United States District Court, S.D. Indiana, Indianapolis Division
ORDER ON MOTION FOR ENTRY OF JUDGMENT BY CONSENT
EVANS BARKER, JUDGE
before the Court is the unopposed motion of Plaintiff
Securities and Exchange Commission (SEC) to approve and enter
judgments by consent against Defendants Alan H. New
(“New”), David N. Knuth (“Knuth”),
and Synergy Investment Services, LLC (“Synergy”).
For the reasons given below, the motion is denied.
December 17, 2018, SEC filed a two-count complaint charging
Defendants with selling unregistered securities in violation
of 15 U.S.C. § 77e(a) and selling securities without
registering as brokers or dealers in violation of 15 U.S.C.
§ 78o(a). Dkt. 1. The complaint alleges that New, Knuth,
and their wholly owned company Synergy, without registering
as brokers or dealers, sold the unregistered securities of
Woodbridge Group of Companies LLC and its affiliates
(“Woodbridge”) to over one hundred retail
investors between 2013 and 2017. Woodbridge “was
actually operating a massive Ponzi scheme, raising more than
$1.2 billion before collapsing in December 2017 and filing
for bankruptcy[, ]” Compl. ¶ 3, “with more
than $961 million in principal still due to
investors[.]” Id. ¶ 24. The complaint
seeks permanent injunctive relief against future violations
of the statutes above cited, disgorgement, and payment of
December 18, 2018, SEC filed the instant motion for entry of
judgment, together with a signed consent from each Defendant
and a tendered consent judgment as to each. Dkt. 2. As
relevant here, the tendered judgments (identical in their
material terms) provide that Defendants be enjoined from
violating the above-cited statutes; the Court determine
whether disgorgement or civil penalties are appropriate upon
SEC's motion and after a hearing, if necessary; the
signed consents be incorporated into the judgments;
jurisdiction over the judgments for the purpose of
enforcement be retained; and the judgments be certified as
partial final judgments under Federal Rule of Civil Procedure
have explained in a recent case,
Parties may settle litigation by entry of a consent decree,
consent judgment, or stipulated judgment. “A consent
decree is a court order that embodies the terms agreed upon
by the parties as a compromise to litigation.”
United States v. Alshabkhoun, 277 F.3d 930, 934 (7th
Cir. 2002). A district must approve a proposed consent decree
if its terms are sufficiently connected to the underlying
suit and if it is otherwise fair and reasonable.
In reviewing a proposed consent decree, the court begins from
“the federal policy encouraging settlement.”
United States v. George A. Whiting Paper Co., 644
F.3d 368, 372 (7th Cir. 2011). Then the court “must
determine whether a proposed decree is lawful, fair,
reasonable, and adequate.” E.E.O.C. v. Hiram Walker
& Sons, Inc., 768 F.2d 884, 889 (7th Cir. 1985).
“The district court may not deny approval of a consent
decree unless it is unfair, unreasonable, or inadequate[,
]” id., and should be “chary” of
so finding. Id. at 890.
But a federal court is more than “‘a recorder of
contracts' from whom parties can purchase
injunctions[.]” Local No. 93, Int'l Ass'n
of Firefighters v. City of Cleveland, 478 U.S. 501, 525
(1986) (citation omitted). As the judgment of a federal
court, a consent decree “is an exercise of federal
power, enforceable by contempt.” Kasper v. Bd. of
Election Comm'rs, 814 F.2d 332, 338 (7th Cir. 1987).
Predicate to the exercise of federal power, a consent decree
must “(1) spring from and serve to resolve a dispute
within the court's subject matter jurisdiction; (2) come
within the general scope of the case made by the pleadings;
and (3) further the objectives of the law upon which the
complaint was based.” Komyatti v. Bayh, 96
F.3d 955, 960 (7th Cir. 1996) (quotations and alterations
omitted) (quoting Local No. 93, 478 U.S. at 525).
If Local No. 93 is satisfied, “the parties may
create any obligations that are not forbidden by law.”
Kasper, 814 F.2d at 342. It is well established that
such obligations may be “more than what a court would
have ordered absent the settlement.” Rufo v.
Inmates of Suffolk Cty. Jail, 502 U.S. 367, 389 (1992).
Lopez-Aguilar v. Marion Cty. Sheriff's
Dep't, 296 F.Supp.3d 959, 967-68 (S.D. Ind. 2017).
relief proposed by the tendered consent judgments appears to
be fair, reasonable, and adequate, and to satisfy the
requirements of Local No. 93. We cannot enter the
judgments as tendered, however, because to do so would
require disregarding the Federal Rules of Civil Procedure, as
explained below. And we will not sua sponte reform
the judgments and enter them as reformed, for the judgments
so entered would be invalid for lack of the parties'
consent in the absence of any determination on the merits.
See Local No. 93, 478 U.S. at 521-523.
and most importantly, the tendered judgments improperly
reserve the question of whether disgorgement or civil
penalties shall be ordered. They are therefore not final.
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