Amicus Curiae Brief — Kokesh v. Sec. & Exch. Comm'n, 137 S. Ct. 1635 (2017) (No. 16-529)

Supreme Court, US.

FILED

— MAR 3 - 2017

IN THE

Supreme Court of the United States

CHARLES R. KOKESH,

Petitioner,

v.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AND THE

AMERICAN PETROLEUM INSTITUTE AS AMICI

CURIAE IN SUPPORT OF PETITIONER

KATE COMERFORD TODD MATTHEW T. MARTENS

STEVEN P. LEHOTSKY Counsel of Record

JANET GALERIA JOHN BYRNES

U.S. CHAMBER WILMER CUTLER PICKERING

LITIGATION CENTER HALE AND DORR LLP

1615 H Street, NW 1875 Pennsylvania Ave., NW

Washington, DC 20062 Washington, DC 20006

(202) 663-6000

STACY LINDEN matthew.martens@wilmerhale.com

PETER TOLSDORF

AMERICAN PETROLEUM

INSTITUTE

1220 L Street, NW

Washington, DC 20005

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...............:sccssseserscseecessensnsees ii

INTEREST OF AMICI CURIAE. ..........cccccccecesesneeesenenes 1

SUMMARY OF ARGUMENT .u.......cccccccceserceeeeeseeesereneenes 2

Pt) ee ee 4

I. The Court Of Appeals’ Decision Would

Allow Agencies Throughout The Federal

Government To Seek Punitive

Disgorgement Without Limitation.............000--0-+ 4

A. The Consumer Financial Protection

Bes CED csccenensnccscctenssenesesststoverersccccssssoccenses 5

B. The Environmental Protection Agency

(|. | ee 8

C. The Federal Energy Regulatory

CE I wiesericnteneistencetnnvinsenesecrcncscneens i)

D. The Federal Trade Commission (F'TC) ........... 10

E. The Food and Drug Administration

CD a cccoceesescsesneninmmsnsetnniiveinimammnevmsmnmenaancetes 12

Il. The Court Of Appeals’ Reading Of Section

2462 Is Unfair And Harmful To Businesses........... 13

CONCLUSION ............0cceresccereceeees seniinbinibiansemtentenenamasanin 19

li

TABLE OF AUTHORITIES

CASES

Page(s)

Adams v. Woods, 6 U.S. (2 Cranch) 336 (1805)............. 14

CFPB vy. Corinthian Colleges, Inc., 2015 WL

10854380 (N.D. Ill. Oct. 27, 2015) ...........cc.ccccceereeereeees 5

CFPB v. Frederick J. Hanna & Associates,

P.C., 114 F. Supp. 3d 1342 (N.D. Ga. 2015)............... 6

CFPB v. Gordon, 819 F.3d 1179 (9th Cir. 2016)......15, 18

CFPB v. ITT Educational Services, Inc., 2015

WL 1013508 (S.D. Ind. Mar. 6, 2015) .............:..20c000+0 6

CFPB vy. Mortgage Law Group, LLP, 196 F.

Supp. 3d 920 (W.D. Wis. 2016)..........ccseseeseeeeeeeeeenes 6

Christianson v. Colt Industries Operating

Corp., 486 U.S. 800 (1988) .......sccsserceeeersenneeessneersens 17

Coastal Oil & Gas Corp. v. FERC, 782 F.2d 1249

OE Ge, Fe ieicersccccsncsieccnscecsncnsencsictenniennetninenvieansncsesens 9

Ditthardt v. North Ocean Condos, L.P., 580 F.

Supp. 2d 1288 (S.D. Fla. 2008) .........-scesssesseeeeenseneees 7

FEC v. Craig for U.S. Senate, 816 F.3d 829 (D.C.

A ine iiachin ieee eentaiasinialiinabinamiapabialiilantantinnpsccinen 5

FERC v. Barclays Bank PLC, 105 F. Supp. 3d

I i caiecisteinescesiientnitiinchbiniiartnesininaneee cose 9

FTC v. AMG Services, Inc., 2016 WL 5791416

OO ie I i cincisiesashentininidtenmtsinnn 11

FTC v. Figgie International, 994 F.2d 595 (9th

il deeldiamennens 11

FTC v. Slimamerica, Inc., 77 F. Supp. 2d 12638

RE EER SI ee OR RET ee 11

il

TABLE OF AUTHORITIES—Continued

Gabelli v. SEC, 133 S. Ct. 1216 (2018)..........-.eeceeeeeeeeees 14

HUD v. Cost Control Marketing & Sales

Management of Virginia, Inc., 64 F.3d 920

(4th Cir. 1996).........cecccscereserereesssesorscseasssnnenssensennsennns 16

In re Jensen, 395 B.R. 472 (Bankr. D. Colo. 2008)

Na a le eidinininieeiaeennninaaieniinntianianrtas 16

In re Telsey, 144 B.R. 563 (Bankr. S.D. Fla. 1992)

a tale nl ate paca dlatadaideieideniimnaitnaininiirttneaeaen 16

In re Towers, 162 F.3d 952 (7th Cir. 1998) ......-ssersee--00 16

Mayes v. EPA, 2008 WL 65178 (E.D. Tenn. Jan.

8 Ox sesbiiaassipaiaigtanbaaiagientancpeatiets 8

Mesa Petroleum Co. v. Federal Power

Commission, 441 F.2d 182 (Sth Cir. 1971).........-+++. i)

New England Telephone & Telegraph Co. v.

FCC, 826 F.2d 1101 (D.C. Cir. 1987)...-...---200-e-eeeeeeee 5

Northcross v. Board of Education of Memphis

City Schools, 412 U.S. 427 (1973) ...--..--seseeeneereoeees 17

PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir.

DOIG) ...<ceceeeccecevceceesersnsssenenssosncersarsessessecscssssnssnsnensenee 7, 15

SEC v. First City Financial Corp., 890 F.2d

1215 (D.C. Cir. 1989) ........csccccrcerceeesseenserssnensnennenseanns 18

SEC v. Teo, 746 F.3d 90 (8d Cir. 2014) .......cesceeneereereeees 18

SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77

(S.D.N.Y. 1970) ....ccecssecssscceessenessserenssarersnenensensnenenenness 4

Southern Union Gas Co. v. FERC, 725 F.2d 99

(LOth Cir. 1984).........ssceccscsesenessenensnesansseenenssesnsnenensnsnes 9

iv

TABLE OF AUTHORITIES—Continued

Page(s)

United States ex rel. Zissler v. Regents of

University of Minnesota, 992 F. Supp. 1097

Se I II aicrcrseschntennsicnestaenainicee nce canis bea 3

United States v. C.E.B. Products, Inc., 380 F.

Ss GE COUN, TIL SIP ccrsceccrincieseretarsnrinadiecvesianestsai 13

United States v. Caputo, 288 F. Supp. 2d 912

IG III a Lacrclisisciniessisaemmentenedbdsiaianennidubnadineinsibins 12

United States v. Incorporated Village of Island

Park, 791 F. Supp. 354 (E.D.N.Y. 1992) .0...0...0.0....-. 5

United States v. Keyspan Corp., 763 F. Supp. 2d

og Ls, See 5

United States v. Kubrick, 444 U.S. 111 (1979)........ 14, 18

United States v. Lane Labs-USA Inc., 427 F.3d

ee iateneninrtcisdesiilncutsiuniahemimimnecesies 12, 13

United States v. Loud Hawk, 474 U.S. 302 (1986)........... 18

United States v. Midwest Generation, LLC,

ee ee Ce I vvircerccenccesestensvvincnnennnnsanecies 8

United States v. Mlaskoch, 2014 WL 1281523

Fe I: BRINE Sg BD crtciicciscccemscveciisisnnsicsidvensisssacuiaseniod 8

United States v. Municipal Authority, 150 F.3d

oo 6 REE ere 8

United States v. Philip Morris Inc., 116 F. Supp.

I a irene erriecnac ati asi, 3

United States v. Rx Depot, Inc., 438 F.3d 1052

a iene ccctacclieenisteaiiicitas taiientitinaatitcinsi 12

United States v. Scenic View Dairy, LLC., 2011

WL 3879490 (W.D. Mich. Sept. 1, 2011) ..........s.---- 12

Vv

TABLE OF AUTHORITIES—Continued

Page(s)

United States v. Smithfield Foods, Inc.,

Be ee ee Re es I ccceccccennseccesoneseenecnssctsscnseens 8

United States v. Sutton, 795 F.2d 1040 (Temp.

i I I oc sh ste rtaicemeattntnapeinninniiocenesiens 5

United States v. Ten Cartons, Ener-B Nasal

COE, GED F. BUD. BSL CIE.DDLIN. Y..) cccoreccsccvecccrscocosessove 12

United States v. Universal Management

Services, Corp., 191 F.3d 750 (6th Cir. 1999).......... 12

AGENCY PROCEEDINGS

Consent Order, In re Citibank, N.A., 2015-

OF re GE BL, BI) vncssccccocscceseccevececcccesoceseces 3, 6

Federal Reserve Bank, Order, Jn re Higher One,

Inc., No. 15-026-E-I (Dec. 23, 2015) ..........cccccceeeceseees 5

FTC, Dissenting Statement of Commissioner

Ohlihausen (Apr. 17, 2015), available at

https://www.ftc.gov/system/files/document

s/public_statements/637761/150420cardinal

Re aiiciciicnacdarcienindsinamenaitinenemnnenssetes 11

FTC, Statement of the Commission (July 31,

2012), available at https://www.ftc.gov/

system/files/documents/public_statements/

296171/12073 1commstmt-monetaryremedies

eS AS Sa PAL RE aa TENET EAE 90S = SEES a OT 11

Inre B.J. Carney Industries, 7 E.A.D.171 (EPA

9 BRFSS EY OT OP ee ED x

In re Blackstreet Capital Management LLC,

SEC Release No. 77959 (June 1, 2016)................00.. 15

vi

TABLE OF AUTHORITIES—Continued

Page(s)

In re Kohlberg Kravis Roberts & Co. LP, SEC

Release No. 4131 (June 29, 2015) ............00ccccccceeeeeree 15

IRS, Office of Chief Counsel, Memorandum, No.

201619008 (May 6, 2016), available at

https://www.irs.gov/pub/irs-wd/201619008.pdf.......... 17

People of State of California ex rel. Brown v.

Powerex Corp., 1835 FERC 4 61,178 (May 24,

IEE) nccsseseneconcsinmmsitabningiieannstecimianiiedaaaai nn 9

Prohibition of Energy Market Manipulation,

114 FERC ] 61,047 Jan. 19, 2006) ..... ee ceeeeeees 10

STATUTES, RULES, AND REGULATIONS

LE DBAS. © GERD venecscereessssocvessetictinecibabanaiaaneiame aan 16

12 U.S.C.

BF Be srxvncnesssnievceninsienissssussnipineidicaaniatinnasneiinbdieaiiaamaaen tian 7

IF Gi snccssnensconsunetessaseniastiiiniinciinseinanebnielianisinianialanannanane 7

15 U.S.C.

IF SNe stcsssnosninsiuisnisinniiasintuidaisisieasiiaamenninainasai nn 12

OF ei ivisctisiiestcnsinssiinnticsnesiauedannaniiigainhdiammiaeea an 11

iP Cok | = PCE SrA Se | 12

Bk UIE A, © Mii dissesressctcncnccesnentesiedvninaesinniamnnnieaae 12

SD TRA: Fe trcecessimnsttinentinneetaediccimmaameiae passim

BD Bs © BBP cccccoxnstonensennisieensdesetiiiideaeiadamieaaiannn 8

Energy Policy Act of 2005, Pub. L. No. 109-58,

§ 314, 119 Stat. 594, 690 (2005) (codified at 15

Use & FRO) srcensenccssoseicsescnnenetesataniaiaipiinadinmasalaial i)

DT CF Be. BRI BIS ..cnceresencsscnsossunssnennsveensinnenenaiiaaiidin 15

vii

TABLE OF AUTHORITIES—Continued

Page(s)

76 Fed. Reg. 42,950 (July 19, 2011) .......--cccccccoccecessesecees 15

68 Fed. Reg. 45,820 (Aug. 4, 2008) .0.....ccccccccocececoceeceoeeees 10

OTHER AUTHORITIES

CFPB, Factsheet: Enforcing Federal

Consumer Protection Laws (July 13, 2016),

available at http://files.consumerfinance.gov

/f/documents/07132016_cfpb_SEFL_annive

a aacateeceensmsaseenmenes 14

FTC, Stats & Data 2015, available at https://

www .ftc.gov/node/943403 (last visited Mar.

SEES RE SA ce 14

Press Release No. 2015-245, SEC Announces

Enforcement Results For FY 2015 (Oct. 22,

2015), available at https://www.sec.gov/

news/pressrelease/2015-245 Atml.............cecesecece0ece. 15

Press Release, No. 7488-16, CFTC Releases

Annual Enforcement Results for Fiscal

Year 2016 (Nov. 21, 2016), available at

http://www.cftc.gov/PressRoom/PressRele

SEC, Select SEC and Market Data Fiscal 2016,

available at https://www.sec.gov/reports

pubs/select-sec-and-market-data/secstats20

16.pdf (last visited Mar. 3, 2017) ............ccccccceceececeoees 14

Vodra, William W. & Arthur N. Levine,

Anchors Away: The Food and

Administration’s Use of Disgorgement

Abandons Legal Moorings, 59 Food & Drug

GET I A Re 13

INTEREST OF AMICI CURIAE'

The Chamber of Commerce of the United States of

America is the world’s largest business federation. It

represents 300,000 direct members and _ indirectly

represents the interests of more than 3 million

companies and professional organizations of every size

in every industry sector, and from every region of the

country. An important function of the Chamber is to

represent the interests of its members before Congress,

the Executive Branch, and the courts. To that end, the

Chamber regularly files amicus curiae briefs in cases

that raise issues of concern to the nation’s business

community.

The American Petroleum Institute (API) is a

national trade association representing more than 640

companies in the oil and natural gas industry. Its

members range from the largest major integrated oil

companies to the smallest of independents, as well as

other producers, refiners, suppliers, pipeline operators,

marine transporters, and service and supply companies

that support all segments of the industry. Together with

its member companies, API is committed to ensuring a

strong, viable U.S. oil and natural gas industry capable

of meeting the energy needs of our nation in an efficient

and environmentally responsible manner. API

frequently participates in legislative, administrative,

and judicial proceedings that present issues of national!

concern, including issues related to the enforcement of

federal energy and environmental regulations.

' No counsel for a party authored this brief in whole or in part,

and no entity or person, aside from amici curiae, their members,

and their counsel, made a monetary contribution intended to fund

the preparation or submission of this brief. Letters consenting to

the filing of this brief are on file with the Clerk.

2

The members of the Chamber and API recognize

that the appropriate exercise of enforcement powers by

the SEC and other agencies is important for ensuring

that our markets function fairly and effectively. As

Congress has established, however, those enforcement

powers must be checked by reasonable statutes of

limitation and repose that apply as strongly to punitive

disgorgement as to other fines, penalties, and

forfeitures. Regardless of its particular form, the cloud

of potential liability hampers business and investment

activity, and long-belated enforcement actions are less

likely to protect or help market participants. The Court

should reverse the decision of the Tenth Circuit.

SUMMARY OF ARGUMENT

In October 2009, the SEC filed suit against

petitioner seeking, among other things, “disgorgement”

of ill-gotten gains from alleged securities law violations.

Pet. App. 2a. After a trial more than five years later (in

November 2014), the district court ordered that

petitioner disgorge approximately $35 million, of which

approximately $30 million was the result of conduct that

occurred more than five years before the SEC’s

complaint was filed. Jd. 45a; Dist. Dkt. 181, at 2. The

district court further ordered that petitioner pay $18

million in prejudgment interest on the disgorgement

award. Pet. App. 45a. Petitioner argued that he should

not be faced with crippling monetary penalties based on

conduct occurring as much as fourteen years before the

SEC filed suit (and twenty years before the matter was

finally litigated). However, the SEC responded that

there is no statute of limitations for “disgorgement”

claims. Jd. 41a. According to the SEC, disgorgement is

not a “fine, penalty, or forfeiture” subject to the five-

year statute of limitations set out in 28 U.S.C. § 2462.

3

This is not an isolated issue. Like the SEC,

numerous other federal agencies rely on disgorgement

and restitution orders to obtain major monetary awards

against defendants. See, e.g., Consent Order, Jn re

Citibank, N.A., 2015-CFPB-0015 44 7(h), 32, 79, 104

(July 21, 2015) (CF PB order imposing civil penalties of

$35 million and restitution of $700 million for deceptively

marketed credit monitoring services, for conduct

beginning as early as 2003); United States v. Philip

Morris Inc., 116 F. Supp. 2d 131, 150 & n.27 (D.D.C.

2000) (permitting Department of Justice to seek

disgorgement for profits earned by tobacco companies

from 1953 to the present); United States ex rel. Zissler

v. Regents of Univ. of Minnesota, 992 F’. Supp. 1097, 1109

(D. Minn. 1998) (permitting government to seek

disgorgement of profits from sale of drug over two

decades, in violation of FDA order). And like the SEC,

numerous other federal agencies enforce statutes that

are subject only to the limitations period of § 2462. Thus,

under the Tenth Circuit’s reading of § 2462, businesses

are faced with the permanent specter of massive liability

(with constantly accruing prejudgment interest) from

across the regulatory spectrum. As more agencies

follow the SEC’s lead in pursuing aggressive theories of

disgorgement—emboldened by the Tenth Circuit’s

decision—the risk to businesses will only grow.

Allowing agencies to seek disgorgement orders

without limitation is contrary to the basic principles of

repose and certainty. In addition to a lack of certainty,

the Tenth Circuit’s decision, if upheld, will be unfair to

businesses in multiple ways. First, given that agencies

regularly seek to impose liability based on new

interpretations of the law or enforcement priorities, the

Tenth Circuit’s rule would increase the risk that

agencies will seek disgorgement for long-past conduct

4

that may have been acceptable at the time. Second, the

potential for disgorgement liability is not only indefinite,

but irreversible—in the bankruptcy context, agencies

have taken the contradictory position that disgorgement

orders are non-dischargeable penalties. Third, because

agencies are only required to provide a “reasonable

approximation” of the amount to be disgorged, it is

defendants that bear the burden of fading memories and

lost documents in belated enforcement actions.

Basic fairness demands that the liability risk posed

by these potentially astronomical disgorgement awards

have an expiration date. In enacting § 2462, Congress

agreed. Accordingly, this Court should reverse the

decision of the Tenth Circuit.

ARGUMENT

I. THE COURT OF APPEALS’ DECISION WOULD ALLOW

AGENCIES THROUGHOUT THE FEDERAL GOVERNMENT

To SEEK PUNITIVE DISGORGEMENT WITHOUT

LIMITATION

Aggressive disgorgement is not just a tactic

employed by the SEC to avoid statutory limitations

periods. Since the SEC pioneered the use of

disgorgement in the 1970s, see SEC v. Texas Gulf

Sulphur Co., 312 F. Supp. 77 (S.D.N.Y. 1970), aff'd in

relevant part, 446 F.2d 1301 (2d Cir. 1971), agencies

throughout the federal government have adopted

disgorgement as a powerful tool to punish and deter

misconduct. Under the Tenth Circuit’s decision, many

of these agencies would be free to seek disgorgement

without any time limitation: Just like the SEC-enforced

Securities Act, Exchange Act, Advisers Act, and

Investment Company Act, countless federal statutes fail

to specify a limitations period, relying instead on the

default period congressionally established by § 2462.

5

While it is impractical to describe the enforcement

practices of every one of the many agencies that seek to

recover disgorgement, the following discussion

illustrates the broad range of uses—and abuses—of

disgorgement throughout the federal government.*

A. The Consumer Financial Protection Bureau

(CFPB)

In its early years as the enforcer of a range of federal

consumer protection laws, the CFPB has shown a

willingness to take aggressive litigation positions in an

effort to maximize monetary payments from companies

and to avoid statutes of limitations.

As is the case with the SEC, the disgorgement

sought by the CFPB may dwarf the civil penalties

imposed. See, e.g., CF PB v. Corinthian Colls., Inc., 2015

2 In addition to the agencies discussed below, a partial list of

other agencies that seek disgorgement and other equitable

monetary relief includes the Department of Energy, United States

v. Sutton, 795 F.2d 1040, 1062 (Temp. Emer. Ct. App. 1986)

(ordering over $200 million in disgorgement for price control

violations); the Department of Housing and Urban Development,

United States v. Incorporated Vill. of Island Park, 791 F. Supp. 354,

370 (E.D.N.Y. 1992) (holding that government claim for

disgorgement of profits from developers of housing project was not

barred by statute of limitations); the Department of Justice, United

States v. Keyspan Corp., 763 F. Supp. 2d 633, 640 (S.D.N.Y. 2011)

(permitting disgorgement for antitrust violations); the Federal

Communications Commission, New England Tel. & Tel. Co. v. FCC,

826 F.2d 1101, 1105 (D.C. Cir. 1987) (ordering over $100 million in

disgorgement for excessive rates); the Federal Election

Commission, FEC v. Craig for U.S. Senate, 816 F.3d 829, 848 (D.C.

Cir. 2016) (ordering senator to disgorge nearly $200,000 in

improperly used campaign funds); and the Federal Reserve Bank,

Order 9 6, 12, In re Higher One, Inc., No. 15-026-E-I (Dec. 23, 2015)

(ordering restitution of $24 million and imposing civil penalty of $2

million for unlawful conduct related to student loans).

6

WL 10854380, at *6 (N.D. Ll. Oct. 27, 2015) (entering

disgorgement order of $531 million against for-profit

college, equal to the entire face value of loans issued, plus

fees and interest); Consent Order, Jn re Citibank, N.A..,

2015-CFPB-0015 % 7(h), 32, 79, 104 (July 21, 2015)

(ordering civil penalties of $35 million and restitution of

$700 million for deceptively marketed credit monitoring

services, for conduct beginning as early as 2003). In

pursuing these disgorgement orders, the CF PB discards

traditional notions of equity and seeks amounts that

exceed both the benefits to defendants and the harm to

consumers—~.e., refusing to deduct business expenses or

offset benefits to consumers. See, e.g., CFPB v.

Mortgage Law Grp., LLP, 196 F. Supp. 3d 920, 950 (W.D.

Wis. 2016) (ordering two law firms to disgorge over $20

million, consisting of the firms’ total revenues, not

profits, from providing home loan modification services).

Although a number of the consumer protection

statutes enforced by the CFPB contain express

limitation periods, the CF PB has argued that those

limitations apply only to private actions brought under

the statute. See, e.g., CF PB v. Frederick J. Hanna &

Assocs., P.C., 114 F. Supp. 3d 1342, 1876 (N.D. Ga. 2015)

(arguing that one-year limitations period in Fair Debt

Collection Practices Act does not apply to the

government); CF PB v. ITT Educ. Servs., Inc., 2015 WL

1013508, at *33 (S.D. Ind. Mar. 6, 2015) (arguing that one-

year limitations period in Truth In Lending Act does not

apply to the government). If the limitations periods in

these statutes do not apply, § 2462 stands as a needed

protection against indefinite government action.’

3 Section 2462 also operates as a backstop to other statutes of

limitation that have a discovery rule. For example, enforcement

proceedings by the CFPB against “unfair, deceptive, or abusive act

7

The CFPB has also taken the startling position that

it need not comply with any statutes of limitations when

proceeding administratively. See PHH Corp. v. CF PB,

839 F.3d 1, 50 (D.C. Cir. 2016), reh’g en banc granted,

order vacated (Feb. 16, 2017). PHH involved an effort

by the CFPB to impose a $109 million disgorgement

order based on a retroactive interpretation of the Real

Estate Settlement Procedures Act, for conduct

occurring as far back as 2008. /d. at 46. A panel of the

D.C. Circuit rejected the CF PB’s position, citing § 2462

for the proposition that “[t]he general working

presumption in federal civil and criminal cases is that a

federal civil cause of action or criminal offense must have

some statute of limitations and must not allow suits to be

brought forever and ever after the acts in question.” /d.

at 50. Although the Bureau’s approach has so far been

unsuccessful, businesses have little assurance that the

CFPB will not follow the SEC’s lead and shift to using

disgorgement to avoid statutes of limitations. Business

should not be forced to trust in agencies’ “prosecutorial

discretion” not to bring stale cases years or decades

after the fact. /d.

—————__—

or practice[s}” (UDAAP) may not be brought “more than 3 years

after the date of discove’y of the violation to which an action

relates.” 12 U.S.C. $§ 5531 a), 5564(g)(1). This general limitations

period, however, does not override § 2462’s 5-year limitations

period, which is specific to actions for the enforcement of a “civil

fine, penalty, or forfeiture.” Cf. Ditthardt v. North Ocean Condos,

L.P., 580 F. Supp. 2d 1288, 1292 (€ D. Fla. 2008) (considering two

separate federal statutes of limit tions, concluding that “where two

statutes of limitations might be read to apply in a particular

situation, one general and one more specific, the general rule is that

the court must apply the more specific limitations period” (citing

cases)).

8

B. The Environmental Protection Agency (EPA)

Like the SEC, many of the statutes enforced by the

EPA lack statutory limitations periods. See, e.g., United

States v. Midwest Generation, LLC, 720 F.3d 644, 646

(7th Cir. 2013) (Clean Air Act); United States v.

Mlaskoch, 2014 WL 1281523, at *10 (D. Minn. Mar. 31,

2014) (Clean Water Act); Mayes v. EPA, 2008 WL 65178,

at *7 (E.D. Tenn. Jan. 4, 2008) (Resource Conservation

and Recovery Act). As a result, EPA is subject to

§ 2462’s five-year limitations period when pursuing

enforcement actions. See Mlaskoch, 2014 WL 1281523,

at *10.

As a general practice, the EPA relies heavily on civil

penalties to obtain monetary relief in its enforcement

actions. However, there is little substantive difference

between the civil penalties imposed by the EPA and the

type of disgorgement sought by the SEC. For example,

in calculating penalties under the Clean Water Act,

courts will look to the “wrongful profits” obtained while

the defendant was operating in violation of the law.

United States v. Mun. Auth., 150 F.3d 259, 267 (3d Cir.

1998); see also 33 U.S.C. §1319(d) (requiring

consideration of “economic benefit” in setting penalty).

Then, when calculating the amount of those wrongful

profits, courts will rely on “‘reasonable approximations

of economic benefit.” United States v. Smithfield

Foods, Inc., 191 F.3d 516, 529 (4th Cir. 1999); accord In

re B.J. Carney Indus., 7 E.A.D. 171, 217-218 (EPA 1997).

Notably, these are precisely the standards the courts

use in calculating disgorgement in SEC enforcement

actions. See Pet. App. 44a. Thus, in seeking the same

type of punitive disgorgement used by the SEC, the

EPA would be able to avoid the five-year statute of

limitations simply by characterizing its remedy as

“disgorgement” rather than a “penalty.” The Court

9

should not sanction this anomalous result and should

instead properly recognize disgorgement as equivalent

to a penalty or forfeiture.

C. The Federal Energy Regulatory Commission

(FERC)

After the SEC began pursuing disgorgement in the

1970s, FERC quickly followed suit. See, e¢.g., Southern

Union Gas Co. v. FERC, 725 F.2d 99, 101-102 (10th Cir.

1984) (ordering payment of appropriate rates for past

deliveries of natural gas); Mesa Petroleum Co. v.

Federal Power Comm’n, 441 F.2d 182, 186 (5th Cir. 1971)

(ordering refund of excessive amounts paid for natural

gas). Before the Energy Policy Act of 2005,* FERC did

not have the authority to impose civil penalties, so

disgorgement was the only option for monetary relief.

See Coastal Oil & Gas Corp. v. FERC, 782 F.2d 1249,

1253 (5th Cir. 1986). Given the limitations on FERC’s

enforcement powers, courts were careful to ensure that

FERC disgorgement orders did not take on the

characteristics of a penalty. See id. (finding that FERC

disgorgement order constituted an unauthorized

penalty, on grounds that order required company to

“forfeit[{] all of its profits, but ... also [be] denied any

payment whatsoever for the gas, including the

recoupment of costs”); see also People of State of

California ex rel. Brown v. Powerex Corp., 135 FERC

q{ 61,178, 62,073 (May 24, 2011) (rejecting California’s

* See Pub. L. No. 109-58, § 314, 119 Stat. 594, 690-691 (2005)

(codified at 15 U.S.C. §717t-1). The penalty provisions of the

Energy Policy Act are harsh—$1 million per day per violation—and

have the potential to lead to heavy liability. See, e.g., FERC v.

Barclays Bank PLC, 105 F. Supp. 3d 1121, 1127 (E.D. Cal. 2015)

(upholding FERC order with $435 million in civil penalties and $34.9

million in disgorgement).

10

requested disgorgement order as a time-barred penalty,

and rejecting argument that the relief was “appropriate

because it would make the ratepayers of California

whole”).°

Other than § 2462, FERC enforcement actions are

not subject to any statutes of limitation—both the

Federal Power Act and the Natural Gas Act are silent

on limitations periods. See Prohibition of Energy Mkt.

Manipulation, 114 FERC 4 61,047, 61,128 Qan. 19,

2006). As a result, if § 2462 is read not to cover

disgorgement orders, energy companies and other

market participants will face substantial uncertainty as

to whether long-past conduct will be subject to

disgorgement. Furthermore, upholding the Tenth

Circuit’s decision will sanction the SEC’s aggressive use

of the disgorgement remedy, providing a model for

FERC to expand its enforcement tools.

D. The Federal Trade Commission (FTC)

The FTC has been direct in its intent to use

disgorgement to avoid limitations on its ability to

penalize long-past conduct.

In the past, the FTC’s use of monetary equitable

remedies was limited by the analytical framework set

forth in its Policy Statement on Monetary Equitable

Remedies in Competition Cases. 68 Fed. Reg. 45,820

(Aug. 4, 2003). In 2012, however, the FTC withdrew that

guidance, noting that “Supreme Court jurisprudence has

increased burdens on plaintiffs, and legal thinking has

begun to encourage greater seeking of disgorgement.”

> Although these courts analyzed whether FERC

disgorgement orders were “penalties,” they did not analyze

whether those orders were “forfeitures.”

ll

FTC, Statement of the Commission (July 31, 2012).

Consistent with the new guidance, the FTC has

aggressively pursued disgorgement, including for

conduct outside the five-year limitations period of

§ 2462. See FTC, Dissenting Statement of Comm’r

Ohlhausen (Apr. 17, 2015) (dissenting from FTC’s

decision in 2015 to pursue disgorgement against

Cardinal Health based on its allegedly monopolistic

conduct between 2003-2008—despite the lack of any

clear violation and the inability to calculate damages

with any certainty).

Even before the FTC’s recent shift in enforcement

strategy, its disgorgement and restitution orders had

the effect of punishing defendants. Instead of basing its

calculations on the defendant’s profits or unjust

enrichment, the FTC calculates the amount of

disgorgement or restitution as the amount paid by

consumers, offsetting only for direct refunds. See, ¢.g.,

FTC v. Figgie Int'l, 994 F.2d 595, 606 (9th Cir. 1993)

(affirming restitution order of up to $49.95 million for

fraudulent heat detectors); FTC v.S limamerica, Inc., 77

F. Supp. 2d 1263, 1276 (S.D. Fla. 1999) (ordering

restitution of $9 million for fraudulent sale of weight loss

and other pills). The FTC certainly has the authority to

seek such remedies. See 15 U.S.C. § 53(b) (authorizing

injunctive relief); 7d. § 57b(b) (“The court ... shall have

jurisdiction to grant such relief as the court finds

necessary to redress injury to consumers .... Such relief

may include, but shall not be limited to, rescission or

6 See also FTC v. AMG Servs., Inc., 2016 WL 5791416, at “12

(D. Nev. Sept. 30, 2016) (ordering restitution of $1.3 billion,

calculated by totaling all finance charges paid on payday loans and

applying presumption that every consumer actually relied on the

misleading loan disclosures).

12

reformation of contracts, [and] the refund of money or

return of property|.]”). But such remedies should be

recognized as equivalent to civil penalties or forfeitures,

and thus subject to the five-year limitations period of

§ 2462, unless Congress expressly provides otherwise.

E. The Food and Drug Administration (FDA)

Invoking the courts’ equitable power to “restrain

violations” of the Federal Food, Drug, and Cosmetic Act

(F DCA), 21 U.S.C. § 332(a), the FDA has had success in

obtaining significant disgorgement orders. See United

States v. Lane Labs-USA Inc., 427 F.3d 219, 234 (83d Cir.

2005) (discussing consent decrees ordering

disgorgement with Abbott Labs ($100 million), Wyeth-

Ayerst ($30 million), and Schering-Plough ($500

million)).’

Courts have generally affirmed the FDA’s ability to

seek disgorgement.* The FDA’s use of restitution and

’The FDCA “does not provide a statute of limitations.”

United States v. Scenic View Dairy, LLC., 2011 WL 3879490, at *18

(W.D. Mich. Sept. 1, 2011) (the FDCA itself does not provide a

statute of limitations). As a result, § 2462 provides the only time

limit on civil actions brought under the statute. Cf. United States v.

Caputo, 288 F. Supp. 2d 912, 919 (N.D. Ill. 2003) (applying five-year

default statute of limitations for criminal actions, 18 U.S.C. § 3282,

in prosecution involving violations of the FDCA).

8 g., United States v. Rx Depot, Inc., 438 F.3d 1052, 1061

(10th Cir. 2006) (reversing district court order denying

disgorgement of profits from company selling Canadian

prescription drugs); Lane Labs-USA Inc., 427 F.3d at 236 (affirming

district court order granting restitution to purchasers of

unapproved drugs); United States v. Universal Mgmt. Servs., Corp.,

191 F.3d 750, 764 (6th Cir. 1999) (affirmire district court order

granting restitution to purchasers of unappruved medical device);

but see United States v. Ten Cartons, Ener-B Nasal Gel, 888 F.

Supp. 381, 404 (E.D.N.Y.) (“Disgorgement, in the Court’s view, will

13

disgorgement, however, has engendered substantial

debate. See Lane Labs-USA Inc., 427 F.3d at 234-235

(citing articles). As courts and commentators have

recognized, disgorging profits or requiring restitution

operates as a harsh remedy— in some cases as serious as

the FDA’s ultimate remedy of seizure. See United

States v. C.E.B. Prods., Inc., 380 F. Supp. 664, 668 (N.D.

Ill. 1974) (“This passage strongly suggests that the

House, at least, considered seizure to be the most severe

remedy and that injunctive proceedings were viewed as

a means to alleviate the hardships seizures might cause

to manufacturers.”); Vodra & Levine, Anchors Away:

The Food and Drug Administration’s Use of

Disgorgement Abandons Legal Moorings, 59 Food &

Drug L.J. 1 (2004) (arguing that FDA’s use of

disgorgement is punitive and illegal).

In short, numerous federal agencies can and do use

disgorgement to punish misconduct. The Court should

look to the practical effect of disgorgement orders—not

their label as “equitable’—and recognize them as the

penalties and forfeitures they are.

Il. THE CouRT OF APPEALS’ READING OF SECTION 2462

Is UNFAIR AND HARMFUL TO BUSINESSES

As a practical matter, disgorgement is one of the

most significant remedies available to government

agencies, often vastly outstripping the dollar value of

civil penalties imposed. See, e.g., CFPB, Factsheet:

Enforcing Federal Consumer Protection Laws at 1 (July

13, 2016) ($11.7 billion in disgorgement and restitution

orders; $440 million in civil penalties); Press Release,

No. 7488-16, CFTC Releases Annual Enforcement

only serve a punitive purpose and is not appropriate or necessary.”),

aff'd on other grounds, 72 F.3d 285 (2d Cir. 1995).

14

Results for Fiscal Year 2016 (Nov. 21, 2016) ($543

million in disgorgement and restitution orders; $748

million in civil penalties); FTC, Stats & Data 2015, at 3

($2 billion in redress and disgorgement; $21.8 million in

civil penalties); SEC, Select SEC and Market Data

Fiscal 2016, at 2 ($2.8 billion in disgorgement orders;

$1.3 billion in civil penalties). As a consequence, if only

civil penalties and fines are subject to § 2462’s

limitations period, companies will never have repose

from much of the liability they face. Indeed, because

agencies can readily replicate civil penalties by pursuing

aggressive theories of liability, the Tenth Circuit’s

reading of § 2462 renders the statute largely irrelevant.

This is not an outcome intended by Congress or

sanctioned by the Court. As the Court has recognized,

without a statute of limitations, businesses are left

“exposed to Government enforcement action not only

for five years after their misdeeds, but for an additional

uncertain period into the future.” Gabelli v. SEC, 133

S. Ct. 1216, 1223 (2013); see also United States v.

Kubrick, 444 U.S. 111, 117 (1979) (“[Thhe right to be

free of stale claims in time comes to prevail over the

right to prosecute them.””); Adams v. Woods, 6 U.S. (2

Cranch) 336, 342 (1805) (reasoning that permitting an

action for debt to “be brought at any distance of time ...

would be utterly repugnant to the genius of our laws. In

a country where not even treason can be prosecuted

after a lapse of three years, it could scarcely be

supposed that an individual would remain forever liable

to a pecuniary forfeiture.”). In addition to providing

much needed certainty to businesses, statutes of

limitation promote effective enforcement of the law, by

focusing agencies on responding to fresh cases and

uncovering ongoing misconduct.

15

These general concerns are compounded by

enforcement practices that further increase the level of

uncertainty and unfairness to businesses.

First, agencies often seek to impose liability,

including disgorgement, based on_ retroactive

interpretations of the law. For example, until 2011,

private equity advisers were not required to register

with the SEC under the Investment Advisers Act. of

1940. See 17 C.F.R. 275.208A-1; 76 Fed. Reg. 42,950,

42,951 (July 19, 2011). Despite this, the SEC proceeded

to launch a series of enforcement actions against private

equity advisers for long-past conduct that, in many

cases, ended before the new regulation came into effect.

See, e.g., In re Blackstreet Capital Mgmt. LLC, SEC

Release No. 77959 (June 1, 2016) (requiring

disgorgement of over $2.5 million and imposing $500,000

civil penalty for conduct from 2005 to 2012); In re

Kohlberg Kravis Roberts & Co. LP, SEC Release No.

4131 (June 29, 2015) (requiring disgorgement of over $18

million and imposing a $10 million civil penalty for

conduct from 2006 to 2011).? Likewise, the CFPB has

attempted to apply retroactive interpretations of

various consumer protection laws in_ seeking

disgorgement—although it has not had much success in

court. See, e.g., PHH Corp, 839 F.3d at 46 (rejecting

argument that 2015 interpretation of Real Estate

Settlement Practices Act should be applied to conduct

starting in 2008); CF’ PB v. Gordon, 819 F.3d 1179, 1195

(9th Cir. 2016) (petition for certiorari docketed)

(reversing and remanding $11 million disgorgement

* See also Press Release No. 2015-245, SEC Announces

Enforcement Results For FY 2015 (Oct. 22, 2015) (characterizing

enforcement action against Kohlberg Kravis Roberts & Co. as

“first-of-[its ]-kind”).

16

order against attorney providing home loan modification

services, where CF PB sought retroactive application of

regulation). The propensity of agencies to seek

retroactive application of the law and to shift their

enforcement priorities underscores the need for a

predictable and firm limit on an agency’s ability to reach

into the past.

Second, contrary to the SEC’s characterization of

disgorgement as a non-punitive equitable remedy in this

case, the SEC and other agencies have successfully

argued that a disgorgement order is not dischargeable

in bankruptcy, as a “fine, penalty, or forfeiture payable

to and for the benefit of a governmental unit.” 11 U.S.C.

§ 523(a)(7); see In re Telsey, 144 B.R. 563 (Bankr. 8.D.

Fla. 1992).'° In accepting the SEC’s argument that

disgorgement is a nondischargeable “fine, penalty, or

forfeiture,” one court explained that the “deterrence

purpose” of disgorgement is “sufficiently penal to

characterize the resulting debt as a ‘fine, penalty, or

forfeiture.” 144 B.R. at 565. Similarly, the IRS has

taken the position that disgorgement orders may be

nondeductible, “punitive” debts where the order “serves

primarily to prevent wrongdoers from profiting from

their illegal conduct and deters subsequent illegal

'0 See also, e.g., In re Towers, 162 F.3d 952, 955 (7th Cir. 1998)

(“It is easy enough to call restitution under the Illinois Consumer

Fraud and Deceptive Business Practices Act ‘a fine, penalty, or

forfeiture.”); HUD vy. Cost Control Mktg. & Sales Mgmt. of

Virginia, Inc., 64 F.3d 920, 928 (4th Cir. 1995) ($8.65 million

disgorgement order obtained by Department of Housing and Urban

Development not dischargeable in bankruptcy, because

government’s interest in enforcing debt was “penal”); Jn re Jensen,

395 B.R. 472, 484 (Bankr. D. Colo. 2008) ($228,836 disgorgement

order obtained by State of Colorado not dischargeable in

bankruptcy, because of “penal and deterrence goals” of Colorado

consumer protection statutes).

17

conduct.” IRS, Office of Chief Counsel, Memorandum,

No. 201619008, at 9 (May 6, 2016) (addressing

disgorgement order sought by SEC under the Foreign

Corrupt Practices Act). The IRS noted that “cases that

impose disgorgement as a discretionary equitable

remedy can have similarities to some cases that impose

forfeiture as required by statute.” /d.

The government should not be permitted to pick and

choose when its disgorgement orders are penalties or

forfeitures by advancing contradictory interpretations

of the same language in different statutes. See

Christianson v. Colt Indus. Operating Corp., 486 U.S.

800, 808 (1988) (“[llinguistic consistency” requires

reading identical language in different statutes the

same); Northcross v. Board of Ed. of Memphis City

Schs., 412 U.S. 427, 428 (1973) (per curiam) (“similarity

of language” is “strong indication” that statutes should

be interpreted together, particularly where “the two

provisions share a common raison d’etre”). When

considered together, the contradictory interpretation of

these two “fine, penalty, or forfeiture” provisions would

allow agencies to impose nondischargeable monetary

obligations without any time restriction and without

regard to whether the defendant himself ever obtained

or still holds the monies ordered disgorged. It should not

be lightly assumed that Congress intended to impose

such a draconian burden on those subject to

disgorgement and restitution orders.

Third, agency efforts to circumvent § 2462 are

exacerbated by the permissive standard of proof for

calculating disgorgement damages. A central policy of

statutes of limitation is that “they protect defendants

and the courts from having to deal with cases in which

the search for truth may be seriously impaired by the

loss of evidence, whether by death or disappearance of

18

witnesses, fading memories, disappearance of

documents, or otherwise.” Kubrick, 444 U.S. at 117.

Typically, these evidentiary issues affect the ability of

both the defense and the prosecution to effectively

litigate. Indeed, in a criminal case, the “passage of time

may make it difficult or impossible for the Government”

to carry its burden of proving its case beyond a

reasonable doubt. United States v. Loud Hawk, 474 U.S.

302, 315 (1986).

Not so with disgorgement. In seeking

disgorgement, an agency only needs to propose a

“reasonable approximation” of the profits, which

“creates a presumption of illegal profits.” SEC v. Teo,

746 F.3d 90, 105 (3d Cir. 2014). The defendant may seek

to show that the calculation is inaccurate, but he bears

the risk of uncertainty. Jd. Rebutting an agency’s

“reasonable approximations” is already difficult for

defendants. See SEC vy. First City Fin. Corp., 890 F.2d

1215, 1231 (D.C. Cir. 1989) (“Unfortunately, we

encounter imprecision and imperfect information.

Despite sophisticated econometric modelling, predicting

stock market responses to alternative variables is, as the

district court found, at best speculative. Rules for

calculating disgorgement must recognize that

separating legal from illegal profits exactly may at times

be a near-impossible task.”); see also Gordon, 819 F.3d

at 1196 (approximating amount of disgorgement at the

full value of unlawful legal services provided, and

putting burden on defendant to show that consumers

were “satisfied” with their services, received refunds, or

did not rely on fraudulent statements). But when

enforcement actions are brought years after the fact, it

may be all but impossible for the defendant to trace the

chain of causation and segregate legitimate profits. In

effect, the defendant must bear not only the uncertainty

19

created by his misconduct, but by the government’s

delay. Accordingly, because of this reversal of the

typical burdens, it is even more critical for § 2462’s

limitations period to apply to disgorgement.

CONCLUSION

For the foregoing reasons, the Court should reverse

the decision of the Tenth Circuit.

Respectfully submitted.

KATE COMERFORD TODD MATTHEW 'T. MARTENS

STEVEN P. LEHOTSKY Counsel of Record

JANET GALERIA JOHN BYRNES

U.S. CHAMBER WILMER CUTLER PICKERING

LITIGATION CENTER HALE AND DORR LLP

1615 H Street, NW 1875 Pennsylvania Ave., NW

Washington, DC 20062 Washington, DC 20006

(202) 663-6000

STACY LINDEN matthew.martens@wilmerhale.com

PETER TOLSDORF

AMERICAN PETROLEUM

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MARCH 2017