American University Law Review
February 2000

ARTICLE

Susan S. McDonald*

INTRODUCTION

The five-year statute of limitation on an "action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture, pecuniary or otherwise," which now appears at 28 U.S.C. § 2462, was adopted in its current form as part of the 1948 revision and reenactment of Title 28 of the United States Code, concerning the "Judicial Code and Judiciary" (the "1948 Act"). The 1948 Act made only non-substantive changes in "phraseology" to a provision adopted in 1839, as part of a statute concerning the "Judicial System of the United States," which stated "no suit or prosecution shall be maintained, for any penalty or forfeiture, pecuniary or otherwise, accruing under the laws of the United States" unless the suit or prosecution "shall be commenced within five years from the time when the penalty or forfeiture accrued." The 1839 statute, in turn, was based on a criminal statute adopted by the First Congress in 1790.

As discussed in this Article, until at least the late nineteenth century, what we now would call regulatory statutes commonly prescribed the forfeiture of a specific sum of money or specific property as the mandatory consequence for a violation. All infractions of such "penal statutes" were considered to be criminal in nature. A criminal proceeding, however, was not the only way to collect the prescribed penalty. Pecuniary penalties could be recovered in a civil debt action and forfeitures of property could be recovered in a libel proceeding in admiralty or similar proceeding. Under most penal statutes, the penalties could be collected in a qui tam action by a private citizen-a "common informer"-who, by statute, received part or all of the penalty or forfeiture. As demonstrated in this Article, Congress intended to time-limit debt actions and libel or similar proceedings when it enacted the 1839 statute. Congress intended no change in meaning when it made revisions in language in the 1948 Act, and there is no basis for applying the limitation to proceedings other than those to which it applied in 1839.

In 3M Co. v. Browner, the District of Columbia Circuit decided that § 2462 of Title 28 barred an administrative proceeding initiated by the Environmental Protection Agency ("EPA") more than five years after the conduct at issue to determine whether the 3M Company had violated the Toxic Substances Control Act ("TSCA"), and if so, whether civil monetary penalties should be assessed against the company, and the amount of any penalties up to a statutory maximum. The TSCA set no time limit on the initiation of the administrative proceeding, nor did the TSCA set any time limit on the civil action it authorized to be brought in court to "recover" the penalty if it was not paid voluntarily. The 3M court, purporting to survey the history and background of § 2462, held that the time limitation applies "to the entire federal government in all civil penalty cases" and concluded that the initiation of the EPA administrative proceeding was untimely. In dicta, the court suggested that § 2462 might also apply to the court action the TSCA authorized to be brought by the Justice Department to collect an unpaid penalty.

Since the 3M decision, federal agencies, with one exception, have failed to challenge the interpretation that § 2462 applies to the initiation of administrative proceedings. In Johnson v. SEC, the Securities and Exchange Commission ("SEC" or "Commission") did not dispute that § 2462 applied to administrative proceedings, but instead argued that the statute did not apply to that particular proceeding because the sanctions imposed were not "penalties." Johnson involved violations by a securities industry professional of professional standards under the Securities Exchange Act of 1934 ("Exchange Act"). The SEC had imposed a censure and a six-month suspension from supervisory functions on the violator (two of several sanctions the agency could have chosen) and argued that these remedial sanctions served to protect the public from harm, were not punitive, and did not constitute "penalties" within the meaning of § 2462. The D.C. Circuit rejected this argument, stating that the suspension met the "common" definition of "penalty"-that 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." In several subsequent cases, federal agencies have failed to dispute the 3M holding that § 2462 applies to the initiation of administrative proceedings. In one of those cases, however, a federal agency appearing as amicus curiae argued that § 2462 does not apply to administrative proceedings and urged the D.C. Circuit to reconsider its holding in 3M. The court declined to consider the argument.

This Article argues that 3M and subsequent decisions improperly have applied the time limitation of § 2462 to the initiation of administrative proceedings. This Article demonstrates that, interpreted under established principles of statutory construction, § 2462 does not apply to proceedings before federal administrative agencies at all, whatever the meaning of the word �penalty,� but only to proceedings before the federal courts. Judicial proceedings are the only proceedings to which the plain language of the statute applies. Moreover, when the1839 version was enacted and well into the twentieth century, the amountof fines, penalties and forfeitures were almost always fixed by statute,and the courts determined liability in �suits for penalties and forfeitures.�Even when administrative officers had a role in imposing penalties, courtinvolvement almost always was required, as it is now, to compel payment.

Further, this Article demonstrates that the Johnson decision is wrong in concluding that the term �penalty,� as used in § 2462, extends to sanctions other than the payment of money and property. As discussed below, other provisions in the 1948 statute use the phrase �fine, penalty or forfeiture, pecuniary or otherwise� to refer to money and property. Moreover, a well-known meaning of �penalty� in the eighteenth and nineteenth centuries was a forfeiture of money or property set by statute as the consequence for a violation of law. Together, these indications compel the conclusion that the term �penalty� in § 2462 refers to a monetary penalty or forfeiture of property.

Finally, Part III of this Article urges that § 2462 should not be applied to all court actions that could result in a judgment for a civil monetary penalty. Construed in context, § 2462 should apply only to a narrow class of proceedings and actions in the federal courts to recover fines, penalties and forfeitures specifically set by statute or assessed by an administrative agency.

The extent to which § 2462�s time limitation applies to proceedings brought by federal regulators before agencies and in the federal courts is important. Agencies must conduct investigations before they may initiate administrative or judicial proceedings against alleged violators. It may require years to uncover the evidence needed to support the charges in a case. If, as the 3M court held, the five-year limitation applies �to the entire federal government in all civil penalty cases��all civil cases, before an administrative agency or in a federal court, in which a monetary penalty or other sanction deemed to be a �penalty,� as construed in the Johnson decision, might be imposed by the court or agency�then § 2462 requires federal agencies to bring charges within the period, irrespective of the completeness of their investigations, or not at all. If, as held in 3M, the five-year period is triggered by the underlying regulatory violation, without regard to whether the agency knew or should have known of the violation, the entire period may expire before regulators even have the opportunity to investigate. The foregoing results may conflict with Congress�s intent to impose sanctions on violators of particular regulatory statutes�statutes in which Congress did not set time limits on the initiation of proceedings. Such results should not be lightly assumed or imposed without careful consideration of the context and history of § 2462 that is explored in this Article. As discussed below, most of the context and history of the statute has not been considered by courts that have construed § 2462, including the 3M court.

* Senior Litigation Counsel, Office of the General Counsel, U.S. Securities and Exchange Commission; J.D., George Washington University Law School, 1977. The Commission requires that the following disclaimer be included: "The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission." The author wishes to thank Harvey J. Goldschmid, Jacob H. Stillman, Randall W. Quinn, David B. Smith, Jr., Luis de la Torre, Richard A. Levine, Douglas B. Jordan, and Hope Hall Augustini for their comments and suggestions on drafts of this Article.

Download entire article