Securities and Exchange Commission v. Bronson

Background

The Securities and Exchange Commission sued Edward Bronson, E-Lionheart Associates, LLC, and Fairhills Capital, Inc. The Commission alleged that Bronson and E-Lionheart bought shares of approximately 100 penny-stock companies at deep discounts and quickly resold them to the public without complying with federal securities-registration requirements. It also alleged that Fairhills Capital received proceeds transferred by Bronson from the stock sales.

The court granted summary judgment for the Commission in 2017, concluding that the securities were not covered by the claimed state-law exemption. The court later entered an amended final judgment that permanently barred the defendants from violating the registration law and participating in penny-stock offerings. It also ordered Bronson, E-Lionheart, and Fairhills Capital to pay specified disgorgement and prejudgment interest, with additional civil penalties imposed on Bronson and E-Lionheart. The opinion states that the Second Circuit affirmed the final judgment in 2019.

After Bronson failed to make required payments and provide financial information, the court issued several contempt orders. These orders required payments, financial disclosures, and compliance with a payment plan. The court found Bronson in civil contempt, rejected his claim that he lacked the financial ability to pay, and at different points ordered that he be taken into custody. Bronson later made payments that brought him current under the payment schedule, although the opinion states that some payments were late.

Motions and arguments

Bronson filed two motions under Federal Rule of Civil Procedure 60(b): one seeking relief from the amended final judgment and one seeking relief from the contempt orders. Rule 60(b) permits a court, in limited circumstances, to relieve a party from a final judgment or order. Bronson relied on provisions concerning void judgments, changed circumstances affecting prospective enforcement, and other extraordinary reasons justifying relief.

Bronson relied primarily on the Supreme Court’s decisions in Kokesh v. Securities and Exchange Commission and Liu v. Securities and Exchange Commission. He argued that these decisions showed that the disgorgement award was not legally available, was not based on net profits, was not tied to identifiable harmed investors, and could not properly be imposed jointly and severally. He also argued that the contempt orders were invalid because the judgment was a money judgment that had to be enforced through a writ of execution rather than contempt.

Court’s analysis

Timeliness. The court first held that both motions were untimely. Bronson filed the motion concerning the final judgment almost four and a half years after the original judgment and more than four years after the amended judgment. He filed the motion concerning the contempt orders nearly five years after the original judgment and about four and a half years after the amended judgment. The court concluded that these delays were unreasonable and found no compelling justification for them.

Rule 60(b)(4)—void judgment. The court rejected Bronson’s argument that the judgment was void. A judgment is void under this rule only when the court lacked subject-matter or personal jurisdiction, or acted inconsistently with due process. The court concluded that it had subject-matter jurisdiction over the Commission’s enforcement action and authority to award disgorgement. It also concluded that contempt was available to enforce compliance with the disgorgement judgment, including orders addressing failures to pay. The court therefore held that relief under Rule 60(b)(4) was unavailable.

Rule 60(b)(5)—prospective enforcement. The court held that Rule 60(b)(5) did not apply to the disgorgement orders because they were money judgments rather than orders supervising future conduct. The court also rejected Bronson’s argument concerning the injunction against violating the securities-registration law and the penny-stock bar. It concluded that Liu did not eliminate the court’s authority to impose those forms of relief.

Rule 60(b)(6)—other extraordinary reasons. The court held that a change in decisional law, by itself, generally does not constitute an extraordinary circumstance justifying relief. It further concluded that the judgment was consistent with Kokesh and Liu. According to the court, the disgorgement amount reflected net profits after transaction costs were deducted; Liu did not require the order to identify every harmed investor; and joint-and-several disgorgement was permissible because Bronson, E-Lionheart, and Fairhills Capital had acted together in the alleged scheme.

Disposition

The court denied Bronson’s Motion for Relief from the Final Judgment and denied his Motion for Relief from the Contempt Orders. The Clerk of Court was directed to terminate those motions. The opinion did not vacate the amended final judgment or the challenged contempt orders.