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Securities and Exchange Commission v. Kokesh

United States District Court, D. New Mexico

October 31, 2018




         THIS MATTER is before the Court on remand from the Tenth Circuit Court of Appeals and the Supreme Court of the United States. Based on the orders of the higher courts, Plaintiff now moves for an amended Final Judgment [Doc. 205]. Defendant responded on September 25, 2018. [Doc. 207]. Plaintiff replied on October 11, 2018. [Doc. 209]. The parties consented to have the undersigned conduct all proceedings, including entry of final judgment. [Doc. 46]. The Court has considered the briefing, the relevant portions of the record, and the relevant law. Being otherwise fully advised in the premises, the Court will GRANT Plaintiff's Motion and enter an amended Final Judgment as described herein.

         I. BACKGROUND

         Between 1995 and 2009, Defendant misappropriated $34.9 million from four business-development companies. Defendant then concealed the misappropriations by filing false Forms 10-K and 10-Q with the Securities and Exchange Commission. Plaintiff sued Defendant in 2009 alleging violations of various securities laws, including the Investment Company Act of 1940, the Securities Exchange Act of 1934 (plus various Rules thereunder), and the Investment Advisers Act of 1940. [Doc. 1]. After a five-day trial, a jury found that Defendant violated the above Acts. The Court entered judgment against Defendant on March 30, 2015, ordering him to pay $2, 354, 593 in civil penalties and to disgorge $34, 927, 329 plus pre-judgment interest. [Doc. 185]. The Court also permanently enjoined Defendant from violating the above securities laws. Id.

         Defendant appealed to the Tenth Circuit Court of Appeals on the grounds that (1) the disgorgement and permanent injunction represented civil fines, penalties, or forfeitures subject to a five-year statute of limitations under 28 U.S.C. § 2462; and (2) the Court should not have excluded certain evidence at trial. Appellant's Opening Br. to Tenth Circuit 3. The Tenth Circuit affirmed. SEC v. Kokesh, 834 F.3d 1158 (10th Cir. 2016).

         Defendant then appealed to the Supreme Court, where the only issue he presented was whether § 2462's five-year statute of limitations applied to claims for disgorgement. Pet. for a Writ of Cert. i. Ultimately, the Supreme Court held that “[d]isgorgement in the securities-enforcement context is a ‘penalty' within the meaning of § 2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” Kokesh v. SEC, 137 S.Ct. 1635, 1639 (2017).

         On remand from the Supreme Court, Defendant urged the Tenth Circuit to find that the entire action against him was time-barred. His theory focused on when the SEC's claims “accrued.” As Defendant saw it, the claims against him for disgorgement (and other civil penalties) “first accrued” when he began his fraudulent schemes. Because the first occasions on which he engaged in each type of misappropriation occurred as early as 1995 and no later than 2001, Defendant argued that the entire action was time-barred. Appellant's Suppl. Mem. Br. to Tenth Circuit 1-2. Defendant argued in the alternative that if the entire action were not barred, at least the claims for disgorgement (and for other civil penalties) should be time-barred on the same interpretation of when the claims “first accrued.” Id. at 2.

         The Tenth Circuit was not persuaded. The court held that Defendant's misappropriations of funds were properly viewed as discrete violations. SEC v. Kokesh, 884 F.3d 979 (10th Cir. 2018). It found that Defendant had converted $5, 004, 773 within the five-year limitations period (i.e., after October 27, 2004), and it remanded the case to this Court with instructions to enter an order requiring Defendant to disgorge $5, 004, 773. Id. at 985.

         III. ANALYSIS

         Plaintiff requests that the Court enter the following judgment: (1) $2, 354, 593 in civil penalties, [1] (2) permanent injunctions prohibiting Defendant from disobeying various securities laws, and (3) disgorgement of $5, 004, 773, plus $2, 646, 466.25 in pre-judgment interest thereon. [Doc. 205-2] at 1-2. Plaintiff requests pre-judgment interest running from January 1, 2006 (the start date used to calculate the interest in the Court's March 2015 judgment) through February 28, 2015 (the month before the jury's original verdict). [Doc. 205] at 6; [Doc. 205-1]. In response, Defendant first argues that the Court can award Plaintiff nothing beyond $5, 004, 773 in disgorgement, because the Tenth Circuit's mandate did not mention civil penalties, pre-judgment interest, or injunctive relief. [Doc. 207] at 3. Defendant also argues that Federal Rule of Appellate Procedure 37(b) prohibits the Court from awarding pre-judgment interest because the Tenth Circuit's mandate did not provide for interest. Id. at 4-8. For the following reasons, the Court disagrees with each of Defendant's arguments.

         A. Defendant waived any issue not raised in his appeals to the Tenth Circuit or the Supreme Court, including the Court's imposition of civil penalties, the injunction, and the award of pre-judgment interest on the disgorgement.

         The law-of-the-case doctrine requires that once a court decides an issue in a case, its ruling binds further determination of the same issue within the case. Huffman v. Saul Holdings Ltd. P'ship, 262 F.3d 1128, 1132 (10th Cir. 2001). When an appellate court remands a case, the doctrine provides that “the decision of the appellate court establishes the law of the case and ordinarily will be followed by . . . the trial court on remand.” Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1183 (10th Cir. 1995). The mandate rule-a corollary to the law-of-the-case doctrine- provides that a district court “must comply strictly with the mandate rendered by the reviewing court.” Huffman, 262 F.3d at 1132 (quoting Ute Indian Tribe v. Utah, 114 F.3d 1513, 1521 (10th Cir. 1997)). The mandate rule, however, still gives the district court authority to rule on issues not explicitly mentioned in the mandate if the appellate court did not expressly or impliedly decide the issues. Cook v. Rockwell Int'l Corp., 790 F.3d 1088, 1104 n.7 (10th Cir. 2015) (“[A]ny avenue a court of appeals does not specifically foreclose remains available on remand.”); United States v. West, 646 F.3d 745, 749 (10th Cir. 2011) (“[T]he scope of the mandate on remand in the Tenth Circuit is carved out by exclusion: unless the district court's discretion is specifically cabined, it may exercise discretion on what may be heard.”); Proctor & Gamble Co. v. Haugen, 317 F.3d 1121, 1126 (10th Cir. 2003) (“Although a district court is bound to follow the mandate . . . ‘a district court on remand is free to pass upon any issue which was not expressly or impliedly disposed of on appeal.'” (quoting Newball v. Offshore Logistics Int'l, 803 F.2d 821, 826 (5th Cir. 1986))).

         The scope of a mandate depends on the arguments the appellate court heard before writing its opinion; if a party waives or abandons a challenge, a mandate's failure to expressly mention the challenge does not bar the district court from ruling on the issue. Estate of Cummings v. Cmty. Health Sys., Inc., 881 F.3d 793, 801 (10th Cir. 2018). In Estate of Cummings, the Tenth Circuit prohibited the district court from revisiting the issue of personal jurisdiction because the plaintiff voluntarily dismissed its personal jurisdiction challenge on appeal. Id. at 796-801. The Tenth Circuit stated:

Failing to raise an argument on appeal, or abandoning an issue that was initially raised, has the same consequences . . . as an adverse appellate ruling on that issue. Thus, the mandate rule applies not only to issues on which the higher court has ruled but also “forecloses litigation of issues ...

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