Second Circuit Rejects Attempt to Blow Up 16-Year-Old “Gag Order” Under Fed. R. Civ. P. 60(b)(4)

In SEC v. Romeril, No. 19-4197 (2d Cir. Sept. 27, 2021), the Second Circuit affirms a decision not to vacate a 2003 consent judgment between a corporate CFO and the Securities and Exchange Commission because the defendant “does not allege a defect that would permit relief under Rule 60(b)(4).” Rule 60(b)(4) authorizes courts to “relieve a party . . . from a final judgment” when “the judgment is void.”

“In 1972, the SEC announced that it would not approve agreements that allowed defendants to ‘consent to a judgment or order that imposes a sanction while denying the allegations in the complaint’ . . . . On June 5, 2003, the SEC filed a civil enforcement action in the Southern District of New York pursuant to Section 21(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(d), alleging that [defendant-appellant] Romeril, the former Chief Financial Officer of Xerox, and other senior executives at Xerox violated securities laws from 1997 to 2000 by manipulating Xerox’s reporting of earnings to the SEC and investors.”

In 2003, Romeril entered into a consent decree with the SEC that characteristically required the defendant to “agree[] not to take any action or to 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.”

“On May 6, 2019, nearly sixteen years after the Judgment was entered, Romeril moved in the district court for relief from the Judgment pursuant to Federal Rule of Civil Procedure 60(b)(4). He argued that the Judgment was void because the provision barring public denials of the allegations against him—in his words a ‘gag order’—constituted a prior restraint that infringes his First Amendment rights and violated his right to due process. Specifically, Romeril argued that the provision deprived him of the right to ‘speak, write, or publish [his] account of the events leading to’ his prosecution, to defend himself in the media, and to petition Congress and the SEC for securities law reform.”

The district court denied the relief, both on timing grounds and because defendant “failed to allege a jurisdictional defect or violation of due process that would render the Judgment void for purposes of Rule 60(b)(4).”

The Second Circuit affirms. The panel skips the untimeliness argument to reach the merits. (Worth noting that the defendant obtained three amicus briefs from pro-business organization on this point.)

Rule 60(b)(4), the panel observes, applies in just two situations: “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.” There was no jurisdictional error because the “the district court had both subject matter and personal jurisdiction.”

Romeril’s first argument was that the decree was beyond the court’s power because it violated his First Amendment rights. The panel finds no violation, though, because the defendant voluntarily submitted to waiving his speech rights. “In the course of resolving legal proceedings, parties can, of course, waive their rights, including such basic rights as the right to trial and the right to confront witnesses . . . . The First Amendment is no exception, and parties can waive their First Amendment rights in consent decrees and other settlements of judicial proceedings.”

His second argument is that the judgment was void on due process grounds, due to the alleged vagueness and excessive breadth of the decree. Yet the panel holds that due process was satisfied by the defendant having notice of the action and an opportunity to defend.” The defendant “willingly agreed to the no-deny provision as part of a consent decree. While he waived certain rights, including the right to trial and the right to publicly deny the allegations against him, he eliminated the expense of further litigation and the risk of an adverse judgment, including higher monetary penalties and judicial findings that he had violated securities laws.”

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