U.S. Commodity Futures Trading Commission v. Crombie, 020119 FED9, 13-17403

Docket Nº:13-17403
Opinion Judge:BERZON, Circuit Judge.
Party Name:U.S. Commodity Futures Trading Commission, Plaintiff-Appellee, v. James Devlin Crombie, Defendant-Appellant.
Attorney:Jared L. Gardner (argued), Perkins Coie LLP, Anchorage, Alaska; Lauren Elizabeth Watts Staniar, Perkins Coie LLP, Seattle, Washington; for Defendant-Appellant. Martin B. White (argued), Assistant General Counsel; Jonathan P. Robell, Senior Trial Attorney; Robert A. Schwartz, Deputy General Counse...
Judge Panel:Before: Ronald M. Gould and Marsha S. Berzon, Circuit Judges, and Frederic Block, District Judge.
Case Date:February 01, 2019
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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U.S. Commodity Futures Trading Commission, Plaintiff-Appellee,

v.

James Devlin Crombie, Defendant-Appellant.

No. 13-17403

United States Court of Appeals, Ninth Circuit

February 1, 2019

Argued and Submitted December 19, 2018 San Francisco, California

Appeal from the United States District Court for the Northern District of California D.C. No. 4:11-cv-04577-CW Claudia Wilken, Senior District Judge, Presiding.

Jared L. Gardner (argued), Perkins Coie LLP, Anchorage, Alaska; Lauren Elizabeth Watts Staniar, Perkins Coie LLP, Seattle, Washington; for Defendant-Appellant.

Martin B. White (argued), Assistant General Counsel; Jonathan P. Robell, Senior Trial Attorney; Robert A. Schwartz, Deputy General Counsel; Jonathan L. Marcus, General Counsel; Daniel J. Davis, General Counsel; Commodity Futures Trading Commission, Washington, D.C.; for Plaintiff-Appellee.

Before: Ronald M. Gould and Marsha S. Berzon, Circuit Judges, and Frederic Block, [*] District Judge.

SUMMARY[**]

Commodity Exchange Act

The panel affirmed in part and vacated in part the district court's judgment in favor of the Commodity Futures Trading Commission (the "Commission") in a civil enforcement brought against James D. Crombie, concerning false statements made to the National Futures Association ("NFA") during a March 2011 investigation.

The Commission alleged that by making misstatements to the NFA, Crombie violated 7 U.S.C. § 13(a)(4) of the Commodity Exchange Act, which makes it unlawful "willfully" to make false statements or provide false documents to certain regulatory organizations, including the NFA. The district court determined that Crombie on four separate occasions willfully violated § 13(a)(4).

The panel held that the district court erred in applying the civil meaning of "willfully," not the generally applicable criminal meaning. The panel further held that the meaning of "willfully" as used in § 13(a)(4) cannot sensibly vary depending on whether it is relied upon directly, in a criminal fraud case, or by incorporation into § 13a-1(a), in a civil case. The panel concluded that in § 13(a)(4) "willfully" must have the traditional meaning ascribed to the term in the context of criminal prohibitions against fraud: "intentionally undertaking an act that one knows to be wrongful." United States v. Tarallo, 380 F.3d 1174, 1188 (9th Cir. 2004), amended by 413 F.3d 928 (9th Cir. 2008).

Although the district court did not apply the heightened criminal standard for willful conduct, the panel nonetheless affirmed the grant of summary judgment to the Commission on the § 13(a)(4) claims after applying, de novo, the correct meaning of "willfully."

Concerning the remedies imposed by the district court, the panel held that the district court properly awarded restitution. The panel vacated in part the district court's order issuing a permanent injunction against Crombie. The panel held that as to §§ 4 and 5(a), (d), (e), (f), and (g) of the permanent injunction, the connection between the violations found and the prohibitions were sufficiently self-evident; and the panel concluded that the district court's inclusion of those future restraints on Crombie was not an abuse of discretion. The panel held that as to §§ 5(b) and (c) of the permanent injunction, the path from the violations found to the prohibitions ordered was not clear; and the panel remanded for further explanation as to those parts of the injunction.

OPINION

BERZON, Circuit Judge.

We are asked in this case to answer a recurrent question: What is the meaning of "willfully" in a federal statute? This malleable term may in some cases create difficult questions of statutory interpretation. See, e.g.,

Ratzlaf v. United States, 510 U.S. 135, 141 (1994). Here, it does not. As we shall explain, in 7 U.S.C. § 13(a)(4), a provision within the Commodity Exchange Act ("Act"), "willfully" must have the traditional meaning ascribed to the term in the context of criminal prohibitions against fraud: "intentionally undertaking an act that one knows to be wrongful."1 United States v. Tarallo, 380 F.3d 1174, 1188 (9th Cir. 2004), amended by 413 F.3d 928 (9th Cir. 2005).

I

This appeal arises from a civil enforcement action brought by the Commodity Futures Trading Commission ("Commission") against James D. Crombie. In March 2010, Crombie co-founded Paron Capital Management, LLC ("Paron"), an investment firm. Paron used a computer model developed by Crombie to invest in certain futures2 on behalf of clients. The Commission alleged that Crombie misled potential investors by misrepresenting in marketing materials the past performance of Paron's computer model and misstating the amount of assets already under Paron's management, in violation of 7 U.S.C. §§ 6b(a)(1) and 6o(1).3 The Commission also alleged that Crombie made false statements to the National Futures Association ("NFA") during a March 2011 investigation by that industry group into Paron. The Commission claimed that by making these misstatements to the NFA, Crombie violated 7 U.S.C. § 13(a)(4), which makes it unlawful "willfully" to make false statements or provide false documents to certain regulatory organizations, including the NFA.4

The Commission filed suit in the Northern District of California in September 2011. After discovery, the district court granted summary judgment to the Commission. The court determined that Crombie violated § 13(a)(4) on four separate occasions, and that Crombie also violated §§ 6b(a)(1)(A)-(B) and 6o(1).5

Because the Commission did not request any relief in its summary judgment motion, the district court ordered the Commission to file a motion for requested relief and a proposed judgment. The Commission filed that motion and a proposed order and judgment two weeks later, in August 2013.

In November 2013, the district court granted the Commission's motion in an order that almost entirely adopted the language of the Commission's proposed order, without explaining why the particular relief was chosen. The order requires Crombie to pay a $750, 000 civil penalty to the Commission and $746, 460.28 in restitution, plus pre- and post-judgment interest, to Paron clients. The order also permanently enjoins Crombie from violating various provisions of the Act, as well as from engaging in a broad range of conduct related to the trading of investments regulated by the Act.6 Among other provisions, the order permanently enjoins Crombie from "directly or indirectly . . . [e]ntering into any transactions involving commodity futures, options on commodity futures, commodity options . . ., security futures products, swaps, . . . and/or foreign currency . . . for his own personal account or for any account in which he has a direct or indirect interest," or "[h]aving any commodity futures, options on commodity futures, commodity options, security futures products, swaps, and/or [foreign currency] contracts traded on his behalf."

II

Crombie now appeals the district court's grant of summary judgment to the Commission. We review this challenge de novo. See, e.g., Rocky Mountain Farmers Union v. Corey, 730 F.3d 1070, 1086 (9th Cir. 2013).

A

On summary judgment, the district court determined that Crombie on four separate occasions willfully violated § 13(a)(4). Crombie does not contest that he made false statements to the NFA during its investigation of Paron. He argues only that the district court misinterpreted the meaning of "willfully" for the purposes of the § 13(a)(4) claims, and that under the correct standard, there are genuine issues of material fact as to whether he acted willfully when he made three separate false statements to the NFA during its investigation of Paron.[7]

1

"The word 'willfully' is sometimes said to be 'a word of many meanings.'" Bryan v. United States, 524 U.S. 184, 191 (1998) (quoting Spies v. United States, 317 U.S. 492, 497 (1943)). But the proper meaning of "willfully" in § 13(a)(4) is unambiguous.

Section 13(a)(4) is a criminal statute, with stiff penalties. "It shall be a felony punishable by a fine not more than $1, 000, 000 or imprisonment for not more than 10 years, or both...

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