that petitioner failed to demonstrate standing by
merely alleging that "it is quite conceivable that, in the
future," its members will be investors in the companies at
issue. Id. at 312. Similarly, Fund Democracy asserts in
cursory fashion that "current and prospective ISS clients who
are current or prospective clients of the Hillview Funds," are
at risk of harm. Fund Democracy also alleges that "investors
who are not shareholders of the Hillview Funds, including
ISS clients, may be misled by the Funds' names." Notably,
Fund Democracy does not identify a single affiliate who has
invested or is considering investing in Hillview Funds. Nor
has Fund Democracy even alleged that it is likely that any
ISS clients will consider investing in Hillview. For these
reasons, Fund Democracy lacks Article III standing to chal-
lenge the SEC's decision to grant Hillview's application.
Procedural Interest
Similarly, Fund Democracy lacks Article III standing to
challenge the SEC's refusal to hold a hearing on Hillview's
application. The mere violation of a procedural requirement
does not authorize all persons to sue to enforce the require-
ment. See Lujan, 504 U.S. at 571-78; Florida Audubon
Soc'y, 94 F.3d at 664. A party has standing to challenge an
agency's failure to abide by a procedural requirement only if
the government act performed without the procedure in
question will cause a distinct risk to a particularized interest
of the plaintiff. See Florida Audubon Soc'y, 94 F.3d at 664.
Because Fund Democracy has no actual members, and has
not even shown that any of its purported members will be
affected by the grant of Hillview's application, Fund Democ-
racy has not shown a distinct risk to its particularized inter-
est.
Standing as an "Interested Person"
Fund Democracy argues that it has standing because it is
an "interested person" for purposes of Rule 270.0-5, which
allows "interested persons" to request a hearing on an appli-
cation. That petitioner is an "interested person" is a most
tenuous proposition. See footnote 1, supra. But, even as-
suming that Fund Democracy is an "interested person" under
the rule and therefore eligible to participate in the SEC
proceedings, this does not mean that Fund Democracy has
Article III standing. Participation in agency proceedings is
alone insufficient to satisfy judicial standing requirements.
See ALF, 808 F.2d at 89. Because agencies are not con-
strained by Article III, they may permit persons to intervene
in the agency proceedings who would not have standing to
seek judicial review of the agency action. See Envirocare of
Utah, Inc. v. NRC, 194 F.3d 72, 74 (D.C. Cir. 1999). For this
reason, we agree with the Second Circuit which has expressly
rejected the argument that an individual's status as an "inter-
ested person" is sufficient to confer standing to petition for
review of an SEC order under the Act. See Option Advisory
Serv., Inc. v. SEC, 668 F.2d 120, 122 (2d Cir. 1981); Indepen-
dent Investor Protective League, 495 F.2d at 313.
Fund Democracy suggests that Congress specifically in-
tended to grant to all "interested persons" a right to a
hearing before the SEC and that the denial of this right
therefore confers standing. See generally Warth v. Seldin,
422 U.S. 490, 500 (1975) (the injury required by Article III
may exist solely by virtue of statutes creating legal rights, the
invasion of which creates standing). Even assuming Con-
gress intended to grant a right to a hearing to all interested
persons and that Fund Democracy is among those persons,
the deprivation of that right does not alone confer Article III
standing. The grant of a procedural right cannot serve as
the basis for Article III standing unless "the procedures in
question are designed to protect some threatened concrete
interest of [petitioner's] that is the ultimate basis of his
standing." Lujan, 504 U.S. at 573 n.8; see also Florida
Audubon Soc'y, 94 F.3d at 664. As already noted, Fund
Democracy has not shown any such concrete interest apart
from the procedural injury.
Because Fund Democracy has no standing to bring this
petition for review of the Securities and Exchange Commis-
sion's order, we grant the Commission's motion to dismiss.
So ordered.
Edwards, Circuit Judge, concurring in part and dissenting
in part: I concur in the result reached by the court. Under
the applicable agency regulations, any "interested person"
may request a hearing on an application. 17 C.F.R.
s 270.0-5. However, the SEC is required to hold such a
hearing only if it is determined to be "necessary or appropri-
ate in the public interest or for the protection of investors."
In this case, the SEC denied petitioner's request for a
hearing, because it had already considered and reasonably
disposed of the issues presented in 1995 when it initially
approved another investment company's application for a
manager of managers exemption. The SEC was thus fully
justified in denying petitioner's request for a hearing. I
therefore agree that the agency's action should be summarily
affirmed.
I also agree that petitioner has no standing to seek judicial
review of the merits of the SEC's order. It is clear that
petitioner has not satisfied Article III standing requirements
on this score. I do not agree, however, that petitioner lacks
standing to seek review of the agency's denial of the request-
ed hearing.
It is true that our cases require plaintiffs to demonstrate
that the denial of a procedural right will jeopardize interests
particular to them, but they do not go so far as to deny
standing in cases where a statute or regulation affords a
party such a particularized procedural right. In Florida
Audubon Society v. Bentsen, 94 F.3d 658, 664 (D.C. Cir. 1996)
(en banc), we reiterated the principle that, when the govern-
ment fails to comply with generalized procedural require-
ments (in that case, of the National Environmental Policy
Act), a plaintiff seeking to challenge the alleged violation of
the procedural rule must demonstrate that the government's
failure to comply will cause a distinct risk to a particularized
interest of the plaintiff. We held that "the mere violation of a
procedural requirement thus does not permit any and all
persons to sue to enforce the requirement." Id. Similarly, in
City of Orrville, Ohio v. FERC, 147 F.3d 979, 985 (D.C. Cir.
1998), we held that a party does not acquire "a direct stake in
a litigation" for purposes of standing simply by participating
in the administrative proceedings giving rise to the litigation
(internal citation omitted). These cases are inapposite, for
they do not address the issue that we face in the instant
matter.
Where a statute or a regulation affords a particular party
an undisputed right to seek an administrative hearing, Flori-
da Audubon Society does not compel the conclusion that the
party lacks standing to challenge an agency's refusal to grant
the required hearing. In this case, the governing regulation
permits an "interested person" to submit relevant written
facts and request a hearing. See 17 C.F.R. s 270.0-5. The
Commission must order such a hearing if it appears to be
necessary or appropriate in the public interest or for the
protection of investors. Id. In my view, petitioner, as an
"interested person," has standing to challenge as arbitrary
the Commission's denial of its request for a hearing.
It is immaterial that petitioner cannot seek review of the
merits of the SEC order. The particularized interest here is
petitioner's right to seek a hearing and to have one granted
when it is "necessary or appropriate in the public interest or
for the protection of investors." To hold otherwise is to
suggest that the agency could deny with impunity the right of
any "interested person" even to receive notice or appear
before the agency pursuant to 15 U.S.C. s 80a-39(a) with no
threat of judicial review. Standing law does not condone such
a result.