15

Ȭ 2103

Tilton v. SEC

UNITED STATES COURT OF APPEALS ŗ

FOR THE SECOND CIRCUIT Ř

August Term, 2015 ř

(Argued:ȱȱ September 16, 2015 Decided:ȱȱ June 1, 2016) 4

Docket No. 15

Ȭ 2103 ś

Ŝ

Lynn Tilton, Patriarch Partners, LLC, Patriarch Partners VIII, LLC, 7

Patriarch Partners XIV, LLC, and Patriarch Partners XV, LLC, 8

Plaintiffs

Ȭ Appellants

, 9

v. ŗŖ

Securities and Exchange Commission, ŗŗ

Defendant

Ȭ Appellee

. ŗŘ

ŗř

Before: N EWMAN

, S ACK

, and D RONEY

, Circuit Judges

. ŗ 4

The appellants, Lynn Tilton and several of her investment firms, are ŗś

respondents in an ongoing administrative proceeding initiated by the Securities ŗŜ

and Exchange Commission and conducted by an administrative law judge.ȱȱ They ŗ 7

brought suit in the United States District Court for the Southern District of New ŗ 8

York to enjoin the Commission ȇ s proceeding before its completion, on the theory ŗ 9

that the administrative law judge ȇ s appointment violated the Appointments ŘŖ

Clause of Article II of the United States Constitution.ȱȱ The district court (Ronnie Řŗ

Abrams, Judge ) dismissed the suit for lack of subject matter jurisdiction.ȱȱ The ŘŘŘ appellants now ask us to overturn that dismissal and reach the merits of their ŗ

constitutional argument.ȱȱ We agree with the district court, however, that Ř

Congress implicitly precluded federal jurisdiction over the appellants ȇȱ ř

Appointments Clause claim while the Commission ȇ s proceeding remains 4

pending.ȱȱ The judgment of the district court is therefore ś

AFFIRMED. Ŝ

Judge NEWMAN concurs in a separate opinion.ȱȱȱ 7

Judge DRONEY dissents in a separate opinion. 8

DAVID M. ZORNOW, Skadden, Arps, 9

Slate, Meagher & Flom LLP, New York, NY ŗŖ

(Christopher J. Gunther, on the brief ), for ŗŗ

Plaintiffs

Ȭ Appellants. ŗŘ

Susan E. Brune ( on the brief ), Brune & ŗř

Richard LLP, New York, NY, for Plaintiffs

Ȭ ŗ 4

Appellants

. ŗś

MARK B. STERN, Appellate Staff Attorney ŗŜ

(Mark R. Freeman and Megan Barbero, ŗ 7

Appellate Staff Attorneys, on the brief ), for ŗ 8

Benjamin C. Mizer, Principal Deputyȱȱ ŗ 9

Assistant Attorney General, and Beth S. ŘŖ

Brinkmann, Deputy Assistant Attorney Řŗ

General, United States Department of ŘŘ

Justice, Washington, DC, for Defendant

Ȭ Řř

Appellee. Ř 4

Jeannette A. Vargas ( on the brief ), for Preet Řś

Bharara, United States Attorney for the ŘŜř Southern District of New York, for ŗ

Defendant

Ȭ Appellee

. Ř

ř

S ACK

, Circuit Judge : 4

The Securities and Exchange Commission (the ȱȈ SEC Ȉȱ or the ȱȈ Commission Ȉ ) ś

enforces the federal securities laws by, among other things, filing actions seeking Ŝ

monetary penalties against alleged transgressors.ȱȱ Under the 2010 Dodd

Ȭ Frank 7

Wall Street Reform and Consumer Protection Act (the ȱȈ Dodd

Ȭ Frank Act Ȉ ), Pub. L. 8

No. 111

Ȭ 203, 12 Ů Stat. 13 ű 6, the SEC ȇ s enforcement actions generally may take 9

either of two forms: a civil lawsuit in federal district court, or an administrative ŗŖ

proceeding conducted by the Commission or an administrative law judge ŗŗ

( Ȉ ALJ Ȉ ).ȱȱ Where both of those alternatives are available, the choice between them ŗŘ

belongs to the SEC without express statutory constraint. ŗř

In this case, the SEC chose to seek penalties against the appellants, Lynn ŗ 4

Tilton and several of her investment firms, by commencing an administrative ŗś

proceeding conducted by an ALJ.ȱȱ That proceeding is subject to two layers of ŗŜ

review:ȱȱ A party that loses before the ALJ may petition for de novo review by the ŗ 7

Commission, and a party that loses before the Commission may petition for ŗ 8

review by a federal court of appeals.ȱȱ Not unlike a lawsuit in district court, ŗ 94 therefore, the administrative proceeding ultimately offers the losing party a route ŗ

to federal appellate review. Ř

The appellants contend that the SEC ȇ s administrative proceeding is ř

unconstitutional because the presiding ALJ ȇ s appointment violated Article II ȇ s 4

Appointments Clause.ȱȱ They have raised that claim as an affirmative defense ś

within the proceeding and will be able to argue the issue in a federal court of Ŝ

appeals if they lose before the Commission.ȱȱ The appellants nevertheless sought 7

more immediate access to federal court:ȱȱ Two days after the administrative 8

proceeding against them began, they filed a separate lawsuit in the United States 9

District Court for the Southern District of New York asserting their ŗŖ

Appointments Clause claim and seeking an injunction against the ALJ ȇ s ŗŗ

adjudication based on its alleged unconstitutionality. ŗŘ

The district court (Ronnie Abrams, Judge ) dismissed the suit for lack of ŗř

subject matter jurisdiction.ȱȱ Relying in part on the Supreme Court ȇ s decisions in ŗ 4

Elgin v. Department of Treasury

, ȱȬȬȬȱ U.S.

ȱȬȬȬ , 132 S. Ct. 2126 (2012), Free Enterprise ŗś

Fund v. Public Co. Accounting Oversight Board

, 561 U.S. Ůűű (2010), and Thunder ŗŜ

Basin Coal Co. v. Reich

, 510 U.S. 200 (1 ųųŮ ), the court concluded that the ŗ 7

appellants ȇȱ Appointments Clause challenge fell within the exclusive scope of the ŗ 8ś SEC ȇ s administrative review scheme and could reach a federal court only on ŗ

petition for review of a final decision by the Commission. Ř

We agree.ȱȱ By enacting the SEC ȇ s comprehensive scheme of administrative ř

and judicial review, Congress implicitly precluded federal district court 4

jurisdiction over the appellants ȇȱ constitutional challenge. ś

**BACKGROUND** Ŝ

Until 2010, the SEC ȇ s authority to impose monetary penalties through 7

administrative proceedings was relatively limited.ȱȱ The agency could not, for 8

example, penalize a non

Ȭ regulated person such as Tilton through administrative 9

channels.ȱȱ The Dodd

Ȭ Frank Act dramatically expanded the SEC ȇ s authority to ŗŖ

impose penalties administratively, making it essentially “coextensive with [the ŗŗ

SEC’s] authority to seek penalties in Federal court.”ȱȱ H.R. Rep. No. 111–6 Ųű

, at űŲ ŗŘ

(2010).ȱȱ Since then, the SEC has reportedly prosecuted an increasing number of ŗř

cases through administrative proceedings, with a rate of success notably higher ŗ 4

than it has achieved in federal district courts.ȱȱ See Jean Eaglesham, In

Ȭ House ŗś

Judges Help SEC Rack Up Wins

, Wall St. J., May ű

, 2015, at A1. ŗŜ

When the Commission chooses to seek penalties administratively, it must ŗ 7

either preside over the proceeding itself or designate a hearing officer

— usually ŗ 8Ŝ an ALJ

— to do so.ȱȱ See 1 ű C.F.R. § 201.110.ȱȱ A presiding ALJ has authority to ŗ

issue an initial decision, which may become final only by order of the Ř

Commission.ȱȱ See id. § 201.360.ȱȱ If a party petitions for review of the ALJ ȇ s initial ř

decision, the Commission ordinarily reviews the decision de novo before issuing a 4

final order.ȱȱ See id. § 201. Ů 11.ȱȱ And a final order issued under the securities laws, ś

including the Investment Advisers Act of 1 ųŮ 0, 15 U.S.C. § Ų 0b

Ȭ 1 et seq.

, is in turn Ŝ

subject to judicial review by a federal court of appeals, see id. § Ų 0b–13(a) 7

(providing that ȱȈ [a]ny person or party aggrieved by an order issued by the 8

Commission under [the Investment Advisers Act] may obtain a review of such 9

order in the United States court of appeals within any circuit wherein such ŗŖ

person resides or has his principal office or place of business, or in the United ŗŗ

States Court of Appeals for the District of Columbia Ȉ ). ŗŘ

During the past year or so, several respondents in ongoing SEC ŗř

administrative proceedings have asserted that Article II of the United States ŗ 4

Constitution bars the agency ȇ s ALJs from acting as hearing officers.ȱȱ These ŗś

respondents have made two distinct constitutional arguments: that the ALJs are ŗŜ

impermissibly insulated from presidential removal, and that they were not ŗ 77 appointed in accordance with the Appointments Clause. ŗȱȱ Respondents may ŗ

raise those arguments as affirmative defenses during the course of their Ř

administrative proceedings, subject to potential judicial review in the event of an ř

adverse decision by the Commission.ȱȱ Seeking more immediate judicial scrutiny, 4

however, some respondents

— the appellants among them

— attempted to raise ś

their Article II claims in parallel actions brought in federal district courts before Ŝ

their administrative proceedings concluded.ȱȱ See Spring Hill Capital Partners, LLC 7

v. SEC, No. 15

Ȭ CV

Ȭ Ů 5 Ů 2 (S.D.N.Y. 2015) (challenging ALJ ȇ s appointment); Hill v. 8

SEC, No. 1:15

Ȭ CV

Ȭ 1 Ų 01 (N.D. Ga. 2015) (challenging ALJ ȇ s appointment and 9

insulation from removal); Duka v. SEC, No. 15

Ȭ CV

Ȭ 35 ű (S.D.N.Y. 2015) ŗŖ

(challenging ALJ ȇ s appointment and insulation from removal); Bebo v. SEC, No. ŗŗ

15

Ȭ C

Ȭ 3 (E.D. Wis. 2015) (challenging ALJ ȇ s insulation from removal). ŗŘ

ŗ The Appointments Clause reads in pertinent part:ȱȱȱ

[The President] shall nominate, and by and with the Advice and Consent

of the Senate, shall appoint Ambassadors, other public Ministers and

Consuls, Judges of the supreme Court, and all other Officers of the United

States, whose Appointments are not herein otherwise provided for, and

which shall be established by Law: but the Congress may by Law vest the

Appointment of such inferior Officers, as they think proper, in the

President alone, in the Courts of Law, or in the Heads of Departments.

U.S. Const. Art. II, § Ř

, cl. Ř

.8 In the case at bar, the SEC initiated an administrative proceeding before an ŗ

ALJ in March 2015, alleging that the appellants had violated the Investment Ř

Advisers Act.ȱȱ Two days later, the appellants filed this lawsuit in the United ř

States District Court for the Southern District of New York.ȱȱ They sought to 4

enjoin the SEC ȇ s administrative proceeding on the ground that, among other ś

things, the presiding ALJ ȇ s appointment violated the Appointments Clause. Řȱȱ The Ŝ

SEC moved to dismiss the suit, arguing in part

— as it has in cases brought by 7

similarly situated respondents

— that the district court lacked subject matter 8

jurisdiction over the lawsuit.ȱȱ In the Commission ȇ s view, the administrative 9

proceeding at issue, once begun, precluded the appellants ȇȱ collateral ŗŖ

Appointments Clause challenge. ŗŗ

While the district court heard argument and deliberated, several other ŗŘ

federal judges reached conflicting decisions on the same jurisdictional issue, ŗř

creating a split both within and outside the Southern District.ȱȱ Compare Spring ŗ 4

Hill, No. 15

Ȭ CV

Ȭ Ů 5 Ů 2 (S.D.N.Y. June 26, 2015) (bench ruling) (Ramos, J. ) ŗś

(concluding that the court lacked jurisdiction over a respondent ȇ s Article II ŗŜ

Ř The appellants also argued before the district court that their presiding ALJ was

impermissibly insulated from presidential removal.ȱȱ They have not pressed that

argument on appeal, although they purport to have ȱȈ preserve[d] Ȉȱ it.ȱȱ Appellants ȇȱ Br. at

řŗ n. ŗŖ

.9 challenge to the ALJ conducting an ongoing administrative proceeding), with Hill ŗ

v. SEC

, 11 Ů F. Supp. 3d 12 ųű (N.D. Ga. 2015) (concluding that there was such Ř

jurisdiction), and Duka v. SEC

, 103 F. Supp. 3d 3 Ų 2, 3 ų 2 (S.D.N.Y. 2015) (same); see ř

also Bebo v. SEC

, 2015 WL ų 053 Ůų

, at * Ů

, 2015 U.S. Dist. LEXIS 25660, at *10 (E.D. 4

Wis. Mar. 3, 2015) (concluding, before the case at bar was filed, that the court ś

lacked jurisdiction over a respondent ȇ s Article II challenge to the ALJ conducting Ŝ

an ongoing administrative proceeding), aff ȇ d

, űųų F.3d ű 65 ( ű th Cir. 2015). On 7

June 30, 2015, after weighing the merits of those intervening decisions, the 8

district court decided in favor of the SEC, dismissing the appellants ȇȱ suit as 9

implicitly precluded by the Commission ȇ s statutory scheme of administrative ŗŖ

and judicial review.ȱȱ Tilton v. SEC

, No. 15

Ȭ CV

Ȭ 2 Ůű 2, 2015 WL Ů 006165, at *1, 2015 ŗŗ

U.S. Dist. LEXIS Ų 5015, at *2

Ȭ 3 (S.D.N.Y. June 30, 2015). ŗŘ

The appellants now ask us to reverse the district court ȇ s jurisdictional ŗř

dismissal of their Appointments Clause claim and rule, on the merits, that the ŗ 4

ALJ presiding over their administrative proceeding was unconstitutionally ŗś

appointed.ȱȱ At the appellants ȇȱ request, we have stayed the SEC ȇ s proceeding ŗŜ

pending our decision in this appeal.ȱȱ We review the district court ȇ s determination ŗ 7ŗŖ of subject matter jurisdiction de novo

.ȱȱ Scelsa v. City Univ. of N.Y.

, ű 6 F.3d 3 ű

, Ů 0 ŗ

(2d Cir. 1 ųų 6). Ř

**DISCUSSION** ř

The statutes that establish the SEC ȇ s scheme of administrative and judicial 4

review, including the Dodd

Ȭ Frank Act and the Investment Advisers Act, do not ś

expressly preclude federal district court jurisdiction over the appellants ȇȱ Ŝ

Appointments Clause claim.ȱȱ The crucial jurisdictional issue in this case, 7

therefore, is whether the statutes do so implicitly.ȱȱȱ 8

To resolve that issue, we must first determine whether it is ȱȈ fairly 9

discernible Ȉȱ from the ȱȈ text, structure, and purpose Ȉȱ of the securities laws that ŗŖ

Congress intended the SEC ȇ s scheme of administrative and judicial review ȱȈ to ŗŗ

preclude district court jurisdiction. Ȉȱȱ Elgin

, 132 S. Ct. at 2132

Ȭ 33.ȱȱ That initial ŗŘ

inquiry is guided by the proposition that ȱȈ [g]enerally, when Congress creates ŗř

procedures designed to permit agency expertise to be brought to bear on ŗ 4

particular problems, those procedures are to be exclusive. Ȉȱȱ Free Enterprise

, 561 ŗś

U.S. at ŮŲų (internal quotation marks omitted).ȱȱȱ ŗŜ

If we conclude that the SEC ȇ s scheme precludes district court jurisdiction, ŗ 7

we must then decide whether the appellants ȇȱ Appointments Clause claim is ȱȈ of ŗ 8ŗŗ the type Congress intended to be reviewed within th[e] statutory structure. Ȉȱȱ Id. ŗ

(alteration in original) (quoting Thunder Basin

, 510 U.S. at 20 ű ).ȱȱ This second Ř

inquiry is guided by the Supreme Court ȇ s decisions in Thunder Basin

, Free ř

Enterprise and Elgin

, which instruct us to ȱȈ presume Ȉȱ that a claim is not confined 4

to administrative channels ȱȈ if ȱȇ a finding of preclusion could foreclose all ś

meaningful judicial review ȇ ; if the suit is ȱȇ wholly collateral to a statute ȇ s review Ŝ

provisions ȇ ; and if the claims are ȱȇ outside the agency ȇ s expertise. ȇȈȱȱ Id. (quoting 7

Thunder Basin

, 510 U.S. at 212

Ȭ 13).ȱȱ We refer to those considerations as the 8

Thunder Basin factors. 9

Our resolution of these two inquiries

— whether Congress intended the ŗŖ

SEC ȇ s administrative scheme to preclude district court jurisdiction, and whether ŗŗ

the scheme encompasses a respondent ȇ s Appointments Clause challenge to a ŗŘ

presiding ALJ

— leads us to conclude that the appellants ȇȱ lawsuit must be ŗř

dismissed.ȱȱ Two of our sister circuits recently reached similar conclusions.ȱȱ See ŗ 4

Jarkesy v. SEC

, Ų 03 F.3d ų (D.C. Cir. 2015); Bebo v. SEC

, űųų F.3d ű 65 ( ű th Cir. ŗś

2015), cert. denied

, 136 S. Ct. 1500 (2016).ȱȱ We agree in large part with their ŗŜ

reasoning. ŗ 7

ŗ 8ŗŘ **I** ŗ

As an initial matter, the text, structure, and purpose of the securities laws Ř

make clear that Congress intended the SEC ȇ s scheme of administrative review to ř

permit the Commission to bring its expertise to bear in enforcing the securities 4

laws.ȱȱ The scheme enables the SEC ȇ s Division of Enforcement to bring statutory ś

charges before an administrative tribunal and affords respondents the Ŝ

opportunity to gather evidence, present a defense, and appeal any adverse 7

rulings in federal court.ȱȱ In Thunder Basin

, the Supreme Court held that a similar 8

scheme precluded federal district court jurisdiction over challenges to an 9

agency ȇ s application of a statute to particular facts.ȱȱ 510 U.S. at 20 Ų

Ȭ 0 ų

, 216.ȱȱ We ŗŖ

reach the same conclusion here.ȱȱ Generally, therefore, persons responding to SEC ŗŗ

enforcement actions are precluded from initiating lawsuits in federal courts as a ŗŘ

means to defend against them.ȱȱ See Jarkesy

, Ų 03 F.3d at 16

Ȭ 1 ű (analogizing the ŗř

SEC ȇ s statutory review scheme to the scheme at issue in Thunder Basin and ŗ 4

concluding that Congress intended ȱȈ to preclude suits [in federal courts] by ŗś

respondents in SEC administrative proceedings in the mine

Ȭ run of cases Ȉ ). ř ŗŜ

ř The Hill decision concluded that “[t]here can be no ȱȇ fairly discernible ȇȱ Congressional

intent to limit jurisdiction away from district courts when the text of the statute Ȉȱ

permits the SEC to initiate enforcement actions in either ȱȈ district court [or]ŗř **II** ŗ

The appellants do not contest that conclusion.ȱȱ They implicitly Ř

acknowledge that an SEC administrative proceeding, once initiated, is the ř

exclusive initial forum for claims ȱȈ requiring the development of a factual record, 4

the exercise of agency discretion, or the application of a statute to particular ś

facts. Ȉȱȱ Appellants ȇȱ Br. at Ů

.ȱȱ They argue, however, that their Appointments Ŝ

Clause challenge is a distinct type of claim: ȱȈ a threshold constitutional challenge 7

to agency practice. Ȉȱȱ Id. at 12.ȱȱ They assert that this type of claim satisfies all three 8

of the Thunder Basin factors and so falls outside the exclusive purview of the 9

SEC ȇ s administrative review scheme. ŗŖ

The district court held that the appellants ȇȱ Appointments Clause claim ŗŗ

failed to satisfy at least two of the Thunder Basin factors:ȱȱ It would be subject to ŗŘ

meaningful judicial review within the SEC ȇ s administrative scheme, and it was ŗř

not ȱȈ wholly collateral Ȉȱ to the scheme.ȱȱ Tilton

, 2015 WL Ů 006165, at * Ů

Ȭ 12, 2015 U.S. ŗ 4 administrative proceedings. Ȉȱȱ Hill, ŗŗ 4 F. Supp. ř d at ŗřŖŜ

.ȱȱ We disagree.ȱȱ Congress ȇ s

decision to vest the SEC with a choice between forums does not imply that the chosen

forum should not be exclusive of the other.ȱȱ To the contrary

— without such exclusivity,

the SEC ȇ s statutory power to choose would be illusory.ȱȱ See Jarkesy

, 8 Ŗř F. ř d at ŗ 7

( Ȉ Congress granted the choice of forum to the Commission, and that authority could be

for naught if respondents

. . . could countermand the Commission ȇ s choice by filing a

court action. Ȉ ).ŗ 4 Dist. LEXIS Ų 5015, at * ų

Ȭ 3 Ů

.ȱȱ The district court also suggested, but did not decide, ŗ

that the Appointments Clause claim failed to satisfy the remaining Thunder Basin Ř

factor because it did not fall outside the SEC ȇ s expertise.ȱȱ See id. at 2015 WL ř

Ů 006165, at *12

Ȭ 13, 2015 U.S. Dist. LEXIS Ų 5015, at *3 Ů

Ȭ 36.ȱȱ Despite leaving a 4

decision as to that factor open, the court concluded that Congress intended the ś

SEC ȇ s administrative review scheme to encompass the appellants ȇȱ Appointments Ŝ

Clause claim, to the exclusion of federal district court jurisdiction.ȱȱ 7

We agree with that conclusion.ȱȱ The appellants ȇȱ Appointments Clause 8

claim will be subject to meaningful judicial review through administrative 9

channels, a fact that weighs strongly against district court jurisdiction.ȱȱ See Bebo

, ŗŖ

űųų F.3d at űűŮ

Ȭ ű 5 (characterizing the availability of meaningful judicial review as ŗŗ

the ȱȈ most important Ȉȱ Thunder Basin factor).ȱȱȱ And although the other two Thunder ŗŘ

Basin factors present closer questions in this case, they do not persuasively ŗř

demonstrate that the Appointments Clause claim falls outside the scope of the ŗ 4

SEC ȇ s overarching scheme. ŗś

A. The Availability of Meaningful Judicial Review ŗŜ

Turning in more detail to the application of the Thunder Basin factors, we ŗ 7

first consider whether the SEC ȇ s administrative scheme assures that the ŗ 8ŗś appellants have an opportunity for meaningful judicial review of their ŗ

Appointments Clause claim.ȱȱ The appellants do not dispute that the scheme Ř

offers some judicial review: an appeal to a federal circuit court from an adverse ř

ruling by the Commission.ȱȱ They argue, however, that such review would not be 4

Ȉ meaningful Ȉȱ because it could not provide an adequate remedy for the SEC ȇ s ś

alleged violation of the Appointments Clause.ȱȱ That is so, in the appellants ȇȱ view, Ŝ

because their exposure to the ongoing proceeding

— as distinct from any adverse 7

ruling that might result

— would itself constitute a grave constitutional injury 8

that could not be redressed after the fact.ȱȱ As precedential support for their 9

position, the appellants cite the Supreme Court ȇ s decision in Free Enterprise and ŗŖ

our decades

Ȭ old decision in Touche Ross & Co. v. SEC

, 60 ų F.2d 5 ű 0 (2d Cir. 1 ųűų ). ŗŗ

The appellants ȇȱ argument is not without force, as demonstrated by its ŗŘ

success in several district courts.ȱȱ See Hill

, 2015 WL Ů 30 ű 0 ŲŲ

, at *6

Ȭ Ų

, 2015 U.S. ŗř

Dist. LEXIS űŮŲ 22, at *1 ű

Ȭ 1 ų ; Duka

, 103 F. Supp. 3d 3 Ų 2, 3 ų 0

Ȭ ų 1.ȱȱ Ultimately, ŗ 4

however, we are not convinced.ȱȱ In our view, the appellants ȇȱ argument ŗś

misconstrues both Free Enterprise and Touche Ross and is at odds with the ŗŜ

established approach to analogous jurisdictional disputes in federal courts. ŗ 7

ŗ 8ŗŜ i. Free Enterprise ŗ

Free Enterprise dealt with the Public Company Accounting Oversight Board Ř

(the ȱȈ PCAOB Ȉ ), an entity created under the Sarbanes

Ȭ Oxley Act of 2002, Pub. L. ř

No. 10 ű

Ȭ 20 Ů

, 116 Stat. űŮ 5, to supervise the practices of accounting firms.ȱȱ The 4

PCAOB ȇ s five members were to be appointed by the SEC, and some

— but not ś

all

— of the PCAOB ȇ s regulatory actions required SEC approval in the form of a Ŝ

final Commission order.ȱȱ The Sarbanes

Ȭ Oxley Act, like the Investment Advisers 7

Act before it, permitted losing parties to appeal from an adverse final order to a 8

federal court of appeals.ȱȱ The statute made no provision, however, for federal 9

review of Board actions that did not require SEC approval.ȱȱ See Free Enterprise

, ŗŖ

561 U.S. at ŮŲų

Ȭ ų 0. ŗŗ

In the Free Enterprise case, the PCAOB had, in the course of its supervisory ŗŘ

work, ȱȈ inspected [a particular accounting] firm, released a report critical of its ŗř

auditing procedures, and [begun] a formal investigation. Ȉȱȱ Id. at ŮŲű

.ȱȱ Those ŗ 4

actions were not subject to review by the SEC or approval by final Commission ŗś

order, and so did not give rise to an administrative route to federal review.ȱȱ Id. at ŗŜ

ŮŲų

Ȭ ų 0.ȱȱ The accounting firm then filed a lawsuit in federal district court that ŗ 7

sought to void the PCAOB ȇ s actions on Article II grounds.ȱȱ The firm argued, as ŗ 8ŗ 7 the appellants do here, that the SEC had violated the Appointments Clause when ŗ

it selected the members of the PCAOB, rendering their appointments Ř

constitutionally infirm.ȱȱ Id. at ŮŲű

Ȭ ŲŲ

. ř

The Supreme Court held that the district court could exercise jurisdiction 4

over the accounting firm ȇ s lawsuit, despite the availability of administrative ś

review regarding some other PCAOB actions.ȱȱ Id. at Ůų 0

Ȭ ų 1.ȱȱ The Court reasoned, Ŝ

in part, that the administrative review scheme failed to make any form of judicial 7

review meaningfully accessible to the firm.ȱȱ Because the PCAOB ȇ s regulatory 8

actions had not produced a reviewable Commission order, the accounting firm 9

could have raised its constitutional objection in federal court through ŗŖ

administrative channels only by manufacturing a new, tangential dispute that ŗŗ

would require a Commission order, and then using that dispute as a vehicle for ŗŘ

its Article II claims.ȱȱ The Court deemed that circuitous option inadequate, and so ŗř

concluded that meaningful judicial review was not otherwise available to the ŗ 4

accounting firm.ȱȱ Id. at Ůų 0. ŗś

The appellants read Free Enterprise to suggest that judicial review of an ŗŜ

Article II challenge to an administrative tribunal is not meaningful if conducted ŗ 7

after the tribunal ȇ s proceeding concludes, because of the inherent remedial ŗ 8ŗ 8 limitations of post

Ȭ proceeding review.ȱȱ See Appellants ȇȱ Br. at 13, 1 ű

Ȭ 1 Ų

.ȱȱ We ŗ

disagree.ȱȱ The Free Enterprise Court ȇ s analysis turned on the accessibility of post

Ȭ Ř

proceeding review by a federal court of appeals

— not on whether such review, ř

if accessible, could adequately remedy the PCAOB ȇ s alleged violation of Article 4

II.ȱȱ Free Enterprise therefore lends no support to the appellants ȇȱ characterization of ś

their prospective constitutional injury as irremediable after the conclusion of Ŝ

their administrative proceeding. 7

ii. Touche Ross 8

The appellants ȇȱ reliance on Touche Ross is similarly unavailing.ȱȱ There, the 9

SEC took steps to institute an administrative proceeding against an accounting ŗŖ

firm and several of its partners (collectively, ȱȈ Touche Ross Ȉ ) under Rule 2(e) of ŗŗ

the Commission ȇ s Rules of Practice, which related to the suspension and ŗŘ

disbarment of persons practicing before the Commissioner.ȱȱ Touche Ross ŗř

immediately filed a lawsuit in federal court seeking to enjoin the proceeding on ŗ 4

the ground that Rule 2(e) was not authorized by statute.ȱȱȱ ŗś

The district court declined to exercise jurisdiction.ȱȱ It reasoned, in part, that ŗŜ

the planned administrative proceeding would not irreparably harm Touche Ross, ŗ 7

which meant that Touche Ross was required to exhaust the administrative ŗ 8ŗ 9 review process before raising its claims in federal court.ȱȱ See Touche, Ross & Co. v. ŗ

SEC

, No. ű 6

Ȭ CV

Ȭ ŮŮŲų

, 1 ųűŲ WL 10 ŲŮ

, at * Ů

Ȭ 5, ű

Ȭ ų

, 1 ųűŲ U.S. Dist. LEXIS 1 űųűŮ

, * ų

Ȭ Ř

12, 1 Ų

Ȭ 1 ų

, 23 (S.D.N.Y. Apr. 2 Ů

, 1 ųűŲ ), aff ȇ d sub nom. Touche Ross & Co. v. SEC

, 60 ų ř

F.2d 5 ű 0 (2d Cir. 1 ųűų ). 4

On appeal, this Court recognized district court jurisdiction over Touche ś

Ross ȇ s lawsuit.ȱȱ The panel acknowledged that federal challenges to Ŝ

administrative proceedings at ȱȈ intermediate stages Ȉȱ are generally disfavored, 7

particularly where

— as in the case before it

— the agency had not acted ȱȈ plainly 8

beyond its jurisdiction. Ȉȱȱ Touche Ross

, 60 ų F.2d at 5 ű 6.ȱȱ Nonetheless, the Court 9

permitted Touche Ross ȇ s lawsuit to proceed on the ground that its constitutional ŗŖ

claim would not benefit from the SEC ȇ s ȱȈ expertise, ȈȱȈ discretion Ȉȱ or factfinding, ŗŗ

and was thus already ripe for federal adjudication.ȱȱ Id. at 5 űű

. ŗŘ

The Court ȇ s decision did not suggest that a federal court would be unable ŗř

to vindicate Touche Ross ȇ s challenge to Rule 2(e) after the SEC ȇ s proceeding ŗ 4

concluded. 4ȱȱ It held only that there was no compelling reason for Touche Ross to ŗś

wait for post

Ȭ proceeding review because the administrative tribunal would not ŗŜ

4 Indeed, in a concurring opinion, two members of the panel expressed their

confidence in the capacity of post

Ȭ proceeding judicial review to ȱȈ correct the occasional

excesses and errors that are an inevitable part of the administrative process. Ȉȱȱ Touche

Ross

, ŜŖ 9 F. Ř d at ś 8 ř (Kaufman, C.J., concurring).ŘŖ bring its expertise to bear in a way that would aid a federal court ȇ s eventual ŗ

adjudication.ȱȱ That proposition does not support the appellants ȇȱ contention here Ř

that post

Ȭ proceeding judicial review of their Appointments Clause challenge will ř

not be meaningful.ȱȱ Rather, Touche Ross resonates with a different Thunder Basin 4

factor:ȱȱ whether a claim falls outside an agency ȇ s expertise.ȱȱ And its reasoning on ś

that issue is no longer considered sound, as we explain below. Ŝ

iii. Conflict with Established Practice Regarding Analogous 7

Challenges to a Tribunal ȇ s Constitutional Legitimacy 8

9

The appellants ȇȱ argument that post

Ȭ proceeding judicial review of their ŗŖ

Appointments Clause claim will be meaningless is not merely unsupported by ŗŗ

Free Enterprise and Touche Ross ; it is also at odds with established practice in ŗŘ

federal court regarding analogous challenges to a tribunal ȇ s constitutional ŗř

legitimacy.ȱȱ As the district court explained, litigants who unsuccessfully ŗ 4

challenge the authority of a presiding judge or jury to decide a case often must ŗś

wait to appeal the issue until after the court renders a final judgment.ȱȱ See, e.g.

, ŗŜ

Germain v. Connecticut Nat ȇ l Bank

, ų 30 F.2d 103 Ų

, 10 Ů 0 (2d Cir. 1 ųų 1) (concluding ŗ 7

that a defendant who unsuccessfully challenged the plaintiff ȇ s right to jury trial ŗ 8

must await the jury ȇ s verdict before appealing); D ȇ Ippolito v. Am. Oil Co.

, Ů 01 F.2d ŗ 9

ű 6 Ů

, ű 6 Ů

Ȭ 65 (2d Cir. 1 ų 6 Ų ) (per curiam) (deciding that a defendant who ŘŖŘŗ unsuccessfully challenged the transfer of his case to another district must await ŗ

the other district court ȇ s ȱȈ final judgment Ȉȱ before appealing); see also In re al

Ȭ Ř

Nashiri

, űų 1 F.3d ű 1, ű 5, Ų 0 (D.C. Cir. 2015) (concluding, in denying a petition for ř

writ of mandamus, that a defendant who unsuccessfully raised an Appointments 4

Clause challenge to two of the United States Court of Military Commission ś

Review ȇ s presiding judges must await the judges ȇȱ ruling before appealing in Ŝ

federal court).ȱȱ Like the appellants here, a litigant in this kind of case must 7

expend financial and emotional resources to complete a proceeding that may 8

ultimately prove constitutionally infirm. śȱȱ Subsequent judicial review cannot 9

restore those resources, but it can vacate the resulting judgment and remand for ŗŖ

a new proceeding.ȱȱ That post

Ȭ proceeding relief, although imperfect, suffices to ŗŗ

vindicate the litigant ȇ s constitutional claim.ȱȱ See Germain

, ų 30 F.2d at 10 Ů 0 ŗŘ

(explaining that if a jury trial were in fact improper, an appellate court could ŗř

Ȉ remand for a nonjury trial, thus vindicating the [objecting defendant ȇ s] right Ȉ ); ŗ 4

see also In re al

Ȭ Nashiri

, űų 1 F.3d at Ų 0 ( Ȉ Vacatur [premised on the defendant ȇ s ŗś

Appointment Clause claim], even at the appeal

Ȭ from

Ȭ final

Ȭ judgment stage, ŗŜ

śȱȱȱ Cf. Learned Hand, The Deficiencies of Trials To Reach the Heart of the Matter

,

ř Association of the Bar of the City of New York, Lectures on Legal Topics 89, ŗŖś ( ŗ 9 ŘŜ )

(musing that becoming a party to a lawsuit should be ȱȈ dread[ed]

. . . beyond almost

anything else short of sickness and death Ȉ ).ŘŘ would fully vindicate [the defendant ȇ s] rights and the President ȇ s and the ŗ

Senate ȇ s constitutional powers. Ȉȱ (internal quotation marks and alterations Ř

omitted)).ȱȱ The litigant ȇ s financial and emotional costs in litigating the initial ř

proceeding are simply the price of participating in the American legal system, 4

and not an irreparable injury that necessitates interlocutory review of the initial ś

court ȇ s jurisdiction. Ŝ

The Supreme Court applied this principle to facts similar to those 7

presented to us here in FTC v. Standard Oil Co. of California

, ŮŮų U.S. 232 (1 ųŲ 0).ȱȱ 8

There, an oil company brought suit in federal district court to enjoin an ongoing 9

administrative proceeding conducted by the Federal Trade Commission ( Ȉ FTC Ȉ ), ŗŖ

contending that the proceeding as a whole was unlawful because the FTC had ŗŗ

initiated it without the requisite evidentiary basis.ȱȱ Id. at 235.ȱȱ As a general ŗŘ

matter, a respondent in this type of proceeding must exhaust its administrative ŗř

remedies before filing a related action in federal court, unless the respondent ŗ 4

would suffer irreparable injury from the delay.ȱȱ See Renegotiation Bd. v. ŗś

Bannercraft Clothing Co.

, Ů 15 U.S. 1, 2 Ů (1 ųűŮ ).ȱȱ The oil company argued that it had ŗŜ

exhausted all relevant remedies before filing its federal lawsuit.ȱȱ Standard Oil

, ŮŮų ŗ 7

U.S. at 2 Ů 3.ȱȱ In the alternative, however, the company contended that any failure ŗ 8Řř to exhaust should be excused because the company would suffer irreparable ŗ

injury in the form of ȱȈ expense and disruption Ȉȱ if it were compelled to complete Ř

the administrative proceeding before reaching federal court.ȱȱ Id. at 2 ŮŮ

.ȱȱ That ř

argument closely resembles the appellants ȇȱ claim here that post

Ȭ proceeding 4

judicial review will be powerless to remedy the injury they will suffer by ś

enduring the SEC ȇ s administrative adjudication. Ŝ

The Supreme Court concluded that a federal court would be able to 7

meaningfully review the oil company ȇ s claim after the administrative proceeding 8

ended, and therefore ordered the company ȇ s lawsuit dismissed on jurisdictional 9

grounds.ȱȱ The Court acknowledged that the company would endure ŗŖ

Ȉ substantial Ȉȱ expense and disruption before the administrative proceeding ŗŗ

concluded.ȱȱ Id.ȱȱ But it deemed that hardship to be ȱȈ part of the social burden of ŗŘ

living under government, Ȉȱ rather than a form of irreparable injury justifying ŗř

immediate judicial review.ȱȱ Id. at 2 ŮŮ

Ȭ Ů 5.ȱȱ As the D.C. Circuit subsequently ŗ 4

explained, where ȱȈ the ȱȇ injury ȇȱ inflicted on the party seeking review is the burden ŗś

of going through an agency proceeding, Ȉȱ the Supreme Court ȇ s decision in ŗŜ

Standard Oil ȱȈ teaches that the party must patiently await the denouement of ŗ 7Ř 4 proceedings within the Article II branch. Ȉȱȱ USAA Fed. Sav. Bank v. McLaughlin, ŗ

ŲŮų F.2d 1505, 1510 (D.C. Cir. 1 ųŲŲ ). Ř

In other decisions, the Supreme Court has concluded that post

Ȭ proceeding ř

judicial review would not be meaningful because the proceeding itself posed a 4

risk of some additional and irremediable harm beyond the burdens associated ś

with the dispute resolution process.ȱȱ See, e.g.

, McNary v. Haitian Refugee Ctr., Inc.

, Ŝ

ŮųŲ U.S. Ůűų

, Ůų 6

Ȭ ųű

, Ůųų (1 ųų 1) (permitting a class of undocumented aliens to 7

raise a due

Ȭ process challenge to INS proceedings in district court, rather than 8

pursue eventual review in a federal court of appeals through administrative 9

channels, partly because most of the aliens could ȱȈ ensure themselves review in ŗŖ

courts of appeals only if they voluntarily surrender[ed] themselves for ŗŗ

deportation, Ȉȱ a ȱȈ price

. . . tantamount to a complete denial of judicial review for ŗŘ

most undocumented aliens Ȉ ).ȱȱ But the appellants have identified no such ŗř

additional, irremediable harm here.ȱȱ The only prospective injury that they ŗ 4

describe is ȱȈ being subjected to an unconstitutional adjudicative procedure, Ȉȱ with ŗś

the attendant ȱȈ embarrassment, expense,ȱȱ . . . ordeal

. . . [and] state of anxiety and ŗŜ

insecurity. Ȉȱȱ Appellants ȇȱ Br. at 1 ų

, 21 (alterations in original and internal ŗ 7

quotation marks omitted).ȱȱ As Standard Oil and other decisions discussed above ŗ 8Řś indicate, the prospect of such harm alone does not render post

Ȭ proceeding ŗ

judicial review less than meaningful.ȱȱ Cf. In re al

Ȭ Nashiri

, űų 1 F.3d at űų

Ȭ Ų 0 Ř

(explaining that the defendant ȇ s ȱȈ abstract concern Ȉȱ that his presiding judges ř

violated ȱȈ the separation of powers Ȉȱ because they had been improperly appointed 4

did not establish a prospective irreparable injury that justified immediate federal ś

intervention in ongoing administrative proceedings). Ŝ

We therefore conclude that the appellants will have access to meaningful 7

judicial review of their Appointments Clause claim through administrative 8

channels.ȱȱ See Bebo

, űųų F.3d at űűŮ (concluding that a respondent in an ongoing 9

SEC administrative proceeding could obtain meaningful judicial review ȱȈ [a]fter ŗŖ

the pending enforcement action has run its course Ȉȱ by ȱȈ rais[ing] her objections, Ȉȱ ŗŗ

including an Article II challenge to the presiding ALJ, ȱȈ in a circuit court of ŗŘ

appeals established under Article III Ȉ ); see also Jarkesy

, Ų 03 F.3d at 2 ű ( Ȉ Even ŗř

assuming [the respondent] is right that Congress has unconstitutionally ŗ 4

delegated power to the SEC to decide whether to place him in an administrative ŗś

proceeding rather than in a court action, [the respondent] has no inherent right to ŗŜ

avoid an administrative proceeding at all.ȱȱ Thus, his rights can be vindicated by a ŗ 7ŘŜ reversal of the Commission ȇ s final order if the court of appeals grants his petition ŗ

for review. Ȉȱ (internal quotation marks omitted)). Ř

B. Wholly Collateral ř

We next consider whether the appellants ȇȱ Appointments Clause claim is 4

Ȉ wholly collateral Ȉȱ to the SEC ȇ s administrative scheme.ȱȱ The Supreme Court has ś

not explained precisely how to make this determination, although Elgin suggests Ŝ

that a claim is not wholly collateral if it serves as the ȱȈ vehicle by which Ȉȱ a party 7

seeks to prevail in an administrative proceeding.ȱȱ See 132 S. Ct. at 213 ų

Ȭ Ů 0.ȱȱ In the 8

absence of more extensive guidance, lower courts have adopted two competing 9

approaches.ȱȱ Some decisions have suggested that a claim is not wholly collateral ŗŖ

to an administrative proceeding only if it is substantively intertwined with the ŗŗ

merits dispute that the proceeding was commenced to resolve.ȱȱ See Hill

, 11 Ů F. ŗŘ

Supp. 3d at 130 ų (concluding that the respondent ȇ s Article II challenge was ŗř

Ȉ wholly collateral Ȉȱ to the ongoing administrative proceeding because ȱȈ [w]hat ŗ 4

occurs at the

. . . proceeding and the SEC ȇ s conduct there is irrelevant to Ȉȱ the ŗś

constitutional challenge); Duka

, 103 F. Supp. 3d at 3 ų 1 (concluding that the ŗŜ

respondent ȇ s Article II challenge was ȱȈ wholly collateral Ȉȱ to the ongoing ŗ 7

administrative proceeding because the challenge did not ȱȈ attack any order that ŗ 8Ř 7 may be issued

. . . relating to the outcome of the SEC action Ȉȱ (internal quotation ŗ

marks omitted)).ȱȱ Other decisions have suggested that a claim is not wholly Ř

collateral if it has been raised in response to, and so is procedurally intertwined ř

with, an administrative proceeding

— regardless of the claim ȇ s substantive 4

connection to the initial merits dispute in the proceeding.ȱȱ See Jarkesy

, Ų 03 F.3d at ś

23 (concluding that claims arising ȱȈ from actions the Commission took in the Ŝ

course of [its administrative] scheme Ȉȱ were not ȱȈ wholly collateral Ȉ ); Bebo

, 2015 7

WL ų 053 Ůų

, at *2

Ȭ Ů

, 2015 U.S. Dist. LEXIS 25660, at * Ů

Ȭ 10 (implicitly concluding 8

that the respondent ȇ s Article II challenge did not qualify as wholly collateral to 9

the ongoing administrative proceeding because it was raised there as an ŗŖ

affirmative defense).ȱȱ See generally Bebo

, űųų F.3d at űű 3

Ȭ űŮ (comparing these two ŗŗ

lines of decisions). ŗŘ

The district court here adopted the latter approach.ȱȱ It began its analysis by ŗř

noting that the appellants ȇȱ Appointments Clause claim is substantively ŗ 4

Ȉ unrelated to the securities violations underlying the administrative proceeding, Ȉȱ ŗś

such that resolving the challenge ȱȈ cannot reasonably be characterized as the ŗŜ

ȇ regular ȇȱ or ȱȇ routine ȇȱ business of SEC administrative proceedings. Ȉȱ Tilton

, 2015 ŗ 7

WL Ů 006165, at *11, 2015 U.S. Dist. LEXIS Ų 5015, at *31

Ȭ 32 (quoting, with minor ŗ 8Ř 8 alterations, Elgin

, 132 S. Ct. at 21 Ů 0).ȱȱ Nevertheless, the court decided that the ŗ

claim did not qualify as ȱȈ wholly collateral Ȉȱ because it was procedurally Ř

intertwined with the SEC ȇ s ongoing proceeding, where it functioned as an ř

affirmative defense.ȱȱ Id. at 2015 WL Ů 006165, at *12, 2015 U.S. Dist. LEXIS Ų 5015, 4

at *32

Ȭ 3 Ů

. ś

Absent further guidance from the Supreme Court, we are inclined to agree Ŝ

with the district court ȇ s assessment.ȱȱ The SEC chose to enforce the Investment 7

Advisers Act against the appellants by initiating an administrative proceeding 8

and appointing an ALJ to act as the hearing officer.ȱȱ The appellants ȇȱ 9

Appointments Clause claim arose directly from that enforcement action and ŗŖ

serves as an affirmative defense within the proceeding.ȱȱ To be sure, the claim ŗŗ

could be narrowly categorized as collateral to the statutory merits of the ŗŘ

Investment Advisers Act charges against the appellants.ȱȱ But we cannot conclude ŗř

that the claim is wholly collateral to the SEC ȇ s administrative scheme more ŗ 4

broadly.ȱȱ As the district court recognized, it is ȱȈ difficult to see how [the ŗś

Appointments Clause claim] can still be considered ȱȇ collateral to any ŗŜ

Commission orders or rules from which review might be sought, ȇȱ since the ALJ ŗ 7

and the Commission will, one way or another, rule on those claims and it will be ŗ 8Ř 9 the Commission ȇ s order that [the appellants] will appeal. Ȉȱȱ Tilton, 2015 WL ŗ

Ů 006165, at *12, 2015 U.S. Dist. LEXIS Ų 5015, at *32 (citation and some internal Ř

quotation marks omitted) (quoting Free Enterprise, 561 U.S. at Ůų 0); see also Jarkesy

, ř

Ų 03 F.3d at 23 (reaching a similar conclusion).ȱȱ Put another way, the 4

Appointments Clause claim, like accompanying defenses to the merits of the ś

Investment Advisers Act charges, is a ȱȈ vehicle by which Ȉȱ the appellants seek to Ŝ

prevail in the proceeding.ȱȱ Elgin, 132 S. Ct. at 213 ų

.ȱȱ The claim identifies a 7

purported error in the way the Commission has sought to enforce the securities 8

laws, albeit one that sounds in administrative procedure rather than statutory 9

construction. ŗŖ

The dissent argues that the appellants ȇȱ Appointments Clause claim is as ŗŗ

collateral to the SEC ȇ s administrative scheme as the accounting firm ȇ s ŗŘ

Appointments Clause claim was in Free Enterprise

.ȱȱ See ante at 16

Ȭ 1 ű

.ȱȱ We are not ŗř

persuaded by the analogy.ȱȱ The Supreme Court ȇ s jurisdictional conclusion in Free ŗ 4

Enterprise was, in our view, shaped principally by the absence of the type of ŗś

procedural link between constitutional claim and administrative proceeding that ŗŜ

exists here.ȱȱ The accounting firm objected to actions that the PCAOB had taken ŗ 7

entirely outside the scope of the SEC ȇ s scheme of administrative and judicial ŗ 8řŖ review

— actions that could not be the subject of ȱȈ any Commission orders

. . . ŗ

from which review might be sought. Ȉȱȱ Free Enterprise

, 561 U.S. at Ůų 0.ȱȱ The firm Ř

filed suit in federal district court, and the Supreme Court allowed the suit to ř

proceed, because the Appointments Clause claim was not moored to any 4

proceeding that would provide for an administrative adjudication and ś

subsequent judicial review. Ŝȱȱ Here, by contrast, the appellants ȇȱ Appointments Ŝ

Clause claim targets an aspect of an ongoing administrative proceeding.ȱȱ We 7

think that distinction significantly alters the ȱȈ wholly collateral Ȉȱ analysis, such 8

that the second Thunder Basin factor does not favor district court jurisdiction in 9

this case.ȱȱ See Jarkesy

, Ų 03 F.3d at 23 (noting that a constitutional challenge might ŗŖ

qualify as collateral if it ȱȈ were filed in court before the initiation of any ŗŗ

administrative proceeding, Ȉȱ as in Free Enterprise

, but concluding that ŗŘ

Ŝ In explaining why the accounting firm ȇ s Appointments Clause claim qualified as

wholly collateral, the Free Enterprise decision at one point characterized the claim as an

Ȉ object[ion] to the [PCAOB ȇ s] existence. Ȉȱȱ śŜŗ U.S. at 49 Ŗ

.ȱȱ Like the D.C. Circuit, we do

not read that language ȱȈ to define a new category of collateral claims that fall outside an

otherwise exclusive administrative scheme. Ȉȱȱ Jarkesy

, 8 Ŗř F. ř d at Ř 4.ȱȱ In our view, the

Supreme Court classified the accounting firm ȇ s claim as wholly collateral because the

PCAOB ȇ s disputed actions could not be reviewed by the Commission, which meant that

the firm ȇ s Appointments Clause challenge to those actions fell entirely outside the scope

of the administrative scheme and could not be resolved by a Commission ȱȈ order[]

. . . from which [judicial] review might be sought. Ȉȱȱ Free Enterprise

, śŜŗ U.S. at 49 Ŗ

.řŗ constitutional challenges were not collateral when raised in response to ȱȈ multiple ŗ

aspects of [an] ongoing proceeding Ȉ ). Ř

C. Agency Expertise ř

The final consideration within the Thunder Basin framework is whether the 4

appellants ȇȱ Appointments Clause claim falls outside the SEC ȇ s expertise.ȱȱ This is a ś

close question.ȱȱ As an initial matter, the Supreme Court ȇ s decision in Free Ŝ

Enterprise suggests that the SEC does not possess unique legal expertise in 7

analyzing the constitutional sufficiency of its appointments.ȱȱ There, the Court 8

concluded that the merits of an Appointments Clause challenge to the PCAOB 9

fell ȱȈ outside the Commission ȇ s competence and expertise Ȉȱ because the claim ŗŖ

raised only ȱȈ standard questions of administrative law, Ȉȱ which were unrelated to ŗŗ

any ȱȈ statutory Ȉȱ or ȱȈ fact

Ȭ bound inquiries Ȉȱ that the SEC might be singularly ŗŘ

qualified to perform.ȱȱ 561 U.S. at Ůų 1. ŗř

Under Touche Ross

, that conclusion might end our analysis of agency ŗ 4

expertise.ȱȱ As noted, the panel there permitted respondents to challenge an ŗś

ongoing SEC administrative proceeding in federal district court solely because ŗŜ

the legal substance of the challenge fell outside the administrative tribunal ȇ s ŗ 7

expertise and could not be usefully developed through its factfinding.ȱȱ 60 ų F.2d ŗ 8řŘ at 5 űű

.ȱȱ But the Supreme Court has since adopted a broader conception of agency ŗ

expertise in the jurisdictional context.ȱȱ Elgin

, in particular, emphasizes that an Ř

agency may bring its expertise to bear on a constitutional claim indirectly, by ř

resolving accompanying, potentially dispositive issues in the same proceeding.ȱȱ 4

See Jarkesy

, Ų 03 F.3d at 2 Ų

Ȭ 2 ų (noting that ȱȈ Elgin

. . . clarified

. . . that an agency ȇ s ś

relative[ly low] level of insight into the merits of a constitutional question is not Ŝ

determinative Ȉȱ of whether the agency can bring its expertise to bear). 7

In Elgin

, federal employees who allegedly had been discharged for 8

violating a statutory command sought reinstatement by challenging the 9

constitutionality of the statute.ȱȱ Congress had previously created an ŗŖ

administrative process to adjudicate specified personnel decisions regarding ŗŗ

federal employees, which was conducted initially by the Merit Systems ŗŘ

Protection Board ( Ȉ MSPB Ȉ ) and subject to review in the Federal Circuit.ȱȱ Before ŗř

completing that administrative process, the employees attempted to raise their ŗ 4

constitutional challenge to the statute in federal district court.ȱȱ In an effort to ŗś

establish federal jurisdiction, they contended that the claim fell outside the ŗŜ

MSPB ȇ s expertise because the MSPB disclaimed authority to determine the ŗ 7

constitutionality of a federal statute.ȱȱ Elgin

, 132 S. Ct. at 2130

Ȭ 31, 21 Ů 0

. ŗ 8řř The Supreme Court disagreed.ȱȱ Although the MSPB had indeed disclaimed ŗ

authority to resolve constitutional challenges to statutes, the Court identified Ř

several ways in which the agency might ȱȈ otherwise Ȉȱ bring its expertise ȱȈ to bear Ȉȱ ř

in proceedings that raised those challenges.ȱȱ First, the MSPB could resolve 4

Ȉ preliminary questions unique to the employment context Ȉȱ that might ȱȈ obviate ś

the need to address the constitutional challenge. Ȉȱȱ Id. at 21 Ů 0.ȱȱ Second, ȱȈ the Ŝ

challenged statute [could] be one that the MSPB regularly construes, and its 7

statutory interpretation could alleviate constitutional concerns. Ȉȱȱ Id.ȱȱ And third, 8

Ȉ an employee ȇ s appeal [could] involve other statutory or constitutional claims 9

that the MSPB routinely considers, in addition to a constitutional challenge to a ŗŖ

federal statute, Ȉȱ whose resolution ȱȈ in the employee ȇ s favor might fully dispose of ŗŗ

the case. Ȉȱȱ Id.ȱȱ In light of those potential applications of agency expertise to other ŗŘ

dimensions of the administrative proceeding, the Court concluded that there was ŗř

Ȉ no reason to conclude that Congress intended to exempt Ȉȱ the employees ȇȱ ŗ 4

constitutional challenge ȱȈ from exclusive review before the MSPB and the Federal ŗś

Circuit. Ȉȱȱ Id. ŗŜ

Applying Elgin ȇ s approach here, we think that the SEC might bring its ŗ 7

expertise to bear on the appellants ȇȱ proceeding by resolving accompanying ŗ 8ř 4 statutory claims that it ȱȈ routinely considers, Ȉȱ and which ȱȈ might fully dispose of ŗ

the case Ȉȱ in the appellants ȇȱ favor.ȱȱ 132 S. Ct. at 21 Ů 0.ȱȱ In particular, the Ř

Commission could rule that the appellants did not violate the Investment ř

Advisers Act, in which case the constitutional question would become moot.ȱȱȱ 4

It may be argued that the application of agency expertise to the statutory ś

issues in the appellants ȇȱ proceeding would improperly skip over their Ŝ

Appointments Clause claim, which raises a ȱȈ threshold Ȉȱ issue that logically 7

precedes a merits adjudication.ȱȱ Although we are mindful of that concern, the 8

Supreme Court appears to have rejected an analogous argument in Standard Oil

.ȱȱ 9

There, the respondent oil company, like the appellants here, sought to raise a ŗŖ

Ȉ threshold Ȉȱ challenge to its administrative proceeding as a whole soon after the ŗŗ

proceeding began.ȱȱ The Ninth Circuit permitted the district court to exercise ŗŘ

jurisdiction over that challenge, in part because it feared that the oil company ȇ s ŗř

victory on other grounds in the administrative proceeding would evade, and ŗ 4

improperly ȱȈ moot, Ȉȱ the threshold issue.ȱȱ Standard Oil Co. of Cal. v. FTC

, 5 ų 6 F.2d ŗś

13 Ų 1, 13 Ųű ( ų th Cir. 1 ųűų ), rev ȇ d

, ŮŮų U.S. 232 (1 ųŲ 0).ȱȱ The Supreme Court ŗŜ

expressly rejected that rationale and reversed, explaining: ŗ 7

[O]ne of the principal reasons to await the termination of agency ŗ 8

proceedings is to obviate all occasion for judicial review.ȱȱ Thus, the ŗ 9řś possibility that [the oil company ȇ s] challenge may be mooted in ŗ

adjudication warrants the requirement that [the company] pursue Ř

adjudication, not shortcut it. ř

4

Standard Oil

, ŮŮų U.S. at 2 ŮŮ n.11 (internal quotation marks and citations ś

omitted).ȱȱ In light of that passage, we are inclined to read Elgin ȇ s mention of Ŝ

Ȉ other statutory or constitutional claims Ȉȱ that might ȱȈ fully dispose of the case, Ȉȱ 7

132 S. Ct. at 21 Ů 0, to include the Investment Advisers Act charges here. 8

Such a reading of Elgin dovetails with our analysis of the availability of 9

meaningful judicial review.ȱȱ We have already concluded, in keeping with ŗŖ

established federal practice regarding analogous disputes, that the appellants ŗŗ

may adequately vindicate their Appointments Clause claim by first awaiting a ŗŘ

final Commission order and then petitioning for judicial review on constitutional ŗř

grounds only if the order is adverse.ȱȱ By the same logic, a favorable Commission ŗ 4

order, including one on statutory grounds, would provide an acceptable ŗś

resolution of the Appointments Clause claim and obviate any need for judicial ŗŜ

review.ȱȱ It follows, we think, that the Commission may bring its expertise to bear ŗ 7

in a manner potentially relevant to the constitutional issue by resolving the ŗ 8

statutory charges against the appellants.ȱȱ For that reason, the final Thunder Basin ŗ 9

factor lends minimal support to the appellants ȇȱ jurisdictional argument.ȱȱ See ŘŖřŜ Jarkesy

, Ų 03 F.3d at 2 ų (concluding that ȱȈ the Commission ȇ s expertise can otherwise ŗ

be brought to bear on the issues in [the respondent ȇ s] proceeding Ȉȱ because ȱȈ the Ř

agency could moot the need to resolve Ȉȱ the respondent ȇ s constitutional claims, ř

including several threshold challenges to the proceeding as a whole, ȱȈ by finding 4

that he did not commit the securities

Ȭ law violations of which he stands accused Ȉȱ ś

(internal quotation marks omitted)); Bebo

, űųų F.3d at űű 3 ( Ȉ Elgin explained that Ŝ

the possibility that [the respondent] might prevail in the administrative 7

proceeding (and thereby avoid the need to raise her constitutional claims in an 8

Article III court) does not render the statutory review scheme inadequate. Ȉ ). 9

**CONCLUSION** ŗŖ

After considering each of the Thunder Basin factors, we conclude that ŗŗ

Congress intended the appellants ȇȱ Appointments Clause claim ȱȈ to be reviewed ŗŘ

within Ȉȱ the SEC ȇ s exclusive ȱȈ statutory structure. Ȉȱȱ Free Enterprise

, 561 U.S. at ŮŲų ŗř

(quoting Thunder Basin

, 510 U.S. at 20 ű ).ȱȱ The ȱȈ threshold Ȉȱ nature of the claim does ŗ 4

not defeat the presumption that it, like other procedural and substantive ŗś

defenses to an enforcement action, must be resolved in the first instance through ŗŜ

agency proceedings.ȱȱ To the contrary: ȱȱȈ Many respondents in SEC proceedings ŗ 7

join substantive defenses to their securities charges together with challenges to ŗ 8ř 7 the Commission ȇ s actions or authority.ȱȱ It makes good sense to consolidate all of ŗ

each respondent ȇ s issues before one court for review, and only after an adverse Ř

Commission order makes that review necessary. Ȉȱȱ Jarkesy

, Ų 03 F.3d at 2 ų

Ȭ 30.ȱȱ We ř

therefore conclude, in keeping with the decisions of the Seventh and D.C. 4

Circuits in Bebo and Jarkesy

, that the appellants must await a final Commission ś

order before raising their Appointments Clause claim in federal court.ȱȱ The Ŝ

judgment of the district court is AFFIRMED, and our stay on further proceedings 7

by the SEC is VACATED. 8Tilton v. Securities and Exchange Commission

Docket No. 15-2103

Jon O. Newman, Circuit Judge , concurring:

An additional reason why the Appellants in this case must

raise their Appointments Clause issue by filing a petition for

review in a court of appeals rather than initiate a new action

in a district court is a concept that has been called

“colorable jurisdiction.” As the Seventh Circuit has

explained in a case challenging an order of criminal contempt,

"If a court has colorable jurisdiction of a case, though later

it is determined that actually it didn't have jurisdiction, an

order of criminal contempt issued by the court before the

absence of jurisdiction is determined is valid." Mann v.

Calumet City , 588 F.3d 949, 954 (7th Cir. 2009).

The Supreme Court, without using the phrase “colorable

jurisdiction,” made the same point in United States v. United

Mine Workers of America , 330 U.S. 258 (1947). The Court there

ruled that even if the constitutionality of a statute is in

doubt, an order issued by a court under that statute must be

obeyed and enforced even by criminal contempt. See id. at 293.

The Court noted that "a different result would follow were the

question of jurisdiction frivolous and not substantial," id.

,

or, as Justice Frankfurter’s concurrence put it, the "court is

1so obviously traveling outside its orbit as to be merely

usurping judicial forms and facilities," id. at 309

(Frankfurter, J., concurring).

The concept of colorable jurisdiction has also been

deemed relevant to the availability of a collateral attack to

challenge a judgment for lack of subject matter jurisdiction.

Courts have distinguished between an erroneous assertion of

subject matter jurisdiction, where collateral attack is

precluded by res judicata , and a clear usurpation of judicial

power, where collateral attack is permitted. See Nemaizer v.

Baker , 793 F.2d 58, 65 (2d Cir. 1986) (collecting cases); see

also Restatement (Second) of Judgments § 12(1) (1982).

“Collateral attack is available only if the assertion of

subject matter jurisdiction was without colorable basis, not

merely erroneous." In re U.S. Catholic Conference , 824 F.2d

156, 165 (2d Cir. 1987), rev'd on other grounds

, U.S. Catholic

Conference v. Abortion Rights Mobilization, Inc. , 487 U.S. 72

(1988) (on direct appeal, nonparty witness held in civil

contempt may challenge subject matter jurisdiction of court in

underlying action).

The Administrative Law Judge (“ALJ”) that will be hearing

the pending administrative proceeding against the Appellants

is not an interloper. The ALJ is an official of the agency,

2facially clothed with authority to adjudicate the proceeding

before her. Whether her appointment comports with the

Appointments Clause is a fair question, but there is surely a

plausible basis for arguing that her appointment is valid.

With colorable jurisdiction, the ALJ may adjudicate the

administrative case, and the losing party will have its

opportunity to seek review before the Commission and then

petition for review of a final order in a Court of Appeals,

see 15 U.S.C. § 80b-13(a).

For this additional reason, I concur in Judge Sack’s

opinion for the Court

.

3DRONEY, Circuit Judge

, dissenting: 1

This case is nearly indistinguishable from Free Enterprise Fund 2

v. Public Co. Accounting Oversight Board

, 561 U.S. 477 (2010).ȱȱ It differs 3

in only one significant way: administrative proceedings have begun 4

against the appellants.ȱȱ The majority concludes that this distinction 5

alone warrants a different outcome, finding that the fact of the 6

ongoing proceedings means that the three factors identified by the 7

Supreme Court in Thunder Basin Coal Co. v. Reich

, 510 U.S. 200 (1994) 8

for determining whether Congress intended to limit jurisdiction of 9

the district courts are satisfied.ȱ ȱ Consequently, the majority holds 10

that there was no subject matter jurisdiction before the district court. 11

I respectfully dissent.ȱ ȱ The majority’s application of the 12

Thunder Basin factors has stripped the “wholly collateral” and 13

“outside the agency’s expertise” factors of any significance: in its 14

view, as long as administrative proceedings have been initiated, 15

those two factors are always satisfied.ȱ ȱ The majority bases its 162 understanding of this substantive

Ȭ to

Ȭ procedural switch in those two 1

factors on their application by the Supreme Court in Elgin v. 2

Department of Treasury

, 132 S. Ct. 2126 (2012), but the nature of the 3

constitutional claim presented in Elgin was entirely different.ȱ ȱ I 4

disagree with the majority’s interpretation of Elgin and conclude 5

that those two Thunder Basin factors must be analyzed substantively 6

to determine their weight in each particular case.ȱȱȱ 7

I conclude that Free Enterprise controls here.ȱȱ In my view, those 8

two factors here have precisely the same weight as they did in Free 9

Enterprise

, and the application of the remaining factor does not 10

change the result.ȱ ȱ Thus, I would find that the district court had 11

subject matter jurisdiction to consider the constitutional challenge.ȱȱȱ 12

**I. The** Thunder Basin **Factors** 13

The Supreme Court in Thunder Basin identified the following 14

three factors as helpful in determining whether a statute which 15

provides for administrative review of agency action was intended by 163 Congress to preclude district court jurisdiction over claims before a 1

final administrative determination: whether the claims are “wholly 2

collateral to a statute ȇ s review provisions,” whether they are 3

“outside the agency ȇ s expertise,” and whether “a finding of 4

preclusion could foreclose all meaningful judicial review.”ȱ ȱ Id. at 5

212–13 (internal quotation marks omitted).ȱ ȱ The Court referred to 6

each as helping determine whether it is “fairly discernible” from a 7

“statutory scheme” that Congress “has allocated initial review to an 8

administrative body.” Id

. at 207, 212–13. 1ȱȱȱ 9

I disagree somewhat with the majority’s interpretation of the 10

third factor, “meaningful judicial review,” but it is the majority’s 11 1 The majority describes the Thunder Basin factors as coming into play only in the second part of a

two-part test, seemingly splitting the analysis betw een asking (1) whether Congress intended to

preclude district court jurisdic tion and (2) whether Congress intended for the claims at issue to be

reviewed within the statutory structure. Majority Op. at 10–11. I disagree with this dichotomy

and the conclusion that the factors are re levant only to the second inquiry. See, e.g., Elgin , 132 S.

Ct. at 2136 (referring to Thunder Basin factors as relevant to the single argument characterized

variously as: “Congress does not intend to limit district court jurisdiction” (alterations omitted)

and “[Petitioners’] claims are not the type that Co ngress intended to be reviewed within the

[administrative] scheme”). However, the majority opinion does not return to this schema and

thereafter focuses on the Thunder Basin factors as answering the ultimate question of whether the

appellants are precluded from bringing their constitutional claims in the district court.4 application of the two other factors—“wholly collateral” and 1

“outside the agency’s expertise”—with which I most disagree.ȱȱȱ 2

There are three cases in which the Supreme Court has 3

reviewed the application of these three factors: Thunder Basin

, Free 4

Enterprise

, and Elgin

.ȱȱȱȱ In each, the Supreme Court’s analysis of the 5

“wholly collateral” and “outside the agency’s expertise” factors has 6

focused on the substance of the claims. 7

In Thunder Basin

, a non

Ȭ union mine owner filed an action in 8

district court challenging its employees’ designation of certain union 9

representatives to be involved in safety inspections under the 10

Federal Mine Safety and Health Amendments Act (“Mine Act”).ȱȱ 11

The Mine Act provided for administrative hearings and decisions 12

concerning safety issues, and ultimate appeal to the Courts of 13

Appeals.ȱȱ Respondents contended that this “comprehensive review 14

process,” id. at 208, in the Mine Act indicated that Congress 15

intended that the safety claim be exclusively reviewed in the 165 “statutory structure,” id

. at 212, and that there was no subject matter 1

jurisdiction for the mine owner’s suit in the district court.ȱȱȱ 2

In its analysis of whether the mine owner’s claims must first 3

be brought in an administrative proceeding, the Supreme Court 4

analyzed the “wholly collateral” and “outside the agency’s 5

expertise” factors only by considering the substance of the claims 6

with no mention of the procedural aspects of the case.ȱȱ Id

. at 213–14 7

(noting that “Petitioner’s statutory claims at root require 8

interpretation of the parties’ rights and duties under [the Mine Act 9

and accompanying regulations], and as such arise under the Mine 10

Act and fall squarely within the Commission’s expertise” and that 11

the agency has “extensive experience interpreting the walk

Ȭ around 12

rights” that were at issue).ȱȱ 13

The Supreme Court engaged in the same sort of substantive 14

analysis in Free Enterprise

.ȱȱ In Free Enterprise

, an accounting firm filed 15

an action in the district court which challenged a report issued by 166 the newly created Public Company Accounting Oversight Board 1

(“PCAOB”).ȱ ȱ The PCAOB was created as an accounting reform in 2

the Sarbanes

Ȭ Oxley Act of 2002 and its members were appointed by 3

the SEC.ȱȱ The report had criticized the firm’s accounting procedures, 4

but no sanctions were imposed.ȱȱ Thus, the accounting firm could not 5

utilize the statutory administrative review proceedings available 6

before the SEC.ȱ ȱ The action in the district court by the accounting 7

firm challenged the appointments of the PCAOB members by the 8

SEC, claiming that they violated the Appointments Clause of the 9

Constitution and the members had no authority to issue the negative 10

report.ȱ ȱ The PCAOB sought to dismiss the action on the basis that 11

the district court had no subject matter jurisdiction to consider the 12

accounting firm’s claim. 13

In its analysis of the “wholly collateral” and “outside the 14

agency’s review” factors, the Free Enterprise Court examined the 15

substance of the constitutional claim as it related to agency expertise, 167 561 U.S. at 491 (“[T]he statutory questions involved do not require 1

technical considerations of agency policy.” (quotation marks and 2

alterations omitted)), and explained the “wholly collateral” factor in 3

terms of the substantive content of the challenge, id

. at 490. 4

(“[P]etitioners object to the Board’s existence, not to any of its 5

auditing standards.ȱ ȱ Petitioners’ general challenge to the Board is 6

collateral to any Commission orders or rules from which review 7

might be sought.”).ȱȱ It made no reference to the procedural aspects 8

of the claim. 9

**II.** Elgin v. Department of Treasury 10

The third case in which the Supreme Court addressed the 11

Thunder Basin factors was Elgin v. Department of Treasury

, 132 S. Ct. 12

2126 (2012).ȱ ȱ The majority concludes that the Elgin Court 13

considerably altered the “wholly collateral” and “outside the 14

agency’s expertise” factors, but I disagree.ȱȱ I believe the outcome in 158 Elgin was not produced by varying those factors, but by the different 1

type of constitutional claim presented.ȱȱ 2

In Elgin

, the plaintiffs challenged their dismissal from federal 3

employment for failure to comply with the Military Selective Service 4

Act by not registering for the draft.ȱ ȱ Although the plaintiffs had 5

available to them the right to challenge their dismissals through 6

administrative hearings before the Merit Systems Protection Board 7

(“MSPB”) and subsequent judicial review in the Federal Circuit, they 8

instead brought suit in federal district court. 2ȱ ȱ Their constitutional 9

arguments were that the Selective Service Act discriminates on the 10

basis of sex by requiring only males to register and is a bill of 11

attainder.ȱȱ Id

. at 2131.ȱȱ Notably, the plaintiffs made no challenge to 12

the available administrative process; they argued only that the 13

substance of the laws being enforced against them—laws routinely 14

administered by the MSPB—was unconstitutional.ȱȱ Unsurprisingly, 15 2 One of the plaintiffs did pursue remedies throu gh the MSPB, but declined to appeal the decision

he received within the administrative system, instead joining the others in their suit in district

court. Elgin , 132 S. Ct. at 2131.9 then, the Supreme Court’s analysis of the “wholly collateral” and 1

“outside of the agency’s expertise” factors, and its conclusion that 2

those two factors in Elgin weighed in favor of dismissal of the 3

district court action, was necessarily quite different from that in Free 4

Enterprise

. 5

The Supreme Court’s application of the “wholly collateral” 6

factor rejected the plaintiffs’ argument that their constitutional 7

claims had “nothing to do” with the “day

Ȭ to

Ȭ day personnel actions 8

adjudicated by the MSPB.”ȱȱ Id. at 2139.ȱȱ The Supreme Court pointed 9

out that a challenge to dismissal from employment based on federal 10

statutes is “precisely the type of personnel action regularly 11

adjudicated by the MSPB and the Federal Circuit within the [Civil 12

Service Reform Act (“CSRA”)] scheme.”ȱȱ Id

. at 2140.ȱȱ Whether or not 13

that particular challenge involved a constitutional question, it was— 14

in the words of the Supreme Court—“a challenge to CSRA

Ȭ covered 1510 employment action brought by CSRA

Ȭ covered employees requesting 1

relief that the CSRA routinely affords.”ȱȱ Id

.ȱȱ 2

The majority here concludes that Elgin held that “a claim is 3

not wholly collateral if it has been raised in response to, and so is 4

procedurally intertwined with, an administrative proceeding,” 5

Majority Op. at 27, pointing to the Supreme Court’s statement that 6

the constitutional claims in Elgin were “the vehicle by which [the 7

petitioners] s[ought] to reverse the removal decisions” made against 8

them, id

. at 2139.ȱȱ However, that overstates what the Supreme Court 9

did in its application of that factor.ȱ ȱ That portion of the opinion 10

meant nothing more than that the plaintiffs were challenging actions 11

against them under the statutes committed to the MSPB by attacking 12

the constitutionality of those very statutes—it does not suggest that 13

no challenge that would end ongoing proceedings could be 14

considered collateral to a statute’s review provisions.ȱ ȱ Such an 15

interpretation would swallow the rule, for there would no longer be 1611 any need to evaluate the substance of a claim as long as the claim 1

could somehow serve to end administrative proceedings in a 2

plaintiff’s favor.ȱ ȱ This is inconsistent with Thunder Basin and Free 3

Enterprise (and, in fact, with Elgin

, which looked carefully at the 4

substance of the challenge).ȱ ȱ It would also turn the factor into an 5

easy, binary question: Is a proceeding ongoing?ȱȱ If yes, then no claim 6

that would end the proceeding can be wholly collateral.ȱȱ This cannot 7

be what the Elgin Court intended.ȱȱ In my view, it held only that a 8

claim involving the substance of the very act entrusted to the agency 9

for implementation and requesting the types of relief that the agency 10

regularly gives—a far cry from the present case, where the 11

constitutional claim has no relation to the securities laws entrusted 12

to the SEC and the requested remedy of disallowing the proceedings 13

before the ALJ is obviously not a routine outcome—cannot be 14

considered “wholly collateral” to the administrative scheme. 1512 As for the “outside the agency’s expertise” factor, the Elgin 1

Court made clear that this factor would weigh against jurisdiction in 2

cases where a claim needing agency expertise was a “threshold” or 3

“preliminary question” that would “obviate the need to address the 4

constitutional challenge.”ȱȱ Id

. at 2140.ȱȱ This described the situation in 5

Elgin

, where before deciding that the Selective Service Act was 6

unconstitutional the MSPB had to decide “threshold questions” to 7

which the MSPB could apply its expertise, such as whether 8

constructive discharge occurred as well as whether additional 9

claimed violations of employment statutes took place, which “might 10

fully dispose of the case.”ȱȱ Id

.ȱȱ Those decisions could be informed by 11

its agency expertise in the area of employment law. Id

.ȱȱ In such a 12

context, the MSPB’s expertise could properly be “brought to bear” 13

on the constitutional claim.ȱ ȱ Id

. (quoting Thunder Basin

, 510 U.S. at 14

214–15).ȱ ȱ The majority here acknowledges that an issue of federal 15

jurisdiction or the appropriate composition of an adjudicatory 1613 body—such as the Appointments Clause challenge presented in this 1

case—logically precedes a merits adjudication; therefore, there is no 2

“threshold” or “preliminary” question that would “obviate the need 3

to address the constitutional challenge.”ȱȱ 4

The majority nonetheless concludes that the Elgin Court 5

interpreted this factor to mean that “an agency may bring its 6

expertise to bear on a constitutional claim indirectly, by resolving 7

accompanying, potentially dispositive issues in the same 8

proceeding.”ȱ ȱ Majority Op. at 32.ȱ ȱ It does so by citing the Elgin 9

Court’s reference to a situation in which an appeal involves “other 10

statutory or constitutional claims that the MSPB routinely considers, 11

in addition to a constitutional challenge to a federal statute.”ȱȱ Elgin

, 12

132 S. Ct. at 2140.ȱ ȱ The majority thus concludes that an issue to 13

which an agency may apply its expertise need only be dispositive, 14

not necessarily “preliminary,” for it to weigh against jurisdiction.ȱȱ 15

Majority Op. at 33

Ȭ 34. 1614 That interpretation does not comport with the language of 1

Elgin

, however, which explicitly set that description out as an 2

example of a situation in which there might be “threshold questions” 3

that would allow the initial agency reviewing the case to not reach 4

the constitutional question. 3ȱ ȱ Nor would such an expansive 5

interpretation be consistent with the facts underlying and the setting 6

of Elgin

, where the potentially dispositive issue was clearly a 7

“preliminary” or “threshold question.” 8

To read Elgin as broadly as the majority does would mean that 9

as long as a proceeding is ongoing, the “outside the agency’s 10

expertise” factor must weigh against jurisdiction—because any time 11

a proceeding has commenced there is of course some possibility that 12

a plaintiff may prevail on the merits.ȱȱ This would turn a substantive 13 3 That paragraph in Elgin makes clear that each of the sentences cited by the majority at Majority

Op. 33 are examples of cases with “threshold qu estions,” not additional pathways to preclusion.

See Elgin , 132 S. Ct. at 2140 (“But petitioners overl ook the many threshold questions that may

accompany a constitutional claim and to which the MSPB can apply its expertise. Of particular

relevance here, preliminary questions unique to the employment context may obviate the need to

address the constitutional challenge. For example

, . . . In addition

, . . . . Or , an employee’s appeal

may involve other statutory or constitutional claims that the MSPB routinely considers, in addition

to a constitutional challenge to a federal statute .” (emphases added)). The Supreme Court has

elsewhere defined a “threshold question” as one “tha t must be resolved . . . .before proceeding to

the merits [of another claim].” Steel Co. v. Citizens for a Better Env’t , 523 U.S. 83, 88–89 (1998).15 factor into a purely procedural—and binary—one, which is 1

inconsistent with the description of the factor in Thunder Basin

, Free 2

Enterprise

, or Elgin itself. 3

In sum, to agree with the majority’s interpretation of Elgin

, 4

one must conclude that the Supreme Court intended to eliminate 5

any substantive analysis of the “wholly collateral” and the “outside 6

the agency’s expertise” factors in any case where an administrative 7

proceeding is ongoing. 4ȱ ȱ To the contrary, Elgin itself engages with 8

the substance of the precluded claims in a way that the majority 9

seems to believe is now unnecessary.ȱȱȱ 10

The majority’s interpretation also serves to move the Thunder 11

Basin factors away from their original function, which was to assist 12

in a holistic analysis to determine whether it is “fairly discernible” 13

from a “statutory scheme” that Congress “has allocated initial 14

review to an administrative body.” Thunder Basin

, 510 U.S. at 207.ȱȱ 15 4 In fact, in Elgin , only one of the plaintiffs had initiated administrative proceedings; the others

had filed suit directly in the district court but could have initiated proceedings. Elgin , 132 S.Ct. at

2131. Consequently, th e implication of the majority’s reading of Elgin is likely to be even greater

than this.16 Elgin recognized this function: it engaged in an extensive analysis of 1

the history and structure of the relevant statutes before turning to 2

the Thunder Basin factors, which it referred to as “three additional 3

factors in arguing that [the petitioners’] claims are not the type that 4

Congress intended to be reviewed within the CSRA scheme.”ȱȱ 132 S. 5

Ct. at 2136.ȱȱȱ 6

I would apply the three Thunder Basin factors for divining 7

legislative intent faithful to Thunder Basin

, Free Enterprise and Elgin

. 8

**III. Application of**  **the** Thunder Basin **Factors** 9

**A. “Wholly Collateral**  **to a**  **Statute’s Review**  **Provisions”** 10

The Supreme Court in Free Enterprise concluded that the 11

constitutional claim there was “wholly collateral” to any 12

administrative proceedings that might be brought against the 13

plaintiffs.ȱȱ That challenge was essentially the same as the challenge 14

here: that the appointment of the members of the PCAOB by the 15

SEC violated the Appointments Clause of the Constitution.ȱ ȱ It 16

explained that the plaintiffs’ “general challenge to the Board is 1717 ‘collateral’ to any Commission orders or rules from which review 1

might be sought” because they “object to the Board’s existence

, not to 2

any of its auditing standards.”ȱ ȱ Free Enterprise

, 561 U.S. at 490 3

(emphasis added).ȱ ȱ Here, as well, the appellants object to the very 4

existence of SEC administrative proceedings conducted by ALJs 5

who are, in their view, not appointed in accordance with the 6

Appointments Clause.ȱȱȱ 7

The majority finds that this factor weighs against jurisdiction 8

based only on its interpretation of Elgin

, which I have addressed 9

above.ȱ ȱ I would reject that interpretation.ȱ ȱ I see no difference 10

between the Appointments Clause challenge in Free Enterprise and 11

here; it is completely collateral to the work of the PCAOB as well as 12

to the work of the SEC and its ALJs.ȱ ȱ I would find that this factor 13

weighs strongly in favor of jurisdiction. 14

**B. “Outside the**  **Agency’s Expertise”**  15

In Free Enterprise

, the Supreme Court explained that the 16

Appointments Clause claim relating to the appointment of the 1718 PCAOB by the SEC was “outside the Commission’s competence and 1

expertise,” requiring no understanding of a particular industry and 2

no “technical considerations of agency policy.”ȱ ȱ Id

. at 491 (internal 3

quotation marks and alterations omitted).ȱ ȱ The same conclusion 4

applies to the Appointments Clause issue here.ȱ ȱ Like the 5

determination of the appointment authority for the PCAOB 6

members in Free Enterprise

, the SEC has no particular expertise in 7

determining whether the system of appointing its Administrative 8

Law Judges comports with the Appointments Clause of the 9

Constitution.ȱȱȱ 10

The majority agrees as far as Free Enterprise goes, concluding 11

only that this Thunder Basin factor has been changed by Elgin

.ȱȱ For 12

the reasons discussed above, I disagree.ȱ ȱ I see no difference in the 13

application of this factor here to the SEC and its application to the 14

SEC in Free Enterprise

.ȱ ȱ I would find that this factor also weighs 15

strongly in favor of jurisdiction. 1619 **C. “Meaningful**  **Judicial Review”**  1

The “meaningful judicial review” factor presents the only 2

significant difference between the present case and Free Enterprise

.ȱȱ I 3

agree with the majority that this factor tends to weigh in favor of 4

preclusion because a subsequent appeal to this Court following a 5

final Commission order is available. 6

Nonetheless, I do not believe that the difference between the 7

available judicial review in Free Enterprise and in this case is so 8

significant as to justify a different outcome, given the identical 9

application of the other two factors, as well as a substantial question 10

as to whether subsequent judicial review here would be 11

“meaningful.” 12

The majority is correct in noting that Free Enterprise differed 13

from this case in that no reviewable administrative order was 14

possible unless the plaintiff “manufactur[ed] a new, tangential 15

dispute that would require a Commission order.”ȱ ȱ Majority Op. at 16

17

**.**ȱȱ And as the Free Enterprise Court noted, “[w]e normally do not 1720 require plaintiffs to bet the farm by taking the violative action before 1

testing the validity of [a] law.”ȱ ȱ 561 U.S. at 490 (internal quotation 2

marks and alterations omitted). 3

The Free Enterprise situation was not so different from the 4

present one as to require a different outcome, however.ȱ ȱ Here, the 5

administrative proceedings once concluded would have led to an 6

order subject to judicial review—but only if the appellants had 7

continued litigating before the SEC ALJ and lost on the merits. 5ȱȱ 8

Forcing the appellants to await a final Commission order 9

before they may assert their constitutional claim in a federal court 10

means that by the time the day for judicial review comes, they will 11

already have suffered the injury that they are attempting to prevent.ȱȱ 12

The majority finds that the “litigant’s financial and emotional costs 13 5 Given that the vast majority of all SEC administrative proceedings end in settlements rather than

in actual decisions, it might well be that choosin g to litigate is, in fact, equivalent to “betting the

farm.” See Brian Mahoney, SEC Could Bring More Insider Trading Cases In-House , L AW 360

(June 11, 2014), http://www.law36 0.com/articles/547183/sec-could- bring-more-insider-tradingcases-in-house (quoting Andrew Ceresney, the head of the SEC's Division of Enforcement, as

explaining that the “vast majority of our cases se ttle,” and stating, “I will tell you that there have

been a number of cases in recent months where we have threatened administrative proceedings, it

was something we told the other side we were going to do and they settled”).21 in litigating the initial proceeding are simply the price of 1

participating in the American legal system,” Majority Op. at 22, but 2

the issue is less the costs and burden of litigation and more that the 3

appellants are challenging the very existence of the ALJs as a part of 4

the statutory scheme.ȱ ȱ The appellants seek to enjoin the SEC 5

proceedings, but by the time that they access any judicial review, the 6

proceedings will be complete, rendering the possibility of obtaining 7

an injunction moot even if the final Commission order is vacated.ȱȱ In 8

my view, this diminishes the weight of this factor, for while there 9

may be review, it cannot be considered truly “meaningful” at that 10

point.ȱȱȱ 11

The majority cites a number of decisions for the principle that 12

“post

Ȭ proceeding relief

. . . suffices to vindicate the litigant’s 13

constitutional claim,” Majority Op. at 21–22, but none involves an 14

analysis of the “meaningful judicial review” prong of this test.ȱȱ 15

Germain v. Connecticut National Bank

, 930 F.2d 1038, 1040 (2d Cir. 1622 1991) involved an interlocutory appeal of the denial of a jury trial 1

demand in a bankruptcy proceeding and the application of the 2

collateral order doctrine exception that an order be “effectively 3

unreviewable on appeal.”ȱȱȱ D ȇ Ippolito v. American Oil Co

., 401 F.2d 4

764, 765 (2d Cir. 1968) addressed the question of whether an order 5

by a district court transferring an antitrust action to another district 6

was a “final judgment” under 28 U.S.C. § 1291.ȱȱ In re al

Ȭ Nashiri

, 791 7

F.3d 71, 79 (D.C. Cir. 2015), addressed the “irreparable injury” test 8

meriting the grant of a writ of mandamus to stop a military 9

commission trial.ȱȱ And FTC v. Standard Oil Co. of California

, 449 U.S. 10

232, 244 (1980) concerned whether the issuance of a complaint by the 11

Federal Trade Commission caused “irreparable injury” allowing for 12

judicial review or whether final agency action was necessary. 13

When it comes to the “meaningful judicial review” factor, it is 14

my view that we need look no further than Free Enterprise itself to 15

understand that being forced to undergo an allegedly 1623 unconstitutional proceeding may play into the analysis of whether 1

judicial review is “meaningful.”ȱ ȱ The Court in Free Enterprise 2

identified a number of possible ways that the plaintiffs in that case 3

could obtain review of their constitutional claims against the board 4

(such as “select[ing] and challeng[ing] a Board rule at random” or 5

“incur[ring] a sanction (such as a sizable fine) by ignoring Board 6

requests for documents and testimony,” 561 U.S. at 490); it simply 7

decided that none of the options were reasonable to ask of the 8

plaintiffs and therefore none provided “meaningful” judicial review.ȱȱ 9

Id

. at 490–91.ȱȱȱ 10

The Supreme Court in Free Enterprise also explained that the 11

plaintiffs were “entitled to declaratory relief sufficient to ensure that 12

the reporting requirements and auditing standards to which they are 13

subject will be enforced only by a constitutional agency accountable to the 14

Executive ,” and it allowed the plaintiffs to bring their claim at a time 15

where no administrative proceedings had yet been formally brought 1624 against them.ȱȱ 561 U.S. at 513 (emphasis added).ȱȱ This suggests that 1

the Supreme Court considers the very process of enforcement by an 2

unconstitutional body to be an injury that can be relevant to the 3

determination of whether post

Ȭ proceeding review is “meaningful.” 4

**IV. Conclusion** 5

For all these reasons, I am unpersuaded that the “meaningful 6

judicial review” prong has enough weight to overpower the other 7

two factors and result in a finding of no jurisdiction.ȱȱ The other two 8

factors clearly mirror those in Free Enterprise

, and the available 9

review is not meaningful enough to set those two factors aside.ȱȱ 10

Thus, the Appointments Clause challenge here is not “of the type 11

Congress intended to be reviewed within th[e] statutory structure.” 6ȱȱ 12

Thunder Basin

, 510 U.S. at 212.ȱȱȱ 13 6 Since the purpose of the application of the Free Enterprise factors is to determine whether

Congress intended to deprive district courts of subject-matter jurisdiction to hear preadministrative-adjudication claims, it seems relevan t that Congress continue s to authorize the SEC

to choose whether it will pursue violations before its ALJs in administrative proceedings or in the

district court as civil actions. To permit those subject to SEC enforcement actions to challenge

administrative proceedings in the district courts on the basis of constitutional challenges that have

nothing to do with the expertise of the SEC or with factual matter s relevant to their own particular

circumstances would seem consistent with that Congressional intent.25 1

I would reverse the decision of the district court and remand 2

for an adjudication of the merits of the Appointments Clause claim. 3