Johnson v. S.E.C.

• Decision Date: 28 August 1996
• Docket Number: No. 95-1340,95-1340
• Citation: 87 F.3d 484,318 U.S. App. D.C. 250
• Parties: , 65 USLW 2006, Fed. Sec. L. Rep. P 99,251 Patricia A. JOHNSON, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 484

87 F.3d 484

318 U.S.App.D.C. 250, 65 USLW 2006, Fed.

Sec. L. Rep. P 99,251

Patricia A. JOHNSON, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent.

No. 95-1340.

United States Court of Appeals, District of Columbia Circuit.

Argued April 23, 1996.

Decided June 21, 1996.

Rehearing Denied Aug. 28, 1996.

Arthur W. Hahn, Chicago, IL, argued the cause for petitioner, with whom Ronald S. Betman and William W. Davis were on the briefs.

Lucinda O. McConathy, Assistant General Counsel, Securities and Exchange Commission, argued the cause for respondent, with whom Richard H. Walker, General Counsel, Jacob H. Stillman, Associate General Counsel, and Paul Gonson, Solicitor, were on the brief.

Stuart J. Kaswell and Daniel L. Goelzer, Washington, DC, were on the brief for amicus curiae.

Before: WALD, GINSBURG and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

Two years ago, in 3M Company v. Browner, 17 F.3d 1453 (D.C.Cir.1994), we held that the five-year statute of limitations of 28 U.S.C. § 2462 applies not only to judicial proceedings but also to administrative proceedings. In this case, we decide that a Securities and Exchange Commission ("SEC") proceeding resulting in a censure and a six-month disciplinary suspension of a securities industry supervisor was a proceeding "for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise," within the meaning of § 2462. Accordingly we grant petitioner Patricia A. Johnson's petition for review and vacate the SEC's order imposing sanctions on her.

I. BACKGROUND

Patricia A. Johnson was the branch manager of PaineWebber, Inc.'s Beverly Hills, California office from November 1984 to April 1991. Among the employees she supervised was David Zetterstrom, an account representative who allegedly stole more than $114,000 from his customers between 1987 and 1988 by writing unauthorized checks against their accounts. Though Johnson was unaware of these thefts, she had received other complaints about Zetterstrom's handling of customer accounts which eventually led her to place him on probation, and then fire him, on June 10, 1988. Three days after he was fired, Zetterstrom committed suicide.

After terminating Zetterstrom's employment, Johnson further investigated his activities and learned for the first time that he had stolen clients' funds. PaineWebber began an internal audit, and notified the SEC, which began its own investigation in June 1988. More than five years later, on October 26, 1993, the SEC brought formal charges against Johnson, alleging that she had "failed reasonably to supervise [Zetterstrom] ... within the meaning of Section 15(b)(4)(E) of the Exchange Act." Order Instituting Public Administrative Proceedings, reprinted in App. 14. ¹ The SEC alleged that Johnson had allowed Zetterstrom to issue checks drawn from his customers' accounts without first obtaining from them the required letters of authorization, and that Johnson--even after preliminary evidence of Zetterstrom's wrongdoing had come to light--had allowed him continued access to customers' funds, thereby facilitating his thievery.

In the administrative proceedings, Johnson conceded that Zetterstrom had stolen money from his customers, but disputed the SEC's allegation that her supervision of him was unreasonable. In addition, Johnson claimed that the SEC's action was barred by the general five-year statute of limitations of 28 U.S.C. § 2462:

Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued....

The SEC denied Johnson's motion to dismiss under § 2462, holding in February 1994 that "[s]ection 2462 does not apply to Commission administrative proceedings." Order Denying Motion to Dismiss at 7, reprinted in App. 72. The SEC's position, however, was severely undercut less than two weeks later when this court decided 3M, rejecting the view that § 2462 applies only to judicial proceedings and holding that § 2462 applies to administrative proceedings as well. 17 F.3d at 1457.

Notwithstanding the 3M decision, an SEC Administrative Law Judge ("ALJ") held hearings and issued a decision in Johnson's case, finding that she had failed reasonably to supervise Zetterstrom, and imposing a six-month "supervisory suspension" on her. Johnson petitioned the SEC for review of the ALJ's decision, again seeking dismissal based on the statute of limitations.

Evaluating Johnson's second petition in light of 3M, the SEC articulated another theory for rejecting her claim, holding this time that § 2462 should not apply because the "proceeding before us does not seek to impose a civil penalty, but rather to determine the appropriate remedial action. The intent of Johnson's suspension is to protect the public from future harm at her hands." Opinion of the Commission at 11, reprinted in App. 83 (emphasis added). Finally, the SEC affirmed the ALJ's finding that Johnson had failed reasonably to supervise Zetterstrom, and issued an order saying:

On the basis of the Commission's opinion issued this day, it is

ORDERED that Patricia A. Johnson be, and hereby is, censured and suspended from acting in a supervisory capacity with any broker or dealer for six months.

Order Imposing Remedial Sanction, reprinted in App. 85. Johnson's petition for judicial review followed.

II. DISCUSSION

The sole question in this case is whether the SEC proceeding which resulted in the sanctions imposed on Johnson was "an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise" within the meaning of 28 U.S.C. § 2462. ² Because § 2462 is a statute of general applicability rather than one whose primary administration has been delegated to the SEC, we interpret it de novo. Professional Airways Sys. Specialists v. FLRA, 809 F.2d 855, 857 n. 6 (D.C.Cir.1987).

A. The Meaning of "Penalty" Under § 2462

The term "penalty" is nowhere defined in § 2462, so we must be guided here by the Supreme Court's common-sense rule that "[c]ourts properly assume, absent sufficient indication to the contrary, that Congress intends the words in its enactments to carry 'their ordinary, contemporary, common meaning.' " Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. Partnership, 507 U.S. 380, 388, 113 S.Ct. 1489, 1495, 123 L.Ed.2d 74 (1993) (quoting Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979)).

In common usage, a penalty is "the suffering in person, rights or property which is annexed by law or judicial decision to the commission of a crime or public offense." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 1668 (1976). For at least a century, legal dictionaries have similarly defined penalty. See BLACK'S LAW DICTIONARY 1020 (5th ed.1979) ("A punishment imposed by statute as a consequence of the commission of an offense."); BALLENTINE'S LAW DICTIONARY 948 (1930) ("An exaction in the nature of a punishment for the nonperformance of an act, or for the performance of an unlawful act, and involving the idea of punishment, whether enforced by a civil or criminal action or proceeding."); 2 BURRILL'S LAW DICTIONARY (1871) ("A punishment; a punishment imposed by statute as a consequence of the commission of a certain act."); 2 BOUVIER'S LAW DICTIONARY 323 (1866) ("By penalty is understood, also, the punishment inflicted by law for its violation....").

In Huntington v. Attrill, 146 U.S. 657, 13 S.Ct. 224, 36 L.Ed. 1123 (1892), the Supreme Court addressed the question of whether a judgment in a state court was "penal," and thus could not be enforced in another state under the Constitution's Full Faith and Credit Clause. ³ The Court explained that "[p]enal laws, strictly and properly, are those imposing punishment for an offense committed against the state.... The test whether a law is penal, in the strict and primary sense, is whether the wrong sought to be redressed is a wrong to the public, or a wrong to the individual...." 146 U.S. at 667-68, 13 S.Ct. at 227-28. Put another way, the question of whether a law is penal depends on whether its purpose "is to punish an offense against the public justice of the State, or to afford a private remedy to a person injured by the wrong." Id. at 673-74, 13 S.Ct. at 230. ⁴

Thus where a legal action is essentially private in nature, seeking only compensation for the damages suffered, it is not an action for a penalty. In Meeker v. Lehigh Valley R.R. Co., 236 U.S. 412, 35 S.Ct. 328, 59 L.Ed. 644 (1915), for example, a company which shipped coal had brought suit against a railroad under a federal commerce statute, seeking a refund of alleged overcharges. The railroad argued that the suit was barred by the predecessor to § 2642, Rev. Stat. § 1047 (1913), which imposed a five-year limit on any "suit or prosecution for any penalty or forfeiture, pecuniary or otherwise." Meeker argued that even though it was bringing suit under a federal commerce act, its action was essentially a private one, seeking redress of its economic injuries rather than the imposition of a penalty on the railroad. The Supreme Court agreed, saying:

The words "penalty or forfeiture" in this section refer to something imposed in a punitive way for an infraction of a public law, and do not include a liability imposed solely for the purpose of redressing a private injury, even though the wrongful act be a public offense, and punishable as such. Here the liability sought to be enforced was not punitive but strictly remedial, as is shown by [the language of the commerce act]. So § 1047 is not applicable.

236 U.S. at 423, 35 S.Ct. at 332.

In many other situations the courts have reaffirmed that a sanction which only remedies the damage caused by the defendant does not trigger the...