Sec. & Exch. Comm'n v. Novinger

96 F.4th 774

SECURITIES AND EXCHANGE COMMISSION, Plaintiff—Appellee, v. Christopher A. NOVINGER; Ican Investment Group, L.L.C., Defendants—Appellants.

No. 23-10525

United States Court of Appeals, Fifth Circuit

FILED March 19, 2024

Appeal from the United States District Court for the Northern District of Texas, USDC No. 4:15-CV-358, Reed Charles O'Connor, U.S. District Judge

Jeffrey Alan Berger, Esq., U.S. Securities & Exchange Commission, Washington, DC, B. David Fraser, Senior Attorney, U.S. Securities & Exchange Commission, Trial Unit, Fort Worth, TX, for Plaintiff-Appellee.

Margaret A. Little (argued), Kara Rollins, Kaitlyn Schiraldi, New Civil Liberties Alliance, Washington, DC, for Defendants-Appellants.

Before Higginbotham, Smith, and Higginson, Circuit Judges.

Jerry E. Smith, Circuit Judge:

Christopher Novinger and ICAN Investment Group, L.L.C., entered into consent decrees with the SEC in 2016 as a result of a civil enforcement suit.¹ Codified in the Code of Federal Regulations and common practice for SEC enforcements, the consent decrees prohibit defendants from casting doubt on the validity of the SEC's investigation into or enforcement against them. See 17 C.F.R. § 202.5. Additionally, defendants may not proclaim their lack of guilt unless they also indicate their lack of innocence.

Five years later, dissatisfied with the benefit of his bargain, Novinger sought judicial review of the decree, contending that it violated his First Amendment rights as a prior restraint that improperly compelled his speech. So, he sought relief from judgment under Federal Rule of Civil Procedure 60(b). But the court denied his motion, and this court affirmed. See SEC v. Novinger (Novinger I), 40 F.4th 297, 300 (5th Cir. 2022).

Disheartened but not dissuaded, Novinger moved for declaratory judgment under the Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, and Federal Rule of Civil Procedure 57. Yet again, the district court denied his motion. It ruled that Novinger had brought a procedurally improper motion and that no change in law or facts called for the court to exercise its discretion to modify the decrees.

Novinger appeals, and we agree with the district court—his motion was procedurally improper. That presents us with a question of first impression: whether we have jurisdiction to review a procedurally improper motion denied as such. We do not, so we dismiss the appeal.

I.

In 2015, the SEC sued Novinger for fraudulently offering and selling life settlement interests in violation of the Securities and Exchange Acts. The parties entered settlement discussions, and, about a year after the SEC's initial complaint, they reached an agreement.

As part of the "Agreed Final Judgments," the parties entered joint consent orders. Most importantly to Novinger's appeal, the parties agreed to comply with

the Commission's policy "not to 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," and "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." . . . [Further,] Defendant: (i) will not take any action or 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; (ii) will not make or permit to be made any public statement to the effect that Defendant does not admit the allegations of the complaint, or that this Consent contains no admission of the allegations, without also stating that defendant does not deny the allegations . . . .

The consent agreements explained that "[i]f Defendant breaches this agreement, the Commission may petition the Court to vacate the Final Judgment and restore this action to its active docket."

In 2016, the district court entered the final judgments and incorporated the consent agreements. Five years later, though, Novinger filed a Rule 60(b) motion to reopen the case and to obtain relief from judgment. He alleged that the consent agreements were "gag orders" that "violate[d] the First Amendment" and were derived from an SEC rule promulgated in violation of the APA, making the agreements void.

The district court denied that motion, and our court affirmed. See Novinger I, 40 F.4th at 300. Judge Jones added a single-paragraph concurrence, joined by Judge Duncan, explaining that the SEC's consent policy struck her as a brutally "effective prior restraint." Id. at 308 (Jones, J., concurring) Still, she did not suggest it merited alteration under Rule 60(b).

Encouraged by the two-judge concurrence, Novinger filed a motion for declaratory relief under 18 U.S.C. § 2201 and Rule 57. Effectively raising the same claims as in his Rule 60(b) motion, he asserted that the "gag order" operated as a prior restraint in violation of the First Amendment and violated both the Due Process clause and the Federal Rules of Civil Procedure. Additionally, he contended that the "gag order" was beyond the scope of the SEC's powers.

The district court denied that motion too, "find[ing] that a motion for declaratory judgment is not an appropriate pleading for purposes of the Declaratory Judgment Act." SEC v. Novinger (Novinger II), No. 4:15-CV-00358, 2023 WL 3593254, at *3 (N.D. Tex. Mar. 22, 2023). Further, despite its "inherent authority to modify" a decree because of its prospective effect, the district court found that "there has been [no] change in the underlying law or facts that suggest the Court should modify the decrees." Id.

Novinger appeals, contending that the motion was procedurally proper and that the court abused its discretion by denying declaratory relief.

II.

Though neither party disputes our jurisdiction, we must confirm it sua sponte.² Therefore, before we address the merits of Novinger's contentions, we consider whether we have appellate jurisdiction to review a denial of a procedurally improper motion that the district court denied as such.

The district court addressed only two issues in its order. First, it denied Novinger's motion for declaratory relief as procedurally improper. Second, it declined to exercise its inherent discretion to modify the consent decrees. Novinger describes those conclusions as final judgments, reviewable under 28 U.S.C. § 1291 because they "disposed of all Appellants' claims raised in their Motion for Declaratory Relief." Brief for the Appellant at 1. Similarly, although the SEC, Brief for the Appellee at 2, cites Cadle Co. v. Neubauer, 562 F.3d 369, 372 (5th Cir. 2009), for the proposition that "most" post-judgment orders are final decisions, it omits the court's subsequent explanation that "not all are."

Only orders that "dispose completely of the issues raised" are final decisions. Id. The order here is not a final decision because it did not dispose of Novinger's entire claim but merely prevented Novinger from pursuing a claim through the wrong procedural vehicle.

Two other circuits have ruled on the procedural question presented here—whether a party may bring a declaratory judgment motion in a non-DJA action.³ Both courts held that only final decisions are appealable, but differing procedural histories led to differing conclusions on jurisdiction. The Ninth had jurisdiction, and the Eleventh did not. The procedural history here mirrors the Eleventh's, not the Ninth's.

In both Ninth Circuit cases, that court had jurisdiction because it was ruling on orders that disposed of more than just the procedurally improper motions. In Tucson, the order being appealed had "denied intervenors' request for declaratory relief and issued a twelve-page opinion approving the consent decrees."⁴ In other words, the court had jurisdiction because of the entry of the consent decrees. Similarly, in Kam-Ko, the district court had ruled on the substantive unconscionability of an arbitration clause and a request for a stay—then it dismissed the action. See 560 F.3d at 939. In the instant case, though, the district court merely ruled on the motion and declined to exercise its inherent discretion. Thus, we distinguish the Ninth Circuit cases in our jurisdictional analysis.

The Eleventh Circuit case, though, is on point. In Thomas, the court reviewed a denied motion for declaratory judgment and—exactly as here—dealt with no other issues.⁵ See 594 F.3d at 827-28. Also as here, "neither party challenge[d the court's] jurisdiction to entertain th[e] appeal" because both believed the order was final, or at least a ruling under the DJA. Id. at 828. But the court addressed the issue sua sponte. Id.

It began by evaluating whether the order was a final judgment giving rise to § 1291 jurisdiction. It concluded first that the district court's order "did not 'finally settle the matter in litigation.' "⁶ "Second," the court ruled, "the order did not dispose of the matter because it did not hold the movant in contempt or impose any sanction for violating the injunction."⁷ Thus, the order was not a final judgment, and the court did not have § 1291 jurisdiction.

The Eleventh Circuit considered and quickly rejected jurisdiction under the collateral order doctrine. The order did not "conclusively determine the disputed question." Id. at 831. Finally, that court rejected the possibility of interlocutory appellate jurisdiction under § 1292(a)(1) because the district court had not changed the injunction. Id. at 832.

We follow the path of the Eleventh Circuit. But, unlike the district court in Thomas, the district court here provided a detailed and clear justification for its denial of Novinger's motion.⁸ So, we need not "put words into the mouth of the district court . . . ." Thomas, 594 F.3d at 830. All we need to do is determine whether its ruling was a "final decision of the district court." La Union del Pueblo Entero v. Abbott, 93 F.4th 310, 319 (5th Cir. 2024) (cleaned up).

"A final...