Fed. Trade Comm'n v. Elite IT Partners

91 F.4th 1042

FEDERAL TRADE COMMISSION, Plaintiff - Appellee, v. ELITE IT PARTNERS, INC., a Utah corporation, d/b/a Elite IT Home;James Michael Martinos, individuallyand as an officer of Elite IT Partners, Inc., Defendants - Appellants.

No. 23-4009

United States Court of Appeals, Tenth Circuit

FILED January 23, 2024

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH (D.C. No. 2:19-CV-00125-RJS)

Caleb Kruckenberg, Pacific Legal Foundation, (John F. Kerkhoff, Pacific Legal Foundation, with him on the briefs), Arlington, VA, for Defendants-Appellants.

Michael D. Bergman, Federal Trade Commission (Anisha S. Dasgupta, General Counsel, and Mariel Goetz, Acting Director of Litigation, with him on the briefs), Washington, D.C., for Plaintiff-Appellee.

Before BACHARACH, BRISCOE, and McHUGH, Circuit Judges.

BACHARACH, Circuit Judge.

This appeal grew out of the Federal Trade Commission's suit against Mr. James Martinos and Elite IT Partners. In the suit, the FTC alleged a fraudulent scheme to sell unnecessary services. The parties settled the suit by stipulating to a judgment that

• provided equitable monetary relief under § 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b) and

• waived future challenges.

Roughly a year after entry of the stipulated judgment, the Supreme Court held in AMG Capital Management, LLC v. FTC that § 13(b) doesn't allow equitable monetary relief. 593 U.S. 67, 75-78, 141 S.Ct. 1341, 209 L.Ed.2d 361 (2021). The new interpretation of § 13(b) led the defendants to request vacatur of the stipulated judgment under Federal Rule of Civil Procedure 60(b)(6).¹ The district court denied the motion, reasoning that

• the change in case law had arisen in a factually unrelated case and

• the defendants hadn't presented other circumstances warranting vacatur.

The defendants appeal, and we address two issues:

1. Waiver: The defendants agreed to waive their right to challenge or contest the stipulated judgment. Does this waiver prohibit the defendants from arguing that the stipulated judgment was invalid? We answer yes.

2. Change in case law: The defendants moved to vacate the stipulated judgment based on a change in the case law. We've allowed vacatur of the judgment for a change in case law only when the change arose in a factually related case. Here the change in case law took place in an unrelated case. Despite the absence of a relationship, can the defendants base vacatur on a change in the case law? We answer no.

1. The defendants waived the right to collaterally challenge the stipulated judgment.

The stipulated judgment provides that the defendants "waive[d] all rights to . . . challenge or contest the validity of this Order." Appellants' App'x at 120.² We must consider

• whether to consider the waiver clause and

• whether the clause applies to the defendants' appellate arguments.

We answer yes to both questions.

a. We should consider the waiver clause as an alternative basis to affirm.

The district court didn't address the waiver clause. But we can affirm on any ground adequately supported by the record. Elkins v. Comfort, 392 F.3d 1159, 1162 (10th Cir. 2004). In deciding whether to consider affirmance on a different ground, we address

• whether the issue was briefed in district court and on appeal,

• whether the issue is legal or factual, and

• whether the record is adequately developed.

Id. These factors support consideration.

First, the parties briefed the impact of the waiver clause both in district court and on appeal.³

Second, the questions are legal, not factual. For example, the defendants characterize the district court's reliance on a "categorical bar" as a legal error. Appellants' Reply Br. at 4.⁴

Third, we consider whether the record is adequately developed. See p. 1045, above. Here the parties rely solely on the language in the stipulated judgment rather than on any extrinsic evidence. So the record appears adequately developed.

Because each factor supports consideration, we address the applicability of the waiver clause.

b. The waiver clause covers the defendants' appellate arguments.

The defendants waived their appellate arguments because these arguments "challenge or contest the validity of" the stipulated judgment. For example, the defendants argue that AMG shows that the stipulated judgment was never valid:

• "The judgment at issue is unlawful." Appellants' Reply Br. at 1.

• "AMG recognized that the original judgment was illegal when it was issued." Id. at 9 (subheading).

• "And that judgment came only because the FTC sought to exercise a power it never had." Appellants' Opening Br. at 5.

• "The FTC didn't have the power to demand and then obtain disgorgement." Id. at 44.

• "All parties agree that the Federal Trade Commission's $13.5 million judgment against Appellants, James Martinos and his company, Elite IT Partners, Inc., should never have been issued." Appellants' Reply Br. at 1.

• "This wasn't merely a bad bargain, it was an illegal agreement, and one the court lacked the authority to accept." Id. at 8 (emphasis in original).

The defendants present four arguments to sidestep the waiver clause:

1. The defendants aren't contesting the validity of the stipulated judgment under the case law that existed earlier.

2. The parties entered the stipulated judgment based on a misunderstanding of the law.

3. The district court could modify the stipulated judgment, and the federal rules provide broad equitable power to vacate the judgment.

4. Rule 60(b)(6) allows reopening of "final agreements, no matter what they say, when certain conditions are present." Appellants' Reply Br. at 5.

These arguments are unpersuasive.

First, the defendants acknowledge that the stipulated judgment was valid under earlier case law. But the defendants argue that the Supreme Court's subsequent opinion in AMG rendered the stipulated judgment invalid from the outset. See p. 1046, above. In this argument, the defendants are challenging or contesting the validity of the stipulated judgment.

Second, the defendants contend that the parties based the stipulation on a misunderstanding of the law. This argument rests on unproven assumptions. When the parties entered the stipulation, a circuit split existed on the availability of equitable monetary relief under § 13(b). The Seventh Circuit had held that § 13(b) didn't allow equitable monetary relief. FTC v. Credit Bur. Ctr., LLC, 937 F.3d 764, 786 (7th Cir. 2019). Seven circuits had said the opposite. FTC v. Bronson Partners, LLC, 654 F.3d 359, 365 (2d Cir. 2011); FTC v. Ross, 743 F.3d 886, 890-92 (4th Cir. 2014); FTC v. Sw. Sunsites, Inc., 665 F.2d 711, 717-20 (5th Cir. 1982); FTC v. Sec. Rare Coin & Bullion Corp., 931 F.2d 1312, 1315 (8th Cir. 1991); FTC v. Commerce Planet, Inc., 815 F.3d 593, 599 (9th Cir. 2016); FTC v. Freecom Commc'ns, Inc., 401 F.3d 1192, 1202 n.6 (10th Cir. 2005); FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996).

The circuit split had led to the filing of a certiorari petition before the defendants entered the stipulation. Petition for Writ of Certiorari, AMG Cap. Mgt., LLC v. FTC, No. 19-508 (U.S. Oct. 18, 2019). The petition itself underscored the circuit split, id. at 11-15, so the defendants could have foreseen a change in the case law. See United States v. Rodgers, 466 U.S. 475, 484, 104 S.Ct. 1942, 80 L.Ed.2d 492 (1984) (stating that a change in the law is foreseeable when a circuit split exists on statutory construction). Given that possibility, we have no way of knowing whether the defendants expected a change in the case law. At a minimum, however, the pending request for certiorari signaled a possible change in the interpretation of § 13(b).

Third, the defendants point out that the district court had the power to vacate the judgment because

• the court retained jurisdiction and

• the federal rules provided equitable authority to vacate an order.

But the defendants don't explain how retention of jurisdiction or equitable authority would prevent a waiver.⁵

Though a court might enjoy broad jurisdiction and equitable power, a party can waive rights that the court could otherwise protect. For example, courts can entertain appeals or collateral challenges to federal convictions. 28 U.S.C. § 2106 (appeals), § 2255 (collateral challenges). But parties can waive their rights to

• appeal final orders, United States v. Hahn, 359 F.3d 1315, 1329 (10th Cir. 2004) (en banc) (per curiam), or

• collaterally challenge federal convictions, United States v. Cockerham, 237 F.3d 1179, 1182-83 (10th Cir. 2001).

In the same way, a party can freely waive the right to invoke the court's jurisdiction or equitable authority. See Johnson v. Spencer, 950 F.3d 680, 703 (10th Cir. 2020) (stating that a settlement agreement can constitute a free choice undermining the right to seek vacatur under Rule 60(b)(6)).

Fourth, the defendants assert that Rule 60(b) allows vacatur regardless of any contrary agreements. For this assertion, the defendants supply no authority.

* * *

We conclude that the waiver clause applies because the defendants' appellate arguments challenge or contest the validity of the stipulated judgment.

2. The district court didn't erroneously apply a "categorical bar."

Given the importance of the underlying issue, we address the merits to explain that the defendants would not have prevailed even if they hadn't waived their appellate arguments.

The defendants argue that the district court erroneously applied a "categorical bar" to relief under Rule 60(b)(6). For this argument, the defendants try to squeeze the district court's ruling into our opinion in Johnson v. Spencer, 950 F.3d 680 (10th Cir. 2020).⁶ But Johnson doesn't apply.

a. The defendants present two different arguments to analogize our case to Johnson.

In Johnson, the district court denied relief on the ground that Rule 60(b)(6) categorically disallows vacatur on claims for damages. Id. at 701-02. We reversed, reasoning that the district court couldn't categorically disallow vacatur on damage...