Appellate Court Casts Doubt on Acceptability of ‘Obey-the Law’ Injunctions

By: Jeff Ifrah

We recently blogged about the recent decision of the U.S. Court of Appeals for the 11th Circuit in Securities and Exchange Commission v. Goble, 2012 WL 1918819 (11th Cir. May 29, 2012).  There, we discussed the appeals court’s limitation on the reach of the concept of “securities fraud” under Section 10(b) of the Exchange Act and Rule 10b(5).

Another aspect of that case is also quite noteworthy and may have an impact on many corners of white-collar criminal law. In the Goble case, the court vacated an injunction that simply tracked the language of the securities laws in defining what the defendant was barred from doing. This kind of injunction is often termed an “obey-the-law” injunction.

The court wrote: “Goble correctly identifies these paragraphs as an “obey-the-law” injunction and is rightly skeptical of their validity. As the name implies, an obey-the-law injunction does little more than order the defendant to obey the law. We have repeatedly questioned the enforceability of obey-the-law injunctions not only in the context of securities cases but other cases as well.”

The appeals court pointed out that any federal court injunction must comply with the requirements of Rule 65 of the Federal Rules of Civil Procedure:

“Glaringly absent from the SEC’s brief is any discussion explaining why the district court’s injunction complied with the requirements of Rule 65. Rule 65(d)(1) states that ‘Every order granting an injunction and every restraining order must: (A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail — and not by referring to the complaint or other document—the act or acts restrained or required.’ Fed. R. Civ. P. 65(d)(1). We have never said that a court may simply ignore these requirements because it is entering an injunction in a securities case.”

The key issue that the appeals court pointed out is that an injunction requires a certain amount of specificity, so that the defendant is fully on notice about what he can or cannot do under the order.

“Plainly,” the court wrote, “Goble would need to look beyond the four corners of the district court’s injunction in order to comply with its strictures. The mere cross-reference to provisions of the United States Code and Code of Federal Regulations does not specifically describe the acts addressed by the injunction. And, without a compendious knowledge of the codes, Goble has no way of understanding his obligations under the injunction.”

This decision may open up new lines of argument for defendants in white-collar cases, and not only in securities actions. Since broad injunctions that do little more than track a statutory prohibition can be subject to challenge, defense attorneys may be able to argue convincingly that an injunction should be more specific and more narrowly tailored to a defendant’s past conduct.

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