Las Vegas Hawaiian Development Co. v. Securities & Exchange Commission
466 F.Supp. 928, 1979 U.S. Dist. LEXIS 13812 (1979)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A federal district court may, under the Administrative Procedure Act, compel the Securities and Exchange Commission (SEC) to conclude an examination under section 8(e) of the Securities Act of 1933 and decide whether to initiate a formal stop order proceeding if the Commission's determination has been unreasonably delayed. However, to state a claim for relief, a plaintiff must allege specific facts demonstrating that the delay is unreasonable, not merely that a delay has occurred.
Facts:
- Starting in 1971, individuals known as the McDonalds sold approximately 1,288 fractional undivided interests in undeveloped land near Las Vegas to about 900 investors, without filing a registration statement with the SEC.
- These interests were sold through entities including Tauri Investment Corporation (Tauri). Alfred G. Bladen was one of the purchasers.
- On May 26, 1977, Las Vegas Hawaiian Development Company (LVH), a company associated with the McDonalds, filed a Form S-11 registration statement with the SEC.
- The registration statement was for a proposed offering of limited partnership interests in LVH to the original 900 land investors.
- The deal offered a partnership interest for $100 plus an option for LVH to purchase the investor's original fractional land interest for $7,500.
- After several amendments, LVH filed a final amendment on July 7, 1978, without a delaying amendment, which would cause the registration to become effective automatically in twenty days.
- On July 25, 1978, before the twenty-day period expired, the SEC issued an order authorizing a section 8(e) examination of LVH's registration statement.
- The initiation of this examination before the effective date triggered section 5(c) of the Securities Act, which legally prohibited LVH from offering or selling the new securities until the examination concluded.
Procedural Posture:
- Las Vegas Hawaiian Development Company (LVH), Tauri Investment Corporation, and Alfred G. Bladen (Plaintiffs) filed a Complaint for Declaratory Judgment against the Securities and Exchange Commission (SEC) in the U.S. District Court for the District of Hawaii, a federal trial court.
- The complaint sought a declaration that the SEC could not use a section 8(e) examination to indefinitely delay the sale of securities or to investigate prior transactions outside the scope of the registration.
- The SEC, without filing an answer, filed a Motion to Dismiss, or in the Alternative, for Summary Judgment, arguing the case was not ripe and failed to state a claim.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a federal district court have the authority under the Administrative Procedure Act to compel the SEC to make a determination within a reasonable time on whether to initiate a stop order proceeding, where the SEC has ordered a section 8(e) examination that indefinitely prevents a registration statement from becoming effective?
Opinions:
Majority - Samuel P. King
Yes. A district court has the authority to compel the SEC to make a determination within a reasonable time on whether to initiate a stop order proceeding. The SEC's initiation of a section 8(e) examination before a registration statement's effective date triggers section 5(c), which halts the offering and imposes a concrete hardship on the registrant. While courts cannot compel the SEC to institute a stop order proceeding or dictate the outcome, the Administrative Procedure Act (5 U.S.C. § 706) empowers a court to compel agency action that has been unlawfully withheld or unreasonably delayed. Therefore, a court may order the SEC to either terminate its examination or initiate a formal section 8(d) proceeding. However, the plaintiff's complaint was insufficient because it merely alleged the fact of a delay without providing any factual allegations to suggest the delay was unreasonable. The court also held that it lacked the power to limit the scope of the SEC's investigation, as that is a matter committed to agency discretion, and that potential investors like Tauri and Bladen lacked a cause of action.
Analysis:
This decision establishes an important, though limited, avenue for judicial review of the SEC's pre-effective date examination process. It affirms that while the SEC has broad discretion, its power is not absolute, and it cannot use a section 8(e) examination to indefinitely shelve a registration statement without recourse. The case sets a key pleading standard for future litigants: to challenge such a delay, a registrant must allege specific facts demonstrating the delay is 'unreasonable,' a potentially high bar to meet. This balances the SEC's need for investigative latitude against a registrant's due process right to a timely and final agency determination.
Unlock the full brief for Las Vegas Hawaiian Development Co. v. Securities & Exchange Commission