Phillips v. Department of Commerce, Division of Securities , 839 Utah Adv. Rep. 30 ( 2017 )

2017 UT App 84THE UTAH COURT OF APPEALS
JACK PHILLIPS,
Petitioner,
v.
DEPARTMENT OF COMMERCE, DIVISION OF SECURITIES,
Respondent.
Opinion
No. 20150534-CA
Filed May 18, 2017
Original Proceeding in this Court
Maria E. Windham, Beth J. Ranschau, and Whitney
Hulet Krogue, Attorneys for Petitioner
Sean D. Reyes, Brent A. Burnett, and Thomas M.
Melton, Attorneys for Respondent
JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGES
KATE A. TOOMEY and DAVID N. MORTENSEN concurred.
ROTH, Judge:
¶1 Petitioner Jack Phillips seeks review of a state agency’s
assessment against him of $413,750 in civil penalties for
securities fraud. We set aside the penalty and return the case to
the agency to reconsider the fine amount.
BACKGROUND
¶2 In late 2011, the Division of Securities (the Division) filed
a Notice of Agency Action and Order to Show Cause against
Jack Phillips. The Division alleged that Phillips violated the Utah
Uniform Securities Act (the Act) by making false statements in
connection with the sale of securities to investors on several
occasions.
Phillips v. Department of Commerce
¶3 After a formal administrative adjudication, the Utah
Securities Commission (the Commission) determined that
Phillips committed four violations of the Act, once by soliciting
Utah residents to invest in a multi-level marketing opportunity
and three times by soliciting residents to invest in a deal to
import emeralds from Brazil. The Commission ordered Phillips
“to pay to the Utah Division of Securities a civil penalty in the
amount of $413,750,” including “$315,000 in investor losses,”
“$78,750 as a fine for violations of [the Act],” and “$25,000 in
investigative costs.”1
¶4 Phillips requested agency review from the Department of
Commerce. The Department adopted the substance of the
Commission’s decision but remanded for the “limited purpose
of obtaining a more detailed Order that discusses the
Commission’s thought process and analysis with respect to” the
regulatory guidelines used to determine the amount of the
penalty. On remand, the Commission amended two paragraphs
of its original decision to provide additional explanation for its
penalty assessment. One of those paragraphs is central to this
review and reads in part as follows:
In this case, Respondent [Phillips] developed very
personal, trusting relationships with the [victims]
over time. On the basis of these relationships of
trust and confidence, and through repeated and
persistent solicitation, Respondent convinced the
[victims] that he was favoring them with an
exclusive opportunity not otherwise available. This
predatory behavior in taking advantage of persons
with whom he had a close, personal relationship
constitutes affinity fraud by Respondent, which is a
particularly serious and repellent form of deceit
1. We note that the Commission’s total civil penalty calculation
was $5,000 less than the sum of its parts. Because we set aside
the penalty, we do not address this apparent arithmetic error.
20150534-CA 2 2017 UT App 84Phillips v. Department of Commerce
and must be severely sanctioned in order for the
sanction to act as a deterrent. In addition,
Respondent has not cooperated with the Division,
either to locate [a co-defendant] or in any other
manner. In these circumstances, the total investor
losses of $315,000 directly caused by Respondent’s
actions are appropriately included in the total fine
amount, as are the Division’s claimed investigative
costs of $25,000. In accordance with precedent, the
Commission also finds it appropriate to assess, as a
penalty for violations of the chapter, a fine
calculated at 25% of the total investor losses.
(Footnote omitted.)
¶5 After the Commission entered its amended order, Phillips
again sought agency review from the Department of Commerce,
claiming that the amendments were an impermissible post hoc
rationalization for the civil penalty. The Department of
Commerce rejected Phillips’ contention and adopted the bulk of
the Commission’s amended decision.2 Phillips petitioned this
court to review the Department’s decision.
ISSUES AND STANDARDS OF REVIEW
¶6 This court is empowered to conduct “judicial review of
final agency action.” Utah Code Ann. § 63G-4-401(1) (LexisNexis
2014). Here, the final agency action for our review is the
Department of Commerce’s Second Findings of Fact,
Conclusions of Law, and Order on Review. However, the
Department’s order simply adopted the Commission’s amended
2. The Department rejected a small change within the
Commission’s amended order, but that detail has no impact on
our resolution of this case.
20150534-CA 3 2017 UT App 84Phillips v. Department of Commerce
order as discussed above. Therefore, our review focuses on the
substance of the Commission’s decision.
¶7 In his petition, “Phillips challenges only the monetary
penalty the Commission imposed.” He raises multiple issues
under the Utah Administrative Procedures Act that focus on
various ways in which the Commission either violated the
federal constitution, acted beyond its statutory jurisdiction, or
erroneously applied the law. See id. § 63G-4-403(4)(a), (b), (d), (e).
“Those arguments present questions of law subject to review for
correctness.” Hughes Gen. Contractors, Inc. v. Labor Comm’n, 2014
UT 3, ¶ 6, 322 P.3d 712. One of Phillips’ arguments also involves
the Commission’s interpretation and application of a regulation.
“We review administrative rules in the same manner as statutes,
focusing first on the plain language of the rule. In our inquiry,
we seek to give effect to the intent of the body that promulgated
the rule.” Utah Chapter of Sierra Club v. Air Quality Board, 2009 UT
76, ¶ 13, 226 P.3d 719 (citations and internal quotation marks
omitted).
ANALYSIS
¶8 Phillips challenges the monetary penalty assessed against
him by the Commission. Specifically, he argues that (1) part of
the Commission’s enforcement action was time-barred, (2) the
penalty exceeded the Commission’s statutory authority, and (3)
the penalty was unconstitutionally excessive under the Eighth
Amendment to the United States Constitution. At bottom, these
arguments rest on the scope of the enforcement powers available
to the Commission under the Act, and we therefore begin by
describing the statutory framework controlling his challenge
before addressing Phillips’ arguments.
¶9 “Under the Utah Uniform Securities Act the Division has
three avenues for enforcing the provisions of the Act: equitable
actions, administrative proceedings, and criminal actions.” Mack
v. Department of Commerce, 2009 UT 47, ¶ 27, 221 P.3d 194. This
case involves a proceeding along the administrative path and the
20150534-CA 4 2017 UT App 84Phillips v. Department of Commerce
criminal avenue is not at issue. And while the statutory
provision allowing an equitable enforcement action in district
court is not directly at issue, that provision does play a part in
our resolution of both the statute of limitation and the fine issues
Phillips raises.
¶10 At the time in question, the Act set forth two parallel
avenues for civil enforcement.3 One—the equitable action
avenue—allowed the Division to bring a judicial action to
enforce the Act in district court. Utah Code Ann. § 61-1-20(2)
(LexisNexis 2011). Under this option, the district court was
authorized to provide injunctive relief, order restitution of
victim losses and disgorgement of gains from the unlawful
activity, and impose fines of not more than $10,000 per violation,
among other remedies. Id. § 61-1-20(2)(b) (outlining the court’s
power). Alternatively, the second avenue for civil enforcement—
the one the Division chose here—allowed it to enforce the Act
administratively by bringing a case before the Commission. Id.
§ 61-1-20(1).
¶11 With the statutory framework in mind, we turn to
Phillips’ arguments. We begin by addressing whether the
Division was time-barred from enforcing one of the violations
against Phillips. We then examine the Commission’s civil
penalty assessment in light of its statutory authority. Finally, we
address the Eighth Amendment’s limitation on excessive fines.
I. Statute of Limitation
¶12 One of the four violations of the Act related to Phillips’
solicitation of investments in a multi-level marketing scheme in
July 2006. Phillips argues that the Division was time-barred from
seeking enforcement in connection with that particular
3. The Utah Legislature made significant changes to the Act in
2016. We address the Act as it was codified when this action
commenced in 2011.
20150534-CA 5 2017 UT App 84Phillips v. Department of Commerce
transaction, but concedes that enforcement of the other three
violations was timely. In support, he urges us to apply the five-
year statute of limitation found in the 2011 version of the Act. In
this case, there is no dispute that the Division commenced its
enforcement proceeding five years and six months after the
violation. The only question for us on review is therefore
whether the Act’s limitation period applied to the Division’s
enforcement action.
¶13 The State argues that the statute of limitation does not
apply, and we agree. The statute provides, “No indictment or
information may be returned or civil complaint filed under [the
Act] more than five years after the alleged violation.” Utah Code
Ann. § 61-1-21.1(1) (LexisNexis 2011). The limitation clearly
applied to criminal prosecutions because it expressly discussed
indictments and informations, which are the first step in a
criminal prosecution. See Utah Const. art. I, § 13 (“Offenses . . .
shall be prosecuted by information . . . or by indictment . . . .”).
Similarly, the Act’s limitation period expressly applied to civil
actions, which are initiated by civil complaint. Compare Utah R.
Civ. P. 3(a) (“A civil action is commenced (1) by filing a
complaint with the court . . . .”), with Utah Code Ann. § 61-1-
21.1(1) (prohibiting the filing of a “civil complaint” “more than
five years after the alleged violation”).
¶14 Phillips, though, does not contend that the proceedings
below were either a criminal prosecution or a civil action.
Rather, he claims that the term “civil complaint” in the statute
“encompasses any authority exercised by the Division under
[the Act]” and therefore the statute of limitation applies to the
administrative proceeding at issue here. But this court has
explained that “an administrative disciplinary hearing is not a
civil proceeding.” Rogers v. Department of Bus. Regulations, 790
P.2d 102, 105 (Utah Ct. App. 1990). In particular, the Rogers court
noted that civil actions are commenced “by filing a complaint”
or “by the service of a summons,” id. at 106 (citing Utah R. Civ.
P. 3(a)), whereas the administrative enforcement action reviewed
in Rogers was commenced when “the [agency] filed a petition
20150534-CA 6 2017 UT App 84Phillips v. Department of Commerce
with the [administrative tribunal]” to revoke a broker’s license,
id. at 104. Based in part on that distinction, the court concluded
that, “[i]n the absence of specific legislative authority, civil
statutes of limitation are inapplicable to administrative
disciplinary proceedings.” Id. at 105.
¶15 The same reasoning applies in this case. To invoke the
administrative enforcement avenue at issue here, the Act
directed the Division to file an order to show cause before the
Commission. Utah Code Ann. § 61-1-20(1)(a). However, the
Act’s limitation period applied only to actions commenced by
“indictment or information . . . or civil complaint.” Id. § 61-1-
21.1(1). Because “an administrative disciplinary hearing is not a
civil proceeding,” and an order to show cause is different in kind
from a civil complaint, the civil statute of limitation did not
apply to the Division’s administrative enforcement efforts under
the Act. See Rogers, 790 P.2d at 105. We therefore decline to
disturb the Commission’s determination that enforcement of the
multi-level marketing violation was timely.4
II. Statutory and Regulatory Authority
¶16 In its decision, the Commission assessed a civil penalty
against Phillips in the amount of $413,750. Phillips argues that
the penalty assessment exceeded the Commission’s statutory
authority in two ways. First, he claims that the Act imposes a
4. We note that, contrary to Phillips’ assertion, the absence of an
applicable statute of limitation did not grant the agency
unlimited time during which to proceed with administrative
enforcement. See Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct.
1962, 1973–74 (2014) (indicating that, when the legislature “has
provided no fixed time limitation,” the doctrine of laches serves
a “gap-filling” function). We further note that the Utah
Legislature recently added a ten-year administrative statute of
limitation to the Act. See Utah Code Ann. § 61-1-21.1(2)
(LexisNexis Supp. 2016).
20150534-CA 7 2017 UT App 84Phillips v. Department of Commerce
$10,000 per violation limit on the Commission’s fine assessment.
Second, he argues that the Commission ordered him to pay
restitution in violation of the Act and its implementing
regulations. We address each argument and then turn to the
penalty assessment as a whole.
A. Fine Limitation
¶17 The essence of Phillips’ first statutory argument is that the
Act places a $10,000 per violation cap on a court’s fining
authority under the judicial enforcement avenue, and that the
cap must also apply to enforcement actions taken under the
administrative enforcement avenue even though the statute
places no explicit limitation on administrative fines. He bases his
argument on the proposition that, for the Division to enforce an
administrative order, it “must file an action in district court.”
The premise behind his argument is that an order from the
Commission has no independent force or effect and therefore
must be enforced through a collateral judicial proceeding. And
because the Act placed a limitation on the court’s authority to
enter a fine, Phillips contends that the limit implicitly applied to
administrative fines as well. That is, “[b]ecause the [Division]
must enforce any orders through [the judicial avenue of the Act],
the $10,000 fine per violation limitation applies to limit the
monetary penalty imposed by the [Commission].”
¶18 In support, Phillips directs our attention to a footnote in
State v. Bushman where we noted that “the fines that the Division
could impose and judicially enforce were limited . . . to $10,000
per violation.” 2010 UT App 120, ¶ 21 n.4, 231 P.3d 833. Thus, he
claims that this court has already analyzed the Act and found
that the fine limitation applicable to judicial enforcement also
applies to administrative enforcement.
¶19 We are not persuaded by Phillips’ argument for two
reasons. First, although the footnote language in Bushman seems
broadly on point, that decision was a double jeopardy challenge
to a criminal conviction and involved a civil fine that the
defendant agreed to in a consent decree. Thus, the footnote was
20150534-CA 8 2017 UT App 84Phillips v. Department of Commerce
obiter dicta; Bushman did not present the question at issue here,
did not parse the differences in wording between the two
statutory avenues of enforcement, and cited exclusively the
subsection of the Act applicable to judicial actions. See Ortega v.
Ridgewood Estates LLC, 2016 UT App 131, ¶ 14 n.4, 379 P.3d 18(“Obiter dicta refers to a remark or expression of opinion that a
court uttered as an aside[.]” (citation and internal quotation
marks omitted)). We therefore do not consider Bushman to be
controlling on this point.
¶20 Second, Phillips’ argument asks us to interpret the Act in
a way that imports language from one enforcement avenue of
the statute into another. “The best evidence of the legislature’s
intent is the plain language of the statute itself.” Marion Energy,
Inc. v. KFJ Ranch P’ship, 2011 UT 50, ¶ 14, 267 P.3d 863 (citation
and internal quotation marks omitted). “We need look beyond
the plain language only if we find some ambiguity.” State v.
Burns, 2000 UT 56, ¶ 25, 4 P.3d 795. Here, no party asserts that
the statute is ambiguous and no ambiguity is self-evident. Our
analysis therefore begins and ends with the Act’s plain language,
which does not support Phillips’ contention.
¶21 As we noted above, the Utah Legislature granted
overlapping authority to the Commission and the courts to
enforce the Act. See Mack v. Department of Commerce, 2009 UT 47,
¶ 34, 221 P.3d 194, (“[T]he Securities Act provides concurrent
jurisdiction in the district court and the [agency] . . . .”). The
legislature differentiated between the two forums, however, by
providing each with different remedial powers. Specifically, the
Act placed a $10,000 per violation limit on fines assessed under
the judicial enforcement avenue but placed no express limit on
fines assessed under the administrative enforcement avenue.
Compare Utah Code Ann. § 61-1-20(2)(b)(viii) (LexisNexis 2011)
(stating that the court may “impose a fine of not more than
$10,000 for each violation”), with id. § 61-1-20(1)(f) (stating that
“the commission may impose a fine”).
20150534-CA 9 2017 UT App 84Phillips v. Department of Commerce
¶22 Because “we presume that the expression of one term
should be interpreted as the exclusion of another,” we “seek to
give effect to omissions in statutory language by presuming all
omissions to be purposeful.” Marion Energy, 2011 UT 50, ¶ 14,
(brackets, citation, and internal quotation marks omitted). Here,
the legislature expressed a $10,000 limit in the judicial
enforcement subsection of the Act but omitted the limit from the
administrative enforcement subsection, an omission we must
presume to have been deliberate. Further, Phillips’ proposed
reading of the Act renders the administrative enforcement
avenue meaningless surplusage. See Mallory v. Brigham Young
Univ., 2014 UT 27, ¶ 13, 332 P.3d 922 (“[W]e seek to render all
parts [of the statute] relevant and meaningful [by] avoid[ing] an
interpretation which renders portions of, or words in, a statute
superfluous or inoperative.” (second and fourth alterations in
original) (citations and internal quotation marks omitted)). If the
Act required the Division to always seek judicial enforcement of
Commission orders, and the restraints applicable to original
judicial proceedings applied when it did so, there would have
been no reason for the legislature to establish a separate—and
effectively redundant—administrative enforcement mechanism.
Thus, we conclude that the plain language of the statute does not
support Phillips’ argument that the Commission’s
administrative fine authority was subject to the $10,000 per
violation limitation applicable to judicial enforcement actions.
¶23 Phillips contends, however, that whether or not the
statute expresses any direct constraint on administrative fines,
the “Division must file an action in district court” to enforce an
order from the Commission and that “[t]his civil enforcement
action triggers the limitations” applicable to judicial enforcement
actions, namely the $10,000 per violation fine limitation. That is,
Phillips argues that “the amount of any monetary penalty
assessed in an administrative proceeding is limited to $10,000
per violation” because “a district court is only allowed to enforce
fines up to $10,000.”
20150534-CA 10 2017 UT App 84Phillips v. Department of Commerce
¶24 However, this is an argument about the court’s power to
enforce a Commission order, not about the Commission’s power
to issue the order in the first instance. Here, the Division has not
sought enforcement of the Commission’s order in district court.
Thus, any question about the court’s authority to enforce the fine
is not ripe for our review—Phillips has not yet asked the district
court to decide the question. Until Phillips first tests his theory in
district court, we are powerless to consider it. See Bodell Constr.
Co. v. Robbins, 2009 UT 52, ¶ 29, 215 P.3d 933 (“An issue is not
ripe for appeal if there exists no more than a difference of
opinion regarding the hypothetical application of a provision to
a situation in which the parties might, at some future time, find
themselves.” (brackets, citation, and internal quotation marks
omitted)).5
¶25 For these reasons, we conclude that by statutory design
the Commission’s power to order fines was free from the
limitation placed on the district court’s power. Whether the
district court had power to enforce a Commission fine in excess
of $10,000 per violation is a question not ripe for our review, and
we decline to address it.
B. Restitution
¶26 Phillips next argues that the $315,000 investor-loss
component of the Commission’s civil penalty “is an order of
restitution, which improperly invades the province of the district
court.” In part, this argument is based on the plain language of
the statute that we have discussed above. Specifically, Phillips
points out that the Act expressly grants the district court power
5. In his reply brief, Phillips makes a similar argument with
regard to the statute of limitation, namely that the civil
enforcement time limitation is triggered when the Division seeks
enforcement of a Commission order in district court. We decline
to reach the issue for the same reason previously discussed—it is
not ripe for decision on this procedural posture.
20150534-CA 11 2017 UT App 84Phillips v. Department of Commerce
to award restitution in judicial enforcement actions but is silent
as to the Commission’s power to order restitution.6 Compare Utah
Code Ann. § 61-1-20(2)(b)(vii) (LexisNexis 2011) (granting the
district court power to “order restitution”), with id. § 61-1-
20(1)(h) (limiting the Commission’s range of sanctions to
imposing fines, issuing cease and desist orders, and barring the
respondent from associating with securities brokers).
¶27 We agree with Phillips that the Act does not grant the
Commission the power to order restitution for the same reason
that the $10,000 fine limitation applicable to judicial enforcement
does not apply to administrative enforcement, namely that we
“seek to give effect to omissions in statutory language by
presuming all omissions to be purposeful.” Marion Energy, Inc. v.
KFJ Ranch P’ship, 2011 UT 50, ¶ 14, 267 P.3d 863. Because the Act
omitted any mention of restitution when describing the remedies
available in administrative enforcement proceedings, we
conclude that ordering restitution was beyond the Commission’s
power.
¶28 But even though the Commission’s imposition of a civil
penalty that included “$315,000 in investor losses” bears a facial
similarity to what a restitution award would likely have been in
this case—they are similar in amount—we are not persuaded the
6. Phillips argues that the $10,000 per violation cap on judicially
imposed fines applies to administrative proceedings even though
there is no similar limitation in the administrative enforcement
avenue of the statute. He also argues that the judicial power to
order restitution does not apply in administrative proceedings
because there is no similar restitution provision in the
administrative enforcement avenue. That is, he simultaneously
argues that the legislature’s restriction on judicial enforcement
power applies to administrative actions, but the legislature’s
expansion of judicial enforcement power does not. Phillips does
not explain this contradiction.
20150534-CA 12 2017 UT App 84Phillips v. Department of Commerce
Commission ordered restitution in this case. Indeed, the dollar
value assessed against Phillips is the sole extent of the similarity
between the Commission’s penalty and an order of restitution.
Restitution is the “[r]eturn or restoration of some specific thing
to its rightful owner or status.” Restitution, Black’s Law
Dictionary (10th ed. 2014). In this case, the Commission ordered
Phillips “to pay to the Utah Division of Securities a civil penalty”
that included “$315,000 in investor losses.” Because Phillips was
directed to pay the amount of investor losses to the State rather
than to the victims of his fraud, the civil penalty was not aimed
at the “restoration of [money] to its rightful owner,” see id., and
was therefore not restitution.
¶29 Our conclusion is supported by the structure of the Act,
which directed the Division to deposit all “administrative fines
collected” into a special revenue fund. Utah Code Ann. § 61-1-
18.7(2) (LexisNexis 2011). Under the Act, the special fund could
be used “only for” Division expenses related to operations,
investor education, investigations and litigation, and the like. Id.§ 61-1-18.7(5) (omitting compensating victims from the list of
things on which money in the special revenue fund money could
be spent). We therefore conclude that the Commission did not
order restitution.7
7. Although we conclude the Commission did not order
restitution, we note that the fine amount could have an effect on
restitution because the total fine assessed—$413,750—is a
significant sum of money for all but the most financially secure.
Although a petitioner’s financial situation is irrelevant to our
decision, as a general matter the imposition of such a substantial
penalty could negatively impact the ability of a victim of
securities fraud to ultimately recover against the perpetrator in a
collateral proceeding.
20150534-CA 13 2017 UT App 84Phillips v. Department of Commerce
C. The Civil Penalty
¶30 Although we have rejected Phillips’ specific contentions,
we find merit in his broader argument. He points out that the
Utah Administrative Code sets forth the “guidelines for the
assessment of administrative fines.” Utah Admin. Code R164-31-
1(A)(2) (2011). Phillips concedes that, as part of the guidelines,
the Commission could consider “the harm to other persons,
including the amount of investor losses.” He asserts, though,
that the guidelines were simply to be used as factors in
determining “whether to impose the maximum fine of $10,000
per violation” of the Act. We have rejected the contention that
the Commission’s power to assess a fine was capped at $10,000,
but we agree with Phillips that the guidelines in the
administrative code controlled how the Commission was to
exercise its authority. See Utah Code Ann. § 63G-3-202(2)
(LexisNexis 2014) (“An agency’s written statement that is made
as a rule . . . has the effect of law.”).
¶31 We begin by recognizing, as we have discussed, that the
Act granted the Commission broad discretion to “impose a fine.”
Id. § 61-1-20(1)(f). But in its order, the Commission imposed a
“civil penalty” composed of three components: “$78,750 as a fine
for violations,” as well as “$315,000 in investor losses,” and
“$25,000 in investigative costs.” Even if we presume that the
Commission’s use of the term “civil penalty” is synonymous
with the term “fine” as used in the Act,8 it is difficult to
8. We are not convinced this is so. In section 18.7 of the Act, the
legislature used both terms, “civil penalty” and “fine.” See Utah
Code Ann. § 61-1-18.7(2) (LexisNexis 2011). Given that the
legislature used “civil penalty” in one section of the Act, but
chose not to include it within the enforcement section, we
presume that the terms are not synonymous. See Savage Indus.,
Inc. v. Utah State Tax Comm’n, 811 P.2d 664, 670 (Utah 1991) (“In
construing legislative enactments, the reviewer assumes that
each term in the statute was used advisedly . . . .”).
20150534-CA 14 2017 UT App 84Phillips v. Department of Commerce
understand how a fine could include “$78,750 as a fine,” as well
as separate additional assessments of $315,000 and $25,000, and
still be a just a fine. On the face of its order, the Commission
appears to have assessed a fine, which was allowed under the
Act, and then assessed two additional, distinct, and very
substantial monetary penalties, which were not.
¶32 Our review of the Commission’s amended order confirms
that point. In it, the Commission concluded that Phillips’ actions
in this case “constitute[d] affinity fraud . . . which is a
particularly serious and repellent form of deceit and must be
severely sanctioned.” The Commission also noted, however, that
there was “no evidence in the record that [Phillips] received any
meaningful financial benefit, enrichment, commission, fee or
other consideration from the transaction.” On those conclusions,
and “according to established precedent for a first offense where
the respondent received little to no financial benefit,” the
Commission found it “appropriate to assess, as a penalty for
violations of this chapter, a fine calculated at 25% of the total
investor losses.” Thus, the Commission imposed a fine of
$78,750, or one quarter of the total $315,000 of loss suffered by
the victims. If it had stopped there, the fine amount might be
difficult to contest.
¶33 The Commission did not stop there however. It also
concluded that “the total investor losses of $315,000 . . . are
appropriately included in the total fine amount, as are the
Division’s claimed investigative costs of $25,000.” If 25% of total
investor losses was the appropriate measure for a fine given the
circumstances of Phillips’ violations, it is difficult to understand
how the additional components of $315,000 and $25,000 were
also justified by the applicable rules.
¶34 At the time the fine was ordered, the Utah Administrative
Code set forth the guiding factors that the Commission “shall
consider” in “determining the amount of an administrative fine
assessed against a person under [the Act].” Utah Admin. Code
R164-31-1(B)(1) (2011). Those factors were:
20150534-CA 15 2017 UT App 84Phillips v. Department of Commerce
(a) the seriousness, nature, circumstances, extent,
and persistence of the conduct constituting the
violation;
(b) the harm to other persons resulting either
directly or indirectly from the violation;
(c) cooperation by the person in any inquiry
conducted by the Division concerning the
violation, efforts to prevent future occurrences
of the violation, and efforts to mitigate the harm
caused by the violation, including any
restitution made to other persons injured by the
acts of the person;
(d) the history of previous violations by the person;
(e) the need to deter the person or other persons
from committing such violations in the future;
and
(f) such other matters as justice may require.
Id. R164-31-1(B)(1).
¶35 Under the rule, it was certainly appropriate for the
Commission to consider “investor losses” in determining the
amount of a fine because they fall within the scope of the “harm
to other persons” mentioned in factor (b) and perhaps serve to
emphasize “the seriousness” of Phillips’ conduct under factor
(a). However, the rule identifies those considerations as “factors”
to be taken into account in determining an appropriate fine
under the particular circumstances of a case, not as a discreet
component of such a fine. The same is true of “investigative
costs,” which could fall within factor (c)— that factor’s reference
to “cooperation by the person in an inquiry” could encompass
consideration of the effects of failure to cooperate on the
Division’s investigatory costs. The broad language of factor (c),
however, does not suggest that the costs of investigation could
simply be assessed against Phillips rather than considered along
with other pertinent circumstances.
20150534-CA 16 2017 UT App 84Phillips v. Department of Commerce
¶36 Here the Commission apparently treated investor losses
and investigative costs as if they were discrete calculations to be
added to a base fine instead of using them as factors to be taken
into account in assessing the appropriate size of the unitary fine
authorized by the Act. Indeed, the Commission appears to have
relied on investor losses twice—once when it calculated its base
fine of $78,750 by taking a percentage of investor loss, and then
again by assessing investor losses against Phillips on a dollar-
for-dollar basis. Particularly considering that “[t]he guidelines
should not be considered all-inclusive but rather are intended to
provide factors to be considered when imposing a fine,” id.R164-31-1(A)(2), it is apparent that the regulation’s purpose was
to provide a framework for weighing and balancing the
applicable factors to ensure fine assessments were
commensurate with the gravity of the particular violation and
consistently applied over time. That is, the factors were not
simply a list of the various categories for which discrete dollar
amounts could be combined into a total civil penalty assessment,
as appeared to occur in this case. Rather, the regulation required
the Commission to set a fine amount based on a multi-factor
balancing inquiry that took various elements, such as investor
loss, into account.
¶37 Because the Commission was empowered to consider
investor losses and investigative costs, but not empowered to
directly assess them against Phillips as individual components,
we conclude that “the agency has erroneously interpreted or
applied the law.” See Utah Code Ann. § 63G-4-403(4)(d)
(LexisNexis 2014). Both the individual components included
within the Commission’s civil penalty assessment must therefore
be set aside.9
9. In the proceeding below, Phillips argued that, because the
victims took possession of a quantity of “emeralds” related to
the failed investment, the value of the stones should be an offset
against the Commission’s total fine amount, which included
(continued…)
20150534-CA 17 2017 UT App 84Phillips v. Department of Commerce
¶38 Finally, we address the civil penalty’s remaining
component of “$78,750 as a fine for violations” of the Act. “An
administrative agency must make findings of fact and
conclusions of law that are adequately detailed so as to permit
meaningful appellate review.” Adams v. Board of Review of Indus.
Comm’n, 821 P.2d 1, 4 (Utah Ct. App. 1991). Specifically,
“findings should be sufficiently detailed to disclose the steps by
which the ultimate factual conclusions, or conclusions of mixed
fact and law, are reached.” Milne Truck Lines, Inc. v. Public Serv.
Comm’n, 720 P.2d 1373, 1378 (Utah 1986). “Without such
(…continued)
investor losses as a component. The Commission apparently
agreed in principle but declined to calculate an offset because
Phillips offered no evidence of the emeralds’ value. Phillips
argues on review that the Commission’s decision improperly
burdened him with the responsibility to prove the emeralds’
value. However, the Commission was conducting its analysis
under the premise that investor losses was a component to be
included within the total fine amount, not as one factor among
several to consider when setting the fine. Given that we have
rejected the premise under which the Commission analyzed the
issue, the question of an offset—and which party would bear the
burden to prove it—is no longer properly before us. In addition,
we note that the concept of offset does not per se apply to the
determination of the amount of a fine because investor losses are
not a discrete component of a fine from which a precise offset
can be deducted. Rather, as we have discussed, the Commission
is empowered to consider investor loss. Certainly, in considering
this factor, the Commission may take into account whether the
victim’s losses have been mitigated as well as the significance of
the source of such mitigation—for example, whether from the
perpetrator of the fraud, a third party, or the victims’ own
efforts. But a requirement for precise calculation of an offset does
not seem to be consistent with the role of “investor losses” as one
factor of many to be taken into account in assessing a fine
appropriate to the gravity of a particular violation.
20150534-CA 18 2017 UT App 84Phillips v. Department of Commerce
findings, [appellate courts] cannot perform [their] duty of
reviewing the Commission’s order in accordance with
established legal principles and of protecting the parties and the
public from arbitrary and capricious administrative action.” Id.¶39 Because we have set aside two of the three components
that the Commission included within its “civil penalty”
assessment, we are not able to conduct a meaningful review of
the remaining $78,750. For example, it is apparent that the
Commission considered at least some of the guiding factors
established in the administrative code, such as the amount of the
victim’s loss, investigatory costs, the nature of Phillips’ offense,
and the fact that he was a first-time offender who did not realize
any financial gain. However, the Commission conducted its
entire analysis of the factors, and the three discrete components
of the civil penalty, within a single paragraph of its amended
order. Based on that single paragraph, we are not able to
meaningfully distinguish the rationale that supported the
$78,750 “fine” component from the rationale that supported the
other two components that we have set aside. See id. at 1378.
¶40 In addition, we note that neither party has briefed the
Commission’s $78,750 fine assessment standing alone, which not
only further hampers our ability to engage with the
Commission’s decision but cautions against our undertaking
such an analysis on our own. Therefore, in keeping with our
standard of review, we set aside the Commission’s remaining
fine assessment of $78,750 and return the matter to the
Commission for reconsideration.10
10. Because we have set aside the entire civil penalty assessed
against Phillips, we do not address Phillips’ contention that the
Commission’s amended order was an improper post hoc
justification of its fine.
20150534-CA 19 2017 UT App 84Phillips v. Department of Commerce
III. The Eighth Amendment
¶41 Phillips additionally argues that the Commission’s fine
was “unconstitutionally excessive under the Eighth
Amendment.” That amendment provides that “[e]xcessive bail
shall not be required, nor excessive fines imposed, nor cruel and
unusual punishments inflicted.” U.S. Const. amend. VIII. “The
Excessive Fines Clause [of the amendment] thus limits the
government’s power to extract payments, whether in cash or in
kind, as punishment for some offense.” United States v.
Bajakajian, 524 U.S. 321, 328 (1998) (citation and internal
quotation marks omitted).
¶42 Because we have set aside the entire fine assessment and
directed the Commission to reconsider the matter, we do not
reach the merits of Phillips’ constitutional argument. However,
we note that the Eighth Amendment unquestionably places
upper limits on the Commission’s power to impose a fine on
Phillips or any other violator of the Act. “The touchstone of the
constitutional inquiry under the Excessive Fines Clause is the
principle of proportionality: The amount of the forfeiture must
bear some relationship to the gravity of the offense that it is
designed to punish.” Id. at 334. To determine proportionality,
appellate courts “compare the amount of the forfeiture to the
gravity of the defendant’s offense” while keeping in mind two
factors: (1) that “judgments about the appropriate punishment
for an offense belong in the first instance to the legislature”; and
(2) “any judicial determination regarding the gravity of a
particular criminal offense will be inherently imprecise.” Id. at
336–37. “If the amount of the forfeiture is grossly disproportional
to the gravity of the defendant’s offense, it is unconstitutional.”
Id. at 337.
¶43 In Brent Brown Dealerships v. Tax Comm’n, this court
examined and applied “the framework for determining whether
a statutory penalty complies with the Eighth Amendment.” 2006
UT App 261, ¶ 14, 139 P.3d 296. There, we applied the “grossly
disproportional” test from Bajakajian and concluded that a
20150534-CA 20 2017 UT App 84Phillips v. Department of Commerce
$135,000 penalty for violations of state licensing statutes was not
excessive. Id. ¶¶ 20–24. In reaching that conclusion, we noted
that “at least fifty-one unlicensed salespeople” sold “306 vehicles
over a period of twenty months,” which, according to testimony
from state officials, was “the most extensive violation of the
licensing statutes they had ever seen.” Id. ¶ 20. We also
examined the amount of gain realized by the car dealership,
estimated at more than $6 million in revenue, in relation to the
$135,000 fine. Id. ¶ 21. On a unit basis, we determined that the
fine only amounted to $441 per violation, which fell “well within
the limits of the Eighth Amendment.” Id.
¶44 Thus, while we offer no opinion on what fine may be
appropriate for Phillips on remand or what specific constraints
are placed on the Commission by the Eighth Amendment in a
given circumstance, we note that the Commission’s fine will
need to fall within constitutional constraints.
CONCLUSION
¶45 We conclude that the Division was not time-barred from
seeking enforcement of any of Phillips’ violations of the Act and
that the Commission did not improperly order restitution
against him. However, we also conclude that the Commission
erroneously interpreted and applied the fine assessment
guidelines in the Utah Administrative Code. We therefore set
aside the Commission’s civil penalty assessment and direct it to
reconsider the fine in light of this opinion.
20150534-CA 21 2017 UT App 84