Opinion ID: 625397
Heading Depth: 3
Heading Rank: 1

Heading: Failure of the settlement to serve the public interest.

Text: The court's first and most important justification for its ruling was that a consent judgment without Citigroup's admission of liability is bad policy and fails to serve the public interest because defrauded investors cannot use the judgment to establish Citigroup's liability in civil suits to recover the investors' losses. In that reasoning, we perceive several problems. [1] First, it prejudges the fact that Citigroup had in fact misled investors, and assumes that the S.E.C. would succeed at trial in proving Citigroup's liability. The court appeared to assume that the S.E.C. had a readily available option to obtain a judgment that established Citigroup's liability, either by trial or settlement, but chose for no good reason to settle for less. The district court's logic appears to overlook the possibilities (i) that Citigroup might well not consent to settle on a basis that requires it to admit liability, (ii) that the S.E.C. might fail to win a judgment at trial, and (iii) that Citigroup perhaps did not mislead investors. [2] A still more significant problem is that the court does not appear to have given deference to the S.E.C.'s judgment on wholly discretionary matters of policy. The S.E.C.'s decision to settle with Citigroup was driven by considerations of governmental policy as to the public interest. The district court believed it was a bad policy, which disserved the public interest, for the S.E.C. to allow Citigroup to settle on terms that did not establish its liability. It is not, however, the proper function of federal courts to dictate policy to executive administrative agencies. [F]ederal judgeswho have no constituencyhave a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: `Our Constitution vests such responsibilities in the public branches.' Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 866, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) (quoting TVA v. Hill, 437 U.S. 153, 195, 98 S.Ct. 2279, 57 L.Ed.2d 117 (1978)); see also Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (in reviewing whether agency action is arbitrary and capricious under 5 U.S.C. § 706(2)(A), a court is not to substitute its judgment for that of the agency). Some courts have gone so far as to conclude that an agency's assessment of policy factors driving a decision to settle is an agency action. . . committed to agency discretion by law and therefore not subject to any judicial review under 5 U.S.C. § 706(1)(a)(2). See, e.g., Ass'n of Irritated Residents v. E.P.A., 494 F.3d 1027, 1031-33 (D.C.Cir.2007); New York State Dep't of Law v. F.C.C., 984 F.2d 1209, 1214-15 (D.C.Cir.1993). While we are not certain we would go so far as to hold that under no circumstances may courts review an agency decision to settle, the scope of a court's authority to second-guess an agency's discretionary and policy-based decision to settle is at best minimal. The numerous factors that affect a litigant's decision whether to compromise a case or litigate it to the end include the value of the particular proposed compromise, the perceived likelihood of obtaining a still better settlement, the prospects of coming out better, or worse, after a full trial, and the resources that would need to be expended in the attempt. In the case of a public executive agency such as the S.E.C., the factors include also an assessment of how the public interest is best served. These are precisely the factors that the Supreme Court has recognized as making a discretionary agency decision unsuitable for judicial review. Heckler v. Chaney, 470 U.S. 821, 831-32, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985). Based on our preliminary review, and noting that the settlement called for payment by Citigroup of $285 million, which would be available for compensation of investors who lost money, we see no basis to doubt that the SEC's decision was made in consideration of all of those factors. See SEC's Memorandum of Law in Response to Questions Posed by the Court Regarding Proposed Settlement, U.S. Secs. and Exch. Comm'n v. Citigroup Global Mkts., Inc., No. 11 Civ. 7387(JSR) (Nov. 7, 2011). While the district court verbally acknowledged its obligation to give deference to the S.E.C.'s decision (stating that it had given fullest deference to the S.E.C.'s views, ___ F.Supp.2d at ___, 2011 WL 5903733, at ), there is no indication in the record that the court in fact gave deference to the S.E.C.'s judgment on any of these questions. The S.E.C. believed, for example, that the public interest was served by the defendant's disgorgement of $285 million, available for compensation of claimants against Citigroup, plus other concessions. The court simply disagreed. In concluding that the settlement was not in the public interest, the court took the view that Citigroup's penalty was pocket change and the S.E.C. got nothing from the settlement but a quick headline. Id. at ___, 2011 WL 5903733, at . [3] In addition, the court does not appear to have considered the agency's discretionary assessment of its prospects of doing better or worse, or of the optimal allocation of its limited resources. Instead, the district court imposed what it considered to be the best policy to enforce the securities laws. In short, we conclude it is doubtful whether the court gave the obligatory deference to the S.E.C.'s views in deciding that the settlement was not in the public interest. Finally, we question the district court's apparent view that the public interest is disserved by an agency settlement that does not require the defendant's admission of liability. Requiring such an admission would in most cases undermine any chance for compromise.