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May 19, 1977

City Of Philadelphia, et al.
Securities And Exchange Commission, et al.

The opinion of the court was delivered by: SEITZ

SEITZ, Chief Judge:

This case arises out of an SEC "preliminary investigation" into the offer, sale, and resale of securities of the City of Philadelphia during the last half of 1975. The City and its Director of Finance, Lennox L. Moak, brought this action to halt the investigation on their own behalf, and purportedly on behalf of a class of Pennsylvania political subdivisions and officials.

Defendants, who are the SEC and officials thereof, have moved to dismiss the complaint on grounds that: a) this court lacks jurisdiction to entertain it; b) the complaint fails to state a claim on which relief can be granted. This is the decision on that motion.


 The SEC's Philadelphia Branch Office began the present investigation in May of 1976. The Office has only undertaken a "preliminary" investigation, which is to say that no investigatory "order" has been issued. Compare 17 CFR 202.5 with 17 CFR 203.4. Consequently, under Commission rules the Office at this point may merely request the City's cooperation, and may not compel it to furnish evidence. In July of 1976, the Office did in fact request the City to furnish "[any] and all records, data, documentation, reports or other information in your possession or under your control with respect to or pertaining to the sale, resale and distribution" of certain City securities which had been sold during the latter half of 1975, "and with respect to the past, present or projected financial condition . . . of the City, during the period June 30, 1975 to January 1, 1976 . . ." The City was also informed that the Office would request City officials to testify under oath. The City, however, responded that it would not comply with the Office's requests. Pursuant to an agreement between the parties, the Office has now halted its investigation pending the progress of this action.

 The Complaint alleges that the pendency of the "preliminary" investigation violates plaintiffs' rights under the Fifth and Tenth Amendments, and that the substantive provisions of the securities laws violate these rights as well. It also alleges that the Commission activities have caused and will cause injury to the City in that they undermine the confidence of investors and investment analysts, and thus, inter alia, will cause an increase in the interest rates the City must pay on its securities, which will make debt servicing and the provision of municipal services more difficult. Plaintiffs seek a declaratory judgment establishing that: 1) the defendants may not by formal or informal proceedings seek information from or conduct any investigation of any member of the purported class 2) the provisions of the 1933 and 1934 Acts are unconstitutional facially and as applied to named plaintiffs and the purported class. Plaintiffs also seek parallel temporary and permanent injunctive relief.


 Defendants have questioned the substantiality of the constitutional questions raised by the Complaint, and thus the jurisdiction of this three-judge court. But the Supreme Court's decision in National League of Cities v. Usery, 426 U.S. 833, 49 L. Ed. 2d 245, 96 S. Ct. 2465 (1976), establishes that the Constitution imposes some limitations on how federal action may affect the "conduct of integral governmental functions," and we think it clear that the nature of these limitations is a sufficiently substantial question to support our jurisdiction. Hagans v. Lavine, 415 U.S. 528, 536-8, 39 L. Ed. 2d 577, 94 S. Ct. 1372 (1974).

 Although the parties have not discussed the point, we note that § 25(a) of the 1934 Act, which makes a Commission "order" reviewable only in the courts of appeals, does not deprive this court of its power to take jurisdiction of the case under 28 U.S.C. § 2282 and to review the issues in accordance with the provisions of the Administrative Procedure Act. PBW Stock Exchange, Inc. v. Securities and Exchange Commission, 485 F.2d 718, at n.3 (3d Cir. 1973). See Califano v. Mister Sanders, 430 U.S. 99, 97 S. Ct. 980, 51 L. Ed. 2d 192 (1977); Independent Broker-Dealers' Trade Association v. Securities and Exchange Commission, 142 U.S. App. D.C. 384, 442 F.2d 132 (1971).


 The defendants have raised several challenges to the justiciability of the case which require greater discussion.

 They first contend that the case is nonjusticiable because the plaintiffs lack standing. The doctrine of standing, to the extent it is based on Article III's "case or controversy" requirement, *fn1" requires plaintiffs to allege facts "from which it reasonably could be inferred" that relief would "likely" remedy specific injuries to them, past or threatened, which "fairly can be traced" to the defendants. Warth v. Seldin, 422 U.S. 490, 504, 45 L. Ed. 2d 343, 95 S. Ct. 2197 (1975); Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 38, 48 L. Ed. 2d 450, 96 S. Ct. 1917 (1976).

 Defendants present three arguments to support their contention that plaintiffs lack standing.

 First, they state that any deterioration in potential investors' confidence in the City was caused not by the investigation, but by the very factors which prompted the investigation. But while defendants deny that the investigation has had the alleged effect, the City disputes the point, and we "must construe the complaint in favor of the complaining party." Warth v. Seldin, 422 U.S. at 501 (1975). It "reasonably could be inferred" ...

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