Judge Patricia Millett D.C. Circuit Judge Patricia Millett

Every so often it is worth reading a judicial opinion “just for the fun of it,” or to gain insight about decision-making, or to wonder why the judges did what they did or why the case was decided as it was. The District of Columbia Court of Appeals opinion of Oct. 13, 2017 in Saad v. The Securities and Exchange Commission is such a case.

The opinion reviewed, for a second time, the SEC’s decision that FINRA properly expelled John Saad from membership in the private self-regulatory organization that oversees the securities industry, and from working with any of its members, for misappropriating funds from his employer and endeavoring to cover it up, during internal and regulatory investigations. The Court of Appeals had previously remanded the matter to the SEC to consider mitigating factors, based on claims of stress related to work and the illness of Saad’s young child, and whether the lifetime ban imposed was “oppressive or excessive” in light of the requirement that the sanction be “remedial rather than punitive.” (Saad v. SEC, 718 F3d 904, 911 (DC Cir. 2013)).

The SEC subsequently agreed with the FINRA Adjudicatory Council that there were no mitigating factors based on the prolonged and repeated efforts to cover up Saad’s conduct, which sought reimbursement for a business trip he did not take while at an Atlanta Hotel and for purchasing a cell phone for the woman, employee of a competitor firm, he entertained while there. Accordingly the SEC again upheld the permanent bar. This time the Court of Appeals found that the commission’s decision as to the mitigating factors and reduction of the sanction was “thoroughgoing” and embodied “a careful and comprehensive analysis of Saad’s arguments seeking a reduction in his sanction.”

However, in the opinion by Judge Patricia Millett, the court remanded again for the SEC to determine, in the first instance, the relevance, if any, of the Supreme Court’s opinion in Kokesh v. SEC, 147 S.Ct. 1635 (2017) on the issue of whether FINRA’s lifetime ban was “impermissibly punitive.”

Judge Brett Kavanaugh concurred and wrote separately to explain why the second remand was appropriate because, in his view, expulsion or suspension of a broker-dealer is “punitive,” and not “remedial,” and that the court could no longer say it is “remedial” in light of Kokesh. Kokesh held disgorgement of money sought by the government is a “penalty” subject to a five-year statute of limitations. According to Judge Kavanaugh, as the victim recovers nothing from the sanction, or from disgorgement paid to the government, the expulsion or suspension must be a “penalty” and, therefore, that “FINRA and the SEC will have to reasonably explain in each individual case why an expulsion or suspension serves the purposes of punishment and is not excessive or oppressive.”

What makes Saad of interest is that the author of the court’s signed published opinion, Judge Millett, wrote a separate dubitante, disagreeing with the concurring opinion and the need for the second remand which she ordered. She finds that the SEC did exactly what it was directed to do on the remand and that the record was adequate to support the expulsion, which could be “remedial” and imposed by a self-regulated industry. Suffice it to say that it is not often that the author of an opinion of the court writes a separate opinion to say she disagrees with the court’s order—here, in her words, a remand to consider a case so “off-point” that appellant himself “paid it no heed, especially because the remedial sufficiency of the Commission’s order is controlled by Circuit precedent.” But she added her justification for joining the portion of her own opinion which remanded the matter “only because nothing in our simple remand order says that Kokesh should alter the outcome of Saad’s case.” In other words, there was no downside as long as the result remains the same.

Kokesh was argued in April shortly after the Saad argument, and was decided in June. One must wonder if the court, by composing the opinions as it did, is suggesting review by the U.S. Supreme Court, or that Kokesh had unexpected impact on at least one member of the panel, after the opinion was initially drafted as a simple routine affirmance of the sanction. We shall never know, but perhaps the court should have decided Saad more quickly after argument or, if it felt Kokesh would have some impact, withheld argument, and certainly drafting of an opinion, until it was decided.