By Rodney F. Tonkovic, J.D.
The former CFO of Xerox has filed a petition for certiorari asking the Supreme Court to review the constitutionality of the SEC's "gag orders." Sixteen years after entering into a consent agreement with the SEC, Barry Romeril moved to set aside the judgment, alleging that his agreement not to deny allegations against him violated his First Amendment and due process rights. The Second Circuit found no basis under the FRCP to upset the consent decree, and, with the backing of the New Civil Liberties Alliance, Romeril has taken his case to the Supreme Court (Romeril v. SEC, March 21, 2022).
Xerox settlement. Romeril was the former CFO of Xerox, Inc. In 2002, Xerox entered into a $10 million consent agreement settling SEC charges about its accounting practices. In June 2003, the SEC filed a complaint against Romeril and several other Xerox employees. Romeril, who was alleged, among other conduct, to have allowed Xerox to file financial reports that did not conform with GAAP, settled. As a non-negotiable part of the settlement, Romeril agreed "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."
Challenge to prior restraint. In 2019, Romeril moved for relief from the judgment under FRCP 60(b)(4), arguing that the provision barring denials of the allegations—what he called a "gag order"—was an unconstitutional prior restraint. He contended that the provision deprived him of his right to speak about the events leading to his prosecution, defend himself in the media, and to petition for reform of the securities laws. Romeril also submitted a proposed amended consent differing only in the omission of the no-deny provision. The district court concluded that the motion was untimely and that Romeril failed to allege a jurisdictional defect or violation of due process that would render the judgment void.
The Second Circuit affirmed, noting that FRCP 60(b)(4) authorizes relief from a final judgment in two situations: (1) a jurisdictional error; and (2) a failure of due process because the movant was not given notice or an opportunity to be heard. In this case, the district court in Romeril’s case did have both subject matter jurisdiction and personal jurisdiction, and, further, there was no legal error because Romeril was free to reject the offer and litigate and defend against the charges. With respect to Romeril’s due process argument, the panel said that he had notice and an opportunity to be heard and that he willingly agreed to the consent order.
"Gag order." Romeril's petition to the Supreme Court presents questions mirroring his arguments before the lower courts. The petition first argues that the SEC's requirement that settlements contain a lifetime gag order violates the First Amendment. Romeril has been "silenced" for 18 years, the petition says, and will be for the rest of his life. The Court has historically treated prior restraints on speech as serious and intolerable infringements on the First Amendment, the petition says, and, in this case, there is no expiration until the death of a settling defendant. The gag order is also a content- and viewpoint-based restriction on speech because it only operates to prevent criticism of the SEC. This systematic silencing of enforcement targets insulates the SEC from constitutional scrutiny and other challenges or criticism brought by those who know the most about the cases being settled. Finally, the demand that settling defendants abandon their constitutional rights is itself unconstitutional. The "unconstitutional conditions doctrine" established by Court precedent prevents the government from coercing people into giving up their enumerated rights even if a party has the option of refusing to settle.
In addition, the petition continues, the gag orders violate due process of law by requiring defendants to waive their rights if they settle. Here, the petition points out that Romeril had no notice and opportunity to be heard because there was no hearing—the mandated Consent Form affords enforcement targets no opportunity to be heard on the gag or any other condition on settlement imposed by the government, the petition says, and there is no bargaining. Moreover, the orders are unconstitutionally vague because the SEC has unlimited discretion to decide what future speech is or is not permitted. As a consequence, speech critical of the SEC is chilled.
Finally, the petition takes issue with the Second Circuit's application of Rule 60(b)(4). The petition argues that even under the panel's narrow application, Romeril could obtain relief because the district court in 2003 lacked any power to enter a prior restraint. That is, the court lacked power to enter a judgment violating the First Amendment and due process, and when a court so far exceeds its authority, Rule 60(b)(4) provides a remedy.
The NCLA. The petition was filed by the NCLA, a nonprofit civil rights group. The NCLA's Senior Litigation Counsel, Peggy Little, said: "The Constitution forbids Congress itself from enacting prior restraints, the most serious and least tolerable First Amendment violations. SEC’s successful effort to self-confer such power by an unlawful rule must end. The agency’s profoundly dangerous ‘gag rule’ scheme systematically silences criticism of the SEC by those who know its shortcomings best. The Supreme Court should grant cert. and fulfill its duty to ensure that administrative agencies—and the courts—abide by the Constitution."