Sec. & Exch. Comm'n v. Novinger

40 F.4th 297

SECURITIES AND EXCHANGE COMMISSION, Plaintiff—Appellee,

v.Christopher A. NOVINGER; ICAN Investment Group, L.L.C., Defendants—Appellants.

No. 21-10985

United States Court of Appeals, Fifth Circuit.

FILED July 12, 2022

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, Kara Rollins, New Civil Liberties Alliance, Washington, DC, for Defendants—Appellants.

Michael David Pepson, Americans for Prosperity Foundation, Arlington, VA, for Amicus Curiae.

Before Jones, Stewart, and Duncan, Circuit Judges.

Carl E. Stewart, Circuit Judge:

The defendants settled a civil enforcement action that the Securities and Exchange Commission ("SEC") brought against them for alleged securities violations. Following its standard policy, the SEC barred the defendants from denying that they engaged in the charged conduct as a condition of settlement (the "no-deny policy"). The parties executed consent agreements containing provisions to that effect and submitted them to the district court, which entered final judgments. Five years later, the defendants filed a motion under Rule 60(b)(4) and 60(b)(5) seeking relief from the final judgments to the extent that they incorporated the no-deny policy. They argued that the no-deny policy violates their First Amendment and due process rights. The district court denied the motion, and the defendants appealed. For the reasons that follow, we AFFIRM.

I. FACTS & PROCEDURAL HISTORY

Since 1972, the SEC has prohibited defendants who settle civil enforcement actions without admitting guilt from publicly "denying the allegations in the complaint" filed against them. 37 Fed. Reg. 25,224 (Nov. 29, 1972). The SEC enacted this no-deny policy, which is codified at 17 C.F.R. 202.5(e), after determining that it was "important to avoid creating, or permitting to be created, an impression that a decree is being entered or a sanction imposed, when the conduct alleged did not, in fact, occur." Id. Under the policy, "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." Id.

In May 2015, the SEC filed a complaint against several defendants including Christopher A. Novinger and ICAN Investment Group, LLC, a company that Novinger formed and directed.¹ The SEC alleged that Novinger and a confederate fraudulently sold $4.3 million worth of securities by making false or misleading statements to Texas investors, pocketing nearly $515,000 in commissions. Novinger allegedly funneled some of this money through ICAN. The SEC claimed that their conduct violated the antifraud and registration provisions of the securities laws.

The defendants, through counsel, negotiated a settlement with the SEC and informed the district court that they had amicably resolved the case. Pursuant to the settlement, the defendants each executed consent agreements that imposed monetary and injunctive relief. In the consent agreements, the defendants conceded the district court's "jurisdiction over [them] and over the subject matter of this action." In addition, the defendants acknowledged that they entered the consent agreements "voluntarily" and confirmed "that no threats, offers, promises, or inducements of any kind" caused their agreement.

The defendants also represented that they understood and agreed to comply with the SEC's no-deny policy. More precisely, the defendants agreed that, among other things, they "(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" and "(ii) will not make or permit to be made any public statement to the effect that [they do] not admit the allegations of the complaint, or that this Consent contains no admission of the allegations, without also stating that [they do] not deny the allegations." The consent agreement further provided that if the defendants breached the agreement, the SEC could "petition the [district court] to vacate the Final Judgment and restore this action to its active docket."

The parties submitted the consent agreements, along with proposed final judgments, to the district court for entry. The district court granted the motion and "issue[d] final judgments against all Defendants in the forms agreed upon by the parties." The final judgments reiterated that the defendants "consented to the [district court's] jurisdiction over [them] and the subject matter of this action" and that they "consented to entry of this Final Judgment without admitting or denying the allegations of the Complaint [ ]except as to jurisdiction." Finally, the final judgments referentially incorporated the consent agreements "with the same force and effect as if fully set forth herein" and stated that the defendants "shall comply with all of the undertakings and agreements" established in those documents. The district court entered the final judgments on June 6, 2016.

Five years later, on June 17, 2021, the defendants filed a motion for relief from the judgments against them under Federal Rule of Civil Procedure 60(b)(4) and 60(b)(5). The defendants argued that the judgments were void to the extent that they incorporated the no-deny policy, which the defendants claimed violated the First Amendment and denied them due process. Allegedly, the no-deny policy prevents Novinger from "engag[ing] in truthful public statements concerning SEC's case against him and ICAN" for fear of having the case reopened. The district court denied the motion, concluding that the defendants failed to meet their burden under either Rule 60(b)(4) or 60(b)(5). The defendants timely appealed.

II. STANDARD OF REVIEW

This court reviews de novo a district court's denial of a Rule 60(b)(4) motion to set aside a judgment as void. Callon Petroleum Co. v. Frontier Ins. Co. , 351 F.3d 204, 208 (5th Cir. 2003). " Rule 60(b)(4) motions leave no margin for consideration of the district court's discretion as the judgments themselves are by definition either legal nullities or not."

Brumfield v. La. State Bd. of Educ. , 806 F.3d 289, 296 (5th Cir. 2015) (quoting Carter v. Fenner , 136 F.3d 1000, 1005 (5th Cir. 1998) ).

Rule 60(b)(5) motions, in contrast, "are directed to the sound discretion of the district court, and its denial of relief upon such motion will be set aside on appeal only for abuse of that discretion." Id. (quoting Seven Elves v. Eskenazi , 635 F.2d 396, 402 (5th Cir. 1981) ). "A district court abuses its discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on erroneous conclusions of law; or (3) misapplies the law to the facts." Texas v. Alabama-Coushatta Tribe of Tex. , 918 F.3d 440, 446–47 (5th Cir. 2019) (quoting In re Volkswagen of Am., Inc. , 545 F.3d 304, 310 (5th Cir. 2008) (en banc)). This court reviews de novo "any questions of law underlying the district court's decision." Id. at 447 (quoting Frew v. Janek , 780 F.3d 320, 326 (5th Cir. 2015) ).

III. DISCUSSION

" Rule 60(b) allows a party to seek relief from a final judgment, and request reopening of his case, under a limited set of circumstances," making it "an exception to finality." Gonzalez v. Crosby , 545 U.S. 524, 528–59, 125 S.Ct. 2641, 162 L.Ed.2d 480 (2005). As relevant here, the rule authorizes a district court to "relieve a party or its legal representative from a final judgment, order, or proceeding" because "(4) the judgment is void" or "(5) ... applying it prospectively is no longer equitable." FED. R. CIV. P. 60(b)(4)–(5). The defendants challenge the district court's denial of their Rule 60(b) motion, contending that they are entitled to relief under Rule 60(b)(4) and 60(b)(5). We address their arguments in turn.

A. Rule 60(b)(4)

The defendants first argue that they are entitled to Rule 60(b)(4) relief because certain defects rendered void the final judgments that the district court entered. "[A] void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final. The list of such infirmities is exceedingly short; otherwise, Rule 60(b)(4)'s exception to finality would swallow the rule." United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (citations omitted). A legal error, standing alone, does not render a judgment void. Id. Rather, " Rule 60(b)(4) applies only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard." Id. at 271, 130 S.Ct. 1367 ; see also Brumfield , 806 F.3d at 298 ("An order ‘is void only if the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or it acted in a manner inconsistent with due process of law.’ " (quoting Williams v. New Orleans Pub. Serv., Inc. , 728 F.2d 730, 735 (5th Cir. 1984) )).

i. Jurisdiction

The Supreme Court has not "define[d] the precise circumstances in which a jurisdictional error will render a judgment void." Espinosa , 559 U.S. at 271, 130 S.Ct. 1367 ; see also Brumfield , 806 F.3d at 301 ("The Supreme Court ... has not definitively interpreted this rule."). This court has previously held that "a Rule 60(b)(4) challenge to jurisdiction should be sustained only where there is a ‘clear usurpation of power’ or ‘total want of jurisdiction.’ " Callon , 351 F.3d at 208 (quoting Nemaizer v. Baker , 793 F.2d 58, 64–65 (2d Cir. 1986) ). Here, however, the parties agree that no jurisdictional error renders void the relevant judgments. As the defendants wrote in their appellate brief, "Novinger does not contest the [district] court's jurisdiction for SEC's prosecution of him under the securities...