Tests Have To Do With Truth Consent Decrees Have To Do With Pragmatism

I lately authored about Judge Rakoff’s refusal to go in the SEC’s suggested consent decree in SEC v. Citigroup Global Marketplaces, Corporation., 827 F. Supp. 2d 328 (SDNY 2011) – and also the transfer of SEC enforcement policy it motivated. Burr blog here, (April 17, 2014) Law360 Investments article here, (June 2, 2014).

On June 4, the 2nd Circuit corrected the Citi ruling, holding the District Court “abused its discretion by using the wrong legal standard.” U . s . States Investments & Exchange Comm’n v. Citigroup Global Marketplaces, Corporation., Nos. 11-5227-cv(L) 11-5375-cv(disadvantage) 11-5242-cv(xap)(second Cir. June 4, 2014)(Slip op. at 4, vacating and remanding).

A Legal Court held interlocutory jurisdiction appropriate under 28 U.S.C. § 1292(a)(1) where (1) refusal to go in a consent decree or approve funds “effectively refused …injunctive relief” and (2) with no interlocutory appeal a celebration are affected permanent harm – met here through the District Court’s disinclination to help consider settlement and order forcing the parties to trial. Id. at 12-16.

An Area Court must approve an enforcement agency’s suggested consent judgment if it’s “fair and reasonable, using the additional requirement the ‘public interest wouldn’t be disserved’ …[regarding any] injunctive relief.” Id. at 19. The “fair and reasonable” inquiry includes assessment with a minimum of: (1) fundamental legitimacy (2) clearness of terms (3) actual resolution of complaint’s claims (4) freedom from collusion or corruption. Id. at 20.

A Legal Court observed: “Trials are mainly concerning the truth. Consent decrees are mainly about pragmatism.” Id. at 21. Consent decrees are “a way to manage risk.” Id. Thus, the general public-interest concern is susceptible to Chevron deference to political branch, here the SEC. Id. at 24-25. “What the district court might not do is locate the general public interest disserved according to its disagreement using the S.E.C.’s decision on optional matters of policy, for example determining to stay without needing an admission of liability.” Id. at 26. A Legal Court also noted that the finding of disservice requires substantial record evidence. Id. at 20.

Since many experts expected, the 2nd Circuit declined Judge Rakoff’s bid to grow judicial overview of consent decrees. By needing Chevron deference towards the political-branch’s policy determinations, the Circuit struck the best balance, in line with its “real-world” observation that tests have to do with truth while consent decrees have to do with practical risk management. Within the finish, though, Judge Rakoff triggered the wide policy discussion he (without doubt) searched for – and perhaps motivated the SEC’s adoption of their new “admissions” policy.