Eleventh Circuit Upholds Restriction on Referring to “Settlement” of Trump v. IRS,

From Trump v. IRS, decided today by Eleventh Circuit Judges Adalberto Jordan, Robin Rosenbaum, and Kevin Newsom:

On January 29, 2026, President Donald J. Trump (in his personal capacity), Donald J. Trump, Jr., Eric Trump, and the Trump Organization, LLC, filed a complaint against the Internal Revenue Service and the United States Department of the Treasury, alleging that a former IRS employee illegally gained access to and disclosed their tax returns. The plaintiffs brought claims for violations of 26 U.S.C. § 6103 and 26 U.S.C. § 7431(a)(1) and of 5 U.S.C. § 552a(e)(10), and sought, among other relief, damages of “at least $10,000,000,000.00.” …

[Not long after the filing of the complaint], the plaintiffs—through attorneys Alejandro Brito and Daniel Epstein—filed a notice of voluntary dismissal with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). In light of the self-executing nature of that dismissal, the court closed the case on the same day….

Subsequently, 35 former federal judges (the “former judges”) filed a motion for relief from judgment and asked the district court to set aside the notice and order of dismissal and reopen the case. In their motion, the former judges informed the court of a settlement between the parties that had been announced by the Department of Justice. Under the terms of the settlement, the plaintiffs secured a $1.776 billion settlement fund from the Treasury, to be paid to non-parties to the litigation, and a release by the government of “any and all claims” it may or could have against the plaintiffs, as well as President Trump’s family and businesses, through May 18, 2026, the date of the alleged settlement. The former judges asserted that the settlement was “a product of collusion and [wa]s itself a fraud on the [c]ourt.”

In its order directing the plaintiffs to respond, the district court notified the plaintiffs of its authority to investigate misconduct as a collateral issue under Rule 11 and noted that it might impose sanctions for filing a lawsuit for an improper purpose, e.g., “for the sole purpose of forcing a settlement.” In response, the plaintiffs contested the court’s power to issue monetary sanctions and argued that there was no Rule 11 violation or fraud on the court because the litigation was not collusive. They did not, however, submit any affidavits, declarations, or other evidence seeking to rebut the adversity, collusion, and improper purpose concerns. Nor did they request an evidentiary hearing….

On July 13, 2026, the district court entered an order finding that the parties in the lawsuit were not adverse and imposing non-monetary sanctions on the parties and two of the plaintiffs’ attorneys, Mr. Brito and Mr. Epstein.

First, the district court concluded that President Trump controlled the defendants as a matter of constitutional structure. President Trump’s position as the chief of the Executive Branch, the court said, vested him with all federal executive power, including the ability to remove some subordinate officers—whose own exercise of authority is an exercise of the President’s power—at will. For example, the court noted, executive officers in the Treasury and the IRS wield their authority subject to his supervision and control and are removable by him.

Second, the district court determined that—as the Secretary of the Treasury Department—Scott Bessent is subject to President Trump’s direct supervisory control as an appointed member of his cabinet. And, in his role as Secretary, the court said, Mr. Bessent is President Trump’s “alter ego.” The court also observed that the Commissioner of the IRS is, by statute, appointed and removable by the President.

Third, the district court explained that, by executive order, President Trump had asserted his supervision and control of the entire Executive Branch, including specifically control over its litigation activities. That executive order provides that his opinions on questions of law are “controlling on all employees in the conduct of their duties.” The executive order states that President Trump “provide[s] authoritative interpretations of law for the executive branch.” As a result, the court found it “[un]surprising[ ]” that, unlike in other similar cases, no attorney for the defendants ever appeared or challenged the action.

“Considering the brief chronology, the silent docket, and [the] [d]efendants’ deviation from basic litigation strategies pursued in similar cases,” the court concluded that the “[d]efendants chose not to ‘advance an interpretation of the law as the position of the United States that contravenes’ President Trump’s opinion regarding this lawsuit[.]”This was due, the court said, to President Trump’s control over the defendants’ conduct.

Fourth, the district court found that the resolution of the lawsuit further indicated that the parties’ interests were “one and the same,” demonstrating lack of adversity and improper motive: “[T]he extraordinary award fashioned by the [p]arties for claims that were never litigated, and have yet to be defined, on behalf of unidentified third parties whose future remedies bear no relationship to the claims in this case, indicates that real adverse interests were never before the [c]ourt.”

After providing further reasons, the district court concluded that the fact that the parties were not adverse and the lawsuit collusive and jurisdictionally improper was “so obvious and so insurmountable” that it led the court to conclude that the plaintiffs filed the lawsuit for the improper purpose of justifying and legitimating “a ‘settlement’ that had no viable basis in law or fact.”

Turning to the matter of sanctions, the district court considered whether the plaintiffs’ complaint was filed “in bad faith for an improper purpose.” Applying Rule 11’s fact-bound, objective “reasonableness under the circumstances” standard, the court found that the circumstantial evidence—the parties’ abnormal litigation conduct and the circumstances surrounding the litigation and settlement—demonstrated that the plaintiffs “acted in bad faith and for an improper purpose by ‘collusively filing a lawsuit with claims subject to multiple dispositive defenses solely to provide cover for a collusive settlement.'”

As a result, the district court [imposed sanctions on lawyers Brito and Epstein and] … prohibited the parties—and any “agents, representatives, officers,  or any other person acting in concert with … or under the … control” of them—from “referring to the purported ‘settlement agreement,’ or using, offering, admitting, or citing any of its provisions in any judicial, administrative, regulatory, arbitration, or any other official proceeding as evidence of a ‘settlement’ reached in this matter.”

The district court also determined that the parties’ conduct satisfied the subjective bad-faith showing necessary to trigger inherent authority sanctions. It found that the plaintiffs knew or should have known that their claims were time-barred and sought damages in an amount unsupported by facts or law, that the defendants abdicated their responsibility to defend the interests of the United States, and that the parties used the litigation to confer legitimacy on a settlement entered in a dubious ethical context—all of which supported a finding of bad faith.

It declined, however, to order monetary sanctions, instead giving the parties time to file memoranda regarding attorneys’ fees. The attorneys’ fee proceedings are still ongoing. And the district court has not yet ruled on the former judges’ request to reopen the case and set aside the dismissal….

On appeal, the Eleventh Circuit discussed various procedural matters, but also had this to say about the First Amendment issue:

The speech-related sanction prevents the parties (i.e., the appellants) from “referring to the … ‘settlement agreement,’ or using, offering, admitting, or citing any of its provisions in any judicial, administrative, … or … other official proceeding as evidence of a ‘settlement’ reached in this matter.” …

The speech-related sanction is not, as the appellants say, a prior restraint. It was entered by the district court after the parties were allowed to respond to the motion of the former judges and was based on findings of collusion and bad faith. See Pittsburgh Press Co. v. Pittsburgh Comm’n on Hum. Rels. (1973) (“The special vice of a prior restraint is that communication will be suppressed … before an adequate determination that it is unprotected by the First Amendment.”).

Although the appellants maintain that the speech-related sanction sweeps broadly and acts as an unconstitutional gag order which prevents them from referring to the settlement agreement at all times and under all circumstances, the district court … explained that the prohibition is in fact narrower. The court emphasized that its injunction “is not a categorical restriction prohibiting any reference to any agreement of the Parties,” but rather affects only “how the Parties refer to the ‘settlement agreement'[.]”

In particular, the court observed, the injunction is limited in two respects. First, the court emphasized, “the provision narrowly prevents the [p]arties from referring to the ‘settlement agreement’ as evidence of a ‘settlement’ reached in the matter brought before this Court.” And second—and perhaps more to the point, given the plaintiffs’ particular objection—the court clarified that “the limitation only applies to official proceedings such as judicial, administrative, regulatory, or arbitration” proceedings….

[A]ppellants have not persuaded us to construe the sanction more broadly and have not made a strong showing that they will prevail on their First Amendment challenges. They do not cite any authorities suggesting that a speech-related prohibition imposed as a penalty for conduct determined to be sanctionable violates the First Amendment. Indeed, in judicial proceedings, “whatever right to ‘free speech’ an attorney has is extremely circumscribed.'” Gentile v. State Bar of Nev. (1991). See also id. (explaining that “the speech of those participating before the courts c[an] be limited” and that “although litigants do not surrender their First Amendment rights at the courthouse door, those rights may be subordinated to other interests that arise in this setting”).