By Mark S. Nelson, J.D.
A Second Circuit panel unanimously affirmed a district court opinion dismissing claims by former Xerox Corporation CFO Barry Romeril that the consent agreement he entered into with the SEC more than decade ago was void under the Federal Rules of Civil Procedure because language in the agreement barred Romeril from publicly denying the allegations contained in the agency’s complaint. The panel concluded that Romeril’s collateral attack on the consent decree was not of a type contemplated by the FRCP. In affirming the lower court, however, the appellate panel did not address questions about the timeliness of Romeril’s collateral attack on the consent decree (SEC v. Romeril, September 27, 2021, Chin, D.).
Decades-later challenge. In 2002, Xerox entered into a consent decree with the SEC in which it agreed to pay $10 million without admitting or denying that the company violated federal securities laws. A year later, Romeril, a former CFO at Xerox, also entered into a consent decree with the SEC in order to settle charges that he had violated federal securities laws by allowing Xerox to engage in GAAP violations and by failing to ensure that Xerox had adequate internal controls. Romeril agreed to pay $5 million in disgorgement and also to pay civil penalties. The consent decree also prohibited Romeril from denying the allegations in the SEC’s complaint.
Fast-forward 16 years to May 2019, by which time Romeril had filed a motion under FRCP 60(b)(4) to void the consent decree on the grounds that the “no deny” language in the consent decree violated his First Amendment and due process rights. Specifically, Romeril argued that the “no deny” language functioned as a prior restraint or “gag order.”
No basis for upsetting consent decree. The appellate panel noted that FRCP 60(b)(4) contemplates two scenarios in which relief may be granted: (1) a jurisdictional error; and (2) a failure of due process because the movant was not given notice or an opportunity to be heard.
With respect to the jurisdictional component of the rule, the panel said the district court in Romeril’s case did have both subject matter jurisdiction and personal jurisdiction. The panel also concluded there was no legal error in Romeril’s case because a defendant in an agency enforcement action is free to accept or reject a settlement offer, including voluntarily waiving First Amendment rights.
Lastly, with respect to Romeril’s due process argument, the panel said that Romeril did have notice and an opportunity to be heard. The panel further emphasized that Romeril willingly agreed to the consent order with the SEC.
The case is No. 19-4197-cv.