Public Enforcement Compensation and Private Rights

Abstract

Government enforcement actions have returned tens of billions of dollars to consumers, investors and employees. This “public enforcement compensation” is important to effective civil law enforcement, yet it is poorly understood and increasingly criticized. Recent scholarship asserts that public compensation mimics class action recoveries and raises the same concerns of accountability to recipients of relief. This Article rejects the class action analogy and presents an alternative framework grounded in the law and practice of public enforcement for understanding the relationship between public compensation and private rights.

One scholar goes further and contends that state attorneys general violate constitutional due process protections in obtaining public compensation, but this claim rests on a patently incorrect understanding of how courts view preclusion of private claims for monetary relief following an enforcement action resulting in public compensation. This Article explicates preclusion law as applied to public compensation and explains the primary reason for the scholarly error, which is a failure to appreciate the varying legal authority for public compensation in different regulatory fields.

After clearing away the confusion resulting from the inapposite class action analogy and the incorrect understanding of preclusion, the Article focuses on two categories of cases in which public compensation can impair private rights. It proposes law reforms to better align public enforcement with private rights in these circumstances.

Keywords: government enforcement, public enforcement, state attorney general, public compensation, restitution, disgorgement

JEL Classification: K42, K23