The 2nd Circuit Court of Appeals has just revealed who will hear a hotly anticipated joint appeal by Citigroup and the Securities and Exchange Commission, challenging U.S. Senior District Judge Jed Rakoff's rejection of their $285 million settlement in 2011. Judges Rosemary Pooler, Raymond Lohier and Susan Carney will comprise the appellate panel, which will hear arguments on Feb. 8. And that's not good news for Rakoff or the lawyer who will be advocating the judge's position, Rusty Wing of Lankler Siffert & Wohl.

The three-judge panel will consider, you'll recall, the SEC's longstanding policy of permitting defendants to settle with the agency without admitting (or denying) SEC allegations. When Rakoff refused to approve Citi's settlement of claims that it misled investors in a complex collateralized debt obligation, he said that the public interest is not served by settlements in which there's no admission of what happened. "The court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance," Rakoff wrote. The judge said that courts have an independent duty to consider the public's interest and should not simply defer to executive branch agencies.

That view has been subsequently adopted (though not as forcefully) by a handful of other federal district judges. But not by the 2nd Circuit. Last March, a three-judge panel issued a stinging per curiam ruling that overturned Rakoff's procedural order refusing to stay the case against Citi while the bank and the SEC pursued their joint appeal on the merits of the settlement. The panel said that Rakoff not only misinterpreted precedent on the deference owed to the SEC but also exceeded his authority when he disputed the rationale of the agency's "neither admit nor deny" policy. "The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones," the 2nd Circuit's opinion said.

The March 2012 opinion, which addressed only the procedural question of whether the case should be stayed pending the merits appeal, was per curiam, which means it was issued on behalf of the entire panel but not signed by any of the panel members individually. Nevertheless, one of the judges on the panel that issued that sharp rebuke to Rakoff was Pooler, who will also be on next Friday's merits panel. Given that Pooler and her colleagues on the previous panel (Judges John Walker and Pierre Leval) concluded that Citi and the SEC were likely to succeed in their underlying argument that Rakoff was wrong to reject their settlement, her presence on the merits panel bodes well for "neither admit nor deny." Moreover, another judge on the newly named merits panel, Carney, sided with Citi and the SEC when she granted their emergency stay motion in December 2011.

Rusty Wing told me Friday that he's not worried about the composition of the 2nd Circuit panel. He said it's not unusual for merits panels to include judges who have previously heard procedural appeals in a case, and Pooler's presence won't handicap him. "We were going to have to deal with (the March 2012) opinion whether or not the judge is on the panel," he said.

Wing doesn't know whether Rakoff is planning to attend arguments next Friday morning. "I think he's pretty busy," he said. But even if Rakoff skips, there will be plenty of other observers on hand to hear the 2nd Circuit's questions about the SEC's controversial policy, if the volume of amicus filings is any indicator. Several business groups have weighed in on the benefits of "neither admit nor deny." On the other side, former SEC chairman Harvey Pitt, a group of securities law professors headed by John Coffee of Columbia and the non-profit Better Markets, among others, submitted briefs endorsing Rakoff's position. The 2nd Circuit has refused to permit two amici to participate in oral arguments, in which Brad Karp of Paul, Weiss, Rifkind, Wharton & Garrison will represent Citi and the SEC's deputy general counsel, Michael Conley, will argue for the agency. (Conley, a former clerk to U.S. Supreme Court Justice Harry Blackmun, specializes in appellate work.)

One other interesting note about the 2nd Circuit panel: Pooler seems to have been assigned specifically for the SEC/Citi case. After arguments in that appeal, her place will be taken by U.S. District Judge Paul Oetken, who will sit by designation with Carney and Lohier on the rest of Friday's cases.

(Reporting by Alison Frankel)

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