98 F.3d 480 (9th Cir. 1996), 95-56768, S.E.C. v. Worthen

Docket Nº:95-56768.
Citation:98 F.3d 480
Party Name:96 Daily Journal D.A.R. 12,653 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. John E. WORTHEN, Defendant-Appellant.
Case Date:October 17, 1996
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 480

98 F.3d 480 (9th Cir. 1996)

96 Daily Journal D.A.R. 12,653

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,

v.

John E. WORTHEN, Defendant-Appellant.

No. 95-56768.

United States Court of Appeals, Ninth Circuit

October 17, 1996

Argued and Submitted Aug. 8, 1996.

Page 481

Knut S. Johnson, McKenna & Cuneo, San Diego, CA, for defendant-appellant.

James A. Brigagliano, Assistant General Counsel, Securities and Exchange Commission, Washington, DC, for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California, Leland C. Nielsen, District Judge, Presiding. D.C. No. CV-74-00202-LCN.

Before: FLETCHER and TASHIMA, Circuit Judges, and RESTANI, [*] Judge, United States Court of International Trade.

FLETCHER, Circuit Judge:

John Worthen appeals from the district court's denial of his motion for relief from a judgment of permanent injunction entered against him by default in 1974 in a civil case brought by the Securities and Exchange Commission ("SEC" or "Commission"). We affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY 1

In 1974, the Commission sued Worthen and others alleging violations of the federal securities laws. The docket sheet indicates that on 7 May 1974, a summons and complaint were served on Worthen, who at the time was incarcerated in Utah on pending charges of unrelated federal securities violations. Worthen apparently never responded to the complaint, as the SEC filed a request for entry of default. The default was granted, and the SEC moved for entry of a default judgment. The court entered the default judgment, which included a permanent injunction ordering Worthen not to violate certain provisions of the federal securities laws. Worthen was served with a copy of the Order for Default Judgment of Permanent Injunction on 24 July 1974.

In 1987, Worthen was indicted on 12 counts of criminal contempt of the injunction. According to the SEC, he was a fugitive from the time of the indictment until January 1989. Worthen pled guilty to four counts of criminal contempt of the injunction and was sentenced to time served and probation.

The SEC represents that it began another investigation into Worthen's securities activities in 1994 and that the investigation is currently ongoing.

Worthen's motion under Federal Rule of Civil Procedure 60(b) for relief from the 1974 permanent injunction was made in August 1995. In preparing the motion, Worthen's counsel attempted to consult the district court's record of the 1974 proceedings. The district court informed counsel that the record had been sent to the Federal Records Center, but when retrieved from the Center the record contained only numerous depositions filed in the 1974 action. The district court has been unable to locate the clerk's record containing the pleadings and other filings of the parties as well as the orders and judgments of the court; only the docket sheet documenting those filings and orders is currently available.

The Commission opposed Worthen's motion for relief and filed copies of certain documents from the 1974 proceedings. The district court denied the motion, making clear that it was not relying on the SEC's copies but only on the entries on the docket sheet. Worthen timely appeals.

JURISDICTION

The district court had jurisdiction over the SEC's 1974 complaint under 15 U.S.C. §§ 77v, 78aa. It therefore had jurisdiction over proceedings to modify the judgment

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entered on that complaint. We have jurisdiction over the appeal under 28 U.S.C. § 1291.

STANDARD OF REVIEW

The denial of a Rule 60(b) motion for relief from judgment is reviewed for an abuse of discretion. Export Group v. Reef Indus., Inc., 54 F.3d 1466, 1469 (9th Cir.1995).

DISCUSSION

I. Rule 60 Relief

Under Rule 60(b)(5), a court "may relieve a party ... from a final judgment" if "it is no longer equitable that the judgment should have prospective application". With respect to permanent injunctions, we have held that "Rule 60(b)(5) represents a codification of preexisting law, recognizing the inherent power of a court sitting in equity to modify its decrees prospectively to achieve equity". Transgo, Inc. v. Ajac Transmission Parts Corp., 911 F.2d 363, 365 (9th Cir.1990) (internal quotation marks and citation omitted). Such modification, we have explained, "is extraordinary relief, and requires a showing of extraordinary circumstances". Id. We have articulated three requirements for this extraordinary relief: clear showings of "a substantial change in circumstances or law since the orders were entered, extreme and unexpected hardship in compliance with the injunction['s] terms, and a good reason why [the court] should modify the permanent injunction[ ]". Id.

In 1992, the Supreme Court held that "a party seeking modification of a consent decree bears the burden of establishing that a significant change in circumstances warrants revision of the decree". Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383, 112 S.Ct. 748, 760, 116 L.Ed.2d 867 (1992). The applicability of Rufo to this case, and its effect on this circuit's Transgo standard, are not entirely clear. We need not resolve this uncertainty, however, because Worthen has not met either standard.

A. Passage of Time

Worthen first argues that the district court abused its discretion in denying his motion for relief because 21 years have passed since the entry of the injunction and 10 years have allegedly passed since his last known violation of federal securities laws. 2 The mere passage of time, however, does not constitute a ground for relief from an "obey the law" injunction or a reason why prospective application of a judgment is no longer equitable: "[O]bedience to the mandate ... provides no justification for dissolving the injunction. Compliance...

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