SEC v. Team Resources ( 2023 )

Case: 22-10359 Document: 00516631329 Page: 1 Date Filed: 02/01/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
February 1, 2023
No. 22-10359
Lyle W. Cayce
Clerk
Securities and Exchange Commission,
Plaintiff—Appellee,
versus
Team Resources Incorporated; Fossil Energy
Corporation; Kevin A. Boyles,
Defendants—Appellants.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:15-CV-1045
Before Elrod, Haynes, and Willett, Circuit Judges.
Per Curiam:*
This civil enforcement action has come before us twice before. Most
recently, we remanded it to the district court for further proceedings in light
of the U.S. Supreme Court’s decision in Liu v. SEC, 140 S. Ct. 1936 (2020),
which held that disgorgement, when ordered as “equitable relief” under 15
U.S.C. § 78u(d)(5), is limited to a wrongdoer’s net profits. On remand, the
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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district court denied the defendants’ request to hold a live hearing on the
recalculation of the disgorgement award, resolving the issue on the
Government’s uncontradicted documentary evidence. The court also
declined to revisit the civil penalty it imposed, which we had affirmed in the
initial appeal of this matter, reasoning that the issue was outside the scope of
its mandate on remand. The defendants have again appealed, arguing that
they were entitled to a live evidentiary hearing (even though they waived any
right to a live hearing); that the district court should not have imposed a civil
penalty (even though they forfeited this challenge in their initial appeal); and
that the civil penalties violate the Eighth Amendment (even though they did
not raise this argument to the district court). We AFFIRM.
I
The Securities and Exchange Commission filed this civil enforcement
action in 2015 against Kevin Boyles and two companies he created, Team
Resources, Inc. and Fossil Energy Corp., alleging that these defendants had
defrauded approximately 475 investors of more than $33 million in violation
of the federal securities laws. The parties quickly entered into settlements
known as consent agreements. 1
Among other things, the parties agreed that the SEC would move for
an order of disgorgement and for civil penalties. Of particular relevance to
this appeal, the parties further agreed that in connection with the SEC’s
motion, “the parties may take discovery” but “the Court may determine the
issues raised in the motion on the basis of affidavits, declarations, excerpts of
sworn deposition or investigative testimony, and documentary evidence.”
The facts of this case are set forth in more detail in our prior opinion, SEC v.
1
Team Res., Inc., 942 F.3d 272 (5th Cir. 2019), cert. granted, judgment vacated, 141 S. Ct. 186
(2020).
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The district court entered partial judgments incorporating the terms of the
consents.
In 2018, upon motion by the SEC, the district court ordered the
defendants jointly and severally liable for disgorgement in the amount of
$15,508,280, which is equal to the funds that the defendants fraudulently
took from investors, less payments returned to the investors, within the
applicable limitations period. Additionally, the court imposed a civil penalty
against Boyles individually for $15,508,280—the amount equal to Boyles’s
gross pecuniary gain. The defendants appealed that initial judgment,
attacking primarily the disgorgement award.
We affirmed. Relevant here, we rejected the defendants’ argument
that the disgorgement amount should have been lowered to account for their
business expenses. SEC v. Team Res., Inc., 942 F.3d 272, 279 (5th Cir. 2019).
We also held that the “district court did not abuse its discretion by ruling on
the SEC’s remedies motion without holding an evidentiary hearing.” Id. at
278. After all, “the parties agreed that the district court could resolve issues
in the SEC’s disgorgement motion ‘on the basis of the affidavits,
declarations, excerpts of sworn deposition or investigative testimony, and
documentary evidence.’” Id. at 278–79. “So the court’s decision to rule on
the SEC’s motion without first holding a hearing could not have violated
Appellants’ rights under the settlement agreements because those
agreements did not create a right to a hearing.” Id. at 279. The defendants
petitioned for certiorari.
After the Supreme Court decided Liu v. SEC, 140 S. Ct. 1936 (2020),
the Court granted the defendants’ petition for certiorari and vacated our
prior judgment, remanding this case for reconsideration in light of Liu. See
Team Res., Inc. v. SEC, 141 S. Ct. 186 (2020). Liu held that an order of
disgorgement, when awarded as “equitable relief” under 15 U.S.C.
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§ 78u(d)—at least as the statute existed at the time 2—is limited to a
defendant’s net profits, meaning a court must deduct legitimate business
expenses when calculating the award. Liu, 140 S. Ct. at 1940. We therefore
remanded to the district court “for further proceedings consistent with the
Supreme Court’s decision in Liu.” SEC v. Team Res., Inc., 815 F. App’x 801(5th Cir. 2020) (per curiam).
On remand, the SEC filed a renewed motion for remedies, deducting
what it deemed legitimate expenses according to Liu and, as a result,
reducing its calculation of disgorgement from $15,508,280 to $2,410,630.
The SEC supported its motion with over 500 pages of documentary
evidence. In response, the defendants critiqued the SEC’s calculations as
“flawed and incomplete” but submitted no rebuttal documentary evidence.
Instead, they argued that a live evidentiary hearing was necessary to properly
calculate disgorgement under Liu. Additionally, Boyles asked the district
court not to impose a civil penalty against him because of his financial
condition.
The district court denied the request for a live hearing, reasoning that
“[i]n the settlement agreements . . . the Defendants waived any right to a
hearing and expressly agreed for [the district court] to resolve this issue on
the papers.” SEC v. Team Res., Inc., No. 3:15-CV-1045-N, 2022 WL 463390,
at *2 (N.D. Tex. Feb. 15, 2022). Noting that the defendants did not oppose
the SEC’s calculation of disgorgement with documentary evidence, the
court concluded from the evidence it had that the SEC’s calculation was
correct. Id. Additionally, the court imposed the same civil penalty it had
imposed before, reasoning that Liu addressed only disgorgement, not civil
2
Congress amended the statute after Liu to explicitly permit disgorgement as a
legal remedy. See SEC v. Hallam, 42 F.4th 316, 334–35 (5th Cir. 2022) (discussing the
amendments).
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penalties, so a reconsideration of the penalty was outside the scope of its
mandate on remand. Id. at *3. Altogether, the court awarded disgorgement,
jointly and severally among the defendants, in the amount of $2,410,630 and
a penalty against Boyles in the amount of $15,508,280.
II
On appeal, the defendants raise three sets of arguments, none of which
is persuasive.
First, they primarily contend that the district court erred in denying
them a live evidentiary hearing on remand at which they could challenge the
SEC’s calculation of disgorgement and civil-penalty amounts. We review
the district court’s denial of a hearing for abuse of discretion, SEC v. Hallam,
42 F.4th 316, 325 (5th Cir. 2022), and find no reversible error. Here, the
appellants agreed that the district court could calculate disgorgement and
penalties on the basis of the papers alone. The district court did not abuse its
discretion in doing so. Indeed, we reached this very same conclusion in the
prior appeal of this matter and see no reason to hold otherwise this time
around. Team Res., Inc., 942 F.3d at 279. Finally, as we observed recently in
a similar case, the Federal Rules of Civil Procedure allow district courts to
decide motions—including motions for remedies under the securities laws
such as the one at issue here—“on briefs, without oral hearings.” Hallam,
42 F.4th at 324 (quoting Fed. R. Civ. P. 78(b)). The district court did not
abuse its discretion in denying a live evidentiary hearing.
Second, Boyles contends that the district court erred by not revisiting
its imposition of the civil penalty because the district court misunderstood
the scope of its mandate on remand. Boyles, however, did not challenge the
civil penalty in his initial appeal to this Court. Any such challenge, therefore,
was forfeited in the initial appeal to this Court. See SEC v. World Tree Fin.,
LLC, 43 F.4th 448, 466 n.13 (5th Cir. 2022) (“Though the district court also
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imposed civil penalties against each Defendant, Defendants do not brief any
challenges to the civil penalties and thus waive any related issues.”). And
because the issue was forfeited in the initial appeal, it is likewise deemed
forfeited in any subsequent appeal unless there was no reason to raise it in the
initial appeal. See United States v. Griffith, 522 F.3d 607, 610 (5th Cir. 2008)
(“[I]n the first appeal Griffith waived the issue of a decrease for his limited
participation in the conspiracy, because he did not raise it in that court. The
issue is deemed waived on this appeal as well, unless ‘there was no reason to
raise it in the initial appeal.’” (quoting United States v. Lee, 358 F.3d 315, 324
(5th Cir. 2004))); see also Air Midwest Inc. v. Atl. Ltd. P’Ship XII, 742 F.3d
206, 213 (5th Cir. 2014) (in a subsequent appeal, refusing to consider a claim
that appellants failed to raise on initial appeal despite broadly worded remand
language); Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 453–54 (5th
Cir. 2007) (same). Here, Boyles had every reason to challenge the imposition
of a civil penalty in his initial appeal, but he did not do so. Accordingly, we
hold that he cannot challenge the penalty for the first time in this subsequent
appeal.
Finally, Boyles argues that the civil penalty violates the Eighth
Amendment because it is more than six times the disgorgement award.
Because Boyles did not raise this argument to the district court, however, it
is forfeited as well. See Rollins v. Home Depot USA, Inc., 8 F.4th 393, 397 (5th
Cir. 2021) (“A party forfeits an argument by failing to raise it in the first
instance in the district court[.]”). We therefore decline to consider it. See
Spotts v. United States, 613 F.3d 559, 569 (5th Cir. 2010) (declining to
consider Eighth Amendment argument not raised to the district court).
AFFIRMED.
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