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Posts Tagged ‘certiorari’

Is the SEC Mortal After All?

Posted on: August 27th, 2018

By:Ted Peters

The Securities and Exchange Commission, created through the Securities Exchange Act of 1934, is without a doubt one of the most powerful regulatory agencies in the free world.  According to its website, the SEC’s mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Since its inception, the Commission has wielded great power, and in many instances has pushed the envelope to expand that power. But, as reflected in a handful of recent landmark cases, courts around the country and even this nation’s highest court have pushed back making clear that the Commission’s authority is not unlimited.

The SEC initiates enforcement actions in federal court when it determines that a violation of securities law has occurred. Like any other plaintiff, the SEC is subject to statutes of limitation.  The statute governing enforcement actions is five (5) years.  28 U.S.C. § 2462.  Section 2462 provides that, “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued.”

Historically, the Commission has acted with the belief that Section 2462 applied only to the specific enforcement actions enumerated therein.  The SEC’s own enforcement manual provides that “certain claims are not subject to the five-year statue of limitations under Section 2462, including claims for injunctive relief.” (See § 3.1.2 (Nov. 28, 2017)).

In Kokesh v. SEC, 137 S. Ct. 1635 (2017), the United States Supreme Court ruled that Section 2462 extends to disgorgement claims.  Prior to Kokesh, the Commission had taken the position that disgorgement claims could reach back indefinitely.  Writing for a unanimous Court, Justice Sotomayor stated that “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of § 2462.”  The Court explained that disgorgement operates as a sanction because it redressed a wrong to the public, as opposed to an individual.  The Court rejected the SEC’s argument that disgorgement is remedial, finding instead that it was punitive because it “does not simply restore the status quo,” and often “leaves the defendant worse off.”

Prior to the Court’s decision in Kokesh, the SEC initiated an enforcement action in SEC v. Cohen, 2018 U.S. Dist. LEXIS 121164 E.D.N.Y. (Jul. 12, 2018), in the United States District Court for the Eastern District of New York.  In that action, the Commission asserted that between 2007-2012, the defendants participated in a scheme that involved making improper payments to government officials in a number of African countries.  As typical, the Commission sought recovery of monetary penalties, disgorgement and injunctive (follow-the-law) relief.  While the action was pending, Kokesh was decided.  Following Kokesh, the Cohen court held that Section 2462 also extended to actions for injunctive relief.  Finding that the SEC’s demand for injunctive relief would operate, at least in part, as a penalty, the court concluded that the claims were time-barred.

But not every court addressing injunctive relief has reached the same result.  In SEC v. Collyard, 861 F.3d 760 (8th Cir. 2017), a case decided after Kokesh, the Eighth Circuit, acknowledging a split of authority over whether an injunction can be a “penalty” for purposes of Section 2462, concluded that the at-issue injunction entered by the district court was not a penalty and, therefore, not subject to Section 2462.  That injunction enjoined the defendant from violating Securities Exchange Act § 15(a) and the district court concluded that the defendant was “reasonably likely to violate Section 15(a) again unless enjoined.”  Upholding that determination, the Eighth Circuit remarked that “[n]ot every injunction that specifically deters an individual is imposed to punish.”

After Kokesh, it is clear that SEC disgorgement actions fall within the limitations of Section 2462.  As for injunctive relief, district courts around the country remain split.  Given the importance of the SEC’s ability to seek injunctive relief, it is likely that the Supreme Court may be called upon to settle the split, perhaps through a possible certiorari of Cohen. Regardless, these recent decisions undeniably provide defendants with more leverage when facing the SEC.

If you have questions or would like more information, please contact Ted Peters  at [email protected].

To Shoot or Not to Shoot – The Ninth Circuit Says That Is The Question (for the jury)

Posted on: July 6th, 2018

By: Owen Rooney

On June 25, 2018 the U.S. Supreme Court denied certiorari in Estate of Lopez v. Gelhaus, arising out of the shooting in Sonoma County, California of a 13 year old who was holding a toy AK-47 gun.

In the mid-afternoon of October 22, 2013 two deputies for Sonoma County were on patrol in a high crime area with known gang activity.  No active crime was reported. They observed the child walking at a normal speed on the sidewalk with the “gun” pointed down. The deputies disagreed whether the child was holding the gun in his left or right hand.   One deputy chirped the siren briefly and activated the lights.  The deputies also disagreed whether the child looked over his shoulder in response to the chirp of the siren. After stopping, one deputy yelled “drop the gun” from a distance of approximately 65 feet.  The child did not drop the gun and rotated his body clockwise. As the child turned, one deputy saw the gun come around and shot and killed the child without issuing any additional warnings.  The orange tip on the toy gun that is required by federal law had been removed.

The child’s estate filed suit against Sonoma County and the deputy who shot the child for excessive force.  The deputy asked the court to dismiss the lawsuit based on qualified immunity.

The District Court denied defendants’ Motion and the Ninth Circuit affirmed.  The case primarily turned on the number of times that the deputies had shouted for the child to put down his “weapon” and to what extent Andy had pointed the gun at the deputies.  The Court of Appeal noted that one of the deputy’s perspective would be different depending on whether the child had turned to his right or left, a factual dispute that could not be resolved on appeal.  Of note, the District Court only concluded that the gun barrel “was beginning to rise” from its position of having been pointed straight down; thus, the Court opined it was unknown if this posed an imminent threat to the deputies.

As the dissent pointed out, the precise angle that the gun was pointed is “not material” to the qualified immunity analysis because an officer need not delay firing if a person reasonably suspected of being armed makes a furtive movement, harrowing gesture, or serious verbal threat.  The dissent further noted that the District Court seemed to create a spectrum as to how far a suspect can raise their weapon before an officer can use lethal force.

The Ninth Circuit  has a long history of being reversed by the Supreme Court so there are some observers who are surprised that this decision was left intact.  The next procedural step is a trial and one can surmise that additional appeals will follow the end of any jury trial in this case.

If you have any questions or would like more information, please contact Owen Rooney at [email protected].

Georgia Supreme Court Grants Certiorari In Failure to Settle Case

Posted on: June 25th, 2018

By: Bill Buechner

The Georgia Supreme Court recently granted an insurer’s petition for certiorari in a bad faith failure to settle case to consider what constitutes an offer to settle a claim within policy limits and whether an insurer’s duty to settle arises only when the claimant presents a valid offer to settle within policy limits.  First Acceptance Ins. Co. of Georgia, Inc. v. Hughes, 2018 Ga. LEXIS 407 (June 4, 2018).

In Hughes, the insured caused an automobile accident that resulted in his death and injured others, including the claimants (a mother and her minor child, who sustained a traumatic brain injury).   The limits on the policy were $25,000 per person and $50,000 per accident.   After the insurer sent a letter to the claimants’ counsel (and other injured parties) requesting a settlement conference, the claimants’ counsel sent a response letter to the insurer on June 2, 2009 stating that they were “interested in having their claims resolved within your insured’s policy limits and in attending a settlement conference[.]”  The 6/2/09 letter from the claimants’ counsel also explained that the claimants had uninsured/underinsured motorist coverage in the amounts of $100,000 per person and $300,000 per accident.  The 6/2/09 letter continued:

Of course, the exact amount of UM benefits available to my clients depends upon the amount paid to them from the available liability coverage.  Once that is determined, a release of your insured from all personal liability except to the extent other insurance coverage is available will be necessary in order to preserve my clients’ rights to recover under the UM coverage and any other insurance policies.  In fact, if you would rather settle within your insured’s policy limits now, you can do that by providing that release document with all the insurance information as requested in the attached, along with your insured’s available bodily injury liability insurance proceeds.

The accompanying letter from the claimants’ counsel, also dated June 2, 2009, requested various insurance information within 30 days and stated that “[a]ny settlement will be conditioned upon [the] receipt of all the requested insurance information.”

Counsel for the insurer did not consider the letter from the claimants’ counsel as an offer to settle within policy limits and thus did not respond to the letter.   On July 10, 2009 (38 days later), the claimants filed a lawsuit.  On July 13, 2009 ( 41 days later), counsel for the claimants sent a letter to the insurer stating that the 6/2/09 offer to settle within policy limits was withdrawn.  The claimants thereafter obtained a jury verdict in July 2012 awarding $5,334,220 in favor of the minor child.

An administrator for the insured’s estate filed a lawsuit against the insurer asserting that the insurer negligently or in bad faith had failed to settle the minor child’s claim within policy limits.   The trial court granted summary judgment in favor of the insurer, but the Court of Appeals reversed and concluded that there were material issues of fact as to whether the 6/2/09 letters from the claimants’ counsel offered to settle the minor child’s claims within policy limits and whether the offer included a 30-day deadline for a response.  Hughes v. First Acceptance Ins. Co. of Ga., Inc., 343 Ga.App. 693, 697, 808 S.E.2d 103 (2017).

The Georgia Supreme Court granted the insurer’s petition for certiorari and stated that it was particularly concerned with (1) whether there were material issues of fact as to whether the 6/2/09 letter from the claimants’ counsel offered to settle the minor child’s claim within the policy limits and established a 30-day deadline to accept the offer; and (2) whether the insurer’s duty to settle arises “when it knows or reasonably should know settlement within the insured’s policy limits is possible with an injured party or only when the injured party presents a valid offer to settle within the insured’s policy limits?”

The Georgia Supreme Court’s rulings on these issues likely will have a significant impact on Georgia insurers and their exposure to negligent or bad faith failure to settle claims.  Oral argument has been scheduled for September.

If you have any questions or would like more information, please contact Bill Buechner at [email protected].