Opinion ID: 4529168
Heading Depth: 2
Heading Rank: 2

Heading: The district court’s disgorgement order

Text: As with the contempt order, we review the sanctions imposed by the district court for an abuse of discretion. See Rainbow School, 887 F.3d at 617; In re General Motors Corp., 61 F.3d 256, 259 (4th Cir. 1995). District courts enjoy wide latitude in imposing a sanction that is “compensatory,” “incentivizing,” or both. Rainbow School, 887 F.3d at 620. “‘[W]hen a court imposes fines and punishments on a contemnor, it is not only vindicating its legal authority to enter the initial court order, but it also is seeking to give effect to the law’s purpose of modifying the contemnor’s behavior to conform to the terms required in the order.’” International Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, 828 (1994) (quoting Hicks ex rel. Feiock v. Feiock, 485 U.S. 624, 635 (1988)). Disgorgement—the payment of profits arising from improper conduct—is one such sanction. See S.E.C. v. JT Wallenbrock & Associates, 440 F.3d 1109, 1113 (9th Cir. 2006). As the Supreme Court explained, “[t]he primary purpose of disgorgement” is deterrence “by depriving violators of their ill-gotten gains.” Kokesh v. S.E.C., 137 S. Ct. 1635, 1643 (2017) (internal quotations and citation omitted); see also Russell G. Ryan, The Equity 18 Façade of SEC Disgorgement, 4 HARV. BUS. L. REV. ONLINE 2–5 (2013) (discussing disgorgement). Disgorgement is commonly understood as a form of restitution, “limited to restor[ing] the status quo.” Tull v. United States, 481 U.S. 412, 424 (1987). Considering the purposes of a civil contempt sanction, a fine imposed by the district court must be causally connected to the reasons for contempt. See Goodyear, 137 S. Ct. at 1185−86; see also CFPB v. Gordon, 819 F.3d 1179, 1195 (9th Cir. 2016). As to the amount of disgorgement, Klopp argued that managing the business and receiving profits did not violate the Consent Order. But the court rejected that argument in calculating the contemptuous income because “that view directly contradicts this Court’s ruling at the contempt hearing.” J.A. 1041 n.8. Thus, the court assumed that managing the business was improper and set out identifying Klopp’s profits from his business because any such profit was contemptuous income. J.A. 1042–43. But, as discussed above, the district court’s view that managing the business and accepting profits from the mortgage industry violated the Order depends on an overbroad interpretation of the Consent Order. Thus, the district court’s approach to calculating disgorgement hinged on activity that did not violate its order—it lacked the necessary causal connection between these profits and a violation. So we find that, justified on this basis, ordering disgorgement of the business profits was an abuse of discretion. 6 6 Because the primary basis for the entire sanctions order was invalid, we need not address whether the profits that accrued to Klopp after the expiration of the Consent Order were causally connected to his contemptuous conduct. And we express no opinion on whether the disgorgement of those profits would be appropriate considering Klopp’s other violations of the Consent Order. We leave these questions to the district court on remand. 19