Nos. 96-1964 and 97-5255

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1996

JAMES A. MERRIAM, PETITIONER

v.

UNITED STATES OF AMERICA

HAROLD B. HAYES, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

WALTER DELLINGER
Acting Solicitor General

JOHN C. KEENEY
Acting Assistant Attorney
General

J. DOUGLAS WILSON
Attorney

Department of Justice
Washington, D.C. 20530-0001
(202)514-2217

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QUESTION PRESENTED

    Whether the Double Jeopardy Clause prohibits peti-
tioners' prosecution on charges of conspiracy and
fraud after they were debarred from the securities
industry based on the same events as those under-
lying the prosecution.

(I)

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TABLE OF CONTENTS

Opinions below . . . . 1
Jurisdiction . . . . 2
Statement . . . . 2
Argument . . . . 6
Conclusion . . . . 10

TABLE OF AUTHORITIES

Cases:

Bae v. Shalala, 44 F.3d 489 (7th Cir. 1995) . . . . 9
DiCola v. FDA, 77 F.3d 504(D.C. Cir. 1996) . . . .  8-9
Emory v. Texas State Board of Medical Examiners.
748 F.2d 1023 (5th Cir, 1984) . . . . 9
Hawker v. New York, 170 U. S. 189 (1898) . . . . 9
Helvering v. Mitchell, 303 U. S .391 (1938) . . . . 6, 8
Hudson v. United  States, 117 S. Ct. 1425(1997) . . . . 9
Manocchio v. Kusserow, 961 F.2d 1539(llth
Cir. 1992) . . . . 9
North Carolina v. Pearce, 395 U. S. 711(1969) . . . . 6
United States v. Bizzell, 921 F.2d 263(10th Cir.
1990) . . . . 8, 9
United States v. Borjesson, 92 F.3d 954(9th Cir.),
cert. denied, 117 S. Ct. 622(1996) . . . . 5, 7, 8
United States v. Dixon, 509 U.S.688 (1993) . . . . 6
United States v. Furlett, 974 F.2d 839(7th Cir.
1992) . . . . 4, 9
United States v. Glymph, 96 F.3d 722(4th Cir.
1996) . . . .
United States v. Halper, 490 U. S. 435 (1989) . . . . 4, 5, 6, 7
United States v. Hudson, 14 F.3d 536 (10th Cir.),
on remand, 879F. Supp. 1113 (W.D. Okla, 1994),
rev'd,  92  F.3d 1026  (lOth Cir. 1996), cert. granted,
117 S. ct. 1425(1997) . . . . 9

(III)

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IV

Cases-Continued             Page

United States v. Naftalin, 606 F.2d 809 (8th Cir.
1979) . . . . 4
United States v. Stoner, 78 F.3d 710(lst Cir.)
cert. dismissed, 117 S. Ct. 378(1996) . . . . 8
United States v. Ursery, 116 S. Ct .2135 (1996) . . . . 6, 7, 8
Constitution, statutes, rule and regulation:
U. S. Const. Amend. V (Double  Jeopardy  Clause) . . . . 4, 5,
                                                                            6, 7, 8, 9, 10
Securities Act of 1933, 15 U.S.C. 77a et seq.:
15 U.S. Cl. 77e(a) . . . . 2
15 U.S.C. 77q(a) . . . . 2
Securities Exchange Act of 1934, 15  U.S.C.  78a
et seq.:
15 U.S.C. 78j . . . . 2
15 U.S.C. 78j(b) . . . . 2, 3
15 U.S.C. 78ff . . . . 2
Investment Company Act of 1940, 15 U.S.C.  80a-1
et seq.:
15 U.S.C. 80a-30(a) . . . . 2
15 U.S.C. 80a-35(a) . . . . 3
18 U.S.C. 371 . . . . 2
18 U.S.C. 1343 . . . . 2
17 C.F.R. 240.10b-5 . . . . 3

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IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1996

No. 96-1964

JAMES A. MERRIAM, PETITIONER

v.

UNITED STATES OF AMERICA

No. 97-5255

HAROLD B. HAYES, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE' NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

    The opinion of the court of appeals (Pet. App. la-
10a)' is reported at 108 F.3d 1162. The opinion of the
district court (Pet. Supp. App. 11a-22a) is unreported.

___________________(footnotes)

    1 Unless otherwise noted, "Pet. App." refers to the appen-
dix to the petition in No. 96-1964. "Pet. Supp. App." refers to
the supplemental appendix to the same petition.

(1)

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2

JURISDICTION

    The judgment of the court of appeals was entered on
March 12, 1997. A petition for rehearing by petitioner
Hayes was denied on April 29, 1997. The petition for a
writ of certiorari in No. 96-1964 was fried on June 10,
1997. The petition for a writ of certiorari in No. 97-
5255 was filed on July 21, 1997. The jurisdiction of
this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

    On July 26, 1995, a grand jury in the Northern Dis-
trict of California returned a superseding indictment
charging petitioners with conspiracy, in violation of
18 U.S.C. 371; wire fraud, in violation of 18 U.S.C.
1343; and securities fraud, in violation of 15 U.S.C. 78j
and 78ff. Before trial, petitioners filed a motion to
dismiss the indictment on double jeopardy grounds.
The district court denied the motion, Pet. Supp. App.
11a-22a, and the court of appeals affirmed, Pet. App.
la-10a.
    1. On March 7, 1994, the Securities and Exchange
Commission (SEC) filed a civil action against peti-
tioner Merriam and The Vintage Group, Inc., a ven-
ture capital company that Merriam controlled. The
complaint alleged that, on two occasions, including
once in mid-1990, Merriam had fraudulently inflated
the price of Vintage stock, misappropriated Vintage
funds, and engaged in insider trading. 96-1964 Gov't
C.A. Br. 3-5. Based on those transactions, the SEC
complaint alleged that Merriam committed securities
fraud, in violation of 15 U.S.C. 77q(a) and 78j(b); sold
unregistered securities, in violation of 15 U.S. C.
77e(a); failed to make and keep records required by the
Investment Company Act, in violation of 15 U.S.C.
80a-30(a); and breached his fiduciary duty under the

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3

Investment Company Act, in violation of 15 U.S.C.
80a-35(a). Pet. Supp. App. 12a.
    On October 20, 1994, Merriam executed a consent to
entry of judgment in the SEC action, and the district
court subsequently entered judgment against him. In
the consent to entry of judgment, Merriam admitted
that he had received $1,141,030 for his illegal sales of
Vintage stock. He was not required to disgorge that
or any amount, however, because of his inability to
pay. Pet. Supp. App. 13a; 96-1964 Gov't C.A. Br. 5 &
n.2. The judgment entered against Merriam provided
that he "is permanently barred from acting or serving
as an officer or director of any issuer either having a
class of securities registered pursuant to Section 12
of the Exchange Act [15 U.S.C.  781], or that is
required to file reports pursuant to Section 15(d) of
the Exchange Act [15 U.S.C.  780(d)]." Pet. App. 5a
(brackets in original).
    2. At the relevant times, petitioner Hayes was em-
ployed as a broker-dealer by Britson Investments, a
brokerage firm registered with the National Associa-
tion of Securities Dealers (NASD). 97-5255 Pet. 2-3.
On March 6, 1992, the NASD'S Market Surveillance
Committee (MSC) initiated disciplinary proceedings
against Hayes and others relating to the sale of Vin-
tage stock. Pet. App. 5a. After an evidentiary hear-
ing, the MSC concluded that Hayes had violated Sec-
tion 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. 78j(b), and SEC Rule 10b-5, 17 C.F.R.
240.10b-5, as well as several NASD rules and regula-
tions. Hayes was censured, fined  $300,000, and barred
from association with any member of NASD in any
capacity. Pet. App. 6a. Those sanctions were sus-
tained on Hayes's appeal to the NASD National Busi-
ness Conduct Committee, which found that "a bar in

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4

all capacities is warranted in this matter due to the
egregious nature of the violative activity, and to
protect the investing public against this form of
manipulative activity by those in the securities
industry." 97-5255 Gov't  C.A.  Br. 7 (emphasis omit-
ted). The SEC also upheld the sanction, stating that
"there is an ample basis for us to conclude that Hayes
poses a significant risk to investors and is unfit to be
in the securities industry." Ibid. (emphasis omitted).
    3. In July 1995, petitioners were indicted on con-
spiracy, wire fraud, and securities fraud charges.
The indictment rested on petitioners' efforts to ma-
nipulate Vintage stock in mid-1990 by using false and
inflated financial data. 96-1964 Gov't C.A. Br. 3-4.
Petitioners moved to dismiss the indictment, alleging
that they had already been punished for that conduct
by their debarment sanctions. They argued that their
conviction and sentencing on the criminal indictment
would result in a second punishment for the same
offense, in violation of the Double Jeopardy Clause's
prohibition on multiple punishments.
    The district court denied the motion. Pet. App. 11a-
22a. The court rejected the contention that, under
United States v. Halper, 490 U.S. 435 (1989), debar-
ment from participation in commercial activity con-
stitutes "punishment" for purposes of the Double
Jeopardy Clause. The court noted that "[b]ars similar
to those imposed here have repeatedly been found to
serve remedial purposes." Pet. Supp. App. 16a (citing
United  States  v. Furlett, 974 F.2d  839  (7th Cir. 1992)
and United  States  v. Naftalin, 606 F.2d 809, 812 (8th
Cir. 1979)). The court therefore held that the debar-
ment orders were "remedial in nature and did not con-

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5

stitute punishment for purposes of the Double Jeop-
ardy Clause." Id. at 17a.2
    4. The court of appeals affirmed. Pet. App. la-10a.
Relying on its precedent in United States v. Borjes-
son, 92 F.3d  954  (9th  Cir.), cert. denied, 117 S. Ct. 622
(1996), the court rejected petitioners' contention that
their debarment sanctions precluded their criminal
prosecution? Pet. App. 7a. Applying Borjesson to
this case, the court of appeals held that debarment
under the securities laws is a civil, remedial sanction

___________________(footnotes)

    2 The district court also rejected petitioner Hayes's argu-
ment that the imposition of a $300,000 penalty against him by
the NASD and the SEC constituted punishment. The court
noted that the NASD had specifically found that Hayes had
reaped profits amounting to $277,000 from his illegal scheme.
Pet. Supp. App. 18a. It therefore concluded that the $300,000
penalty was justified as disgorgement, which "is a remedial
rather than punitive sanction." Id. at 17a. The court also
noted that the $23,000 difference between the profits reaped
and the penalty was readily attributed to the NASD'S investi-
gative costs, which the NASD was entitled to recover under
Halper. Id. at 19a. Hayes did not challenge that aspect of the
district court's decision in the court of appeals, and has not
done so in this Court.
    3 In Borjesson, the court concluded that debarment from
federal housing programs serves the remedial purpose of
"maintaining the integrity and the appearance of integrity of
government programs," 92 F.3d at 955, and thus does not
constitute punishment for purposes of the Double Jeopardy
Clause. In addition, the Borjesson court ruled that this Court's
decision in Halper-which  held  that  the  imposition  of a civil
penalty that is "so extreme and so divorced from the Govern-
ment's damages and expenses as to constitute punishment"
may constitute double jeopardy when imposed on one who has
already been criminally convicted for the same conduct, 490
U.S. at 442-has  no application to the sanction of debarment.
92 F.3d at 956.

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6

designed to protect investors and to maintain the
integrity of the securities markets. Id. at 8a. The
court found nothing in petitioners' debarment "so
punitive in form and effect so as to render [it]
criminal despite Congress' intent to the contrary. "
Ibid. (quoting United States v. Ursery, 116 S. Ct.
2135,2148 (1996)). The court also noted that "[e]very
court to consider these types of [debarment] orders
has concluded that they do not equate to punishment
because they serve a remedial goal." Id. at 10a n.3.

ARGUMENT

    Petitioners renew their contention that the debar-
ment orders entered against them constitute punish-
ment for purposes of the multiple punishments prong
of the Double Jeopardy Clause.  That punishment,
they contend, bars their prosecution on the pending
indictment. The court of appeals correctly rejected
that contention, and its decision is consistent with
the decisions of every other court of appeals that has
considered the issue. Accordingly, further review is
unwarranted.
    1. The Double Jeopardy Clause prohibits both
"successive punishments and * * * successive
prosecutions." United  States v. Dixon, 509 U.S. 688,
696 (1993); see  also North Carolina v. Pearce, 395
U.S. 711, 717 (1969). Although Congress ordinarily
"may impose both a criminal and a civil sanction in
respect to the same act or omission" without violat-
ing the Clause, Helvering v. Mitchell, 303 U.S. 391,
399 (1938), in United States v. Halper, 490 U.S. 435
(1989), this Court "announce[d] * * * a rule for the
rare case * * * where a freed-penalty provision sub-
jects a prolific but small-gauge offender to a sanction
overwhelmingly disproportionate to the damages he

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7

has caused." Id. at 449. The rule in such cases is that
"[w]here a defendant previously has sustained a
criminal penalty and the civil penalty sought in the
subsequent proceeding bears no rational relation to
the goal of compensating the Government for its loss,
but rather appears to qualify as `punishment' in the
plain meaning of the word, then the defendant is
entitled to an accounting of the Government's dam-
ages and costs to determine if the penalty sought in
fact constitutes a second punishment." ld. at 449-450.
If the civil penalty "does not remotely approximate
the Government's damages and actual costs," id. at
446, then it constitutes punishment and must be
reduced to a remedial level, id. at 452.
    In United States v. Ursery, 116 S. Ct. 2135 (1996),
this Court held that the Halper rule is "impossible to
apply outside the context of a fixed civil-penalty provi-
sion." Id. at 2146. The Court concluded that when a
civil sanction "serve[s] a variety of purposes" beyond
compensating the government for losses resulting
from the defendant's conduct, "the case-by-case
balancing test set forth in Halper, in which a court
must compare the harm suffered by the Government
against the size of the penalty imposed, is inapplica-
ble." Id. at 2145. In such cases, a nominally civil
sanction violates the Double Jeopardy Clause only if
the sanction "was intended as punishment, so that the
proceeding is essentially criminal in character." Id.
at 2141-2142.
    In United  States  v. Borjesson,  92  F.3d 954-(9th Cir.),
cert. denied, 117 S. Ct. 622 (1996), the court of appeals,
relying on Ursery, held that Halper's case-by-case
balancing test could not be applied to the sanction of
debarment (there, debarment from federal housing
programs) because debarment is not a monetary

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8

sanction that can be compared to the government's
damages and costs. Here, the court of appeals relied
on Borjesson to reject petitioner's contention that
".Halper  controls"  his case. Pet. App. 7a n.1. Instead,
the court of appeals applied the test set forth in
Ursery and prior decisions of this Court and held that
SEC debarment proceedings are not "essentially
criminal in character."
    The court of appeals' analysis of debarment orders
is correct. Whatever the limits of this Court's deci-
sion in Halper, it cannot apply to a nonmonetary
sanction such as debarment, because it is "impossi-
ble" to "compare the harm suffered by the Govern-
ment against the size of the penalty imposed."
Ursery, 116 S. Ct. at 2145. Moreover, as this Court
long ago held, a statutory scheme that provides for
debarment is not "essentially criminal in character,"
because debarment is not a punitive sanction. See
Helvering v. Mitchell, 303 U.S. at 399 & n.2. Instead,
debarment from participation in a regulated industry
is a remedial sanction because its purpose is "to
purge sensitive industries of corruption and thereby
protect the public." United  States v. Stoner, 78 F..3d
710, 724 (1st Cir.), cert. dismissed, 117 S. Ct. 378
(1996); see also United  States v. Bizzell,  921 F.2d 263,
267 (10th Cir. 1990) ("[r]emoval of persons whose par-
ticipation in those programs is detrimental to public
purposes is remedial by definition"). For these rea-
sons, every court of appeals that has considered the
issue has held that the sanction of debarment does not
implicate the Double Jeopardy Clause. See United
States v. Glymph, 96 F.3d 722 (4th Cir. 1996) (debar-
ment from government contracting); United States v.
Stoner, supra (ban from service in any federally
insured bank); DiCola  v. FDA, 77 F.3d  504 (D.C. Cir.

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9

1996) (debarment from providing services to pharma-
ceutical companies); Bae v. Shalala, 44  F.3d 489 (7th
Cir. 1995) (debarment  from providing  services to drug
applicants); United States v. Hudson, 14 F.3d 536
(10th Cir.) (debarment from participating in affairs of
any federally insured bank), on remand on other is-
sues, 879 F. Supp. 1113 (W.D. Okla. 1994), rev'd, 92
F.3d 1026 (10th Cir. 1996), cert. granted, 117 S. Ct.
1425 (1997); United  States v. Furlett,  974   F.2d  839  (7th
Cir. 1992) (securities trading ban); Manocchio v.
Kusserow, 961 F.2d 1539 (llth Cir. 1992) (debarment
from Medicare programs); Bizzell, supra (debarment
from HUD programs). Those decisions are consis-
tent with earlier cases that recognized the remedial
nature of license revocations. See, e.g., Hawker v.
New York, 170 U.S. 189, 196 (1898) (law prohibiting
felons from practicing medicine is not punishment for
purposes of the Ex Post Facto Clause because the
"State is not seeking to further punish a criminal, but
only to protect its citizens"); Emory v. Texas State
Board of Medical Examiners, 748 F.2d 10231026 (5th
Cir. 1984) (revocation of medical license is not punish-
ment because "revocation of privileges voluntarily
granted is `characteristically free of the punitive
criminal element'" (citation omitted).
    2. There is no need to hold this case pending dis-
position of Hudson v. United States, cert. granted,
117 S. Ct. 1425 (1997). In that case, the question pre-
sented is whether the Double Jeopardy Clause bars
the prosecution on charges of conspiracy, misapplica-
tion of bank funds, and making false banking entries
of defendants who previously paid $44,000 in civil
money penalties imposed by the Comptroller of the
Currency. A decision rejecting the double jeopardy
claim in Hudson would lend no assistance to

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10

petitioners in this case. But even resolution of the
double jeopardy claim in Hudson in favor of the defen-
dants in that case would not assist the petitioners
here, for even if the Court held in Hudson that the
civil money penalties assessed against the defendants
in that case triggered the Double Jeopardy Clause's
multiple punishments prong, that decision would not
imply that a nonmonetary sanction such as debarment
also constitutes punishment. Instead, as the courts of
appeals have uniformly held, debarment is a remedial
sanction that does not trigger the protection of the
Double Jeopardy Clause.

CONCLUSION

    The petitions for a writ of certiorari should be
denied.

Respectfully submitted,

WALTER DELLINGER
Acting Solicitor General

JOHN C. KEENEY
Acting Assistant Attorney
General

J. DOUGLAS WILSON
Attorney

JULY 1997