Penfield Co of California v. Securities Exchange Commission

• Decision Date: 31 March 1947
• Docket Number: No. 453,453
• Parties: PENFIELD CO. OF CALIFORNIA et al. v. SECURITIES & EXCHANGE COMMISSION
• Court: U.S. Supreme Court

330 U.S. 585

67 S.Ct. 918

91 L.Ed. 1117

PENFIELD CO. OF CALIFORNIA et al.

v SECURITIES & EXCHANGE COMMISSION.

No. 453.

Argued Jan. 16, 1947.

Decided March 31, 1947.

Rehearing Denied May 5, 1947.

See 331 U.S. 865, 67 S.Ct. 1301.

[Syllabus from pages 585-587 intentionally omitted] Mr. Morris Lavine, of Los Angeles, Cal., for petitioners.

Mr. Roger S. Foster, of Washington, D.C., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The Securities and Exchange Commission, acting pursuant to its authority under § 20(a) of the Securities Act of 1933, 48 Stat. 74, 86, 15 U.S.C. § 77t, 15 U.S.C.A. § 77t(a), issued orders directing an investigation to determine whether Penfield Company had violated the Act in the sale of stock or other securities. In the course of that investigation it directed a subpoena duces tecum to Young, as an officer of Penfield, requiring him to produce certain books of the corporation covering a four year period ending in April, 1943. See § 19(b) of the Act, 15 U.S.C.A. § 77s(b). Upon Young's refusal to appear and produce the books and records, the Commission filed an application with the District Court for an order enforcing the subpoena.¹ After a hearing, the court ordered Young, as an officer of Penfield, to produce them.² Young persisted in his non-compliance. The Commission then applied to the District Court for a rule to show cause why Young should not be adjudged in contempt—a proceeding which, as we shall see, was one for civil contempt. The District Court delayed action on the motion until after disposition of a criminal case involving Young, Penfield, and others. When that case was concluded, the court, after hearing, adjudged Young to be in contempt. It refused, however, to grant any coercive relief designed to force Young to produce the documents but instead imposed on him a flat, unconditional fine of $50.00 which he paid. ³ That was on July 2, 1945. On September 24, 1945, the Commission filed a notice of appeal in the District Court and subsequently a statement of points challenging as error the action of the District Court in imposing the $50.00 fine, instead of a remedial penalty calculated to make Young produce the documents. The Circuit Court of Appeals reversed, holding that the District Court erred in imposing the fine and directing that Young be ordered imprisoned until he produced the documents. 9 Cir., 157 F.2d 65. The case is here on a petition for a writ of certiorari filed by Penfield Co. and Young. Neither the District Court nor the Circuit Court of Appeals rendered judgment against Penfield. Nor is any relief sought by or against it here. Accordingly the writ is dismissed as to Penfield.

First. It is argued that since no application for an allowance of an appeal was made, the Circuit Court of Appeals had no jurisdiction to entertain it. ⁴ If the appeal was in a suit of a civil nature, the filing of the notice of appeal with the District Court was adequate under the Federal Rules of Civil Procedure.⁵ It is the nature of the relief asked that is determinative of the nature of the proceeding. Lamb v. Cramer, 285 U.S. 217, 220, 52 S.Ct. 315, 316, 76 L.Ed. 715. This was not a proceeding in which the United States was a party and in which it was seeking to vindicate the public interest. See Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 445, 31 S.Ct. 492, 499, 55 L.Ed. 797, 34 L.R.A.,N.S., 874. The contempt proceedings were instituted as a part of the proceedings in which the Commission sought enforcement of a subpoena. The relief which the Commission sought was production of the documents; and the only sanction asked was a penalty designed to compel their production. Where a fine or imprisonment imposed on the contemnor is 'intended to be remedial by coercing the defendant to do what he had refused to do', Gompers v. Bucks Stove & Range Co., supra, 221 U.S. at page 442, 31 S.Ct. at page 498, 55 L.Ed. 797, 34 L.R.A.,N.S., 874, and remedy is one for civil contempt. United States v. United Mine Workers, 330 U.S. 258, 67 S.Ct. 677. Then 'the punishment is wholly remedial, serves only the purposes of the complainant, and is not intended as a deterrent to offenses against the public.' McCrone v. United States, 307 U.S. 61, 64, 59 S.Ct. 685, 686, 83 L.Ed. 1108. One who is fined, unless by a day certain he produces the books, has it in his power to avoid any penalty. And those who are imprisoned until they obey the order, 'carry the keys of their prison in their own pockets.' In re Nevitt, 8 Cir., 117 F. 448, 461. Fine and imprisonment are then employed not to vindicate the public interest but as coercive sanctions to compel the contemnor to do what the law made it his duty to do. See Doyle v. London Guarantee Co., 204 U.S. 599, 27 S.Ct. 313, 51 L.Ed. 641; Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419; Fox v. Capital Co., 299 U.S. 105, 57 S.Ct. 57, 81 L.Ed. 67; McCrone v. United States, supra.

The Act gives the Commission authority to require the production of books and records in the course of its investi- gations. And in absence of a basis for saying that its demand exceeds lawful limits (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494), it is entitled to the aid of the court in obtaining them.⁶ A refusal of the court to enforce its prior order for the production of the documents denies the Commission that statutory relief. The issue thus raised poses a problem in civil, not criminal, contempt.⁷

Where a judgment of contempt is embodied in a single order which contains an admixture of criminal and civil elements, the criminal aspect of the order fixes its character for purposes of procedure on review. Union Tool Co. v. Wilson, 259 U.S. 107, 42 S.Ct. 427, 66 L.Ed. 848. But there was no such admixture here. The District Court refused to grant any remedial relief to the Commission. The denial of that relief was the ground of the Commission's appeal. The order of denial being final, was appealable, Lamb v. Cramer, supra, 285 U.S. at pages 220, 221, 52 S.Ct. at pages 316, 317, 76 L.Ed. 715, and the right to appeal from it was in no way dependent on an appeal from the imposition of the fine.

Second. The question on the merits is two-fold: (1) whether the Circuit Court of Appeals erred in granting the Commission remedial relief by directing that Young be required to produce the documents; and (2) whether that court exceeded its authority in reversing the judgment which imposed the fine and in substituting a term of imprisonment conditioned on continuance of the contempt.

As we have already noted, the Act requires the production of documents demanded pursuant to lawful orders of the Commission and lends judicial aid to obtain them. There is no basis in the record before us for saying that the demand of the Commission exceeded lawful limits. There is, however, a suggestion that the District Court was warranted in denying remedial relief since the contempt hearing came after a criminal trial of petitioners in another case, during the course of which many of Penfield's books and records were examined. The thought apparently is that the Commission had probed enough into Penfield's affairs. But the District Court did not hold that the Commission's request had become moot, that the documents produced satisfied its legitimate needs, or that the additional ones sought were irrelevant to its statutory functions. ⁸ We agree with the Circuit Court of Appeals that at least in absence of such a finding, the refusal of the District Court to grant the full remedial relief which the Act places behind the orders of the Commission was an abuse of discretion. The records might well disclose other offenses against the Securities Act of 1933 which the Commission administers. The history of this case reveals a long, persistent effort to defeat the inves igation. The fact that Young paid the fine and did not appeal indicates that the judgment of contempt may have been an easy victory for him. On the other hand, the dilatory tactics employed suggest that if justice was to be done, coercive sanctions were necessary.

When the Circuit Court of Appeals substituted imprisonment for the fine, it put a civil remedy in the place of a criminal punishment. For the imprisonment authorized would be suffered only if the documents were not produced or would continue only so long as Young was recalcitrant. On the other hand, the fine imposed by the District Court, unlike that involved in Fox v. Capital Co. supra, 299 U.S. at pages 106, 107, 57 S.Ct. at page 58, 81 L.Ed. 67, was unconditional and not relief of a coercive nature such as the Commission sought. It was solely and exclusively punitive in character. Cf. Nye v. United States, 313 U.S. 33, 42, 43, 61 S.Ct. 810, 812, 813, 85 L.Ed. 1172.

As already noted, Young did not appeal from the order holding him in contempt and subjecting him to a fine. Young maintains, however, that once the fine was imposed and paid, the jurisdiction of the court was exhausted; that the Circuit Court of Appeals was without authority to substitute another penalty or to add to the one already imposed and satisfied. That argument rests on the statute granting federal courts the power to punish contempts of their authority, Judicial Code § 268, 28 U.S.C. § 385, 28 U.S.C.A. § 385, and the decisions construing it. The statute gives the federal courts power 'to punish, by fine or imprisonment, at the discretion of the court, contempts of their authority,' including violations of their lawful orders. At least in a criminal contempt proceeding both fine and imprisonment may not be imposed since the statute provides alternative penalties. In re Bradley, 318 U.S. 50, 63 S.Ct. 470, 87 L.Ed. 500. Hence if a fine is imposed on a contemnor and he pays it, the sentence may not thereafter be amended so as to provide for imprisonment. The argument here is that after a fine for criminal contempt is paid, imprisonment may not be...