Securities & Exchange Commission v. Dollar General Corp. ( 2010 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 10a0307n.06
No. 09-5907
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
May 19, 2010
LEONARD GREEN, Clerk
SECURITIES AND EXCHANGE COMMISSION, )
)
Plaintiff, )
)
)
BRIAN M. BURR, ) On Appeal from the United States
) District Court for the Middle
Defendant-Appellant, ) District of Tennessee
)
v. )
)
DOLLAR GENERAL CORPORATION, )
)
Defendant-Appellee. )
Before: COOK and McKEAGUE, Circuit Judges; HOOD, Senior District Judge.*
HOOD, Senior District Judge. This appeal arises from the district court’s grant of an
injunction prohibiting Appellant Brian Burr (“Burr”) from pursuing his state court lawsuit against
Appellee (and co-defendant) Dollar General Corporation (“Dollar General”). Dollar General sought,
and obtained, an injunction in the federal court lawsuit which gives rise to the instant appeal. The
district court granted the injunction based on the enforcement of the Consent Judgment it entered
in the case, which was derived from a consent decree between Burr and the Securities and Exchange
*
The Honorable Joseph M. Hood, Senior United States District Judge for the Eastern
District of Kentucky, sitting by designation.
No. 09-5907
Burr v. Dollar General Corp.
Commission (“SEC”).1 Burr appeals on several grounds, including, that the district court erred in
finding that Dollar General had standing to enforce Burr’s Consent Judgment. Based on applicable
case law, which clearly states that non-parties to a consent decree do not have standing to enforce
the decree, the district court’s decision will be REVERSED and the injunction it issued
VACATED.
I. Factual and Procedural Background
This appeal arises from the intersection of two lawsuits. The first lawsuit, the one from
which this appeal is taken, originated from allegations of insider trading by the SEC against Burr and
his co-defendants. In April 2005, the SEC filed a lawsuit against Dollar General, Burr, and other
defendants for alleged violations of the Securities Act and the Exchange Act. Each of the defendants
entered into a separate consent decree with the SEC. The terms of Burr’s consent decree included
the payment of a civil penalty, disgorgement payments, and interest payments, as well as a
1
The cited cases herein, the district court below, and the parties to this appeal all utilize
different names for a “Consent Judgment,” “Final Judgment,” or “Agreed Judgment.” Black’s
Law Dictionary states that an “agreed judgment” is also termed a “consent judgment.” Black’s
Law Dictionary 858-59 (8th ed. 2004). For the purpose of clarity, this opinion will refer to
Record No. 36, docketed as the “Final Judgment as to Defendant Brian Burr,” as “Burr’s Consent
Judgment,” or “the Consent Judgment,” because that is the term the district court used to
describe the document in its Memorandum at R. 82, filed in support of its Order (Order, R. 83,
July 2, 2009.) which is the subject of this appeal. In citing or discussing applicable case law,
however, the terms “Agreed Judgment,” and “Consent Judgment” will be used interchangeably,
as they were in the original decisions to which this opinion cites. The “Consent of Defendant
Brian Burr” (Consent Decree, R. 33-2, Apr. 10, 2006.) will be referred to as it is in the district
court’s Memorandum at R. 82, the “consent decree.” In its Memorandum at R. 82, the district
court refers to the consent decree and Burr’s Consent Judgment interchangeably and as the same
document, but it should be noted that these are not the same document and are not treated as such
for the purposes of the analysis herein.
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No. 09-5907
Burr v. Dollar General Corp.
prohibition from seeking to recover against any co-defendant in a subsequent lawsuit. The district
court entered Burr’s Consent Judgment in April 2006, which incorporated the terms of the consent
decree.
In February 2006, Burr filed suit in Tennessee Circuit Court against Dollar General based on
the facts that led to the SEC’s suit against Burr and Dollar General. In that action, Burr alleged that
Dollar General defrauded him in leading him to believe that he could cash in his stock options “in
compliance” with all applicable regulations. Burr sought to recover damages related to his
settlement with the SEC, including the value of the loss of the stock options, loss of income,
attorney’s fees, punitive damages, and interest. Dollar General contended that Burr’s pursuit of a
state court action was in contravention of the terms of Burr’s Consent Judgment, which prohibited
Burr from seeking indemnification from any co-defendant. Dollar General filed a motion in the
district court to enforce Burr’s Consent Judgment and enjoin the state court lawsuit. Burr argued,
among other things, that Dollar General was not a party to the consent decree setting forth the terms
of the agreement of between Burr and the SEC, and incorporated into Burr’s Consent Judgment, and,
thus, did not have standing to enforce Burr’s Consent Judgment. The district court disagreed, held
that Dollar General had standing to enforce Burr’s Consent Judgment, granted the motion to enforce,
and ordered Burr to dismiss his state court action.
The district court summarily concluded that “Burr expressly ‘relinquishe[d] all legal and
equitable right, title, and interest” in the civil penalty, disgorgement, and interest payments that he
made under the Consent Judgment,” and that “‘no part of the funds shall be returned,’ thereby
prohibiting Burr from seeking to enforce his alleged right to the return of those funds.”
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Burr v. Dollar General Corp.
(Memorandum, R. 82 at 3, July 2, 2009.) Thus, according to the district court, Burr waived any
claim of recovery against Dollar General for the funds paid to the SEC pursuant to the Consent
Judgment. The district court therefore granted Dollar General’s motion to enforce the Consent
Judgment.
Dollar General argues on appeal that Burr is barred from seeking to recover from it the stock
option proceeds, loss of income resulting from the five-year employment ban, and a portion of the
funds disgorged to the SEC, which are damages implicated by Burr’s state law claims. In its
appellate brief, Dollar General asserts that Burr “further agreed that ‘no part of the funds shall be
returned’ to him. By these terms, Burr is prohibited from seeking to enforce his alleged right to the
return of the forfeited amounts. This is especially true for the disgorged amounts.” (Appellee’s Br.
20.) According to Dollar General, Burr waived his claim to a portion of the disgorgement payment
on appeal because this claim is inconsistent with his pleading in the district court, in which he did
not seek any of the disgorgement payment. With regard to Burr’s claim for lost income, Dollar
General argues that the agreed-to employment bar, in conjunction with Burr’s “relinquishment of
all legal and equitable right, title, and interest in his forfeitures, precludes his claims for lost income
against Dollar General.” (Appellee’s Br. 21.) Finally, Dollar General contends that the district court
had the authority to issue the injunction because all of Burr’s state court claims were resolved by the
Consent Judgment, and therefore, the injunction effectuated the Consent Judgment.
Burr argues on appeal that Dollar General did not have standing to enforce the Consent
Judgment because it was not a party to the Consent Judgment. Burr further argues that, with the
exception of one category of damages, his state court lawsuit against anyone other than the SEC is
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No. 09-5907
Burr v. Dollar General Corp.
permitted under the terms of the Consent Judgment. Burr also argues that the Consent Judgment
did not provide for an injunction as a remedy, it was in violation of the Anti-Injunction Act, and even
if issuing an injunction was proper, the specific terms of the injunction issued were overly broad.
II. Standard of Review
This Court reviews a district court’s determination of the issue of standing “under the
traditional de novo standard of review . . . because the issue of whether a claimant has constitutional
standing is a question of law.” U.S. v. Real Property, All Furnishings Known as Bridwell's Grocery,
195 F.3d 819, 821 (6th Cir. 1999). The district court’s interpretation of its Consent Judgment is
reviewed under an abuse of discretion standard, while the decision as to whether the injunction in
this case could legally issue under the Anti-Injunction Act is reviewed under a de novo standard.
Huguley v. General Motors Corp., 999 F.2d 142, 145-46 (6th Cir. 1993).
III. Analysis
A. Dollar General Lacks Standing to Enforce the Judgment
The district court found that
[a] consent judgment is in essence a contract. Although Dollar General is not a
named party to Burr’s Consent Judgment, Dollar General was a named Defendant in
this action. Burr’s Consent Judgment expressly prohibits him from seeking to
recover against any co-defendant. Although non-parties lack standing to enforce a
consent decree, Dollar General is a co-defendant in this action and thus has standing.
Burr’s Consent Judgment clearly conferred a benefit on his co-defendants in this
action.
(Mem., R. 82 at 2-3, July 2, 2009.) (citations omitted). The district court’s analysis, however, is in
direct conflict with controlling Supreme Court and Sixth Circuit case law.
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No. 09-5907
Burr v. Dollar General Corp.
Burr does not contest that Dollar General was intended to be benefited by the consent decree.
The Supreme Court has held, however, that “a well-settled line of authority . . . establishes that a
consent decree is not enforceable directly or in collateral proceedings by those who are not parties
to it even though they were intended to be benefited by it.” Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 750 (1975). The Sixth Circuit echoed this holding in Vogel v. City of Cincinnati,
stating that the plaintiff, “who was not a party to the consent decree, lack[ed] standing to challenge
the City’s interpretation of the decree.” Vogel v. City of Cincinnati, 959 F.2d 594, 597 (1992);
accord Aiken v. City of Memphis, 37 F.3d 1155, 1167 (1994).
Dollar General argues that even though it was not a party to the consent decree, it was a party
to the litigation in which Burr’s Consent Judgment was entered, and therefore it “has standing to
seek a co-defendant’s compliance with a Judgment entered in that litigation.” (Appellee’s Br. 14.)
The only case Dollar General cites in support of its position is U.S. v. Visa, U.S.A., Inc., No. 98 Civ.
7076, 2007 WL 1741885 at *1 (S.D.N.Y. June 15, 2007), an unreported decision from the Southern
District of New York. (Id.) Visa, unlike Blue Chip Stamps, Vogel and Aiken, is not controlling
authority in this Circuit. Furthermore, the Court in Visa does not directly address the issue of third-
party standing to enforce a Judgment and therefore should not be relied upon as even persuasive
authority for this point of law.
Dollar General also argues that Burr’s position that Dollar General cannot enforce Burr’s
Consent Judgment because it was not a party to the consent decree is “absurd” because the only party
to Burr’s Consent Judgment was the district court. This argument has no merit. The Court was not
a party in this litigation. In support of this preposterous assertion, Dollar General cites Sanders v.
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No. 09-5907
Burr v. Dollar General Corp.
Republic Services of Ky., 113 F. App’x 648, 649-50 (6th Cir. 2004). In Sanders, however, the Sixth
Circuit held that because the plaintiffs seeking to enforce the Agreed Judgment were not parties to
it, they could not bring suit to enforce the judgment under Blue Chip Stamps and Aiken. Sanders v.
Republic Services of Ky., 113 F. App’x 648, 650 (6th Cir. 2004).
In fact, the Sanders decision was predicated on facts very similar to those at bar. In Sanders,
the plaintiffs and parties seeking to enforce the Agreed Judgment were intervening defendants in the
underlying lawsuit, but not parties to the Agreed Judgment between the original plaintiff and
defendant. Id. at 649. Although Dollar General places considerable importance on the difference
between being a party to the consent decree and being a party in the litigation in which the Judgment
was entered, the Sanders Court did not recognize such a distinction. The Court there held:
The Agreed Judgment is an agreement only between the [defendant in the underlying
lawsuit] and [the plaintiff in the underlying lawsuit] . . . The district court found that
this action was merely an attempt by plaintiffs [in the enforcement suit] to enforce
a judgment to which they are not parties, and correctly held that the plaintiffs lack
standing to enforce their understanding of its terms.
. . . Following Blue Chip Stamps, we have held that third parties, even
intended third-party beneficiaries, lack standing to enforce their interpretations of
agreed judgments. “A consent decree ‘is not enforceable . . . by those who are not
parties to it . . . .’ It ‘may be challenged only on the ground that its substantive
provisions unlawfully infringe upon the rights of the complainant.’” Vogel v. City
of Cincinnati, 959 F.2d 594, 598 (6th Cir. 1992) (citations omitted).
[Plaintiffs] emphasize that they were parties to the original action, and they
argue that they were “within the specific ‘zone of interests' protected under the
Agreed Judgment.” The fact remains, however, that none of the plaintiffs in this
action was a party to the Agreed Judgment. Nor is it relevant that they may fall within
the zone of interests protected by the Judgment. “The plain language of Blue Chip
indicates that even intended third-party beneficiaries of a consent decree lack
standing to enforce its terms.” Aiken v. City of Memphis, 37 F.3d 1155, 1168 (6th
Cir. 1994).
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No. 09-5907
Burr v. Dollar General Corp.
Sanders, 113 F. App’x 648, 650, (6th Cir. 2004). The Sanders Court clearly used case law
addressing third-party enforcement of a consent decree and applied it to a situation in which a third-
party sought to enforce a judgment.
Thus, Supreme Court and Sixth Circuit precedent are clear that nonparties to a consent decree
or, analogously, an agreed or consent judgment entered by the Court incorporating a settlement
agreement or a consent decree, do not have standing to enforce a judgment. Dollar General has
failed to cite any case law holding otherwise and has generally failed to make any compelling
arguments to the contrary. The district court, therefore, erred in finding that Dollar General had
standing to enforce Burr’s Consent Judgment.
B. The District Court had the Inherent Authority to Enforce its Judgment
For the reasons stated above, Dollar General does not have standing to enforce Burr’s
Consent Judgment. The next question is whether Dollar General’s lack of standing is reason enough
alone to vacate the district court’s injunction precluding Burr from pursuing his state court claims
against Dollar General. Although the district court did not expressly state that it was issuing the
injunction based on its inherent authority to enforce its own Judgment, we assume the district court
was exercising its inherent power, regardless of the defects in Dollar General’s standing. See
Peacock v. Thomas, 516 U.S. 349, 356 (1996). See also, Shillitani v. United States, 384 U.S. 364,
370 (1966) (“There can be no question that courts have inherent power to enforce compliance with
their lawful orders through civil contempt.”) Hadix v. Caruso, 297 F. App’x 504 (6th Cir. 2008)
(noting the court’s inherent power to enforce the consent decree at issue). Further, the Consent
Judgment at issue explicitly provides that the district court “retain[s] jurisdiction of the matter for
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No. 09-5907
Burr v. Dollar General Corp.
the purposes of enforcing the terms of this Final [Consent] Judgment.” (Final Judgment, R. 36 at
8.) Therefore, because the district court has the inherent power to enforce its own judgment in this
case, this Court must consider whether the injunction issued was proper and within the district
court’s authority under the terms of the Consent Judgment.
Burr does not deny that a federal court has inherent authority to enforce its own judgments,
but rather, asserts that the injunction issued by the district court was contrary to the terms of the
Consent Judgment, and, furthermore, that the court exceeded its authority by entering an injunction
in the first instance. As to Burr’s argument that the court did not have the authority to issue the
injunction, pursuant to the Anti-Injunction Act, that Act “generally precludes federal courts from
interfering with state court proceedings, [but] there is an exception to “protect” or “effectuate” prior
federal judgments. Huguley v. General Motors Corp., 999 F.2d 142, 145 (6th Cir. 1993). To the
extent the district court was enjoining the state court proceeding to “protect” or “effectuate” its
Consent Judgment, we assume the district court was acting within its proper authority to do so.
Next, we must address the assertion that the district court’s injunction was contrary to the
terms of the Consent Judgment, Burr’s state law complaint includes four counts, asserting claims for
misrepresentation, fraud, breach of contract, and punitive damages. For the first three counts, Burr
seeks compensatory damages for the value of the loss of the stock options; loss of income for a
minimum of five years; loss of future income; and attorney’s fees. These claimed damages stem
from alleged injuries that are closely related to the factual basis for the SEC’s action alleging insider
trading against Burr and Dollar General. Burr does not deny the SEC’s allegation that he engaged
in illegal trades, but he claims that Dollar General defrauded him into making such trades by
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No. 09-5907
Burr v. Dollar General Corp.
misrepresenting to him that his actions were legal. Concerning the fraud claim, Burr alleges that but
for the misrepresentations and omissions of Dollar General, leading him to believe that cashing in
his stock options was in compliance with all applicable securities regulations, he would not have
exercised his stock options. Therefore, he suffered damages including loss of reputation, paying a
civil settlement to the SEC, and agreeing not to be an officer in a publicly traded company for five
years. As to Burr’s claim for misrepresentation, he asserts that the officers and directors of Dollar
General breached their fiduciary duties to Burr as a shareholder when they failed to provide certain
material information to Burr regarding the exercise of his stock options. Thus, according to the
complaint, Burr is entitled to the value of the loss of these stock options. In Burr’s breach of contract
claim, he alleges that Dollar General breached its implied duty of good faith and fair dealing
regarding Burr’s separation from the company, and as a result, Burr is entitled to damages. Finally,
Burr seeks punitive damages on the ground that Dollar General’s actions were “intentional, wilful,
and reckless.” Thus, according to Burr, Dollar General owes him damages for harms arising out of
his settlement with the SEC, due to Dollar General’s wrongful actions which precipitated the SEC
action against him. By the terms of the Consent Judgment and the Consent Agreement, Burr may
be prohibited from recovering damages for some harms that were included in his settlement payment
to the SEC. He is not, however, prohibited from seeking damages for other harms related to the
settlement.
We acknowledge the district court’s inherent authority to enforce the Consent Judgment.
Further, assuming the district court’s order could be deemed an exercise of that inherent authority,
as we explained above, the injunctive order may have been justified in part but, in enjoining
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No. 09-5907
Burr v. Dollar General Corp.
prosecution of the state court action as a whole, is broader than authorized by the terms of the
Consent Judgment.
IV. Conclusion
For the foregoing reasons, the district court’s decision to issue an injunction is REVERSED
and the injunction it issued VACATED.
11