Court Opinions: 10th Circuit Court of Appeals Opinions for the Week of April 25

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

United States v. Holzer

Richard Holzer was arrested and criminally charged after federal undercover agents determined that he took substantial steps toward bombing a synagogue in Pueblo, Colorado. Holzer pleaded guilty, pursuant to a written plea agreement, to one count of intentionally attempting to obstruct persons in the enjoyment of their free exercise of religious beliefs through force and one count of maliciously attempting to damage and destroy, by means of fire and explosives, a synagogue. 

The district court sentenced Holzer to 235 months of imprisonment, followed by 15-years of supervised release. The district court also ordered Holzer to comply with 11 special conditions of supervised release, including one that prohibits him from acquiring, possessing or using any material depicting support for or association with antisemitism or white supremacy.

Holzer appealed, arguing that the district court erred in imposing that special condition. Specifically, Holzer argued that the special condition infringes on his First Amendment rights, and that the district court failed to make any particularized findings to support the special condition. 

The 10th Circuit Court of Appeals concluded Holzer’s challenge to the special condition is barred by the appellate waiver provision of his plea agreement and dismissed Holzer’s appeal.

Rajo v. Commissioner, SSA

Deborah Rajo applied for disability insurance benefits, or DIB, in May 2014, alleging disability since August 2011 due to bipolar disorder, depression, fibromyalgia and neck and back pain. After the Social Security Administration denied her application, Rajo sought review before an administrative law judge. The ALJ held an evidentiary hearing in May 2016 and issued an unfavorable decision the following month, concluding that Rajo was not disabled. In May 2017, the SSA’s appeals council denied Rajo’s request for review. 

She then sought review in district court and, in December 2018, a magistrate judge, proceeding with the parties’ consent, reversed the ALJ’s decision. The magistrate judge concluded that the ALJ failed to consider Rajo’s non-severe mental impairments in determining her residual functional capacity, or RFC. The magistrate judge remanded for further proceedings. 

Following a remand from the appeals council, the ALJ held another evidentiary hearing in June 2019. Two months later, he issued an unfavorable decision for Rajo, again concluding that Rajo was not disabled. The ALJ determined that her fibromyalgia and degenerative disc disease of the lumbar and cervical spine were severe impairments but that her other conditions, including bipolar disorder, were non-severe impairments. He next determined Rajo didn’t qualify for presumptive disability and that she had the RFC to perform a range of medium work as defined by relevant laws, subject to specific limitations. The ALJ further concluded that she was unable to perform past relevant work but was able to perform other widely available jobs.

Rajo didn’t submit written exceptions to the appeals council, and the council didn’t sua sponte review the claim, rendering the ALJ’s decision the final agency decision. 

Rajo then sought review in district court and, in November 2020, the magistrate judge, again proceeding with the parties’ consent, affirmed the ALJ’s decision. The magistrate judge first rejected Rajo’s argument that the ALJ’s RFC determination was unsupported by substantial evidence because he failed to properly weigh the opinions of her treating chiropractor. The magistrate judge next rejected her claim, raised for the first time in district court, that under Lucia v. SEC, her case was not adjudicated by a constitutionally appointed ALJ and should be remanded for a new hearing before a different ALJ. The magistrate judge concluded, relying on the 10th Circuit Court of Appeals’ 2020 decision in Carr v. Comm’r, SSA, that Rajo’s appointments clause claim was waived because she didn’t raise, and thus exhaust, the claim in the administrative proceedings. Rajo sought post-judgment relief, arguing that Carr was wrongly decided and, alternatively, that the court should stay execution of the judgment until the U.S. Supreme Court, which had granted the petition for certiorari in Carr, ruled on the issue. The magistrate judge denied the motion, concluding that Carr was binding and that there was no need to stay the case because Rajo could appeal, and she did appeal.

The 10th Circuit vacated the district court’s judgment and remanded for further proceedings. It found that while the district court properly applied its decision in Carr, the Supreme Court later reversed that decision.

SEC v. GenAudio Inc., et al.        

Taj Mahabub, founder and CEO of GenAudio, Inc., attempted to secure a software licensing deal with a well-known technology company, Apple, Inc. It was Mahabub’s goal to integrate GenAudio’s three-dimensional audio software AstoundSound into Apple’s products. While GenAudio was pursuing that collaboration, the Securities and Exchange Commission commenced an investigation into Mahabub’s conduct. Mahabub was suspected of defrauding investors by fabricating statements about Apple’s interest in GenAudio’s software and violating registration provisions of the securities laws in connection with sales of GenAudio securities.

Granting summary judgment for the SEC, the district court found that Mahabub defrauded investors and violated the securities laws. The court determined that GenAudio was liable for knowingly or recklessly making six fraudulent misstatements in connection with two offerings of GenAudio’s securities in violation of the antifraud provisions of the securities laws — that is, SEC Rule 10b-5 and section 10(b) of the Exchange Act. As to one of those statements, the court also determined that GenAudio violated section 17(a)(2) of the Securities Act, which also prescribes the making of certain misstatements. In addition, the district court granted summary judgment in favor of the SEC on its claims that GenAudio and Mahabub violated subsections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of unregistered securities. As a remedy for these violations, the court ordered disgorgement of GenAudio’s proceeds and imposed civil penalties.

GenAudio appealed the district court’s decision, raising three overarching issues. First, GenAudio asserted the district court erred in finding it liable for the six fraudulent misstatements under the securities laws. Generally, GenAudio explained that Mahabub’s statements to actual and potential shareholders were informed by a reasonable belief regarding Apple’s interest in acquiring GenAudio’s proprietary technology. Second, GenAudio contended the district court erred in concluding it didn’t qualify for two exemptions allowing its sale of unregistered securities — specifically, the private-offering exemption under section 4(a)(2) of the Securities Act and the Rule 506 safe-harbor exemption of the SEC’s Regulation D. Third, GenAudio challenged the district court’s legal authority to impose a disgorgement order and the court’s computation of the disgorgement amounts, as well as the civil penalties that the court imposed on it. 

The 10th Circuit Court of Appeals found, among other things, that Mahabub had included fabricated or altered statements in various emails in 2009 and 2010 that generally inflated the interest Apple had in GenAudio before GenAudio made a stock offering with more fabricated statements about the deal with Apple to investors. GenAudio didn’t file a registration statement for the 2010 offering, nor did it provide an audited balance sheet to any potential investors. Regardless, the 2010 offering yielded $3.513 million from sales of 1.171 million common shares. The 10th Circuit rejected all of GenAudio’s arguments and affirmed the district court’s judgment.

Davis v. True

Willie Davis, proceeding pro se, filed a habeas corpus petition in the U.S. District Court for the District of Colorado challenging the failure of the Bureau of Prisons to conduct an evaluation — as the sentencing judge recommended — for his placement in a federal medical facility. 

The district court dismissed Davis’ petition for lack of subject-matter jurisdiction. Davis appealed and moved for leave to proceed in forma pauperis. The 10th Circuit Court of Appeals granted the motion to proceed in forma pauperis but cannot conclude that the BOP’s failure to evaluate Davis for placement in a federal medical facility is tantamount to the BOP’s failure to execute his sentence within the meaning of the habeas guidelines, so it affirmed the judgment.

Seale v. Peacock

This action involved two incidents targeting Bryan Seale. First, in November and December 2017, someone sent anonymous letters containing personal and derogatory information about Seale to his acquaintances. Second, in December 2018, Seale discovered that someone had accessed his real estate business software account without authorization. Seale brought this action asserting claims against his ex-husband and ex-employee, Gary Peacock, for accessing his real estate business account without authorization and unnamed defendants for sending the anonymous letters.

A magistrate judge dismissed the claims in two separate orders. First, she granted with prejudice Peacock’s motion to dismiss the claims alleged against him for failure to state a claim. Second, she denied Seale’s motion to amend the complaint to substitute Peacock for the unnamed defendants and dismissed the remaining claims without prejudice. Seale appealed both orders. 

The 10th Circuit Court of Appeals found the dismissal with prejudice should have been granted without prejudice. It affirmed in part and reversed and remanded in part.

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