Court Opinion

ID: 3207184
Source: CourtListenerOpinion
Date Created: 2016-05-26 19:00:55.261362+00
Date Added: 2024-06-11T14:29:15.240538
License: Public Domain

Case: 14-13562   Date Filed: 05/26/2016   Page: 1 of 15

                                                                    [PUBLISH]

           IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                      ________________________

                            No. 14-13562
                      ________________________

                  D.C. Docket No. 4:13-cv-10011-JLK

SECURITIES AND EXCHANGE COMMISSION,

                                                           Plaintiff-Appellant,

                                   versus

BARRY J. GRAHAM,
FRED DAVIS CLARK, JR.,
a.k.a. Dave Clark,
CRISTAL R. COLEMAN,
a.k.a. Cristal Clark,
DAVID W. SCHWARZ,
RICKY LYNN STOKES,

                                                      Defendants - Appellees.

                      ________________________

               Appeal from the United States District Court
                   for the Southern District of Florida
                     ________________________

                             (May 26, 2016)
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Before MARCUS, JILL PRYOR and FAY, Circuit Judges.

JILL PRYOR, Circuit Judge:

      With few exceptions, 28 U.S.C. § 2462 bars the government from bringing

suit to enforce “any civil fine, penalty, or forfeiture” after five years from when the

claim first accrued. The Securities and Exchange Commission (the “SEC” or

“Commission”) waited more than five years to commence an action for declaratory

relief, injunctive relief, and disgorgement against the defendants, who allegedly

violated federal securities law by selling unregistered securities. The defendants

raised the five-year statute of limitations as an affirmative defense in their motions

for summary judgment. The district court dismissed the case, ruling that the statute

of limitations set out in § 2462 is jurisdictional and that every remedy the SEC

requested was outside the court’s jurisdiction. The SEC appealed, arguing that

§ 2462 is nonjurisdictional and that the injunctive and declaratory relief and

disgorgement it sought were not subject to § 2462’s time bar. After careful

consideration of the briefs, and with the benefit of oral argument, we affirm in part,

reverse in part, and remand for further proceedings.

                                I. BACKGROUND

      On January 30, 2013, the SEC filed a civil enforcement action against Barry

J. Graham, Fred Davis Clark, Jr., Cristal R. Coleman, David W. Schwarz, and

Ricky Lynn Stokes (collectively, the “defendants”). The Second Amended

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Complaint (the “complaint”) alleged that, from at least November 2004 to July

2008, the defendants violated federal securities law by selling condominiums that

were functioning, in reality, as unregistered securities. According to the complaint,

the defendants raised more than $300 million from approximately 1,400 investors

around the country but failed to pay out the returns they had guaranteed. The

Commission requested that the district court (1) declare that the defendants had

violated federal securities laws; (2) permanently enjoin the defendants from

violating federal securities laws in the future; (3) direct the defendants to disgorge

all profits from their illegal ventures, with prejudgment interest; (4) order the

defendants to repatriate any funds held outside the district court’s jurisdiction; and

(5) require three defendants, Coleman, Clark, and Stokes, to pay civil money

penalties.

      Coleman, Clark, Stokes, and defendant Schwarz filed motions for summary

judgment on two main grounds: (1) the sale of their condominiums were not

investment contracts, and thus were not governed by securities laws; and (2) the

statute of limitations under 28 U.S.C. § 2462 barred all of the SEC’s requested

forms of relief. The SEC filed a competing motion for summary judgment. The

district court held a hearing on the defendants’ statute of limitations defense.

      Without reaching the merits of the cross-motions for summary judgment, the

district court dismissed the SEC’s complaint as time-barred. The court held that

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§ 2462—which bars any action “for the enforcement of any civil fine, penalty, or

forfeiture” if brought more than five years from the date the claim first accrued—is

a “jurisdictional” statute of limitations; thus, if it applied, the court lacked subject

matter jurisdiction. The court found that the defendants’ alleged securities

violations took place more than five years before the SEC filed suit. It further

determined that § 2462 applied to all of the remedies the SEC sought, not just the

civil money penalty. Specifically, the district court concluded that the injunctive

and declaratory relief the SEC sought were penalties and that the disgorgement the

SEC requested constituted forfeiture, all within the meaning of § 2462.

Accordingly, the court dismissed the action with prejudice.

                                      II. DISCUSSION

       Although it accepts that § 2462 expressly bars its claim for civil money

penalties, the SEC appeals the district court’s ruling that § 2462 applies to the

remaining remedies it sought: injunctive relief, declaratory relief, and

disgorgement. 1 We review de novo issues of law, including questions of statutory

       1
          The SEC also challenges on appeal the district court’s conclusion that § 2462 is
jurisdictional in nature. We need not decide for purposes of this appeal whether § 2462’s time
bar is jurisdictional such that a time-barred § 2462 claim should be dismissed for lack of subject
matter jurisdiction. There is no question that we and the district court have jurisdiction to
consider and apply § 2462’s statute of limitations in this case. Whether § 2462’s time bar is a
jurisdictional requirement or only an affirmative defense does not impact our analysis here
because the parties raise no issue on appeal about whether the defendants waived the statute of
limitations, whether the SEC is entitled to equitable tolling, or who bears the burden of proof.
See John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 133-34 (2008) (discussing
whether time bars are jurisdictional or constitute an affirmative defense). For our purposes and
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interpretation. De Sandoval v. U.S. Att’y Gen., 440 F.3d 1276, 1278 (11th Cir.

2006). “[A]ny statute of limitations sought to be applied against the United States

must receive a strict construction in favor of the Government.” United States v.

Banks, 115 F.3d 916, 919 (11th Cir. 1997) (internal quotation marks omitted). We

consider in turn the applicability of § 2462 to the SEC’s request for injunctive

relief, declaratory relief, and disgorgement.

A. Injunctive Relief

       The district court held that § 2462 applied here because the injunction the

SEC requested was “nothing short of a penalty” and therefore covered by § 2462’s

plain language. SEC v. Graham, 21 F. Supp. 3d 1300, 1310 (S.D. Fla. 2014). We

cannot agree.

       Our precedent forecloses the argument that § 2462 applies to injunctions,

which are equitable remedies. See Nat’l Parks & Conservation Ass’n v. Tenn.

Valley Auth., 502 F.3d 1316, 1326 (11th Cir. 2007) (noting, where the plaintiffs

sought an injunction to enforce EPA standards, “the statute of limitations set forth

in 28 U.S.C. § 2462 applies only to claims for legal relief; it does not apply to

equitable remedies”); Banks, 115 F.3d at 919 (“[S]ection 2462 does not apply to

equitable remedies.”). In Banks, the government obtained an injunction against a

the parties’, it makes no difference in this case whether we treat § 2462’s time bar as a
jurisdictional requirement or an affirmative defense. Accordingly, we do not reach this issue.
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landowner requiring that he stop discharging materials into the wetlands on his

property and take steps to restore the wetlands to their undisturbed condition

before he began discharging the materials. 115 F.3d at 918. Despite Banks’s

claim that the action was barred by § 2462, we upheld the injunction, observing

that it was an equitable remedy and thus beyond the reach of that statute. Id. at

919. An injunction requiring (or forbidding) future conduct is not subject to

§ 2462’s statute of limitations.

      Even if we were not bound by Banks, still we would conclude that § 2462

does not apply to injunctions like the one in this case. Section 2462 does not

define the term “penalty”; we therefore look to the term’s ordinary meaning. See

Taniguchi v. Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2002 (2012) (“When a term

goes undefined in a statute, we give the term its ordinary meaning.”); Consol.

Bank, N.A. v. U.S. Dep’t of Treasury, 118 F.3d 1461, 1463-66 (11th Cir. 1997).

Definitions of the term “penalty” abound. The Supreme Court has defined a

penalty as “something imposed in a punitive way for an infraction of a public law.”

Meeker v. Lehigh Valley R.R. Co., 236 U.S. 412, 423 (1915). Similarly, the

Oxford English Dictionary says a penalty is “[a] punishment imposed for breach of

law, rule, or contract.” Penalty, Oxford English Dictionary (2d ed. 1989). Black’s

Law Dictionary defines the term as “[p]unishment imposed on a wrongdoer,

[usually] in the form of imprisonment or fine; [especially,] a sum of money

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exacted as punishment for either a wrong to the state or a civil wrong (as

distinguished from compensation for the injured party’s loss).” Penalty, Black’s

Law Dictionary (10th ed. 2014).

      Each of these definitions has the common element of looking backward in

time. That is, a penalty addresses a wrong done in the past. See, e.g., Reich v.

Occupational Safety & Health Review Comm’n, 102 F.3d 1200, 1202 (11th Cir.

1997) (noting that “[u]nlike injunctive relief which addresses only ongoing or

future violations, civil penalties address past violations”).

      Injunctions, by contrast, typically look forward in time. See United States v.

W. T. Grant Co., 345 U.S. 629, 633 (1953) (“The purpose of an injunction is to

prevent future violations . . . .”); Strickland v. Alexander, 772 F.3d 876, 883 (11th

Cir. 2014) (“[I]njunctions regulate future conduct only; they do not provide relief

for past injuries already incurred and over with.”). An injunction therefore is not a

penalty within the meaning of § 2462. See United States v. Or. State Med. Soc’y,

343 U.S. 326, 333 (1952) (“The sole function of an action for injunction is to

forestall future violations. It is so unrelated to punishment or reparations for those

past that its pendency or decision does not prevent concurrent or later remedy for

past violations by indictment or action for damages by those injured.”). If

imposed, the injunction in this case would only prevent the defendants from

violating securities laws in the future.

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      Giving the term “penalty” its ordinary meaning, as we must, the purpose and

effect of the SEC’s claim for injunctive relief are nonpunitive, and § 2462’s time

bar is inapplicable. Because the ordinary meaning of “penalty” is unambiguous,

our analysis ends here. See Conn. Nat’l Bank v. Germain, 503 U.S. 249, 254

(1992) (“When the words of a statute are unambiguous, then, this first canon [of

statutory construction] is also the last: judicial inquiry is complete.” (internal

quotation marks omitted)).

      Contrary to the defendants’ argument, Gabelli v. SEC does not compel a

different conclusion. 133 S. Ct. 1216 (2013). Although Gabelli cautioned against

“leav[ing] defendants exposed to Government enforcement action . . . for an

additional uncertain period into the future,” in that case the Supreme Court held

that for purposes of § 2462 a fraud claim brought by the SEC accrues when the

defendant’s allegedly fraudulent conduct occurred. 133 S. Ct. at 1221-24. In

declining to adopt the discovery rule, which would delay accrual “until the plaintiff

has ‘discovered’ his cause of action,” the Court distinguished between a private

action brought by “a defrauded victim seeking recompense” and “the Government

bringing an enforcement action for civil penalties.” Id. at 1221 (internal quotation

marks omitted). The Court emphasized that, unlike a private action seeking

compensatory damages, the SEC enforcement action “involve[d] penalties, which

go beyond compensation, are intended to punish, and label defendants

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wrongdoers.” Id. at 1223. But the Court did not hold that all remedies the SEC

may seek in an enforcement action are penalties and, in particular, did not address

whether an SEC action seeking injunctive relief or disgorgement falls within

§ 2462’s ambit. Id. at 1220 n.1. Thus, Gabelli does not inform our inquiry as to

whether § 2462 governs claims for injunctive relief.

         Because injunctions are equitable, forward-looking remedies and not

penalties within the meaning of § 2462, we conclude that the five-year statute of

limitations is inapplicable to injunctions such as the one the SEC sought in this

case.2

B. Declaratory Relief

         We agree with the district court, however, that the declaratory relief the SEC

sought is backward-looking and thus would operate as a penalty under § 2462. On

         2
          We note that the injunction the SEC requested in the operative complaint sought to
prevent the defendants from violating federal securities laws, otherwise known as an “obey-the-
law” injunction. Repeatedly we have said that, in the context of SEC enforcement actions and
otherwise, “obey-the-law” injunctions are unenforceable. See SEC v. Smyth, 420 F.3d 1225,
1233 n.14 (11th Cir. 2005); Fla. Ass’n of Rehab. Facilities v. Fla. Dep’t of Health & Rehab.
Servs., 225 F.3d 1208, 1222-23 (11th Cir. 2000) (citing cases holding that obey-the-law
injunctions are unenforceable). In particular, “an injunction which merely tracks the language of
the securities statutes and regulations,” as the injunction in this case presently is described, “will
not clearly and specifically describe permissible and impermissible conduct” as required by
Federal Rule of Civil Procedure 65(d). SEC v. Goble, 682 F.3d 934, 952 (11th Cir. 2012). We
“condemn these injunctions because they lack specificity and deprive defendants of the
procedural protections that would ordinarily accompany a future charge of a violation of the
securities laws.” Id. at 949. The SEC argues, however, and we agree, that it is premature to
review the precise nature of the injunction because, at this stage, the district court has issued no
injunction for us to evaluate. It is at least possible that the SEC could seek injunctive relief that
would be specific and narrow enough that the parties would be afforded sufficient warning to
conform their conduct.
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this point, Gabelli is instructive. There, the Supreme Court recognized that civil

penalties “go beyond compensation, are intended to punish, and label defendants

wrongdoers.” Id. at 1223. The declaratory relief at issue here is no different. A

declaration of liability goes beyond compensation and is intended to punish

because it serves neither a remedial nor a preventative purpose; it is designed to

redress previous infractions rather than to stop any ongoing or future harm. Cf.

Green v. Mansour, 474 U.S. 64, 67 (1985) (characterizing declaratory relief that

“related solely to past violations of federal law” as retrospective for purposes of the

Eleventh Amendment). A public declaration that the defendants violated the law

does little other than label the defendants as wrongdoers.

      The SEC urges us to exempt declaratory relief from § 2462 because the SEC

may use findings of past violations of securities laws to obtain other remedies. We

are unpersuaded. First, some of the remedies the SEC could seek (i.e., civil

penalties and, as discussed below, disgorgement) are themselves subject to § 2462

and similarly would be time-barred after five years. Second, declaratory relief that

establishes past securities law violations is unnecessary for the SEC to secure an

injunction. The SEC need only establish “(1) a prima facie case of previous

violations of federal securities laws, and (2) a reasonable likelihood that the wrong

will be repeated.” SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004). A prima

facie case of previous violations may, but need not, come in the form of

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declaratory relief. In fact, the SEC may obtain an injunction when it is impossible

to use declaratory relief as a predicate, such as with a defendant who has never

before violated securities laws. See SEC v. Miller, 744 F. Supp. 2d 1325, 1336

(N.D. Ga. 2010) (“[N]umerous courts have found no requirement that a defendant

must have committed violations before the ones at issue. Indeed, the ‘previous’

violations relied upon by federal courts as a basis for injunctive relief are

frequently the same ones just proven in the liability portion of those cases.”).

Third, nothing in this analysis prevents the SEC from obtaining declaratory relief

as a predicate for other remedies as long as the SEC does so before the statute of

limitations expires.

      Because the declaratory relief the SEC sought here fits the definition of a

penalty, we hold that such relief is subject to § 2462’s five-year statute of

limitations.

C. Disgorgement

      The district court concluded that “the disgorgement of all ill-gotten gains

realized from the alleged violations of the securities laws—i.e., requiring

defendants to relinquish money and property—can truly be regarded as nothing

other than a forfeiture (both pecuniary and otherwise), which remedy is expressly

covered by § 2462.” Graham, 21 F. Supp. 3d at 1310-11. We agree with the

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district court that for the purposes of § 2462 forfeiture and disgorgement are

effectively synonyms; § 2462’s statute of limitations applies to disgorgement.

      Following the same principles of statutory interpretation as we did with the

term “penalty,” we look to the ordinary meaning of “forfeiture.” Webster’s

Dictionary defines forfeiture as “the divesting of the ownership of particular

property of a person on account of the breach of a legal duty and without any

compensation to him.” Forfeiture, Webster’s Third New Int’l Dictionary (2002).

The Oxford English Dictionary likewise defines forfeiture as “[t]he fact of losing

or becoming liable to deprivation of (an estate, goods, life, an office, right, etc.) in

consequence of a crime, offence, or breach of engagement.” Forfeiture, Oxford

English Dictionary (2d ed. 1989). These definitions illustrate that forfeiture occurs

when a person is forced to turn over money or property because of a crime or

wrongdoing.

      We find no meaningful difference in the definitions of disgorgement and

forfeiture. For example, Black’s Law Dictionary defines disgorgement as “[t]he

act of giving up something (such as profits illegally obtained) on demand or by

legal compulsion.” Disgorgement, Black’s Law Dictionary (10th ed. 2014).

Black’s Law Dictionary provides a very similar definition for forfeiture: “[t]he loss

of a right, privilege, or property because of a crime, breach of obligation, or

neglect of duty.” Forfeiture, Black’s Law Dictionary (10th ed. 2014). The

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Supreme Court, too, has used the terms interchangeably. See United States v.

Ursery, 518 U.S. 267, 284 (1996) (“Forfeitures serve a variety of purposes, but are

designed primarily to confiscate property used in violation of the law, and to

require disgorgement of the fruits of illegal conduct.”). We thus conclude that for

the purposes of § 2462 the remedy of disgorgement is a “forfeiture,” and § 2462’s

statute of limitations applies. 3

       The SEC argues that disgorgement cannot be forfeiture because the two

terms refer to fundamentally different things: disgorgement only includes direct

proceeds from wrongdoing, whereas forfeiture can include both ill-gotten gains

and any additional profit earned on those ill-gotten gains (i.e., secondary profits).

Compare SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978) (recognizing that

“[t]he court’s power to order disgorgement extends only to the amount with

interest by which the defendant profited from his wrongdoing”), 4 with United

States v. Reed, 924 F.2d 1014, 1017 (11th Cir. 1991) (requiring defendants to

forfeit a building and its subsequent increase in property value between the time

the crime began and when the building was sold). But even under the definitions

the SEC puts forth, disgorgement is imposed as redress for wrongdoing and can be

       3
         Because we hold that disgorgement is a “forfeiture,” 28 U.S.C. § 2462, we need not
reach the defendants’ alternative argument that disgorgement is a “penalty.” Id.
       4
        In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), we
adopted as binding precedent all Fifth Circuit decisions issued before the close of business on
September 30, 1981.
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considered a subset of forfeiture. Because forfeiture includes disgorgement,

§ 2462 applies to disgorgement.

      Furthermore, to read the two terms according to the SEC’s interpretation

would violate the long-settled principle “that words in statutes should be given

their ordinary, popular meaning unless Congress clearly meant the words in some

more technical sense.” United States v. Nat’l Broiler Mktg. Ass’n, 550 F.2d 1380,

1386 (5th Cir. 1977), aff’d, 436 U.S. 816 (1978). We find no indication that in

enacting § 2462’s widely applicable statute of limitations, Congress meant to adopt

the technical definitions of forfeiture and disgorgement the SEC urges over the

words’ ordinary meanings. “Had Congress wished unique or specialized meanings

to attach to any of these terms, it readily could have taken the obvious and usual

step either of including a specialized meaning in the definitions section of the

statute or by using clear modifying language in the text of the statute.” Consol.

Bank, 118 F.3d at 1464. Particularly because § 2462 applies to a wide variety of

agency actions and contexts, we are loath to adopt the technical definition that the

SEC promotes. In sum, § 2462 applies to the declaratory relief and disgorgement

the SEC sought, but not to the injunctive relief.

                                III. CONCLUSION

      We conclude that the SEC is time-barred from proceeding with its claims for

declaratory relief and disgorgement because, under the plain meaning of 28 U.S.C.

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§ 2462, these remedies are a penalty and a forfeiture, respectively. But, because an

injunction is not a penalty under § 2462, we remand for further proceedings on that

remedy in accordance with this opinion.

      AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

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