Opinion ID: 527542
Heading Depth: 3
Heading Rank: 1

Heading: General Principles With Respect to Consent Judgments

Text: 81 The SEC suggests that the principal issue before us on these appeals is 82 whether a court of equity, as part of its ancillary relief in a Commission enforcement action, properly held that a constructive trust should be recognized in the disgorged illegal trading profits for the benefit of the victims of that trading or whether those trading profits should be used to pay taxes, penalties and interest that the defendants owe because they failed to report their illegal trading profits as income. 83 We disagree. Though this might be a proper characterization of the issues if we were reviewing relief granted after adjudication, it ignores the fact that the Commission gained control of the defendants' assets and was given the authority to propose plans for distribution of those assets only as a result of judgments entered on consent. 84 A consent judgment, though it is a judicial decree, is principally an agreement between the parties. Such judgments should be construed basically as contracts, without reference to the legislation the Government originally sought to enforce but never proved applicable through litigation. United States v. ITT Continental Baking Co., 420 U.S. 223, 236-37, 95 S.Ct. 926, 934-35, 43 L.Ed.2d 148 (1975). Thus, consent judgments should be interpreted in a way that gives effect to what the parties have agreed to, as reflected in the judgment itself or in documents incorporated in it by reference: 85 Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms. The parties waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk of litigation. Naturally, the agreement reached normally embodies a compromise; in exchange for the saving of cost and elimination of risk, the parties each give up something they might have won had they proceeded with the litigation. Thus, the decree itself cannot be said to have a purpose; rather the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve. For these reasons, the scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it. Because the defendant has, by the decree, waived his right to litigate the issues raised, a right guaranteed to him by the Due Process Clause, the conditions upon which he has given that waiver must be respected, and the instrument must be construed as it is written, and not as it might have been written had the plaintiff established his factual claims and legal theories in litigation. 86 United States v. Armour & Co., 402 U.S. 673, 681-82, 91 S.Ct. 1752, 1757, 29 L.Ed.2d 256 (1971) (footnote omitted; emphasis in original); see United States v. ITT Continental Baking Co., 420 U.S. at 233-37, 95 S.Ct. at 932-35. In keeping with these principles, we have noted that a court construing a consent decree is not entitled to expand or contract the agreement of the parties as set forth in the consent decree. Berger v. Heckler, 771 F.2d 1556, 1568 (2d Cir.1985). 87 Construction of the consent judgment as a contract is constrained by traditional contract principles. Thus, documents that are expressly incorporated in the consent judgment should be considered. See United States v. ITT Continental Baking Co., 420 U.S. at 238, 95 S.Ct. at 935. Extrinsic evidence, however, may generally be considered only if the terms of the judgment, or of documents incorporated in it, are ambiguous. See, e.g., Schurr v. Austin Galleries of Illinois, Inc., 719 F.2d 571, 575 (2d Cir.1983) (applying New York law). With few exceptions, none of them pertinent here, evidence of contemporaneous agreements is not admissible in evidence to contradict a term of the writing. Restatement (Second) of Contracts Sec. 215, at 136 (1981). 88 With these principles in mind, we turn to the questions of whether SEC payment of the tax claims and criminal fines was required or permissible. 89