Penfield Company of California v. Securities & Exchange Commission/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. After a hearing, the court ordered Young, as an officer of Penfield, to produce them. 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.

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. 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.

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 investigations. 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. 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.

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. 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 added to, or substituted for the fine, as a coercive sanction in a civil contempt proceeding. If that position is sound, then the statutory limitation of 'fine or imprisonment' would preclude a court from imposing a fine as a punitive measure and imprisonment as a remedial measure, or vice versa.

The dual function of contempt has long been recognized-(1) vindication of the public interest by punishment of contemptuous conduct; (2) coercion to compel the contemnor to do what the law requires of him. Gompers v. Bucks Stove & Range Co., supra, 221 U.S. at pages 441 et seq., 31 S.Ct. at page 498, 55 L.Ed. 797, 34 L.R.A., N.S., 874; United States v. United Mine Workers, supra. As stated in Bessette v. W. B. Conkey Co., 194 U.S. 324, 327, 24 S.Ct. 665, 666, 48 L.Ed. 997, 'The purpose of contempt proceedings is to uphold the power of the court, and also to secure to suitors therein the rights by it awarded.'

We assume, arguendo, that the statute allowing fine or imprisonment governs civil as well as criminal contempt proceedings. If the statute is so construed, we find in it no barrier to the imposition of both a fine as a punitive exaction and imprisonment as a coercive sanction, or vice versa. That practice has been approved. Kreplik v. Couch Patents Co., 1 Cir., 190 F. 565, 571. And see Phillips Sheet & Tin Plate Co. v. Amalgamated Ass'n, D.C., 208 F. 335, 340. When the court imposes a find as a penalty, it is punishing yesterday's contemptuous conduct. When it adds the coercive sanction of imprisonment, it is announcing the consequences of tomor ow's contumacious conduct. At least in that situation the offenses are not the same. And the most that the statute forbids is the imposition of both fine and imprisonment for the same offense.

Young raises objections that go to the merits of the judgment of contempt. These were considered and determined against him by the District Court. Since he did not appeal from the adverse judgment, he is precluded from renewing the objections at this stage. Le Tulle v. Scofield, 308 U.S. 415, 421, 422, 60 S.Ct. 313, 316, 317, 84 L.Ed. 355; Helvering v. Pfeiffer, 302 U.S. 247, 250, 251, 58 S.Ct. 159, 160, 161, 82 L.Ed. 231.

There is a difference of view among us whether the portion of the order of the Circuit Court of Appeals which set aside the unconditional fine of $50 imposed on Young is here for review. But if we assume that it is, a majority of the Court is of the opinion that the Circuit Court of Appeals was correct in setting it aside, since the fine was imposed in a civil contempt proceeding. See Gompers v. Bucks Stove & Range Co., supra.

Affirmed.

Mr. Justice RUTLEDGE (concurring).

But for the decision in United States v. United Mine Workers, 330 U.S. 258, 67 S.Ct. 677, I should have no difficulty in concluding with the Court that this contempt proceeding was exclusively civil in character and that, consequently, no criminal penalty could be imposed, coercive relief alone being allowable in such a case. Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 31 S.Ct. 492, 55 L.Ed. 797, 34 L.R.A.,N.S., 874. That decision held that the imposition of criminal punishment in a civil contempt proceeding 'was as fundamentally erroneous as if in an action of 'A vs. B, for assault and battery,' the judgment entered had been that the defendant be confined in prison for twelve months.' 221 U.S. at page 449, 31 S.Ct. at page 501, 55 L.Ed. 797, 34 L.R.A., N.S., 874.

By every test applied in the Gompers case this proceeding was civil, not criminal in character. Here as there the proceeding was entitled, instituted and conducted as collateral to civil litigation. It sought only remedial relief, namely, the production of specified books and records. And issuance of the citation was grounded upon disobedience of the court's lawful order for their production.

This act, like the act of disobedience in the Gompers case, constituted conduct which would have sustained either civil or criminal penalty in appropriate proceedings. But the unequivocal ruling of that case was that criminal penalties cannot be applied in civil contempt proceedings. 221 U.S. at pages 444, 449, 451, 452, 31 S.Ct. at pages 499, 501, 502, 55 L.Ed. 797, 34 L.R.A., N.S., 874. Not only the result, but the whole tenor of the opinion was of the effect that the character of the proceeding as a whole, whether as civil or criminal, must be correlated with the character of the penalty imposed, and that the two cannot be scrambled, regardless of the fact that the conduct constituting the contempt would support the imposition of either type of relief in a proceeding appropriate to the kind of relief given. Not simply the remedy sought but the character of the proceeding in which it is pursued, it was held, determines the validity of the relief afforded.

This ruling, as I have previously maintained, was one not only of historical grounding but of constitutional compulsion. Moreover, it recently has been reinforced by Rule 42(b) of the Federal Rules of Criminal Procedure, requiring that the notice prescribed for instituting the proceeding 'shall state the essential facts constituting the criminal contempt charged and describe it as such.' (Emphasis added.)

Hence, under the rule of the Gompers case and others following it, it is clear that the district judge had no power in this case to impose the criminal penalty of a flat $50 fine and it is equally clear, on the record, that he exceeded his power in denying the Commission civil coercive relief altogether.

Moreover, I think it is clear that both of these problems are presented for our determination on the state of the record here. It is true that Young did not appeal from the District Court's judgment to the Circuit Court of Appeals, and that he paid the fine. But the Commission appealed from that judgment in its entirety, as it had a right to do, unless the payment of the fine exhausted all judicial power to deal further with the proceeding. This indeed is a basis upon which Young maintains that the Circuit Court of Appeals had no power to reverse the District Court's judgment.

But clearly, as the Court holds, such power could not be wanting, if the litigation was exclusively civil in character. On the contrary the action of the Circuit Court of Appeals was exactly in accordance with the ruling in the Gompers case and was required by it. In both cases the proceedings were wholly civil in character In both a criminal penalty was imposed. And in both the judgment laying it was reversed and the cause was remanded to the trial court for further proceedings looking only to the giving of civil relief.

The only difference is that in the Gompers case the contemnors had not entered upon the service of the void criminal sentence of imprisonment but appealed from it, while here Young paid the fine and did not appeal. That action on his part, however, cannot oust the Commission of its statutory right of appeal and review or of its right to civil relief. If the contempt proceeding were criminal in character, a different question might be presented. But compliance with a void criminal penalty, void because imposed in a wholly civil proceedings, cannot make it valid or oust either the courts of their civil jurisdiction in matters of relief or opposing parties of their rights in that respect.

In short, the Commission was forced to appeal from the judgment rendered, if it was not to acquiesce in what the court had done and thereby suffer unauthorized thwarting of its statutory investigating power. That judgment was rightfully taken in its entirety to the Circuit Court of Appeals, was reviewed by that court, and was reversed not partially but completely. Our action in granting certiorari brought here for review the entire judgment of the Circuit Court of Appeals, including its reversal of the criminal judgment rendered by the District Court as well as its mandate for civil relief. Hence in my opinion we are forced to take action upon the judgment as a whole, in both civil and criminal phases.

Since I am in agreement with the Court's view that the Gompers ruling and others in accord with it are controlling in this case, I think the judgment of the Circuit Court of Appeals should be affirmed, though with modification in one respect. I ind it difficult, however, to reconcile the action taken here with what was done in the Mine Workers decision. A majority there held, as I thought contrary to the Gompers ruling, that civil and criminal contempt could be prosecuted in a single contempt proceeding conducted according to the rules of procedure applicable in equity causes, and that both types of relief, civil and criminal, could be imposed in such a mixed proceeding. It was also held that on review the appellate court is free to substitute its own judgment concerning the nature and extent of both types of relief for that of the trial court, and therefore that in remanding the cause for further proceedings there was no necessity to leave room for the further exercise of the trial court's discretion in relation to either type of relief.

If in that case a single mixed proceeding could suffice without regard to the requirements of Rule 42(b) and the Gompers line of decisions concerning procedures to be followed in instituting and conducting contempt proceedings, for the imposition of both civil and criminal penalties, I see no valid reason why the same thing could not be done in this cause or why both the criminal fine imposed by the District Court and the civil relief given by the Circuit Court of Appeals should not be allowed to stand.

It is true that if the proceeding is to be taken as having been both civil and criminal a serious question would be presented on the terms of § 268 of the Judicial Code whether imposition and payment of the fine here did not exhaust judicial power to deal further with the proceeding, more especially in its criminal phase. But that question too, I take it, necessarily would be settled if the Mine Workers ruling were to govern here.

It is also true that in this case the United States was not a party by that name, as it was in the Mine Workers case, to the civil litigation in which the contempt proceeding arose or to the contempt proceeding itself. But the Commission was the moving party in both, representative as such of the public interest as the trial court pointed out. And, in view of the vast liberality allowed by the Mine Workers decision concerning matters of procedure and relief in contempt proceedings, it hardly can be a solid ground for distinguishing the cases that in one the public interest was represented, as to the criminal phase, eo nomine United States, in the other under the name of the Securities and Exchange Commission. Cf. In re Bradley, 318 U.S. 50, 63 S.Ct. 470, 87 L.Ed. 500.

Notwithstanding these difficulties, since the Court rests the decision in this cause upon the Gompers rule, which in my opinion represents the settled law, I join in the affirmance of the judgment of the Circuit Court of Appeals, both insofar as it reversed the District Court's judgment because of the denial of coercive relief and in relation to its reversal of the criminal penalty imposed by the District Court.

But, while there can be no question of the Court of Appeals' power in proper cases to review and revise civil relief given in the District Court, in this case no such relief had been awarded. In my opinion the question of the character and scope of that relief was a matter, in the first instance, for the District Court's judgment rather than for the Court of Appeals. Accordingly, I would modify the judgment of reversal in the civil phase so that the cause would be remanded to the District Court with directions to exercise its discretion in framing the relief adequate and appropriate to make effective the Commission's right to disclosure.

Mr. Justice FRANKFURTER, with whom concurs Mr. Justice JACKSON, dissenting.