Jalbert v. SEC

United States Court of Appeals
For the First Circuit
No. 18-2043
CRAIG R. JALBERT, in his capacity as
Trustee of the F2 Liquidating Trust, on behalf
of himself and all others similarly situated,
Plaintiff, Appellant,
v.
U.S. SECURITIES AND EXCHANGE COMMISSION,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor IV, U.S. District Judge]
Before
Torruella, Thompson, and Kayatta,
Circuit Judges.
Alex Lipman, with whom William R. Baldiga, Justin S. Weddle,
Ashley L. Baynham, and Brown Rudnick LLP were on brief, for
appellant.
John B. Capehart, Senior Counsel, Securities and Exchange
Commission, with whom Robert B. Stebbins, General Counsel,
Michael A. Conley, Solicitor, and Daniel Staroselsky, Senior
Litigation Counsel, were on brief, for appellee.
December 20, 2019
TORRUELLA, Circuit Judge. Plaintiff-appellant Craig R.
Jalbert ("Jalbert"), in his capacity as trustee for the
F2 Liquidating Trust, appeals the district court's order granting
the Securities and Exchange Commission's ("SEC") motion to dismiss
his complaint for lack of subject matter jurisdiction and failure
to state a claim. The district court determined that the right
to judicial review of the SEC order at issue had been waived as
part of a settlement between the SEC and former investment advisory
firm F-Squared Investments, Inc. ("F-Squared"). The district
court also held that, in any event, Jalbert's claims were only
reviewable within the SEC's exclusive statutory review structure,
which does not involve the federal district courts. After careful
consideration, we affirm on the ground that F-Squared failed to
state a claim upon which relief could be granted inasmuch as it
waived judicial review by any court.
I. Background
A. Factual Background
F-Squared was an SEC-registered investment adviser firm
headquartered in Wellesley, Massachusetts. It served clients in
the advisor, institutional, retail, and retirement markets. At
some unspecified point, the SEC began investigating F-Squared for
violations of federal securities laws.
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On December 4, 2014, with the threat of administrative
and cease-and-desist proceedings looming, F-Squared executed an
Offer of Settlement pursuant to Rule 240(a) of the Rules of
Practice of the SEC, 17 C.F.R. § 201.240(a) (the "Offer"). The
Offer included the following language: "By submitting this Offer,
Respondent hereby acknowledges its waiver of those rights
specified in Rules 240(c)(4) and (5) [17 C.F.R. § 201.240(c)(4)
and (5)] of the Commission's Rules of Practice." Rule 240(c)(4)
provides, as relevant to this appeal, that "[b]y submitting an
offer of settlement, the person making the offer waives, subject
to acceptance of the offer . . . [j]udicial review by any court."
17 C.F.R. § 201.240(c)(4).
The SEC accepted the Offer and settled with F-Squared on
December 22, 2014, through the entry of an "Order Instituting
Administrative and Cease-and-Desist Proceedings" (the "Order"), to
which F-Squared consented. Under the terms of the Order,
F-Squared admitted that, between April 2001 and September 2008,
advertising materials for one of its investment strategies
included statements based on the inaccurate compilation of
performance and historical data which improved and inflated the
strategy's historical performance. That conduct, F-Squared
accepted, violated federal securities laws. F-Squared agreed to
cease and desist from committing further securities-laws
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violations and to undertake certain compliance measures. The
Order also required F-Squared to pay $30 million in disgorgement
and a $5 million civil money penalty to the United States Treasury.
As agreed, F-Squared transferred $35 million directly into the
Treasury.
In July 2015, F-Squared filed for bankruptcy. The
F2 Liquidating Trust was established during the bankruptcy
proceedings to recover on behalf of F-Squared as its
successor-in-interest. The bankruptcy court appointed Jalbert as
the trustee.
B. Procedural History
On October 26, 2017, Jalbert filed a complaint in the
U.S. District Court for the District of Massachusetts against the
SEC purporting to represent the F2 Liquidating Trust and "all other
individuals and entities similarly situated" who had "money
collected from them by the SEC as 'disgorgement' without statutory
authority or in excess of statutory authority" during the six years
prior to the filing of the complaint. Jalbert asserted two claims
under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 551
et seq., alleging that: (1) in light of the then-recent Supreme
Court opinion in Kokesh v. SEC, 137 S. Ct. 1635 (2017),1 the SEC
1 Kokesh held that, in the securities-enforcement context,
disgorgement is a penalty within the meaning of the five-year
limitations period under 28 U.S.C. § 2462 where it is ordered to
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"exceeded its statutory authority by seeking and obtaining
disgorgement from F-Squared and the similarly situated members of
the Proposed Class as a separate monetary penalty" in both
administrative proceedings and federal court actions and (2) the
SEC "failed to observe the procedural requirements" of federal
securities law by not obtaining an accounting of profits allegedly
acquired as a result of wrongdoing before ordering disgorgement.
The complaint sought a declaration that the SEC's collection of
disgorgement was unlawful pursuant to 5 U.S.C. § 706; the setting
aside of the $30 million disgorgement paid by F-Squared under the
Order; and a refund of that payment, as well as similar refunds
for the putative class members.
punish and deter violations of securities laws and is paid directly
to the United States Treasury. 137 S. Ct. at 1639, 1643–44. The
Court concluded, therefore, that disgorgement actions must be
commenced within five years of the claim's accrual. Id. at 1639.
The Kokesh Court, however, pointed out that its decision was
narrow, for purposes of only the statute of limitations, and was
not meant to undermine disgorgement in SEC enforcement actions in
federal court. See id. at 1642 n.3 ("Nothing in this opinion
should be interpreted as an opinion on whether courts possess
authority to order disgorgement in SEC enforcement proceedings or
on whether courts have properly applied disgorgement principles in
this context[.] The sole question presented in this case is
whether disgorgement, as applied in SEC enforcement actions, is
subject to § 2462's limitations period."). We note that the
Supreme Court recently granted certiorari in a case which presents
the question that was expressly avoided in footnote 3 of Kokesh.
See SEC v. Liu, 754 F. App'x 505 (9th Cir. 2018), cert. granted,
2019 WL 5659111 (U.S. Nov. 1, 2019) (No. 18-1501).
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On April 4, 2018, the SEC filed a motion to dismiss the
complaint pursuant to Federal Rules of Civil Procedure 12(b)(1)
and (6). On August 22, 2018, the district court entered a
memorandum and order granting the SEC's motion to dismiss.
Jalbert v. SEC, 327 F. Supp. 3d 287 (D. Mass. 2018). The court
determined that it lacked subject matter jurisdiction because
Congress vested the courts of appeals with exclusive jurisdiction
over challenges to SEC orders. Id. at 296–97, 299–300. It also
held that Jalbert had failed to state a claim upon which relief
could be granted because "F-Squared, as part of the settlement,
clearly and unambiguously waived the right to judicial review by
any court." Id. at 295. Jalbert then filed this timely appeal
of the district court's dismissal.
II. Discussion
We review a district court's dismissal for lack of
subject matter jurisdiction and for failure to state a claim
de novo, construing the complaint "liberally" and treating "all
well-pleaded facts as true." Aurelius Capital Master, Ltd. v.
Commonwealth of P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.),
919 F.3d 638, 644 (1st Cir. 2019) (quoting Town of Barnstable v.
O'Connor, 786 F.3d 130, 138 (1st Cir. 2015), and citing Newman v.
Lehman Bros. Holdings Inc., 901 F.3d 19, 24 (1st Cir. 2018)). We
accord Jalbert "the benefit of all reasonable inferences." Town
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of Barnstable, 786 F.3d at 138 (quoting Murphy v. United States,
45 F.3d 520, 522 (1st Cir. 1995)). Nevertheless, the complaint
must allege "a plausible entitlement to relief." Decotiis v.
Whittemore, 635 F.3d 22, 29 (1st Cir. 2011) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 559 (2007)).
Jalbert's big-ticket argument is that in light of the
Supreme Court's decision in Kokesh -- which holds that disgorgement
ordered in civil enforcement proceedings constitutes a "penalty"
subject to the five-year statute of limitations set forth in
28 U.S.C. § 2462,2 137 S. Ct. at 1639 -- the SEC's $30 million
disgorgement order against F-Squared was unauthorized under the
statutes governing SEC disgorgement because it was a penalty and
not a remedial, compensatory charge. Jalbert contends that the
SEC intended F-Squared's disgorgement as a penalty because, like
in Kokesh, it was ordered to punish and deter conduct, and the
proceeds were paid directly into the Treasury rather than returned
to the injured investors. But as the district court correctly
concluded, we do not need to delve into the merits of these
arguments because they are not properly before us.
2 That statute provides, "[e]xcept as otherwise provided by Act
of Congress, an action, suit or proceeding for the enforcement of
any civil fine, penalty, or forfeiture, pecuniary or otherwise,
shall not be entertained unless commenced within five years from
the date when the claim first accrued . . . ." 28 U.S.C. § 2462.
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The SEC's Rules of Practice allow "[a]ny person who is
notified that a proceeding may or will be instituted against him
or her, or any party to a proceeding already instituted [to]
propose in writing an offer of settlement." 17 C.F.R.
§ 201.240(a). The Rules also require an offer of settlement to
"recite or incorporate as a part of the offer the provisions of
paragraphs (c)(4) and (5) of this section," 17 C.F.R. § 201.240(b),
which, as relevant to this appeal, include the waiver, subject to
the acceptance of the offer, of "[j]udicial review by any court,"
§ 201.240(c)(4)(v).
F-Squared voluntarily executed such an offer to settle
with the SEC. In compliance with 17 C.F.R. § 201.240(b), the
Offer included an acknowledgement of F-Squared's "waiver of those
rights specified in Rules 240(c)(4) and (5) [17 C.F.R.
§ 201.240(c)(4) and (5)] of the Commission's Rules of Practice."
Thus, as part of the Offer, F-Squared knowingly and voluntarily
agreed to waive judicial review of the ensuing order if the SEC
accepted it. In due course, the SEC accepted the Offer in its
December 22, 2014 Order. See 17 C.F.R. § 201.240(c)(7) ("Final
acceptance of any offer of settlement will occur only upon the
issuance of findings and an order by the Commission.").
Accordingly, the district court properly determined that
F-Squared's "clear[] and unambiguous[]" waiver barred the court's
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consideration of Jalbert's claims on the merits. Jalbert, 327
F. Supp. 3d at 295. While Jalbert posits several arguments to the
contrary on appeal, none are persuasive.
First, Jalbert argues that the SEC's "longstanding
practice of obtaining additional, extra-statutory penalties"
disguised as "disgorgement" constitutes a structural
separation-of-powers violation that cannot be waived. Relying on
Kokesh, Jalbert's argument assumes that the SEC exceeded its
statutory authority in ordering disgorgement that is, according to
Jalbert, punitive and unauthorized, which alone is enough to
implicate separation-of-powers principles. But the Kokesh Court
explicitly stated that "[n]othing in this opinion should be
interpreted as an opinion on whether courts possess authority to
order disgorgement in SEC enforcement proceedings or on whether
courts have properly applied disgorgement principles in this
context," and it limited its holding to the applicability of the
five-year limitations period under 28 U.S.C. § 2462 to the SEC's
requests for disgorgement. Kokesh, 137 S. Ct. at 1642 n.3; see
also id. at 1640–41. Indeed, with the enactment of the Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, Pub. L.
No. 101-429, 104 Stat. 931, Congress explicitly authorized the SEC
to enter orders requiring "accounting and disgorgement" in
administrative and cease-and-desist proceedings. See 15 U.S.C.
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§§ 77h-1(e), 78u-3(e), 80a-9(e) and (f)(5), 80b-3(j) and (k)(5);
see also S. Rep. No. 101-337, at 8, 16 (1990) ("The legislation
authorizes the SEC to seek civil money penalties in court
proceedings and to impose penalties and order disgorgement in
administrative proceedings for violations of the federal
securities laws. . . . The Committee believes . . . that the SEC
should have the express authority to order disgorgement in its
administrative proceedings in order to ensure that respondents in
administrative proceedings do not retain ill-gotten gains.").
Notably, Kokesh does not even mention the application of
disgorgement in the context of administrative or cease-and-desist
proceedings. Instead, it addresses disgorgement solely in the
civil enforcement context within the meaning of section 2462.
Kokesh, 137 S. Ct. at 1639. Thus, the SEC's statutory authority
to request disgorgement in administrative proceedings is seemingly
undisturbed by Kokesh.
Jalbert does not challenge the statutes granting that
authority. Rather, Jalbert's structural separation-of-powers
argument is based on his contention that the SEC's disgorgement
practices exceed the bounds of the SEC's statutory authority. But
this argument does not implicate a structural separation-of-powers
issue. We have held that "the doctrine of separated powers serves
to eliminate arrangements that threaten to permit one branch either
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to aggrandize its power or to encroach on functions reserved for
another branch." United States v. Hilario, 218 F.3d 19, 26
(1st Cir. 2000) (citing Mistretta v. United States, 488 U.S. 361,
381-82 (1989)). "Separation-of-powers principles are intended,
in part, to protect each branch of government from incursion by
the others." Bond v. United States, 564 U.S. 211, 222 (2011).
Even if Jalbert were correct that the SEC acted beyond its
statutory powers in interpreting the accounting and disgorgement
provision and seeking disgorgement in a "punitive fashion," this
is not a case in which the "usurp[ation of] the prerogatives of
another branch of government" would be implicated. Hilario, 218
F.3d at 27. Further, there is no "accret[ion] to a single [b]ranch
[of] powers more appropriately diffused among separate
[b]ranches," nor has the "authority and independence" of the other
branches been undermined. Mistretta, 488 U.S. at 382; see also
Hilario, 218 F.3d at 26.3
As the district court noted, Jalbert's claim that the
SEC was acting outside the scope of its statutory authority is, at
best, viewed as an assertion that the SEC was acting ultra vires.
3 Jalbert also takes issue with the cases upon which the district
court relied in concluding that F-Squared's waiver was effective
because, according to Jalbert, none involved structural
separation-of-powers violations. But because we have determined
that Jalbert's claim is not one of structural separation-of-powers
violations, we do not address this point any further.
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See Jalbert, 327 F. Supp. 3d at 296. But even if this were true,
that claim was waivable. We agree with the district court's
reliance on City of Arlington v. FCC, 569 U.S. 290 (2013), to
support its conclusion that ultra vires claims of error can be
waived. See Jalbert, 327 F. Supp. 3d at 296. In City of
Arlington, the Supreme Court rejected as merely "illusory" the
distinction, for Chevron purposes, between "jurisdictional" and
"nonjurisdictional" agency interpretations and errors. 569 U.S.
at 298. The Supreme Court also defined any "improper" agency
action as "ultra vires". Id. at 297–98. In doing so, it reasoned
that
A court's power to decide a case is independent of
whether its decision is correct . . . . Put
differently, a jurisdictionally proper but
substantively incorrect judicial decision is not
ultra vires. That is not so for agencies charged with
administering congressional statutes. Both their
power to act and how they are to act is
authoritatively prescribed by Congress, so that when
they act improperly, no less than when they act beyond
their jurisdiction, what they do is ultra vires.
Because the question -- whether framed as an incorrect
application of agency authority or an assertion of
authority not conferred -- is always whether the
agency has gone beyond what Congress has permitted it
to do, there is no principled basis for carving out
some arbitrary subset of such claims as
"jurisdictional."
Id. Therefore, if the SEC was acting unlawfully in seeking the
$30 million disgorgement from F-Squared, its actions were no more
ultra vires than if the SEC had misinterpreted its statutes. And
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statutory construction claims are largely subject to waiver. See
Boston Redevelopment Auth. v. Nat'l Park Serv., 838 F.3d 42, 47-50
(1st Cir. 2016) (finding waiver of challenge to the National Park
Service's construction of the Land and Water Conservation Fund
Act); see also Nat. Res. Def. Council, Inc. v. EPA, 25 F.3d 1063,
1073–74 (D.C. Cir. 1994) (finding waiver of statutory and
regulatory construction challenge). Moreover, generally, while
jurisdictional issues can be raised at any time during the case
and are never waived, non-jurisdictional issues are waivable. See
Gonzalez v. Thaler, 565 U.S. 134, 141 (2012); see also Wolf v.
Reliance Standard Life Ins. Co., 71 F.3d 444, 446, 449
(1st Cir. 1995).
The Supreme Court's analysis in City of Arlington leads
us to conclude that challenges to ultra vires agency action are
waivable. Our conclusion comports with other circuits' decisions.
See PGS Geophysical AS v. Iancu, 891 F.3d 1354, 1362
(Fed. Cir. 2018) ("Even if the [Patent Trial and Appeal Board of
the U.S. Patent and Trademark Office] could be said to have acted
'ultra vires' in refusing to institute reviews of some claims and
grounds -- and then proceeding to merits decisions concerning the
claims and grounds included in the instituted reviews -- the
Board's error is waivable . . . ."); Metro-North Commuter R.R. Co.
v. U.S. Dep't of Labor, 886 F.3d 97, 108 (2d Cir. 2018) (relying
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on the Supreme Court's decision in City of Arlington to find that
challenges to an agency's jurisdiction over certain claims can be
waived); 1621 Route 22 W. Operating Co. v. NLRB, 825 F.3d 128,
139—42 (3d Cir. 2016) (finding the challenge to an agency's
jurisdiction was waived); CBS Broad., Inc. v. EchoStar Commc'ns
Corp., 450 F.3d 505, 520 n.27 (11th Cir. 2006) (finding the
argument that the FCC acted beyond the scope of its authority and,
thus, that its action was ultra vires, to be waived); see also
Boston Redevelopment Auth., 838 F.3d at 47 (finding the argument
waived that because agency action was ultra vires the agency's
determination should be reviewed de novo).
Faced with, at most, a claim alleging that the SEC
exceeded its jurisdictional authority and acted ultra vires in
seeking disgorgement, the district court correctly concluded that
the claim was waivable and that F-Squared had undeniably waived
the right to assert the claim by settling with the SEC.
Next, Jalbert avers that the waiver does not reach his
APA claims because he is not seeking review of the Order and does
not intend to "disturb the merits of the SEC's substantive
decision" regarding F-Squared's securities laws violations and the
amount of the civil penalty. Instead, he contends that he is
simply seeking a declaration that the SEC lacks the power to enter
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disgorgement orders, and consequently, the disgorgement against
F-Squared is void.
Contrary to Jalbert's contention, by challenging the
validity of the disgorgement, he is challenging the Order itself
because it was through that Order (to which F-Squared consented)
that the SEC directed F-Squared to pay a disgorgement of
$30 million into the Treasury. Furthermore, the plain text of the
waiver states that it applies to "[j]udicial review by any court."
See 17 C.F.R. § 201.240(c)(4)(v). This language is broad enough
to encompass claims under the APA because those entail judicial
review of an agency decision, see 5 U.S.C. § 706(2)(A)-(F)
(providing bases for a reviewing court to "hold unlawful and set
aside agency action, findings, and conclusions"), even if Jalbert
does not challenge the substantive findings of the Order. When
F-Squared chose to settle and execute the Offer, it decided to
waive all judicial review by any court without qualification.
Relatedly, Jalbert posits that his challenge to the
SEC's disgorgement practices is not limited to F-Squared's
disgorgement order but includes a challenge to the SEC's
"longstanding practice and procedure of obtaining disgorgement in
an unauthorized punitive fashion in a host of cases" on behalf of
a putative class of similarly situated parties. This argument,
too, is unavailing.
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We have noted that "in most respects, the class members
other than the named plaintiffs are merely potential parties until
subject matter jurisdiction for the named plaintiffs is
established and the district court has decided to certify a class."
Pruell v. Caritas Christi, 645 F.3d 81, 84 (1st Cir. 2011). When
a class action is filed, it "includes only the claims of the named
plaintiff or plaintiffs. The claims of unnamed class members are
added to the action later, when the action is certified as a class
under [Federal Rule of Civil Procedure] 23." Id. (quoting Gibson
v. Chrysler Corp., 261 F.3d 927, 940 (9th Cir. 2001)). Here, the
district court did not certify a class. It merely determined that
it lacked subject matter jurisdiction. Thus, the purported
existence of those claims by "similarly situated parties" was
irrelevant to the district court's decision to dismiss the case.
It is also hard to see how, for the putative class's claim, Jalbert
could meet the injury-in-fact requirement of Article III, which
requires a plaintiff to establish an injury that is "concrete and
particularized" and "actual or imminent, not 'conjectural' or
'hypothetical.'" Reddy v. Foster, 845 F.3d 493, 500 (1st Cir.
2017) (quoting Susan B. Anthony List v. Driehaus, 573 U.S. 149,
158 (2014)); see Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1545
(2016) ("[T]he injury-in-fact requirement [of Article III]
requires a plaintiff to allege an injury that is both 'concrete
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and particularized.'" (emphasis in original) (quoting Friends of
the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S.
167, 180–81 (2000))); see also Simon v. E. Ky. Welfare Rights Org.,
426 U.S. 26, 40 n.20 (1976) ("[E]ven named plaintiffs who represent
a class 'must allege and show that they personally have been
injured, not that injury has been suffered by other, unidentified
members of the class to which they belong and which they purport
to represent.'" (quoting Warth v. Seldin, 422 U.S. 490, 502
(1975))).
Next, Jalbert takes aim at the SEC's use of Rule 240 --
which requires the waiver of judicial review as a condition of
settlement -- arguing that it cannot overcome the presumption that
SEC actions are judicially reviewable under the APA. He contends
that the incorporation of Rule 240 into SEC orders is unlawful
because the SEC may not "contract out" of APA review.
To begin, nothing in the record suggests that the purpose
or aim of Rule 240 is to overcome the presumption of reviewability
of SEC actions under the APA. Surely, before entering into the
settlement with the SEC, F-Squared knew or should have known there
were avenues, both direct and collateral, to obtain judicial review
of an SEC order. Indeed, F-Squared expressly acknowledged in its
Offer that it was waiving certain procedural rights. See 17 C.F.R.
§ 201.240(c)(4)-(5). F-Squared knowingly and voluntarily chose
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to enter into an early settlement and waive judicial review rather
than partake in public administrative and cease-and-desist
proceedings. We have found that settlements are strongly
encouraged by public policy, especially, where "a government actor
committed to the protection of the public interest has pulled the
laboring oar in constructing the proposed settlement." United
States v. Cannons Eng'g Corp., 899 F.2d 79, 84 (1st Cir. 1990)
(citing FTC v. Standard Fin. Mgmt. Corp., 830 F.2d 404, 408
(1st Cir. 1987)).
Moreover, the APA itself requires an agency to give
parties opportunity for "the submission and consideration
of . . . offers of settlement." 5 U.S.C. § 554(c)(1). The Senate
Report accompanying this provision states that "[t]he settlement
by consent provision is extremely important because agencies ought
not to engage in formal proceedings where the parties are perfectly
willing to consent to judgments or adjust situations informally."
S. Doc. No. 79-248, at 361 (1946). We note that other agencies
have similar regulations requiring the waiver of judicial review
as a condition of settling an action with the agency. See, e.g.,
16 C.F.R. § 2.32 (FTC regulation requiring that "[e]very agreement
[in settlement of an FTC complaint] waive further procedural steps
and all rights to seek judicial review or otherwise to challenge
or contest the validity of the order"); 47 C.F.R. § 1.94(c)(3)
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(FCC regulation requiring "[a] waiver of the right of judicial
review or otherwise to challenge or contest the validity of the
consent order" to be included in settlement agreements); 49 C.F.R.
§ 511.26(d)(2) (DOT regulation requiring an offer of settlement to
contain "[a]n express waiver of further procedural steps, and of
all rights to seek judicial review or otherwise to contest the
validity of the order"). And Jalbert cites no authority for
upending a waiver of judicial review contained in a settlement
with a governmental agency.
In his final attempt to dodge the waiver, Jalbert invokes
contract principles to allege that the waiver is unenforceable
because the agreement was infected with a mutual mistake of law.
Specifically, Jalbert avers that both the SEC and F-Squared
believed the SEC had the authority to obtain the $30 million
disgorgement from F-Squared, and that it was not until the Supreme
Court's decision in Kokesh that F-Squared realized the mistake.
This argument, again, assumes that Kokesh changed the law on SEC
disgorgement despite its explicit, narrow holding. And even taking
as true Jalbert's assertion that Kokesh changed the law since
F-Squared and the SEC settled, that case is silent about
agreed-upon disgorgement orders, a product of parties' agreements
to settle impending administrative proceedings, like the
disgorgement here.
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In any event, under Massachusetts law, "a party cannot
avoid a contract merely because the parties are mistaken as to an
assumption, even though significant, on which the contract was
made." Shawmut-Canton LLC v. Great Spring Waters of Am., Inc.,
816 N.E.2d 545, 550—51 (Mass. App. Ct. 2004) (citing Restatement
(Second) of Contracts § 152 cmt. c (1981)). "Relief is only
appropriate in situations where a mistake of both parties has such
a material effect on the agreed exchange of performances as to
upset the very basis for the contract." Id. at 551 (quoting
Restatement (Second) of Contracts § 152 cmt. a). Moreover, the
mistake must be based on a fact "capable of ascertainment at the
time" the parties entered the contract.4 LaFleur v. C.C. Pierce
Co., 496 N.E.2d 827, 830 (Mass. 1986); Cook v. Kelley, 227 N.E.2d
330, 333 (Mass. 1967). Here, the purported change in law was not
"capable of ascertainment" when F-Squared and the SEC entered into
the settlement. By Jalbert's own concession, the law was "so well
established at the time of the settlement," that "the parties were
not settling because of any uncertainty about the SEC's statutory
authority to obtain disgorgement. Instead, the parties settled
4 The Restatement (Second) of Contracts clarifies that it does
not "draw the distinction that is sometimes made between 'fact'
and 'law.'" Restatement (Second) of Contracts § 151 cmt. b.
Rather, it "treat[s] the law in existence at the time of the making
of the contract as part of the total state of facts at that time."
Id.
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over the issue of whether there had been a violation of the
securities laws." Thus, Jalbert cannot escape the final settlement
that F-Squared willingly entered into in 2014 for reasons
completely collateral to a then-unforeseeable Supreme Court
decision that was handed down nearly three years later to have a
second bite of the apple in an attempt to obtain a refund of $30
million.5
Unconvinced by Jalbert's arguments that the voluntary,
express waiver of judicial review in the Order is void or
ineffective, we conclude that the district court correctly decided
that the complaint failed to state a claim upon which relief could
be granted inasmuch as F-Squared waived judicial review by any
court. Having decided that Jalbert's claims are not entitled to
judicial review, it is unnecessary to address Jalbert's remaining
5 We should also note that Jalbert's request that a party to a
final and binding settlement agreement should be allowed to
back-pedal when purportedly more favorable law emerges several
years later does not comport with this Court's policy favoring
settlement "as a preferred alternative to costly, time-consuming
litigation." Fid. & Guar. Ins. Co. v. Star Equip. Corp., 541 F.3d
1, 5 (1st Cir. 2008) (quoting Mathewson Corp. v. Allied Marine
Indus., Inc., 827 F.2d 850, 852 (1st Cir. 1987)). See also
Mathewson Corp., 827 F.2d at 852 ("We have characterized a
settlement negotiated, as here, 'under the eyes of the court [as]
a most solemn undertaking.'" (alteration in original) (quoting
Warner v. Rossignol, 513 F.2d 678, 682 (1st Cir. 1975))); id. at
852–53 (finding that we "will enforce the [settlement] without
regard to what the result might have been had the parties chosen
to litigate" (quoting Terrain Enters., Inc. v. W. Cas. & Sur. Co.,
774 F.2d 1320, 1321 (5th Cir. 1985))).
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arguments, and our conclusion is sufficient to dispose of this
appeal.
III. Conclusion
For the foregoing reasons, we affirm the district
court's order.
Affirmed.
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