Have you heard people — okay, lawyers — talk about "the Southern District"? As if you MUST know what they mean? Surely not the Southern District of West Virginia — one of the coolest names in the entire U.S. court system.

No. Not that. This:

S.

D.

N.

Y.

Where Learned Hand sat before Calvin Coolidge put him on the Second Circuit. That one.

A couple of days ago, a panel of the court that Judge Hand adorned in all his 37 years there Reined In one of those whose judgments it checks for error. And the panel, per curiam-wise, said His Honor had Gone Too Far.

The case involved a fight between the Securities and Exchange Commission and Citigroup Global Markets over the latter's sales of — yikes — "collateralized debt obligations". Citigroup's hawking of CDOs misled people who bought them, the SEC urged, because Citigroup had to know they'd hugely drop in value once the market woke up to the fact that the collateral — often real estate mortgages — had Far Less Value than the buyers had guessed.

The SEC and Citigroup struck a deal that would return to the CDOs buyers $285 million — an amount that Blawgletter thinks reflects a Small Fraction of what the Victims really Lost. But the court, in the guise of U.S. District Judge Jed Rakoff, said Try Again or Go to Trial.

Citigroup filed an appeal and asked for a stay of the ruling. The Second Circuit panel granted the request. It said:

The district court’s reasoning was that the settlement must be deemed to be either insufficiently onerous or excessively onerous unless the liability of Citigroup had been either proved or disproved at trial or one side or the other had conceded the issue.  This is tantamount to ruling that in such circumstances, a court will not approve a settlement that represents a compromise.  It is commonplace for settlements to include no binding admission of liability.  A settlement is by definition a compromise.  We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.

Securities and Exchange Comm'n v. Citigroup Global Markets, Inc., No. 11-5227-cv, slip op. 11-12 (2d Cir. Mar. 15, 2012).