In the civil litigation against the Madoff feeder fund Fairfield Greenwich and other related parties, the SEC and the defendants recently exchanged briefs on the standard for determining whether the SEC must comply with a nonparty subpoena. The defendants want to depose current and former SEC employees to elicit testimony showing that, since Madoff successfully deceived the SEC, he could have also deceived the defendants. The SEC’s brief argues the Court cannot compel compliance unless the SEC’s decision to not comply was “arbitrary and capricious” under the Administrative Procedures Act:
Despite finding that actions to compel government compliance with a subpoena are APA actions, the Second Circuit has not formally held that the APA’s standard of review, 5 U.S.C. § 706(2)(A), governs a district court’s evaluation of a government agency’s decision not to comply with a subpoena. However, a straightforward reading of the APA indicates that Section 706 would apply in all APA actions. Section 706 works in tandem with the APA’s other provisions and is part and parcel of the statute. By its terms, it provides the standards for all APA review. In relevant part, the APA’s standard of review provides that a reviewing court should “compel agency action unlawfully withheld or unreasonably delayed” and “hold unlawful and set aside agency action, findings, and conclusions” only if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. §§ 706(1), (2)(A).
The brief argues that the SEC’s resistance to the subpoenas, based on the argument that the burden outweighs any possible relevance (see our prior post here), was not arbitrary and capricious. The defendants’ brief, filed Monday,counters that Rule 45 should govern:
The argument of the Securities and Exchange Commission (“SEC” or the “Commission”) rests on the premise that the instant discovery dispute is “an action under the APA.” (SEC Mem. at 4.) It is not. Rather, this discovery dispute arises under the Federal Rules of Civil Procedure, and should be governed by precedent relevant to those rules. While the SEC asks for substantial deference to its opinion that the testimony Defendants seek is not relevant to this action, assessment of the relevance of potential evidence is a matter to be determined by this Court. Unlike, for example, interpreting the rules it promulgates with respect to the federal securities laws, the relevance of potential evidence in a federal action in which it is a non-party is not a matter as to which the SEC has any special knowledge or experience.