115227cv(L)

UnitedStatesSecuritiesandExchangeCommissionv.CitigroupGlobalMarkets,Inc.
UNITEDSTATESCOURTOFAPPEALS 1
FORTHESECONDCIRCUIT 2
____________________ 3
4
AugustTerm,2012 5
6
(Argued:February8,2013Decided:June4,2014) 7
8
DocketNos.115227cv(L);115375cv(con),115242cv(xap) 9
10
____________________ 11
12
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION, 13
PlaintiffAppellantCrossAppellee, 14
15
v. 16
17
CITIGROUPGLOBALMARKETS,INC., 18
19
DefendantAppelleeCrossAppellant. 20
21
____________________ 22
23
Before:POOLER,LOHIER,andCARNEY,CircuitJudges. 24
25
TheUnitedStatesSecuritiesandExchangeCommission(S.E.C.)appeals 26
fromtheNovember28,2011orderoftheUnitedStatesDistrictCourtforthe 27
SouthernDistrictofNewYork(JedS.Rakoff,J.)refusingtoapproveasettlement 28
betweentheS.E.C.andCitigroupGlobalMarketsInc.andsettingatrialdate. 29
OurCourtstayedtheorderonMarch15,2012.S.E.C.v.CitigroupGlobalMkts., 30
Inc.,673F.3d158(2dCir.2012).Wefindthedistrictcourtabuseditsdiscretionin 1
byapplyinganincorrectlegalstandardinitsreview,andvacateandremandfor 2
furtherproceedingsconsistentwiththisopinion. 3
Vacatedandremanded. 4
____________________ 5
MICHAELA.CONLEY,DeputyGeneralCounsel, 6
SecuritiesandExchangeCommission(JacobH. 7
Stillman,Solicitor,MarkPennington,AssistantGeneral 8
Counsel,JeffreyA.Berger,SeniorCounsel,onthebrief), 9
Washington,D.C.,forPlaintiffAppellantCrossAppellee 10
UnitedStatesSecuritiesandExchangeCommission. 11
12
BRADS.KARP,Paul,Weiss,Rifkind,Wharton& 13
Garrison,LLP(TheodoreV.Wells,Jr.,MarkF. 14
Pomerantz,WalterRieman,SusannaM.Buergel,onthe 15
brief),NewYork,N.Y.,forDefendantAppelleeCross 16
AppellantCitigroupGlobalMarkets,Inc. 17
18
JOHNR.WING,LanklerSiffert&WohlLLP(PatrickP. 19
Garlinger,onthebrief),NewYork,N.Y.,AppointedPro 20
BonoCounselfortheUnitedStatesDistrictCourtforthe 21
SouthernDistrictofNewYork(JedS.Rakoff,J.). 22
23
MARKA.PERRY,Gibson,Dunn&Crutcher,LLP, 24
Washington,D.C.,forAmicusCuriaeBusinessRoundtable, 25
insupportofreversal. 26
27
WILLIAMMICHAELCUNNINGHAM,TempleHills, 28
MD,AmicusCuriaeprose,insupportofaffirmance. 29
30
2
DENNISM.KELLEHER(StephenW.Hall,KatelynnO. 1
Bradley,onthebrief)Washington,D.C.,forAmicusCuriae 2
BetterMarkets,Inc.,insupportoftheaffirmance. 3
4
MATTHEWG.YEAGER,PH.D.,Departmentof 5
Sociology,KingsUniversityCollege,London,Ontario 6
(WilliamCalathes,DepartmentofCriminalJustice,New 7
JerseyCityUniversity,JerseyCity,N.J.,onthebrief), 8
AmiciCuriaeprose,insupportofaffirmance. 9
10
BARBARAJ.BLACK,CharlesHartsockProfessorof 11
Law&Director,CorporateLawCenter,Universityof 12
CincinnatiCollegeofLaw,Cincinnati,Ohio,forAmici 13
CuriaeSecuritiesLawScholarsJayneW.Barnard,Douglas 14
M.Branson,ChrisJ.Brummer,SamuelW.Buell,JohnC. 15
Coffee,Jr.,JamesD.Cox,JamesFanto,JillE.Fisch,Tamar 16
Frankel,TheresaGabaldon,JoanMacLeodHeminway, 17
ThomasW.Joo,LawrenceE.Mitchell,JenniferOHare,Alan 18
R.Palmiter,MargaretV.Sachs,FaithStevelman,andLynn 19
A.Stout,insupportofaffirmance. 20
21
AKSHATTEWARY,Edison,N.J.,forAmicusCuriae 22
OccupyWallStreetAlternativeBankingGroup,insupport 23
ofaffirmance. 24
25
TERESAMARIEGOODY,KaloramaLegalServices, 26
PLLC,Washington,D.C.,forAmicusCuriaeHarveyL. 27
Pitt,insupportofaffirmance. 28
29
LORIALVINOMCGILL,Latham&WatkinsLLP, 30
(RobinS.Conrad,RachelBrand,NationalChamber 31
LitigationCenter,Inc.;JamesM.Spears,MelissaB. 32
Kimmel,PharmaceuticalResearchandManufacturersof 33
America,onthebrief),Washington,D.C.,forAmiciCuriae 34
ChamberofCommerceoftheUnitedStatesand 35
3
PharmaceuticalResearchandManufacturersofAmerica,in 1
supportofreversal. 2
3
ANNETTEL.NAZARETH,DavisPolk&Wardwell 4
LLP(EdmundPolubinskiIII,GinaCaruso,onthebrief) 5
NewYork,N.Y.,forAmicusCuriaeSecuritiesIndustryand 6
FinancialMarketsAssociation,insupportofreversal. 7
8
DANIELP.CHIPLOCK,LieffCabraserHeimann& 9
Bernstein,LLP,NewYork,N.Y.,forAmicusCuriae 10
NationalAssociationofShareholderandConsumer 11
Attorneys,insupportofreversal. 12
13
POOLER,CircuitJudge: 14
TheUnitedStatesSecuritiesandExchangeCommission(S.E.C.)in 15
conjunctionwithCitigroupGlobalMarkets,Inc.(Citigroup)appealsfromthe 16
November28,2011orderoftheUnitedStatesDistrictCourtfortheSouthern 17
DistrictofNewYork(Rakoff,J.)refusingtoapproveaconsentdecreeentered 18
intobythepartiesandinsteadsettingatrialdate.OurCourtstayedthatorder 19
andreferredthemattertoameritspanelforconsiderationoftheunderlying 20
questions.S.E.C.v.CitigroupGlobalMarkets,Inc.,673F.3d158(2dCir.2012).We 21
nowholdthatthedistrictcourtabuseditsdiscretionbyapplyinganincorrect 22
legalstandardinassessingtheconsentdecreeandsettingadatefortrial. 23
24
4
BACKGROUND 1
I. Complaintandproposedconsentjudgment. 2
InOctober2011,theS.E.C.filedacomplaintagainstCitigroup,alleging 3
thatCitigroupnegligentlymisrepresenteditsroleandeconomicinterestin 4
structuringandmarketingabilliondollarfund,knownastheClassVFunding 5
III(theFund),andviolatedSections17(a)(2)and(3)oftheSecuritiesActof 6
1933(theAct).ThecomplaintallegesthatCitigroupexercisedsignificant 7
influenceovertheselectionof$500millionworthoftheFundsassets,which 8
wereprimarilycollateralizedbysubprimesecuritiestiedtothealreadyfaltering 9
U.S.housingmarket.CitigrouptoldFundinvestorsthattheFundsinvestment 10
portfoliowaschosenbyanindependentinvestmentadvisor,but,theS.E.C. 11
alleged,Citigroupitselfselectedasubstantialamountofnegativelyprojected 12
mortgagebackedassetsinwhichCitigrouphadtakenashortposition.By 13
assumingashortposition,Citigrouprealizedprofitsofroughly$160million 14
fromthepoorperformanceofitschosenassets,whileFundinvestorssuffered 15
millionsofdollarsinlosses. 16
Shortlyafterfilingofthecomplaint,theS.E.C.filedaproposedconsent 17
judgment.Intheproposedconsentjudgment,Citigroupagreedto:(1)a 18
5
permanentinjunctionbarringCitigroupfromviolatingActSections17(a)(2)and 1
(3);(2)disgorgementof$160million,whichtheS.E.C.assertedwereCitigroups 2
netprofitsgainedasaresultoftheconductallegedinthecomplaint;(3) 3
prejudgmentinterestintheamountof$30million;and(4)acivilpenaltyof$95 4
million.Citigroupalsoagreednottoseekanoffsetagainstanycompensatory 5
damagesawardedinanyrelatedinvestoraction.Citigroupconsentedtomake 6
internalchanges,foraperiodofthreeyears,topreventsimilaractsfrom 7
happeninginthefuture.Absentfromtheconsentdecreewasanyadmissionof 8
guiltorliability. 9
TheS.E.C.alsofiledaparallelcomplaintagainstCitigroupemployeeBrian 10
Stoker.SeeS.E.C.v.BrianH.Stoker,11Civ.7388(JSR).TheStokercomplaint 11
allegedthatStokernegligentlyviolatedSections17(a)(2)and(3)oftheActin 12
connectionwithhisroleinstructuringandmarketingthecollateralizeddebt 13
obligationsintheFund. 14
II. Proceedingsbeforethedistrictcourt. 15
Thedistrictcourtscheduledahearinginthematter,andpresentedthe 16
S.E.C.andCitigroupwithalistofquestionstoanswer.Thequestionsincluded: 17
WhyshouldtheCourtimposeajudgmentinacaseinwhichthe 18
6
S.E.C.allegesaserioussecuritiesfraudbutthedefendantneither 1
admitsnordenieswrongdoing? 2
GiventheS.E.C.sstatutorymandatetoensuretransparencyinthe 3
financialmarketplace,isthereanoverridingpublicinterestin 4
determiningwhethertheS.E.C.schargesaretrue?Istheinterest 5
evenstrongerwhenthereisnoparallelcriminalcase? 6
Howwastheamountoftheproposedjudgmentdetermined?In 7
particular,whatcalculationswentintothedeterminationofthe$95 8
millionpenalty?Why,forexample,isthepenaltyinthiscaseless 9
thanonefifthofthe$535millionpenaltyassessedinS.E.C.v. 10
GoldmanSachs&Co....?Whatreasonistheretobelievethis 11
proposedpenaltywillhaveameaningfuldeterrenteffect? 12
Theproposedjudgmentimposesinjunctivereliefagainstfuture 13
violations.WhatdoestheS.E.C.dotomaintaincompliance?How 14
manycontemptproceedingsagainstlargefinancialentitieshasthe 15
S.E.C.broughtinthepastdecadeasaresultofviolationsofprior 16
consentjudgments? 17
WhyisthepenaltyinthiscasetobepaidinlargepartbyCitigroup 18
anditsshareholdersratherthanbytheculpableindividual 19
7
offendersactingforthecorporation?[]IftheS.E.C.wasforthe 1
mostpartunabletoidentifysuchallegedoffenders,whywasthis? 2
Howcanasecuritiesfraudofthisnatureandmagnitudebethe 3
resultsimplyofnegligence? 4
BoththeS.E.C.andCitigroupsubmittedwrittenresponsestothedistrict 5
courtsquestions.OnNovember9,2011,thedistrictcourtconductedahearingto 6
explorethequestionspresented.Afewweekslater,thedistrictcourtissueda 7
writtenopiniondecliningtoapprovetheconsentjudgment.S.E.C.v.Citigroup 8
GlobalMarketsInc.,827F.Supp.2d328(S.D.N.Y.2011)(CitigroupI).The 9
districtcourtstatedthat 10
beforeacourtmayemployitsinjunctiveandcontempt 11
powersinsupportofanadministrativesettlement,itis 12
required,evenaftergivingsubstantialdeferencetothe 13
viewsoftheadministrativeagency,tobesatisfiedthatit 14
isnotbeingusedasatooltoenforceanagreementthat 15
isunfair,unreasonable,inadequate,orincontravention 16
ofthepublicinterest. 17
18
Id.at332.Itfoundthattheproposedconsentdecree 19
isneitherfair,norreasonable,noradequate,norinthe 20
publicinterest...becauseitdoesnotprovidetheCourt 21
withasufficientevidentiarybasistoknowwhetherthe 22
requestedreliefisjustifiedunderanyofthese 23
standards.Purelyprivatepartiescansettleacase 24
8
withouteveragreeingonthefacts,forallthatis 1
requiredisthataplaintiffdismisshiscomplaint.But 2
whenapublicagencyasksacourttobecomeitspartner 3
inenforcementbyimposingwideranginginjunctive 4
remediesonadefendant,enforcedbytheformidable 5
judicialpowerofcontempt,thecourt,andthepublic, 6
needsomeknowledgeofwhattheunderlyingfactsare: 7
forotherwise,thecourtbecomesamerehandmaidento 8
asettlementprivatelynegotiatedonthebasisof 9
unknownfacts,whilethepublicisdeprivedofever 10
knowingthetruthinamatterofobviouspublic 11
importance. 12
13
Id.(footnotesomitted). 14
ThedistrictcourtcriticizedthereliefobtainedbytheS.E.C.intheconsent 15
decree,comparingitunfavorablywithsettlementsenteredinS.E.C.v.Bankof 16
AmericaCorp.,No.09Civ.6829(JSR),2010WL624581(S.D.N.Y.Feb.22,2010), 17
andinS.E.C.v.GoldmanSachs&Co.etal.,No.10Civ.3229(BSJ),DocketNo.25 18
(S.D.N.Y.July20,2010).SeeCitigroupI,827F.Supp.2dat33031,334n.7.Inboth 19
BankofAmericaandGoldmanSachs,thedistrictcourtnoted,thepartiesstipulated 20
tocertainfindingsoffacts.Withoutsuchanevidentiarybasisinthiscase,the 21
districtcourtreasoned,theCourtisforcedtoconcludethataproposedConsent 22
JudgmentthataskstheCourttoimposesubstantialinjunctiverelief,enforcedby 23
theCourtsowncontemptpower,onthebasisofallegationsunsupportedbyany 24
9
provenoracknowledgedfactswhatsoever,isneitherreasonable,norfair,nor 1
adequate,norinthepublicinterest.Id.at335. 2
Thus,thedistrictcourtconcluded: 3
Anapplicationofjudicialpowerthatdoesnotreston 4
factsisworsethanmindless,itisinherentlydangerous. 5
Theinjunctivepowerofthejudiciaryisnotafreeroving 6
remedytobeinvokedatthewhimofaregulatory 7
agency,evenwiththeconsentoftheregulated.Ifits 8
deploymentdoesnotrestonfactscold,hard,solid 9
facts,establishedeitherbyadmissionsorbytrialsit 10
servesnolawfulormoralpurposeandissimplyan 11
engineofoppression. 12
13
Id. 14
Thedistrictcourtrefusedtoapprovetheconsentjudgment,andinstead 15
consolidatedthiscasewiththeStokeractionandorderedthepartiestobe 16
preparedtotrybothcasesonJuly16,2012. 17
III. PriorproceedingsbeforethisCourt. 18
TheS.E.C.andCitigroupfiledimmediatenoticesofappeal.TheS.E.C.also 19
movedinthedistrictcourtforanemergencystaypendingtheoutcomeofthe 20
appeal,butbeforethedistrictcourtcoulddecidethestaymotionbeforeit,the 21
S.E.C.soughtanemergencystayinourCourt.Asanalternativebasisforrelief, 22
theS.E.C.alsofiledapetitionforawritofmandamustosettheorderaside. 23
10
PriortoourCourtsrulingonthestaymotionandmandamuspetition,the 1
districtcourtissueditsdecisiondenyingthemotionforastay.S.E.C.v.Citigroup 2
GlobalMarketsInc.,827F.Supp.2d336(S.D.N.Y.2011)(CitigroupII).The 3
districtcourtreasonedthatourCourtlackedjurisdictiontohearaninterlocutory 4
appealfromthedenialofapprovalofaconsentjudgment.Id.at33839.Asto 5
theS.E.C.sproposaltofileawritofmandamusasanalternativetoastatutory 6
appeal,thedistrictcourtsimilarlyfoundthatsuchactionwouldnotdivestitof 7
jurisdiction,and,consequently,declinedtoconsidertheS.E.C.srequestfora 8
stay.Id.at33940. 9
OurCourtdisagreed,grantingthemotionforastaypendingbeforeus. 10
S.E.C.v.CitigroupGlobalMarketsInc.,673F.3d158(2dCir.2012)(CitigroupIII). 11
WeconcludedthattheS.E.C.demonstratedastronglikelihoodofsuccessonthe 12
merits,becausethedistrictcourtdidnotaccordtheS.E.C.sjudgmentadequate 13
deference.Id.at16365.Asbothpartiesbeforeusadvocatedforapprovingthe 14
consentorder,weorderedcounselappointedtoadvocateforthedistrictcourts 15
order.Id.at169.Beforeusnowisthemeritsappeal. 16
17
18
11
ANALYSIS 1
Wereviewthedistrictcourtsdenialofasettlementagreementunderan 2
abuseofdiscretionstandard.SeeS.E.C.v.Wang,944F.2d80,85(2dCir.1991).A 3
districtcourtabusesitsdiscretionifit(1)baseditsrulingonanerroneousview 4
ofthelaw,(2)madeaclearlyerroneousassessmentoftheevidence,or(3) 5
renderedadecisionthatcannotbelocatedwithintherangeofpermissible 6
decisions.Lynchv.CityofNewYork,589F.3d94,99(2dCir.2009)(internal 7
quotationmarksomitted). 8
I. Appellatejurisdiction. 9
TheS.E.C.arguesthatwehavejurisdictiontoconsiderthisinterlocutory 10
appealpursuantto28U.S.C.1292(a)(1).Weagree.Section1292(a)(1)statesin 11
relevantpart: 12
(a)[T]hecourtsofappealsshallhavejurisdictionof 13
appealsfrom: 14
(1)Interlocutoryordersofthedistrictcourtsofthe 15
UnitedStates,...orofthejudgesthereof,granting, 16
continuing,modifying,refusingordissolving 17
injunctions,orrefusingtodissolveormodify 18
injunctions.... 19
20
Because1292(a)(1)wasintendedtocarveoutonlyalimitedexceptionto 21
thefinaljudgmentrule,wehaveconstruedthestatutenarrowlytoensurethat 22
12
appealasofrightunder1292(a)(1)willbeavailableonlyincircumstances 1
whereanappealwillfurtherthestatutorypurposeofpermittinglitigantsto 2
effectuallychallengeinterlocutoryordersofserious,perhapsirreparable, 3
consequence.Carsonv.Am.BrandsInc.,450U.S.79,84(1981)(internalquotation 4
marksomitted).Thus,[u]nlessalitigantcanshowthataninterlocutoryorder 5
ofthedistrictcourtmighthaveaserious,perhapsirreparable,consequence,and 6
thattheordercanbeeffectuallychallengedonlybyimmediateappeal,the 7
generalcongressionalpolicyagainstpiecemealreviewwillpreclude 8
interlocutoryappeal.Id.(internalquotationmarksomitted). 9
InCarson,theconsentdecreeatissuepermanentlyenjoinedanemployer 10
andaunionfromdiscriminatingagainstAfricanAmericanemployees,required 11
changestothewayseniorityandbenefitswereawarded,establishedhiringgoals, 12
andgrantedjobbiddingpreferences.450U.S.at84.TheCarsoncourtfoundthe 13
districtcourtsrefusaltoapprovetheconsentdecreeconstitutedirreparableharm 14
because: 15
theDistrictCourtmadeclearthatitwouldnotenterany 16
decreecontainingremedialreliefprovisionsthatdidnot 17
restsolidlyonevidenceofdiscriminationandthatwere 18
notexpresslylimitedtoactualvictimsofdiscrimination. 19
Inrulingsobroadly,thecourtdidmorethanpostpone 20
13
considerationofthemeritsofpetitionersinjunctive 1
claim.Iteffectivelyforeclosedsuchconsideration. 2
Havingstatedthatitcouldperceivenovestigesofracial 3
discriminationonthefactspresented,andthatevenifit 4
could,noreliefcouldbegrantedtofutureemployees 5
andotherswhowerenotactualvictimsof 6
discrimination,thecourtmadeclearthatnothingshort 7
ofanadmissionofdiscriminationbyrespondentsplusa 8
completerestructuringoftheclassreliefwouldinduceit 9
toapproveremedialinjunctiveprovisions. 10
Id.at87n.12(internalquotationmarksomitted).Moreover,theCarsoncourt 11
foundthat[b]ecauseapartytoapendingsettlementmightbelegallyjustifiedin 12
withdrawingitsconsenttotheagreementoncetrialisheldandfinaljudgment 13
entered,theDistrictCourtsordermightthushavetheserious,perhaps 14
irreparable,consequenceofdenyingthepartiestheirrighttocompromisetheir 15
disputeonmutuallyagreeableterms.Id.at8788(footnoteomitted).Finally,by 16
delayingapprovaloftheconsentdecree,theplaintiffswerelosingaccesstothe 17
specificjobopportunitiesandthetrainingandcompetitiveadvantagesthat 18
wouldcomewiththoseopportunities.Id.at89n.16. 19
InNewYorkv.DairyleaCooperative,Inc.,thepartiesenteredintoa 20
settlementtoresolveacivilantitrustaction.698F.2d567,56869(2dCir.1983). 21
ThesettlementincludedaprovisionlabeledInjunctionthat: 22
14
wouldenjoinDairyleafromparticipatinginany 1
agreementtofixthepriceofmilkorallocatecustomers 2
duringthenextsixyears....Dairylea[also]agreedto 3
allowNewYorkaccesstoitsbooks,recordsand 4
personnelandtopublicize,amongitsemployees,the 5
termsofthearrangementforthepurposeofensuring 6
Dairyleascompliancewiththedecreesprovisions. 7
8
Id.at569.Wefoundthattheproposedinjunctiondidnotmeettherequirements 9
ofCarsonbecausethesettlementagreementproposedminimalinjunctiverelief: 10
defendantswereenjoinedfromviolatingthelaw.Id.at570.Thepartiesargued 11
thatbecausetheproposedsettlementwouldenjoinDairyleafromparticipating 12
inanyconspiracytofixpricesorallocatecustomers,theorderdisapproving 13
thesettlementisineffectthedenialofaninjunction.Id.Wedisagreed: 14
Takentoitsextreme[]thisargumentwouldrenderthe 15
disapprovalofeveryproposedsettlementappealable.It 16
wouldbeasimplematterforthesettlingpartiesto 17
includeintheagreementaninjunctiveprovision 18
forbiddingonepartyfromviolatingthelaw.Themere 19
existenceofaninjunctiveclause,therefore,cannotbe 20
sufficienttorenderthedisapprovalofaproposed 21
settlementagreementappealable. 22
23
Id. 24
Thus,tobringaninterlocutoryappealfromadistrictcourtsdenialof 25
settlementapproval,apartymustdemonstratethat(1)thedistrictcourt,by 26
15
refusingtoapproveasettlement,effectivelydeniedapartyinjunctivereliefand 1
(2)intheabsenceofaninterlocutoryappeal,apartywillsufferirreparable 2
harm.Grantv.Local638,373F.3d104,108(2dCir.2004).Thatstandardis 3
satisfiedhere.Therejectedconsentdecreeprovidedfortwotypesofinjunctive 4
relief:(1)enjoiningCitigroupfromviolatingprovisionsoftheActinthefuture, 5
and(2)requiringCitigrouptoundertakestepsaimedatpreventingfuture 6
occurrencesofsecuritiesfraud,andperiodicallydemonstratecompliancetothe 7
S.E.C..TheS.E.C.alsodemonstratedirreparableharm:unlikethecourtin 8
Dairylea,herethedistrictcourtexpressednowillingnesstorevisitthesettlement 9
agreementwiththeparties,insteadsettingatrialdate.See,e.g.,Grant,373F.3dat 10
111(ItbearsrepeatingthattheCarsoncourtreliedheavilyonthedistrictcourts 11
warningthatitwouldneverapproveasettlementsimilartotheonetheparties 12
made.(citingCarson,450U.S.at87n.12)).WearesatisfiedthatourCourtmay 13
exercisejurisdictionoverthisinterlocutoryappeal. 14
II. Thescopeoftheconsentdecree. 15
16
Wequicklydispensewiththeargumentthatthedistrictcourtabusedits 17
discretionbyrequiringCitigrouptoadmitliabilityasaconditionforapproving 18
theconsentdecree.Inboththebriefingandatoralargument,thedistrictcourts 19
16
probonocounselstatedthatthedistrictcourtdidnotseekanadmissionof 1
liabilitybeforeapprovingtheconsentdecree.Withgoodreasonthereisno 2
basisinthelawforthedistrictcourttorequireanadmissionofliabilityasa 3
conditionforapprovingasettlementbetweentheparties.Thedecisiontorequire 4
anadmissionofliabilitybeforeenteringintoaconsentdecreerestssquarelywith 5
theS.E.C..Asthedistrictcourtdidnotconditionitsapprovaloftheconsent 6
decreeonanadmissionofliability,weneednotaddresstheissuefurther. 7
III. Thescopeofdeference. 8
Weturn,then,tothefarthornierquestionofwhatdeferencethedistrict 9
courtowesanagencyseekingaconsentdecree.OurCourtrecognizesastrong 10
federalpolicyfavoringtheapprovalandenforcementofconsentdecrees. 11
Wang,944F.2dat85.Tobesure,whenthedistrictjudgeispresentedwitha 12
proposedconsentjudgment,heisnotmerelyarubberstamp.S.E.C.v.Levine, 13
881F.2d1165,1181(2dCir.1989).Thedistrictcourtherefounditwasrequired, 14
evenaftergivingsubstantialdeferencetotheviewsoftheadministrativeagency, 15
tobesatisfiedthatitisnotbeingusedasatooltoenforceanagreementthatis 16
unfair,unreasonable,inadequate,orincontraventionofthepublicinterest. 17
CitigroupI,827F.Supp.2dat332.OtherdistrictcourtsinourCircuitview[t]he 18
17
roleoftheCourtinreviewingandapprovingproposedconsentjudgmentsin 1
S.E.C.enforcementactions[as]restrictedtoassessingwhetherthesettlementis 2
fair,reasonableandadequatewithinthelimitationsCongresshasimposedonthe 3
S.E.C.torecoverinvestorlosses.S.E.C.v.CRIntrinsicInvestors,LLC,939F. 4
Supp.2d431,434(S.D.N.Y.2013)(quotingS.E.C.v.Cioffi,868F.Supp.2d65,74 5
(E.D.N.Y.2012));seealsoUnitedStatesv.Peterson,859F.Supp.2d477,478 6
(E.D.N.Y.2012)(Adistrictcourthasthedutytodeterminewhetheraconsent 7
decreebasedonaproposedsettlementisfairandreasonable.). 8
Thefair,reasonable,adequateandinthepublicintereststandard 9
invokedbythedistrictcourtfindsitsoriginsinavarietyofcases.OurCourt 10
previouslyheld,inthecontextofassessingaplanfordistributingtheproceedsof 11
aproposeddisgorgementorder,thatoncethedistrictcourtsatisfiesitselfthat 12
thedistributionofproceedsinaproposedS.E.C.disgorgementplanisfairand 13
reasonable,itsreviewisatanend.Wang,944F.2dat85.TheNinthCircuitin 14
circumstancessimilartothosepresentedhere,aproposedconsentdecreeaimed 15
atsettlinganS.E.C.enforcementactionnotedthat[u]nlessaconsentdecreeis 16
unfair,inadequate,orunreasonable,itoughttobeapproved.S.E.C.v.Randolph, 17
736F.2d525,529(9thCir.1984). 18
18
Todayweclarifythattheproperstandardforreviewingaproposed 1
consentjudgmentinvolvinganenforcementagencyrequiresthatthedistrict 2
courtdeterminewhethertheproposedconsentdecreeisfairandreasonable,with 3
theadditionalrequirementthatthepublicinterestwouldnotbedisserved, 4
eBay,Inc.v.MercExchange,547U.S.388,391(2006),intheeventthattheconsent 5
decreeincludesinjunctiverelief.Absentasubstantialbasisintherecordfor 6
concludingthattheproposedconsentdecreedoesnotmeettheserequirements, 7
thedistrictcourtisrequiredtoentertheorder. 8
Weomitadequacyfromthestandard.Scrutinizingaproposedconsent 9
decreeforadequacyappearsborrowedfromthereviewappliedtoclassaction 10
settlements,andstrikesusasparticularlyinaptinthecontextofaproposed 11
S.E.C.consentdecree.SeeFed.R.Civ.P.23(e)(2)(Iftheproposalwouldbindthe 12
classmembers,thecourtmayapproveitonlyafterahearingandonafinding 13
thatitisfair,reasonable,andadequate.).Theadequacyrequirementmakes 14
perfectsenseinthecontextofaclassactionsettlementaclassactionsettlement 15
typicallyprecludesfutureclaims,andacourtisrightlyconcernedthatthe 16
settlementachievedbeadequate.Bythesametoken,aconsentdecreedoesnot 17
posethesameconcernsregardingadequacyiftherearepotentialplaintiffswith 18
19
aprivaterightofaction,thoseplaintiffsarefreetobringtheirownactions.If 1
thereisnoprivaterightofaction,thentheS.E.C.istheentitychargedwith 2
representingthevictims,andispoliticallyliableifitfailstoadequatelyperform 3
itsduties. 4
AcourtevaluatingaproposedS.E.C.consentdecreeforfairnessand 5
reasonablenessshould,ataminimum,assess(1)thebasiclegalityofthedecree, 6
seeBenjaminv.Jacobson,172F.3d144,15559(2dCir.1999)(terminatingexisting 7
consentdecreesasrequiredbythePrisonLitigationReformAct);(2)whetherthe 8
termsofthedecree,includingitsenforcementmechanism,areclear,see,e.g., 9
AngelaR.exrel.Hesselbeinv.Clinton,999F.2d320,325(8thCir.1993)(district 10
courtabuseditsdiscretionbyapprovingconsentdecreethatdidnotproperly 11
definetheenforcementmechanisms);(3)whethertheconsentdecreereflectsa 12
resolutionoftheactualclaimsinthecomplaint;and(4)whethertheconsent 13
decreeistaintedbyimpropercollusionorcorruptionofsomekind.Cf.Kozlowski 14
v.Coughlin,871F.2d241,244(2dCir.1989)(Beforeenteringaconsentjudgment, 15
thedistrictcourtmustbecertainthatthedecree1)springsfromandservesto 16
resolveadisputewithinthecourtssubjectmatterjurisdiction,2)comeswithin 17
thegeneralscopeofthecasemadebythepleadings,and3)furtherstheobjectives 18
20
ofthelawuponwhichthecomplaintwasbased.(internalquotationmarksand 1
alternationsomitted)).Consentdecreesvary,anddependingonthedecreea 2
districtcourtmayneedtomakeadditionalinquirytoensurethattheconsent 3
decreeisfairandreasonable.Theprimaryfocusoftheinquiry,however,should 4
beonensuringtheconsentdecreeisprocedurallyproper,usingobjective 5
measuressimilartothefactorssetoutabove,takingcarenottoinfringeonthe 6
S.E.C.sdiscretionaryauthoritytosettleonaparticularsetofterms. 7
Itisanabuseofdiscretiontorequire,asthedistrictcourtdidhere,thatthe 8
S.E.C.establishthetruthoftheallegationsagainstasettlingpartyasa 9
conditionforapprovingtheconsentdecrees.CitigroupI,827F.Supp.2dat332 10
33.Trialsareprimarilyaboutthetruth.Consentdecreesareprimarilyabout 11
pragmatism.[C]onsentdecreesarenormallycompromisesinwhichtheparties 12
giveupsomethingtheymighthavewoninlitigationandwaivetheirrightsto 13
litigation.UnitedStatesv.ITTContinentalBakingCo.,420U.S.223,235(1975). 14
Thus,aconsentdecreemustbeconstruedas...written,andnotasitmight 15
havebeenwrittenhadtheplaintiffestablishedhisfactualclaimsandlegal 16
theoriesinlitigation.UnitedStatesv.Armour&Co.,402U.S.673,682(2dCir. 17
1971).Consentdecreesprovidepartieswithameanstomanagerisk.The 18
21
numerousfactorsthataffectalitigantsdecisionwhethertocompromiseacaseor 1
litigateittotheendincludethevalueoftheparticularproposedcompromise,the 2
perceivedlikelihoodofobtainingastillbettersettlement,theprospectsofcoming 3
outbetter,orworse,afterafulltrial,andtheresourcesthatwouldneedtobe 4
expendedintheattempt.CitigroupIII,673F.3dat164;seealsoRandolph,736F.2d 5
at529(Compromiseistheessenceofsettlement.EveniftheCommissionscase 6
against[defendants]isstrong,proceedingtotrialwouldstillbecostly.The 7
S.E.C.sresourcesarelimited,andthatiswhyitoftenusesconsentdecreesasa 8
meansofenforcement.(citationomitted)).Theseassessmentsareuniquelyfor 9
thelitigantstomake.Itisnotwithinthedistrictcourtspurviewtodemand 10
cold,hard,solidfacts,establishedeitherbyadmissionsorbytrials,CitigroupI, 11
827F.Supp.2dat335,astothetruthoftheallegationsinthecomplaintasa 12
conditionforapprovingaconsentdecree. 13
Aspartofitsreview,thedistrictcourtwillnecessarilyestablishthata 14
factualbasisexistsfortheproposeddecree.Inmanycases,settingoutthe 15
colorableclaims,supportedbyfactualavermentsbytheS.E.C.,neitheradmitted 16
nordeniedbythewrongdoer,willsufficetoallowthedistrictcourttoconductits 17
review.Othercasesmayrequiremoreofashowing,forexample,ifthedistrict 18
22
courtsinitialreviewoftherecordraisesasuspicionthattheconsentdecreewas 1
enteredintoasaresultofimpropercollusionbetweentheS.E.C.andthesettling 2
party.Weneednot,anddonot,delineatetheprecisecontoursofthefactualbasis 3
requiredtoobtainapprovalforeachconsentdecreethatmaypassbeforethe 4
court.Itisenoughtostatethatthedistrictcourthere,withthebenefitofcopious 5
submissionsbytheparties,likelyhadasufficientrecordbeforeitonwhichto 6
determineiftheproposeddecreewasfairandreasonable.Onremand,ifthe 7
districtcourtfindsitnecessary,itmayasktheS.E.C.andCitigrouptoprovide 8
additionalinformationsufficienttoallayanyconcernsthedistrictcourtmayhave 9
regardingimpropercollusionbetweentheparties. 10
Asnotedearlier,whenaproposedconsentdecreecontainsinjunctive 11
relief,adistrictcourtmustalsoconsiderthepublicinterestindecidingwhether 12
togranttheinjunction.SeeeBay,547U.S.at391;Salingerv.Colting,607F.3d68,80 13
(2dCir.2010).eBaymakesclearthat 14
aplaintiffseekingapermanentinjunctionmustsatisfya 15
fourfactortestbeforeacourtmaygrantsuchrelief.A 16
plaintiffmustdemonstrate:(1)thatithassufferedan 17
irreparableinjury;(2)thatremediesavailableatlaw, 18
suchasmonetarydamages,areinadequateto 19
compensateforthatinjury;(3)that,consideringthe 20
balanceofhardshipsbetweentheplaintiffand 21
23
defendant,aremedyinequityiswarranted;and(4)that 1
thepublicinterestwouldnotbedisservedbya 2
permanentinjunction. 3
4
547U.S.at391.eBaystronglyindicatesthatthetraditionalprinciplesofequityit 5
employedarethepresumptivestandardforinjunctionsinanycontext,bethey 6
preliminaryorpermanent.Salinger,607F.3dat78;seealsoWorldWidePolymers, 7
Inc.v.ShinkongSyntheticFibersCorp.,694F.3d155,16061(2dCir.2012)(applying 8
theeBaytesttoapermanentinjunctionsoughttoremedyabreachofanexclusive 9
distributorshipagreement). 10
Ouranalysisfocusesontheissuereachedbythedistrictcourt:thatthe 11
districtcourtmustassureitselfthepublicinterestwouldnotbedisservedby 12
theissuanceofapermanentinjunction.eBay,547U.S.at391;cf.WPIX,Inc.v.ivi, 13
Inc.,691F.3d275,278(2dCir.2012)(describingthetestasnondisserviceofthe 14
publicinterestbyissuanceofapreliminaryinjunction.)
1
15
ThejobofdeterminingwhethertheproposedS.E.C.consentdecreebest 16
servesthepublicinterest,however,restssquarelywiththeS.E.C.,andits 17
1
Thedistrictcourtdidnotaddress,andthepartiesdonotbrief,whether
theremainingeBayfactorsweresatisfiedhere.Wethereforedonotaddressthis
issue,excepttonotethattheproposedconsentdecreewaivedCitigroupsrightto
challengeanyenforcementactiononthegroundthattheconsentdecreefailsto
conformtotherequirementsofRule65oftheFederalRulesofCivilProcedure.
24
decisionmeritssignificantdeference: 1
[F]ederaljudgeswhohavenoconstituencyhavea 2
dutytorespectlegitimatepolicychoicesmadebythose 3
whodo.Theresponsibilitiesforassessingthewisdomof 4
suchpolicychoicesandresolvingthestrugglebetween 5
competingviewsofthepublicinterestarenotjudicial 6
ones:OurConstitutionvestssuchresponsibilitiesin 7
thepublicbranches. 8
9
Chevron,U.S.A.,Inc.v.NaturalRes.Def.Council,Inc.,467U.S.837,866(1984) 10
(quotingTVAv.Hill,437U.S.153,195(1978));seealsoInreCuyahogaEquip.Corp., 11
980F.2d110,118(2dCir.1992)(Appellatecourtsordinarilydefertotheagencys 12
expertiseandthevoluntaryagreementofthepartiesinproposingthe 13
settlement.). 14
Thedistrictcourtcorrectlyrecognizedthatitwasrequiredtoconsiderthe 15
publicinterestindecidingwhethertogranttheinjunctivereliefintheproposed 16
injunction.CitigroupI,827F.Supp.2dat331.However,thedistrictcourtmade 17
nofindingsthattheinjunctivereliefproposedintheconsentdecreewould 18
disservethepublicinterest,inpartbecauseitdefinedthepublicinterestasan 19
overridinginterestinknowingthetruth.Id.at335.Thedistrictcourtsfailure 20
tomaketheproperinquiryconstituteslegalerror.Onremand,thedistrictcourt 21
shouldconsiderwhetherthepublicinterestwouldbedisservedbyentryofthe 22
25
consentdecree.Forexample,aconsentdecreemaydisservethepublicinterestif 1
itbarredprivatelitigantsfrompursuingtheirownclaimsindependentofthe 2
reliefobtainedundertheconsentdecree.Whatthedistrictcourtmaynotdois 3
findthepublicinterestdisservedbasedonitsdisagreementwiththeS.E.C.s 4
decisionsondiscretionarymattersofpolicy,suchasdecidingtosettlewithout 5
requiringanadmissionofliability. 6
Totheextentthedistrictcourtwithheldapprovaloftheconsentdecreeon 7
thegroundthatitbelievedtheS.E.C.failedtobringtheproperchargesagainst 8
Citigroup,thatconstitutedanabuseofdiscretion.SeeCitigroupI,827F.Supp.2d 9
at330.IncomparingthecomplaintfiledbytheS.E.C.againstCitigroupwiththe 10
complaintfiledbytheS.E.C.againstStoker,thedistrictcourtnotedthat 11
[a]lthoughthiswouldappeartobetantamounttoanallegationofknowingand 12
fraudulentintent(scienter,inthelingoofsecuritieslaw),theS.E.C.,forreasons 13
ofitsown,chosetochargeCitigrouponlywithnegligence,inviolationof 14
Sections17(a)(2)and(3)oftheSecuritiesAct,15U.S.C.77q(a)(2)and(3).Id. 15
Theexclusiverighttochoosewhichchargestolevyagainstadefendantrests 16
withtheS.E.C.See,e.g.,UnitedStatesv.MicrosoftCorp.,56F.3d1448,1459(D.C. 17
Cir.1995)([T]hedistrictcourtisnotempoweredtoreviewtheactionsor 18
26
behavioroftheDepartmentofJustice;thecourtisonlyauthorizedtoreviewthe 1
decreeitself.);seealsoHecklerv.Chaney,470U.S.821,831(1985)([A]nagencys 2
decisionnottoprosecuteorenforce,whetherthroughcivilorcriminalprocess,is 3
adecisiongenerallycommittedtoanagencysabsolutediscretion.).Norcanthe 4
districtcourtrejectaconsentdecreeonthegroundthatitfailstoprovide 5
collateralestoppelassistancetoprivatelitigantsthatsimplyisnotthejobofthe 6
courts. 7
Finally,wenotethattotheextentthattheS.E.C.doesnotwishtoengage 8
withthecourts,itisfreetoeschewtheinvolvementofthecourtsandemployits 9
ownarsenalofremediesinstead.See,e.g.,ExchangeAct21C(a),15U.S.C. 10
78u3(a);SecuritiesAct8A(a),15U.S.C.77h1(a).TheS.E.C.canalsoorder 11
thedisgorgementofprofits.ExchangeAct21B(e),15U.S.C.78u2(e); 12
SecuritiesAct8A(e),15U.S.C.77h1(e).Admittedly,theseremediesmaynot 13
beonparwiththereliefaffordedbyasoorderedconsentdecreeandfederal 14
courtinjunctions.ButiftheS.E.C.preferstocalluponthepowerofthecourtsin 15
orderingaconsentdecreeandissuinganinjunction,thentheS.E.C.mustbe 16
willingtoassurethecourtthatthesettlementproposedisfairandreasonable. 17
Consentdecreesareahybridinthesensethattheyareatoncebothcontracts 18
27
andorders;theyareconstruedlargelyascontracts,butareenforcedasorders. 1
Bergerv.Heckler,771F.2d1556,156869(2dCir.1985)(citationomitted).Forthe 2
courtstosimplyacceptaproposedS.E.C.consentdecreewithoutanyreview 3
wouldbeaderelictionofthecourtsdutytoensuretheordersitentersare 4
proper. 5
CONCLUSION 6
Forthereasonsgivenabove,wevacatetheNovember28,2011orderofthe 7
districtcourtandremandthiscaseforfurtherproceedingsinaccordancewith 8
thisopinion.AsweexercisejurisdictionpursuanttoSection1292(a)(1),the 9
petitionforawritofmandamusisdeniedasmoot. 10
11
12
13
14
15
16
28
LOHIER,CircuitJudge,concurring:

Ithankmypanelcolleaguesforaddressingmanyofmyconcernsinthis
case. Inparticular,today=smajorityopinionmakesclearthatdistrictcourts
assessingaproposedconsentdecreeshouldconsiderprincipallyfourfactors:
A(1)thebasiclegalityofthedecree;(2)whetherthetermsofthedecree,
includingitsenforcementmechanism,areclear;(3)whethertheconsent
decreereflectsaresolutionoftheactualclaimsinthecomplaint;and(4)
whethertheconsentdecreeistaintedbyimpropercollusionorcorruptionof
somekind.@MajorityOp.,ante,at2021(citationsomitted). Iwriteseparately
tomaketwomoreobservations.
First,inmyview,theAfairandreasonable@standardforassessingthe
appropriatenessofmonetaryrelief(asopposedtoinjunctiverelief)involvesa
straightforwardanalysisofonlythefourfactorsidentifiedbythemajorityand
describedabove. Ifallfourfactorsaresatisfied,theperceivedmodestyof
monetarypenaltiesproposedinaconsentdecreeisnotareasontorejectthe
decree.
Second,Iwouldbeinclinedtoreverseonthefactualrecordbeforeus
anddirecttheDistrictCourttoentertheconsentdecree. Itdoesnotappear
thatanyadditionalfactsareneededtodeterminethattheproposeddecreeis
Afairandreasonable@anddoesnotdisservethepublicinterest. Nor,touse

2

thewordsofthemajorityopinion=sholding,isthereaAsubstantialbasis...for
concluding@thatfurtherdevelopmentoftherecordwillshowthatthe
proposedtermsofthisdecreearenotfair,reasonable,andinthepublic
interest. Underthecircumstances,though,itdoesnoharmtovacateand
remandtopermittheveryableanddistinguishedDistrictJudgetomakethat
determinationinthefirstinstance.