Opinion ID: 78043
Heading Depth: 1
Heading Rank: 4

Heading: Whether the district court abused its discretion in awarding restitution in the amount of customer losses

Text: Having determined that the district court did have authority to award restitution, we now turn to the issue of whether the district court abused its discretion in determining the amount of restitution. Appellants argue that awarding restitution in the amount of customer loss was a legal remedy, and thus outside the equitable powers of the district court under § 13a-1. In Waldrop v. Southern Co. Services, Inc., this court defined restitution generally as an equitable remedy designed to cure unjust enrichment of the defendant absent consideration of the plaintiff's losses.  24 F.3d 152, 158 (11th Cir.1994) (emphasis added); accord FTC v. Verity Int'l., Ltd., 443 F.3d 48, 66-68 (2d Cir.2006) (determining that the appropriate measure for restitution is the benefit unjustly received by the defendants[,] not the amount of the customer loss); Ellett Bros., Inc. v. U.S. Fidelity & Guar. Co., 275 F.3d 384, 388 (4th Cir.2001) (Restitution and disgorgement require payment of the defendant's ill-gotten gain, not compensation of the plaintiff's loss.). The award here was based on the amount the customers lost, not the amount of unjust enrichment received by Appellants. The Third Circuit has concluded that an award of restitution under § 13a-1 measured in the amount of customer losses is generally improper. CFTC v. Am. Metals Exch. Corp., 991 F.2d 71, 76-79 (3d Cir. 1993). The court reasoned that relief granted pursuant to the court's equitable powers under the CEA must be remedial and not punitive in nature. Id. at 78. According to the court, [A]n award of damages in the amount of investor losses may go beyond the scope of a [CEA] enforcement proceeding. Absent a hearing to calculate ill-gotten gains, the disgorgement ordered in an amount equal to investor losses could be a penalty assessment. If investors wish to seek recovery of their losses as a remedy, they are free to do so in an independent civil action against defendants. The hardship of investor losses should not, however, be used as an excuse to impose a remedy under circumstances in which the scope of relief falls outside that remedy's recognized parameters. Id. In this case, the award was not based on the amount of money that Appellants wrongfully gained by their misrepresentations. Instead, it was based on the amount of money that the customers lost. The equitable remedy of restitution does not take into consideration the plaintiff's losses, but only focuses on the defendant's unjust enrichment. Waldrop, 24 F.3d at 158-59. Accordingly, we conclude that the district court abused its discretion in awarding the full amount of customer losses. The proper measurement is the amount that Appellants wrongfully gained by their misrepresentations. [3]
Appellants next argue that the district court abused its discretion in imposing the maximum civil penalty on Russo, Malcolmson, Wilshire, and WIM. In evaluating civil penalties under the CEA, we have considered the general seriousness of the violation as well as any particular mitigating or aggravating circumstances that exist. See JCC, Inc. v. CFTC, 63 F.3d 1557, 1571 (11th Cir.1995). Defrauding customers is a violation of the core provisions of the CEA and should be considered very serious. Id. Further, there are no mitigating circumstances present here. As in JCC, Inc., the violations of the Act at issue here were `knowingly and repeatedly' committed; we are not dealing with a situation involving an isolated `mistake' arising from an ambiguous statutory duty or from circumstances that are unique and unforeseeable. Id. Additionally, Appellants' post-violation conduct does not warrant a reduction, as Appellants have made no attempt to cure the past violations or provide restitution to the defrauded customers. See id. Thus, we conclude that the district court did not abuse its discretion in imposing the maximum civil penalty.
Finally, Appellants argue that the district court's injunction prohibiting Malcolmson, Russo, Wilshire, and WIM from engaging in any commodity-related activity was an abuse of discretion. [4] The CEA allows a district court, upon a proper showing, to grant a permanent injunction. 7 U.S.C. § 13a-1(b). In reviewing the grant of an injunction, the ultimate test ... is whether the defendant's past conduct indicates that there is a reasonable likelihood of further violations in the future. SEC v. Caterinicchia, 613 F.2d 102, 105 (5th Cir.1980); see also Sidoti, 178 F.3d at 1137 (applying this standard to cases under the CEA). Specifically, the following factors should be considered: [T]he egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations. SEC v. Carriba Air, Inc., 681 F.2d 1318, 1322 (11th Cir.1982). The district court here considered the past violations by the Appellants with regard to nine customers, including acts by multiple brokers at multiple times. The court also considered the potential for future violations and found it important that the Appellants have not acknowledged any wrongdoing, insisting rather that their sales tactics were completely legitimate. Id. The court specifically found that their lack of candor ... demonstrated at trial belies any intent of making good faith efforts to comply with restrictions in the future. Id. at 15-16. Finally, the court determined that the injunction was appropriate because the violations were blatant, brazen, and repeated. Id. at 16. The district court looked at the Appellants' past conduct and at the potential for future violations, considering many of the factors set out in Carriba Air. The district court applied the proper legal standard and followed proper procedures in issuing the injunction, and the findings of fact supporting the injunction are not clearly erroneous. Hence, we find that the district court did not abuse its discretion in issuing the injunction. [5]