*1 STEADMAN AND v. SECURITIES EXCHANGE
COMMISSION Argued February No. 79-1266. December 1980 Decided 25, 1981 *2 Burger, in BrennaN, opinion Court, of the which J., delivered Blackmun, Rehnquist, Stevens, White, Marshall, JJ., and J.,C. and Powell, Stewart, opinion, J., joined. dissenting in J., filed a post, joined, p. 104. him petitioner. With argued J. cause for
Peter Nickles Alex the briefs Kozinski. was respondent. for the cause With Ralph argued C. Ferrara McCree, M. Stephen Solicitor General him on the brief were Gonson, Stillman, Paul Jacob H. and Rosalind Shapiro, Cohen.* opinion of the Court. delivered Brennan
Justice Exchange In the Securities administrative proceedings, stand- applies preponderance-of-the-evidence Commission determining provisions in ard whether the antifraud of the ques- federal securities laws have been violated. The by tion presented proved whether such must be violations convincing by preponderance clear evidence rather than of the evidence.
I pro- disciplinary June the Commission initiated a wholly ceeding owned against petitioner of his and certain brought companies. proceeding against petitioner was Act of 19401 pursuant (b) §to Company the Investment Shipley L. * Briefs of amici curiae Carl urging filed reversal were Brokers; for the National Committee of Discount Securities Mathews, McCaw, Becker, Arthur William F. Robert B. David M. Fitzpatrick J. Industry for the Securities Association. (b) 15 U. S. C. Company Investment Commission, (b), empowers circumstances, specified “after §80a-9 conditionally opportunity hearing prohibit, or notice and . . . [to] (f) the Investment Advisers Act of 1940.2 The alleged petitioner Commission had violated numerous federal securities laws in his management registered of several mutual under funds the Investment Com- pany Act. lengthy evidentiary
After a before an hearing Administra- Judge tive Law and review which the preponderance-of-the-evidence employed,3 standard was period unconditionally, permanently either or for such time itas in its interest, appropriate public any person discretion shall deem serving acting employee, officer, director, or advisory as an member an board, of, depositor principal investment adviser or for, or underwriter registered company person investment affiliated such investment adviser, depositor, or principal underwriter *3 (f) of 1940, Section 203 the Investment Advisers Act of 15 U. S. C. (f), Commission, empowers specified circumstances, after §80b-3 opportunity hearing notice and place for “on the record” to “censure or any person of seeking limitations on the or activities associated be adviser, with come associated an investment suspend period or for a exceeding any person twelve months bar being or such from associated an with investment adviser 3Disciplinary proceedings Exchange before the Securities and Commis by governed are sion Practice, Commission’s of 201.1 Rules CFR § seq. (1980), by et enlarge, protections which respects, certain afforded seq. (APA), the Administrative Procedure et Cf. C. § Corp. Vermont Yankee Nuclear Power Resources v. Natural Defense Council, Inc., 519, “[a]gencies (1978) (as 435 U. S. to 5 C. § grant are free to dis procedural rights of their additional in the exercise cretion, reviewing but if generally impose them courts are not free to disciplinary agencies have grant them”). respondent not chosen to A in a charges against him proceeding timely is entitled to receive notice of the (a) questions 201.6 of 17 CFR and the fact and law be determined. may (1980). He retain him connection with represent counsel to him and 201.2(b), against proceeding, charges file an answer to the (a) and charges, for a definite move more statement of those §§201.7 impartial trial-type hearing adminis (d), presided and have a over an member, judge, duly-appointed officer, law other or trative a Commission documentary or (b)-(c). may present respondent 201.11 oral §§ or object admission evidence, witnesses, cross-examine adverse pro may compel (a). respondent of A exclusion evidence. §201.14 held December 1965 and June that between 1972, petitioner antifraud,4 reporting,5 conflict had violated interest,6 proxy7 federal securities permanently barring it an order laws. entered Accordingly, any associating adviser or petitioner from with investment registered investment and sus- affiliating any with company, associating broker year any with pending him one or dealer in securities.8 the Commission’s order in the sought
Petitioner review of may subpoena, 201.14(b), duction obtain witness of evidence possession of Commission’s staff statements in the for cross-examina purposes, At of the hearing, tion conclusion the re §201.11.1. right spondent proposed findings submit briefs of fact and (d). law. The initial decision the admin conclusions of §201.16 judge findings law, must include fact and istrative law conclusions fact, supporting reasons, law, on all wdth material issues of or discretion (a). presented respondent may A on the record. seek review §201.16 may modify Commission, affirm, reverse, the initial deci independent (g) (2), based on its review of the record. 201.17 sion §§ 201.21. (a) 77q (a) ; Section the Securities Act of C. (b) §78j (b), Exchange of the Securities Act of C. S.U. thereunder, (1980); (l)-(2) and Rule 10b-5 CFR 240.10b-5 §§ (l)-(2). Act of the Investment Advisers 15 U. S. C. §§80b-6 (a) Exchange Act of 15 U. S. C. Securities 78q (a), thereunder, Rule 17a-5 17 CFR §240.17a-5 §§30 (a) (b) and 34 Company the Investment Act of 15 U. S. *4 (a) (b). 80a-29 and 80a-33 §§ 6 (a) (1), (a), (e) Company Sections 15 and 17 of the Investment 1940, (a)(1), (e). S. C. (a), of 15 U. 80a-15 80a-17 and 80a-17 §§ (a) Company 1940, Investment Act of S. (a). 80a-20 days Petitioner was allowed 90 in which his in Steadman to sell stock Corp. stayed Compliance Securities with the has been Commission’s order pending completion review. petitioner, Because Commission severe sanctions carefully Appeals
Court of remanded to the Commission “to articulate grounds decision, for its including explanation why an sanc- lesser not suffice.” (CA5 1979). tions will 2d F.
United States Court of Appeals for the Fifth Circuit on a number of grounds, one of which is relevant for our purposes. Petitioner challenged the Commission’s use of the preponderance-of-the-evidence proof standard of in determin- ing whether he had violated antifraud of the se- curities laws. He contended because that, of the potentially severe sanctions that the Commission empowered was to im- pose and because of the circumstantial and inferential nature might evidence that to prove used intent to defraud, required weigh to was against a clear-and-convincing proof. Ap- Court of peals rejected petitioner’s argument, holding that in a disci- plinary proceeding before the Commission violations of the antifraud provisions of the may securities laws be established preponderance of the evidence. 603 F. 2d (1979). contrary See supra. n. Because this was position taken Appeals United States Court of for the SEC, District of Circuit, Whitney Columbia see v.
App. D. C. 604 F. 2d 676 Corp. Collins Securities SEC, 183 U. App. (1977), D. C. F. 2d 820 we granted certiorari to resolve the conflict. S. 917 (1980). affirm. We
II Congress degree proof Where prescribed has which must be order proponent adduced of a rule or carry pro- its persuasion burden of an administrative ceeding, liberty this Court has felt stand- prescribe traditionally is the ard, question kind of which has “[i]t INS, been left to the judiciary to resolve.” Congress spoken, However, where we have deferred to “the powers traditional fed- prescribe rules proof evidence and standards courts” eral constraints. countervailing absent constitutional prescribed There is no congressionally reason to accord less deference to than proceedings standards of and rules of evidence in administrative *5 Terrazas, (1980). For v. 444 U. Vance S. Commis pursuant initiated to 15 disciplinary proceedings U. S. C. sion (b) (f), Congress 80b-3 we conclude that has § § 80a-9 preponderance-of-the-evidence said that spoken, applied.10 should standard provide judicial laws for review
The securities Commis proceedings in the federal disciplinary appeals11 sion courts specify scope they of such review.12 Because do proof governs not indicate which standard of Commission ad judications, however, we turn to of the Administrative Procedure Act (APA), “applies S. C. ... every adjudication required by case of statute be deter opportunity agency hearing,” mined the record after for an except (b), instances relevant here.13 Section 5 INS, (ascertaining federal courts. See first S., 385 U. at 284 legislated proof had not a standard of for administrative deportation proceedings determining appropriate standard). before proof Because of determining appropriate the task discerning congressional intent, many in the instant peti case is one of arguments simply tioner’s inapposite. contends, are He example, for policy, potentially consequences as a matter of respondent- to a severe proceeding allegations involving in Commission fraud demand that his factfinding by requiring burden risk of erroneous should be reduced prove Commission to violations of the of the securi antifraud overlooks, ties laws convincing clear and argument evidence. This however, Congress’ powers prescribe “traditional . standards of ... Terrazas, . . . .” (1980). Vance v. for is not S. It this Court to determine the Congress’ prescription. wisdom of 77i, Title 15 C. 78y, 80a-42, provide for and 80b-13 §§ review of Commission orders in the appeals. courts of findings reviewing “if fact are conclusive court supported 80a-42, 78y, substantial evidence.” 15 U. C. §§ 80b-13; (Commission cf. findings supported 77i “if conclusive evidence”). disciplinary This proceeding, brought by pursuant the Commission (b) (f), 80a-9 clearly adjudica 80b-3 "case Telegraph Telephone tion” within U. S. C. 554. See & International Corp. Workers, (b) Electrical 419 U. S. Both 80a-9
97 (c)(2), S. makes the of 7,§ U. C. 554 5 § U. C.S. 566, applicable adjudicatory proceedings.14 to § The answer to in this question presented case turns therefore on the proper 7.15 § construction congressional for intent begins
The search
with the lan
Allard,
statute. Andrus
guage of
444
v.
56
U. S. 51,
;
Corp.,
Sonotone
(1979); Reiter v.
442
337
(1979)
U. S.
require
(f)
explicitly
an “opportunity
80b-3
also
agency]
for
§
[an
Moreover,
hearing.”
disciplinary proceeding
be
must
conducted “on
phrase
appears
(f),
The
“on the record”
record.”
80b-3
§
appear
(b),
1, supra,
while it does not
80a-9
see n.
the absence of the
§
specific
(b)'
phrase
80a-9
not
proceeding
does
make the instant
§
subject
Co.,
See United States v. Florida
to
554.
East Coast R.
410
§
(1973);
Allegheny-Ludlum
States v.
Corp.,
U.
United
Steel
S.
238
(1972);
League
Costle,
U. S.
Seacoast Anti-Pollution
v.
(CA1),
denied,
(1978). Rather,
2dF.
cert.
“Except Any oral proof. the burden rule or order has nent of a may but the received, documentary or for the exclusion of provide policy as a matter of shall A unduly repetitious evidence. irrelevant, immaterial, or rule or order issued ex- may not be sanction *7 or parts of the whole record those cept on consideration accord- by by party supported a thereof cited with substantial evi- ance reliable, probative, dence.” added.) (Emphasis itself the enactment language implies
The of the statute By allowing be proof. of a standard of sanctions to are “in accordance with . . . substantial evi- only when they mini- dence,” implied rest sanction must on a quantity mum of evidence. The word “substantial” denotes quantity.16 “in phrase The accordance with . . substantial requires evidence” thus that a decision be on a certain based quantity of phrase evidence. Petitioner’s contention that the “reliable, probative, and merely a substantial evidence” sets quality standard of therefore, unpersuasive.17 evidence is, phrase The “in to support accordance with” further lends a construction of 7 (c) proof. establishing a standard Unlike 10§ (e), explicit APA’s “Scope provi of review” sion that agency declares that action be unlawful shall held
16Webster’s Third Dictionary (1976) New International defines “sub stantial” to mean “considerable in amount.” (c), course, Section quality-of-evidence also sets minimum stand example, provision ards. For directing “irrelevant, agency exclusion of immaterial, unduly repetitious requirement evidence” and the further agency that an rest on sanction “reliable” “probative” evidence man agency decisionmaking date that premised be on evidence of a certain quality. Thus, may level of while “probative” the words “reliable” and quality-of-evidence imply concerns, implies quantity the word “substantial” of evidence. evidence,”18 (c) provides
if substantial “unsupported that order may only “sup order if agency that an issue an with ported evidence” by and accordance . substantial “in added). words accordance (emphasis The additional must adjudicating agency weigh the suggest with” that the weight evidence, on the evidence and based decide, be disciplinary language whether order should issued. decision requires of 7 that the must (c), therefore, weight simply not evidence, “in with” accordance “ if ‘to the trial supported enough justify, were sought verdict when the conclusion jury, a refusal direct a ” Consolo jury.’ to be drawn it is one fact for the FMC, NLRB (1966), quoting 383 U. S. v. Colum Co., (1939). Enameling Stamping bian & U. only evidence has relevance if the evi Obviously, weighing against side is measured a standard dence each to be Addington which allocates the risk of error. See Texas, (e), con trast, permit reviewing does evi weigh court “ but to determine that there is in the record ‘such dence, *8 might accept relevant evidence as a reasonable mind as ade ” FMC, quate conclusion,’ to a support supra, Consolo NLRB, S. quoting Consolidated Edison Co. v. 18 (e) Section re APA, “Scope 10 of the entitled 5 C of is § provides, view” and pertinent part, reviewing that court “[t]he shall agency action, findings, . hold unlawful and set aside and conclu sions found to be . . . unsupported in a case sub substantial evidence ject to sections 556 and rec 557 of title reviewed on the this or otherwise ord of an hearing provided by (2) (E). statute.” 706 § 19 10(e) expressly Section ac refers to of the words “in Addition §7. supra. cordance with” could is This have been inadvertent. n. See especially light relationship true Report's of the of the House discussion “ (c) (e): between (e)] means ‘Substantial evidence’ § [in § clearly substantial, plainly which the whole is sufficient record support finding (c), to requirements a or conclusion under the of section Sess., Rep. Cong., material issues.” R. 79th 2d H. No. (1946). therefore, surprising, view of (1938). It is not 197, 229 7 (c) purposes that entirely (e), different “substantial words evidence” to have Congress intended the Thus, petitioner’s argument in context. meanings different scope judicial establishes the review of (c) merely that § unavailing.20 agency orders language (c) suggests, §of therefore, Con-
While statute to establish- a of proof, standard gress intended opaque concerning the statute is somewhat language of legislative proof history, to be used. The precise standard clearly original intent. Congress’ reveals however, of 7 that “no sanction shall be (c) provided version Senate except supported relevant, pro- reliable, .. Cong., 79th 1st After bative evidence.” Sess. passed language House version, the passed the Senate this accepted the and the Senate today, of the as it reads statute phrase evidence” is often used It is true that “substantial supra. But scope judicial n. to conclude denote the review. See (c) scope phrase evidence” in defines “substantial (e) language of make the evidence” review would “substantial Moreover, implausible think that the drafters redundant. it is statutory- in the middle of a place scope-of-review would APA proceedings. evidentiary adjudicatory provision designed govern issues in duties; employees; powers and “Hearings; presiding 7 is entitled up It made “is proof; evidence; of decision.” burden of record as basis proce of trial entirely specification of the various elements almost (2d p. ed. Davis, 10:07, Treatise dure.” Administrative Law K. (placing it 1979). (c) specifically, the burden More allocates §7 governing rule broad order), provides for a proponent on the of a rule or “irrelevant, im admissibility agency to exclude evidence, directs an evidentiary evidence,” material, unduly delineates repetitious may imposed.” “sanction ... be basis on initial decision- functions of argument different Petitioner’s overlooks the *9 FTC, App. v. 177 U. S. Charlton making and review of it. See Davis, (1976); generally 4 K. 418, 422, 903, see 907 D. C. 543 F. 2d recognized in (1958). As we Administrative Law Treatise §§29.01-29.11 weigh reviewing court is not to FMC, (1966), the Consolo v. 607 U. S. already done. had been evidence, Consolo assumed which Any amendment. doubt as to the intent of Congress is re- House Report, expressly adopted pre- a vived ponderance-of-the-evidence standard: party a having the burden of proceeding
“[W]here has with prima come forward facie and case, substantial he prevail will unless his evidence is discredited rebutted. any In case the must 'in agency decide accordance with the evidence.’ Where there is pro con, agency weigh must it in and decide accordance with the preponderance. short, these require a con- scientious and rational judgment on the whole record in accordance with the proofs Rep. adduced.” H. R. No. 79th Sess., 2d Cong., (1946) (emphasis added).21
21Representative Pennsylvania, Report Walter author of the House principal during drafter of the legislation, speaking the floor debate day passed on the House, meaning bill was to the stated as phrase “in accordance with . . . substantial evidence” that “the ac cepted proof, admissibility distinguished standards as the mere evidence, govern they are to proceedings administrative do courts equity.” Sess., of law and Cong., 79th 2d Doc. No. suggests This con preponderance statement that the standard was usual templated. Broadcasting Corp. App. FCC, See Sea Island U. S. v. 187, 190, (1980) (“The ‘preponderance D. C. 2dF. use of the of evidence’ standard is the in civil and administrative traditional standard proceedings. APA, It is C. contemplated the one (d)”), Corp. SEC, denied, cert. Collins Securities App. (1977) (“The 183 U. S. D. traditional 2d F. preponder proceeding standard a civil or administrative 1940); .”); Wigmore, (3d ance . cf. 9 J. ed. Evidence § INS, S., dissenting). (Clark, J., at 288 Moreover, during debate, a discussion floor in the context of scope- (e), noted test it was became the substantial-evidence agency standard because to have courts review of-review desire then-prevalent decisionmaking carefully scintilla-of- more than under evidence test. It is clear from the debate that intended decisionmaking according preponderance be done of the evidence: Springer. gentleman gone . . . The from Iowa . . . rather “Mr. *10 legislative history in the any suggestion that a Nor is there a of preponderance than the evidence proof higher of standard much intended. less was contemplated, ever was of the elimination decision- concerned with primarily poor quality— which was of premised on evidence making nonprobative and unreliable, of irrelevant, immaterial, —and id., preponderance. than See quantity insufficient —less Sess., 79th 2d 320-322 and No. 46; 36-37 Doc. Cong., supra. and n. 376-378 legislative history (c) of 7 us lead to language
The and (c)7 was to intended establish a conclude, therefore, adopted is the proof and that standard tradi- preponderance-of-the-evidence standard.22 tional carefully only I over the of the desire to attention to bill. call question relating acts, one .'. . reviewable the review of the proceedings by judiciary, scope and the review. Under the procedure, many evidence, present any where is even cases there evidence, predicated scintilla of have been rendered on that decisions hearing character of evidence before the tribunal. contrary though preponderance Even
“Mr. Hancock. evidence. Springer. many been Yes, done in cases even “Mr. contrary though preponderance it is of the introduced at hearing.” supra, No. S. Doc. at 376. INS, supra, misplaced. Petitioner’s reliance on There required Immigration the Court Service to estab and Naturalization deportation proceedings by unequivocal, lish clear, facts and con vincing adopted evidence. The Court this because standard of deportation proceedings subject APA, Immigra were not and the Nationality (INA) proof, prescribe tion and did a standard scope judicial after review. The Court reached this conclusion examining (a) (4) language, legislative history, purpose of 106 (b) (4) That the words INA. both sections contained “reasonable, substantial, probative bearing on the evidence” has little construction language entirely of somewhat different statute. an different language, purpose, history legislative of the INA these sections respects differ legislative in material from the his language, purpose, and tory (c). (a)(4) explicitly Section 106 re was labeled §7 provision. (b) (4) view the Court was also construed
III Our view of congressional the Com- intent is buttressed *11 mission’s longstanding practice of accord- imposing sanctions ing preponderance the early 1938, of the As evidence. as the rejected proceeding the argument that in'a to determine whether to suspend, expel, or otherwise sanction a brokerage alia, firm and its principals manipula- inter for, security tion of prices in Ex- violation of 9 the § of Securities change 1934, Act of 78i, S. of proof U. C. standard a greater preponderance-of-the-evidence the than was White, required. In 466, re 3 S. E. (1938). C. 539-540 Use of the preponderance standard passage continued after APA, persists today. g., Cea, E. re 8, E. S. C. reviewing courts,” 283, part to be “addressed to atS., 385 U. in because provision at time adopted, scope-of- that was there was no other judicial-review provision INA, id., APA, by contrast, in the at 284. The passed explicit judicial an provision, (e), was with review and with explicitly evidentiary provision governing agency, matters before the (b) (4) (c). by represent- To the extent was viewed as Court “yardstick ing factfinder,” the administrative concluded Court quality upon provision was directed at the an that which Id., (b) language (4) order could be based. at 283. The of 242 differs (c), language phrase which includes the additional “in §7 Moreover, explained history above, legislative as accordance with.” (c) quality-of- was purpose make clear that it not limited to of §7 all at concerns or directed at review. evidence. dissent, accept Clark’s statement in thus Justice with which the We (c) disagree, (e) did not and 10 in of the APA §§7
Court “traditionally held satisfied when been decides on the have Id., 289, at n. 1. preponderance evidence.” Justice Clark’s under- Woodby, (c), expressed particular is standing respect. entitled to of § Attorney that the previously noted General’s Manual the Ad- haveWe (1947) “¿ven has been some Procedure deference this ministrative played Department drafting of the role because Justice Court Corp. Nuclear Vermont Yankee Power legislation,” Natural Re- Council, Inc., S., 546, and Justice Clark was sources Defense passed APA when the was Attorney both when the Manual General published. was (1967). S. 459-460 Pollisky, 43 In re E. in harmony which is with practice, consistent
Commission’s persuasive authority legislative history, (c) and its disciplinary proceedings, that Commission intended Congress preponderance- governed APA, 7 of the subject Club, Andrus v. Sierra See standard. of-the-evidence States v. National Association United S. 358 (1979); U. Dealers, Inc., 719 (1975); U. Skid Securities Co., & more v. Swift Power Corp. Nuclear Natural Re Yankee
In Vermont Council, Inc., (1978), 435 U. S. we sources Defense S. C. § 4 of the established the that § stated APA, requirements was will procedural “maximum impose upon ing agencies conducting *12 the courts have In procedures.” (c), Congress similarly has rulemaking adjudicatory proceedings subject intent that expressed its satisfy APA made the statute where determinations are according of preponderance Congress the evidence. Terrazas, S., choice, free to make that Vance v. was at 265-266, and, the absence of constitutional countervailing considerations, the are courts not free to disturb it.
Affirmed. Justice joins, with whom Justice Stewart Powell, dissenting.
The Securities and Exchange (SEC), acting provisions under antifraud Company Investment Act of 1940, 1940 and the Act has Investment Advisers imposed severe sanctions barred petitioner. He has been permanently from practicing profession his forced also to divest himself of an investment at loss. a substantial making findings its of fraud imposing penalties, these the SEC applied “preponderance stand- the evidence” of proof. ard
The today Court holding sustains the action of the SEC,
that (c) Administrative Procedure (APA), this (d), U. C. 556 commands the use of standard in dis- brought ciplinary proceedings under the securities laws. The ante, recognizes, Court that 95-96, general however, APA applicable Congress are when intended a different standard used the ad- The specific inquiry ministration of a statute. critical thus the identification of the standard of desired Congress. 9 (b) SEC acted in this case under of the Invest
ment Company (b), Act of 15 U. S. C. 80a-9 1940, Act of (f) 1940, the Investment S. C. Advisers U. (f). 80b-3 under these Sanctions sections are penalties for At common equivalent law, functional fraud. plain allegations proved by it was of fraud had to be g., Addington Texas, clear convincing E. v. evidence. 418, 424 INS, 285, v. n. (1979); 276, Co., 18 (1966); Weininger Metropolitan Fire Insurance Bank Poca 195 N. E. Ill. Ferimer, ; hontas (1933) Va. S. E. 40-41, 170 Gage, Bowe v. Wis. 106 N. W. 245, 251, Company enacted the Investment back against Investment Advisers Acts common-law this adopted ground. it There is no Congress, evidence that when Acts, these intended to abandon authorize the SEC to then-applicable adjudications. of proof in fraud *13 Whitney SEC, See 2d App. D. C. F. (1979); Collins Securities D. SEC, App. Corp. v. F. 2d 820 law upon which APA, the Court not become relies, did for years some seven statutes after the of the two enactment under which imposed Again, the SEC penalties. these points Court specific Congress to no intended evidence that ap- APA to supplant generally rule burden-of-proof plicable Thus, when the securities enacted. laws were specific APA—the general only applicable statute where a bearing proof on no burden is not —should have statute case. in this question whether
I no imply opinion petitioner. It against allegations clear, supports SEC’s imposition of fraud and its the SEC’s however, finding that stigma resulted serious dep have penalties harsh Texas, supra.* Addington the absence Cf. rivation. Congress’ we any specific purpose, demonstration should the SEC to apply that intended a lower not assume prevailing than the common-law standard of allegations. With all it seems to respect, for me that similar today sensitivity lacks the the Court’s decision tradi tionally marked our review imposi has Government’s upon penalties permanent tion citizens stigma. severe many practiced * Petitioner profession adviser of investment years. profession. He has resuming been forever barred monetary Many penalties imposed under our criminal laws —such probation fines yet severe, can far less these —are “beyond under the criminal law. reasonable doubt” standard