{"id":4349,"date":"2017-04-04T00:41:43","date_gmt":"2017-04-04T04:41:43","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?p=4349"},"modified":"2025-04-10T19:51:54","modified_gmt":"2025-04-10T23:51:54","slug":"age-before-equity-federal-regulatory-agency-disgorgement-actions-and-the-statute-of-limitations","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/hblr\/age-before-equity-federal-regulatory-agency-disgorgement-actions-and-the-statute-of-limitations\/","title":{"rendered":"Age Before Equity? Federal Regulatory Agency Disgorgement Actions and the Statute of Limitations"},"content":{"rendered":"

Download PDF<\/a><\/p>\n

Michael Columbo and Allison Davis1<\/a><\/sup>Michael Columbo is counsel to Commissioner Lee E. Goodman of the Federal Election Commission. He has served as a law clerk, criminal trial and appellate prosecutor in the United States Attorney\u2019s Office for the District of Columbia, white-collar defense attorney, and attorney in the Enforcement Division of the Federal Election Commission. Allison Davis is a political and election law attorney in the Washington, D.C. office of Jones Day. She is a graduate of the William & Mary Marshall-Wythe School of Law, where she served as Editor-in-Chief of the William & Mary Business Law Review. The views expressed in this Article are solely the authors\u2019 own and not those of the Federal Election Commission or Jones Day.<\/span><\/p>\n

I. <\/strong>Introduction<\/strong><\/h6>\n

At what point may a person rest assured that the government will not confiscate her money due to a past alleged regulatory infraction? In Kokesh v. SEC<\/em>, the Supreme Court is poised to resolve a three-way split among the federal circuit courts of appeals over whether the statute of limitations in 28 U.S.C. \u00a7 2462 applies to federal regulatory actions seeking disgorgement of a person\u2019s funds for long-past alleged regulatory infractions.2<\/a><\/sup>Kokesh v. SEC, 137 S. Ct. 810 (2017).<\/span> Congress enacted the statute of limitations in \u00a7 2462 to prohibit federal courts from entertaining an action for the enforcement of \u201cany civil fine, penalty, or forfeiture, pecuniary or otherwise,\u201d unless the case is commenced within five years of the alleged violation.3<\/a><\/sup>28 U.S.C. \u00a7 2462 (2012). For actions brought by the government under this section, the date of a claim\u2019s accrual is the date of the alleged violation.<\/span> Federal regulatory enforcement agencies such as the Securities and Exchange Commission (SEC) nonetheless bring actions to confiscate a person\u2019s funds for alleged violations beyond that limitations period by seeking \u201cdisgorgement\u201d of the defendant\u2019s funds.4<\/a><\/sup>See, e.g., Brief for the Respondent at 12, Kokesh v. SEC, 137 S. Ct. 810 (2017) (No. 16-529) (seeking disgorgement of approximately $30 million based on actions beyond the statute of limitations) ; SEC v. Graham, 823 F.3d 1357, 1359 (11th Cir. 2016) (demonstrating that the SEC sought disgorgement of gains despite commencing suit more than five years after all alleged activity at issue); Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir. 2010) (\u201c[Appellant] was required to pay nearly $1.5 million in disgorgement and interest. But he would have to pay just a small portion of that amount if the SEC could consider only the . . . transactions [within the statute of limitations] when calculating disgorgement.\u201d).<\/span><\/p>\n

The claimed difference between the terms \u201cforfeiture\u201d and \u201cdisgorgement\u201d is not apparent from their common legal definitions. \u201cForfeiture\u201d is defined as \u201cthe loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty,\u201d5<\/a><\/sup>Forfeiture, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> while \u201cdisgorgement\u201d is defined as \u201cthe act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.\u201d6<\/a><\/sup>Disgorgement, Black\u2019s Law Dictionary (10th ed. 2014).<\/span><\/p>\n

Federal courts in various circuits have three distinct and inconsistent responses to agency efforts to confiscate a defendant\u2019s funds for infractions beyond the limitations period. Some courts accept that the government may obtain disgorgement<\/em> of a person\u2019s funds beyond the limitations period even though it may not seek forfeiture<\/em> of those funds after that period has expired.7<\/a><\/sup>See infra Part II.C.1.<\/span> Others resolve the issue through a fact-intensive inquiry into, among other things, the government\u2019s motivation for seeking the defendant\u2019s funds and the financial circumstances of the particular defendant.8<\/a><\/sup>See infra Part II.C.2.<\/span> Yet another response is that disgorgement is simply one form of forfeiture, and thus disgorgement is categorically limited by the statute of limitations.9<\/a><\/sup>See infra Part II.C.3.<\/span> The first and last of these approaches are simple, predictable, and cost little for practitioners to ascertain, though they produce opposite outcomes. The fact-intensive middle option is, by contrast, unpredictable, costly, and time-consuming, thus effectively depriving the public of repose even after the limitations period has run, unless and until the issue is litigated and the defendant prevails.<\/p>\n

Moreover, as to the argument that such actions call for courts to invoke equitable powers unconstrained by the statute of limitations, well-founded equitable principles similarly support precluding agency actions for disgorgement after the expiration of the limitations period. Those principles deny circumvention of the statute of limitations due to the availability of a legal remedy had the government diligently acted within the five-year limitations period. Indeed, many state legislatures have barred courts\u2019 use of equity to circumvent statutes of limitations.10<\/a><\/sup>See infra Part IV.<\/span><\/p>\n

Part II of this Article summarizes the statute of limitations and catalogues the courts\u2019 three divergent approaches to federal agency attempts to confiscate funds after the expiration of the limitations period. Part III analyzes these approaches in light of the Supreme Court\u2019s interpretation of the statute of limitations and considers the weaknesses in each approach. Part IV applies the relevant maxims of equity to these various approaches. Finally, this Article concludes that the plain text of the statute of limitations applies to all actions seeking confiscation of a defendant\u2019s funds for deposit into the U.S. Treasury due to a regulatory infraction regardless of whether the remedy is pleaded as forfeiture or disgorgement. To distinguish between actions based on whether the remedy sought is pleaded as forfeiture or disgorgement would nullify the statute of limitations and the important purposes it serves: providing repose for the potentially liable, precluding the government from unjustly launching surprise actions based on stale claims, and saving the courts from engaging in fact-finding using incomplete evidence.<\/p>\n

This conclusion is consistent with the logic and tenor of the Supreme Court\u2019s holding in Gabelli<\/em> v. SEC <\/em>in 2013.11<\/a><\/sup>133 S. Ct. 1216 (2013).<\/span> Although the Court did not then address whether injunctive relief and disgorgement are subject to \u00a7 2462, its holding reflects a reluctance on the part of the Court to nullify \u00a7 2462 with judicially-legislated exceptions.12<\/a><\/sup>Id. at 1224 (\u201cAs we held long ago, the cases in which \u2018a statute of limitation may be suspended by causes not mentioned in the statute itself . . . are very limited in character, and are to be admitted with great caution; otherwise the court would [be] mak[ing] the law instead of administering it.\u2019 . . . Given the lack of textual, historical, or equitable reasons to graft a discovery rule onto the statute of limitations of \u00a7 2462, we decline to do so.\u201d) (quoting Amy v. Watertown (No. 2), 130 U.S. 320, 324 (1889)).<\/span> It is also consistent with the recent decision of the Eleventh Circuit in SEC v. Graham<\/em>, in which the court held that \u201cforfeiture\u201d is synonymous with, or includes, \u201cdisgorgement,\u201d therefore making disgorgement subject to the statute of limitations.13<\/a><\/sup>823 F.3d 1357, 1363 (11th Cir. 2016).<\/span> Accordingly, in Kokesh v. SEC<\/em>, the Supreme Court should reverse the Tenth Circuit\u2019s decision and hold that the statute of limitations categorically applies to actions seeking confiscation of funds for past regulatory infractions, regardless of whether the government seeks the funds through forfeiture or disgorgement.<\/p>\n

II. <\/strong>Circuit Split on the Application of Statutes of Limitations to Regulatory Enforcement Suits Seeking Disgorgement<\/strong><\/h6>\n

A. The Statute of Limitations<\/em><\/p>\n

Section 2462 provides that claims the government seeks to bring against a party for the enforcement of a civil \u201cfine, penalty, or forfeiture, pecuniary or otherwise\u201d must be commenced within five years of the date of the claim\u2019s accrual.14<\/a><\/sup>28 U.S.C. \u00a7 2462 (2012).<\/span> For the purposes of \u00a7 2462, the weight of authority holds that the date when the claim first accrues is the date of the underlying violation, not the date of the final administrative order assessing a penalty.15<\/a><\/sup>See, e.g., United States v. Core Labs., Inc., 759 F.2d 480, 482 (5th Cir. 1985) (relying on holdings of the Second, Third, Sixth, and Ninth Circuits to conclude that \u201c[t]he current Sec. 2462 is derived from predecessor statutes dating from 1799. The statutes have produced a respectable body of decisional law. A review of these cases clearly demonstrates that the date of the underlying violation has been accepted without question as the date when the claim first accrued, and, therefore, as the date on which the statute began to run.\u201d) (internal citations omitted); see also FEC v. Nat\u2019l Right to Work Comm., 916 F. Supp. 10, 13\u201315 (D.D.C. 1996); FEC v. Nat\u2019l Republican Senatorial Comm., 877 F. Supp. 15, 20 (D.D.C. 1995); United States v. Appling, 239 F. Supp. 185, 195 (S.D. Tex. 1965). But see United States v. Godbout-Bandal, 232 F.3d 637, 640 (8th Cir. 2000) (holding that where an act which authorizes the assessment of a civil penalty also provides for an administrative procedure for assessing that penalty, the statute of limitations period set out in \u00a7 2462 will not begin to run until that administrative process has resulted in a final determination); United States v. Meyer, 808 F.2d 912, 922 (1st Cir. 1987) (holding that when final assessment of an administrative penalty was a prerequisite to the bringing of an action to enforce that penalty, the statute of limitations did not begin to run until a final administrative decision had resulted as long as administrative proceedings had been seasonably initiated). The interpretation of the Eighth Circuit in Godbout-Bandal, adopting what was also the interpretation of the First Circuit in Meyer, see Godbout-Bandal, 232 F.3d at 640, was based on a concern that lawbreakers could evade punishment by malingering during an administrative enforcement proceeding. These decisions did not address the risk explained in Core Labs that such an interpretation would mean that the expiration of the limitations period was entirely within the control of the agency and would not even start to run until the agency completed its administrative action. Core Labs, Inc., 759 F.2d at 482\u201383. That is, effectively, there was no statute of limitations beyond which a defendant would obtain repose from the threat of a government enforcement action. The Supreme Court\u2019s decision in Gabelli, summarized in the text above, recently viewed the issue through a different lens that is in tension with the interpretations of the First and Eighth Circuits. See generally Gabelli v. SEC, 133 S. Ct. 1216 (2013). The D.C. Circuit also recently held that there is a presumption that a statute of limitations applies and, quoting Chief Justice Marshall in Adams v. Woods, 6 U.S. 336, 342 (1805), noted that the absence of a statute of limitations would be \u201crepugnant to the genius of our laws.\u201d See PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 50 (D.C. Cir. 2016), reh\u2019g granted, No. 15-1177, 2017 WL 631740 (D.C. Cir. Feb. 16, 2017) (citing Adams v. Woods, 6 U.S. 336, 342 (1805), to reject a federal agency\u2019s argument that no statute of limitations applied to its enforcement action).<\/span><\/p>\n

In 2013, the Supreme Court had occasion to survey the history of \u00a7 2462 in Gabelli v. SEC<\/em>.16<\/a><\/sup>Gabelli, 133 S. Ct. at 1224. The precise issue addressed in this Article, that provision\u2019s application to disgorgement, was not before the court.<\/span> The Court noted that \u00a7 2462, alongside its predecessor from the 1830s, \u201csets a fixed date when exposure to the specified [g]overnment enforcement efforts ends, advancing \u2018the basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff\u2019s opportunity for recovery and a defendant\u2019s potential liabilities.\u2019\u201d17<\/a><\/sup>Id. at 1221 (quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)).<\/span> Such statutes \u201care intended to \u2018promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.\u2019\u201d18<\/a><\/sup>See id. (quoting R.R. Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342, 348\u201349 (1944)).<\/span> This provides \u201csecurity and stability to human affairs,\u201d and such statutes are \u201cvital to the welfare of society.\u201d19<\/a><\/sup>See id. (quoting Wood v. Carpenter, 101 U.S. 135, 139 (1879)).<\/span> As the Court observed in Gabelli<\/em>, \u201ceven wrongdoers are entitled to assume that their sins may be forgotten.\u201d20<\/a><\/sup>Id. (quoting Wilson v. Garcia, 471 U.S. 261, 271 (1985)).<\/span><\/p>\n

Several key principles appear in this exposition. First, the purpose of statutes of limitations includes fixing a date after which the potential defendants in government enforcement actions may obtain \u201crepose,\u201d that is, certain knowledge that their \u201cexposure to the specified [g]overnment enforcement effort ends.\u201d21<\/a><\/sup>See id.<\/span> Second, such statutes \u201cpromote justice\u201d by preventing \u201csurprises through the revival of claims that have been allowed to slumber.\u201d22<\/a><\/sup>See id. (quoting R.R. Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342, 348\u201349 (1944)).<\/span> The particular focus of this Article is the potentially unjust surprise of the revival of stale claims by the government<\/em>. Third, statutes of limitations recognize that claims brought beyond the limitations period pose a practical obstacle to the courts\u2019 fact-finding function due to lost evidence, faded memories, and missing witnesses. A court\u2019s inability to accurately determine the facts necessarily interferes with its ability to reach the correct and just result. Fourth, the Court in Gabelli <\/em>emphasized the importance of this interest in certainty and justice, holding that statutes of limitations provide \u201csecurity and stability to human affairs\u201d23<\/a><\/sup>Id. (quoting Wood v. Carpenter, 101 U.S. 135, 139 (1879)).<\/span> and that they are \u201cvital to the welfare of society\u201d24<\/a><\/sup>Id. (quoting Wood v. Carpenter, 101 U.S. 135, 139 (1879)).<\/span> notwithstanding that in some cases they may benefit those who may have violated a law.<\/p>\n

All the justifications identified by the Court apply with full force to any cause of action and not less so depending on how the government characterizes the remedy sought. The Court gave no indication that any of these justifications would be diminished based on the historical origin of the remedy, the theoretical government motivation, or the severity of the impact on the particular defendant.<\/p>\n

The importance of statutes of limitations to the American system of laws was recognized early in our country\u2019s jurisprudence, and remains vital to this day. The D.C. Circuit recently responded to a federal agency\u2019s assertion that its enforcement power was unconstrained by any statutes of limitations:<\/p>\n

The 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. . . . As Chief Justice Marshall stated, allowing parties to sue \u2018at any distance of time\u2019 would be \u2018utterly 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.\u201925<\/a><\/sup>See PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 50 (D.C. Cir. 2016), reh\u2019g granted, No. 15-1177, 2017 WL 631740 (D.C. Cir. Feb 16, 2017) (quoting Adams v. Woods, 6 U.S. 336, 342 (1805)) (rejecting the agency\u2019s argument that no statute of limitations applied to its enforcement action).<\/span><\/p>\n

B. Federal Agency Actions for Disgorgement for Time-Barred Claims in Federal Courts<\/em><\/p>\n

Federal agencies routinely seek disgorgement of ill-gotten gains by characterizing it as an equitable remedy in civil enforcement cases filed in district courts.26<\/a><\/sup>See, e.g., Brief of the Petitioner at 19, SEC v. First Pac. Bancorp, 142 F.3d 1186, 1191 (9th Cir. 1998) (No. 96-56687), 1997 WL 33545458; Brief of the Petitioner at 34, SEC v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997) (No. 96-5401), 1996 WL 33649983 (quoting SEC v. First City Fin. Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989)).<\/span> Although the U.S. Federal Trade Commission,27<\/a><\/sup>See, e.g., Complaint \u00b6\u00b6 46, 50, FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (S.D.N.Y. Apr. 20, 2015) (No. 15-cv-3031).<\/span> the Commodity Futures Trading Commission,28<\/a><\/sup>See, e.g., Complaint at 50, CFTC v. Optiver US, LLC, 2008 WL 2915421 (S.D.N.Y. July 24, 2008) (No. 08-06560), http:\/\/www.cftc.gov\/idc\/groups\/public\/@lrenforcementactions\/documents\/legalpleading\/enfoptiverus complaint 072408.pdf.<\/span> the Federal Election Commission,29<\/a><\/sup>See, e.g., FEC v. Craig for U.S. Senate, 816 F.3d 829 (D.C. Cir. 2016).<\/span> and the SEC all have pursued disgorgement in enforcing the laws and regulations under their charge, the SEC avails itself of the remedy especially frequently and has aggressively litigated the issue.30<\/a><\/sup>The SEC has statutory authority to pursue a range of remedies against individuals and entities that violate securities laws. Over the decades since the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, courts have regularly granted disgorgement as an ancillary remedy in SEC enforcement actions. See, e.g., SEC v. Whittemore, 659 F.3d 1, 4 (D.C. Cir. 2011).<\/span><\/p>\n

Federal agencies, such as the SEC, have pursued disgorgement after the expiration of the statute of limitations on the theory that disgorgement is inherently equitable and thus not subject to \u00a7 2462.31<\/a><\/sup>See, e.g., Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir. 2010); SEC v. Rind, 991 F.2d 1486, 1492\u201393 (9th Cir. 1993).<\/span> The jurisprudence and outcomes of several such cases are far from consistent.<\/p>\n

C. Inconsistent Judicial Approaches to Disgorgement and \u00a7 2462 Statute of Limitations<\/em><\/p>\n

1. Courts Holding That Disgorgement is Categorically Exempted from the Statute of Limitations<\/p>\n

In the past, courts and administrative tribunals have tended to agree with agencies\u2019 contentions that disgorgement may be characterized as an equitable remedy in circumvention of the statute of limitations.32<\/a><\/sup>See, e.g., SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989) (holding that a disgorgement order was equitable and lawful because the amount of illegal profits could not be determined and future harm was likely to occur); see also SEC v. First Pac. Bancorp, 142 F.3d 1186 (9th Cir. 1998); SEC v. Hughes Capital Corp., 124 F.3d 449 (3d Cir. 1997).<\/span> Several courts accept the agencies\u2019 argument that if the government simply requests confiscation of the defendant\u2019s funds by pleading the remedy of disgorgement rather than the remedy of forfeiture, the court\u2019s jurisdiction is not bound by the statute of limitations. This interpretation relies on the premise that the statute of limitations is itself categorically limited to \u201cpunitive\u201d remedies rather than \u201cremedial\u201d remedies and that by pleading the requested confiscation as disgorgement rather than forfeiture, the requested remedy is not punitive and thus not subject to the statute of limitations.33<\/a><\/sup>See First City Fin. Corp., 890 F.2d at 1231.<\/span><\/p>\n

For example, in SEC v. Kokesh<\/em>, the appeal of which is currently pending before the Supreme Court, the Tenth Circuit held that \u201cdisgorgement is not a penalty because it is remedial,\u201d in reliance on its prior conclusion that disgorgement belongs to those equitable remedies that \u201csanction<\/em> past conduct.\u201d34<\/a><\/sup>834 F.3d 1158, 1164 (10th Cir. 2016) (quoting United States v. Telluride Co., 146 F.3d 1241, 1247 (10th Cir. 1998) (emphasis added)).<\/span> Interestingly, the plain meaning of \u201csanction\u201d is to penalize when used in that context.35<\/a><\/sup>Sanction, Black\u2019s Law Dictionary (10th ed. 2014) (\u201cA provision that gives force to a legal imperative by either rewarding obedience or punishing disobedience\u201d or \u201cA penalty or coercive measure that results from failure to comply with a law, rule or order. . . . Essentially, a shortened version of punitive sanction\u201d).<\/span> Further, although the Tenth Circuit noted that disgorgement must be \u201cproperly applied\u201d so as not to \u201cinflict punishment\u201d and \u201c[leave] the wrongdoer in the position he would have occupied had there been no misconduct,\u201d it also paradoxically concluded that \u201cthere is nothing punitive about requiring a wrongdoer to pay for all the funds he caused to be improperly diverted to others as well as to himself.\u201d36<\/a><\/sup>Kokesh, 834 F.3d at 1164\u201365.<\/span> This is true even if he never controlled those funds, and the Court analogized such disgorgement (to the U.S. Treasury) to compensation paid to a victim by a tortfeasor.37<\/a><\/sup>Id.<\/span> And although the Tenth Circuit stated that under the non-punitive theory of disgorgement, it \u201cjust leaves the wrongdoer \u2018in the position he would have occupied had there been no misconduct,\u2019\u201d it held that the disgorgement order in Kokesh<\/em> could nonetheless be imposed on an insolvent elderly person with \u201cno prospect of his restoring the gains he received.\u201d38<\/a><\/sup>Id. (quoting Restatement (Third) of Restitution and Unjust Enrichment \u00a7 51(4) (Am. Law Inst. 2010)).<\/span><\/p>\n

Similarly, in SEC v. Jones<\/em>, the district court concluded that the primary purpose of the SEC\u2019s request to have $109,004,551 of the defendants\u2019 funds transferred to the U.S. Treasury was to deter them from continued violations by depriving them of their gains from the alleged violations.39<\/a><\/sup>476 F. Supp. 2d 374 (S.D.N.Y. 2007).<\/span> The court concluded that because, in the Second Circuit, this asserted public protection purpose was considered remedial rather than punitive, the statute of limitations did not apply.40<\/a><\/sup>Id. at 380\u201381.<\/span> The Ninth Circuit also has held that SEC claims for disgorgement are not subject to any statute of limitations.41<\/a><\/sup>See SEC v. Rind, 991 F.2d 1486, 1490\u201393 (9th Cir. 1993), cert. denied, 510 U.S. 963 (1993).<\/span><\/p>\n

The D.C. Circuit, which plays a significant role in informing federal agencies\u2019 understanding of their authority, has employed a similar rationale to that of the Second Circuit but has not yet resolved this precise issue. Generally, the D.C. Circuit does not interpret disgorgement as a penalty so long as it is causally related to the alleged violation. In theory, disgorgement restores the status quo<\/em> by depriving violators of ill-gotten gains and is thus remedial rather than punitive.42<\/a><\/sup>See Zacharias v. SEC, 569 F.3d 458, 473 (D.C. Cir. 2010); see also SEC v. Bilzerian, 29 F.3d 689, 697 (D.C. Cir. 1994).<\/span> In Riordan v. SEC<\/em>, however, the court found the application of this doctrine to be questionable in cases where the disgorgement is to the government acting purely in its role as law enforcer, noting \u201cit could be argued that disgorgement is a kind of forfeiture covered by \u00a7 2462, at least where the sanctioned party is disgorging profits not to make the wronged party whole, but to fill the federal government\u2019s coffers.\u201d43<\/a><\/sup>Riordan v. SEC, 627 F.3d 1230, n.1 (D.C. Cir. 2010); see also Brief for the Respondent on Petition for Writ of Certiorari at 11, Kokesh v. SEC, 137 S. Ct. 810 (2017) (No. 16-529), 2016 WL 7210497 (emphasis added) (\u201c[The SEC states that it] is currently impeded by the decision in [SEC v. Graham, 823 F.3d 1357, 1359 (11th Cir. 2016)] from obtaining the full disgorgement remedies to which it is entitled.\u201d).<\/span> Significantly, the panel concluded that the D.C. Circuit has never expressly considered that scenario in any matter where it found that there was no statute of limitations for disgorgement actions.44<\/a><\/sup>Riordan, 627 F.3d at 1234. The United States District Court for the District of Columbia previously concluded the statute of limitations did not bar equitable relief available under the Federal Election Campaign Act, including injunctive relief, but the type of injunctive relief was not specified. Moreover, the government did not represent that it was seeking disgorgement, and the Court did not specifically address disgorgement. FEC v. Nat\u2019l Republican Senatorial Comm., 877 F. Supp. 15, 20\u201321 (D.D.C. 1995).<\/span><\/p>\n

The Riordan<\/em> panel\u2019s comment suggests that the D.C. Circuit could distinguish disgorgement to the government as the wronged party in a transaction from disgorgement to the U.S. Treasury in the course of an agency law enforcement action. The latter case is difficult to distinguish factually and doctrinally from a government penalty or forfeiture, which is subject to the statute of limitations.<\/p>\n

2. Exception to the Statute of Limitations Depending on the Individual Defendant’s Circumstances<\/p>\n

Another approach to determining whether disgorgement is legal or equitable, and thus whether to apply or avoid the statute of limitations, is to analyze the factual circumstances unique to the individual defendant and the government\u2019s intent in seeking the remedy. The object of the analysis is to determine whether the remedy sought, including disgorgement, is remedial in nature and not punitive\u2014and thus not subject to the statute of limitations.<\/p>\n

For example, in SEC v. Wyly<\/em>, the District Court for the Southern District of New York concluded that if the government seeks disgorgement after the expiration of the statute of limitations, it has the burden of proving \u201ca realistic likelihood of recurrence.\u201d45<\/a><\/sup>SEC v. Wyly, 950 F. Supp. 2d 547, 558 (S.D.N.Y. 2013).<\/span> The factors in the analysis include whether the defendant has been found liable for illegal conduct, the degree of the defendant\u2019s intent, whether the defendant\u2019s violation was an isolated occurrence, whether the defendant maintains that he or she was blameless, and whether future violations by the defendant could be anticipated.46<\/a><\/sup>Id. at 558\u201359.<\/span> The analysis in Wyly<\/em> is also consistent with the fact-based analysis in Johnson v. SEC<\/em>, which sought to determine whether the requested injunctive relief was punitive (and therefore barred by the statute of limitations) or remedial (and thus not barred by the statute of limitations). The court did this by examining whether the remedy was \u201cbackward-looking\u201d and thus punitive, or \u201cforward-looking\u201d and thus remedial.47<\/a><\/sup>Johnson v. SEC, 87 F.3d 484, 488\u201390 (D.C. Cir. 1996). Some courts emphasize the defendant-specific impacts. See, e.g., SEC v. Bartek, 484 F. App\u2019x 949, 957 (5th Cir. 2012).<\/span> According to this theory, a confiscation arising from an action in response to a violation and intended as a consequence for that past violation (and thus \u201cbackward-looking\u201d) is by nature penal and thereby limited by the statute. In contrast, a confiscation intended to prevent the defendant\u2019s future violations (and thus \u201cforward-looking\u201d) is by nature remedial and thereby not limited by the statute. In one such case, the court noted the risk that, under this doctrine, the government would evade the statute of limitations simply by strategically pleading the remedy sought.48<\/a><\/sup>See United States v. U.S. Steel Corp., 966 F. Supp. 2d 801, 810\u00ad\u201311 (N.D. Ind. 2013) (\u201c[T]he government can\u2019t get around . . . [\u00a7] 2462 just by slapping the word \u2018injunction\u2019 on a claim that is functionally really a penalty.\u201d).<\/span><\/p>\n

3. Disgorgement Categorically Subject to the Statute of Limitations<\/p>\n

In response to the government\u2019s argument that the statute of limitations does not bar a claim if the remedy sought is pleaded as disgorgement rather than forfeiture, parties have begun to argue that disgorgement is in fact one type of \u201cforfeiture,\u201d and thus barred by the plain language of \u00a7 2462.<\/p>\n

In SEC v. Graham<\/em>, the SEC filed a civil enforcement action alleging that a real estate development company sold investments that were in fact unregistered securities using marketing that contained false and misleading statements.49<\/a><\/sup>21 F. Supp. 3d 1300, 1302\u201303 (S.D. Fla. 2014).<\/span> The SEC sought, among other things, disgorgement of the profits from the allegedly noncompliant transactions that occurred beyond the statute of limitations. The district court held that the text of \u00a7 2462 applies to disgorgement because \u201crequiring defendants to relinquish money and property\u00a0.\u00a0.\u00a0. can truly be regarded as nothing other than a forfeiture (both pecuniary and otherwise), which remedy is expressly covered by \u00a7 2462.\u201d50<\/a><\/sup>Id. at 1311.<\/span> The Court explained that \u201c[t]o hold otherwise would be to open the door to [g]overnment plaintiffs\u2019 ingenuity in creating new terms for the precise forms of relief expressly covered by the statute in order to avoid its application,\u201d and this \u201cwould make the [g]overnment\u2019s reach to enforce such claims akin to its unlimited ability to prosecute murderers and rapists.\u201d51<\/a><\/sup>Id. at 1310\u201311.<\/span><\/p>\n

The SEC appealed the district court\u2019s order, \u201carguing that \u00a7 2462 is nonjurisdictional and that the injunctive and declaratory relief and disgorgement it sought were not subject to \u00a7 2462\u2019s time bar.\u201d52<\/a><\/sup>See SEC v. Graham, 823 F.3d 1357, 1359 (11th Cir. 2016).<\/span> In a published opinion, the Eleventh Circuit rejected the SEC\u2019s argument and agreed with the district court that \u201cfor the purposes of \u00a7 2462[,] forfeiture and disgorgement are effectively synonyms; \u00a7 2462\u2019s statute of limitations applies to disgorgement.\u201d53<\/a><\/sup>Id. at 1363.<\/span> Comparing the dictionary definitions, the court found \u201cno meaningful difference in the definitions of disgorgement and forfeiture.\u201d54<\/a><\/sup>Id.<\/span> The court also quoted a Supreme Court decision to support this interpretation: \u201cForfeitures serve a variety of purposes, but are designed primarily to confiscate property used in violation of the law, and to require disgorgement of the fruits of illegal conduct.\u201d55<\/a><\/sup>Id. (quoting United States v. Ursery, 518 U.S. 267, 284 (1996)).<\/span> The Eleventh Circuit in Graham<\/em> thus held \u201cthat for the purposes of \u00a7 2462 the remedy of disgorgement is a \u2018forfeiture,\u2019 and \u00a7 2462\u2019s statute of limitations applies.\u201d56<\/a><\/sup>Id.<\/span> The SEC argued that the words held different meanings because the scope of the definition of forfeiture encompassed more than just disgorgement, but the court rejected this contention:<\/p>\n

[E]ven under the definitions the SEC puts forth, disgorgement is imposed as redress for wrongdoing and can be considered a subset of forfeiture.\u00a0.\u00a0.\u00a0. We find no indication that in enacting \u00a7 2462\u2019s widely applicable statute of limitations, Congress meant to adopt the technical definitions of forfeiture and disgorgement the SEC urges over the words\u2019 ordinary meanings. \u2018Had Congress wished unique or specialized meanings to attach to any of these terms, it readily could have taken the obvious and usual step either of including a specialized meaning in the definitions section of the statute or by using clear modifying language in the text of the statute.\u2019\u00a0.\u00a0.\u00a0.\u00a0Particularly because \u00a7 2462 applies to a wide variety of agency actions and contexts, we are loath to adopt the technical definition that the SEC promotes.57<\/a><\/sup>Id. at 1364 (quoting Consol. Bank, N. A. v. U.S. Dep\u2019t of the Treasury, 118 F.3d 1461, 1464 (11th Cir. 1997)).<\/span><\/p>\n

Consequently, the court held that claims for disgorgement are subject to, and may be barred by, the statute of limitations in \u00a7 2462.58<\/a><\/sup>Curiously, in its brief before the Supreme Court, the SEC stated that it \u201cis currently impeded by the decision in Graham from obtaining the full disgorgement remedies to which it is entitled.\u201d Brief for the Respondent at 11, Kokesh v. SEC, 137 S. Ct. 810 (2017) (No. 16-529) (emphasis added). Interestingly, but beyond the scope of this Article, the court in Graham also held that the SEC\u2019s claim for declaratory relief was a \u201cpenalty\u201d subject to and barred by the statute of limitations. Graham, 823 F.3d at 1362\u201363 (holding that the declaratory relief sought by the SEC was a penalty subject to \u00a7 2462 because \u201c[a] declaration of liability goes beyond compensation and is intended to punish because it serves neither a remedial nor a preventative purpose; it is designed to redress previous infractions rather than to stop any ongoing or future harm\u201d). Separately, it concluded that it was settled law that a claim for the particular type of injunction the SEC sought was not barred by the statute of limitations because it was \u201cforward-looking.\u201d Id. at 1362. The court did not determine whether the statute of limitations was jurisdictional or merely an affirmative defense. Id. at 1360 n.1; see also John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 133\u201334 (2008) (discussing whether time bars are jurisdictional or constitute an affirmative defense).<\/span><\/p>\n

III. <\/strong>Critical Analysis of the Three Paradigms<\/strong><\/h6>\n

A. Defects in a Doctrine Categorically Exempting Disgorgement from the Statute of Limitations<\/em><\/p>\n

A bright-line categorical exemption has the virtue of simplicity and predictability, which would minimize the time and effort required by government counsel, defense counsel, and the courts to find and apply the law. There are several deficiencies in this theory, however.<\/p>\n

An interpretation that actions for disgorgement are not bound by the statute of limitations is premised on an assumption that, when the government uses the civil judicial system to enforce alleged violations of federal regulations, it should be treated like any private plaintiff in a common civil suit and thus enjoy the full range of the courts\u2019 equitable powers\u2014including the court\u2019s potential discretion to circumvent the statute of limitations.<\/p>\n

The Supreme Court in Gabelli<\/em> v. SEC <\/em>rejected this equivalence argument.59<\/a><\/sup>133 S. Ct. 1216, 1222 (2013).<\/span> The Court distinguished government agencies from private parties, noting that regulatory agencies have powers to proactively monitor and investigate matters within their jurisdiction, unlike private citizens.60<\/a><\/sup>Id.<\/span> Accordingly, the Court held that the government, unlike private parties, may not rely on a passive discovery rule to evade the five-year statute of limitations.61<\/a><\/sup>Id. at 1224.<\/span><\/p>\n

Because Congress may use statutes to both supersede the common law and delineate the jurisdiction of the courts, courts adopting a categorical exemption from the statute of limitations for actions pleaded as disgorgement may conflict with the prerogative of the legislative branch. And this categorical interpretation would allow federal agencies acting in the government\u2019s executive branch law enforcement capacity to invoke equity\u2014created to provide a refuge for the people from strict applications of the king\u2019s law\u2014to evade a limitation on the executive branch\u2019s power duly imposed by the people\u2019s elected representatives in the legislative branch. Accordingly, there may be constitutional infirmities in this interpretation. This danger has not escaped the Supreme Court\u2019s notice. In Gabelli<\/em>, the Court was concerned about exceeding its constitutional mandate even though it was merely interpreting the statute of limitations to determine when<\/em> a claim accrues to start the five-year clock: \u201cAs we held long ago, the cases in which \u2018a statute of limitation may be suspended by causes not mentioned in the statute itself\u00a0.\u00a0.\u00a0. are very limited in character, and are to be admitted with great caution; otherwise the court would [be] mak[ing] the law instead of administering it.\u2019\u201d62<\/a><\/sup>Id. (quoting Amy v. Watertown (No. 2), 130 U.S. 320, 324 (1889)) (quotations omitted).<\/span><\/p>\n

Furthermore, the theory that actions seeking disgorgement are categorically excluded from the statute of limitations is either tautological (disgorgement is not forfeiture because it is disgorgement), formalistic (a government confiscation pleaded as a forfeiture claim is time-barred but one pleaded as a disgorgement claim is not), or it depends on an academic supposition about the government\u2019s intent (that it pursues disgorgement to restore the status quo <\/em>or to protect the public rather than to punish the defendant) that is potentially inaccurate and unascertainable. This claimed per se<\/em> distinction from a punitive action without regard to the allegations or the defendant\u2019s circumstances is difficult to rationalize. It presumes that a government confiscation as a consequence of a law enforcement action is always equitable rather than punitive regardless of the nature of the violation, the government\u2019s actual purpose, and the impact on the defendant.<\/p>\n

This categorical interpretation also suggests that, notwithstanding the five-year statute of limitations applicable to federal agency actions seeking to confiscate a person\u2019s funds for an alleged regulatory violation through a forfeiture action, a court can permit an executive agency to confiscate those same funds at any time for the same violation if the remedy is characterized as disgorgement. This remedy does not compensate the government for an injury and is otherwise indistinguishable in both genesis and effect from a punitive law enforcement remedy. It is thus difficult to reconcile such an interpretation with the recent holdings of the Supreme Court and the D.C. Circuit, both of which emphasized the admonishment of Chief Justice Marshall that the absence of a statute of limitations would be \u201cutterly repugnant to the genius of our laws.\u201d63<\/a><\/sup>See id. at 1223 (quoting Adams v. Woods, 6 U.S. 336, 342 (1805)); PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 50 (D.C. Cir. 2016) (quoting Adams, 6 U.S. at 342).<\/span><\/p>\n

The government may also not be acting consistently when it asserts that disgorgement is an equitable remedy. The Internal Revenue Service (IRS) has taken an approach to disgorgement that largely aligns with the views of the Graham<\/em> court and contradicts the SEC\u2019s characterization of disgorgement actions as purely equitable: Generally speaking, taxpayers may not deduct forfeitures or penalties imposed as a result of a legal determination of liability.64<\/a><\/sup>See, e.g., Nacchio v. United States, 824 F.3d 1370, 1372 (Fed. Cir. 2016) (holding that a taxpayer could not take a deduction for forfeiture of insider trading profits to the government); King v. United States, 152 F.3d 1200, 1202 (9th Cir. 1998) (holding that a taxpayer could not deduct the forfeiture of drug profits to the FBI).<\/span> Under certain circumstances, however, a taxpayer may deduct payments if their purpose is compensatory or remedial.65<\/a><\/sup>See, e.g., Huff v. Comm\u2019r, 80 T.C. 804, 824 (1983) (quoting S. Pac. Transp. Co. v. Comm\u2019r, 75 T.C. 497, 652 (1980)) (distinguishing non-deductibility for civil penalties imposed to enforce a law and punish violators from deductibility under the federal tax code for civil penalties \u201cimposed to encourage prompt compliance with a requirement of the law, or as a remedial measure to compensate another party for expenses incurred as a result of the violation\u201d).<\/span> In a chief counsel advice document released in May 2016, the IRS stated that disgorgement payments to the SEC in a corporate Foreign Corrupt Practices Act enforcement action were not tax-deductible, as the taxpayer could not prove that the disgorgement was intended to compensate the SEC for actual losses suffered.66<\/a><\/sup>Internal Revenue Serv., Office of Chief Counsel, Section 162(F) and Disgorgement to the SEC, (January 29, 2016), https:\/\/www.irs.gov\/pub\/irs-wd\/201619008.pdf.<\/span> This notion\u2014that the government deems disgorgement to be penal to allow it to tax disgorgement payments but deems disgorgement equitable to allow it to circumvent the statute of limitations\u2014creates additional doctrinal tension.<\/p>\n

In Kokesh v. SEC<\/em>, the Tenth Circuit disagreed with the Eleventh Circuit\u2019s holding in Graham<\/em>, summarized above, that \u00a7 2462 limits actions for disgorgement. The Tenth Circuit reasoned that \u201c[w]hen the term forfeiture <\/em>is linked in [\u00a7] 2462 to the undoubtedly punitive actions for a civil fine <\/em>or penalty<\/em>, it seems apparent that Congress was contemplating the meaning of forfeiture <\/em>in [a] historical sense.\u201d67<\/a><\/sup>834 F.3d. at 1166.<\/span> The Tenth Circuit concluded that by \u201cforfeiture,\u201d Congress meant a procedure to seize a person\u2019s property due to the property\u2019s involvement in an offense, even if \u201c[t]he owner of the seized property\u201d was \u201ccompletely innocent of any wrongdoing\u201d and regardless of the property\u2019s value in \u201crelation to any . . . gain to the owner.\u201d68<\/a><\/sup>Id.<\/span> As the court held, \u201c[t]he nonpunitive remedy of disgorgement does not fit in that company\u201d\u2014particularly given that \u201c[the court is] to construe [\u00a7] 2462 in the government\u2019s favor to avoid a limitations bar.\u201d69<\/a><\/sup>Id.<\/span><\/p>\n

Three aspects of the Tenth Circuit\u2019s response to Graham<\/em> bear scrutiny. First, the Tenth Circuit\u2019s view of \u201cforfeiture\u201d as something imposed regardless of guilt or innocence conflicts with the paradigmatic understanding of \u00a7\u00a02462 as applying solely to punitive remedies for a person\u2019s violations and, therefore, the lengths to which the government and courts\u2014including the Tenth Circuit\u2014have gone (as summarized in this Article) to analyze whether disgorgement is or is not punitive. If \u00a7\u00a02462 applies to non-punitive actions such as in rem<\/em> proceedings, as the Tenth Circuit concluded,70<\/a><\/sup>Id. at 1165\u201366.<\/span> then the case for also applying it to assertedly non-punitive disgorgement remedies is arguably stronger<\/em>. Second, the Tenth Circuit\u2019s acknowledgement that it was consciously favoring the government in the manner it construed \u00a7\u00a02462 undercuts the objectivity and reasonableness of its analysis as a whole.71<\/a><\/sup>Id. at 1166.<\/span><\/p>\n

Finally, the interpretation categorically exempting disgorgement from the statute of limitations provides no answers to those interests that the statute of limitations was created by Congress to protect. The Court in Gabelli <\/em>focused on the interest in \u201cjustice\u201d for potential \u201cwrongdoers,\u201d the evidentiary concerns complicating the judicial fact-finding function in stale claims, and the importance of the statute to societal welfare.72<\/a><\/sup>Gabelli v. SEC, 133 S. Ct. 1216, 1217\u201321 (2013) (noting that \u201cthe basic policies of all limitations provisions [are] repose, elimination of stale claims, and certainty about a plaintiff\u2019s opportunity for recovery and a defendant\u2019s potential liabilities\u201d); see also supra Part II.A.<\/span> Accordingly, it is not clear how courts may, consistent with Gabelli<\/em>, permit the government to circumvent the statute of limitations for regulatory violations in an otherwise stale claim<\/em> by strategically pleading the particular remedy<\/em> sought to vindicate that claim. This is even more true where, as here, the disgorgement remedy is materially indistinguishable from a remedy\u2014forfeiture\u2014plainly listed in the statute of limitations.73<\/a><\/sup>Id.<\/span><\/p>\n

B. Defects in Fact-Intensive Examinations of Government Intent and a Remedy’s Impact on Particular Defendants to Determine the Application of the Statute of Limitations<\/em><\/p>\n

An approach that requires courts to engage in a case-by-case examination of the government\u2019s intent in pursuing an action for disgorgement, as well as the particular impact on an individual defendant, offers little comfort to either the government or prospective defendants because each must suffer the burdens of contested litigation after the five-year statute of limitations has run before learning whether or not disgorgement is possible. Individuals who cannot afford to litigate against an expert federal agency with a virtually unlimited litigation budget necessarily are tempted to capitulate\u2014hardly an outcome consistent with equity. And because the test turns on defendant-specific circumstances (and may produce a different settlement calculus in each case), there is the real possibility that the application or non-application of the statute of limitations, and thus the regulatory consequences for the same violation, will differ from defendant to defendant. Accordingly, this is a costly and time-consuming approach, and a potentially inequitable one, which may not produce predictable outcomes. Like the per se<\/em> approach analyzed above, it also thwarts the benefits\u2014to courts, defendants, and society\u2014that compelled Congress to enact the statute of limitations.74<\/a><\/sup>See id.<\/span><\/p>\n

In addition to the burdens this imposes on the government, defendants, courts, and society, this interpretation\u2014like the categorical exception discussed above\u2014reserves for the courts the power to exempt executive agency actions from the protections created by the democratically enacted statute of limitations.<\/p>\n

C. Disgorgement Actions Categorically Subject to the Statute of Limitations<\/em><\/p>\n

This interpretation has the benefit of clarity and simplicity, like the categorical exemption from the statute of limitations described above. Accordingly, it allows potential litigants to be certain of the statute\u2019s application and the outcome of the analysis. Unlike the first two approaches, the third approach does not reserve for judges the right to disregard the elected legislature\u2019s judgment\u2014one that balances many interests on a subject squarely within the legislature\u2019s province. And it avoids the spectacle of courts\u2014under the guise of equity\u2014allowing the executive to pursue members of the public despite a statute specifically designed to protect people from the injustice of extended liability for stale allegations. Finally, it protects courts from having to resolve stale claims based on faded memories and incomplete evidence.<\/p>\n

The substantive argument for this interpretation is also compelling. As stated above, \u201cforfeiture\u201d\u2014expressly barred by \u00a7 2462 for claims beyond the statute of limitations\u2014is defined as \u201cthe loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty.\u201d75<\/a><\/sup>Forfeiture, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> In the regulatory enforcement actions at issue here, the government is undeniably seeking to deprive the defendant of property \u201cbecause of a crime, breach of obligations, or neglect of duty.\u201d The logic of the Graham<\/em> courts76<\/a><\/sup>SEC v. Graham, 21 F. Supp. 3d 1300, 1302\u201303 (S.D. Fla. 2014), aff\u2019d, SEC v. Graham, 823 F.3d 1357, 1359 (11th Cir. 2016).<\/span> is forceful: calling a functionally identical remedy \u201cdisgorgement\u201d does not change the fact that the defendant is being deprived of property because of a breach of the law\u2014that is, suffering a \u201cforfeiture\u201d subject to the statute of limitations. In other words, how one defines \u201cdisgorgement\u201d does not alter the applicable definition of \u201cforfeiture,\u201d which would encompass any such action and therefore subject it to \u00a7\u00a02462.<\/p>\n

The main cost of the Eleventh Circuit\u2019s interpretation that disgorgement is categorically subject to \u00a7\u00a02462 is the possibility that a lawbreaker whom an agency has failed to pursue within five years of an alleged violation will not face one possible claim. But the Supreme Court in Gabelli<\/em> explained that this is an acknowledged cost of a statute of limitations. Government agencies acting in their law enforcement capacities have investigatory powers that private litigants do not.77<\/a><\/sup>133 S. Ct. 1216, 1221 (2013).<\/span> This provides a diligent agency with the enhanced ability to avoid the loss of claims to the statute.78<\/a><\/sup>See id.<\/span><\/p>\n

IV. <\/strong>Application of Relevant Maxims of Equity<\/strong><\/h6>\n

Courts considering government agency requests to invoke the court\u2019s equitable powers to compel a defendant\u2019s disgorgement for violations otherwise barred by the statute of limitations may evaluate such requests using equitable maxims. To a limited extent, courts in jurisdictions that consider the totality of the circumstances to determine whether the disgorgement is punitive already do so sub silentio<\/em>. Courts not employing either of the categorical approaches could certainly use the maxims summarized below to evaluate the government\u2019s request.<\/p>\n

As terms of art, the words \u201cequity\u201d and \u201cequitable\u201d elude precise definition. In the lay sense, \u201cequitable\u201d is commonly understood to mean \u201cfair\u201d or \u201cproportionate.\u201d79<\/a><\/sup>Equitable, Oxford English Dictionary (3d rev. ed. 2010).<\/span> In the legal sense, however, \u201cequitable\u201d generally means a court\u2019s ability to use its own discretion to further justice on a case-by-case basis, rather than adhering to strict legal rules.80<\/a><\/sup>See, e.g., Kevin C. Kennedy, Equitable Remedies and Principled Discretion: The Michigan Experience, 74 U. Det. Mercy L. Rev. 609, 609 (Summer 1997).<\/span><\/p>\n

Historically, \u201cequity\u201d refers to the system of doctrines, rules, and remedies initially developed by the English Court of Chancery and currently applied by American courts sitting in equity (as opposed to in law, where a court cannot furnish legal relief if the law does not allow it to do so).81<\/a><\/sup>Equity, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> In essence, equity\u2019s guiding conviction is that where there is a right, there is a remedy,82<\/a><\/sup>See, e.g., United States v. Loughrey, 172 U.S. 206, 232 (1898) (\u201cThe maxim, \u2018Ubi jus, ibi remedium,\u2019 lies at the very foundation of all systems of law . . .\u201d).<\/span> and hence the principles of equity can be used to ensure justice for a wronged party where the law fails to specify the form of relief.<\/p>\n

The more discretionary nature of equitable remedies lies in contrast to that of legal remedies, which are set by statute. Legal remedies take effect ex post<\/em>, and seek to provide the plaintiff with compensatory relief that puts her in the \u201crightful position\u201d that she would have been in absent the wrong suffered.83<\/a><\/sup>Remedy, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> Legal remedies generally provide for substitutionary relief, with the valuation of the judgment based on the fact finder\u2019s assessment of the plaintiff\u2019s loss. In contrast, equitable remedies can act ex ante<\/em> (as with injunctions and declaratory judgments), and may provide the plaintiff with restitutionary relief, which is measured by the wrongdoing defendant\u2019s gain rather than the plaintiff\u2019s loss.84<\/a><\/sup>Restitution, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> Equitable remedies may also provide for specific performance, which is extraordinary rather than ordinary. Equitable judgment is a matter of reasonable judicial discretion, rather than a matter of right or of law.85<\/a><\/sup>See, e.g., Zygmunt J.B. Plater, Statutory Violations and Equitable Discretion, 70 Calif. L. Rev. 524, 591 (1982).<\/span><\/p>\n

Equity jurisprudence, although tailored to individual cases, is not completely open ended. Courts sitting in equity are assumed to be acting in good conscience, but they may not grant equitable relief in the absence of a statute or clear precedent that establishes the right to the remedy requested.86<\/a><\/sup>See, e.g., Kennedy, supra note 79, at 614.<\/span> Thus, when judges seek to determine the appropriate form of equitable relief, they must first consult precedent, determine the principles applicable to the case at bar, and then tailor these principles to the facts at hand in order to provide the ideal form of relief. Professor Karl Llewellyn summarized this process in his observation that the decisions of equity judges should have \u201creasonable regularity.\u201d87<\/a><\/sup>Karl Llewellyn, The Common-Law Tradition: Deciding Appeals 216 (1960).<\/span> In exercising judicial discretion, courts should apply general maxims of equity to the facts presented by the particular case.<\/p>\n

The maxims of equity, developed over centuries of jurisprudence, offer a great deal of insight into the equitable discretion of modern courts and provide general parameters for judges sitting in equity. Although this Article does not endeavor to provide a comprehensive overview of the maxims of equity, it will address the applicability of three key equitable principles to the current tension inherent in the federal courts\u2019 treatment of the remedy of disgorgement: first, equitable remedies are not punitive; second, equity is a form of \u201cextraordinary\u201d relief; and third, equity aids the vigilant, not those that slumber on their rights. These maxims should inform a court\u2019s consideration of government requests for courts to exercise their equitable powers for claims otherwise barred by the statute of limitations.<\/p>\n

A. Equitable Remedies are not Punitive<\/em><\/p>\n

Although the disgorgement of ill-gotten gains was traditionally considered an equitable remedy (rooted in restitution and measured by the defendant\u2019s profit, rather than the plaintiff\u2019s losses), disgorgement only maintains its equitable status to the extent that it attends an unjust enrichment claim.88<\/a><\/sup>See SEC v. Penn Central Co., 425 F. Supp. 593, 599 (E.D. Pa. 1976) (\u201cDisgorgement depends on the proper invocation of equity jurisdiction.\u201d).<\/span> Otherwise, disgorgement can effectively operate as a penalty and is a legal, punitive remedy rather than an equitable one.89<\/a><\/sup>See SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978) (\u201cDisgorgement is remedial and not punitive. The court\u2019s power to order disgorgement extends only to the amount with interest by which the defendant profited from his wrongdoing. Any further sum would constitute a penalty assessment.\u201d).<\/span> Additionally, in the context of securities law enforcement actions (wherein many claims for disgorgement arise), courts are compelled to evaluate the economic circumstances of the defendant to determine if there are any losses that should be applied to offset the gains or profits the defendant incurred as a result of the wrongful act.90<\/a><\/sup>See Elaine Buckberg & Frederick C. Dunbar, Disgorgement: Punitive Demands and Remedial Offers, 63 Bus. L. 347, 352 (Feb. 2008).<\/span> If such losses exist, the amount disgorged may be reduced or eliminated because the defendant\u2019s wrongdoing did not improve her economic position.91<\/a><\/sup>See id.<\/span> In such cases, unjust enrichment is absent, and equity requires the elimination or reduction of disgorgement.92<\/a><\/sup>See id.<\/span><\/p>\n

1. Equity is Extraordinary Relief Available Only Where Legal Remedies are Inadequate<\/p>\n

It is axiomatic that a court\u2019s equitable powers apply only when a plaintiff needs \u201cextraordinary\u201d relief; in other words, a court sitting in equity will not provide a remedy when the plaintiff already has an adequate remedy at law. Adequate legal remedies are available to regulatory agencies because they have the power to impose extensive penalties.93<\/a><\/sup>See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, sec. 929P, \u00a7 308, 124 Stat. 1376 (2010) (granting the SEC the power to seek civil penalties for violations); 52 U.S.C. \u00a7 30109(a)(6) (2012) (authorizing the Federal Election Commission to file suit for the imposition of civil penalties).<\/span> Accordingly, disgorgement to the U.S. Treasury may be a mere substitute for the plaintiff agency\u2019s legal remedies and, therefore, denied.<\/p>\n

Historically, equity foreclosed plaintiffs from bringing claims after the legal statute of limitations had run. Various state legislatures have codified this traditional rule by providing that the same limitations period applies to both legal and equitable actions, thus eliminating a court\u2019s equitable discretion to entertain a claim after the applicable statute of limitations has expired.94<\/a><\/sup>See Kennedy, supra note 80, at 622; see also Mich. Comp. Laws Ann. \u00a7 600.5815 (West 1987).<\/span> In states where the legislature has taken this view, prejudice to the defendant is thus presumed if the plaintiff brings an action for equitable relief beyond the limitations period.<\/p>\n

2. Equity Aids the Vigilant<\/p>\n

The maxims of equity also provide that \u201cequity aids the vigilant, not those who slumber on their rights.\u201d95<\/a><\/sup>See Henry J. McClintock, Handbook of the Principles of Equity 52 (2d ed. 1948).<\/span> This maxim embodies the equitable doctrine of laches, which provides that an individual seeking equitable relief must not delay in asserting her rights.96<\/a><\/sup>See id.<\/span> Laches is analogous to the legal rule embodied in various statutes of limitations, but differs in that statutes of limitations are concerned with the fact of delay, while \u201claches are concerned with the effects of delay.\u201d97<\/a><\/sup>See 1 Am. Jur. 2d Actions \u00a7 64 (2015).<\/span><\/p>\n

As a defense to an action in equity, laches seeks to avoid undue prejudice to the defendant due to the plaintiff\u2019s failure to bring a claim in a timely manner.98<\/a><\/sup>Laches, Black\u2019s Law Dictionary (10th ed. 2014).<\/span> The consequences to the defendant when a plaintiff sleeps on its rights are myriad: relevant evidence can disappear or be destroyed, witnesses can pass away, and memories can fade. McClintock aptly summarizes the equitable defense of laches as valid \u201c[w]here a party has unreasonably delayed the assertion of an equitable claim until the other party has acted, or the circumstances have changed, so as to result in prejudice because of the delay, equity will hold the party claiming the right to be guilty of laches, and will deny relief to him.\u201d99<\/a><\/sup>McClintock, supra note 94, at 71.<\/span><\/p>\n

3. The Use of Equity to Strengthen the Government’s Prosecutorial Powers<\/p>\n

It exacerbates the potential doctrinal incoherency for the judiciary to use its equity power, which was intended to protect the public from the unjust application of the law, to enable the executive to circumvent Congress\u2019s statutory limitation on the executive\u2019s power. As discussed previously in Part II, the Supreme Court in Gabelli<\/em> reasoned that courts should refrain from rescuing the government from its failure to initiate suit within the statute of limitations through exceptions not found in the statute itself. The Court in Gabelli <\/em>thus recognized that the government was not entitled to the benefit of the judicially created \u201cdiscovery rule,\u201d which operated \u201cto preserve the claims of victims who do not know they are injured and who reasonably do not inquire as to any injury.\u201d100<\/a><\/sup>133 U.S. 1216, 1222 (2013).<\/span> Such a rule is intended to protect private litigants, who should not be expected to be on constant alert regarding whether they have been defrauded by another party. In contrast, the mission of the SEC and other federal agencies is the enforcement of laws under their purview, which they fulfill using the government\u2019s deep coffers and vast prosecutorial powers to investigate violations of these laws.<\/p>\n

V. <\/strong>Conclusion<\/strong><\/h6>\n

Consistent with the holding of the Eleventh Circuit in Graham<\/em>, the rationale of the Supreme Court\u2019s decision in Gabelli,<\/em> and the decision of the D.C. Circuit in PHH<\/em>, there are several significant problems with courts\u2019 and agencies\u2019 interpretation that the statute of limitations does not apply to federal agency law enforcement actions seeking disgorgement of funds from a defendant to the U.S. Treasury, or that its application can only be resolved after a fact-intensive judicial inquiry. The plain text of the statute applies to forfeitures, which are indistinguishable from disgorgement in all material aspects. Furthermore, every purpose of the statute of limitations applies with equal force to actions for disgorgement. Regardless, insofar as circumvention of the statute depends on deeming disgorgement to be an equitable remedy, established maxims of equity also should operate to support the application of the statute of limitations to actions for disgorgement.<\/p>\n

Moreover, the constitutional prerogatives of Congress include the creation of laws for the executive branch to enforce and for the judicial branch to interpret. As the Supreme Court recognized in Gabelli<\/em>, it is problematic for courts to risk making their own law by allowing executive agencies to evade the statute of limitations. This potential error is compounded by the potential use of a court\u2019s equitable powers\u2014originally designed to protect people from the consequences of a strict application of the law\u2014to enable the government to circumvent a statutory limit on its prosecutorial powers. With respect to the statute of limitations contained in \u00a7\u00a02462, Congress explicitly recognized the importance of promoting justice by preventing stale claims and providing repose.<\/p>\n

When the Supreme Court addresses the circuit split discussed in this Article in the course of deciding Kokesh v. SEC<\/em>, there are several potential modes of analysis to resolve the issue. The Court should use the authorities described here to fulfill the line of reasoning that extends from its holding over two hundred years ago in Adams v. Woods<\/em> through its most recent expression in Gabelli<\/em>. Ultimately, whether the Court relies on the plain text of \u00a7 2642, congressional intent, or the maxims of equity, it should fulfill this line of reasoning by applying the statute of limitations to all agency civil law enforcement actions seeking to confiscate funds for disgorgement to the U.S. Treasury.<\/p>\n","protected":false},"excerpt":{"rendered":"

Download PDF Michael Columbo and Allison Davis I. Introduction At what point may a person rest assured that the government […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22],"tags":[],"ppma_author":[374],"class_list":["post-4349","post","type-post","status-publish","format-standard","hentry","category-home"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pgKEUK-189","jetpack-related-posts":[{"id":4657,"url":"https:\/\/journals.law.harvard.edu\/hblr\/an-introduction-to-californias-consumer-privacy-act\/","url_meta":{"origin":4349,"position":0},"title":"An Introduction to California\u2019s Consumer Privacy Act","author":"Harvard Law Development","date":"March 12, 2019","format":false,"excerpt":"In June of 2018, the California legislature passed the California Consumer Privacy Act of 2018, establishing a new system of privacy regulation that has never before been seen in the United States.\u00a0 Specifically, the provisions of the CCPA allow consumers five rights: (1) the right to know what personal information\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4364,"url":"https:\/\/journals.law.harvard.edu\/hblr\/trading-in-substitute-securities-liability-under-rule-10b-5\/","url_meta":{"origin":4349,"position":1},"title":"Trading in Substitute Securities: Liability Under Rule 10b-5","author":"ehansen","date":"May 16, 2017","format":false,"excerpt":"Download PDF Cody Donald I. Introduction A trade in a substitute security occurs when a trader with inside information, typically an employee, trades\u2014not in the securities of the company that is the subject and source of the information\u2014but in the securities of another company whose stock would be affected if\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4460,"url":"https:\/\/journals.law.harvard.edu\/hblr\/bullish-on-blockchain-examining-delawares-approach-to-distributed-ledger-technology-in-corporate-governance-law-and-beyond\/","url_meta":{"origin":4349,"position":2},"title":"Bullish on Blockchain: Examining Delaware\u2019s Approach to Distributed Ledger Technology in Corporate Governance Law and Beyond","author":"ehansen","date":"January 3, 2018","format":false,"excerpt":"Download PDF I. Introduction The buzz around blockchain is getting ever louder. Mergers & Acquisitions (M&A) activity in the blockchain technology sector rose 33.3% between Q2 2016 and Q2 2017, and approximately 80% of respondents to Bain & Company\u2019s 2017 survey of financial institution executives expect their organizations to begin\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/journals.law.harvard.edu\/hblr\/\/wp-content\/uploads\/sites\/87\/2018\/01\/Song-Figure-1.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/journals.law.harvard.edu\/hblr\/\/wp-content\/uploads\/sites\/87\/2018\/01\/Song-Figure-1.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/journals.law.harvard.edu\/hblr\/\/wp-content\/uploads\/sites\/87\/2018\/01\/Song-Figure-1.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/journals.law.harvard.edu\/hblr\/\/wp-content\/uploads\/sites\/87\/2018\/01\/Song-Figure-1.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":5041,"url":"https:\/\/journals.law.harvard.edu\/hblr\/strong-creditors-weak-owners-a-taxonomy-of-leveraged-finance-and-its-impact-on-corporate-governance\/","url_meta":{"origin":4349,"position":3},"title":"Strong Creditors, Weak Owners: A Taxonomy of Leveraged Finance and Its Impact on Corporate Governance","author":"cmajocha","date":"April 28, 2023","format":false,"excerpt":"I. Introduction This Article builds upon existing literature on controlling shareholders, financial intermediation and creditor governance (Part II) to analyze the mirroring setup between controlling and noncontrolling shareholders on the equity side, and private and public lenders on the debt side (Part III). It studies the dynamic interaction of these\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4493,"url":"https:\/\/journals.law.harvard.edu\/hblr\/sidestepping-the-rat-holes-investment-risk-and-securities-law\/","url_meta":{"origin":4349,"position":4},"title":"Sidestepping the Rat Holes: Investment Risk and Securities Law","author":"ehansen","date":"April 21, 2018","format":false,"excerpt":"Download PDF This Article presents a novel understanding of the purpose of federal securities laws as the management of investment risk. Those laws should be treated as a whole. When two rules, even under different statutes, address the same risk, they should be applied concomitantly. For example, broker-dealer regulation under\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4477,"url":"https:\/\/journals.law.harvard.edu\/hblr\/how-do-i-sell-my-crowdfunded-shares-developing-exchanges-and-markets-to-trade-securities-issued-by-start-ups-and-small-companies\/","url_meta":{"origin":4349,"position":5},"title":"How Do I Sell My Crowdfunded Shares? Developing Exchanges and Markets to Trade Securities Issued by Start-ups and Small Companies","author":"ehansen","date":"January 28, 2018","format":false,"excerpt":"Download PDF Governments worldwide are increasingly recognizing that assisting the development of start-ups and small to medium enterprises may be critical to fostering job creation and economic growth. As such, there is a concerted effort to rework securities regulation to encourage the funding of these businesses through innovative approaches such\u2026","rel":"","context":"In "Home"","block_context":{"text":"Home","link":"https:\/\/journals.law.harvard.edu\/hblr\/category\/home\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_sharing_enabled":true,"authors":[{"term_id":374,"user_id":6,"is_guest":0,"slug":"hlsjrnldev","display_name":"ehansen","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/e63e48e4d49784084ed809c915627ab9f38ce23b8f0aa540749aa9e907f6a18c?s=96&d=blank&r=g","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/posts\/4349","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/comments?post=4349"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/posts\/4349\/revisions"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/media?parent=4349"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/categories?post=4349"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/tags?post=4349"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/ppma_author?post=4349"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}