SEC v. Romeril ( 2021 )

19-4197-cv
SEC v. Romeril
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2020
(Argued: February 19, 2021 Decided: September 27, 2021)
Docket No. 19-4197-cv
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
v.
BARRY D. ROMERIL,
Defendant-Appellant,
PAUL A. ALLAIRE, G. RICHARD THOMAN, PHILIP D. FISHBACH, DANIEL S.
MARCHIBRODA, GREGORY B. TAYLER,
Defendants.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Before: LIVINGSTON, Chief Judge, AND CHIN AND BIANCO, Circuit Judges.
Appeal from an order of the United States District Court for the
Southern District of New York (Cote, J.), entered November 18, 2019, denying
defendant-appellant's motion pursuant to Federal Rule of Civil Procedure
60(b)(4) for relief from judgment. In 2003, the Securities and Exchange
Commission brought a civil enforcement action against defendant-appellant (and
others) alleging securities fraud. To resolve the matter, defendant-appellant
consented to the entry of a final judgment against him and agreed, inter alia, not
to deny any of the factual allegations of the complaint. Almost sixteen years
later, he sought to invalidate the judgment on the basis that it incorporated a
"gag order" that violated the First Amendment and his right to due process. The
district court denied the motion, and defendant-appellant appeals.
AFFIRMED.
JEFFREY A. BERGER, Senior Litigation Counsel, for Robert
B. Stebbins, General Counsel, and Michael A.
Conley, Solicitor, Securities and Exchange
Commission, Washington, D.C., for Plaintiff-
Appellee.
MARGARET A. LITTLE, Senior Litigation Counsel (Kara
Rollins, Litigation Counsel, on the brief), New
Civil Liberties Alliance, Washington, D.C., for
Defendant-Appellant.
2
Paul R. Niehaus, Kirsch & Niehaus PLLC, New York,
New York, and Rodney A. Smolla, Wilmington,
Delaware, for Amici Curiae Alan Garfield, Burt
Neuborne, Clay Calvert, Rodney Smolla, Reason
Foundation, The Goldwater Institute, The Institute for
Justice, and The Pelican Institute for Public Policy, in
support of Defendant-Appellant.
Helgi C. Walker (Brian A. Richman, on the brief), Gibson,
Dunn & Crutcher LLP, Washington, D.C., for
Amicus Curiae The Competitive Enterprise Institute,
in support of Defendant-Appellant.
Brian Rosner, Carlton Fields, P.A., New York, New
York, for Amicus Curiae Americans for Prosperity
Foundation, in support of Defendant-Appellant.
CHIN, Circuit Judge:
Almost sixteen years after entering into a consent agreement with
the Securities and Exchange Commission (the "SEC") to resolve a civil
enforcement action against him, defendant-appellant Barry Romeril moved to set
aside the judgment incorporating the agreement, alleging that it contained a "gag
order" that violated his First Amendment and due process rights. The district
court denied Romeril's motion both on the grounds that it was untimely and on
the merits, concluding that he had failed to allege a jurisdictional defect or
3
violation of due process that would permit relief under Rule 60(b)(4) of the
Federal Rules of Civil Procedure.
We do not reach the issue of the timeliness of the motion, for we
agree with the district court that Romeril's motion fails on the merits because it
does not allege a defect that would permit relief under Rule 60(b)(4).
Accordingly, the district court's order denying the motion is AFFIRMED.
BACKGROUND
A. The SEC's "No-Deny" Policy
For many years the SEC has incorporated into its procedures
governing the settlement of civil actions a rule barring defendants who enter into
consent decrees from publicly denying the allegations against them. In 1972, the
SEC announced that it would not approve agreements that allowed defendants
to "consent to a judgment or order that imposes a sanction while denying the
allegations in the complaint." 37 Fed. Reg. 25,224 (Nov. 29, 1972). This policy is
codified at 17 § C.F.R. 202.5(e), which states as follows:
The Commission has adopted the policy that in any civil lawsuit
brought by it or in any administrative proceeding of an accusatory
nature pending before it, it is important to avoid creating, or
permitting to be created, an impression that a decree is being
entered or a sanction imposed, when the conduct alleged did not, in
fact, occur. Accordingly, it hereby announces its policy not to
4
permit a defendant or respondent to consent to a judgment or order
that imposes a sanction while denying the allegations in the
complaint or order for proceedings. In this regard, the Commission
believes that a refusal to admit the allegations is equivalent to a
denial, unless the defendant or respondent states that he neither
admits nor denies the allegations.
Id.
B. The Facts and Proceedings Below
In 2002, Xerox Corporation ("Xerox") entered into a consent decree
with the SEC settling claims that it had violated securities laws. While it neither
admitted nor denied the SEC's allegations, it agreed to pay a civil penalty of $10
million and consented to an order enjoining it from future violations of securities
laws.
On June 5, 2003, the SEC filed a civil enforcement action in the
Southern District of New York pursuant to Section 21(d) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78u(d), alleging that Romeril, the former Chief
Financial Officer of Xerox, and other senior executives at Xerox violated
securities laws from 1997 to 2000 by manipulating Xerox's reporting of earnings
to the SEC and investors. Specifically, the SEC alleged that Romeril "allowed
Xerox to file public financial reports with the [SEC] that contained information
that was not in conformity with [Generally Accepted Accounting Principles] . . .
5
[and] failed to identify failures in Xerox's internal controls," and that he "engaged
in other actions which caused the financial statements to be materially false and
misleading." J. App'x at 16-17.
Romeril settled with the SEC. While represented by counsel, he
entered into a consent agreement (the "Consent") in which he conceded the
district court's jurisdiction over him and "the subject matter of th[e] action," and
agreed, "[w]ithout admitting or denying the allegations of the complaint," J.
App'x at 67, to pay more than $5 million in disgorgement, prejudgment interest,
and civil penalties. 1 He also agreed to certain injunctive relief. The Consent
contained the following provision:
Defendant understands and agrees to comply with the [SEC]'s
policy 'not to permit a defendant . . . to consent to a judgment or
order that imposes a sanction while denying the allegation in the
complaint . . . .' 17 C.F.R. § 202.5. In compliance with this policy,
Defendant agrees not to take any action or to make or permit to be
made any public statement denying, directly or indirectly, any
allegation in the complaint or creating the impression that the
complaint is without factual basis. If Defendant breaches this
agreement, the [SEC] may petition the Court to vacate the Final
Judgment and restore this action to its active docket. Nothing in this
paragraph affects Defendant's: (i) testimonial obligations; or (ii)
right to take legal or factual positions in litigation in which the [SEC]
is not a party.
1 Romeril was one of six Xerox executives who entered into consent agreements
with the SEC and agreed to pay a total of $22 million.
6
J. App'x at 70.
The parties presented the Consent to the district court, which then
issued a Final Judgment (the "Judgment") on June 13, 2003. The Judgment
incorporated the Consent "with the same force and effect as if fully set forth
herein," and ordered Romeril to "comply with all of the undertakings and
agreements set forth" in the Consent. J. App'x at 65.
On May 6, 2019, nearly sixteen years after the Judgment was
entered, Romeril moved in the district court for relief from the Judgment
pursuant to Federal Rule of Civil Procedure 60(b)(4). He argued that the
Judgment was void because the provision barring public denials of the
allegations against him -- in his words a "gag order" -- constituted a prior
restraint that infringes his First Amendment rights and violated his right to due
process. Specifically, Romeril argued that the provision deprived him of the
right to "speak, write, or publish [his] account of the events leading to" his
prosecution, to defend himself in the media, and to petition Congress and the
SEC for securities law reform. J. App'x at 83. He contended further that he is
unable "to exercise these rights of free expression" because the "gag order is
7
worded so vaguely and reaches so broadly . . . that [he is] unable to speak
without fear of a reopened prosecution." J. App'x at 82-83.
Together with the Rule 60(b)(4) motion, Romeril submitted a
proposed amended Consent. The proposed amended Consent differed from the
original Consent in only one material respect -- it omitted the no-deny provision.
On November 18, 2019, the district court denied Romeril's motion on
the grounds that the motion was untimely and that, on the merits, Romeril failed
to allege a jurisdictional defect or violation of due process that would render the
Judgment void for purposes of Rule 60(b)(4). In particular, the district court
concluded that (1) Romeril had acknowledged the court's jurisdiction over him
and the subject matter of the action, (2) he failed to state a violation of his due
process rights because he had notice and an opportunity to be heard and
executed the Consent and waived his right to trial while represented by counsel,
and (3) his constitutional claims did not "implicate" the court's jurisdiction to
enter the Judgment.
This appeal followed.
8
DISCUSSION
"[W]e review de novo a district court's denial of a Rule 60(b)(4)
motion." City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 138 (2d Cir. 2011).
A. Applicable Law
Rule 60(b)(4) authorizes courts to "relieve a party . . . from a final
judgment" when "the judgment is void." Fed. R. Civ. P. 60(b)(4). "[A] void
judgment is one so affected by a fundamental infirmity that the infirmity may be
raised even after the judgment becomes final." United Student Aid Funds, Inc. v.
Espinosa, 559 U.S. 260, 270 (2010). "The list of such infirmities is exceedingly
short; otherwise, Rule 60(b)(4)'s exception to finality would swallow the rule."
Id.; see 12 Moore's Federal Practice § 60.44[1][a] (2020) ("The concept of void
judgments is narrowly construed.").
Rule 60(b)(4) applies only in two situations: "where a judgment is
premised either on a certain type of jurisdictional error or on a violation of due
process that deprives a party of notice or the opportunity to be heard." Espinosa,
559 U.S. at 271; see also Mickalis Pawn Shop, 645 F.3d at 138 ("A judgment is void
under Rule 60(b)(4) . . . if the court that rendered it lacked jurisdiction of the
subject matter, or of the parties, or if it acted in a manner inconsistent with due
9
process of law." (internal quotation marks and citation omitted)). 2 "A judgment
is not void . . . simply because it is or may have been erroneous," and "a motion
under Rule 60(b)(4) is not a substitute for a timely appeal." Espinosa, 559 U.S. at
270 (internal quotation marks and citations omitted). As for jurisdictional error,
a judgment may be declared void for jurisdictional defect only "when there is a
total want of jurisdiction and no arguable basis on which [the court] could have
rested a finding that it had jurisdiction." Cent. Vt. Pub. Serv. Corp. v. Herbert, 341
F.3d 186, 190 (2d Cir. 2003) (internal quotation marks and citation omitted).
B. Application
We conclude that the district court's order denying Romeril's Rule
60(b)(4) motion must be affirmed because he failed to show either a jurisdictional
error or a due process violation within the meaning of the rule. 3 We consider
2 Romeril contends that Rule 60(b)(4) is not limited to these two situations, but he
cites no authority for the proposition, and the settled law is to the contrary. See
Espinosa, 559 U.S. at 271; Mickalis Pawn Shop, 645 F.3d at 138; Herbert, 341 F.3d at 190. He
cites only Crosby v. Bradstreet Co., 312 F.2d 483 (2d Cir.), cert. denied, 373 U.S. 911 (1963),
which, as we discuss below, pre-dates Espinosa, Mickalis Pawn Shop, and Herbert by
many years and in any event does not require a different result.
3 A Rule 60(b) motion must also be made "within a reasonable time." Fed. R. Civ. P.
60(c)(1). Because Romeril's motion fails on the merits, we need not decide whether a sixteen-
year gap between a judgment and Rule 60(b) motion is a reasonable time. We note that "this
Court has been exceedingly lenient in defining the term 'reasonable time,' with respect to
voidness challenges. In fact, it has been oft-stated that, for all intents and purposes, a motion to
vacate a default judgment as void 'may be made at any time.'" "R" Best Produce, Inc. v. DiSapio,
540 F.3d 115, 123-24 (2d Cir. 2008) (internal quotation marks and citation omitted).
10
first Romeril's claim of jurisdictional error and second his claim of due process
violations.
1. Jurisdiction
Romeril has not established "a total want of jurisdiction." To the
contrary, the district court clearly had jurisdiction over both the subject matter,
see 15 U.S.C. §§ 78u, 78aa; 28 U.S.C. § 1331, and his person. Indeed, in the
Consent, Romeril "acknowledge[d] having been served with the complaint in this
action, enter[ed] a general appearance, and admit[ted] the Court's jurisdiction
over [him] and over the subject matter of this action." J. App'x at 67. Rather,
relying principally on one case, Crosby v. Bradstreet Co., Romeril argues that he is
entitled to relief under Rule 60(b)(4) because the "gag order" was an
unconstitutional prior restraint that violated the First Amendment and the
district court therefore was "without power" to issue it. Appellant's Br. at 5-7.
As an initial matter, even assuming that Romeril is correct that the
no-deny provision violates his First Amendment rights, his reliance on Rule
60(b)(4) is misplaced. Even if the district court somehow erred in incorporating
the no-deny provision into the Judgment, the Judgment was not void "simply
because it is or may have been erroneous." Espinosa, 559 U.S. at 270; accord
11
Nemaizer v. Baker, 793 F.2d 58, 65-66 (2d Cir. 1986) (judgment entered as result of
"perhaps an erroneous exercise of federal jurisdiction" was not subject to
collateral attack under Rule 60(b)(4)); In re Texlon Corp., 596 F.2d 1092, 1100 (2d
Cir. 1979) ("The financing order was within the parameters of the bankruptcy
court's authority, '[a]nd even gross error in the decree would not render it void.'"
(citation omitted)). Any legal error here was not jurisdictional, for the district
court had both subject matter and personal jurisdiction; hence, relief under Rule
60(b)(4) was not available.
Moreover, we reject the claim that there was legal error, for the
district court did not err in accepting a decree to which Romeril consented. The
Judgment does not violate the First Amendment because Romeril waived his
right to publicly deny the allegations of the complaint. A defendant in a civil
enforcement action is not obliged to enter into a consent decree; consent decrees
are "normally compromises in which the parties give up something they might
have won in litigation and waive their rights to litigation." SEC v. Citigroup Glob.
Mkts., Inc., 752 F.3d 285, 295 (2d Cir. 2014) (quoting United States v. ITT Cont'l
Baking Co., 420 U.S. 223, 235 (1975)). A defendant who is insistent on retaining
12
the right to publicly deny the allegations against him has the right to litigate and
defend against the charges. Romeril elected not to litigate.
In the course of resolving legal proceedings, parties can, of course,
waive their rights, including such basic rights as the right to trial and the right to
confront witnesses. See Town of Newton v. Rumery, 480 U.S. 386, 393 (1987) ("[I]t is
well settled that plea bargaining does not violate the Constitution even though a
guilty plea waives important constitutional rights."); INS v. St. Cyr, 533 U.S. 289,
321-22 (2001) ("Plea agreements involve a quid pro quo between a criminal
defendant and the government. In exchange for some perceived benefit,
defendants waive several of their constitutional rights (including the right to a
trial) and grant the government numerous 'tangible benefits, such as promptly
imposed punishment without the expenditure of prosecutorial resources.'"
(citations omitted)). The First Amendment is no exception, and parties can waive
their First Amendment rights in consent decrees and other settlements of judicial
proceedings. See United States v. Int'l Brotherhood of Teamsters, 931 F.2d 177, 188
(2d Cir. 1991) (holding that union waived claim that restrictions in consent
decree on publication of materials for union elections violated First Amendment
13
because it consented to provision in consent decree). 4 To the extent Romeril had
the right to publicly deny the SEC's allegations against him, he waived that right
by agreeing to the no-deny provision as part of a consent decree.
Romeril relies on our decision in Crosby. There, we held that the
district court erred in denying a Rule 60(b) motion to vacate an order entered
years earlier as part of the settlement of a libel action, on the ground that the
district court was "without power" "to enjoin publication of information about a
person, without regard to truth, falsity, or defamatory character of that
information." 312 F.2d at 485. We explained:
Such an injunction, enforceable through the contempt power,
constitutes a prior restraint by the United States against the
publication of facts which the community has a right to know and
which [the defendant] had and has the right to publish. The court
was without power to make such an order; that the parties may have
agreed to it is immaterial.
4 See also, e.g., Leonard v. Clark, 12 F.3d 885, 889 (9th Cir. 1994) ("First Amendment
rights may be waived" as part of settlement as long as that "waiver is knowing,
voluntary and intelligent."); In re George F. Nord Bldg. Corp., 129 F.2d 173, 176 (7th Cir.
1942) ("Certainly, one who has been a party to a proceeding wherein a consent decree
has been entered and who has been a party to that consent, is in no position to claim
that such decree restricts his freedom of speech. He has waived his right and given his
consent to its limitations within the scope of that decree."); accord Snepp v. United States,
444 U.S. 507, 509 n.3 (1980) (per curiam) (rejecting claim that provision in employment
agreement obligating employee to submit any proposed publication for prior review
constituted unconstitutional "prior restraint on protected speech," where employee
voluntarily entered into agreement); Ronnie Van Zant, Inc. v. Cleopatra Recs., Inc., 906
F.3d 253, 257 (2d Cir. 2018) (per curiam) ("parties are free to limit by contract
publication rights otherwise available").
14
Id.While Romeril's reliance on the decision, in light of this broad
language, is understandable, Crosby does not control this case. First, it was
decided more than fifty years ago, long before Espinosa and the other cases
discussed above limited the grounds for relief under Rule 60(b)(4). 5 Second,
Crosby is distinguishable, as the rights of non-parties were implicated by the
prohibition on public comment at issue in the case.
Stanford Crosby ("Stanford") brought a libel action against Dun &
Bradstreet ("D&B"), "the well-known . . . credit information company." Id. at 484.
Stanford and D&B settled. Their settlement stipulation, which was so ordered by
the district court, prohibited D&B from reporting not only about Stanford but
also about his brother Lloyd Crosby ("Lloyd") as well as certain specified other
individuals with whom Stanford and Lloyd had been in business. Id. The
provision barred D&B "from issuing or publishing any report, comment or
5 We note that the movant in Crosby did not seek relief under Rule 60(b)(4).
Rather, he moved under Rules 60(b)(5) and (6). As they existed then, subdivision (5)
permitted a court to relieve a party from final judgment if "it is no longer equitable that
the judgment should have prospective application," and subdivision (6) permitted a
court to do so for "any other reason justifying relief from the operation of the
judgment." Crosby, 312 F.2d at 484 n.2 (quoting Fed. R. Civ. P. 60(b)(5), (6)). The Court,
however, apparently on its own initiative, relied on Rule 60(b)(4). Id. at 485.
15
statement either in writing or otherwise concerning" Stanford, Lloyd, and the
other individuals, "or concerning the business activities of any of the foregoing
persons[,] . . . whether present, past or future." Id. (internal quotation marks
omitted).
Some thirty years after the case was settled, Stanford moved to
terminate the order, apparently because the absence of a credit listing by D&B
was making it difficult for him to get credit. The brothers had severed their
business relations, however, and were competing against each other; Lloyd
contended that Stanford's purpose in seeking to terminate the order was to
"destroy his business," and thus he opposed the motion. D&B did not oppose
termination as long as it could refer to Lloyd in its reports about Stanford. Id.
The Court reversed the order. Although the Court did not explicitly
frame its reasoning in these terms, the disputed provision barred D&B from
making statements not only about Stanford (the only plaintiff in the case), but
also about Lloyd and other individuals who were not parties to the litigation that
led to the order. In that sense, the district court lacked jurisdiction over these
other persons, who were not before the court and likely had not had notice of the
proceedings or an opportunity to be heard. See Texlon Corp., 596 F.2d at 1099
16
("[A] judgment . . . is void . . . if the court that rendered it lacked jurisdiction . . .
of the parties." (citation omitted)). Here, the Judgment affected only Romeril,
who was before the court and had an opportunity to be heard. 6 Hence, Crosby
does not control, and we agree with the district court that Romeril did not
establish "a total want of jurisdiction" rendering the Judgment void.
2. Due Process
Romeril contends that his right to due process was violated in
several respects: the "gag order" is unconstitutionally vague; the SEC lacked
statutory authority to issue the "gag order"; the "gag order" silences him in
perpetuity; and the "gag order . . . implicates the judiciary in violating the
constitution." Appellant's Br. at 52. We are not persuaded.
6 The SEC also argues that Crosby is distinguishable because the Court there relied
on the rule that "a court in 'equity ha[s] no jurisdiction to enjoin a libel,'" and noting that
the present case does not involve an injunction against a libel. Appellee's Br. at 13
(quoting Am. Malting Co. v. Keitel, 209 F. 351, 354 (2d Cir. 1913)); see Northridge Church v.
Charter Twp. of Plymouth, 647 F.3d 606, 612 (6th Cir. 2011) (holding that "Crosby rested on
a unique jurisdictional issue that rendered the court entering the order without power to
do so," citing general rule that court of equity will not enjoin publication of libel). We
need not reach this argument, but we note that the Court in Crosby set aside the
judgment even assuming that "it is proper for a federal court to enjoin a libel," and
observed that the order in question was not directed solely at defamatory statements.
312 F.2d at 485.
17
First, the due process right implicated by Rule 60(b)(4) is the right to
"notice 'reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to present
their objections.'" Espinosa, 559 U.S. at 272 (quoting Mullane v. Cent. Hanover Bank
& Trust, 339 U.S. 306, 314 (1950)). As a general matter, there is no "denial of due
process for purposes of Rule 60(b)(4) if the party seeking relief received actual
notice of the proceedings and had a full and fair opportunity to litigate the
merits." 12 Moore's Federal Practice Civil § 60.44[4]; see Espinosa, 559 U.S. at 276.
The due process right implicated by Rule 60(b)(4) does not extend to the claims
of due process asserted by Romeril here. Romeril had actual notice of the
proceedings as well as a full and fair opportunity to litigate on the merits. He
participated in the proceedings while represented by capable and experienced
counsel.
Second, there is no merit in any event to Romeril's claims of a
violation of due process, for he willingly agreed to the no-deny provision as part
of a consent decree. While he waived certain rights, including the right to trial
and the right to publicly deny the allegations against him, he eliminated the
expense of further litigation and the risk of an adverse judgment, including
18
higher monetary penalties and judicial findings that he had violated securities
laws. We see no basis for not enforcing the Consent and Judgment as written.
See Citigroup Glob. Mkts., 752 F.3d at 293 ("Our Court recognizes a 'strong federal
policy favoring the approval and enforcement of consent decrees.'" (quoting SEC
v. Wang, 944 F.2d 80, 85 (2d Cir. 1991))). Romeril cannot complain now, on post-
judgment, collateral review, that the provision violates his right to due process.
CONCLUSION
For the reasons set forth above, the district court's order is
AFFIRMED.
19