A panel of Fifth Circuit judges seemed skeptical during oral arguments Thursday morning that they even had jurisdiction to hear a constitutional challenge brought by the host of a financial investment radio show who is seeking relief from a “no admit, no deny” provision in a 2016 settlement agreement he entered with the U.S. Securities and Exchange Commission.
Christopher Novinger, of Mansfield, has been to the Fifth Circuit before regarding this same issue. On July 12, 2022, a different three judge panel rejected Novinger’s attempt to free himself from the gag order provision via a Rule 60(b) motion that argued the “no deny” portion of the policy violated his First Amendment and due process rights.
But Judge Edith Jones authored a concurrence inviting a challenge to the policy.
“If you want to settle, SEC’s policy says, ‘Hold your tongue, and don’t say anything truthful — ever’ — or get bankrupted by having to continue litigating with the SEC. A more effective prior restraint is hard to imagine,” she wrote.
“Given the agency’s current activism, I think it will not be long before the courts are called on to fully consider this policy.”
On Aug. 23, 2022, Novinger filed a motion for declaratory relief from the settlement provision that bars him from speaking about the SEC’s case, arguing it constituted an unconstitutional prior restraint on speech. U.S. District Judge Reed O’Connor last March had found Novinger’s motion for declaratory relief was “procedurally improper,” adopting the SEC’s argument.
“In this case, the consent decrees have prospective effect, so the court has inherent authority to modify them. However, the court does not find, and defendants fail to argue, that there has been any change in the underlying law or facts that suggest the court should modify the decrees,” Judge O’Connor wrote. “Absent such changing circumstances, the only other mechanism to modify the existing consent decrees is through Rule 60(b) of the Federal Rules of Civil Procedure.”
“The court, in its earlier order (affirmed by the Fifth Circuit), already found that Rule 60 does not justify a modification of the consent decrees in this case. Accordingly, the court declines to modify the existing consent decrees between the parties.”
Novinger appealed that ruling to the Fifth Circuit in May and a panel of judges — Patrick E. Higginbotham, Jerry E. Smith and Stephen A. Higginson — heard arguments in the case Thursday morning.
The SEC had alleged Novinger violated the antifraud and registration provisions of the securities laws by offering and selling $4.3 million in life-settlement securities to Texas investors. He settled the claims after a year of litigation in 2016 by entering the consent decree with the government.
Margaret A. Little of the New Civil Liberties Alliance, who represents Novinger, was asked by a member of the panel to explain why any plaintiff who loses their case with a Rule 60(b) motion, like Novinger did, couldn’t continually keep seeking relief from the court.
“What’s the end stop?” the court asked. “They just … get to keep trying, keep redoing it?”
Little said any time a consent judgment has “prospective effect and violates a person’s protected constitutional rights, a court may refute that under a motion for declaratory relief.”
“Here’s the thing,” she said. “If my client is to prevail against this unconstitutional order, all that happens is the defendants who have settled with the government get to speak like every other American who settles with the government. That’s the only thing that happens.”
The judges also questioned why Novinger’s decision to knowingly enter the plea agreement and give up his right to speak about the case in exchange for ending the litigation was any different than any criminal case, where defendants routinely “give up their right to speak to the appellate court” in exchange for avoiding prison.
Little was prepared with an answer.
“No criminal settlement ever said a defendant cannot speak disparagingly about a case against them in perpetuity,” she said.
“The provision [the SEC] required him to sign was unconstitutional in the ask,” she said. “You cannot ask a person to surrender a future constitutional right.”
Daniel Young, arguing on behalf of the SEC, paraphrased Seventh Circuit case law on the subject, telling the panel “someone is in no position to complain about the loss of free speech rights if they agree to waive that right.”
“There is nothing unusual about a litigant, in exchange for an end to litigation, waiving a constitutional right — up to and including First Amendment rights,” he said. “This is not some kind of strange outlier … there’s a reason [the law] says if you want to challenge a judgment the path is Rule 60, it’s not a declaratory judgment action.”
“Because if a litigant could do that, then the rational system of rules and procedures … evaporates,” Young said.
The SEC is represented by its own Daniel Young, B. David Fraser and Jeffery Berger.
Novinger is also represented by Kaitlyn Schiraldi and Kara Rollins of the New Civil Liberties Alliance.
The case number is 23-10525.