Opinion
Case No. 2:94-cv-981.
March 20, 2008
MEMORANDUM OPINION ORDER
The Commodity Futures Trading Commission ("CFTC") and the Ohio Division of Securities ("ODS") filed suit against Allied Financial Group, Inc. ("Allied") and Allied employees Robert G. Bobo and Jeffrey A. Smith. Plaintiffs alleged violations of the Commodity Exchange Act, 7 U.S.C. §§ 1 et seq. On January 27, 1998, this Court entered a Consent Order of Permanent Injunction and Other Equitable Relief Against Defendant Jeffrey A. Smith. Smith was ordered to pay $35,195.91 in restitution and was permanently enjoined from engaging in certain activities in the field of securities and commodities.
This matter is before the Court on Smith's October 19, 2007 motion for relief from judgment. For the reasons outlined below, that motion is denied.
I. Background and Procedural History
On October 11, 1994, CFTC and ODS filed suit against Allied, Allied's founder Robert Bobo, and part-time employee Jeffrey A. Smith. Plaintiffs alleged that Defendants defrauded Allied's investors of nearly $844,093.00. Smith, who was not represented by counsel, agreed to settle the claims against him and, on January 27, 1998, the Court entered a Consent Order of Permanent Injunction and Other Equitable Relief Against Defendant Jeffrey A. Smith. In accordance with that Consent Order, Smith must comply with the Commodity Exchange Act, and is permanently enjoined from seeking to become registered with the CFTC or licensed by ODS. Smith is further prohibited "from acting as a commodity pool operator, commodity trading advisor, securities dealer or salesman, or as a principal, agent, employee or consultant to any person or entity which solicits money from the public for any investment in commodity futures contracts, commodity option contracts, securities, physical commodities, or other financial instruments." Smith also agreed to pay $35,195.91 in restitution, to be paid in monthly installments of $300-$400. (Jan. 27, 1998 Consent Order; Ex. A to Mot. for Relief). This provision was later modified to allow Smith to instead make one lump sum payment of $19,000, which he has paid in full.
On October 19, 2007, Smith filed a motion for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(5) or (6). He claims that it is no longer equitable to apply the injunctive portion of the Consent Order prospectively. Smith maintains that at the time he signed the Consent Order, he could not afford counsel and just wanted to put the lawsuit behind him. He notes that he has made full restitution as required and has led an exemplary life for the past twelve years, fully abiding by the restrictions imposed upon him by the Consent Order. Smith is now married, has three children, and works as an account manager for AT T. Although Smith does not intend to seek employment in the field of securities or commodities, he argues that the "scope of the enjoined activity is very broad," and that "the Consent Order can be interpreted as precluding [him] from engaging in common business activity such as seeking partners to join in a business or to invest in a new venture." (Mot. for Relief at 3, 5). He therefore seeks relief from the Consent Order previously entered against him. ODS has filed a memorandum in opposition to Smith's motion, arguing that Smith has not shown a significant change in the factual circumstances or in the law that would warrant the requested relief.
Since Smith has not proposed any specific modifications to the Consent Order, the Court presumes he seeks its complete dissolution.
II. Relevant Law
Federal Rule of Civil Procedure 60(b) provides in pertinent part:
(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party . . . from a final judgment, order, or proceeding for the following reasons: . . . (5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or (6) any other reason that justifies relief.
A motion for relief from judgment under Rule 60(b)(5) or (6) "must be made within a reasonable time." Fed.R.Civ.P. 60(c)(1). What constitutes a "reasonable" time "depends on the facts of a given case including the length and circumstances of the delay, the prejudice to the opposing party by reason of the delay, and the circumstances compelling equitable relief." Olle v. Henry Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990).
A district court has the authority to modify the terms of a consent decree. However, the Sixth Circuit has warned that such power "should not be exercised lightly." Stotts v. Memphis Fire Dep't, 679 F.2d 541, 563 (6th Cir. 1982), rev'd on other grounds, 467 U.S. 561 (1984). Moreover, "[p]articularly when the injunction results from a negotiated consent decree, finality of judgments and the sanctity of a bargain are strong factors that weigh against any modification." 12 James Wm. Moore, Moore's Federal Practice ¶ 60.47[2][c] (3d ed. 1997).
Modification pursuant to Federal Rule of Civil Procedure 60(b)(5) is governed by the principles set forth in Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367 (1992). In that case, the Supreme Court noted that it is not enough for the party seeking modification to show that "it is no longer convenient to live with the terms of a consent decree." Id. at 383. Rather, the party must show that it is no longer equitable that the judgment be applied prospectively. Id. This requires a showing of "a significant change either in factual conditions or in law." Id. at 384. Modification of a consent decree may be warranted if "changed factual conditions make compliance with the decree substantially more onerous," if the "decree proves to be unworkable because of unforeseen obstacles," or "when enforcement of the decree without modification would be detrimental to the public interest." Id.
Rule 60(b)(6) is a "catch-all" provision. It should be applied only in "exceptional or extraordinary circumstances which are not addressed by the first five clauses of the Rule." Olle, 910 F.2d at 365. Courts may employ Rule 60(b)(6) only "as a means to achieve substantial justice when `something more' than one of the grounds contained in Rule 60(b)'s first five clauses is present." Id. (quoting Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir. 1989)). That "something more" exists only in "unusual and extreme situations where principles of equity mandate relief." Id. (emphasis in original).
III. Analysis
A. Rule 60(b)(5)
60
As noted above, a party requesting modification of a consent decree, pursuant to Federal Rule of Civil Procedure 60(b)(5) on the basis that it is no longer equitable that the judgment be applied prospectively, must prove "a significant change either in factual conditions or in law." Rufo, 502 U.S. at 383-84. Smith fails to satisfy this initial burden. He cites to no change in the law that would warrant relief from judgment. Neither does he cite to any significant change in factual conditions over the past nine years.
Instead, in support of his motion for relief from judgment, Smith points to several facts which the Court finds unpersuasive. He notes that at the time he signed the Consent Order, he was not represented by counsel. He initiated settlement discussions with Plaintiffs because he wanted to put an end to the litigation against him. Although he was able to accomplish his short-term goal by signing the Consent Order, he now complains that he made too many concessions.
Smith argues that the scope of the enjoined activity is too broad because it may preclude him "from engaging in common business activity such as seeking partners to join in a business or to invest in a new venture." (Mot. for Relief at 5). As ODS notes, Smith fails to elaborate on how the prohibitions contained in the Consent Order may affect his future plans. Smith also appears to argue that the restrictions imposed on him are unfair in light of the later resolution of Plaintiffs' claims against Bobo and Allied. Following the entry of the Consent Order against Smith, Bobo, as Chairman of Allied, signed a plea agreement admitting that the company had defrauded its investors. As part of the plea agreement, Allied paid $844,093.00 in restitution. Bobo, whom Smith claims was more culpable, was not individually criminally prosecuted and was not subjected to any restrictions on his future involvement in the field of securities and commodities.
Smith notes that the total restitution paid is almost $50,000 more than Plaintiffs sought in the complaint.
Although Smith, in hindsight, may regret signing the Consent Order and agreeing to the restrictions placed upon him, the mere fact that he no longer finds it convenient to live with the choice he made does not warrant relief from judgment. See Rufo, 502 U.S. at 383. He must show that it is no longer equitable that the judgment should have prospective application. In other words, he must show a significant change in factual circumstances.
Smith notes that he has made full restitution as required and has complied with the Consent Order's injunctive provisions and stayed out of trouble for the past nine years. While this is admirable, it does not warrant relief from judgment. ODS continues to maintain that, based on the allegations in the earlier complaint, Smith should be prohibited from registering with ODS and from working in the securities field in the State of Ohio. The only change in circumstances claimed by Smith is the fact that he is now married and has three children. Smith has failed to show these changes in his family situation justify revision of the Consent Order. As discussed above, "when the injunction results from a negotiated consent decree, finality of judgments and the sanctity of a bargain are strong factors that weigh against any modification." 12 James Wm. Moore, Moore's Federal Practice ¶ 60.47[2][c] (3d ed. 1997).
Smith does not argue that compliance with the Consent Order is substantially more onerous today than it was then, that the Consent Order is now unworkable because of unforeseen obstacles, or that enforcement of the Consent Order would be detrimental to the public interest. See Rufo, 502 U.S. at 384. ODS, in contrast, argues that continued enforcement of the Consent Order is necessary to protect the public. In the Court's view, Smith has failed to establish any significant change in facts, and has failed to prove that prospective application of the Consent Order is no longer equitable. The Court therefore denies his motion for relief from judgment under Rule 60(b)(5).
B. Rule 60(b)(6)
Smith asserts that Rule 60(b)(6)'s "catch-all" provision provides an alternative basis for relief from judgment. However, as noted earlier, Rule 60(b)(6) should be applied only in "exceptional or extraordinary circumstances which are not addressed by the first five clauses of the Rule" and where principles of equity mandate relief. Olle, 910 F.2d at 365. Smith has failed to cite to any exceptional circumstances, and has failed to establish that principles of equity demand the relief he seeks. The Court therefore also denies his motion for relief from judgment under Rule 60(b)(6).
IV. Conclusion
For the reasons stated above, the Court DENIES Defendant Jeffrey A. Smith's Motion for Relief from the January 27, 1998 Consent Order of Permanent Injunction and Other Equitable Relief. (Record at 172).