Source: https://supreme.justia.com/cases/federal/us/450/91/case.html
Timestamp: 2016-06-25 03:37:04
Document Index: 517489818

Matched Legal Cases: ['§ 9', '§ 203', '§ 80', '§ 80', '§ 5', '§ 554', '§ 554', '§ 7', '§ 566', '§ 7', '§ 556', '§ 7', '§ 10', '§ 7', '§ 7', '§ 7', '§ 10', '§ 7', '§ 7', '§ 7', '§ 7', '§ 7', '§ 9', '§ 78', '§ 7', '§ 7', '§ 80', '§ 80', '§ 554', '§ 80', '§ 80', '§ 80', '§ 80', '§ 80', '§ 554', '§ 80', '§ 80', '§ 80', '§ 80', '§ 80', '§ 80', '§ 80', '§ 80', '§ 7', '§ 556']

U.S. Supreme CourtSteadman v. SEC, 450 U.S. 91 (1981)Steadman v. Securities and Exchange CommissionNo. 79-1266Argued December 3, 1980Decided February 25, 1981450 U.S. 91CERTIORARI TO THE UNITED STATES COURT OF APPEALS
In June, 1971, the Commission initiated a disciplinary proceeding against petitioner and certain of his wholly owned companies. The proceeding against petitioner was brought pursuant to § 9(b) of the Investment Company Act of 1940 [Footnote 1] Page 450 U. S. 93 and § 203(f) of the Investment Advisers Act of 1940. [Footnote 2] The Commission alleged that petitioner had violated numerous provisions of the federal securities laws in his management of several mutual funds registered under the Investment Company Act.
After a lengthy evidentiary hearing before an Administrative Law Judge and review by the Commission in which the preponderance of the evidence standard was employed, [Footnote 3] the Page 450 U. S. 94 Commission held that, between December, 1965, and June, 1972, petitioner had violated antifraud, [Footnote 4] reporting, [Footnote 5] conflict of interest, [Footnote 6] and proxy [Footnote 7] provisions of the federal securities laws. Accordingly, it entered an order permanently barring petitioner from associating with any investment adviser or affiliating with any registered investment company, and suspending him for one year from associating with any broker or dealer in securities. [Footnote 8]
Petitioner sought review of the Commission's order in the Page 450 U. S. 95 United States Court of Appeals for the Fifth Circuit on a number of grounds, only one of which is relevant for our purposes. Petitioner challenged the Commission's use of the preponderance of the evidence standard of proof in determining whether he had violated antifraud provisions of the securities laws. He contended that, because of the potentially severe sanctions that the Commission was empowered to impose and because of the circumstantial and inferential nature of the evidence that might be used to prove intent to defraud, the Commission was required to weigh the evidence against a clear and convincing standard of proof. The Court of Appeals rejected petitioner's argument, holding that, in a disciplinary proceeding before the Commission, violations of the antifraud provisions of the securities laws may be established by a preponderance of the evidence. 603 F.2d 1126, 1143 (1979). See n 8, supra. Because this was contrary to the position taken by the United States Court of Appeals for the District of Columbia Circuit, see Whitney v. SEC, 196 U.S.App.D.C. 12, 604 F.2d 676 (1979); Collins Securities Corp. v. SEC, 183 U.S.App.D.C. 301, 562 F.2d 820 (1977), we granted certiorari to resolve the conflict. 446 U.S. 917 (1980). We affirm.
Where Congress has not prescribed the degree of proof which must be adduced by the proponent of a rule or order to carry its burden of persuasion in an administrative proceeding, this Court has felt at liberty to prescribe the standard, for "[i]t is the kind of question which has traditionally been left to the judiciary to resolve." Woodby v. INS, 385 U. S. 276, 385 U. S. 284 (1966). However, where Congress has spoken, we have deferred to "the traditional powers of Congress to prescribe rules of evidence and standards of proof in the federal courts" [Footnote 9] absent countervailing constitutional constraints. Page 450 U. S. 96 Vance v. Terrazas, 444 U. S. 252, 444 U. S. 265 (1980). For Commission disciplinary proceedings initiated pursuant to 15 U.S.C. § 80a-9(b) and § 80b-3(f), we conclude that Congress has spoken, and has said that the preponderance of the evidence standard should be applied. [Footnote 10]
The securities laws provide for judicial review of Commission disciplinary proceedings in the federal courts of appeals [Footnote 11] and specify the scope of such review. [Footnote 12] Because they do not indicate which standard of proof governs Commission adjudications, however, we turn to § 5 of the Administrative Procedure Act (APA), 5 U.S.C. § 554, which "applies . . . in every case of adjudication required by statute to be determined on the record after opportunity for an agency hearing," except in instances not relevant here. [Footnote 13] Section 5(b), 5 Page 450 U. S. 97 U.S.C. § 554(c)(2), makes the provisions of § 7, 5 U.S.C. § 566, applicable to adjudicatory proceedings. [Footnote 14] The answer to the question presented in this case turns, therefore, on the proper construction of § 7. [Footnote 15]
The search for congressional intent begins with the language of the statute. Andrus v. Allard, 444 U. S. 51, 444 U. S. 56 (1979); Reiter v. Sonotone Corp., 442 U. S. 330, 442 U. S. 337 (1979); Page 450 U. S. 98 62 Cases.of Jam v. United States, 340 U. S. 593, 340 U. S. 596 (1951). Section 7(c), 5 U.S.C. § 556 (d), states in pertinent part:
The phrase "in accordance with" lends further support to a construction of § 7(c) as establishing a standard of proof. Unlike § 10(e), the APA's explicit "Scope of review" provision that declares that agency action shall be held unlawful Page 450 U. S. 99 if "unsupported by substantial evidence," [Footnote 18] § 7(c) provides that an agency may issue an order only if that order is "supported by and in accordance with . . . substantial evidence" (emphasis added). The additional words "in accordance with" [Footnote 19] suggest that the adjudicating agency must weigh the evidence and decide, based on the weight of the evidence, whether a disciplinary order should be issued. The language of § 7(c), therefore, requires that the agency decision must be "in accordance with" the weight of the evidence, not simply supported by enough evidence "to justify, if the trial were to a jury, a refusal to direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury.'" Consolo v. FMC, 383 U. S. 607, 383 U. S. 620 (1966), quoting NLRB v. Columbian Enameling & Stamping Co., 306 U. S. 292, 306 U. S. 300 (1939). Obviously, weighing evidence has relevance only if the evidence on each side is to be measured against a standard of proof which allocates the risk of error. See Addington v. Texas, 441 U. S. 418, 441 U. S. 423 (1979). Section 10(e), by contrast, does not permit the reviewing court to weigh the evidence, but only to determine that there is in the record "`such relevant evidence as a reasonable mind might accept as adequate to support a conclusion,'" Consolo v. FMC, supra at 383 U. S. 620, quoting Consolidated Edison Co. v. NLRB, 305 U.S. Page 450 U. S. 100 197, 305 U. S. 229 (1938). It is not surprising, therefore, in view of the entirely different purposes of §§ 7(c) and § 10(e), that Congress intended the words "substantial evidence" to have different meanings in context. Thus, petitioner's argument that § 7(c) merely establishes the scope of judicial review of agency orders is unavailing. [Footnote 20]
While the language of § 7(c) suggests, therefore, that Congress intended the statute to establish a standard of proof, the language of the statute is somewhat opaque concerning the precise standard of proof to be used. The legislative history, however, clearly reveals the Congress' intent. The original Senate version of § 7(c) provided that "no sanction shall be imposed . . . except as supported by relevant, reliable, and probative evidence." S. 7, 79th Cong., 1st Sess. (1945). After the Senate passed this version, the House passed the language of the statute as it reads today, and the Senate accepted the Page 450 U. S. 101 amendment. Any doubt as to the intent of Congress is removed by the House Report which expressly adopted a preponderance of the evidence standard:
H.R.Rep. No.1980, 79th Cong., 2d Sess., 37 (1946) (emphasis added). [Footnote 21] Page 450 U. S. 102 Nor is there any suggestion in the legislative history that a standard of proof higher than a preponderance of the evidence was ever contemplated, much less intended. Congress was primarily concerned with the elimination of agency decisionmaking premised on evidence which was of poor quality -- irrelevant, immaterial, unreliable, and nonprobative -- and of insufficient quantity -- less than a preponderance. See id. at 36 37 and 45; S. Doc. No. 248, 79th Cong., 2d Sess., 32322 and 376-378 (1946); n 21, supra.
The language and legislative history of § 7(c) lead us to conclude, therefore, that § 7(c) was intended to establish a standard of proof, and that the standard adopted is the traditional preponderance of the evidence standard. [Footnote 22] Page 450 U. S. 103
Our view of congressional intent is buttressed by the Commission's longstanding practice of imposing sanctions according to the preponderance of the evidence. As early as 1938, the Commission rejected the argument that in a proceeding to determine whether to suspend, expel, or otherwise sanction a brokerage firm and its principals for, inter alia, manipulation of security prices in violation of § 9 of the Securities Exchange Act of 1934, 15 U.S.C. § 78i, a standard of proof greater than the preponderance of the evidence standard was required. In re White, 3 S.E.C. 466, 539-540 (1938). Use of the preponderance standard continued after passage of the APA, and persists today. E.g., In re Cea, 44 S.E.C. 8, 25 Page 450 U. S. 104 (1969); In re Pollisky, 43 S.E. C. 458, 459-460 (1967). The Commission's consistent practice, which is in harmony with § 7(c) and its legislative history, is persuasive authority that Congress intended that Commission disciplinary proceedings, subject to § 7 of the APA, be governed by a preponderance of the evidence standard. See Andrus v. Sierra Club, 442 U. S. 347, 442 U. S. 358 (1979); United States v. National Association of Securities Dealers, Inc., 422 U. S. 694, 422 U. S. 719 (1975); Skidmore v. Swift & Co., 323 U. S. 134, 323 U. S. 140 (1944).
This disciplinary proceeding, brought by the Commission pursuant to 15 U.S.C. § 80a-9(b) and § 80b-3(f), is clearly a "case of adjudication" within 5 U.S.C. § 554. See International Telephone & Telegraph Corp. v. Electrical Workers, 419 U. S. 428, 419 U. S. 445 (1975). Both § 80a-9(b) and § 80b-3(f) also explicitly require an "opportunity for [an agency] hearing." Moreover, the disciplinary proceeding must be conducted "on the record." The phrase "on the record" appears in § 80b-3(f), and while it does not appear in § 80a-9(b), see n 1, supra, the absence of the specific phrase from § 80a-9(b) does not make the instant proceeding not subject to § 554. See United States v. Florida East Coast R. Co., 410 U. S. 224, 410 U. S. 238 (1973); United States v. Allegheny-Ludlum Steel Corp., 406 U. S. 742, 406 U. S. 757 (1972); Seacoast Anti-Pollution League v. Costle, 572 F.2d 872, 876 (CA1), cert. denied, 439 U.S. 824 (1978). Rather, the "on the record" requirement for § 80a-9(b) is satisfied by the substantive content of the adjudication. Title 15 U.S.C. § 80a-42 provides for judicial review of Commission orders issued pursuant to § 80a-9(b). Substantial evidence review by the Court of Appeals here required a hearing on the record. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U. S. 402, 401 U. S. 415 (1971); Seacoast Anti-Pollution League v. Costle, 572 F.2d at 877. Otherwise, effective review by the Court of Appeals would have been frustrated. Ibid. In addition, the substantive violations to be proved pursuant to §§ 80a-9(b)(1)-(3) are virtually identical to the substantive violations stated in §§ 80b-3(e)(1), (4), and (5), which are incorporated by reference into § 80b-3(f). The only substantive difference between § 80b-3(f) and § 80a-9(b) is that the former permits the Commission to impose sanctions on persons affiliated with an investment adviser and the latter on persons affiliated with an investment company. In both statutes, the Commission is required to prove violations of the securities law provisions enumerated, precisely the type of proceeding for which the APA's adjudicatory procedures were intended. See generally 410 U.S. at 410 U. S. 246.
The Court today sustains the action of the SEC, holding Page 450 U. S. 105 that § 7(c) of the Administrative Procedure Act (APA), 5 U.S.C. § 556(d), commands the use of this standard in disciplinary proceedings brought under the securities laws. The Court recognizes, however, ante at 450 U. S. 95-96, that the general provisions of the APA are applicable only when Congress has not intended that a different standard be used in the administration of a specific statute. The critical inquiry thus is the identification of the standard of proof desired by Congress.
The APA, upon which the Court relies, did not become law for some seven years after the enactment of the two statutes under which the SEC imposed these penalties. Again, the Court points to no specific evidence that Congress intended the APA to supplant the burden of proof rule generally applicable when the securities laws were enacted. Thus, the APA -- the general statute applicable only where a specific Page 450 U. S. 106 statute is not should have no bearing on the proof burden in this case.