Opinion ID: 4529168
Heading Depth: 3
Heading Rank: 1

Heading: Activity restrictions

Text: The district court found that Klopp violated the activity restrictions for two reasons. First, the court found that Klopp was profiting from and “running the [mortgage] business”—activities the court considered prohibited under the Consent Order. J.A. 219. Second, the court determined that Klopp “communicat[ed] with lender and title companies.” Id. Klopp admits to managing the business but disagrees with the district court’s interpretation of the Consent Order.
Klopp argues that the Consent Order did not clearly prohibit him from earning a profit and managing the business. The Order “limited [Klopp] from participation in the Mortgage Industry for two years . . . as follows:” a. [Klopp is] prohibited from contacting, soliciting, or otherwise dealing with consumer borrowers or loan applicants in any capacity with regard to any mortgage business; and b. [Klopp is] prohibited from contacting, soliciting, or otherwise dealing with any third party businesses engaged in offering any settlement service. c. These limitations shall not prohibit Defendant Klopp from acting solely as a personnel or human-resources manager for a mortgage business operated by an FDIC banking institution . . . . 9 J.A. 49. Klopp reads these restrictions narrowly—he may manage the business so long as he does not deal in a prohibited manner with (a) consumer borrowers or (b) certain third-party businesses. So in Klopp’s view, management of his mortgage business did not violate the Consent Order. On the other hand, the district court adopted the regulators’ broad interpretation: Klopp may “act[] solely, solely, as a personnel or human resources manager.” J.A. 218 (emphasis added). So any other participation in the mortgage industry would violate the Consent Order. The interpretation of a negotiated order is a legal question that we review de novo. See American Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 512 (4th Cir. 2003); Willie M. v. Hunt, 657 F.2d 55, 60 (4th Cir. 1981). 3 We interpret consent orders using “traditional rules of contract interpretation, and the district court’s authority is thus 3 Some of our cases have adopted a more deferential posture when reviewing a district court’s interpretation of its own orders. See, e.g., In re Grand Jury Subpoena (T- 112), 597 F.3d 189, 202 (4th Cir. 2010) (“When evaluating a district court’s interpretation of its own decree, we are properly respectful of the district court’s superior position to evaluate its order.”). And other circuits have suggested that appellate review of a district court’s interpretation of a consent order is both “deferential” and “de novo” at the same time. See Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 371–72 (6th Cir. 1998) (applying a “deferential de novo” standard when “reviewing the interpretation of a consent judgment by the district court that crafted the consent judgment”); Goluba v. Sch. Dist. of Ripon, 45 F.3d 1035, 1037–38 (7th Cir. 1995) (reviewing district court’s interpretation of a consent decree de novo but “nonetheless giv[ing] some deference to the court’s interpretation” when the court “oversaw and approved the consent decree”). As our interpretation of the Consent Order would remain the same, we need not determine whether our plenary review incorporates some measure of deference. Cf. United States v. Boyd, 55 F.3d 239, 242 (7th Cir. 1995) (Posner, J.) (noting that there are more verbal formulations of the scope of appellate review than distinctions capable of being drawn). 10 constrained by the language of the decree.” Thompson v. U.S. Dep’t of Housing & Urban Development, 404 F.3d 821, 832 n.6 (4th Cir. 2005); see also Willie M. v. Hunt, 732 F.2d 383, 386 (4th Cir. 1984). As the Supreme Court has explained, consent orders like the one at hand “are entered into by parties to a case after careful negotiation has produced agreement on their precise terms.” United States v. Armour & Co., 402 U.S. 673, 681 (1971). Thus, the consent orders themselves “cannot be said to have a purpose” but reflect the negotiations between adverse parties before approval of the court. Id. “For these reasons, the scope of a consent [order] must be discerned within its four corners, and not by reference to what might satisfy [its] purposes.” Id. at 682. And the district court “has no authority to expand or contract the judgment’s terms to reflect what might have been.” Willie M., 657 F.2d at 60. Even so, the district court seemed to base its interpretation on its own understanding of the Consent Order’s purpose. See J.A. 207 (“I signed the order. I know what the case is about. I know what my intention was.”). This would be an error. Abiding by the court’s own subjective intent rather than an objective interpretation of the document would violate the first “cardinal principle[]” for interpreting consent orders: “meaning is properly to be sought within the confines of the judicially approved documents expressing the parties’ consent.” Willie M., 657 F.2d at 60. With this interpretive principle in mind, we turn to the terms of the Consent Order, which “limited [Klopp] from participation in the Mortgage Industry . . . as follows[.]” J.A. 49 (emphasis added). By limiting Klopp’s participation “as follows[,]” the Order “confine[d]” or “set bounds to” Klopp’s involvement in the mortgage industry in specified 11 ways, Limit, 8 Oxford English Dictionary 964 (2d ed. 1989); it did not erect a complete bar to his participation. Indeed, the Consent Order that applied to Klopp contrasts with the broader settlements reached by other codefendants. 4 These orders limited defendants “from participat[ing]in the Mortgage Industry in any professional capacity.” E.g., Dist. Ct. Dkt. No. 14 at 5 (emphasis added); see also, e.g., In the Matter of William C. Gennity, Exchange Act Release No. 85,246, 2019 WL 1033860, at  (Mar. 4, 2019) (Respondent “is barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.”). There is no similarly broad prohibition in the Consent Order that applies to Klopp, “and we will not read one into it.” Hitachi Credit America Corp. v. Signet Bank, 166 F.3d 614, 628 (4th Cir. 1999). First, the Parties knew how to draft a broad agreement but did not do so here. Words matter, particularly compared to those used in other orders in the same case. See Quadrant Structured Prod. Co. v. Vertin, 16 N.E.3d 1165, 1172 (N.Y. App. 2014) (“[I]f parties to a contract omit terms—particularly, terms that are readily found in other, similar contracts—the inescapable conclusion is that the parties intended the omission.”). And second, subjecting a litigant to contempt liability—whether civil or criminal—requires a clear indication of what is prohibited. See Acosta v. La Piedad Corp., 4 “Obedience to the ‘four corners’ rule . . . does not make improper the use of certain aids to construction where necessary. The circumstances surrounding the formation of the consent order . . . may properly inform a court while it yet adheres to the ‘four corners’ rule.” Willie M., 657 F.2d at 60. 12 894 F.3d 947, 951 (8th Cir. 2018) (“A party cannot be held in contempt for violating an ambiguous court order.”). An order limited “as follows” is hardly a clear imposition of a similarly comprehensive ban. J.A. 49. The subparagraphs that follow delineate specific restrictions: Klopp is prohibited from “contacting, soliciting, or otherwise dealing with” borrowers or certain third-party servicers. Id. Again, the restrictions do not generally ban Klopp from the mortgage industry but limit his interactions with specific categories of individuals and business in specific ways. Of course, one could read “otherwise dealing with” expansively to include any involvement in the mortgage industry. But the rules of interpretation counsel against this overbroad construction. The rule of ejusdem generis teaches that a general term at the end of a list refers to items of the same class as the specific terms. See Swift & Co. v. Columbia Railway, Gas & Electric Co., 17 F.2d 46, 48 (4th Cir. 1927); 11 Williston on Contracts § 32:10 (4th ed.). When we apply this rule to the list of prohibited activities, “contacting, soliciting, or otherwise dealing with,” the consent order looks much narrower. J.A. 49. The term “otherwise dealing with” appears to be a general term referring to business dealings that—like “contacting” and “soliciting”—involve direct communication with certain persons outside the business. Id. This interpretation is underscored by the context of this litigation. See Willie M., 657 F.2d at 60. Restricting outward-facing roles limits Klopp’s ability to solicit kickbacks; permitting inward-looking management roles allows Klopp to continue to run his business. Under this narrower interpretation, Klopp was not prohibited from running a mortgage-origination business or from managing its employees. 13 The regulators argue that subparagraph (c) somehow expands the scope of subparagraphs (a) and (b). Since “the plain meaning of the provision is that the only role that Mr. Klopp could play in the mortgage industry was in a human resources capacity,” it supposedly reinforces the breadth of the Consent Order. Appellees’ Br. 17. We disagree. Subparagraph (c) begins with the words “[t]hese limitations shall not prohibit,” showing that subparagraph (c) itself confines the limitations given in subparagraphs (a) and (b). J.A. 49 (emphasis added). We fail to see how this safe harbor that by its own terms narrows the restrictions applicable to Klopp should instead be read to broaden them. So activities that were never within the scope of subparagraphs (a) and (b)—such as managing the entire business and profiting from his investment—do not fall within those subparagraphs when they are further tapered. The regulators next argue that Klopp’s narrower reading would render subparagraph (c) superfluous. See Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1127 (4th Cir. 1993). Not so. Subparagraph (c) would, for example, allow Klopp to contact lenders to investigate personnel complaints—a classic HR function. In contrast, the regulators’ broad interpretation would create the very superfluousness they seek to avoid. If Klopp was in fact limited to acting solely as an HR manager, there would be no need to prohibit him from “soliciting” consumer borrowers or servicers in subparagraphs (a) or (b). J.A. 49. So we reject the regulators’ overbroad interpretation. For these reasons, Klopp’s management of the business was not categorically barred by the Consent Order, and the district court erred in finding it was a valid ground for contempt. 14
Although managing the business was not itself barred by the Consent Order, Klopp could still violate the specific activity limitations in subparagraphs (a) and (b) by his management conduct. And so the district court also found that Klopp continued to communicate impermissibly with third-party businesses engaged in settlement services. 5 This violation of subparagraph (a) is supported by the record. See, e.g., J.A. 300 (“Q: how often in a month would you chime in on anything to do with a particular loan? A: probably less than a dozen.”); J.A. 138 (discussing repeated communications with lenders); J.A. 146–47 (requesting an interest rate concession from a lender for a particular consumer loan). So the court properly rested its contempt finding on Klopp’s communications. And, in any event, Klopp fails to explain on appeal why this contempt finding was erroneous. See United States v. Jones, 308 F.3d 425, 427 n.1 (4th Cir. 2002) (arguments not raised on appeal are waived).