Silenced by the SEC: Fighting Against the Gag Rule

sue of the SEC Gag Rule since: 2019

Peggy Little: Twenty nineteen.

Mark Chenoweth: Okay. Yeah, a long time.

Peggy Little: No,: 2018

Mark Chenoweth: Twenty eighteen.

ed [inaudible – crosstalk] [: 00:00:45

k Chenoweth: Yeah, October of: 2018

Peggy Little: Well, among the highlights are the fact that the panel did not consider certain arguments that we had made, including the fact that we represent “Reason Magazine” and the “Delaware Cape Gazette.”

Mark Chenoweth: Right. And these were press entities, which have a different claim than the – all the other clients were – or almost all the other clients were people, who’ve actually been gagged.

Peggy Little: Correct. And the panel decision very much turns on a concept of waiver, that these people sign what’s called a “consent,” and that they have waived their First Amendment rights. But they cannot waive the First Amendment rights of the press.

Mark Chenoweth: Right.

Peggy Little: And the fact that the panel simply – they didn’t acknowledge the press claims at all. They did not –

Mark Chenoweth: They just didn’t discuss them, right? Yeah.

Peggy Little: They didn’t even mention their names in the decision.

Mark Chenoweth: And reason, because that they didn’t sign anything. They didn’t consent anything.

Peggy Little: Not a bit. And in fact, they filed declarations, that show that they had tried to interview some of our clients, to find out about what’s going on the gag. And in the case of “Reason Magazine,” they report on the gag. That’s one of their regulatory powers, one of their concentrations. So, they definitely have standing, and an interest in this, and the court simply acted as if they were not there.

Mark Chenoweth: And in “Reason Magazine’s” case, they’re also based in California, so they there’s just – there’s no way to challenge their standing…

Peggy Little: No. There’s not.

Mark Chenoweth: …in any way, shape or form.

Peggy Little: No.

John Vecchione: And you’ll note, the this reminds me of the unsealing cases. Oftentimes, the parties couldn’t get something unsealed, that the court had it sealed, and the “New York Times,” or someone intervenes, and says, “Well, we didn’t agree to that, and here’s all our First Amendment rights.” And then, something gets unsealed. It doesn’t matter what the parties agreed to, or the court did at the time, because they do have independent rights, and they often – you see this all the time, that those First Amendment rights are looked at, and something is unsealed. And here, we want to unseal their lips.

Peggy Little: That’s right.

Mark Chenoweth: That’s a good – that’s a good analogy.

Peggy Little: Very good.

Mark Chenoweth: So other than failing to address the press petitioner’s claims, entirely, which seems like a problem, what other arguments are you bringing to the en banc court’s attention?

Peggy Little: Well, the court elected to say this was a facial challenge to the rule. In fact, it was facial and as applied. And this makes a difference, because, for example, the panel did acknowledge, that there are some First Amendment concerns here, especially when you are suppressing speech about the government. They even expressed some concern, for example, with the perpetuity. And they posited that, perhaps, after a certain number of years, somebody could talk. Well, we had an as applied claim in there for Barry Romero. Barry Romero has been gagged for 22 years. He’s 83 years old, and he’s been trying to get ungagged for six years.

Mark Chenoweth: And his codefendant, who was gagged, already died, went to his grave without ever being able to be ungagged.

Peggy Little: Right. And, so, I don’t – I don’t know what the Ninth Circuit thinks is long enough for perpetuity, but if Barry’s case does not state a case for considering lifting the gag, I don’t know whose would.

Mark Chenoweth: Right. And, so, they said that there might be such a claim, but they ignored the fact that there was one in front of them.

nd [inaudible – crosstalk] [: 00:04:37

Mark Chenoweth: It’s not funny. I shouldn’t laugh.

Peggy Little: No.

Mark Chenoweth: But it does seem like there was almost, I don’t want to say willful, but it certainly seems like the court could have done a better job of going through all of these claims.

Peggy Little: Well, this is, unfortunately, a pattern with a lot of the courts that have looked at these. Some have just declined to reach the question on a procedural nicety. But many of the courts, that we have presented this to do, take what I would have to call “evasive action,” such as pretending a claim is not before them that is, or offering an alternative that has already been foreclosed, or stating, in one case, that there was no due process claim in the case, when in fact there was.

And that pattern is disturbing. And what I think it shows is courts have been entering these orders for 50 years, and I think there’s an institutional reluctance to change a state of affairs that has gone on for that long, that violates people’s constitutional rights.

Mark Chenoweth: John, Peggy is trying to overturn something older than Chevron.

John Vecchione: Yeah, exactly.

Peggy Little: Well, maybe you can give me some pointers, John.

John Vecchione: Also, well, the problem here is, is that least you could get Chevron before the courts. Because of this agreement problem, it’s been murder, just getting it before them.

Peggy Little: It is. And we have tried every procedural way we know. We’ve now gone through the administrative process, which is supposed to allow a circuit court to look at whether the agency is regulating people, constitutionally. And again, they did not look at our arguments under the Administrative Procedure Act about, for example, that this exceeds the SEC’s authority. It has no power to gag anyone or put speech restrictions on anyone.

Mark Chenoweth: Now, is that because of the organic statute doesn’t give them that power, or is that because of the procedural way that they did this, saying it was a housekeeping rule, when it really wasn’t?

Peggy Little: We were focused on the first of your arguments, just because, for some reason, the courts just aren’t interested in the failure of notice and comment. Why that is, I don’t know. Because had they published this for notice and comment, it is very likely that people would have said, “What? Wait, what? You can gag us.”

John Vecchione: And don’t forget, they couldn’t get this at trial because it does violate the First Amendment. No judge would allow this unless there was that agreement. But if you bring a fully-executed agreement with the SEC without the gag order, and they’ll say, “No, we don’t agree to that,” and the judges won’t force it. So, the fact of the matter is, is that we know, because the courts won’t enforce it without that agreement, that it is not – that it isn’t within their power, and it falls within this cases, where if the government can’t do it one way, it shouldn’t be able to do it another way. And they’re still not looking at it like that.

Mark Chenoweth: That’s a great point, John, that we know that it’s not part of the organic power, because they can’t seek it as a remedy in the cases that they win at court. So, if you –

John Vecchione: We have – we have – we have people in the Spartan case, Dave, he’s acquitted. He can go talk about whatever he wants, right?

Mark Chenoweth: Yeah.

John Vecchione: And actually, our other clients can, too, because they haven’t settled. Even if they lose, they can still talk about it.

Mark Chenoweth: Right.

John Vecchione: It’s only if you settle that they shut you up.

Mark Chenoweth: Right. So, you win everything across the board, you can talk. You lose everything across the board, you can talk. You come to a reasonable, voluntary settlement, in the middle, and you’re gagged for life. That’s the reality of the SEC.

Peggy Little: And SEC admits, as much. None of those are disputed facts. And why courts aren’t concerned about this is a mystery to me. Another thing, that just seems mysterious is, why does the SEC, almost alone, need a rule like this?

Mark Chenoweth: Yeah.

Peggy Little: No other agency seems to require this gag, and they’re –

John Vecchione: Commodities does, doesn’t it?

Mark Chenoweth: CFTC does, but…

Peggy Little: That’s pretty much it.

Mark Chenoweth: It’s a copycat rule.

Peggy Little: It is. And the FTC, for example, not only has no gag, but they allow you to negotiate for and get a denial. Or the other hand…

Mark Chenoweth: On particular facts.

Peggy Little: …on particular facts…and on the other hand, the agency can require an admission, all of which is fair. That’s fair game for a negotiation in a settlement.

Mark Chenoweth: And you’re not trying to disturb that.

Peggy Little: No. And, sometimes, the case gets misconstrued, as saying we’re trying to take away no admit, no deny. That is not true. Our proposed rule is that you can negotiate for an admission, a denial or no admit, no deny, which is very often how people want to settle these things. Because, as Judge Judd Rakoff said, the SEC is admitting when it settles, that it’s not necessarily sure it could win this at trial, a conviction at trial.

So, when it says, “Well, we want to have the gag because we want to preserve our right to bring our case to court, and win on it,” what they’re not acknowledging is what the defendant or the respondent gives up is their right to be exonerated. And very often, it’s a weak case that gets settled.

John Vecchione: And I’ll just note, I never say anything nice about the FTC, as everyone knows, but I will say this, when they do a no admit, no deny, they will actually have the paragraphs that they do not want you denying. They will actually say, “Hey, look, we’ve agreed to these facts.” Right? But you can talk about the case, otherwise, right? You’re allowed to talk about it. There’s certain things you can’t deny, but you know what they are.

Peggy Little: You negotiated that, and that’s all we’re asking for. The gag is a terrible device that allows the SEC to make its, almost all of its regulatory process secretive.

Mark Chenoweth: Well, that, and the press release that it issues, after the settlement, is the last word. And they can say anything that they want.

Peggy Little: And do.

Mark Chenoweth: And do. And we’ve seen it even in court, where they have said they have called some of the folks who have, some of our clients, who have settled these cases. They have – they have referred to them using words that suggest that they’re guilty…

Peggy Little: Absolutely.

Mark Chenoweth: …even though that’s not what the settlement says.

Peggy Little: Yeah. And, so, they’re really breaking their own agreement.

Mark Chenoweth: Their no admit, no deny is supposed to be a two-way street.

Peggy Little: It’s not. Tellingly, they call it the “no deny rule.” They leave the other part out.

Mark Chenoweth: Well, we call it the “gag rule,” so, you know.

Peggy Little: Right.

Mark Chenoweth: I don’t think that’s their preferred terminology.

John Vecchione: Tomato, tomato.

Peggy Little: In the final point, that we have brought up, is the fact that there we brought this in the Ninth Circuit, because there was a very good precedent there called “Davies,” in which government entity had required the person settling, with the government, to agree that they would not run for public office in the future.

Mark Chenoweth: Right.

Peggy Little: And that was held to be an unconstitutional condition, that could not be part of a settlement with a government.

Mark Chenoweth: Partly because they’re talking about future speech, which is the same problem with the gag.

Peggy Little: Precisely, and that’s a First Amendment right as well. And the panel –

Mark Chenoweth: Can I just – I just want to drill down on that point a little bit because I think sometimes people don’t understand the difference.

Peggy Little: Sure.

Mark Chenoweth: It might be okay, as part of a settlement agreement, to do something regarding your current speech Like, “I’ll take down this post from Twitter,” or something like that. But to agree in perpetuity, to not have future speech about something, that’s a that’s a prior restraint. That’s a real problem. And you’re not in a great position, even in settlement negotiations, to do that, because you don’t know what’s going to happen in the future.

You don’t know if there might be a job, you want, or a personal relationship, where it’s important to you to be able to explain your position as to this prior no admit, no deny settlement, and you can’t because you’re gagged. And that’s part of the problem here.

Peggy Little: Yeah, and it’s not just a prior restraint, it also restricts the content of your speech, because you cannot criticize the government’s case against you, and your viewpoint. You could say, “The government had a great case against me.” But if you criticize the government’s case, and worse yet, if you even create the impression that the government did not have a solid case against you, you have violated the gag, and they can reopen your prosecution.

Mark Chenoweth: Now I took you away from talking about Davies, so I want to…

Peggy Little: No problem.

Mark Chenoweth: …feel free to return to your point there.

is [inaudible – crosstalk] [: 00:13:26

Mark Chenoweth: These aren’t case-by-case because, precisely, because the SEC has a rule, and it tells the attorneys, who are engaged in these negotiations, the rule is, you that’s not up for negotiation.

Peggy Little: And I can tell you, having tried to negotiate these things, they say we – it’s non-negotiable because of the rule.

Mark Chenoweth: Right.

Peggy Little: And, so, this is a very logical and important way to challenge the practice, because they use the rule, as an excuse, to make it non-negotiable.

Mark Chenoweth: Which then violates Rumore.

Peggy Little: Precisely. And Rumore and Davies. And, so ,what we have is a court willing to set aside its own law of the circuit, and to, essentially, rule in violation of a Supreme Court precedent. That’s troubling, and it’s not the only circuit to have done that. Back when we first represented Mr. Romerol in the Second Circuit, they also ignored the law, of their own circuit, that said the fact that you had agreed to the restriction. It made no difference. It was still unconstitutional.

Mark Chenoweth: That was the Crosby v. Dun & Bradstreet case, something like that?

Peggy Little: It’s Crosby v. Bradstreet, which was the predecessor to Dun & Bradstreet.

Mark Chenoweth: Okay.

Peggy Little: So, what we see are courts, very obviously, sidestepping their own precedents to perpetuate this rule. And, again, it’s just a mystery, to me, why the SEC cannot be on the same footing as every other agency, except the CFTC, and regulate people without gagging them in perpetuity.

Mark Chenoweth: The durability of these rules, that they lack statutory authority they’re put in, this one at least, put in in violation of the process that you’re supposed to have before a rule takes effect, violating core constitutional rights of people for 50 years. You would think this would be the kind of fact pattern that any federal judge would look at, and say, “I don’t know how this has been allowed to happen for this long. But no longer. I’m getting rid of this.” And yet, we’ve had, how many federal judges have now said this, “Ah, okay.” I mean, and look, in fairness, none of them seem to love it, but they’ve all swallowed hard and approved it.

Peggy Little: Well, it’s a little better than that, because two judges on the Fifth Circuit said, “This is a plain prior restraint, and a more effective one is hard to imagine.” Relief was denied there for procedural reasons, and not setting aside a final judgment.

Mark Chenoweth: Yeah.

Peggy Little: Also…

Mark Chenoweth: That was judges Jones and Duncan, if I remember correctly.

Peggy Little: Correct. And that’s two circuit judges.

Mark Chenoweth: Yeah.

Peggy Little: And then we also have the Sixth Circuit and the Fourth Circuit, joining the Ninth Circuit, that you can’t have these unconstitutional conditions. In the Fourth Circuit, it worked just the way John had explained earlier. It was a press organization, where the city of Baltimore had had a gag rule for settling police brutality cases. And what the court said is, no matter what they agree to amongst themselves, the press has an interest in knowing and being able to gather news on police brutality cases.

And, also, judges Rakoff and Marrero in the Southern District of New York have been highly critical of the rule. And then, my favorite is Judge Ronnie Abrams wrote a long opinion. It’s called an “opinion dubitante.” And what that means in Latin is casting doubt upon the rule she has to follow. And it was very eloquent. And she tried to actually get the person before her to condense the gag. Unfortunately, he did not. So, she just had to write about why she believes the rule is unconstitutional, and she was very reluctant to have to follow her circuit authority. So, we are building a kind of groundswell of disapproval of the rule…

Mark Chenoweth: Fair enough.

Peggy Little: …and critique of the rule. Well, perhaps I was too hard on the judiciary. John, you were trying to jump in here.

t, [inaudible – crosstalk] [: 00:17:09

Mark Chenoweth: Yeah. No, that sounds right. So what happens now, Peggy? We filed. The amici have filed.

Peggy Little: Well, we are hoping to get enough judges on the Ninth Circuit to agree to rehear this en banc, and think we have a decent shot at that, because…

Mark Chenoweth: It’ll take 14 or something like that?

Peggy Little: Yeah, something like that.

Mark Chenoweth: Okay.

Peggy Little: And lacking that we might draw a few dissents from denial of en banc, that would help with the cert petition. But yes, we will petition for cert, even if we do not get a rehearing because this has gone on too long. The opinions that uphold it have grave weaknesses, not dissimilar from what I’ve just described here for the Ninth Circuit. And we have to hope that those other judicial assessments, that the rule has got a problem, will assist us in getting a search at the Supreme Court.

-: 1899

Peggy Little: Thank you.

Mark Chenoweth: You’ve been listening to “Unwritten Law.”

[End of Audio]

Duration: 19 minutes