Opinion ID: 2765934
Heading Depth: 2
Heading Rank: 3

Heading: Income Disgorgement

Text: The District cross-appeals the trial court‟s denial of its request for disgorgement of both Mr. Thanos‟s and VIP‟s revenue and income derived from the prostitution-related nuisance.13 In the Superior Court, the District sought the money Mr. Thanos received from VIP for rent and otherwise, as well as the gross amount VIP received for providing “massages.”14 The District argues that it is entitled to income disgorgement under § 42-3110 (7), the “catch-all provision” of 12 To the extent Mr. Thanos argues that the District should not be entitled to attorney‟s fees because the District‟s various actions were procedurally defective, because the court failed to find a nuisance with the requisite “adverse impact,” and because the court failed to hold a hearing on the preliminary injunction motion within ten days, we have rejected these arguments. 13 VIP has appeared as a cross-appellee on this claim. 14 The District also sought per diem damages in the amount of $100 per day pursuant to D.C. Code § 42-3111, which provides that “the plaintiffs may request, and the court in its discretion may order damages for each day the . . . prostitutionrelated nuisance is unabated since the defendant first received notice. . . .” The court interpreted the statute to require that per diem damages be compensatory, not punitive. See D.C. Code § 42-3113 (“This action is civil in nature and none of its provisions should be interpreted as punishment.”). Finding that “[t]here is no evidence in the record as to how the $100 a day is tied to compensating for a specific harm, including the public interest, other than assessing what might be viewed as nominal punitive damages,” the court denied the District‟s request, and the District does not appeal that ruling. 21 the statute, which provides for “[a]ny other remedy which the court, in its discretion, deems appropriate.” D.C. Code § 42-3110 (7). The trial court considered this argument in light of the entire statutory scheme and concluded that it did not have the authority to impose income disgorgement for several reasons: because the Act is focused on abatement and prevention, not punishment or compensation, because a different provision—§ 42-3110 (b)(4)—provides for the capturing of rents for a certain period of time in order to accomplish abatement and specifies when and why rents can be escrowed, and because the D.C. Council made its intentions clear in § 42-3113 that “[t]his action is civil in nature and none of its provisions should be interpreted as punishment.” Although the decision to grant or deny equitable relief is committed to the sound discretion of the trial court, see D.C. Code § 42-3110 (b), “[j]udicial discretion must . . . be founded upon correct legal principles and a trial court abuses its discretion when it rests its conclusions on incorrect legal standards.” In re J.D.C., 594 A.2d 70, 75 (D.C. 1991) (internal citation omitted). We disagree that the statute does not authorize income disgorgement as a matter of law. While the trial court was correct in concluding that it could not award damages as a legal remedy beyond those authorized in § 42-3111, it does have the broad authority to fashion equitable relief for the purposes of enjoining, abating, and preventing the continuation or recurrence of a prostitution-related 22 nuisance. See D.C. Code § 42-3110. Although the District itself referred to income disgorgement as damages in its request, income disgorgement is widely viewed as an equitable remedy.15 So v. Suchanek, 670 F.3d 1304, 1310 (D.C. Cir. 2012) (“Disgorgement is an equitable remedy entrusted to the sound discretion of the district court.”); Cnty. of Essex v. First Union Nat’l Bank, 891 A.2d 600, 609 (N.J. 2006) (“It is obvious that the County‟s cause of action for unjust enrichment/disgorgement is an equitable claim.”); King Mountain Condo. Ass’n v. Gundlach, 425 So.2d 569, 572 (Fla. App. 1982) (“[T]he disgorgement of secret profits . . . is an equitable remedy. . . .”). Instead of compensating victims, as damages do, income disgorgement serves to prevent unjust enrichment. Cnty. of Essex, 891 A.2d at 609 (the equitable remedy of disgorgement is “grounded in the theory that a wrongdoer should not profit from its wrongdoing regardless of whether the innocent party suffered any damages”); United States v. Lane Labs- 15 VIP argues that the District, having asserted its right to income disgorgement under a theory of damages below, cannot rely on an alternative theory on appeal. See Estate of Taylor v. Lilienfield, 744 A.2d 1032, 1035 (D.C. 2000) (“Parties may not assert one theory at trial and another theory on appeal.”). But the District specifically cited § 42-3110—dealing exclusively with equitable remedies and not with damages—in its request for income disgorgement. Although the District called the money it was seeking “damages,” it plainly sought income disgorgement according to the framework laid out in § 42-3110, analyzing the factors to consider when fashioning a “remedy” under that section. The equitable remedy theory asserted by the District is therefore not novel and is permissible at this stage of litigation. 23 USA, Inc., 324 F. Supp. 2d 547, 576 (D.N.J. 2004) (“Disgorgement differs from restitution in that it . . . does not turn on compensating the victims.”). Under § 423110, which relates to equitable remedies (as opposed to § 42-3111, which relates to damages), the court does have the authority to order income disgorgement—not as a punishment or as victim compensation, but to deprive Mr. Thanos and VIP of their ill-gotten revenues on the theory that the cross-appellees should not be permitted to retain the spoils from a prostitution-related nuisance. The trial court‟s authority to award disgorgement is not unlimited, however. Disgorgement still must be “necessary” in the specific case at issue to “enjoin[], abat[e], and prevent[] the continuance or recurrence of the nuisance.” D.C. Code § 42-3110 (a).16 Moreover, disgorgement assessed under the Act cannot be punitive in nature. D.C. Code § 42-3113. See also Sec. & Exch. Comm’n v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978) (“The court‟s power to order disgorgement extends only to the amount with interest by which the defendant profited from his wrongdoing. Any further sum would constitute a penalty assessment.”). And, specifically relevant to Mr. Thanos in this case, disgorgement under the catch-all 16 As the trial court recognized, it is not enough to say that “any monetary award will help abate crime because it takes the profit out of the activity.” Disgorgement is only “necessary” as a deterrent to prevent a recurring nuisance if there is factual support for a conclusion that the nuisance would recur without disgorgement. 24 provision in subsection (c)(11) cannot be used to collect rental income from the property—the statute lays out specific procedures for collecting rental income in subsections (c)(4) and (5), and a court cannot use the general catch-all provision to circumvent the Council‟s explicit instructions. See Odeniran v. Hanley Wood, LLC, 985 A.2d 421, 427 (D.C. 2009) (“Although the expressio unius maxim . . . must be applied with a considerable measure of caution, it is useful where the context shows that the draftsmen‟s mention of one thing . . . does really necessarily, or at least reasonably, imply the preclusion of alternatives.”) (internal citation and quotation marks omitted). The trial court noted in a footnote that “on this factual record,” disgorgement would have been “more punitive in nature,” but that conclusion appears ultimately to have been used to buttress its assertion that it lacked the statutory authority to order disgorgement. Having clarified the scope of the trial court‟s authority, we remand to the trial court to determine, within its discretion, whether disgorgement is an appropriate equitable—and not punitive—remedy that is “necessary” to enjoin, abate, and prevent the continuance or recurrence of the nuisance under the circumstances of this case.17 17 Nothing in this opinion should be construed to suggest that disgorgement is or is not appropriate on the facts of this case. 25