[00:00:02] Speaker 04: We'll hear argument in our second case, case 24-1899 Powell versus SEC. [00:00:10] Speaker 04: We'll let counsel have a few minutes to come up and get settled. [00:01:19] Speaker 04: Okay, this is the time set for argument in case 24-1899, Powell versus SEC. [00:01:26] Speaker 04: Miss Little, good morning. [00:01:27] Speaker 01: Good morning, your honor. [00:01:29] Speaker 01: May it please the court, I'm Margaret Little. [00:01:31] Speaker 01: With me today is Carol Rollins of the New Civil Liberties Alliance. [00:01:36] Speaker 01: Representing petitioners, we would like to reserve three minutes for rebuttal. [00:01:41] Speaker 01: Over 50 years ago, the Security and Exchange Commission slipped a tiny paragraph into the Federal Register that for the first time in our history imposed a gag on future speech as a condition of settling with the government. [00:01:56] Speaker 01: The gag was effective immediately. [00:01:59] Speaker 01: it has never been judicially reviewed. [00:02:03] Speaker 01: Congress itself could not pass a statute that prohibits a defendant from speaking critically about a civil or criminal case brought by the government that was later settled. [00:02:13] Speaker 01: The Supreme Court made that clear in Simon and Schuster when it held that even a law prohibiting a criminal defendant from receiving payment for his speech was unconstitutional. [00:02:25] Speaker 04: So one feature of this is that [00:02:27] Speaker 04: the petitioners, the defendants in these matters would have agreed to these terms and conditions. [00:02:34] Speaker 04: So does that agreement change the analysis? [00:02:38] Speaker 01: Not at all, because it's not an agreement. [00:02:40] Speaker 01: It is a required condition of settlement, and the SEC has never denied that. [00:02:45] Speaker 01: It is mandatory. [00:02:46] Speaker 04: Well, that's true, but in terms of whether they had to settle in the first place, that would seem to be something they would have agreed to. [00:02:54] Speaker 01: They agreed to settle for certain, but they did not voluntarily agree to give up their right of future speech. [00:03:01] Speaker 04: Well, I guess that's the question, right? [00:03:03] Speaker 04: They were presented with a choice of whether to settle, these were the terms, and they elected to do so. [00:03:11] Speaker 04: Does that change the analysis from a First Amendment standpoint? [00:03:15] Speaker 01: Well, there's both a due process and First Amendment aspect to this. [00:03:20] Speaker 01: First of all, a gag is not something that the SEC could ever achieve if it won the case. [00:03:27] Speaker 01: It is not amongst the remedies that is allowed by Congress under either the Securities Act or the Exchange Act. [00:03:36] Speaker 01: So the SEC is asking for something it could never win at trial. [00:03:40] Speaker 01: And the first thing that the SEC cites in its memorandum is the ITT continental baking case in which it says, settlements are agreements that are negotiated between parties in which they give up something they might win at trial in exchange for a settlement. [00:03:59] Speaker 01: What SEC has done with a gag is put into documents it drafts and requires the Settling Party defendant or respondent to sign that is not something they could win at trial. [00:04:14] Speaker 01: Furthermore, those documents which are drafted by the SEC [00:04:17] Speaker 01: strip them of all due process protections. [00:04:22] Speaker 01: They have to waive a hearing, the right to be heard, and to have notice and opportunity to be heard on whether they want to give up their first. [00:04:30] Speaker 04: Well, I mean, there are these cases that talk about waiver of rights, right, in the Remory framework, so is that the appropriate framework to be looking at here? [00:04:37] Speaker 01: Well, no, because this is an unconstitutional condition, and the unconstitutional condition cases of the US Supreme Court are very clear that you may not [00:04:47] Speaker 01: attach a unconstitutional condition, including and especially giving up First Amendment rights as a condition of either receiving a benefit or doing business with the government or maintaining your job. [00:05:01] Speaker 01: And there's a host of unconstitutional conditions cases that apply to this. [00:05:05] Speaker 01: None of them require a balancing test or any kind of close nexus. [00:05:13] Speaker 01: It's just flatly [00:05:14] Speaker 04: Couldn't this argument have been made in rumory, too, that that was an unconstitutional condition to tell someone that they couldn't bring a Section 1983 claim in return for their criminal case being dismissed? [00:05:25] Speaker 01: Well, Judge Brass, this circuit took great care in dispatching that view of a rumory in its Davies decision. [00:05:34] Speaker 01: And in Davies, the Ninth Circuit took a look at rumory and what it said was, this was the surrender of a statutory right to bring a 1983 claim, which stands in a different posture than a constitutional right. [00:05:48] Speaker 01: Furthermore, that 1983 was part of the dispute being settled. [00:05:54] Speaker 01: It did not involve any future rights. [00:05:57] Speaker 01: at all, it involved something that had occurred in the past that was being settled as part of the bundle of claims that would be resolved at that point. [00:06:08] Speaker 01: So no constitutional right was given up in Rumory as this court recognized and in Davies what this court held and it's an excellent precedent for us is that you cannot be required to give up a constitutional right in the future or your exercise of that right in the future [00:06:26] Speaker 01: as was asked in Davies where the person was told they could not run for the school board in the future. [00:06:32] Speaker 01: And this court held that to be unconstitutional. [00:06:36] Speaker 03: Let's assume that the rule didn't exist but the SEC as a matter of policy insisted on this provision in every settlement. [00:06:46] Speaker 03: Would your position be the same? [00:06:48] Speaker 01: Well, we're not here. [00:06:50] Speaker 01: Yes, I know. [00:06:51] Speaker 03: I know you're hearing a petition, not not as a representative of a party, but we're not here in that posture. [00:06:56] Speaker 01: But yes, it would be the same. [00:06:58] Speaker 03: And why? [00:06:59] Speaker 01: Because the court, excuse me, the no agency. [00:07:02] Speaker 01: can ask a citizen to give up its future exercise of a constitutional right as a condition of doing business with the government, and that is the unconstitutional conditions doctrine, which is set forth in numerous cases, Perry V. Sinderman, I have a whole list of them, you're probably very familiar with them, but there's at least a dozen cases at the US Supreme Court that says that the government may not ask [00:07:32] Speaker 01: someone doing business with it or settling with it to surrender a constitutional right. [00:07:38] Speaker 01: In addition, this court's decision in Richards is very interesting because in Richards what had happened was a criminal defendant had given up his right of appeal. [00:07:49] Speaker 01: But then the government put as a condition of his probation that he not criticize a county commissioner in the future. [00:08:00] Speaker 01: And the way this court addressed that situation, and mind you there was no rule in effect, this was not an administrative procedure case, but they restored to him his right of appeal that he had waived so that he could bring an unconstitutional condition to this court and they said, [00:08:20] Speaker 01: The fact that the county required him to give up his right of future speech to criticize the county commissioner was unconstitutional. [00:08:29] Speaker 01: So the Richards case is interesting both because a waived right is restored because an unconstitutional act happened by the government and it restored to him his right to appeal and to prevail on that appeal in terms of the conditions the government may impose upon resolution of a case. [00:08:48] Speaker 02: Thank you. [00:08:50] Speaker 02: Counsel, I'd like to bring you back to the Rumory case. [00:08:53] Speaker 02: You mentioned earlier that the difference, as discussed in Davies, was that it was a statutory right that they were giving up, not a constitutional one. [00:09:00] Speaker 02: Did I understand that correctly? [00:09:01] Speaker 01: Correct. [00:09:02] Speaker 01: That's what the Ninth Circuit said, too. [00:09:04] Speaker 02: Okay. [00:09:05] Speaker 02: And while I understand that technically 42 U.S. [00:09:08] Speaker 02: Code Section 1983 is statutory, it does seek to enforce a constitutional right, correct? [00:09:16] Speaker 02: Yes. [00:09:17] Speaker 02: Okay. [00:09:18] Speaker 02: So then, in addition, though, isn't the right to file a lawsuit a form of communication embraced by the First Amendment? [00:09:27] Speaker 01: It could be, but I think what actually happened in Wurmery was that there was, there were claims and there were counterclaims, all occurring in the past, and that was important to the Ninth Circuit in the Davies opinion. [00:09:39] Speaker 01: And so they did the balancing test there and concluded that there was enough of close nexus and a desire for the parties to resolve all of their claims in a bundle for that to pass constitutional muster. [00:09:52] Speaker 01: There is nothing like that here. [00:09:55] Speaker 04: What is the, [00:09:58] Speaker 04: What is the relevance of the fact that if there's a claim breach of this provision in the consent agreement, that the SEC's remedy is to go to court and a judge would have to then agree that the matter should be reopened. [00:10:16] Speaker 04: Doesn't that provide some degree of protection? [00:10:19] Speaker 01: No, because under the DC Circuit's opinion in Cato versus the SCC in which the gag was challenged, the DC Circuit held that if someone spoke out in contrary to the gag provision, they would be in contempt of court, both civil and criminal. [00:10:40] Speaker 01: And in that case, the SC said, no, well, this is not self-executing. [00:10:45] Speaker 01: All they have to do is apply to the court to reopen the case. [00:10:49] Speaker 01: And the DC said, no, this is a criminal or civil contempt. [00:10:54] Speaker 01: And the reason that's important is that there's something known as the collateral bar rule, where if you go out and speak in the intervention of a court order, you are guilty of civil or criminal contempt. [00:11:10] Speaker 01: And in the case of Walker versus Birmingham, and this is a civil rights case having to do with Martin Luther King seeking a permit to march, he was not given that by the city of Birmingham, so he marched anyway. [00:11:24] Speaker 01: He did that expecting to win on a First Amendment grounds. [00:11:28] Speaker 01: He lost at the Supreme Court because the Supreme Court said you can't go out and disobey a court order. [00:11:35] Speaker 01: You have to challenge that order in the court that entered it. [00:11:40] Speaker 01: So our clients cannot go out and speak without risking civil or criminal contempt under that line of authority. [00:11:48] Speaker 04: Right, but at the end of the day, a court would still have to find that to be a contempt of an order, right? [00:11:55] Speaker 01: Well, I guess the two things. [00:11:58] Speaker 01: We don't know what a court would find, and so you have thousands of people who are operating in uncertainty about what they can and can't say. [00:12:06] Speaker 01: So this rule chills their speech, and that obviously gives them standing to... [00:12:13] Speaker 01: I've worked with clients under these gag rules that are very, very concerned about what might happen to them if they would speak. [00:12:21] Speaker 01: And some of the amicus briefs bring forth at [00:12:25] Speaker 01: examples of where the SEC has threatened reopening cases and people have had to issue retractions criticizing the government. [00:12:33] Speaker 01: And all of that is contrary to what the First Amendment is supposed to protect, which is your right to criticize the government. [00:12:41] Speaker 04: But is there, if someone is facing that uncertainty, is there a forum they can go to, i.e. [00:12:45] Speaker 04: a court, and explain this to a court and to have that issue resolved on a case-by-case basis? [00:12:51] Speaker 01: only on risk of civil and criminal contempt under the authorities I've cited in the court. [00:13:10] Speaker 04: Let me ask you a question. [00:13:12] Speaker 04: There's argument made that these agreements aren't voluntary. [00:13:17] Speaker 04: Does your position hinge on that? [00:13:20] Speaker 04: Because I think the SEC would say, well, they are voluntary. [00:13:23] Speaker 04: Your clients entered them. [00:13:24] Speaker 01: They simply are not. [00:13:26] Speaker 01: All of these documents are drafted by the SEC, and they're drafted in a pernicious way. [00:13:31] Speaker 01: If you are in an administrative proceeding and a respondent, as two of our clients are, Mr. Pell and Mr. Lucia, [00:13:38] Speaker 01: They're given a document that is called Offer of Settlement on their part, drafted by the SEC. [00:13:46] Speaker 01: They cannot alter that document. [00:13:49] Speaker 01: The SEC will not settle with them if they alter any provision of that document that is deceptively named their Offer of Settlement. [00:13:59] Speaker 04: In settlements, sometimes one side says this is non-negotiable, and that's often the case in a deal. [00:14:05] Speaker 01: which is fine, there probably are provisions in those documents that are fine to be non-negotiable. [00:14:11] Speaker 01: The gag is not one of them. [00:14:14] Speaker 04: Are there any circumstances in your view in which the government could require somebody to have limitations on what they would say later? [00:14:22] Speaker 01: Only one and that's national security and that is addressed in Professor Rodney Smola's argument which we cite in the brief and national security is an exception to that. [00:14:34] Speaker 01: but it is the only exception I'm aware of in law. [00:14:38] Speaker 04: What is it that your clients want to say? [00:14:40] Speaker 04: Because the SEC seems to say in their answering brief, you could be critical of the agency, you could say bad things about us, what they don't want your clients to do is to deny the allegations if that's the case, they want to have the chance to litigate against you. [00:14:54] Speaker 01: Well, first of all, that assumes a certain infallibility on the part of the government. [00:15:01] Speaker 01: It's just not realistic to believe that the SEC will have drafted a complaint or an administrative charge against people where every single allegation is true. [00:15:13] Speaker 01: In fact, the SEC knows well that they would be hard pressed to win on those allegations of trial in many cases. [00:15:21] Speaker 01: And so the fact that the SEC [00:15:25] Speaker 01: by making this a required condition of settlement, they not only get to settle, they get to control the future narrative of its dealings with this person. [00:15:35] Speaker 01: And that is forbidden. [00:15:36] Speaker 01: It's a prior restraint. [00:15:38] Speaker 01: It violates the First Amendment. [00:15:40] Speaker 01: It dictates the content and the viewpoint. [00:15:43] Speaker 01: I mean, if you settle with the SEC, it's fine if you praise them. [00:15:47] Speaker 01: or say what a good job they did in prosecuting me, but you may not criticize a single allegation of your complaint. [00:15:56] Speaker 01: And that is simply violative of the First Amendment. [00:16:01] Speaker 01: And furthermore, and it's a way this court could resolve this case without reaching the constitutional questions, although I think it should. [00:16:10] Speaker 01: A gag is not a remedy that is provided for under the securities laws. [00:16:14] Speaker 01: There is nothing in the 78Y or W [00:16:17] Speaker 01: that allows the SEC to gag anyone. [00:16:23] Speaker 02: Counsel, I guess I'm stuck more on the fact that it's voluntary. [00:16:26] Speaker 02: You know, your clients agree to enter into, if they felt so strongly that the SEC was wrong, they could just [00:16:34] Speaker 02: not enter into a settlement with them. [00:16:38] Speaker 02: How does that not matter? [00:16:40] Speaker 01: Well, first of all, three of our clients tried to negotiate the gag out of their settlement agreement, Mr. Powell, Mr. Lucia, and Ms. [00:16:49] Speaker 01: Torian, and they were told rule 202.5, which is the rule under consideration here, required the agency to gag them. [00:16:59] Speaker 01: That's certainly not voluntary. [00:17:01] Speaker 01: If you're saying, well, they could just [00:17:04] Speaker 01: you know, proceed to trial all the way. [00:17:08] Speaker 01: Yes. [00:17:08] Speaker 01: Yeah, we cited an article by Nelson Ovis. [00:17:11] Speaker 01: It took him 12 years and 12 million dollars to prevail a trial where the jury threw out every aspect of the case against him. [00:17:22] Speaker 01: He was offered the chance to settle many, many times. [00:17:25] Speaker 01: Fortunately for him, he had the resources to. [00:17:29] Speaker 01: Secure that verdict but here's what would have happened if he like most people did not have 12 million dollars to defend himself He would have been forced to sign an agreement in which he admitted not to did He agreed not to deny any allegation in a complaint that a jury later found had no basis What about our decision in Leonard? [00:17:54] Speaker 01: Leonard is such an odd thing for the SEC to argue. [00:17:59] Speaker 01: It just does not [00:18:03] Speaker 01: support them in so many ways that it's kind of fun to argue this, so let me get to my notes on that. [00:18:11] Speaker 01: Leonard, first of all, assumed without holding that there were First Amendment rights at stake, and they made the express statement that they were not even deciding whether there was a First Amendment right at stake. [00:18:27] Speaker 01: Second of all, it involved a union position [00:18:31] Speaker 01: that was proposed by the union in entering into the contract with the city that they later claimed violated their rights. [00:18:39] Speaker 01: And mind you, the Ninth Circuit did not agree that that involved a constitutional claim. [00:18:46] Speaker 01: And this is super important for Leonard. [00:18:50] Speaker 01: That provision was not something demanded by the government. [00:18:53] Speaker 01: It was proposed by the union. [00:18:57] Speaker 01: If anything, Leonard v. Clark is a case in our favor, and I know the essence incites it throughout their brief, but it just doesn't carry any water for them. [00:19:07] Speaker 04: You want to save some time for rebuttal? [00:19:09] Speaker 04: Yes, I did. [00:19:09] Speaker 04: Thank you. [00:19:11] Speaker 01: Thank you. [00:19:27] Speaker 00: May it please the court, Archith Ramkumar of the Securities and Exchange Commission. [00:19:32] Speaker 00: For over 50 years, the Commission has required defendants who choose to settle with the Commission to agree not to publicly deny the Commission's allegations against them. [00:19:43] Speaker 00: Most settling defendants also do not have to admit the commission's allegations. [00:19:48] Speaker 00: Petitioners asked this court to hold that the commission's discretionary decision to leave this longstanding policy intact violated the Administrative Procedure Act. [00:19:58] Speaker 00: But they have failed to show that the commission committed legal error. [00:20:03] Speaker 00: Petitioners sweeping arguments that waivers of First Amendment rights are categorically unenforceable are foreclosed by precedent. [00:20:11] Speaker 00: And under the balancing test elucidated in Supreme Court's decision, in town of Newton versus Rumory, the no deny provisions would be constitutional if the commission sought to enforce them against the individual petitioners who have entered into consent agreements because there is a close nexus between the narrowly tailored no deny provisions and the limited and carefully constructed remedy afforded to the commission in the event a defendant who settles with the commission [00:20:38] Speaker 00: subsequently publicly denies the Commission's allegations. [00:20:42] Speaker 00: That remedy does nothing more than place the parties in their respective pre-settlement positions because it allows the Commission to pursue what it gives up when it settles, namely the chance to prove its case at trial. [00:20:57] Speaker 00: Accordingly, the petition for review should be denied. [00:21:00] Speaker 04: What are the key precedents that you think bear most directly on this? [00:21:05] Speaker 00: So to start with, Judge Bress, Town of Newton versus Rumory, as you alluded to moments ago, as well as Leonard versus Clark. [00:21:14] Speaker 00: And then the Second Circuit's decision in Romerill is also instructive. [00:21:18] Speaker 00: Obviously, it's not binding precedent, but in Romerill, the Second Circuit, unequivocally held that one of the petitioners in this appeal, who entered into a consent agreement containing a no deny provision, [00:21:29] Speaker 00: did so voluntarily and his First Amendment rights were not violated. [00:21:37] Speaker 00: And I would actually also add Davies versus Grossmont Union High School District to that list. [00:21:43] Speaker 00: And the reason for that is Davies applied the methodology that we are advocating for in this appeal, which is simple rumory balancing. [00:21:51] Speaker 00: I know the outcome there was different than the outcome we're advocating for in this case, but that is because there are crucial factual differences between this case and Davies, and I'm happy to delve into those differences if it would be helpful to the court. [00:22:05] Speaker 00: Go ahead. [00:22:06] Speaker 00: In Davies, there was no legitimate governmental interest justifying the prohibition at issue, aside from a generic interest in finality. [00:22:14] Speaker 00: Indeed, the underlying dispute concerned Dr. Davies' wife, not Dr. Davies, yet it was Dr. Davies' right to run for public office that was being restricted in that case. [00:22:26] Speaker 00: There was also no effort to narrowly tailor the prohibition at issue in Davies. [00:22:31] Speaker 00: And then finally, when Dr. Davies violated the terms of the consent agreement, [00:22:36] Speaker 00: The district sought to hold them in contempt. [00:22:39] Speaker 00: That is not something the Commission can do under the explicit article of closed terms of the consent agreements. [00:22:45] Speaker 04: What is the relevance of the DC Circuit Cato case here, which opposing counsel discussed? [00:22:52] Speaker 00: Sure, so in that case, the DC Circuit did not have a consent agreement in front of it, which is why the DC Circuit concluded that the Cato Institute did not have standing. [00:23:03] Speaker 00: The terms of the consent agreements are clear. [00:23:05] Speaker 00: The most the commission can do in the event a defendant breaches the terms of a consent agreement is ask a court or an administrative tribunal to restore the case back to the active docket. [00:23:16] Speaker 00: And then if and only if that request is granted, the commission has the opportunity to prove its case [00:23:22] Speaker 00: at trial consisting with applicable rules of procedure and evidence. [00:23:26] Speaker 00: I'm not aware of a single instance of a court holding someone in contempt for violating a no deny provision in the 50 plus years that the policy has been in effect. [00:23:36] Speaker 04: So what can somebody say who's subject to one of these? [00:23:40] Speaker 04: Because your brief had a few comments saying, well, you can still essentially criticize the SEC [00:23:47] Speaker 04: You can't deny the allegations, but so what can somebody actually do who is subject to this in your view? [00:23:55] Speaker 00: So in our view, someone could criticize the commission and its enforcement program so long as they refrain from denying the specific allegations against them. [00:24:05] Speaker 00: But again, that's why I think the limited remedy afforded to the commission is so important here. [00:24:10] Speaker 00: The commission lacks the ability to unilaterally determine that someone has violated the terms of consent agreement. [00:24:16] Speaker 00: A court or an administrative tribunal would have to agree with the commission and so if there were [00:24:21] Speaker 00: borderline or indirect cases, that a court would be an important check on the Commission's ability to restore the case back to the active docket. [00:24:29] Speaker 00: And indeed, that brings up an important point from Rumory. [00:24:32] Speaker 00: In Rumory, Justice O'Connor concurred, and she noted that judicial oversight is an important check on abuses that can occur during the settlement process. [00:24:41] Speaker 00: Here, judicial oversight is a built-in component of the limited revenue afforded to the Commission. [00:24:47] Speaker 04: Somebody says, you know, the SEC is a terrible agency that goes after people and brings trumped up charges that have no basis. [00:24:57] Speaker 04: In fact, even though that person was subject to a consent agreement, your position would be that that kind of speech is okay. [00:25:07] Speaker 00: I think that would be certainly a close question, Judge Bras, but again, the commission would have to examine the facts and circumstances of that statement. [00:25:15] Speaker 00: It would need to decide whether to dedicate resources to reviving the case, and then if it elected to dedicate resources to reviving the case, it would have to ask the court to reopen the case and restore the case back to the act of docket based on its view that the terms of the consent agreement have been violated. [00:25:32] Speaker 04: I think what the petitioners are concerned about is that there's uncertainty about what they can say and they don't want to have to go to a court every time they want to make a comment that's critical of the SEC and worry that they're going to be brought back in. [00:25:46] Speaker 00: Sure, so one additional thing I would say is that the age of the relevant settlement agreements matter and the reason for that is as a practical matter, witnesses' memories tend to fade over time and so the older a settlement is, the less likely it is that the commission will avail itself of its contractual remedy and the less likely it is that a court would be amenable to granting the commission's request to restore the case back to the active document. [00:26:10] Speaker 04: How often does the SEC go to court and try to reopen on this basis? [00:26:16] Speaker 00: I don't have an exact figure I can give you, but I would respectfully submit that that empirical question is irrelevant to the issue presented in this appeal, which is whether the policy. [00:26:25] Speaker 03: Right, but I think we just want to know how often this occurs. [00:26:28] Speaker 03: Do you have any idea? [00:26:29] Speaker 00: I don't have an exact figure I can give you. [00:26:31] Speaker 03: Has it ever occurred? [00:26:33] Speaker 00: I do not know of an instance in which it has occurred, but importantly, in Leonard versus Clark, this court observed that the city had never invoked Article 5, the collective bargaining provision, at issue in that case. [00:26:46] Speaker 00: Yet, after employing rumory balancing, this court upheld the provision as being fully consistent with the First Amendment. [00:26:52] Speaker 03: No, I understand that. [00:26:53] Speaker 03: We're just trying to get a feel for the practical implications here. [00:26:57] Speaker 04: I'm not sure anybody cited any case. [00:26:59] Speaker 04: I could be wrong about that. [00:27:00] Speaker 04: It's not as though we have a robust docket of such SEC cases here. [00:27:03] Speaker 00: Understood, your honor. [00:27:05] Speaker 00: I would say that as a practical matter, the reason for that is likely because most litigants choose to abide by the terms of the consent agreements that they enter into. [00:27:15] Speaker 04: Or the SEC doesn't pursue people who don't. [00:27:19] Speaker 00: Exactly your honor and again the Commission laid this out on page 57 of the excerpts of record that it may decide in its discretion not to dedicate a long settled case because as I noted earlier witnesses memories do tend to fade over time and the more time that passes the harder it is for the Commission to prove its case in court counsel if one of the goals of the Commission is to maintain public confidence in these enforcement proceedings and [00:27:49] Speaker 02: Why can't we just have the commission require that the defendant admit the allegations in their consent judgment, but be able to say whatever they want? [00:27:59] Speaker 02: Sorry, I apologize. [00:28:01] Speaker 02: That's kind of what prosecutors do, right? [00:28:02] Speaker 02: When they allow somebody to enter a guilty plea, they can do it in a little contendre. [00:28:08] Speaker 02: So why can't the commission do that? [00:28:13] Speaker 00: So I would say the Commission determined in its discretion that requiring defendants to admit the allegations would likely make it substantially more difficult to settle cases, and it made a policy judgment that allowing defendants to state that they do not admit the Commission's allegations so long as they also make clear that they're not denying the Commission's allegations [00:28:32] Speaker 00: was the most efficient use of resources, given the importance of settlement agreements. [00:28:39] Speaker 00: But I would also say that because the petition before this Court is here on a challenge to the Commission's decision not to engage in discretionary rulemaking, the standard of review is extremely limited and highly deferential, and as a result, [00:28:54] Speaker 00: As long as the policy is not contrary to law, which it isn't in our view, it should be upheld under that extremely limited and highly deferential standard of review that applies. [00:29:05] Speaker 04: One thing the petitioner has raised is that, and maybe this is sort of similar to what Judge DeAlba is raising, is that this is not really a common practice among agencies to require this. [00:29:15] Speaker 04: So is there some reason that the SEC is differently situated that would justify this? [00:29:21] Speaker 00: So the commission articulated below two reasons as to why it was leaving the policy intact and that's on pages 58 to 59 of the excerpts of record. [00:29:31] Speaker 00: First, the policy safeguards its ability to prove its case at trial by testing the veracity of an after the fact denial. [00:29:38] Speaker 00: And then second, as Judge D'Alba mentioned moments ago, the policy preserves public confidence in the factual predicates underlying Commission enforcement actions. [00:29:47] Speaker 00: As far as other agency settlement practices, I believe that the CFTC has a similar policy, but I wouldn't want to speculate as to how other agencies settle cases. [00:30:01] Speaker 04: It's a challenge to the denial of rulemaking, as you say, almost like a per se challenge. [00:30:07] Speaker 04: If an individual has a concern about this agreement that he or she has entered into, they don't wanna be out of the agreement, but they're concerned about its overhang on their speech, what is their ability, what is their remedy? [00:30:22] Speaker 04: How can they get clarity on that? [00:30:24] Speaker 04: Can they go to a court to try to do that? [00:30:26] Speaker 04: Because some courts have been reluctant on the 60B4 context, so what else can they do? [00:30:32] Speaker 00: So I think first and foremost, they could simply speak. [00:30:36] Speaker 00: And again, the reason for that is because the remedy afforded to the commission is quite limited. [00:30:41] Speaker 00: If the commission determined that a public denial had occurred, the most it could do is ask a court to restore the case back to the active docket. [00:30:49] Speaker 00: And only if that request was granted could the commission then proceed to trial where the defendant would still have an opportunity to mount a vigorous defense. [00:30:57] Speaker 00: And I would note that this court made a similar observation [00:31:00] Speaker 00: in Leonard v. Clark where it noted that the union remained free to endorse pieces of legislation even if it risked having those endorsements be penalized under the terms of the collective bargaining agreement because in the end that would be a rational judgment that the union made. [00:31:18] Speaker 04: Can somebody go to a court? [00:31:20] Speaker 04: on a declaratory judgment type basis and say, I want to publish this article. [00:31:24] Speaker 04: I just don't want to have this threat that somebody's going to say I'm in contempt of court. [00:31:29] Speaker 04: Can I do this? [00:31:30] Speaker 04: Can I go back to the court that issued the judgment, for example? [00:31:33] Speaker 00: I do not believe that would be procedurally proper, Judge Bress, and I would note that in Novinger 2, Novinger 1 of the petitioners here [00:31:41] Speaker 00: attempted to obtain a declaratory judgment from the court stating that his consent agreement was invalid, and the Fifth Circuit found that the procedural vehicle he chose was the wrong one. [00:31:51] Speaker 04: Right, I mean, there he was trying to get it to be invalidated, but if someone come in and say, listen, I understand what I agreed to, I just don't think that this article I want to publish is gonna run afoul of that, and I'd just like somebody to confirm that before I'm told I'm in contempt of court. [00:32:04] Speaker 00: So again, I would say the terms of the consent agreement don't allow for any other mechanism other than the commission evaluating whether a statement violates the terms of the consent agreement and then submitting a request to either a court or an administrative tribunal to restore the case back to the active docket. [00:32:23] Speaker 03: It's a little odd to have this as a rule governing settlements as opposed to a negotiated agreement. [00:32:31] Speaker 03: You've articulated a couple of reasons, but why is the public confidence enhanced by having a rule about this? [00:32:39] Speaker 00: I think the reason for that, Judge Thomas, stems directly from rumory and specifically footnote three of that decision. [00:32:45] Speaker 00: So in rumory, what the Supreme Court held is that one of the benefits of plea bargaining is that the public is reassured that the prosecution's charges have a factual basis. [00:32:56] Speaker 00: That is precisely the rationale that the commission articulated here on pages 58 to 59 of the excerpts of record. [00:33:04] Speaker 03: Right, but in the context of plea bargaining, you don't have an absolute rule or statute that a no discussion provision or whatever is part of the plea agreement. [00:33:16] Speaker 03: That's negotiated. [00:33:18] Speaker 03: So again, why is public confidence improved by a rule as opposed to just the act of negotiation? [00:33:29] Speaker 00: Again, aside from the footnote from Marie I cited moments ago, I would say as a practical matter, the reason the commission codified this practice as an informal rule was to allow defendants to modify their behavior accordingly and be prepared for settlement negotiations. [00:33:47] Speaker 02: Council, I'd like you to address what was said by Miss Little. [00:33:54] Speaker 02: She talked about a case about the article that she attached to her evidence or her briefs [00:34:00] Speaker 02: about a case where someone took 12 years or 10 years or whatnot, a very long time and a lot of money, how does that help public confidence? [00:34:11] Speaker 02: I mean, if the reason they're settling isn't because, you know, you can show that you have a factual basis, but rather because they don't want to go through a 12-year truncated, you know, very expensive litigation, [00:34:26] Speaker 00: So I would say, again, defendants remain free to reject the commission's offers of settlement. [00:34:31] Speaker 00: They also remain free to speak, given how limited the commission's remedy is. [00:34:36] Speaker 00: And I would also note that in a rumory, the Supreme Court specifically contemplated the possibility that defendants facing the prospect of citing release dismissal agreements would be intimidated by the risk, expense, publicity associated with a criminal trial. [00:34:50] Speaker 00: Yet the Supreme Court held that this possibility did not justify invalidating all release dismissal agreements. [00:34:56] Speaker 00: And the Supreme Court also held that a defendant's decision to settle in the face of those pressures is not the byproduct of an inherently coercive situation. [00:35:07] Speaker 03: So in the SEC's opinion, let's say a company puts out an annual report that said, given the expense of litigation, we elected to engage in a settlement, we agreed to agree to a settlement, and we are prohibited from discussing it. [00:35:30] Speaker 03: That would be okay? [00:35:33] Speaker 00: So that would not be a specific denial of the commission's allegations, I believe. [00:35:40] Speaker 00: And so I don't think that would be violating the terms of the consent agreement. [00:35:44] Speaker 00: But again, the commission lacks the ability to act unilaterally under the terms of the consent agreements, which I think is just such a crucial point in this case. [00:35:52] Speaker 00: If the commission believes that the terms of a consent agreement have been violated, it has to persuade a neutral decision maker that its view is correct. [00:36:01] Speaker 00: I want to briefly touch on the unconstitutional conditions doctrine that my opponent mentioned. [00:36:08] Speaker 00: As we explain in our brief, that doctrine is in opposite because commission offers of settlement are not gratuitous governmental benefits. [00:36:16] Speaker 00: So in contrast to, for example, falconry licenses or land use permits, which are quintessential examples of government benefits subject to the doctrine, commission offers of settlement are not gratuitous governmental benefits. [00:36:29] Speaker 00: As the commission explained on page 60 of the excerpts of record, [00:36:32] Speaker 00: The commission does not settle cases for the benefit of defendants. [00:36:36] Speaker 00: It instead settles cases to maximize limited resources, minimize litigation risk, and accelerate the resolution of the case. [00:36:44] Speaker 04: This is maybe just another way of restating the same question. [00:36:51] Speaker 04: required people to settle and said, you also may not give any political speech of any kind. [00:36:58] Speaker 04: We could call that an unconstitutional condition. [00:37:01] Speaker 04: We could call that a violation of rumory. [00:37:03] Speaker 04: We could call it a lot of different things, but I think we'd all agree that there's really no way the commission could do that, right? [00:37:09] Speaker 04: And so does the unconstitutional conditions construct really help us here in any way, or does it just restate the same question? [00:37:16] Speaker 00: I would agree that it essentially restates the same question, especially because under the unconstitutional conditions doctrine, even if it applied, the no deny policy would satisfy the close nexus requirement contemplated by Rumory. [00:37:29] Speaker 00: But again, as an initial matter, our view is the doctrine is inapplicable here. [00:37:33] Speaker 00: because the commission explained below that commission offers of settlement are not gratuitous governmental benefits and all the cases that petitioners invoke in relying on that doctrine involve quintessential examples of governmental benefits. [00:37:49] Speaker 04: The provision E, you know, speaks more tightly about [00:37:56] Speaker 04: about denials, some of the language in some of the agreements seems to expand on that with language like you can't directly or indirectly or create the impression or things like that. [00:38:09] Speaker 04: So is there a difference between what's actually put in the agreements and what's in the rule? [00:38:15] Speaker 00: I think your characterization is accurate, Judge Bress, and that the consent agreements simply expand on what's in the rule, but they're fully consistent with the rule. [00:38:25] Speaker 00: I want to also briefly touch on the voluntariness point, if I may. [00:38:29] Speaker 00: The consent agreements explicitly provide that defendants who settle with the commission do so voluntarily without inducements of any kind. [00:38:38] Speaker 00: An example of that language is on, for example, page 82 of the excerpts of record. [00:38:43] Speaker 00: And furthermore, as we note in our response brief, petitioners did not make this voluntariness argument in their opening brief. [00:38:48] Speaker 00: So in any event, that argument is forfeited, but it is also belied by the plain text of the consent agreements. [00:38:55] Speaker 00: Unless the court has any further questions, we would ask. [00:39:01] Speaker 04: Before you sit down, going back to some of that language in the agreements that's not actually in provision E, I think some of the arguments made is that that's vague and unclear. [00:39:12] Speaker 04: Is that a separate challenge? [00:39:13] Speaker 04: Is that essentially before us in this case when what we're being faced with is a challenge to the provision E? [00:39:21] Speaker 00: Yeah, I would say those challenges are outside the scope of this appeal, which is confined to petitioners' challenge to the no-deny policy and the provisions stemming from that policy, as opposed to other discrete provisions in the consent agreements. [00:39:36] Speaker 04: What's your response to the other side's view that some of the language, particularly in the stock agreements, [00:39:44] Speaker 04: would create greater lack of notice maybe than even the provision itself because of some of this more open-ended, open-textured terms like indirectly. [00:39:54] Speaker 00: So my response would essentially be the same, which is one, defendants are free to reject the commission's offers of settlement, and two, the limited remedy afforded to the commission means that if the petitioners wanted to publicly deny the commission's allegations, they could do that, and then the remedy afforded to the commission would be quite limited. [00:40:13] Speaker 00: At most, the commission could ask a court to restore the case back to the active docket, and then if and only if that request was granted, it would have the chance to prove its case at trial. [00:40:27] Speaker 04: Okay, I think we've exhausted our questions. [00:40:29] Speaker 04: I want to thank you very much for your presentation. [00:40:40] Speaker 01: I have a long list of short statements I'd like to make in response to opposing counsel's argument. [00:40:47] Speaker 01: First of all, we do make the voluntariness argument. [00:40:50] Speaker 01: It's made in the petition below. [00:40:51] Speaker 01: It's made in our brief. [00:40:52] Speaker 01: It's expanded upon in our reply brief, and so that is simply not correct. [00:40:59] Speaker 01: I also did not have time to get to the standard of review, and I just want to point out [00:41:05] Speaker 01: that normally these kinds of cases go through an arbitrary and capricious analysis under 706A. [00:41:14] Speaker 01: And we can succeed on that because this is otherwise not according to law under that provision. [00:41:22] Speaker 01: But I also wanna point out that 706B and C, B says if a rule is against constitutional right, the standard of review for this court [00:41:32] Speaker 01: is exacting scrutiny as is the standard of review for the court under 706C, which has to do if the commission has gone beyond its statutory authority, and as I mentioned earlier, a gag is not amongst the penalties that the SEC can apply to anyone. [00:41:53] Speaker 01: My friend representing the SEC also made a statement that the parties to these agreements are in their respective pre-settlement postures. [00:42:04] Speaker 01: Well, that's not true. [00:42:07] Speaker 01: Our clients, whether they be individuals, they had untrammeled First Amendment rights before they entered into this agreement. [00:42:16] Speaker 01: Those are severely taken away from them by the government and that is not permitted under law. [00:42:24] Speaker 01: So they are not in the same position. [00:42:26] Speaker 01: after the agreement as they were beforehand. [00:42:29] Speaker 04: What he was saying was that if you went to court and if there was a challenge to someone's violation of this, the remedy would be that it would take people back to time zero, which would be just that the case had been filed and the parties can go forth and litigate. [00:42:44] Speaker 04: That's how I understood that position. [00:42:46] Speaker 01: Well, I hear you, but I think it doesn't because they are back in court. [00:42:53] Speaker 01: and their speech put them back in court. [00:42:57] Speaker 01: And that is a prior restraint as recognized by two judges on the Fifth Circuit and several district court judges in the Southern District of New York who are very concerned about this prior restraint aspect. [00:43:08] Speaker 01: So they may be back in court at great cost, expense, and personal time and even their ability to carry on their lives. [00:43:17] Speaker 01: It also contains compelled speech that they are supposed to say, oh, but I didn't deny it. [00:43:23] Speaker 01: That's even worse than the compelled speech that was held unconstitutional in Janus and in Becerra because it makes you self-incriminate and say, but I didn't deny what the SEC said. [00:43:38] Speaker 01: As I say, the voluntariness is throughout our briefing and our presentation both to the commission below in the petition as amended [00:43:47] Speaker 01: and in before this court. [00:43:50] Speaker 01: You had asked about an example, but couldn't they maybe go to court and say, can I say X, Y, or Z? [00:43:57] Speaker 01: The First Amendment is not. [00:43:59] Speaker 01: constructed to force people to go to court and say, Mother, may I speak this way? [00:44:05] Speaker 01: That is a burden that should not be put on anyone. [00:44:09] Speaker 03: But do you think the remedy of declaratory judgment is available to people who enter into consent agreements with the SEC? [00:44:18] Speaker 01: I know it's not. [00:44:19] Speaker 01: As my friend on the other side said, we tried that in the Fifth Circuit and before Judge O'Connor below and were summarily told . [00:44:29] Speaker 04: . [00:44:29] Speaker 04: . [00:44:29] Speaker 04: Weren't you trying to have the agreement be invalidated altogether? [00:44:33] Speaker 04: I think there's a difference between [00:44:35] Speaker 04: What we were asking about was not wanting to keep the agreement in place, but wanting some clarity on the scope of it as it relates to some speech. [00:44:42] Speaker 04: And I hear you on, we don't usually go to get permission on that. [00:44:46] Speaker 04: That's true, except here we have an agreement, and so there's some question as to whether that has a role to play. [00:44:52] Speaker 01: I'm not sure courts should really be in the business of pre-clearing speech, but here what we're seeking is vacatur of the commission's [00:44:59] Speaker 01: refusal to amend its rule. [00:45:03] Speaker 03: No, I understand that. [00:45:04] Speaker 03: We're just trying to get the scope of available remedies in your view. [00:45:09] Speaker 03: The SEC says no, you can't seek declaratory judgment as to specific speech and whether it violates a consent agreement. [00:45:16] Speaker 03: What's your position on that? [00:45:17] Speaker 03: I know you think it's not relevant. [00:45:21] Speaker 01: I just don't think anybody should have to ever be put to the test. [00:45:24] Speaker 03: I understand that, but do you think it's available? [00:45:27] Speaker 01: I'm not sure. [00:45:30] Speaker 01: I'm not sure. [00:45:30] Speaker 01: And a person would have to come and say, I want to say X, Y, and Z, is it okay? [00:45:38] Speaker 01: the SEC could either agree or disagree and then you have to go through a whole appellate process if the court agreed with the SEC. [00:45:45] Speaker 01: I don't think that's how future speech of people charged by the government needs or even constitutionally should be regulated. [00:45:54] Speaker 04: Do you have a sense of how often the SEC is moving to reopen cases on this basis? [00:46:01] Speaker 01: We do, and helpfully one of our amicus briefs provided the court with that information. [00:46:08] Speaker 01: This is the amicus brief by the Americans for Prosperity Foundation, and in there they talk about a case of Michael Angelos where they forced him to withdraw a statement he made, and basically, [00:46:29] Speaker 01: correct himself and say I was wrong to have spoken in contrary to my gag. [00:46:34] Speaker 01: They also weaponized the gag clause in a public dispute with Morgan Stanley in 2003. [00:46:40] Speaker 01: Morgan Stanley held a press conference. [00:46:42] Speaker 01: It said pretty much what... Right, so I saw this. [00:46:44] Speaker 04: There were some indications, but how about year over year? [00:46:48] Speaker 04: Do you have any sense of the numbers? [00:46:49] Speaker 01: No, I don't, but I will say I think the idea that the longer you wait, the less likely the SEC is gonna come in. [00:46:58] Speaker 01: That's not how we handle free speech, that you have sort of this absolute prohibition as a condition of government that you not criticize it, and then when it gets old and stale enough, maybe you can then speak. [00:47:12] Speaker 01: That's just not how the First Amendment operates. [00:47:18] Speaker 04: We've taken you a little over, so I see we may have exhausted our questions. [00:47:22] Speaker 04: Why don't you wrap up? [00:47:23] Speaker 01: I will. [00:47:24] Speaker 01: I wanted to just mention that Mr. Romeril was denied relief under Rule 60, and that is a very distinctive qualification of that ruling, and in fact, that it should not be understood to hold any more than that. [00:47:45] Speaker 01: But this also goes to the remedy issue. [00:47:49] Speaker 01: The Cato opinion in that dispute, the SEC came into court and made exactly the same argument that all we have to do is move to reopen and maybe a court will [00:48:01] Speaker 01: And the Cato court said, no, this is civil and criminal contempt. [00:48:06] Speaker 01: And so how do I advise my clients who desperately want to speak, or my media clients who want to speak to them to say, oh, go ahead and talk, when the DC Circuit has said, no, you are subject to civil or criminal contempt? [00:48:22] Speaker 01: And that's an important holding that this court needs to understand. [00:48:26] Speaker 01: I also think the compelled speech aspect that you have to also say, but I don't deny the positions set forth in the complaint against me is constitutionally prohibited. [00:48:42] Speaker 01: And finally, on the issue of public confidence in the agency, which is one of the rationales given by the SEC, that is opposed [00:48:52] Speaker 01: hoc rationalization, but the best rebuttal of that is in Commissioner Peirce's dissent from the order that is under review by this court. [00:49:01] Speaker 01: Public confidence is in fact impaired when the commission is hiding its cases, 98% of what goes on in their cases from any kind of public understanding or knowledge. [00:49:15] Speaker 01: And I think that Justice Gorsuch explained this very well in a case called Axon when he said, [00:49:21] Speaker 01: aware that most people cannot outlast or outspend the agency. [00:49:26] Speaker 01: Agencies very often use their leverage and their superior power to secure agreements that they could not achieve. [00:49:36] Speaker 04: I think we have your argument. [00:49:37] Speaker 04: I want to thank you, Ms. [00:49:38] Speaker 04: Little. [00:49:39] Speaker 01: Thank you. [00:49:39] Speaker 04: I want to thank Mr. Ramkumar for his argument, and this case is submitted.