The Supreme Court said two interesting things about equity this week.
First, there were the last two substantive paragraphs of North Carolina v. Covington, a decision vacating a district court’s order that required a special election in North Carolina. The per curiam opinion had the hallmarks of Chief Justice John Roberts’s writing about equitable remedies. The court emphasized equity, even quoting Reynolds v. Sims to make the point: “Relief in redistricting cases is ‘fashioned in the light of well-known principles of equity.’” To say the principles of equity are well-known might, however, be aspirational. Indeed, the court was light on specifics about how the lower courts should structure their inquiry into “the balance of equities,” also called “the undue hardship defense.” (The leading recent treatment is an article by Doug Laycock that concentrates on property torts.) But the takeaway from the court’s opinion was clear: injunctions are governed by equitable principles, in voting rights law just as elsewhere.
Second, in Kokesh v. SEC, in a unanimous decision with an opinion by Justice Sonia Sotomayor, there was a dynamite footnote. The case was about the statute of limitations for Securities and Exchange Commission (SEC) actions for disgorgement, and footnote three said: “Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context. The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to §2462’s limitations period.”
Now when the Supreme Court says, “We’re not expressing an opinion on x,” you can be pretty sure the justices are expressing an opinion on x. Linguists and linguistic philosophers recognize that speakers often imply something different than the literal meaning of their words. (In technical terms, I’m talking about implicatures.) If I say, “I love my brother, but I’m expressing no opinion on his cooking,” you know what I mean. In Kokesh, footnote three is a warning from the Supreme Court about the disgorgement remedy sought by the SEC.
Why? I don’t know what the court was thinking, but I will venture a speculation. Since the late 1960s the SEC has sought what it has called the equitable remedy of “disgorgement.” There is no equitable remedy of disgorgement. There are a number of equitable remedies that are restitutionary, such as the constructive trust, accounting for profits and equitable lien. (I discuss them in this article; an excellent primer on restitution is Ward Farnsworth’s book.) But “disgorgement” isn’t one of those remedies. The word does not even appear in Pomeroy’s treatise on equity (5th edition, 1941, searched on Hein). In older sources, the verb disgorge is occasionally used, and more rarely disgorgement will be used as a nontechnical term (cf. the cognates repay and repayment). Maybe “disgorgement” is a good term for a sui generis restitutionary remedy created by statute. But there is no equitable or common law remedy of “disgorgement.”
Nevertheless, it’s a congenial term for the SEC, because the traditional restitutionary remedies (both legal and equitable) are about A, the wrongdoer, restoring gains to B, the victim. But “disgorgement” is a word that focuses only on A. It makes us think of A disgorging gains, coughing them up, so to speak, like a wide receiver coughing up a football. Then anyone can catch the football — and what do you know, it’s caught by the SEC.
“Disgorgement” is a word that washes out the texture of the more specific restitutionary remedies. These remedies (at least the equitable ones) still have their own identities and their own strengths, weaknesses, and requirements. Footnote three suggests the ostensible remedy of disgorgement, at least as sought by the SEC, may be vulnerable.
And there’s another problem. The holding of Kokesh is that disgorgement to the SEC is a penalty. But there are no penalties in equity. Disgorgement to the SEC can be a penalty or it can be equitable; the Supreme Court just said it’s a penalty; it can’t be equitable. And if it’s not equitable — jurors, report for duty.