Court Opinion

ID: 9367875
Source: CourtListenerOpinion
Date Created: 2023-02-02 01:00:36.303491+00
Date Added: 2024-06-11T17:16:04.132341
License: Public Domain

Case: 22-10359         Document: 00516631329             Page: 1      Date Filed: 02/01/2023

              United States Court of Appeals
                   for the Fifth Circuit                                         United States Court of Appeals
                                                                                          Fifth Circuit

                                                                                        FILED
                                                                                 February 1, 2023
                                         No. 22-10359
                                                                                      Lyle W. Cayce
                                                                                           Clerk

   Securities and Exchange Commission,

                                                                      Plaintiff—Appellee,

                                             versus

   Team Resources Incorporated; Fossil Energy
   Corporation; Kevin A. Boyles,

                                                                Defendants—Appellants.

                      Appeal from the United States District Court
                          for the Northern District of Texas
                               USDC No. 3:15-CV-1045

   Before Elrod, Haynes, and Willett, Circuit Judges.
   Per Curiam:*
          This civil enforcement action has come before us twice before. Most
   recently, we remanded it to the district court for further proceedings in light
   of the U.S. Supreme Court’s decision in Liu v. SEC, 140 S. Ct. 1936 (2020),
   which held that disgorgement, when ordered as “equitable relief” under 15
   U.S.C. § 78u(d)(5), is limited to a wrongdoer’s net profits. On remand, the

          *
              This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-10359         Document: 00516631329               Page: 2      Date Filed: 02/01/2023

                                          No. 22-10359

   district court denied the defendants’ request to hold a live hearing on the
   recalculation of the disgorgement award, resolving the issue on the
   Government’s uncontradicted documentary evidence. The court also
   declined to revisit the civil penalty it imposed, which we had affirmed in the
   initial appeal of this matter, reasoning that the issue was outside the scope of
   its mandate on remand. The defendants have again appealed, arguing that
   they were entitled to a live evidentiary hearing (even though they waived any
   right to a live hearing); that the district court should not have imposed a civil
   penalty (even though they forfeited this challenge in their initial appeal); and
   that the civil penalties violate the Eighth Amendment (even though they did
   not raise this argument to the district court). We AFFIRM.
                                                 I
           The Securities and Exchange Commission filed this civil enforcement
   action in 2015 against Kevin Boyles and two companies he created, Team
   Resources, Inc. and Fossil Energy Corp., alleging that these defendants had
   defrauded approximately 475 investors of more than $33 million in violation
   of the federal securities laws. The parties quickly entered into settlements
   known as consent agreements. 1
           Among other things, the parties agreed that the SEC would move for
   an order of disgorgement and for civil penalties. Of particular relevance to
   this appeal, the parties further agreed that in connection with the SEC’s
   motion, “the parties may take discovery” but “the Court may determine the
   issues raised in the motion on the basis of affidavits, declarations, excerpts of
   sworn deposition or investigative testimony, and documentary evidence.”

           The facts of this case are set forth in more detail in our prior opinion, SEC v.
           1

   Team Res., Inc., 942 F.3d 272 (5th Cir. 2019), cert. granted, judgment vacated, 141 S. Ct. 186
   (2020).

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                                    No. 22-10359

   The district court entered partial judgments incorporating the terms of the
   consents.
          In 2018, upon motion by the SEC, the district court ordered the
   defendants jointly and severally liable for disgorgement in the amount of
   $15,508,280, which is equal to the funds that the defendants fraudulently
   took from investors, less payments returned to the investors, within the
   applicable limitations period. Additionally, the court imposed a civil penalty
   against Boyles individually for $15,508,280—the amount equal to Boyles’s
   gross pecuniary gain. The defendants appealed that initial judgment,
   attacking primarily the disgorgement award.
          We affirmed. Relevant here, we rejected the defendants’ argument
   that the disgorgement amount should have been lowered to account for their
   business expenses. SEC v. Team Res., Inc., 942 F.3d 272, 279 (5th Cir. 2019).
   We also held that the “district court did not abuse its discretion by ruling on
   the SEC’s remedies motion without holding an evidentiary hearing.” Id. at
   278. After all, “the parties agreed that the district court could resolve issues
   in the SEC’s disgorgement motion ‘on the basis of the affidavits,
   declarations, excerpts of sworn deposition or investigative testimony, and
   documentary evidence.’” Id. at 278–79. “So the court’s decision to rule on
   the SEC’s motion without first holding a hearing could not have violated
   Appellants’ rights under the settlement agreements because those
   agreements did not create a right to a hearing.” Id. at 279. The defendants
   petitioned for certiorari.
          After the Supreme Court decided Liu v. SEC, 140 S. Ct. 1936 (2020),
   the Court granted the defendants’ petition for certiorari and vacated our
   prior judgment, remanding this case for reconsideration in light of Liu. See
   Team Res., Inc. v. SEC, 141 S. Ct. 186 (2020). Liu held that an order of
   disgorgement, when awarded as “equitable relief” under 15 U.S.C.

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                                       No. 22-10359

   § 78u(d)—at least as the statute existed at the time 2—is limited to a
   defendant’s net profits, meaning a court must deduct legitimate business
   expenses when calculating the award. Liu, 140 S. Ct. at 1940. We therefore
   remanded to the district court “for further proceedings consistent with the
   Supreme Court’s decision in Liu.” SEC v. Team Res., Inc., 815 F. App’x 801
   (5th Cir. 2020) (per curiam).
          On remand, the SEC filed a renewed motion for remedies, deducting
   what it deemed legitimate expenses according to Liu and, as a result,
   reducing its calculation of disgorgement from $15,508,280 to $2,410,630.
   The SEC supported its motion with over 500 pages of documentary
   evidence. In response, the defendants critiqued the SEC’s calculations as
   “flawed and incomplete” but submitted no rebuttal documentary evidence.
   Instead, they argued that a live evidentiary hearing was necessary to properly
   calculate disgorgement under Liu. Additionally, Boyles asked the district
   court not to impose a civil penalty against him because of his financial
   condition.
          The district court denied the request for a live hearing, reasoning that
   “[i]n the settlement agreements . . . the Defendants waived any right to a
   hearing and expressly agreed for [the district court] to resolve this issue on
   the papers.” SEC v. Team Res., Inc., No. 3:15-CV-1045-N, 2022 WL 463390,
   at *2 (N.D. Tex. Feb. 15, 2022). Noting that the defendants did not oppose
   the SEC’s calculation of disgorgement with documentary evidence, the
   court concluded from the evidence it had that the SEC’s calculation was
   correct. Id. Additionally, the court imposed the same civil penalty it had
   imposed before, reasoning that Liu addressed only disgorgement, not civil

          2
            Congress amended the statute after Liu to explicitly permit disgorgement as a
   legal remedy. See SEC v. Hallam, 42 F.4th 316, 334–35 (5th Cir. 2022) (discussing the
   amendments).

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   penalties, so a reconsideration of the penalty was outside the scope of its
   mandate on remand. Id. at *3. Altogether, the court awarded disgorgement,
   jointly and severally among the defendants, in the amount of $2,410,630 and
   a penalty against Boyles in the amount of $15,508,280.
                                          II
          On appeal, the defendants raise three sets of arguments, none of which
   is persuasive.
          First, they primarily contend that the district court erred in denying
   them a live evidentiary hearing on remand at which they could challenge the
   SEC’s calculation of disgorgement and civil-penalty amounts. We review
   the district court’s denial of a hearing for abuse of discretion, SEC v. Hallam,
   42 F.4th 316, 325 (5th Cir. 2022), and find no reversible error. Here, the
   appellants agreed that the district court could calculate disgorgement and
   penalties on the basis of the papers alone. The district court did not abuse its
   discretion in doing so. Indeed, we reached this very same conclusion in the
   prior appeal of this matter and see no reason to hold otherwise this time
   around. Team Res., Inc., 942 F.3d at 279. Finally, as we observed recently in
   a similar case, the Federal Rules of Civil Procedure allow district courts to
   decide motions—including motions for remedies under the securities laws
   such as the one at issue here—“on briefs, without oral hearings.” Hallam,
   42 F.4th at 324 (quoting Fed. R. Civ. P. 78(b)). The district court did not
   abuse its discretion in denying a live evidentiary hearing.
          Second, Boyles contends that the district court erred by not revisiting
   its imposition of the civil penalty because the district court misunderstood
   the scope of its mandate on remand. Boyles, however, did not challenge the
   civil penalty in his initial appeal to this Court. Any such challenge, therefore,
   was forfeited in the initial appeal to this Court. See SEC v. World Tree Fin.,
   LLC, 43 F.4th 448, 466 n.13 (5th Cir. 2022) (“Though the district court also

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                                     No. 22-10359

   imposed civil penalties against each Defendant, Defendants do not brief any
   challenges to the civil penalties and thus waive any related issues.”). And
   because the issue was forfeited in the initial appeal, it is likewise deemed
   forfeited in any subsequent appeal unless there was no reason to raise it in the
   initial appeal. See United States v. Griffith, 522 F.3d 607, 610 (5th Cir. 2008)
   (“[I]n the first appeal Griffith waived the issue of a decrease for his limited
   participation in the conspiracy, because he did not raise it in that court. The
   issue is deemed waived on this appeal as well, unless ‘there was no reason to
   raise it in the initial appeal.’” (quoting United States v. Lee, 358 F.3d 315, 324
   (5th Cir. 2004))); see also Air Midwest Inc. v. Atl. Ltd. P’Ship XII, 742 F.3d
   206, 213 (5th Cir. 2014) (in a subsequent appeal, refusing to consider a claim
   that appellants failed to raise on initial appeal despite broadly worded remand
   language); Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 453–54 (5th
   Cir. 2007) (same). Here, Boyles had every reason to challenge the imposition
   of a civil penalty in his initial appeal, but he did not do so. Accordingly, we
   hold that he cannot challenge the penalty for the first time in this subsequent
   appeal.
          Finally, Boyles argues that the civil penalty violates the Eighth
   Amendment because it is more than six times the disgorgement award.
   Because Boyles did not raise this argument to the district court, however, it
   is forfeited as well. See Rollins v. Home Depot USA, Inc., 8 F.4th 393, 397 (5th
   Cir. 2021) (“A party forfeits an argument by failing to raise it in the first
   instance in the district court[.]”). We therefore decline to consider it. See
   Spotts v. United States, 613 F.3d 559, 569 (5th Cir. 2010) (declining to
   consider Eighth Amendment argument not raised to the district court).
          AFFIRMED.

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