Nos. 71 Civ. 2695 (RJW), 74 Civ. 5729 (RJW)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
1991 U.S. Dist. LEXIS 12015
August 28, 1991, Decided August 29, 1991, Filed
JUDGES: [*1]
Robert J. Ward, United States District Judge.
OPINIONBY: WARD
OPINION: MEMORANDUM DECISION
Defendant Samuel H. Sloan ("Sloan"), appearing pro se, moves to vacate a permanent injunction entered by this Court on January 14, 1974 in 71 Civ. 2695 (the "1971 Action"), which enjoins defendant from violating various provisions of the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules promulgated thereunder. Defendant also moves to vacate a preliminary injunction, entered on January 17, 1975 in 74 Civ. 5729 (the "1974 Action"), which enjoined defendant pendente lite from violating various sections of the Exchange Act and ordered defendant to permit the Securities and Exchange Commission (the "SEC") to examine Samuel H. Sloan & Co.'s books and records. For the reasons that follow, defendant's motion with respect to the 1974 permanent injunction is denied, and his motion with respect to the 1975 preliminary injunction is denied as moot.
BACKGROUND
I. The 1971 Action
Beginning in May 1970, Sloan was the sole proprietor and manager of Samuel H. Sloan & Co. ("Sloan & Co."), a broker-dealer registered with the SEC pursuant to Section 15(b) of the Exchange Act, 15 U.S.C. 78o(b). In [*2] 1971, the SEC filed a complaint against Sloan and Sloan & Co. seeking injunctive and other relief for alleged violations of Sections 15(b)1, 15(c)(3) and 17(a) of the Exchange Act, 15 U.S.C. Sections 78o(b)(1), 78o(c)(3), and 78q(a), and Rules 17 C.F.R. 240.15b1-2, 15c3-1, 17a-3 and 17a-4 promulgated thereunder. On June 24, 1971, an order was entered on consent which preliminarily enjoined Sloan and Sloan & Co. from further violations of the net capital and bookkeeping requirements of the federal securities laws.
Thereafter, at trial, this Court found that Sloan & Co., under the direction of Sloan, had violated provisions of the Exchange Act by failing to properly maintain, keep current and preserve certain of its books and records, and by effecting transactions in securities otherwise than on a national securities exchange. The Court also found that defendants, while engaged in unlawful acts, practices and courses of business, had made use of the mails and means and instrumentalities of interstate commerce, and effected the transactions otherwise than on a national securities exchange. A number of the above mentioned violations occurred after the Court's entry of the preliminary injunction [*3] enjoining defendants from further violations. The Court found that unless permanently enjoined, there was a likelihood that the defendants would continue to engage in violations of the federal securities laws. Accordingly, on January 14, 1974, a permanent injunction was entered against defendants.
Sloan's appeal of the permanent injunction was dismissed because Sloan was a fugitive when the appeal was scheduled to be heard. The Court of Appeals in Sloan v. Sec, 535 F.2d 676, 677 (2d Cir.), cert. denied, 429 U.S. 885 (1976), found that Sloan "apparently fled the jurisdiction to escape sentencing for contempt of a preliminary injunction restraining still further violations of SEC rules and requiring Sloan to permit SEC examination of his books and records."
II. The 1974 Action
In 1974, the SEC commenced an action against defendants for alleged violations of Exchange Act 15(c)(2), 17(a) and Rules, 15c2-11 and 17a-4. The SEC alleged that from on or about December 1974, defendants failed to include most of the information required by Rule 15c2-11 in their applications to the National Quotation Bureau, Inc. ("NQB") for publication of [*4] the quotations contained therein in the NQB's "pink sheets." n1
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n1 The "pink sheets" are a medium used by brokers and dealers to quote the shares of various companies which are traded in the over-the-counter market.
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By order dated January 17, 1975, the Court preliminarily enjoined defendants from further violations of these securities laws. The SEC then moved, pursuant to Rule 56, Fed. R. Civ. P., for summary judgment permanently enjoining defendants from further violation of SEC rules.
On April 28, 1975, the registration of Sloan & Co. was revoked by the SEC, and Sloan was barred from association with any broker or dealer. While noting that summary judgment would have been appropriate had Sloan & Co.'s registration not been revoked, and had the SEC been able to find Sloan & Co.'s books and records for the years 1974 and 1975, this Court dismissed the action as moot. n2
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n2 The Court noted that the permanent injunction entered in 1974 remained in force and was unaffected by the dismissal of the 1974 action.
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III. Defendant's Motions to Vacate
Sloan now seeks to vacate the two injunctions, contending that it has been seventeen years since the permanent injunction was entered against him, and that he has not engaged in the securities business for all these years. He claims that he cannot lead a normal life without the injunctions being vacated, suggesting especially his difficulties in supporting his six children due to the existence of the injunctions. Sloan further contends that the injunctions have affected him in areas having nothing to do with the brokerage business. For example, he claims that he was prejudiced in several child-custody lawsuits as his ex-wives invariably used the injunctions as evidence of his unfitness as a parent.
Sloan further contends that his violations were not very serious and that no member of the investing public was harmed thereby. Specifically referring to his violation of the bookkeeping rules, Sloan claims that such a violation is not likely to occur today because all brokerage records are now maintained by computer and the record keeping methods are standardized.
DISCUSSION
A. The 1971 Action
It is undisputed that federal courts have the power [*6] to modify or vacate injunctions. The Supreme Court, in United States v. Swift & Co., 286 U.S. 106, 114 (1932), stated that "[a] continuing decree of injunction directed to events to come is subject always to adaptation as events may shape the need." This rule applies to injunctions entered either after a hearing or trial or by consent. Id. at 462. In addition, Rule 60(b), Fed. R. Civ. P., permits a court to relieve a party from a final judgment, order or proceeding on the party's motion and upon such terms as are just.
However, while the power to modify or vacate injunctions is recognized, the lower courts have been instructed not to exercise that power lightly. The Swift court laid down a strict standard for the lower courts to follow. In Swift, where a defendant sought to modify a consent decree that had been entered in an antitrust suit, the Supreme Court rejected the argument that the injunction should be modified because conditions made it unlikely that defendants could resume their monopolistic practices. Noting that changes are inevitable, the Court stated that the changes must be:
so important that dangers, once substantial, have become [*7] attenuated to a shadow . . . . Nothing less than a clear showing of grievous wrong evoked by new and unforseen conditions should lead us to change what was decreed after years of litigation with the consent of all concerned.
Id. at 119; The Court stated that the movants have the burden to prove that they are "suffering hardship so extreme and unexpected" as to justify a finding that they are the "victims of oppression." Id. at 119.
The Supreme Court revisited the issue of modification of consent decrees in United States v. United Shoe Corp., 391 U.S. 244 (1968). After first noting that the Swift decision was based more on the Court's view of defendants' bad conduct than on any general opposition to modification of judgments the Court pointed out that in United Shoe, the request for modification came from the plaintiff, not the defendant, and that the requested modification was designed to further the purposes of the original decree, not to escape them as was the case in Swift.
Following United Shoe, the Second Circuit has on occasion departed from the Swift standard when considering the question of modification of judgments. In [*8] King-Seeley Thermos Co. v. Aladdin Industries, Inc., 418 F.2d 31 (2d Cir. 1969), the Court upheld a district court's decision to modify an injunction which limited defendant's use of the word "thermos" upon a showing that "the detailed provisions of the decree seriously and needlessly impeded" the defendant's ability to achieve the purpose of the injunction. Although the Second Circuit noted that courts have power to modify even in the absence of changed conditions, the Court instructed that "the power should be sparingly exercised." Id, at 35.
In New York State Ass'n for Retarded Children v. Carey, 706 F.2d 956 (2d. Cir. 1983), cert. denied, 464 U.S. 915, the Second Circuit again rejected a strict reading of Swift and reaffirmed the analysis of King-Seeley. The Court noted that the proposed modification in Carey, like the one in King-Seeley, and unlike the one in Swift, was designed to further the purpose of the original decree. The Court stated that "when a case involved drawing the line between legitimate interest on each side, modification will be allowed on a lesser [*9] showing." New York State Ass'n for Retarded Children v. Carey, supra, 706 F.2d at 969. See also Badgley v. Santacroce, 853 F.2d 50, 53 (2d Cir. 1988). (some measure of flexibility is warranted in considering modification of consent decree entered into in the context of institutional reform, and modification is favored when necessary to carry out the purposes of the original decree); Kozlowski v. Coughlin, 871 F.2d 241 (2d Cir. 1989) (consent decree entered into in connection with prisoners' challenge to circumstances under which the Commissioner could suspend or terminate visitation privileges of inmates modified so to achieve the purpose intended by the consent decree).
Although Second Circuit has on occasion departed from the Swift standard, the rationale supporting a departure does not apply to the instant case. Unlike the above cases where an injunction strikes a delicate balance in an ongoing relationship. and the movant seeks to modify the injunction, the instant case concerns a motion to vacate the injunction altogether. Moreover, the present case involves neither an effort to achieve the purpose intended [*10] by the original injunction, nor consent decrees entered into in the context of institutional reform which require ongoing, court supervision. Thus, the Swift standard remains applicable to the instant case.
Other circuits have also applied the strict standard laid down in Swift when considering motions to vacate permanent injunctions. See SEC v. Blinder, Robinson & Co., Inc., 855 F.2d 677, 679-80 (10th Cir. 1988), cert. denied, 489 U.S. 1033 (1989). (Swift standard applied when considering defendant's motion to vacate a permanent injunction enjoining defendant from violating securities laws). See also SEC v. Advance Growth Capital Corp., 539 F.2d 649, 652 (7th Cir. 1976).
The Second Circuit continues to apply a very strict standard to motions to seeking relief from a final judgment pursuant to Rule 60(b), Fed. R. Civ. P., which provides that "upon such terms as are just, the court may relieve a party . . . from a final judgment [or] order . . . for the following reasons: . . . (6) any other reason justifying relief from the operation of the judgment." n3 Noting that final judgments should not be lightly [*11] opened, the Second Circuit, in interpreting 60(b)(6), instructs that the extraordinary judicial relief of Rule 60(b) may be invoked only if the movant can present the kind of "exceptional circumstances" that mandate relief to avoid an "extreme and undue hardship." Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986); Mendell v. Gollust, 909 F.2d 724, 731-32 (2d Cir. 1990) aff'd, 111 S. Ct. 2173 (1991); Matarese v. Le Fevre, 801 F.2d 98, 106 (2d Cir. 1986), cert. denied, 480 U.S. 908 (1987).
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n3 Although Sloan did not move under Rule 60(b) in the instant case, his motions to vacate the injunctions fall squarely within Rule 60(b).
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The showing made by Sloan satisfies neither the strict Swift standard nor the Second Circuit standard under Rule 60(b). As discussed above, in order to satisfy the Swift standard, Sloan must make a clear showing that the danger of future securities law violations by him has "attenuated [*12] to a shadow," or that a "new and unforseen condition" has evoked "grievous wrong" upon him. United States v. Swift & Co., supra, at 119.
Sloan's history of violations prior to the permanent injunction suggests that the danger of his future violations of securities laws has not "attenuated to a shadow." Id. at 119. Sloan's violations were willful, and he blatantly ignored a preliminary injunction which enjoined him from further violations of certain SEC rules. Sloan's continued violations prompted this Court, after trial, to enter a permanent injunction against him. Furthermore, after the entry of the permanent injunction, Sloan fled the jurisdiction to escape sentencing for contempt of the preliminary injunction. Sloan's history of securities law violations and noncompliance with court orders justifies a continuation of the permanent injunction.
It is true that it has been seventeen years since the permanent injunction was entered against Sloan, and that Sloan has not engaged in the brokerage business for all these years. However, the mere passage of time is not enough to justify vacating the injunction. See SEC v. Broadwall Securities, Inc., 514 F. Supp. 488, 492 (S.D.N.Y. 1981), [*13] (citing Walling v. Harnischfeger Corp., 242 F.2d 712 (7th Cir. 1957)). In fact, compliance with what the injunction requires is just what the law expects. See SEC v. Bausch & Lomb, Inc., 82 F.R.D. 50, 53 (S.D.N.Y. 1979).
No doubt Sloan would benefit if the permanent injunction is vacated. However, whatever changed conditions there may be since the entry of the injunction, they have caused Sloan neither "grievous wrong" nor "hardship so extreme and unexpected" as to justify saying that he is the "victim of oppression." United State v. Swift, supra, at 119. Even if vacated, his various ex-wives, in their child custody lawsuits against Sloan, might well be able to continue to offer the vacated injunction as evidence of Sloan's character since the vacatur would not be based on a finding that his character had changed.
Similarly, Sloan has failed to prove that the injunction prevents him from supporting his six children. Sloan was in his late twenties when the permanent injunction was entered against him, and he has not demonstrated that in the seventeen years following the entry of the injunction, he was not able [*14] to earn a living or to support his children because of the injunction. In fact, he was the owner of a computer company for the past four years, and the only evidence of hardship that he presents to the Court is that he is now looking for a job.
In light of all of the above, it is clear that Sloan has failed to satisfy the Second Circuit standard under Rule 60(b) since he has not shown the kind of "exceptional circumstances" that mandate relief to "avoid extreme and undue hardship."
B. The 1974 Action
Since the lawsuit underlying the preliminary injunction was dismissed as moot approximately 15 years ago, the Court will deny Sloan's motion to vacate the preliminary injunction as moot.
CONCLUSION
For the forgoing reasons, Sloan's motion to vacate the permanent injunction entered in 1974 is denied, and his motion with respect to the preliminary injunction entered in 1975 is denied as moot.
It is so ordered.