No. 95-1233

In the Supreme Court of the United States

OCTOBER TERM, 1995

COST CONTROL MARKETING & SALES MANAGEMENT
OF VIRGINIA, INC., ET AL., PETITIONERS

v.

HENRY G. CISNEROS, SECRETARY OF 
HOUSING AND URBAN DEVELOPMENT

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS 
FOR THE FOURTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

WILLIAM KANTER
ERIC MAHR
Attorneys

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

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QUESTIONS PRESENTED

1. Whether petitioner Cost Control Marketing and
Sales Management of Virginia, Inc., which engaged in
the interstate marketing and sale of land, is a "de-
veloper" within the meaning of the Interstate Land
Sales Full Disclosure Act, 15 U.S.C. 1701(5).
2. Whether the disgorgement ordered by the dis-
trict court, payable to the Secretary of Housing and
Urban Development, is exempted from the discharge
provisions of the Bankruptcy Code under 11 U.S.C.
523(a)(7), which exempts from discharge any "fine,
penalty, or forfeiture" that is payable "to and for the
benefit of a governmental unit," and is "not compen-
sation for actual pecuniary loss."
3. Whether the district court properly ordered
disgorgement to respondent based on evidence in
affidavits presented by respondent that was not con-
troverted by any petitioner.

(I)

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TABLE OF CONTENTS

Page

Opinions below . . . . 1
Jurisdiction . . . . 2
Statement . . . . 2  
Argument . . . . 8
Conclusion . . . . 17 

TABLE OF AUTHORITIES 

Cases:

Adema v. Great Northern Development Co., 374 F.
Supp. 318 (N.D. Ga. 1973) . . . . 10 
Bartholomew v. Northampton Nat 'l Bank of
Easton, 584 F.2d 1288(3d Cir. 1978) . . . . 10 
Celotex Corp. v. Catrett, 477 U. S. 317(1986) . . . . 15 
Cost Control Mktg. & Management, Inc. v. Pierce,
848 F.2d 47(3d Cir. l988) . . . . 3 
Cumberland Capital Corp. v. Harris, 621 F.2d
246 (6th Cir. 1980) . . . . 10 
Flint Ridge Development Co. v. Scenic Rivers Ass 'n,
426 U.S. 776 (1976) . . . . 3 
Kelly v. Robinson, 479 U. S. 36 (1986) . . . . 11, 12 
McCown v. Heidler, 527 F.2d 204 (10th Cir. 1975) . . . . 9 
Olsen v. Lake Country, Inc., 955 F.2d 203(4th Cir.
1991), cert. denied, 503 U. S. 972 (1992) . . . . 8 
Pennsylvania Dep't of Public Welfare v. Davenport,
495 U.S. 552 (1990) . . . . 11 
SEC v. First City Financial Corp., 890 F.2d 1215
(D.C. Cir. 1989) . . . . 7, 14 
Taite, In re, 76 B.R. 764(Bankr. C.D. Cal. 1987) . . . . 13 
Winter v. Hollingsworth Properties, Inc., 777 F.2d
1444 (llth Cir. 1985) . . . . 9 

Statutes, regulations and rules:

Bankruptcy Code (11 U.S.C.):
Ch. 3:
11 U.S.C. 362(b)(4) . . . . 6, 7 

(III)

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IV

Statutes, regulations and rules-Continued:      

Page

Ch. 5:
11 U. S.C. 523(a)(7) . . . . 6, 7, 11, 12, 13
Ch. 7, 11 U.S.C. 701 et seq . . . . 5
Interstate Land Sales Full Disclosure Act, 15 U.S.C.
1701 et seq . . . . 2
15 U.S.C. 1701(5) . . . . 3, 4, 7, 8
15 U.S.C. 1701(6) . . . . 3, 4
15 U.S.C. 1702(a)(l) . . . . 9
15 U.S.C. 1702(a)(2) . . . . 9
15 U.S.C. 1702(b)(l) . . . . 9
15 U.S.C. 1703(a)(l)(A) . . . . 3
15 U.S.C. 1703(a)(l)(B) . . . . 3
15 U.S.C. 1703(a)(2) . . . . 3
15 U.S.C. 1703(a)(2)(B) . . . . 3
15 U.S.C. 1703(a)(2)(C) . . . . 3
15 U.S.C. 1703(c) . . . . 3
15 U.S.C. 1704 . . . . 3
15 U.S.C. 1707 . . . . 3, 8
15 U.S.C. 1714(a) . . . . 12
15 U.S.C. 1717a note . . . . 12
Va. Ann. Code $58.1-3201 (Michie 1991) . . . . 15
24 C.F.R. 1710.100 et seq . . . . 9
Fed. R. Civ. P. :
Rule 56 . . . . 14-15
Rule 56(e) . . . . 15
Rule 65(d) . . . . 4
Fed. R. Evid.:
Rule 803(6) . . . . 15
Rule 1006 . . . . 14, 15

Miscellaneous:

Black's Law Dictionary (6th ed. 1990) . . . . 11

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In the Supreme Court of the United States
                     
OCTOBER TERM, 1995
                    
No. 95-1233 

COST CONTROL MARKETING & SALES MANAGEMENT
OF VIRGINIA, INC., ET AL., PETITIONERS

v.

HENRY G. CISNEROS, SECRETARY OF
HOUSING AND URBAN DEVELOPMENT
                             

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals from which
review is sought (Pet. App. A1-A15), affirming final
judgment for respondent, is reported at 64 F.3d 920.
The opinion and order of the district court directing
the entry of final judgment (Pet. App. A62-A72) are
reported at 862 F. Supp. 1531. The report of the
magistrate judge recommending the entry of final
judgment for respondent (Pet. App. A53-A61) is
unreported.

(1)

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2

A prior opinion of the court of appeals (Pet. App.
A22-A30) is reported at 940 F.2d 110. The opinion and
order of the district court directing an interim final
judgment (Pet. App. A31-A50) are reported at 790 F.
Supp. 1275. The order of the district court enter-
ing a preliminary injunction (Pet. App. A16-A21) is
unreported.

JURISDICTION

The judgment of the court of appeals was entered on
September 8, 1995. A petition for rehearing was de-
nied on November 3, 1995. Pet. App. A77-A78. The
petition for a writ of certiorari was filed on January
31, 1996. This Court's jurisdiction is invoked under
28 U.S.C. 1254(1).
       
STATEMENT

1. Petitioner Cost Control Marketing and Sales
Management of Virginia, Inc. (CCMV) is a Virginia
corporation formed for the sole purpose of purchasing,
marketing, and selling unimproved lots of land in
Lake Monticello, Virginia, a subdivision of over 4,500
lots. Pet. App. A3, A23. CCMV is wholly owned by
three of its officers, petitioners Peterson, Kujawski,
and Marley. Id. at A3. Petitioner Costenbader is
Chief Executive Officer of CCMV. Ibid.
Between 1986 and 1989, CCMV purchased over 900
unimproved lots in the Lake Monticello subdivision,
and then marketed those lots to prospective pur-
chasers in Washington, New York, and elsewhere.
Pet. App. A3. By the end of 1989, CCMV had sold 585
lots. Ibid. None of CCMV's sales complied with the
Interstate Land Sales Full Disclosure Act (ILSFDA
or the Act), 15 U.S.C. 1701 et seq., which, like the
federal securities laws, imposes certain registration
and disclosure requirements and prohibits fraudulent

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and misleading sales practices. See generally Flint
Ridge Development Co. v. Scenic Rivers Ass'n, 426
U.S. 776, 778 (1976); Cost Control Mktg. & Manage-
ment, Inc. v. Pierce, 848 F.2d 47, 48 (3d Cir. 1988).
Under ILSFDA, developers and agents may not use
any means of interstate commerce or the mails to
offer or sell lots in a subdivision without registering
the property by filing a statement of record with.
the Department of Housing and Urban Development
(HUD). 15 U.S.C. 1703(a)(l)(A) and 1704. 1. "Developers
and their agents also must furnish a prospective pur-
chaser with a complete and accurate printed disclo-
sure statement, known as a "property report," prior
to the execution of any sales contract. 15 U.S.C.
1703(a)(l)(B) and 1707. Purchasers may revoke their
contracts within two years if they were not provided
property reports prior to signing the contracts. 15
U.S.C. 1703(c). The Act prohibits misleading sales
practices and mandates certain sales practices to
inform and protect consumers. 15 U.S.C. 1703(a)(2).
The Act also makes it unlawful for any developer or
agent to "obtain money or property by means of any
untrue statement of a material fact, or any omission
to state a material fact."  15 U.S.C. 1703(a)(2)(B).
Finally, the Act prohibits developers and agents from
engaging "in any transaction, practice, or course of
business which operates or would operate as a fraud
or deceit upon a purchaser." 15 U.S.C. 1703(a)(2)(C).

___________________(footnotes)

1 The Act defines a "developer" as "any person who, direct-
ly or indirectly, sells or leases, or offers to sell or lease, or
advertises for sale or lease any lots in a subdivision." 15 U.S.C.
1701(5). An "agent" is "any person who represents, or acts for
or on behalf of, a developer in selling or leasing, or offering to
sell or lease, any lot or lots in a subdivision." 15 U.S.C. 1701(6).

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4

CCMV failed to register its lots, failed to pro-
vide required property reports to purchasers, failed
to inform purchasers of their two-year right to re-
scind, and refused to rescind sales upon purchasers'
requests.  Pet. App. A4. CCMV also used high-
-pressure, misleading marketing techniques. Ibid. As
a result of these unlawful practices, CCMV was
able to sell lots at over three times,, their assessed
value. Ibid.
2. On November .15, 1989, HUD filed suit against
petitioners in district court, alleging that petitioners
had violated the registration and disclosure provi-
sions of ILSFDA, and had engaged in sales practices
prohibited by the Act, including overcharging for
closing costs, misleading advertising, and misinform-
ing purchasers regarding their revocation rights.
Pet. App. A4, A24. I-IUD requested injunctive relief
and disgorgement of petitioners' illegal profits. Id.
at A4, A93-A96. On February 14, 1990, the district
court granted a preliminary injunction against future
violations of the Act by petitioners and froze the indi-
vidual petitioners' assets. Id. at A16-A21-
On interlocutory appeal, the court of appeals af-
firmed the preliminary injunction, but remanded the
case to the district court for factual findings under
Federal Rule of Civil Procedure 65(d) in connection
with the asset freeze. Pet. App. A24. In affirming the
issuance of the injunction, the court of appeals re-
jected petitioners' sole defense to liability, and held
that CCMV could be held liable under the Act's
definition of "developer" in Section 1701(5), and that
the individual petitioners could be held liable as
"agents" of CCMV under Section 1701(6). Pet. App.
A4, A26-A27.

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5

3. On April 22, 1992, after having granted summary
judgment in favor of HUD on all counts, the district
court issued an interim judgment order. Pet. App.
A31-A50. The court concluded that petitioners' viola-
tions constituted "part of a pattern of conduct that
suggests a strong propensity to repeat itself in the
absence of a permanent injunction." Id. at A33. The
court found that petitioners "appear to be absolutely
unrepentant." Ibid. It noted that petitioners had
been twice held in contempt by the magistrate judge
for defying the court's orders, and had otherwise
made it clear to the court that they did "not feel bound
by the orders of this court (or by the law)." Id. at
A33-A34. Accordingly, the court permanently en-
joined petitioners from enforcing any obligation to
pay in connection with their sale of lots at Lake
Monticello. Id. at A47.
In its interim judgment order, the district court
also considered HUD's request for disgorgement of
petitioners' illegal profits, and found that HUD's
proposed disgorgement figure of $8,648,048 was a
"reasonable approximation" of the amount of profits
petitioners received from their unlawful activities.
Pet. App. A38, A43-A45. The court stated that, at the
appropriate time after discovery, it would calculate
the precise amount of profits that were causally con-
nected to the violations and had been passed through
CCMV to each individual petitioner. Ibid.
On September 1, 1992, three of the four individual
petitioners in this case (Peterson, Marley, and
Costenbader) filed individual bankruptcy petitions
under Chapter 7 of the Bankruptcy Code. Pet. App.
A6. On September 4, 1992, pursuant to the interim
judgment order, HUD served all four individual peti-
tioners with discovery requests, seeking information

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6

about the profits received from their illegal sales,
their current assets and liabilities, and transactions
with their relatives,  Id. at A6-A7. None of the
petitioners responded to HUD's interrogatories. Id.
at A7-A9. Moreover, none of the petitioners sub-
mitted any evidence to the court challenging HUD's
proposed disgorgement relief of $8,648,048, or demon-
strating that they should not each incur continuing
joint and several liability for that entire amount.
Ibid.
 4. On September 15, 1994, the district court en-
tered final judgment against petitioners. Pet. App.
A62-A72. The court rejected petitioners' contention
that their bankruptcy petitions prevented HUD'S en-
forcement action from going forward. It held that,
because this action was brought by HUD to enforce
its regulatory powers, it is exempt from the auto-
matic stay provisions of the Bankruptcy Code pur-
suant to 11 U.S.C. 362(b)(4). It also held that the
disgorgement relief in this case is excepted from the
Bankruptcy Code's discharge of debts under 11 U.S.C.
523(a)(7), as a "fine, penalty, or forfeiture" payable "to
and for the benefit of a governmental unit" that is
"not compensation for actual pecuniary loss." Pet.
App. A64-A68. The district court also noted that,
after more than 27 months, petitioners had failed to
rebut or even challenge HUD's figure of $8,648,048 as
a reasonable approximation of the illegal profits that
should be disgorged. Pet. App. A70. Accordingly, it
entered judgment against petitioners in that amount,
payable to the Secretary of HUD, and it permanently
enjoined petitioners from violating the Act or en-
forcing any obligations against purchasers of Lake
Monticello lots. Id. at A73-A76.

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7

5. The court of appeals affirmed. Pet. App. A1-A15.
It first held, as it had on the interlocutory appeal, that
CCMV is a "developer" under Section 1701(5). Pet.
App. A8. It then rejected petitioners' challenge to the
sufficiency of HUD's proof in support of the disgorge-
ment order, noting that HUD's evidence was "ab-
solutely uncontradicted" by petitioners. Id. at A10.
The court reasoned that the Declaration of Roger
Henderson, Director of HUD's Interstate Land Sales
Registration Division, upon which the district
court's award was based in part, served "as a sum-
mary of voluminous evidence" and that "[something
like it would doubtless have been permitted at a trial
of this case." Ibid. The court also noted that the
Henderson Declaration was corroborated by other
evidence of record, including the sworn declarations
of 11 lot purchasers. It concluded that HUD had
carried its burden of coming forward with a "reason-
able approximation of the illegal profits." Id. at A10-
A11 (citing SEC v. First City Financial. Corp., 890
F.2d  1215 (D.C. Cir. 1989)).
The court of appeals also agreed with the district
court that the Bankruptcy Code does not shield
petitioners from the district court's disgorgement
order. Pet. App. A12-A14. It ruled that this enforce-
ment action brought by HUD is exempted from the
automatic stay provision of the Code by 11 U.S.C.
362(b)(4), which exempts "the commencement or con-
tinuation of an action or proceeding by a govern-
mental unit to enforce such governmental unit's
police or regulatory power." See Pet. App. A12-A13.
It also ruled that, under 11 U.S.C. 523(a)(7), the dis-
gorgement award is excluded from the discharge of
petitioners' debts as "a fine, penalty, or forfeiture
payable to and for the benefit of a governmental unit,

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8

and * * * not compensation for actual pecuniary
loss." See Pet. App. A13-A14.
       
ARGUMENT

1. Petitioner CCMV contends (Pet. 7-14) that it
was not a "developer" covered by ILSFDA, 15 U.S.C.
1701(5), because it was merely a seller of already
developed property (Pet. 8). That contention is incor-
rect. The Act defines a "developer" as "any person
who, directly or indirectly, sells or leases, or offers to
sell or lease, or advertises for sale or lease any lots in
a subdivision." 15 U.S.C. 1701(5). Although the Act
may have been directed in large part at those who
market undeveloped property, it is not limited to
those sellers, and its definition of "developer" does
not distinguish between original developers and sub-
sequent large-scale resellers of developed "lots in a
subdivision."
As the lower court observed in rejecting a similar
argument in an earlier case, "[t]o exclude all but the
original developer from the purview of the Act would
clearly circumvent its intent by permitting devel-
operas to simply transfer land to separate entities
before being sold to the public." Olsen v. Lake
Country, Inc., 955 F.2d 203,.205 (4th Cir. 1991), cert.
denied, 503 U.S. 97? (1992). Moreover, in many situ-
ations, it may be unclear whether a subdivision has in
fact been "developed"; in Olsen, for example, "there
were serious questions concerning the ability of the
water supply and sewer system to service all homes
in the subdivision." Id. at 206. In addition, under
HUD regulations implementing the Act (see 15
U.S.C. 1707), the "property report," or disclosure
statement to prospective customers, required of
developers must set forth important information that

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9

does not turn on the developed status of the sub-
division, including information about encumbrances,
utility connections, and the financial situation. of the
developer. See 24 C.F.R. 1710.100 et seq. Contrary to
CCMV's contention (Pet. 8-9), therefore, it is not true
that "the potential buyer does not need disclosure
of the features of a completed development, for
the subdivision in place speaks for itself." See also
Winter v. Hollingsworth Properties, Inc., 777 F.2d
1444, 1447 (llth Cir. 1985) (noting that ILSFDA is not
limited to sales of "raw land" but is applicable "to all  
lots" in a subdivision). 2.
"The general purpose of [ILSFDA] was, of course,
to prohibit and punish fraud in * * * land devel-
opment enterprises * * * and the Act should be
interpreted to attain that end. Such an act should
be construed `not technically and restrictively, but
flexibly to effectuate its remedial purposes.'" Mc-
Cown v. Heidler, 527 F.2d 204, 207 (l0th "Cir. 1975). 3.

___________________(footnotes)

2 ILSFDA does not cover sales of improved land on which an
already completed residential building exists. See 15 U.S.C.
1702(a)(2). This case does not involve that exemption. Also,
the registration and disclosure requirements of ILSFDA do not
apply to the sale of lots in a subdivision containing fewer than
100 lots, 15 U.S.C. 1702(b)(l), and the Act as a whole does not
apply to the sale of lots in a subdivision containing fewer than
25 lots (unless the method of disposition is designed for the
purpose of evading the Act), 15 U.S.C. 1702(a)(l).
3 Although petitioner suggests (Pet. 9) that McCown ap-
plied an "opposite interpretation" of the Act by considering
extenuating facts and circumstances, that case did not involve
the question whether ILSFDA applies to sellers of developed
lots. McCown held that officers and directors of a corporate
developer could be held liable under ILSFDA as controlling
persons, or aiders and abettors, of the corporate developer. 527
F.2d at 207.

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10

Given the clear language of the Act, its remedial
purposes, and the difficulty of drawing a clear line
between "developed" and "undeveloped" lots, there is
no reason to conclude that Congress intended to
exclude sellers of lots like CCMV from the reach of
the Act.
The other appellate cases relied on by CCMV (Pet.
9-10) are not to the contrary. In Bartholomew v.
Northampton National Bank of Easton, 584 F.2d 1288
(3d Cir. 1978), the court concluded that a bank that
provided financing for a development project was not
liable under ILSFDA as an "indirect seller" or aider
and abettor of the primary developer. The court
reached that conclusion, not because the lots at issue
were already developed (they were not), but because
the bank did not actively participate in the actual
sales of the lots. Id. at 1292-1293; see also Adema v.
Great Northern Development Co., 374 F. Supp. 318
(N.D. Ga. 1973). In Cumberland Capital Corp. v.
Harris, 621 F.2d 246 (6th Cir. 1980), the court held
that a bank that occasionally sold lots on which it
foreclosed as an outgrowth of its lending activities
was not a developer. The court did not emphasize the
developed or undeveloped status of the lots, and it
noted that arguably the bank fell within the strict
definition of "developer." Id. at 250. It emphasized,
however, that the statutory definition of "subdi-
vision" requires that the lots in a subdivision be sold
pursuant to a "common promotional plan," ibid.,
which was not true of the bank's "involvement in land
sales, undertaken only as necessitated by defaulting
borrowers, [and] truly `incidental' in character," id.
at 249.
2. Petitioners Costenbader, Peterson, and Marley
argue (Pet. 14-22) that the Bankruptcy Code's dis-

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11

charge provisions shield them from the district
court's disgorgement order. In particular, they take
issue with the lower courts' conclusions that the
disgorgement order is exempt from discharge because
it is "a fine, penalty, or forfeiture payable to and
for the benefit of a governmental unit, and is
not compensation for actual pecuniary loss." 11
U.S.C. 523(a)(7).
Petitioners contend (Pet. 14-16) that "civil res-
titution orders" are not exempt from discharge under
Section 523(a)(7). In Kelly v. Robinson, 479 U.S. 36
(1986), this Court held that restitution orders im-
posed in criminal prosecutions are excepted from
discharge under Section 523(a)(7). The Court empha-
sized that that Section creates "a broad exception for
all penal sanctions, whether they be denominated
fines, penalties, or forfeitures." 479 U.S. at 51. The
Court subsequently made clear that Section 523(a)(7)
covers both civil and criminal fines, penalties, and
forfeitures.  See Pennsylvania Dep't of Public
Welfare v. Davenport, 495 U.S. 552, 561-562 (1990).
The disgorgement at issue in this case is suf-
ficiently penal to be considered a "fine, penalty, or
forfeiture," for purposes of Section 523(a)(7), even
though it was entered in a civil proceeding. 4. HUD

___________________(footnotes)

4 Petitioners rely (Pet. 17) on part of the definition of
"forfeiture" in Black's Law Dictionary. That entry, however,
also defines "forfeiture" as the "[l]oss of some property or mon-
ey because of breach of a legal obligation," without any distinc-
tion between the criminal and civil contexts. Black's Law
Dictionary 650 (6th ed. 1990). The disgorgement order in the
instant case is unquestionably a "forfeiture" in the common
usage of that term, since the amount disgorged represents the
profits on petitioners' land sales that petitioners have been

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brought this action against petitioners under 15
U.S.C. 1714(a), which permits such actions when the
Secretary believes that any person is engaged in "a
violation" of the Act. See Pet. App. A83. And as the
magistrate observed (id. at A57-A58), "pursuit of the
judgment in this case has been driven by a desire to
punish [petitioners] for their clear violations of the
law and to serve as a deterrent [to violations] of the
Act, not by a desire for victim compensation." See
also id. at A68 (same observation by district court). 5.
The disgorgement order also satisfies the two
additional requirements of Section 523(a)(7). The 
award is indisputably payable "to and for the benefit of
a governmental unit," since the order requires that
the $8.65 million judgment be paid directly to the
Secretary of HUD and places no restrictions on its
use by the Secretary. Pet. App. A68, A74. The award
is also "not compensation for actual pecuniary loss. "
As the court of appeals pointed out (id. at A14), in the
context of Section 523(a)(7), that phrase "refers to the
government's pecuniary loss." There is no such loss
implicated in this case. 6. Moreover, the purpose of the

___________________(footnotes)

required to forfeit as a result of their breach of their legal
obligations under the Act.
5 Petitioners' argument (Pet. 20-21) that HUD should have
resorted to the civil penalty provisions of ILSFDA is un-
availing.  Those provisions did not become effective until
December 15, 1989, after the complaint in this action was filed,
and their application was expressly prospective.  15 U.S.C.
1717a note.
6 In Kelly v. Robinson, supra, the Court concluded that a
restitution order is not "compensation for actual pecuniary
loss" because "[t]he sentence following a criminal conviction
necessarily considers the penal and rehabilitative interests of
the State," 479 U.S. at 53.  Although the Court therefore

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disgorgement award is not compensatory, even as it
relates to the private victims of petitioners' violations
of the law. The purpose of the disgorgement is to
ensure that petitioners do not profit from their illegal
sales practices; thus, the award is based, not on what
the victims lost, but on what petitioners illegally
gained, as a result of their violations of the Act.
In re Taite, 76 B.R. 764 (Bankr. C.D. Cal. 1987),
the sole case petitioners offer in support of their
dischargeability argument (Pet. 20-21), is. not to the
contrary. The court in Taite expressly ordered that
the relief awarded "shall be used to reimburse * * *
customers for funds they paid to defendants or their
assignees." 76 B.R. at 772. As a result, the Taite
court found that the relief ordered in that case was of
the type "primarily intended to compensate victims
for their losses," and was, therefore, not exempt
under Section 523(a)(7). Ibid. Taite is in apposite to
the award in the instant case, which does not require
compensation of petitioners' customers.  Moreover,
the award in this case was entered principally for the
purposes of punishment and deterrence, not compen-
sation of petitioners' customers, and was not based on
the amount that those customers lost to petitioners.
3. Finally, petitioners challenge (Pet. 22-29) the
sufficiency of the evidence supporting the district
court's disgorgement order. That challenge is with-
out merit.
                                           
___________________(footnotes)

rejected the argument that the restitution order was intended
"'for . . . compensation' of the victim," ibid., it did not hold
that Section 523(a)(7) refers to pecuniary loss by a private
party, rather than the governmental unit to which the fine,
penalty, or forfeiture is directly owed.

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14

Because separating legal from illegal profits pre-
cisely can be "a near-impossible task," the courts
have recognized that the actual calculation of dis-
gorgement "need only be a reasonable approximation
of profits causally connected to the violation." SEC v.
First City Financial Corp., 890 F.2d 1215, 1231 (D.C.
Cir. 1989). In finding that HUD had satisfied its
burden of coming forward with a "reasonable approx-
imation" of petitioners' illegal profits, the district
court relied in part upon the Declaration of Roger
Henderson, Director of HUD'S Interstate Land Sales
Registration Division, which set forth an approx-
imation of the profits that petitioners derived from
their illegal land sales. See Pet. App. A10, A98-A100.
The Henderson Declaration's disgorgement figure
was based on the average disparity between peti-
tioners' sales price- and the fair market value of the
lots-$18,558-multiplied by the 466 lots known at
the time to have been sold in violation of the Act. Id.
at A6. This calculation yielded gross illegal profits
of $8.65 million, the amount to be disgorged. Ibid.
Petitioners produced no evidence to call that calcu-
lation into question.
Petitioners contend that the Henderson Declara-
tion is hearsay and was therefore inadmissible on
summary judgment. As the court of appeals con-
cluded, however, the Declaration serves as a sum-
mary of voluminous evidence, and something like it
"would doubtless have been permitted at a trial of the
case." Pet. App. A10 (citing Fed. R. Evid. 1006). 7. The

___________________(footnotes)

7 Although the Henderson Declaration concerned the
remedy rather than petitioners' substantive liability, the court
of appeals analyzed the evidentiary question under the stand-
ards applicable to summary judgment under Federal Rule of

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Declaration established the average sales price
through the results of a survey of lot purchasers,
corroborated by sworn declarations of a sampling of
11 purchasers. Pet. App. A10-A11. The average fair
market value was established by HUD through
records of the tax-assessed values of the lots, which
the court of appeals held admissible under Federal
Rule of Evidence 803(6). Id. at All n.10. 8.
HUD's case could have been proven at trial through
the testimony of state tax officials and the testimony
of each of the 466 purchasers, but in light of peti-
tioners' failure to contradict HUD's evidence, such a
showing was not necessary. As the court of appeals
observed, "the practical question" was "whether the
case presented] a genuine issue of fact for trial
rather than whether the parties have put their
evidence in final form." Pet. App. A10 n.8. HUD came
forward with a reasonable method, based upon reliable
sources of information, to calculate petitioners' total
profits; in 27 months, petitioners failed to come
forward with any evidence to contradict that calcu-
                                            
___________________(footnotes)

Civil Procedure 56. Rule 56(e) requires that supporting mater-
ials on summary judgment must set forth facts "as would be
admissible" at trial. In Celotex Corp. v. Catrett, 477 U. S. 317
(1986), this Court noted that Rule 56(e) is satisfied by sub-
missions capable of being "reduced to admissible evidence." Id.
at 327. Federal Rule of Evidence 1006 permits the admission
into evidence of "a chart, summary, or calculation" when the
contents of "voluminous writings * * * cannot conveniently
be examined in court." Therefore, the court of appeals' analy-
sis under the summary judgment standard was correct.
s Virginia law requires the tax assessments of real estate to
be made at 100'% of the fair market value. Va. Ann. Code
58.1-3201 (Michie 1991). The district court found that the
county assessments "establish[ed] with a high degree of cer-
tainty the fair market value of the properties." Pet. App. A38.

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lation. See id. at A12 (noting that petitioner's evi-
dence "is nil").
As for establishing the specific amount of funds
that went to each individual petitioner, the district
court held that "facts before the Court create a
strong presumption that a substantial portion of
CCMV's net earnings accrued as a result of its
failure to comply with the Act's requirements," Pet.
App. A44 n.7, and that this litigation "suggests that a
substantial amount of profits passed to the individual
defendants as a result of their violations," id. at A40.
Nevertheless, the district court initially rejected
HUD's proposal that the individual petitioners incur
continuing joint and several liability for the entire
$8,648,048 amount, id. at A44, and it allowed peti-
tioners to offer evidence. showing that part of that
amount was not passed through CCMV to them, id. at
A44, A70. As the court of appeals observed, "HUD
and the district court doubtless envisioned that a
searching inquiry into the individual defendants'
finances would follow to see how much of the ill-
gotten gains had flowed through CCMV and into their
pockets." Id. at A9. Petitioners nonetheless disre-
garded the district, court's repeated instructions to
submit evidence and refused to respond to HUD'S
discovery or to produce documents that might have
led to a more exact calculation. Ibid. Because of
their default, they have no basis for complaint against
the district court's calculation of the disgorgement
award.

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CONCLUSION

The petition for a writ of certiorari should be
denied.

Respectfully submitted.

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

WILLIAM KANTER
ERIC MAHR
Attorneys

APRIL 1996

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