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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0720%3A12

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2017

## Text

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) ... 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
INSTITUTE

1220 L Street, NW
Washington, DC 20005

MARCH 2017

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0720%3A12. Public record. Not legal advice.