Paul Ferrer—Senior Attorney

         The United States Supreme Court has limited one of the U.S. Securities and Exchange Commission’s (SEC’s) major tools for penalizing securities fraud by ruling that the Seventh Amendment requires a jury trial when the SEC seeks civil penalties against a defendant. See SEC v. Jarkesy, 144 S. Ct. 2117 (2024). And the decision may have much more far-reaching implications by calling into question the ability of other government agencies to seek civil penalties.

            Three of the primary federal statutes regulating the registration and trading of securities—the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940—all contain antifraud provisions that target the same basic behavior: misrepresenting or concealing facts that would be material to an investor’s decision. These statutes are enforced by the SEC, which may bring an enforcement action either (1) in its own forum, an administrative proceeding, or (2) in a federal court action. In federal court, a federal judge presides, a jury decides the facts, proceedings are governed by the Federal Rules of Evidence, and discovery is had under the Federal Rules of Civil Procedure. By contrast, when the SEC adjudicates the matter in-house, its Division of Enforcement prosecutes the case and the SEC presides and finds the facts, although the SEC may delegate its role as judge and fact finder to one of its administrative law judges (ALJs). The SEC or its ALJ decides discovery disputes and determines the scope and form of permissible evidence pursuant to the SEC’s own Rules of Practice. The SEC can, but does not have to, review the ALJ’s findings and conclusions. Judicial review is available but is deferential.

Lawletter Vol  48 No. 3

The Utility of a Declaratory Judgment Action

Paul Ferrer—Senior Attorney

          Most states, as well as the federal government, have enacted some form of declaratory judgment act, which authorizes courts to declare the rights and other legal relations among parties even though traditional remedies for damages or equitable relief are not yet available. Virginia’s Declaratory Judgment Act is typical. It permits Virginia’s trial courts, “[i]n cases of actual controversy, . . . to make binding adjudications of right, whether or not consequential relief is, or at the time could be, claimed” by the parties. Va. Code Ann. § 8.01-184. Declaratory relief is particularly useful in settling controversies involving the interpretation of written instruments, such as contracts, deeds, and wills, but relief may be sought whenever there is an “actual antagonistic assertion and denial of right.” Ames Ctr., L.C. v. Soho Arlington, LLC, 301 Va. 246, 876 S.E.2d 344, 347 (2022) (quoting Va. Code Ann. § 8.01-184). In Ames Center, the Virginia Supreme Court noted the struggle courts have sometimes faced in finding “the case-specific equilibrium where a declaratory-judgment action serves its intended purpose without going too far or not going far enough.” 876 S.E.2d at 348. That, however, was not one of those cases.

            In that case, the defendant leased hotel property under a long-term ground lease. The lease provided that if any construction was contemplated to be made on adjoining property, the tenant had to afford to the person undertaking the construction the right to enter the hotel property for the purpose of doing such work as the person “shall consider to be necessary to the safety and preservation of any of the foundations, walls or structures of the Building [being leased] from injury or damage and to support the same by proper foundations.” When a developer planning to build two 30-story buildings on adjacent property asserted a right to enter the hotel property pursuant to this provision, the tenant responded, in the strongest possible terms, that the developer was not welcome on the property, “for any reason.” In fact, the tenant threatened to have the developer’s representatives removed for trespassing and subjected to civil and criminal suit if they entered the property. The tenant went so far as to say that even a trespass in the form of a construction crane swinging into its airspace would be met with a damages action.

Paul Ferrer, Senior Attorney, National Legal Research Group, Inc.

        Rule 60(b) of the Federal Rules of Civil Procedure authorizes a court to relieve a party from a final judgment, order, or proceeding for various reasons, including “mistake, inadvertence, surprise, or excusable neglect.” Fed. R. Civ. P. 60(b)(1). The U.S. Circuit Courts of Appeal have had a “longstanding disagreement whether ‘mistake’ in Rule 60(b)(1) includes a judge’s errors of law.” Kemp v. United States, 142 S. Ct. 1856, 1861 & n.1, 213 L. Ed. 2d 90 (2022). Resolving that question in Kemp, the U.S. Supreme Court held, based on the text, structure, and history of Rule 60(b), that “a judge’s errors of law are indeed ‘mistake[s]’ under Rule 60(b)(1).” Id. at 1860. In so holding, the Supreme Court indicated that the term “mistake” in Rule 60(b)(1) should be given its broadest possible interpretation to include any mistake, including “all mistakes of law made by a judge.” Id. at 1862.

            The Supreme Court specifically rejected the Government’s narrower reading of Rule 60(b)(1) in Kemp that the term “mistake” includes “only so-called ‘obvious’ legal errors.” Id. The Supreme Court’s decision sensibly spared the federal district courts from having “to decide not only whether there was a ‘mistake’ but also whether that mistake was sufficiently ‘obvious,’” since the plain language of Rule 60(b)(1) “does not support—let alone require—that judges engage in this sort of complex line-drawing.” Id. at 1863. Thus, the rule going forward could not be any simpler: relief from a final judgment or order may be granted under Rule 60(b)(1) based on a judge’s “mistakes,” including legal errors.

Paul Ferrer—Senior Attorney, National Legal Research Group

            A question that has long vexed both litigants and courts alike is what constitutes a “final decision” triggering the right to file an appeal under 28 U.S.C. § 1291, which confers jurisdiction on the federal circuit courts of appeals over “appeals from all final decisions of the district courts of the United States.” In a civil case (except where the United States is a party), the notice of appeal from a “final decision” must be filed “within 30 days after entry of the judgment or order appealed from.” Fed. R. App. P. 4(a)(1)(A). Many an appeal has been lost just by failing to timely file the notice of appeal.

            Making a determination as to when an appeal must be filed to comply with the 30-day time limit is supposed to be relatively easy in light of the procedures specified in Federal Rule of Civil Procedure 58. Rule 58 requires that every judgment generally “must be set out in a separate document.” Fed. R. Civ. P. 58(a). If a separate document is required by Rule 58(a), then judgment is “entered,” and the time to appeal starts running, when the judgment is entered in the civil docket and the earlier of one of these two events occurs: (1) the judgment is, in fact, set out in a separate document, or (2) 150 days have run from the entry of the judgment in the civil docket. Fed. R. Civ. P. 58(c)(2). The second alternative deals with those situations in which the district court, despite the requirements of Rule 58(a), does not set the judgment out in a separate document.

Paul Ferrer—Senior Attorney, National Legal Research Group

            The familiar "American rule" holds that a prevailing party generally cannot recover its attorney's fees from the losing party in the absence of a statute or contract provision specifically authorizing an award of such fees. Jurisdictions are divided on the issue of whether a party can recover its attorney's fees as damages, rather than costs, for the breach of a covenant not to sue the other party. In those jurisdictions that have not permitted attorney's fees to be awarded as damages, courts have reasoned that the contract containing the covenant not to sue can itself provide for attorney's fees in the event of its breach if that is the parties' intention. See Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2d Cir. 1966) ("Certainly it is not beyond the powers of a lawyer to draw a covenant not to sue in such terms as to make clear that any breach will entail liability for damages, including the most certain of all—defendant's litigation expense."). By contrast, other courts have determined that the American rule does not apply in "those cases in which the attorney fees are not awarded to the successful litigant in the case at hand, but rather are the subject of the law suit itself." Zuniga v. United Can Co., 812 F.2d 443, 455 (9th Cir. 1987). Virginia recently adopted the latter view.

Paul Ferrer—Senior Attorney, National Legal Research Group

            Laches is "a defense developed by courts of equity to protect defendants against unreasonable, prejudicial delay in commencing suit." SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954, 960 (2017) (internal quotation marks omitted). It is frequently said, however, that laches cannot be invoked to bar legal relief in the face of an express statute of limitations enacted by Congress. Id. at 959. But that is exactly what happened in Zuckerman v. Metropolitan Museum of Art, 928 F.3d 186 (2d Cir. 2019), cert. denied, 140 S. Ct. 1269 (2020).

            In Zuckerman, the plaintiff, Laurel Zuckerman, brought suit to recover a painting—"The Actor" by Pablo Picasso—that had been owned by her great-granduncle and aunt, the Leffmanns. The Leffmanns were German Jews who were forced to flee the country in 1937. They arranged for the painting to be held by a Swiss acquaintance, who sold the painting in 1938 to raise funds for the Leffmanns to relocate to Brazil. The painting was eventually donated to the Metropolitan Museum of Art (the "Met") in New York in 1952, where it still resides.

Paul Ferrer—Senior Attorney, National Legal Research Group

     Based on the exceptional circumstances presented by the COVID-19 pandemic, many state and federal courts have entered general orders altering deadlines for a wide variety of matters, including deadlines for filing appeals, the most notable example being the U.S. Supreme Court's extending the period to seek review of a lower court decision by writ of certiorari from 90 to 150 days. Counsel should be aware, however, that in the absence of an order of general applicability, deadlines will not be extended without a specific order from the court in a particular case. To the contrary, judges are loath to allow "all litigation to grind to a halt in many cases," as "allowing that to happen will only exacerbate, in many cases, the detrimental effects of this crisis." Horning v. Resolve Marine Group, No. 19-60899-CIV, 2020 WL 1540326, at *1 (S.D. Fla. Mar. 30, 2020) (Scola, J.).

Paul Ferrer—Senior Attorney, National Legal Research Group

            Practitioners in federal court are by now aware of the revolution in federal pleading fashioned by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), which are often referred to jointly using the portmanteau "Twiqbal." Under the Twiqbal analysis, a district court considering the legal sufficiency of a complaint on a motion to dismiss for failure to state a claim initially separates factual allegations, which are still entitled to the presumption of truth, from legal conclusions (such as "[t]hreadbare recitals of the elements of a cause of action"), which are not. Iqbal, 556 U.S. at 678. The court then examines just the factual allegations to determine whether they state a claim to relief that is plausible on its face. Id. Determining whether a claim is plausible is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.

Paul Ferrer—Senior Attorney, National Legal Research Group

            In a decision with far-reaching implications in the commercial world, the Virginia Supreme Court has decided that contractual waivers of the right to plead the statute of limitations that do not meet specified statutory criteria are unenforceable under Virginia law. See Radiance Capital Receivables Fourteen, LLC v. Foster,  ___ Va. ___, 833 S.E.2d 867 (2019), available at http://www.courts.state.va.us/opinions/opnscvwp/1180678.pdf. The statute in question provides that unless the failure to enforce a promise not to plead the statute of limitations would operate as a fraud on the promisee, a written promise not to plead the statute of limitations is valid and enforceable only "when (i) it is made to avoid or defer litigation pending settlement of any case, (ii) it is not made contemporaneously with any other contract, and (iii) it is made for an additional term not longer than the applicable limitations period." Va. Code Ann. § 8.01-232(A).

Paul Ferrer—Senior Attorney, National Legal Research Group

            Federal courts may be inundated with frivolous pleadings filed by prisoners or other claimants proceeding in forma pauperis. But the courts have powerful statutory weapons for dealing with such pleadings and dismissing them at the earliest stage of a proceeding, if warranted. In fact, federal courts are specifically required to screen prisoner actions and dismiss them if they fail to pass muster. See 28 U.S.C. § 1915A.

            Section 1915A affirmatively requires the district court to review, before docketing if feasible or as soon as practicable after docketing, every civil complaint in which a prisoner seeks redress from a governmental entity or officer or employee of a governmental entity. Id. § 1915A(a). After reviewing the complaint, the court must either identify any cognizable claims or dismiss all or part of the complaint if it is “frivolous, malicious, or fails to state a claim upon which relief may be granted.” Id. § 1915A(b)(1). Another federal statute similarly requires a district court to dismiss any proceeding brought in forma pauperis if the court determines, “at any time,” that the action is “frivolous or malicious” or “fails to state a claim on which relief may be granted.” Id. § 1915(e)(2)(B)(i), (ii).