SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42140 / November 16, 1999
Admin. Proc. File No. 3-9739
In the Matter of :
CITY OF ANAHEIM, :
CITY OF IRVINE, :
IRVINE UNIFIED SCHOOL DISTRICT, :
NORTH ORANGE COUNTY :
COMMUNITY COLLEGE DISTRICT, :
ORANGE COUNTY BOARD OF EDUCATION :
ORDER VACATING GRANT OF RESPONDENT NORTH ORANGE COUNTY COMMUNITY COLLEGE
DISTRICT'S MOTION TO EXCLUDE EVIDENCE
The administrative law judge to whom this matter initially was assigned has
certified to the Commission, for review, her interlocutory ruling granting the
motion of respondent North Orange County Community College District ("North
Orange") to exclude certain evidence from the hearing in this matter.
The Commission instituted proceedings against North Orange charging that it
committed fraud in a 1994 offering to the public of certain taxable notes (the
"1994 Notes"). The Division of Enforcement has sought to introduce
documents and testimony relating to a 1993 issue of taxable notes by North
Orange (the "1993 Notes"), as well as testimony relating to a 1993
offering of notes by the City of Irvine, California ("Irvine Notes").
The Division contends that the 1993 Notes and the Irvine Notes are substantially
similar to the 1994 Notes at issue here, and that the discussions of North
Orange officials surrounding the 1993 Notes and the reactions of certain
institutional investors to the 1993 Notes and the Irvine Notes will aid us in
determining several of the key issues in this case. North Orange has moved to
exclude all of the evidence relating to the 1993 securities offerings as
irrelevant. The law judge agreed with North Orange and excluded this evidence
from the hearing in this matter, stating only that, "I [have] concluded the
evidence regarding the [1993 Notes] is irrelevant, and therefore must be
excluded from admission into evidence." On the Division's motion, the law
judge certified her ruling for interlocutory review, pursuant to Commission Rule
of Practice 400(c). 1 The
Division asks that we vacate the law judge's decision excluding evidence
relating to the 1993 Notes and the Irvine Notes, or, in the alternative, amend
the Order instituting these proceedings to charge North Orange with fraud in the
issue of the 1993 Notes.
A law judge may certify his or her interlocutory rulings for review under
Rule of Practice 400(c) if "[t]he ruling involves a controlling question of
law as to which there is substantial ground for difference of opinion; and [a]n
immediate review of the order may materially advance the completion of the
proceeding." Because the admission of the Division's evidence is not a
question of law that controls the outcome of this proceeding, we deny the law
judge's certification under Rule of Practice 400(c). 2
However, under Rule of Practice 400(a), the Commission may at any time direct
that any matter be submitted to it for review. 3
We so direct here in the interests of expediting the disposition of this matter,
avoiding a future remand, and providing general guidance with regard to the
conduct of our proceedings.
Commission Rule of Practice 320 provides that law judges shall exclude
evidence that is "irrelevant, immaterial or unduly repetitious." 4
The notion of "relevance" embodied in this rule, however, is much
broader than that concept under the Federal Rules of Evidence. The Federal Rules
of Evidence are designed for juries and do not apply to administrative
agencies such as the Commission are more expert fact-finders, less prone to
undue prejudice, and better able to weigh complex and potentially misleading
evidence than are juries. 6
Our law judges should be inclusive in making evidentiary determinations. 7
Without determining that all of the evidence that the Division seeks to
introduce is relevant to or probative of the issues in the case, we cannot say,
based on the record before us, that none of it would aid the law judge's and our
resolution of this matter. 8We
are confident that the law judge will be able, as the record is developed, to
weigh the evidence in question appropriately and without unduly prejudicing
North Orange. 9We also wish
to make clear that the law judge conducting the hearing may make such rulings
with respect to particular evidence as it is introduced as the law judge deems
Because we have resolved this matter in the Division's favor, we deny its
motion to amend our Order instituting these proceedings to include the 1993
Notes. We would in any event not be inclined to grant such a motion at this
stage of the proceedings. We are charged by Rule of Practice 103(a) with
administering our Rules of Practice so as to "secure the just, speedy, and
inexpensive determination of every proceeding." Discovery and preparation
for trial in this matter have progressed sufficiently that amending our Order at
this stage would not be fair to the respondents, would add unnecessary expense
for the parties, and would not serve the interests of judicial economy.
Accordingly, IT IS ORDERED that the certification of the law judge's
interlocutory Order Granting Respondent North Orange's Motion to Exclude
Evidence, dated March 31, 1999, pursuant to Commission Rule of Practice 400(c)
be, and it hereby is, denied; and it is further
ORDERED that, pursuant to Commission Rule of Practice 400(a), the law judge's
Order Granting Respondent North Orange's Motion to Exclude Evidence, dated March
31, 1999, be, and it hereby is, submitted to the Commission for review; and it
ORDERED that the law judge's Order Granting Respondent North Orange's Motion
to Exclude Evidence, dated March 31, 1999, be, and it hereby is, vacated; and it
ORDERED that the Division's request to amend the Order Instituting
Proceedings be, and it hereby is, denied.
By the Commission.
Jonathan G. Katz
|Webmaster note: Footnote text corrected October 2001.|
-- 17 C.F.R. § 201.400(c) (1998).
-- See Benjamin G. Sprecher, Exchange Act Rel. No. 36574 (Dec. 12, 1995), 60 SEC Docket 2719 (declining to consider ruling certified to the Commission for its review); see also Vincent Poliseno, Exchange Act Rel. No. 38770 (June 25, 1997), 64 SEC Docket 2160 (denying interlocutory review).
-- Although Rule 400(a) provides that the Commission will not entertain interlocutory appeals "in the absence of extraordinary circumstances," this language in no way limits the Commission's discretion to direct that matters be submitted to it in order to manage its docket and expeditiously resolve the matters pending before it. See generally Rule of Practice 103(a) (providing that "[t]he Rules of Practice shall be construed and administered to secure the just, speedy, and inexpensive determination of every proceeding").
The comment to Rule 400 states that the rule is based on 28 U.S.C. Section 1292, the analogous provision governing interlocutory appeals from federal trial courts. Exchange Act Rel. No. 35833, 60 Fed. Reg. 32738, 32772 (adopting Rule of Practice 400). Section 1292 grants wide discretion to federal courts of appeals to determine whether to permit an interlocutory appeal. The comment makes clear that Rule 400 is even broader than Section 1292, noting that "[i]n contrast to the practice in the federal judicial system
. . . the Commission may take up a matter on its own motion at any time." Id.
-- 17 C.F.R. § 201.320 (1998).
-- See Opp Cotton Mills, Inc. v. Administrator, 312 U.S. 126, 155 (1941) (exclusionary rules for jury trials inapplicable to administrative proceedings in the absence of statutory requirements).
-- See Kenneth Culp Davis & Richard J. Pierce, Jr., Administrative Law Treatise, '' 10.2 and 10.3 (3d ed. 1994) (stating that exclusionary rules of evidence are not appropriate in an administrative context and discussing the policy considerations which mitigate against exclusion of evidence in administrative hearings). See also Charles P. Lawrence, 43 S.E.C. 607, 612-613 (1967) ("[A]ll evidence which 'can conceivably throw any light upon the controversy' should normally be admitted. That such evidence might be excluded in a jury trial does not preclude or militate against its admission in a proceeding where it is not weighed by a jury, which could be unduly influenced, but by a hearing examiner who is legally trained and judicially oriented.") (citing Samuel H. Moss, Inc. v. F.T.C., 148 F.2d 378, 380 (2d Cir.), cert. denied, 326 U.S. 734 (1945); Hyun v. Landon, 219 F.2d 404, 408 (9th Cir. 1955), aff'd, 350 U.S. 990 (1956)).
-- See Multi-Medical Convalescent & Nursing Center v. NLRB, 550 F.2d 974, 978 (4th Cir. 1977) ("[W]e strongly advise administrative law judges: if in doubt, let it in.") (cited in Underwood v. Elkay Mining, Inc., 105 F.3d 946, 950 (4th Cir. 1997); Western Union Telegraph Co. v. FCC, 541 F.2d 346, 353 (3d Cir. 1976), cert. denied, 429 U.S. 1092 (1977) (quoting Davis, Administrative Law Treatise, ' 14.08 (1958) for the proposition that "an agency . . . cannot commit error by admitting particular evidence, no matter how incompetent or irrelevant the evidence may be").
-- See, e.g., Clinton Engines Corp., 41 S.E.C. 408, 411 (1963) (noting the "appropriateness of admitting evidence having some logical relevance even if it has only limited or slight probative value, and even though it might be inadmissible before a jury"), cited in Laurie Jones Canady, Exchange Act Rel. No. 41250 (April 5, 1999) 69 SEC Docket 1468, 1481 n.24.
-- If North Orange believes that it was surprised by the evidence which the Division seeks to introduce and may be prejudiced as a result of having insufficient time to prepare a rebuttal, the law judge might consider postponing the hearing to allow North Orange additional time to digest the Division's theory of its case. We note in this context that the Division, in a separate pleading, has moved that the law judge stay this proceeding in the interests of seeking settlement with other parties to the proceeding.