Opinion ID: 223605
Heading Depth: 4
Heading Rank: 1

Heading: Unpacking the Law of Restitution

Text: Bronson's tracing argument turns on the fact that the district court described its monetary award as equitable restitution. Because the term restitution entered the legal lexicon relatively recently, its use is often a source of confusion among courts and commentators. In 1936, the American Law Institute adopted the Restatement of Restitution in an effort to demonstrate that a range of seemingly disparate rights and remedies, including equitable claims such as constructive trust and legal ones such as quasi-contract, could in fact be explained ... in terms of the common objective of preventing unjust enrichment. Andrew Kull, Rationalizing Restitution, 83 Calif. L. Rev. 1191, 1192 (1995); see Restatement of Restitution (1937). [4] Prior to the publication of the Restatement, the common law, organized for centuries in terms of remedies rather than theories of liability, rarely acknowledged the avoidance of unjust enrichment as one of its actuating principles. Kull, supra, at 1192. Continuing the reorientation of Anglo-American law that began with the nineteenth century treatise writers, the reporters of the Restatement thus conceived of restitution as a unifying theory of private-law liability akin to tort or contract  a descriptor of a class of wrongs rather than of any particular remedy. [5] Nonetheless, in view of the fact that certain remedies, such as the constructive trust, are awarded almost exclusively in cases that sound in unjust enrichment, courts and commentators often use the term restitution as a metonym for the class of remedies particularly identified with that head of liability. Moreover, because the feature that distinguishes restitution from tort and contract is that liability turns on the unjust enrichment of the defendant, conceptual bleeding has led courts to apply the label restitution to remedies that measure recovery by the defendant's gain, even where the basis of liability is a statutory violation rather than common law principles. See, e.g., Curtis v. Loether, 415 U.S. 189, 197, 94 S.Ct. 1005, 39 L.Ed.2d 260 (1974) (Title VII); Porter, 328 U.S. at 400, 66 S.Ct. 1086 (Emergency Price Control Act); AMW Materials Testing, Inc. v. Town of Babylon, 584 F.3d 436, 442-43 (2d Cir.2009) (CERCLA); Verity, 443 F.3d at 66-67 (FTC Act); SEC v. Tex. Gulf Sulphur Co., 446 F.2d 1301, 1307 (Securities Exchange Act of 1934). Grouping legal rules that focus on the benefit to the wrongdoer under a single conceptual heading is a sensible and unproblematic practice in most cases. The Supreme Court has cautioned, however, that when the district court's jurisdiction is founded on a statutory scheme that makes the historical divide between law and equity salient, it is necessary to unbraid the law of restitution  to separate legal claims from equitable ones and rights from remedies. In Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002), the Court considered whether a claim for monetary restitution pursuant to a subrogation provision in an employee health plan was barred by language in the Employee Retirement Income Security Act of 1974 (ERISA) that limits the district court's jurisdiction to actions seeking either to enjoin violations of a covered plan or to obtain other appropriate equitable relief. See 29 U.S.C. § 1132(a)(3)(B). Justice Scalia's majority opinion emphasized that in order to determine whether the plaintiffs' claims were properly characterized as legal or equitable, it was necessary to consider the basis for [the] claim[s] and the nature of the underlying remedies sought. 534 U.S. at 213, 122 S.Ct. 708 (internal quotation marks omitted). Focusing on the first prong of the inquiry, the Court recognized that the rubric of restitution embraces several historically distinct private-law claims, some of which evolved at law and others of which evolved in equity. Id. at 212, 122 S.Ct. 708. Broadly speaking, a claim sounding in legal restitution seeks to impose personal, monetary liability on the defendant. Id. at 213, 122 S.Ct. 708. In contrast, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession. Id. at 214, 122 S.Ct. 708. Ultimately, the Knudson Court found it dispositive that the basis for petitioners' claim is not that respondents hold particular funds that, in good conscience, belong to petitioners, but that petitioners are contractually entitled to some funds for benefits that they conferred. Id. Such a claim, the Court concluded, was purely legal and therefore not authorized under ERISA. Although it was issued in a different context and under a different statutory mandate, Knudson's admonition to examine carefully the basis for [restitution] claims and the nature of the underlying remedies sought is equally applicable to actions seeking restitution under Section 13(b) of the FTC Act. Unlike the claims of the petitioners in Knudson, however, the basis for the monetary claim in Section 13(b) cases is seldom problematic. That is because, in the majority of such cases, as here, the defendants are alleged to have violated specific provisions of the FTC Act itself. [6] Because the basis of liability is statutory, the Commission has no need to rely on common law theories of unjust enrichment, be they equitable or legal. It is because Bronson fails to recognize this distinction between Knudson and the present case that its tracing argument fails. Knudson teaches that a court confronted with a private, equitable claim sounding in unjust enrichment may ordinarily award only a constructive trust or an equitable lien, because only those remedies require the district court to find that the defendant holds specific property that is traceable to the proceeds of his wrongdoing. See 534 U.S. at 213-14, 122 S.Ct. 708. But where the basis of the claim is a violation of the FTC Act, the district court needs to determine only that the nature of the underlying remedies sought was historically equitable. Id. In FTC v. Verity , that inquiry led us to conclude that a monetary award that we characterized as equitable restitution was authorized by Section 13(b) and not subject to jury trial, notwithstanding the district court's apparent failure to follow the arcane tracing rules that Bronson would have us apply here. 443 F.3d at 67. In order to make clear that the district court was acting within its authority, our opinion in Verity should have identified the specific historical remedy that underlay the award of equitable restitution in that case. Given that omission on our part, it is understandable that the district court in the present case likewise failed to do so. Any error in that regard was harmless, however, because, as outlined below, we conclude that the substance of the district court's monetary judgment comports with the equitable remedy of disgorgement. Cf. Walley v. Dep't of Veterans Affairs, 279 F.3d 1010, 1021-22 (Fed.Cir.2002) (concluding that an error in terminology can be harmless so long as the substantive legal standard applied was the correct one), abrogated on other grounds by Garcia v. Dep't of Homeland Sec., 437 F.3d 1322 (Fed.Cir.2006).