Opinion ID: 363137
Heading Depth: 1
Heading Rank: 4

Heading: Lower Court's Denial of Commission's Request for Disgorgement

Text: 35 The original complaint of the Commission sought, in addition to injunctive relief, an order compelling the Hunts to disgorge all profits they obtained as a result of their illegal activities. Although no hearing on the merits of the propriety of this relief was held in the trial court, the request for an order of disgorgement was denied. The lower court's rejection of the Commission's prayer for disgorgement was precipitous, and we remand the issue to the district court for reconsideration in light of the following observations. 5 36 Disgorgement of illegally obtained profits has been ordered in a number of Securities Exchange Commission judicial enforcement proceedings. See, e. g., SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90 (2d Cir. 1978); SEC v. Shapiro, 494 F.2d 1301 (2d Cir. 1974); SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301 (2d Cir.), Cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971). In these cases, disgorgement was ordered despite the fact that there was no specific, express authority for this remedy in the Securities Exchange Act. Further, the Second Circuit in these cases explicitly rejected the objection that disgorgement is a penalizing rather than a remedial, equitable device, correctly reasoning that disgorgement does not penalize, but merely deprives wrongdoers of ill-gotten gains. See, E. g., SEC v. Texas Gulf Sulphur Co., Supra, at 1308; SEC v. Shapiro, Supra at 1309. 37 The question whether disgorgement is an appropriate form of ancillary relief in the Commodity Exchange Act context, as in the Securities Exchange Act setting, is, however, a closer one. Both sections 21(e) and 27 of the Securities Exchange Act discuss remedies for the enforcement of the norms of the Act. Section 21(e) only authorizes the Securities Exchange Commission to seek injunctive relief. Section 27, however, grants the district court general equitable powers to enforce the Act. The leading case authorizing the disgorgement remedy rested its conclusion, in part, on the general remedial powers possessed by the district court pursuant to section 27. SEC v. Texas Gulf Sulphur Co., supra, at 1307. Section 21(e) was relevant to that court's reasoning only insofar as the court rejected the objection that section 21(e) limits the type of remedy the Securities Exchange Commission can pursue to injunctions. 38 Section 6c of the Commodity Exchange Act tracks the injunction language of section 21(e), but adds the broadening language that the Commodity Futures Trading Commission may bring an action in the district court to enforce compliance with this chapter, or any rule, regulation or order thereunder . . . . 7 U.S.C. § 13a-1. There is, however, no provision in the Commodity Exchange Act comparable to the express grant of equitable authority found in section 27 of the Securities Exchange Act. Thus, the principal statutory authority the Second Circuit has relied on in approving disgorgement in the Securities Exchange Act context is absent from the Commodity Exchange Act. 39 In the Texas Gulf Sulphur decision, however, the court referred to cases in other contexts in which the Supreme Court has upheld 40 the power of the Government without specific statutory authority to seek restitution, and has upheld the lower courts in granting restitution, as an ancillary remedy in the exercise of the courts' general equity powers to afford complete relief. Mitchell v. Robert DeMario Jewelry, 361 U.S. 288, 80 S.Ct. 332, 4 L.Ed.2d 323 (1960); United States v. Moore, 340 U.S. 616, 71 S.Ct. 524, 95 L.Ed. 582 (1951); Porter v. Warner Holding Co., 328 U.S. 395, 66 S.Ct. 1086 90 L.Ed. 1332 (1946). 41 Id. 42 And in these cases there was no explicit statutory expression, like section 27, of the court's equitable enforcement powers; the authority to grant disgorgement is found in the traditional equity powers of a court. See Renegotiation Bd. v. Bannercraft Clothing Co., 415 U.S. 1, 19, 94 S.Ct. 1028, 39 L.Ed.2d 123 (1974). 43 In Porter v. Warner Holding Co., 328 U.S. 395, 66 S.Ct. 1086, 90 L.Ed. 1332 (1946), for example, the Supreme Court dealt with an action brought by the Price Administrator pursuant to the Emergency Price Control Act to enjoin the collection of excessive rents and to compel reimbursement of money collected by landlords as a result of past violations. Assessing language describing the authority of the district court which parallels the language of section 6c of the Commodity Exchange Act, 6 the Court stated:. . . the Administrator invoked the jurisdiction of the District Court to enjoin acts and practices made illegal by the Act and to enforce compliance with the Act. Such a jurisdiction is an equitable one. Unless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction. And since the public interest is involved in a proceeding of this nature, those equitable powers assume an even broader and more flexible character than when only a private controversy is at stake. . . . (T)he court may go beyond the matters immediately underlying its equitable jurisdiction . . . and give whatever other relief may be necessary under the circumstances. 44 Moreover, the comprehensiveness of this equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command. Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court's jurisdiction in equity, the full scope of that jurisdiction is to be recognized and applied. 45 Id. at 398, 66 S.Ct. at 1089. See also Mitchell v. DeMario Jewelry, Inc., 361 U.S. 288, 80 S.Ct. 332, 4 L.Ed.2d 323 (1960). In Porter, the Court reasoned that an order for restitution could be justified either as an adjunct to an injunction decree or as an order appropriate and necessary to enforce compliance with the Act. 328 U.S. at 399-400, 66 S.Ct. at 1090. 46 The Commodity Exchange Act contains no provision similar to section 27 of the Securities Exchange Act, but neither does it have any provision restricting the equitable power of the district court. Porter and Mitchell Indicate that the latter fact is a sufficient basis for concluding that a district court possesses the authority to order restitution pursuant to the Commodity Exchange Act. Further, as the Second Circuit noted in the Securities Exchange Act context, to allow a violator to retain the profits from his violations would frustrate the purposes of the regulatory scheme. See SEC v. Texas Gulf Sulphur Co., supra, at 1308; SEC v. Manor Nursing Centers, Inc.,supra, at 1104. Thus we conclude that a district court may compel a violator of regulations promulgated under the trading limit provisions of the Commodity Exchange Act to disgorge his illegally obtained profits. 47 This conclusion, however, does not complete our inquiry. Both the district court's memorandum opinion and the Hunts' briefs refer to the complex evidentiary problems involved in the attempt to isolate the profits achieved by the Hunt family members on the basis of their soybean trading In excess of the speculative limits. Further, even if it can be determined with some precision what amounts should be disgorged, the Commodity Futures Trading Commission has made no suggestion about what a court would do with the disgorged funds. This is a particularly vexing problem given the difficulty of determining injured parties in a large, complex system of exchange like the soybean market. Therefore, we remand this issue to the district court to give the Commission the opportunity to present arguments and evidence regarding the feasibility of this form of remedy in the instant case. 48