# Opposition Brief — Blinder, Robinson & Co. v. Securities & Exchange Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1989
- **Citation:** 489 U.S. 1033

## Text

Supreme Gourt, U.S.
9 FILED
| N 18 1983

No. 88-850 yA |
oe a NN pA

OCTOBER TERM, 1988

BLINDER, ROBINSON & Co., INC.
AND MEYER BLINDER, PETITIONERS

v.
SECURITIES AND EXCHANGE COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE COMMISSION
IN OPPOSITION

CHARLES FRIED
Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 633-2217

DANIEL L. GOELZER
General Counsel

PAUL GONSON
Solicitor

JACOB H. STILLMAN
Associate General Counsel

DENISE M. O'BRIEN
Deputy to the Associate General Counsel

THOMAS L. RIESENBERG
Senior Special Counsel

EVA MARIE CARNEY

RANDALL W. QUINN

KATHLEEN CODY
Altorneys
Securities and Exchange Commission
Washington, D.C. 20549

J

er
v

QUESTIONS PRESENTED

1. Whether the court of appeals, applying the stand-
ards articulated by this Court in United-States v. Swift &
Co., 286 U.S. 106 (1932), correctly affirmed the district
court’s refusal to vacate a permanent injunction against
petitioners’ unlawful conduct.

2. Whether the district court was required to vacate
the injunction on the ground, raised long after the entry of
the final judgment, that the Securities and Exchange Com-
mission’s statutory authority to bring civil law enforce-
ment actions interferes with the President’s duties under
Article II of the Constitution.

(I)

TABLE OF CONTENTS

Page
RG Ta Tice Ae a PE 1
eT eek hs cag beh as kK dine 6648 60080 b0860%% l
tal. ile sevindaeesubessabasbenkevenns |
i ween wane eatness to beekeseennenens céne 5
DT conedsaceevsubtevesadnnde Pinavesacevecdines 16
TABLE OF AUTHORITIES
Cases:
Ben Sager Chemicals Int'l, Inc. v. E. Targosz & Co., 560
en | vn cbcscaebedeesedeteses sc 15
Blinder, Robinson & Co. v. SEC, 748 F.2d 1415 (10th
Cir. 1984), cert. denied, 471 U.S. 1125 (1985) ......... 3
Blinder, Robinson, Co. v. Tom, 226 Cal. Rept. 339
(1986). review denied (Cal. S. Ct., Sept. 28, 1988) ..... 11
Blonder-Tongue Laboratories, Inc. v. University of
Illinois Found., 402 U.S. 313 (1971) ................. 12
CFTC v. Nahas, 738 F.2d 487 (D.C. Cir. 1984) ......... 14
Chicot County Drainage Dist. v. Baxter State Bank, 308
i a EEA RE pe ay Se 13
FTC v. American Nat'l Cellular, Inc., 810 F.2d 1511
ita ce seh eg ee 6565410656600 666 12
General Investment Co. v. New York Central R.R.,
EE a Sr 13
Humphrey’s Executor v. United States, 295 U.S. 602
ES SRE ee a ee 5
ICC v. Chatsworth Coop. Mktg. Ass’n, 347 F.2d 821
(7th Cir.), cert. denied, 382 U.S. 938 (1965) .......... 12
Insurance Corp. of Ireland, Lid. v. Compagnie des
Bauxites de Guinee, 456 U.S. 694 (1982) ............. 13
Kalb v. Feuerstein, 308 U.S. 433 (1940) ................ 14
Kansas City Southern Ry. v. Great Lakes Carbon Corp.,
624 F.2d 822 (8th Cir.), cert. denied, 44° U.S. 955
ae eu Guid «a vewies bees 66a e4 14-15
King-Seeley Thermos Co. v. Aladdin Indus., Inc., 418
ERE 9
Lubben v. Selective Serv. Sys., 453 F.2d 645 (ist Cir.
eee aa Cane anes 6 dee anw a tan bead eee 15

IV

Cases — Continued: Page
McCandless v. Furlaud, 293 U.S. 67 (1934) ............ 13
McLaughlin v. United States, 107 U.S. 526 (1882) ....... 13
Morrison v. Olson, No. 87-1279 (June 29, 1988) ........ 5
Nemaizer v. Baker, 793 F.2d 58 (2d Cir. 1986) .......... 13-14
SEC v. American Bd. of Trade, Inc., 751 F.2d 529 (2d

GO Se cclacdadnunadewesecdsusaaabesrentnacese 9

SEC v. Blinder, Robinson & Co., Inc., 542 F. Supp.
468, (ID. Colo. 1982), aff'd, [1983-1984] Fed. Sec. L.
Rep. (CCH) 99,491 (10th Cir. 1983), cert. denied, 469

rh Ps. os ahacadendhacaeietennacees « 2
SEC v. Warren, 583 F.2d 115 (3d Cir. 1978) ............ 9
Stewart v. General Motors Corp., 756 F.2d 1285 (7th

i csaldecetidivedsasakendibweeneeénesnees 8-9
Summers v. Interstate Tractor & Equip. Co., 466 F.2d

oo ese dctasadndstedstuscednsccse 13
Texlon Corp., In re, 596 F.2d 1092 (2d Cir. 1979) ....... 15
Thompson v. Tolmie, 27 U.S. (2 Pet.) 157 (1829) ........ 15
Tobin v. Alma Mills, 192 F.2d 133 (4th Cir. 1951), cert.

SEED cc addbarccccesasdavesonce 9
United States v. Chicago, 663 F.2d 1354 (7th Cir.

DE cist rechipesnaddeedendenesasaadliesedanns 8

United States v. Swift & Co., 286 U.S. 106 (1932) ..... : Oe
United States v. United Shoe Machinery Corp., 391 U.S.

DUP ccodtceskecdibwecsocnesedensaseaeaa ous 5, 7,8
United States v. United States Fidelity & Guaranty

i. ec teidearenhnneaaees 14
Walling v. Miller, 138 F.2d 629 (8th Cir. 1943), cert.

on a wen en cuasawesae-s 13
Wirtz v. Graham Transfer & Storage Co., 322 F.2d 650

i ee ule dash eanenen 10

Constitution, statutes and rules:

ee od anise ab aan oh ae ie 11, 12

es He, Br, FOOD occ ced ccancsesecsccns 15

Securities Exchange Act, 15 U.S.C. 78a ef seq.:
ao Se ce aceecaken san anhe 11
ar eee bat oes ao ates 11

DPR wa cGccccetdscuessetaceeds bxneeee 15

Statutes — Continued: Page
Fed. R. Civ. P.:
DUET cccccascaevsauinesedei etree 13
SE sca pie be kevucereesnseeer eee 3, 12, 14
Miscellaneous:
Restatement (Second) of Judgments (1982) ............. 12, 14
7 J. Moore, Moore’s Federal Practice (2d ed. 1987) ...... 14
11 C. Wright & A. Miller, Federal Practice & Procedure:
eS PS re ie ne 14

5 C. Wright & A. Miller, Federal Practice & Procedure:
Ca Gr nb ocacasdaedosedoeee. 13

In the Supreme Court of the Gnited States

OCTOBER TERM, 1988

No. 88-850

BLINDER, ROBINSON & Co., INC.
AND MEYER BLINDER, PETITIONERS

Vv.

SECURITIES AND EXCHANGE COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

BRIEF FOR THE SECURITIES AND EXCHANGE COMMISSION
IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-10a)
is reported at 855 F.2d 677. The rulings of the district
court (Pet. App. ila-23a) are unreported.

JURISDICTION

The judgment of the court of appeals was entered on
August 24, 1988. The petition for a writ of certiorari was
filed on November 22, 1988. The jurisdiction of this Court
is invoked under 28 U.S.C. 1254(1).

STATEMENT

Petitioners Blinder, Robinson & Co., Inc. (Blinder,
Robinson), a registered securities broker-dealer, and
Meyer Blinder, its president and principal shareholder,
seek review of the decision of the court of appeals affirm-

(1)

—_—

2

ing the district court’s denial of their 1986 request to
vacate an injunction entered against them in 1982 at the re-
quest of respondent Securities and Exchange Commission
(SEC or Commission).

1. In August 1980, the Commission filed a civil en-
forcement action against petitioners in the United States
District Court for the District of Colorado. The complaint
alleged federal securities law violations stemming from the
1979 underwriting of an initial public offering of common
stock and warrants by American Leisure Corporation.
After trial, the district court ruled that petitioners had
violated the securities laws. Pet. App. 24a-Sla.

The district court based its ruling on detailed factual
findings. In particular, the court found that “the Blinder,
Robinson sales force practiced a program of deliberately
deceptive misinformation which [Meyer] Blinder orches-
trated.” Pet. App. 36a. The court also found that the firm
fraudulently closed the all-or-none offering by using non-
bona fide transactions to create the illusion that the entire
offering had been sold (id. at 42a-45a) and that Meyer
Blinder “knew that the closing * * * was a pretense” (id. at
39a). In addition, the court rejected Meyer Blinder’s claim
of good faith reliance on the advice of counsel and found
that he had acted with intent to deceive, not merely with
recklessness. [bid.; see id. at 46a-48a.

Having found that petitioners violated the securities
laws, the district court entered a final judgment that per-
manently enjoined petitioners from future violations of
antifraud and anti-manipulation provisions of the federal
securities laws. Pet. App. 48a-5la. The court of appeals
affirmed that judgment, and this Court denied petitioners’
petition for a writ of certiorari. See SEC v. Blinder,
Robinson & Co., 542 F. Supp. 468, 481-482 (D. Colo.
1982), aff'd, [1983-1984] Fed. Sec. L. Rep. (CCH) 99,491
(10th Cir. 1983), cert. denied, 469 U.S. 1108 (1985).

3

In 1984, petitioners filed their first motion to vacate the
injunction under Rule 60(b) of the Federal Rules of Civil
Procedure. They alleged that their counsel had acted in-
competently in failing to object to the introduction of cer-
tain evidence at trial. The district court denied the motion,
the court of appeals affirmed, and this Court denied cer-
tiorari. Blinder, Robinson & Co. v. SEC, 748 F.2d 1415,
1421 (10th Cir. 1984), cert. denied, 471 U.S. 1125 (1985).
See Pet. App. 2a.

2. In 1986, petitioners filed a second motion to vacate
the injunction, which is the subject of the present petition
for a writ of certiorari. They there claimed that the injunc-
tion was causing them harm because, among other things,
the Commission and various state authorities were using
the injunction as a basis for imposing sanctions on them.
They also asserted that changes in the organization and
operation of Blinder, Robinson made the injunction no
longer necessary. The district court rejected petitioners’ re-
quest for relief. Pet. App. 18a-23a.

Evidently applying the test of United States v. Swift &
Co., 286 U.S. 106 (1932), the district court stated that the
injunction had caused no “extreme and unexpected harm.”
Pet. App. 21a. In particular, the court pointed out that it
had been well aware at the time it entered the injunction
that the Commission had authority to take further actions
based on the injunction and that it was well aware of the
similar authority of state regulatory agencies. /bid. The
court added that it was the court’s role to determine
whether the public still “needs the protection” of the in-
junction and that it was “the responsibility of the regula-
tory agencies,” subject to judicial review, to make their
own determinations, in independent proceedings, whether
other sanctions should be imposed. /d. at 2la-22a. With
respect to petitioners’ argument that changes: in Blinder,
Robinson rendered the injunction unnecessary, the court

4

found a continuing need for the injunction because Meyer
Blinder remained in control of the firm. /bdid.

Petitioners sought reconsideration of the district court’s
denial of their second motion to vacate the injunction. For
the first time, after almost six years of litigation, peti-
tioners argued that the injunction should be vacated on the
ground that the Commission lacked constitutional
authority to bring the injunctive action in the first place
and that the district court therefore lacked subject matter
jurisdiction.' The district court denied petitioners’ recon-
sideration request. Pet. App. Ila.

3. The court of appeals affirmed the district court’s
denial of petitioners’ second motion to vacate the injunc-
tion. Pet. App. la-10a. The court of appeals concluded,
first, that the district court had correctly adhered to the
standards of United States v. Swift & Co., supra, in
deciding whether to vacate the injunction and that such a
decision lies in the discretion of the trial court. Pet. App.
4a-Sa. The court of appeals next concluded that the
district court had correctly found that petitioners had not
shown “some substantial change in law or facts,” such as
would justify vacating the injunction. Pet. App. Sa. In
particular, the collateral consequences of the injunction
that petitioners invoked (state and federal regulatory ac-
tions) did not represent a change in fact because those con-
sequences, far from being unforeseen, had been within the
court’s contemplation when it entered the injunction. /bid.
The court of appeals added that the district court did not
err in declining to credit the evidence of rehabilitation, for

' In their second motion to vacate (at 67), petitioners had suggested,
without argument, that there might be a question about the constitu-
tionality of the Commission’s civil law enforcement authority. In de-
nying the motion, the district court did not address petitioners’ sugges-
tion.

5

Meyer Blinder’s own-affidavit supported the finding that
Mr. Blinder, who remained in control of the firm, had not
fully understood his firm’s violations and his own fault.
Id. at Sa-6a.

The court of appeals also rejected petitioners’ constitu-
tional claim. Pet. App. 7a-10a. Based on its reading of
Humphrey’s Executor v. United States, 295 U.S. 602
(1935), and Morrison v. Olson, No. 87-1279 (June 29,
1988), the court concluded that “the civil enforcement
power given to the SEC is constitutionally valid.” Pet.
App. 10a. Noting that the President has the power to ap-
point SEC commissioners and to remove them for cause,
and to choose the SEC chairman and to remove him at
will, the court concluded: “these powers give the President
sufficient control over the commissioners to insure the
securities laws are faithfully executed and the removal
restrictions do not impede the President’s ability to per-
form his constitutional duty.” Jbid.

ARGUMENT

1. Petitioners challenge (Pet. 7-16) the court of ap-
peals’ conclusion that, under United States v. Swift & Co.,
supra, the district court did not abuse its discretion in
declining to vacate the 1982 permanent injunction pro-
hibiting petitioners from engaging in certain unlawful con-
duct. They contend that this Court’s decision in United
States vy. United Shoe Machinery Corp., 391 U.S. 244
(1968), and decisions of other courts of appeals have ap-
plied a more flexible test than that prescribed by this Court
in Swift. Pet. 7-11. They argue that the court of appeals
should have considered whether certain collateral effects
of the injunction were of “much greater significance” than
originally anticipated and whether petitioners showed “a
reduced need for the injunction because of rehabilitation

6

or other changed circumstances”; based on those assess-
ments, petitioners suggest, the court of appeals should
have determined whether “the balance of needs and
equities suggests that the injunction be lifted.” Pet. 14-15
(footnote omitted). Those contentions do not merit this
Court’s review.

a. The court of appeals read Swift to require “some
substantial change in law or facts” before a party subject
to an injunction may obtain relief from it. Pet. App. Sa.
Acknowledging that a decision to vacate an injunction lies
in the district court’s discretion (id. at 4a), a point that
petitioners do not dispute, the-court of appeals affirmed
the district court’s rejection of petitioners’ attempt to show
that there had been a substantial change since the 1982 in-
junction was entered. First, the court agreed with the
district court’s finding that the collateral consequences in-
curred by petitioners—the various sanctions imposed by
state and federal regulatory agencies — did not constitute a
substantial change of fact because such consequences were
contemplated when the injunction was issued. I/bid.
Similarly, the court of appeals found amply supported the
district court’s finding that the need for the injunction had
not changed either —that the injunction was still necessary
because petitioners had not shown rehabilitation. Jd. at
Sa-6a. See id. at 21a, 22a (district court findings).?

2 The district court stated that the issue before it was “first whether
there is extreme and unexpected harm resulting from that continuing
injunction as a permanent order and, second, whether there is really
any need for it any more.” Pet. App. 18a. With respect to the first
issue, the court found that petitioners had not shown “consequences
of which [the court] had no inclination [sic],” explaining that the court
was “well aware” of the possible regulatory sanctions. /d. at 21a. With
respect to the second inquiry, the court found that there was a need to
continue the order. Thus, the court stated: “I’m saying in terms of
looking to whether there is any continuing reason for the injunction,
there is.” /bid. The court found: “what is at the bottom line, is

7

The concurrent factual findings on which the lower
courts’ decisions rest—that the collateral consequences
were not unexpected and that the need for the injunction
has not changed —are correct and, in any event, plainly do
not merit this Court’s review. Given those findings, the
refusal to vacate the injunction was plainly correct as well.
This Court held in Swift that, in order for a party subject
to a permanent injunction to justify vacating the injunc-
tion, it must make “a clear showing of grievous wrong
evoked by new and unforeseen conditions.” 286 U.S. at
119. The Swift standard requires, at a minimum, that the
moving party show a substantial change of circumstances.
Here, not only did the court of appeals’ opinion so
characterize Swift (Pet. App. 5a), but both courts below
found that petitioners failed to make such a showing.
Moreover, Swift requires, at a minimum, that a party sub-
ject to an injunction show that the injunction is no longer
necessary because its purposes have been fulfilled. 286
U.S. at 119. Here, the district court and court of appeals
found that petitioners had failed in their attempt to make
such a showing.

The court of appeals’ decision is fully consistent with
this Court’s decision in United Shoe. The Court there
affirmed that Swift “holds that [a decree] may not be
changed in the interests of the defendants if the purposes
of the litigation as incorporated in the decree * * * have
not been fully achieved.” 391 U.S. at 248. That formula-
tion is in no way inconsistent with the “substantial change”
approach taken by the court of appeals in the present case.
Moreover, the lower courts in the present case both found
that the purpose of the 1982 injunction—to ensure that

whether * * * I can say that the public no longer needs the protection
of my order. And I can’t say that, and because | can’t say that, the mo-
tion [to vacate the injunction] is denied.” /d. at 22a.

8

petitioners do not violate the securities laws — has not been
fully achieved.

The decision of the court of appeals is also consistent
with all of the circuit court decisions that petitioners claim
take a different approach from that of the Tenth Circuit
here. See. Pet. 10-11. Every one of the decisions that ap-
proved the vacating of an injunction at the behest of the
party subject to it did so only upon finding a substantial
change of condition, as the court of appeals required here
(Pet. App. Sa). Indeed, in every such decision, the court,
unlike the court in this case, found that the purposes of the
injunction had been fulfilled and hence that there was no
further need for the injunction.‘ Accordingly, although

3 The Court in United Shoe held the Swift standard inapplicable
because, the Court explained, United Shoe involved a situation that
was the “obverse” of the situation presented in Swift. 391 U.S. at 249.
Swift involved a request by a party under an injunction for relief from
the injunction. In United Shoe, by contrast, the government sought to
amend a decree in order to exact more onerous obligations from the
enjoined party in order to ensure that the decree would serve its in-
tended purpose. 391 U.S. at 248-249. The United Shoe Court express-
ly relied on the distinction in holding that the Swift standard did not
apply in the case before it because “[i]n Swift, the defendants sought
relief not to achieve the purpose of the provisions of the decree, but to
escape their impact.” 391 U.S. at 249. In contrast, the Court held, the
decree could be modified if the government proved that new cir-
cumstances made such modification necessary in order for the decree
to achieve its original purpose of eliminating the violations. /d. at
249-252. Presumably the court of appeals in the present case had that
seemingly more relaxed approach in mind when it stated that it would
not apply the approach of United Shoe, which it characterized as per-
mitting modification of an injunction if “the facts and circumstances
prevailing at the time of the issuance of the injunction have changed
or new ones have arisen.” Pet. App. 4a. The present case, of course, is
like Swift and not like United Shoe.

* In United States v. Chicago, 663 F.2d 1354, 1360 (7th Cir. 1981),
the court considered new harm to third parties and found that the pur-
poses of the injunction had been fulfilled. In Stewart v. General

9

there are minor differences in formulation in the various
opinions, those differences do not affect the fundamental
requirements of Swift, and they do not create a conflict
with the decision of the court of appeals in the present
case.

b. In any event, review of the court of appeals’ deci-
sion would not be warranted as a means to consider peti-
tioners’ proposed balancing test. First, there is no support
in United Shoe or Swift for a balancing test like that pro-
posed by petitioners. Under the United Shoe description
of Swift's holding, as under Swift itself, an injunction may
not be vacated at the behest of the party subject to it where
the injunction’s purposes have not been fulfilled; no
balancing of collateral harms is called for in those cir-

Motors Corp., 756 F.2d 1285, 1293 (7th Cir. 1985), the court also
found that the injunction had served its purpose. Similarly, in SEC v.
Warren, 583 F.2d 115, 121 (3d Cir. 1978), the court found that the
purpose of the injunction had been accomplished; the court also noted
that the regulations that the defendant had allegedly violated had been
amended after entry of the injunction. Finally, in Tobin v. Alma
Mills, 192 F.2d 133, 136 (4th Cir. 1951), cert. denied, 343 U.S. 933
(1952), although the court did refer to the injunction’s collateral con-
sequences, the court found that there-was no need to continue the in-
junction. The court of appeals there was also affirming the trial
court’s discretionary decision to vacate the injunction.

King-Seeley Thermos Co. v. Aladaiv. Indus., Inc., 418 F.2d 31 (2d
Cir. 1969), involved a situation much more like that in United Shoe
than in Swift, because the case involved two innocent business com-
petitors seeking to resolve a trademark dispute, so that the defendant
who was seeking modification of the injunction could be “regarded as
having obtained equitable relief in the decree of injunction quite as
much as” the plaintiff. Jd. at 35. In any event, the court emphasized
the importance of changed circumstances and quoted the United Shoe
formulation of Swift's holding. [bid. SEC v. American Bd. of Trade,
Inc., 751 F.2d 529 (2d Cir. 1984), is not relevant to and did not discuss
the Swift issue because it involved a preliminary injunction rather than
a final judgment.

10

cumstances. Nor do any of the court of appeals decisions
cited by petitioners stand for the proposition that col-
lateral consequences might outweigh a still-existing need
for the injunction.

Petitioners’ balancing test is not only unsupported by
case law but is unjustifiable. Where there remains a need
for an injunction (because there is a continuing threat of
recurrence of illegal conduct), permitting defendants to
escape from the injunction would mean that the enforce-
ment agency would not have the deterrent force of con-
tempt acting as a self-policing measure. That not only
would diminish the effectiveness of an important statutory
enforcement tool but would likely increase the burden on
both the regulatory agencies and the courts. See Wirtz v.
Graham Transfer & Storage Co., 322 F.2d 650, 653 (Sth
Cir. 1963) (injunctions obtained by regulatory agency are
“an essential part of the congressional scheme for making
the [statute] work”). And it would be especially inap-
propriate to consider collateral consequences like the
regulatory sanctions at issue here, which are expressly pro-
vided for by state and federal law, as grounds for vacating
an injunction: weighing such sanctions would undermine
the legislative judgments to make such sanctions available.
The alleged harshness of the collateral consequences of an
injunction such as the one here is properly dealt with in the
independent proceeding in which the collateral sanctions
are imposed or in an appeal from the decision imposing
them. Investors should not be deprived of the needed pro-
tection afforded by an injunction under the federal
securities laws simply because regulatory bodies are, as
authorized by law, using the injunction in _ their
disciplinary proceedings.

Finally, even if petitioners’ balancing test were adopted,
it would not aid them. Petitioners themselves do not pro-
pose that all collateral consequences of an injunction be
weighed in favor of vacating it; they propose to weigh only

SS

11

those consequences that are of “much greater significance”
than originally anticipated. Pet. 14. How far that standard
differs from the unforeseen-consequences standard actual-
ly applied by the lower courts petitioners do not say; but in
any event, as the district court’s finding confirms (Pet.
App. 21a), the full extent of the possible regulatory sanc-
tions was readily foreseeable, as such sanctions are clearly
provided for by law. See, e.g., 15 U.S.C. 780(b)(4) and
(6). Similarly, although petitioners suggest that “a re-
duced need for the injunction because of rehabilitation or
other changed circumstances” (Pet. 13) could weigh in
favor of vacating an injunction, the lower courts found no
such rehabilitation (Meyer Blinder, who had orchestrated
the deliberately deceptive unlawful scheme, was still in
charge of Blinder, Robinson and had not yet fully under-
stood his fault); hence, there is no such reduced need in
this case. In short, there would be nothing in this case to
weigh in petitioners’ favor in the balance that they pro-
pose.

2. Petitioners also challenge (Pet. 16-29) the court of
appeals’ conclusion that the Commission’s civil enforce-
ment authority does not interfere with the President’s
duties under Article II of the Constitution. Petitioners’
contention does not merit review. No court has agreed
with petitioners’ view that the civil enforcement authority
of the SEC or other independent agencies is unconstitu-

’ In addition, petitioners have failed to show that the mere existence
of the injunction caused the imposition of the collateral sanctions. At
the federal level at least, sanctions may be imposed based on the
underlying violation, even if the injunction is vacated; and any sanc-
tion must be judged “in the public interest.” 15 U.S.C. 780(b)(4) and
(6). See also Blinder, Robinson & Co. v. Tom, 226 Cal. Rptr. 339, 341
(1986), review denied (Cal. Sup. Ct., Sept. 28, 1988).

ieee

12

tional,® and there is no reason why the issue demands this

Court’s consideration at this time. Moreover, wholly apart

from the merits of the constitutional ruling, petitioners’

claim of a constitutional infirmity in the SEC’s enforce-
ment authority is precluded by well-settled principles of \
finality.’

The Commission brought this action against petitioners
in 1980. Petitioners contested the Commission’s charges
on the merits and pursued a direct appeal (ultimately to
this Court) from the adverse final judgment. In 1984, they
collaterally attacked the final judgment by filing a Rule
60(b) motion, and they pursued an appeal (ultimately to
this Court) from the denial of that motion. It was not until
their second Rule 60(b) motion — filed more than five years
after the complaint issued and almost four years after en-
try of the original injunction —that petitioners for the first
time raised the Article II issue.

Under basic principles of res judicata, petitioners were
barred from attacking the final judgment embodying the
1982 injunction because they had had a full and fair op-
portunity to raise their constitutional claim in the pro-
ceeding leading to the judgment. See, e.g., Blonder-
Tongue Laboratories, Inc. v. University of Illinois
Found., 402 U.S. 313 (1971); Restatement (Second) of
Judgments § 18, at 152 (1982); id. Intro. at 6 (“The princi-
ple underlying the rule of claim preclusion is that a party
who once had a chance to litigate a claim before an appro-

® See, e.g., FTC v. American Nat'l Cellular, Inc., 810 F.2d 1511
(9th Cir. 1987); JCC v. Chatsworth Coop. Mktg. Ass’n, 347 F.2d 821,
822 (7th Cir.), cert. denied, 382 U.S. 938 (1965).

? Because petitioners’ constitutional claim is clearly barred by res
judicata, it is unnecessary to address the merits of the claim at this
time. The Commission, which has consistently argued that its civil en-
forcement authority conforms to the requirements of Article II,
believes that the court of appeals was correct in so holding.

ae ree

13

priate tribunal usually ought not to have another chance to
do so.”). Although that rule admits certain exceptions,
there is no exception for petitioners’ claim. That claim
might most naturally be viewed as a challenge to the Com-
mission’s legal capacity to bring a civil enforcement ac-
tion. See, e.g., General Investment Co. v. New York Cen-
tral R.R., 271 U.S. 228, 230-231 (1926); Walling v. Miller,
138 F.2d 629, 631-633 (8th Cir. 1943), cert. denied, 321
U.S. 784 (1944). A challenge to legal capacity is waived
unless raised in the initial pleadings. See Fed. R. Civ. P.
9(a); McCandless v. Furlaud, 293 U.S. 67, 73-75 (1934);
McLaughlin v. United States, 107 U.S. 526, 528 (1882);
Summers v. Interstate Tractor & Equip. Co., 466 F.2d 42,
49-50 (9th Cir. 1972). See generally 5 C. Wright & A.
Miller, Federal Practice & Procedure: Civil § 1295, at 397
(1969 & Supp. 1987).

Even if petitioners’ claim that the SEC lacked capacity
to sue were viewed as having a bearing on the subject mat-
ter jurisdiction of the court that entered the final judgment,
res judicata would still bar petitioners’ collateral attack on
the judgment. Where, as here, a final judgment has been
entered in a contested case, it is generally not subject to
subsequent challenge for lack of subject matter jurisdic-
tion, even though the jurisdictional issue was never raised
or decided. Chicot County Drainage Dist. v. Baxter State
Bank, 308 U.S. 371 (1940). In Chicot County, jurisdiction
had been founded on a federal statute that was later de-
clared unconstitutional. The Court held that the later
holding of unconstitutionality would not operate retro-
actively to render the judgment void because such a retro-
active effect would be contrary to “well-settled” principles
of res judicata. Jd. at 378.8 None of the few, narrow ex-

® See also Insurance Corp. of Ireland, Ltd. v. Compagnie des Baux-
ites de Guinee, 456 U.S. 694, 702 n.9 (1982); Nemaizer v. Baker, 793

a

14

ceptions to that rule applies in this case.’

No different conclusion is warranted because petitioners
are subject to a continuing injunction and sought relief
under Rule 60(b). “A judgment concluding an action is not
deprived of finality for purpose of res judicata by reason
of the fact that it grants or denies continuing relief * * *.”
Restatement (Second) of Judgments § 13, at 133 (1982)
Comment C. A final judgment is not “void” under Rule
60(b) for lack of subject matter jurisdiction where the sub-
ject matter of the suit was within the court’s competence
and there was no usurpation of power by the court. See 7
J. Moore, Moore’s Federal Practice | 60-25{2], at 60-228
to 60-230 (2d ed. 1987) (footnotes omitted) (“except for
the rare case where power is plainly usurped, if a court has
the general power to adjudicate the issues in the class of
suits to which the case belongs then its * * * final
judgments, whether right or wrong, are not subject to col-
lateral attack, so far as jurisdiction over the subject matter
is concerned”).'® In this case, Congress has expressly given

F.2d 58, 65 (2d Cir. 1986); Restatement (Second) of Judgments § 12,
at 120 (“Even if the issue of subject matter jurisdiction has not been
raised and determined, the judgment after being final should ordinari-
ly be treated as wholly valid if the controversy has been litigated in any
other respect.”); 11 C. Wright & A. Miller, Federal Practice & Pro-
cedure: Civil § 2862, at 197-201 (1973 & Supp. 1988).

9 It may be possible to challenge subject matter jurisdiction after a
judgment has become final where the judgment was rendered by
default (see Restatement (Second) of Judgments § 12, at 115, 124-125
(1982); CFTC v. Nahas, 738 F.2d 487 (D.C. Cir. 1984)), or where a
state court usurped another forum’s power by exercising jurisdiction
that is vested solely in the federal courts (see Restatement (Second) of
Judgments § 12(2); Kalb v. Feuerstein, 308 U.S. 433, 439 (1940)), or
where the government collaterally attacks a judgment on sovereign
immunity grounds (see United States v. United States Fidelity &
Guaranty Co., 309 U.S. 506, 512-514 (1940)).

10 See also Kansas City Southern Ry. vy. Great Lakes Carbon Corp.,
624 F.2d 822, 825 (8th Cir.) (citations omitted) (“Absence of subject

15

district courts jurisdiction to adjudicate all suits “brought
to enforce any liability or duty created by [the Securities
Act and the Securities Exchange Act]” (15 U.S.C. 77v(a),
78aa), and that authority has been exercised in thousands
of cases for more than 50 years. Clearly, the judgment of
the district court in this case did not involve any usurpa-
tion of judicial power.'!

Adhering to principles of finality is especially important
in a case like the present. The consequences of petitioners’
position, if accepted, would be dramatic. Presumably, all
of the thousands of defendants in Commission enforce-
ment actions who have been enjoined during the 54 years
of the Commission’s existence, as well as the numerous
defendants who have been the subject of judgments in en-
forcement actions brought by other independent agencies,
would be entitled to seek to have those judgments vacated.
In these circumstances, petitioners’ argument furnishes no
ground for abandoning ordinary principles of finality.

matter jurisdiction may, in certain cases, render a judgment void.
* * * However, this occurs only where there is a plain usurpation of
power, when a court wrongfully extends its jurisdiction beyond the
scope of its authority.”), cert. denied, 449 U.S. 955 (1980); In re Tex-
lon Corp., 596 F.2d 1092, 1099-1100 (2d Cir. 1979); Ben Sager
Chemicals Int'l, Inc. v. E. Targosz & Co., 560 F.2d 805, 812 (7th Cir.
1977); Lubben v. Selective Serv. Sys., 453 F.2d 645, 649 (ist Cir.
1972).

'! Petitioners cite a single case (Pet. 29 n.44), Thompson v. Tolmie,
27 U.S. (2 Pet.) 157, 163 (1829), in support of their assertion that they
were entitled to litigate the constitutional issue on the merits. Thomp-
son offers petitioners no support. The Court there actually rejected a
voidness challenge to a court’s order even though the court lacked
authority under the relevant statute to enter the order. The Thompson
Court's dictum that “{i]f there be a total want of jurisdiction, the pro-
ceedings are void” (id. at 163) is consistent with the rule that only
where there is a plain usurpation of power may a judgment be set aside
on voidness grounds.

16

CONCLUSION

The petition for a writ of certiorari should be denied.
Respectfully submitted.

CHARLES FRIED
Solicitor General

DANIEL L. GOELZER
General Counsel

PAUL GONSON
Solicitor
JACOB H. STILLMAN
Associate General Counsel
DENISE M. O’BRIEN
Deputy to the Associate General Counsel
THOMAS L. RIESENBERG
Senior Special Counsel

EVA MARIE CARNEY
RANDALL W. QUINN
KATHLEEN CODY
Attorneys
Securities and Exchange Commission

JANUARY 1989

vw U.S. GOVERNMENT PRINTING OFFICE: 1989—241-699/00061

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0469%3A2. Public record. Not legal advice.