15Ȭ2103

Tilton v. SEC

ŗ UNITED STATES COURT OF APPEALS

Ř FOR THE SECOND CIRCUIT

ř August Term, 2015

4 (Argued:ȱȱSeptember 16, 2015 Decided:ȱȱJune 1, 2016)

ś Docket No. 15Ȭ2103

Ŝ

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

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

9 PlaintiffsȬAppellants,

ŗŖ v.

ŗŗ Securities and Exchange Commission,

ŗŘ DefendantȬAppellee.

ŗř

ŗ4 Before: NEWMAN, SACK, and DRONEY, Circuit Judges.

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

ŗŜ respondents in an ongoing administrative proceeding initiated by the Securities

ŗ7 and Exchange Commission and conducted by an administrative law judge.ȱȱThey

ŗ8 brought suit in the United States District Court for the Southern District of New

ŗ9 York to enjoin the Commissionȇs proceeding before its completion, on the theory

ŘŖ that the administrative law judgeȇs appointment violated the Appointments

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

ŘŘ Abrams, Judge) dismissed the suit for lack of subject matter jurisdiction.ȱȱThe
Ř

ŗ appellants now ask us to overturn that dismissal and reach the merits of their

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

ř Congress implicitly precluded federal jurisdiction over the appellantsȇȱ

4 Appointments Clause claim while the Commissionȇs proceeding remains

ś pending.ȱȱThe judgment of the district court is therefore

Ŝ AFFIRMED.

7 Judge NEWMAN concurs in a separate opinion.ȱȱȱ

8 Judge DRONEY dissents in a separate opinion.

9 DAVID M. ZORNOW, Skadden, Arps,

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

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

ŗŘ PlaintiffsȬAppellants.

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

ŗ4 Richard LLP, New York, NY, for PlaintiffsȬ

ŗś Appellants.

ŗŜ MARK B. STERN, Appellate Staff Attorney

ŗ7 (Mark R. Freeman and Megan Barbero,

ŗ8 Appellate Staff Attorneys, on the brief), for

ŗ9 Benjamin C. Mizer, Principal Deputyȱȱ

ŘŖ Assistant Attorney General, and Beth S.

Řŗ Brinkmann, Deputy Assistant Attorney

ŘŘ General, United States Department of

Řř Justice, Washington, DC, for DefendantȬ

Ř4 Appellee.

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

ŘŜ Bharara, United States Attorney for the
ř

ŗ Southern District of New York, for

Ř DefendantȬAppellee.

ř

4 SACK, Circuit Judge:

ś The Securities and Exchange Commission (theȱȈSECȈȱor theȱȈCommissionȈ)

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

7 monetary penalties against alleged transgressors.ȱȱUnder the 2010 DoddȬFrank

8 Wall Street Reform and Consumer Protection Act (theȱȈDoddȬFrank ActȈ), Pub. L.

9 No. 111Ȭ203, 12Ů Stat. 13ű6, the SECȇs enforcement actions generally may take

ŗŖ 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

ŗŘ (ȈALJȈ).ȱȱWhere both of those alternatives are available, the choice between them

ŗř belongs to the SEC without express statutory constraint.

ŗ4 In this case, the SEC chose to seek penalties against the appellants, Lynn

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

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

ŗ7 review:ȱȱA party that loses before the ALJ may petition for de novo review by the

ŗ8 Commission, and a party that loses before the Commission may petition for

ŗ9 review by a federal court of appeals.ȱȱNot unlike a lawsuit in district court,
4

ŗ therefore, the administrative proceeding ultimately offers the losing party a route

Ř to federal appellate review.

ř The appellants contend that the SECȇs administrative proceeding is

4 unconstitutional because the presiding ALJȇs appointment violated Article IIȇs

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

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

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

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

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

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

ŗŗ Appointments Clause claim and seeking an injunction against the ALJȇs

ŗŘ adjudication based on its alleged unconstitutionality.

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

ŗ4 subject matter jurisdiction.ȱȱRelying in part on the Supreme Courtȇs decisions in

ŗś Elgin v. Department of Treasury,ȱȬȬȬȱU.S.ȱȬȬȬ, 132 S. Ct. 2126 (2012), Free Enterprise

ŗŜ Fund v. Public Co. Accounting Oversight Board, 561 U.S. Ůűű (2010), and Thunder

ŗ7 Basin Coal Co. v. Reich, 510 U.S. 200 (1ųųŮ), the court concluded that the

ŗ8 appellantsȇȱAppointments Clause challenge fell within the exclusive scope of the
ś

ŗ SECȇs administrative review scheme and could reach a federal court only on

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

ř We agree.ȱȱBy enacting the SECȇs comprehensive scheme of administrative

4 and judicial review, Congress implicitly precluded federal district court

ś jurisdiction over the appellantsȇȱconstitutional challenge.

Ŝ BACKGROUND

7 Until 2010, the SECȇs authority to impose monetary penalties through

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

9 example, penalize a nonȬregulated person such as Tilton through administrative

ŗŖ channels.ȱȱThe DoddȬFrank Act dramatically expanded the SECȇs authority to

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

ŗŘ SEC’s] authority to seek penalties in Federal court.”ȱȱH.R. Rep. No. 111–6Ųű, at űŲ

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

ŗ4 cases through administrative proceedings, with a rate of success notably higher

ŗś than it has achieved in federal district courts.ȱȱSee Jean Eaglesham, InȬHouse

ŗŜ Judges Help SEC Rack Up Wins, Wall St. J., May ű, 2015, at A1.

ŗ7 When the Commission chooses to seek penalties administratively, it must

ŗ8 either preside over the proceeding itself or designate a hearing officer — usually
Ŝ

ŗ an ALJ — to do so.ȱȱSee 1ű C.F.R. § 201.110.ȱȱA presiding ALJ has authority to

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

ř Commission.ȱȱSee id. § 201.360.ȱȱIf a party petitions for review of the ALJȇs initial

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

ś final order.ȱȱSee id. § 201.Ů11.ȱȱAnd a final order issued under the securities laws,

Ŝ including the Investment Advisers Act of 1ųŮ0, 15 U.S.C. § Ų0bȬ1 et seq., is in turn

7 subject to judicial review by a federal court of appeals, see id. § Ų0b–13(a)

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

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

ŗŖ 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

ŗŘ States Court of Appeals for the District of ColumbiaȈ).

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

ŗ4 administrative proceedings have asserted that Article II of the United States

ŗś Constitution bars the agencyȇs ALJs from acting as hearing officers.ȱȱThese

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

ŗ7 impermissibly insulated from presidential removal, and that they were not
7

appointed in accordance with the Appointments Clause.ŗ ŗ ȱȱRespondents may

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

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

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

ś however, some respondents — the appellants among them — attempted to raise

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

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

8 v. SEC, No. 15ȬCVȬŮ5Ů2 (S.D.N.Y. 2015) (challenging ALJȇs appointment); Hill v.

9 SEC, No. 1:15ȬCVȬ1Ų01 (N.D. Ga. 2015) (challenging ALJȇs appointment and

ŗŖ insulation from removal); Duka v. SEC, No. 15ȬCVȬ35ű (S.D.N.Y. 2015)

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

ŗŘ 15ȬCȬ3 (E.D. Wis. 2015) (challenging ALJȇs insulation from removal).



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

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

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

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

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

ś enjoin the SECȇs administrative proceeding on the ground that, among other

things, the presiding ALJȇs appointment violated the Appointments Clause.Ř Ŝ ȱȱThe

7 SEC moved to dismiss the suit, arguing in part — as it has in cases brought by

8 similarly situated respondents — that the district court lacked subject matter

9 jurisdiction over the lawsuit.ȱȱIn the Commissionȇs view, the administrative

ŗŖ proceeding at issue, once begun, precluded the appellantsȇȱcollateral

ŗŗ Appointments Clause challenge.

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

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

ŗ4 creating a split both within and outside the Southern District.ȱȱCompare Spring

ŗś Hill, No. 15ȬCVȬŮ5Ů2 (S.D.N.Y. June 26, 2015) (bench ruling) (Ramos, J.)

ŗŜ (concluding that the court lacked jurisdiction over a respondentȇs Article II



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

impermissibly insulated from presidential removal.ȱȱThey have not pressed that

argument on appeal, although they purport to haveȱȈpreserve[d]Ȉȱit.ȱȱAppellantsȇȱBr. at

řŗ n.ŗŖ.
9

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

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

ř jurisdiction), and Duka v. SEC, 103 F. Supp. 3d 3Ų2, 3ų2 (S.D.N.Y. 2015) (same); see

4 also Bebo v. SEC, 2015 WL ų053Ůų, at *Ů, 2015 U.S. Dist. LEXIS 25660, at *10 (E.D.

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

Ŝ lacked jurisdiction over a respondentȇs Article II challenge to the ALJ conducting

7 an ongoing administrative proceeding), affȇd, űųų F.3d ű65 (űth Cir. 2015). On

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

9 district court decided in favor of the SEC, dismissing the appellantsȇȱsuit as

ŗŖ implicitly precluded by the Commissionȇs statutory scheme of administrative

ŗŗ and judicial review.ȱȱTilton v. SEC, No. 15ȬCVȬ2Ůű2, 2015 WL Ů006165, at *1, 2015

ŗŘ U.S. Dist. LEXIS Ų5015, at *2Ȭ3 (S.D.N.Y. June 30, 2015).

ŗř The appellants now ask us to reverse the district courtȇs jurisdictional

ŗ4 dismissal of their Appointments Clause claim and rule, on the merits, that the

ŗś ALJ presiding over their administrative proceeding was unconstitutionally

ŗŜ appointed.ȱȱAt the appellantsȇȱrequest, we have stayed the SECȇs proceeding

ŗ7 pending our decision in this appeal.ȱȱWe review the district courtȇs determination
ŗŖ

ŗ of subject matter jurisdiction de novo.ȱȱScelsa v. City Univ. of N.Y., ű6 F.3d 3ű, Ů0

Ř (2d Cir. 1ųų6).

ř DISCUSSION

4 The statutes that establish the SECȇs scheme of administrative and judicial

ś review, including the DoddȬFrank Act and the Investment Advisers Act, do not

Ŝ expressly preclude federal district court jurisdiction over the appellantsȇȱ

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

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

9 To resolve that issue, we must first determine whether it isȱȈfairly

ŗŖ discernibleȈȱfrom theȱȈtext, structure, and purposeȈȱof the securities laws that

ŗŗ Congress intended the SECȇs scheme of administrative and judicial reviewȱȈto

ŗŘ preclude district court jurisdiction.ȈȱȱElgin, 132 S. Ct. at 2132Ȭ33.ȱȱThat initial

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

ŗ4 procedures designed to permit agency expertise to be brought to bear on

ŗś particular problems, those procedures are to be exclusive.ȈȱȱFree Enterprise, 561

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

ŗ7 If we conclude that the SECȇs scheme precludes district court jurisdiction,

ŗ8 we must then decide whether the appellantsȇȱAppointments Clause claim isȱȈof
ŗŗ

ŗ the type Congress intended to be reviewed within th[e] statutory structure.ȈȱȱId.

Ř (alteration in original) (quoting Thunder Basin, 510 U.S. at 20ű).ȱȱThis second

ř inquiry is guided by the Supreme Courtȇs decisions in Thunder Basin, Free

4 Enterprise and Elgin, which instruct us toȱȈpresumeȈȱthat a claim is not confined

ś to administrative channelsȱȈifȱȇa finding of preclusion could foreclose all

Ŝ meaningful judicial reviewȇ; if the suit isȱȇwholly collateral to a statuteȇs review

7 provisionsȇ; and if the claims areȱȇoutside the agencyȇs expertise.ȇȈȱȱId. (quoting

8 Thunder Basin, 510 U.S. at 212Ȭ13).ȱȱWe refer to those considerations as the

9 Thunder Basin factors.

ŗŖ Our resolution of these two inquiries — whether Congress intended the

ŗŗ SECȇs administrative scheme to preclude district court jurisdiction, and whether

ŗŘ the scheme encompasses a respondentȇs Appointments Clause challenge to a

ŗř presiding ALJ — leads us to conclude that the appellantsȇȱlawsuit must be

ŗ4 dismissed.ȱȱTwo of our sister circuits recently reached similar conclusions.ȱȱSee

ŗś Jarkesy v. SEC, Ų03 F.3d ų (D.C. Cir. 2015); Bebo v. SEC, űųų F.3d ű65 (űth Cir.

ŗŜ 2015), cert. denied, 136 S. Ct. 1500 (2016).ȱȱWe agree in large part with their

ŗ7 reasoning.

ŗ8
ŗŘ

ŗ I

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

ř make clear that Congress intended the SECȇs scheme of administrative review to

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

ś laws.ȱȱThe scheme enables the SECȇs Division of Enforcement to bring statutory

Ŝ charges before an administrative tribunal and affords respondents the

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

8 rulings in federal court.ȱȱIn Thunder Basin, the Supreme Court held that a similar

9 scheme precluded federal district court jurisdiction over challenges to an

ŗŖ agencyȇs application of a statute to particular facts.ȱȱ510 U.S. at 20ŲȬ0ų, 216.ȱȱWe

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

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

ŗř means to defend against them.ȱȱSee Jarkesy, Ų03 F.3d at 16Ȭ1ű (analogizing the

ŗ4 SECȇs statutory review scheme to the scheme at issue in Thunder Basin and

ŗś concluding that Congress intendedȱȈto preclude suits [in federal courts] by

respondents in SEC administrative proceedings in the mineȬrun of casesȈ).ř ŗŜ



ř The Hill decision concluded that “[t]here can be noȱȇfairly discernibleȇȱCongressional

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

permits the SEC to initiate enforcement actions in eitherȱȈdistrict court [or]
ŗř

ŗ II

Ř The appellants do not contest that conclusion.ȱȱThey implicitly

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

4 exclusive initial forum for claimsȱȈrequiring the development of a factual record,

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

Ŝ facts.ȈȱȱAppellantsȇȱBr. at Ů.ȱȱThey argue, however, that their Appointments

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

8 to agency practice.ȈȱȱId. at 12.ȱȱThey assert that this type of claim satisfies all three

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

ŗŖ SECȇs administrative review scheme.

ŗŗ The district court held that the appellantsȇȱAppointments Clause claim

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

ŗř meaningful judicial review within the SECȇs administrative scheme, and it was

ŗ4 notȱȈwholly collateralȈȱto the scheme.ȱȱTilton, 2015 WL Ů006165, at *ŮȬ12, 2015 U.S.



administrative proceedings.ȈȱȱHill, ŗŗ4 F. Supp. řd at ŗřŖŜ.ȱȱWe disagree.ȱȱCongressȇs

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

forum should not be exclusive of the other.ȱȱTo the contrary — without such exclusivity,

the SECȇs statutory power to choose would be illusory.ȱȱSee Jarkesy, 8Ŗř F.řd at ŗ7

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

for naught if respondents . . . could countermand the Commissionȇs choice by filing a

court action.Ȉ).
ŗ4

ŗ Dist. LEXIS Ų5015, at *ųȬ3Ů.ȱȱThe district court also suggested, but did not decide,

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

ř factor because it did not fall outside the SECȇs expertise.ȱȱSee id. at 2015 WL

4 Ů006165, at *12Ȭ13, 2015 U.S. Dist. LEXIS Ų5015, at *3ŮȬ36.ȱȱDespite leaving a

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

Ŝ SECȇs administrative review scheme to encompass the appellantsȇȱAppointments

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

8 We agree with that conclusion.ȱȱThe appellantsȇȱAppointments Clause

9 claim will be subject to meaningful judicial review through administrative

ŗŖ channels, a fact that weighs strongly against district court jurisdiction.ȱȱSee Bebo,

ŗŗ űųų F.3d at űűŮȬű5 (characterizing the availability of meaningful judicial review as

ŗŘ theȱȈmost importantȈȱThunder Basin factor).ȱȱȱAnd although the other two Thunder

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

ŗ4 demonstrate that the Appointments Clause claim falls outside the scope of the

ŗś SECȇs overarching scheme.

ŗŜ A. The Availability of Meaningful Judicial Review

ŗ7 Turning in more detail to the application of the Thunder Basin factors, we

ŗ8 first consider whether the SECȇs administrative scheme assures that the
ŗś

ŗ appellants have an opportunity for meaningful judicial review of their

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

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

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

ś ȈmeaningfulȈȱbecause it could not provide an adequate remedy for the SECȇs

Ŝ alleged violation of the Appointments Clause.ȱȱThat is so, in the appellantsȇȱview,

7 because their exposure to the ongoing proceeding — as distinct from any adverse

8 ruling that might result — would itself constitute a grave constitutional injury

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

ŗŖ position, the appellants cite the Supreme Courtȇs decision in Free Enterprise and

ŗŗ our decadesȬold decision in Touche Ross & Co. v. SEC, 60ų F.2d 5ű0 (2d Cir. 1ųűų).

ŗŘ The appellantsȇȱargument is not without force, as demonstrated by its

ŗř success in several district courts.ȱȱSee Hill, 2015 WL Ů30ű0ŲŲ, at *6ȬŲ, 2015 U.S.

ŗ4 Dist. LEXIS űŮŲ22, at *1űȬ1ų; Duka, 103 F. Supp. 3d 3Ų2, 3ų0Ȭų1.ȱȱUltimately,

ŗś however, we are not convinced.ȱȱIn our view, the appellantsȇȱargument

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

ŗ7 established approach to analogous jurisdictional disputes in federal courts.

ŗ8
ŗŜ

ŗ i. Free Enterprise

Ř Free Enterprise dealt with the Public Company Accounting Oversight Board

ř (theȱȈPCAOBȈ), an entity created under the SarbanesȬOxley Act of 2002, Pub. L.

4 No. 10űȬ20Ů, 116 Stat. űŮ5, to supervise the practices of accounting firms.ȱȱThe

ś PCAOBȇs five members were to be appointed by the SEC, and some — but not

Ŝ all — of the PCAOBȇs regulatory actions required SEC approval in the form of a

7 final Commission order.ȱȱThe SarbanesȬOxley Act, like the Investment Advisers

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

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

ŗŖ review of Board actions that did not require SEC approval.ȱȱSee Free Enterprise,

ŗŗ 561 U.S. at ŮŲųȬų0.

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

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

ŗ4 auditing procedures, and [begun] a formal investigation.ȈȱȱId. at ŮŲű.ȱȱThose

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

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

ŗ7 ŮŲųȬų0.ȱȱThe accounting firm then filed a lawsuit in federal district court that

ŗ8 sought to void the PCAOBȇs actions on Article II grounds.ȱȱThe firm argued, as
ŗ7

ŗ the appellants do here, that the SEC had violated the Appointments Clause when

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

ř constitutionally infirm.ȱȱId. at ŮŲűȬŲŲ.

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

ś over the accounting firmȇs lawsuit, despite the availability of administrative

Ŝ review regarding some other PCAOB actions.ȱȱId. at Ůų0Ȭų1.ȱȱThe Court reasoned,

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

8 review meaningfully accessible to the firm.ȱȱBecause the PCAOBȇs regulatory

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

ŗŖ could have raised its constitutional objection in federal court through

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

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

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

ŗ4 concluded that meaningful judicial review was not otherwise available to the

ŗś accounting firm.ȱȱId. at Ůų0.

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

ŗ7 Article II challenge to an administrative tribunal is not meaningful if conducted

ŗ8 after the tribunalȇs proceeding concludes, because of the inherent remedial
ŗ8

ŗ limitations of postȬproceeding review.ȱȱSee AppellantsȇȱBr. at 13, 1űȬ1Ų.ȱȱWe

Ř disagree.ȱȱThe Free Enterprise Courtȇs analysis turned on the accessibility of postȬ

ř proceeding review by a federal court of appeals — not on whether such review,

4 if accessible, could adequately remedy the PCAOBȇs alleged violation of Article

ś II.ȱȱFree Enterprise therefore lends no support to the appellantsȇȱcharacterization of

Ŝ their prospective constitutional injury as irremediable after the conclusion of

7 their administrative proceeding.

8 ii. Touche Ross

9 The appellantsȇȱreliance on Touche Ross is similarly unavailing.ȱȱThere, the

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

ŗŗ firm and several of its partners (collectively,ȱȈTouche RossȈ) under Rule 2(e) of

ŗŘ the Commissionȇs Rules of Practice, which related to the suspension and

ŗř disbarment of persons practicing before the Commissioner.ȱȱTouche Ross

ŗ4 immediately filed a lawsuit in federal court seeking to enjoin the proceeding on

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

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

ŗ7 the planned administrative proceeding would not irreparably harm Touche Ross,

ŗ8 which meant that Touche Ross was required to exhaust the administrative
ŗ9

ŗ review process before raising its claims in federal court.ȱȱSee Touche, Ross & Co. v.

Ř SEC, No. ű6ȬCVȬŮŮŲų, 1ųűŲ WL 10ŲŮ, at *ŮȬ5, űȬų, 1ųűŲ U.S. Dist. LEXIS 1űųűŮ, *ųȬ

ř 12, 1ŲȬ1ų, 23 (S.D.N.Y. Apr. 2Ů, 1ųűŲ), affȇd sub nom. Touche Ross & Co. v. SEC, 60ų

4 F.2d 5ű0 (2d Cir. 1ųűų).

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

Ŝ Rossȇs lawsuit.ȱȱThe panel acknowledged that federal challenges to

7 administrative proceedings atȱȈintermediate stagesȈȱare generally disfavored,

8 particularly where — as in the case before it — the agency had not actedȱȈplainly

9 beyond its jurisdiction.ȈȱȱTouche Ross, 60ų F.2d at 5ű6.ȱȱNonetheless, the Court

ŗŖ permitted Touche Rossȇs lawsuit to proceed on the ground that its constitutional

ŗŗ claim would not benefit from the SECȇsȱȈexpertise,ȈȱȈdiscretionȈȱor factfinding,

ŗŘ and was thus already ripe for federal adjudication.ȱȱId. at 5űű.

ŗř The Courtȇs decision did not suggest that a federal court would be unable

ŗ4 to vindicate Touche Rossȇs challenge to Rule 2(e) after the SECȇs proceeding

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

ŗŜ wait for postȬproceeding review because the administrative tribunal would not



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

confidence in the capacity of postȬproceeding judicial review toȱȈcorrect the occasional

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

Ross, ŜŖ9 F.Řd at ś8ř (Kaufman, C.J., concurring).
ŘŖ

ŗ bring its expertise to bear in a way that would aid a federal courtȇs eventual

Ř adjudication.ȱȱThat proposition does not support the appellantsȇȱcontention here

ř that postȬproceeding judicial review of their Appointments Clause challenge will

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

ś factor:ȱȱwhether a claim falls outside an agencyȇs expertise.ȱȱAnd its reasoning on

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

7 iii. Conflict with Established Practice Regarding Analogous

8 Challenges to a Tribunalȇs Constitutional Legitimacy

9

ŗŖ The appellantsȇȱargument that postȬproceeding judicial review of their

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

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

ŗř federal court regarding analogous challenges to a tribunalȇs constitutional

ŗ4 legitimacy.ȱȱAs the district court explained, litigants who unsuccessfully

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

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

ŗ7 Germain v. Connecticut Natȇl Bank, ų30 F.2d 103Ų, 10Ů0 (2d Cir. 1ųų1) (concluding

ŗ8 that a defendant who unsuccessfully challenged the plaintiffȇs right to jury trial

ŗ9 must await the juryȇs verdict before appealing); DȇIppolito v. Am. Oil Co., Ů01 F.2d

ŘŖ ű6Ů, ű6ŮȬ65 (2d Cir. 1ų6Ų) (per curiam) (deciding that a defendant who
Řŗ

ŗ unsuccessfully challenged the transfer of his case to another district must await

Ř the other district courtȇsȱȈfinal judgmentȈȱbefore appealing); see also In re alȬ

ř Nashiri, űų1 F.3d ű1, ű5, Ų0 (D.C. Cir. 2015) (concluding, in denying a petition for

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

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

Ŝ Reviewȇs presiding judges must await the judgesȇȱruling before appealing in

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

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

ultimately prove constitutionally infirm.ś 9 ȱȱSubsequent judicial review cannot

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

ŗŗ a new proceeding.ȱȱThat postȬproceeding relief, although imperfect, suffices to

ŗŘ vindicate the litigantȇs constitutional claim.ȱȱSee Germain, ų30 F.2d at 10Ů0

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

ŗ4 Ȉremand for a nonjury trial, thus vindicating the [objecting defendantȇs] rightȈ);

ŗś see also In re alȬNashiri, űų1 F.3d at Ų0 (ȈVacatur [premised on the defendantȇs

ŗŜ Appointment Clause claim], even at the appealȬfromȬfinalȬjudgment stage,



śȱȱȱCf. 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 (ŗ9ŘŜ)

(musing that becoming a party to a lawsuit should beȱȈdread[ed] . . . beyond almost

anything else short of sickness and deathȈ).
ŘŘ

ŗ would fully vindicate [the defendantȇs] rights and the Presidentȇs and the

Ř Senateȇs constitutional powers.Ȉȱ(internal quotation marks and alterations

ř omitted)).ȱȱThe litigantȇs financial and emotional costs in litigating the initial

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

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

Ŝ courtȇs jurisdiction.

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

8 presented to us here in FTC v. Standard Oil Co. of California, ŮŮų U.S. 232 (1ųŲ0).ȱȱ

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

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

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

ŗŘ initiated it without the requisite evidentiary basis.ȱȱId. at 235.ȱȱAs a general

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

ŗ4 remedies before filing a related action in federal court, unless the respondent

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

ŗŜ Bannercraft Clothing Co., Ů15 U.S. 1, 2Ů (1ųűŮ).ȱȱThe oil company argued that it had

ŗ7 exhausted all relevant remedies before filing its federal lawsuit.ȱȱStandard Oil, ŮŮų

ŗ8 U.S. at 2Ů3.ȱȱIn the alternative, however, the company contended that any failure
Řř

ŗ to exhaust should be excused because the company would suffer irreparable

Ř injury in the form ofȱȈexpense and disruptionȈȱif it were compelled to complete

ř the administrative proceeding before reaching federal court.ȱȱId. at 2ŮŮ.ȱȱThat

4 argument closely resembles the appellantsȇȱclaim here that postȬproceeding

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

Ŝ enduring the SECȇs administrative adjudication.

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

8 meaningfully review the oil companyȇs claim after the administrative proceeding

9 ended, and therefore ordered the companyȇs lawsuit dismissed on jurisdictional

ŗŖ grounds.ȱȱThe Court acknowledged that the company would endure

ŗŗ ȈsubstantialȈȱexpense and disruption before the administrative proceeding

ŗŘ concluded.ȱȱId.ȱȱBut it deemed that hardship to beȱȈpart of the social burden of

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

ŗ4 immediate judicial review.ȱȱId. at 2ŮŮȬŮ5.ȱȱAs the D.C. Circuit subsequently

ŗś explained, whereȱȈtheȱȇinjuryȇȱinflicted on the party seeking review is the burden

ŗŜ of going through an agency proceeding,Ȉȱthe Supreme Courtȇs decision in

ŗ7 Standard OilȱȈteaches that the party must patiently await the denouement of
Ř4

ŗ proceedings within the Article II branch.ȈȱȱUSAA Fed. Sav. Bank v. McLaughlin,

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

ř In other decisions, the Supreme Court has concluded that postȬproceeding

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

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

Ŝ with the dispute resolution process.ȱȱSee, e.g., McNary v. Haitian Refugee Ctr., Inc.,

7 ŮųŲ U.S. Ůűų, Ůų6Ȭųű, Ůųų (1ųų1) (permitting a class of undocumented aliens to

8 raise a dueȬprocess challenge to INS proceedings in district court, rather than

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

ŗŖ channels, partly because most of the aliens couldȱȈensure themselves review in

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

ŗŘ deportation,ȈȱaȱȈprice . . . tantamount to a complete denial of judicial review for

ŗř most undocumented aliensȈ).ȱȱBut the appellants have identified no such

ŗ4 additional, irremediable harm here.ȱȱThe only prospective injury that they

ŗś describe isȱȈbeing subjected to an unconstitutional adjudicative procedure,Ȉȱwith

ŗŜ the attendantȱȈembarrassment, expense,ȱȱ. . . ordeal . . . [and] state of anxiety and

ŗ7 insecurity.ȈȱȱAppellantsȇȱBr. at 1ų, 21 (alterations in original and internal

ŗ8 quotation marks omitted).ȱȱAs Standard Oil and other decisions discussed above
Řś

ŗ indicate, the prospect of such harm alone does not render postȬproceeding

Ř judicial review less than meaningful.ȱȱCf. In re alȬNashiri, űų1 F.3d at űųȬŲ0

ř (explaining that the defendantȇsȱȈabstract concernȈȱthat his presiding judges

4 violatedȱȈthe separation of powersȈȱbecause they had been improperly appointed

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

Ŝ intervention in ongoing administrative proceedings).

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

8 judicial review of their Appointments Clause claim through administrative

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

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

ŗŗ the pending enforcement action has run its courseȈȱbyȱȈrais[ing] her objections,Ȉȱ

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

ŗř appeals established under Article IIIȈ); see also Jarkesy, Ų03 F.3d at 2ű (ȈEven

ŗ4 assuming [the respondent] is right that Congress has unconstitutionally

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

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

ŗ7 avoid an administrative proceeding at all.ȱȱThus, his rights can be vindicated by a
ŘŜ

ŗ reversal of the Commissionȇs final order if the court of appeals grants his petition

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

ř B. Wholly Collateral

4 We next consider whether the appellantsȇȱAppointments Clause claim is

ś Ȉwholly collateralȈȱto the SECȇs administrative scheme.ȱȱThe Supreme Court has

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

7 that a claim is not wholly collateral if it serves as theȱȈvehicle by whichȈȱa party

8 seeks to prevail in an administrative proceeding.ȱȱSee 132 S. Ct. at 213ųȬŮ0.ȱȱIn the

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

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

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

ŗŘ merits dispute that the proceeding was commenced to resolve.ȱȱSee Hill, 11Ů F.

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

ŗ4 Ȉwholly collateralȈȱto the ongoing administrative proceeding becauseȱȈ[w]hat

ŗś occurs at the . . . proceeding and the SECȇs conduct there is irrelevant toȈȱthe

ŗŜ constitutional challenge); Duka, 103 F. Supp. 3d at 3ų1 (concluding that the

ŗ7 respondentȇs Article II challenge wasȱȈwholly collateralȈȱto the ongoing

ŗ8 administrative proceeding because the challenge did notȱȈattack any order that
Ř7

ŗ may be issued . . . relating to the outcome of the SEC actionȈȱ(internal quotation

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

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

4 with, an administrative proceeding — regardless of the claimȇs substantive

ś connection to the initial merits dispute in the proceeding.ȱȱSee Jarkesy, Ų03 F.3d at

Ŝ 23 (concluding that claims arisingȱȈfrom actions the Commission took in the

7 course of [its administrative] schemeȈȱwere notȱȈwholly collateralȈ); Bebo, 2015

8 WL ų053Ůų, at *2ȬŮ, 2015 U.S. Dist. LEXIS 25660, at *ŮȬ10 (implicitly concluding

9 that the respondentȇs Article II challenge did not qualify as wholly collateral to

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

ŗŗ affirmative defense).ȱȱSee generally Bebo, űųų F.3d at űű3ȬűŮ (comparing these two

ŗŘ lines of decisions).

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

ŗ4 noting that the appellantsȇȱAppointments Clause claim is substantively

ŗś Ȉunrelated to the securities violations underlying the administrative proceeding,Ȉȱ

ŗŜ such that resolving the challengeȱȈcannot reasonably be characterized as the

ŗ7 ȇregularȇȱorȱȇroutineȇȱbusiness of SEC administrative proceedings.Ȉȱ Tilton, 2015

ŗ8 WL Ů006165, at *11, 2015 U.S. Dist. LEXIS Ų5015, at *31Ȭ32 (quoting, with minor
Ř8

ŗ alterations, Elgin, 132 S. Ct. at 21Ů0).ȱȱNevertheless, the court decided that the

Ř claim did not qualify asȱȈwholly collateralȈȱbecause it was procedurally

ř intertwined with the SECȇs ongoing proceeding, where it functioned as an

4 affirmative defense.ȱȱId. at 2015 WL Ů006165, at *12, 2015 U.S. Dist. LEXIS Ų5015,

ś at *32Ȭ3Ů.

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

7 with the district courtȇs assessment.ȱȱThe SEC chose to enforce the Investment

8 Advisers Act against the appellants by initiating an administrative proceeding

9 and appointing an ALJ to act as the hearing officer.ȱȱThe appellantsȇȱ

ŗŖ Appointments Clause claim arose directly from that enforcement action and

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

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

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

ŗ4 that the claim is wholly collateral to the SECȇs administrative scheme more

ŗś broadly.ȱȱAs the district court recognized, it isȱȈdifficult to see how [the

ŗŜ Appointments Clause claim] can still be consideredȱȇcollateral to any

ŗ7 Commission orders or rules from which review might be sought,ȇȱsince the ALJ

ŗ8 and the Commission will, one way or another, rule on those claims and it will be
Ř9

ŗ the Commissionȇs order that [the appellants] will appeal.ȈȱȱTilton, 2015 WL

Ř Ů006165, at *12, 2015 U.S. Dist. LEXIS Ų5015, at *32 (citation and some internal

ř quotation marks omitted) (quoting Free Enterprise, 561 U.S. at Ůų0); see also Jarkesy,

4 Ų03 F.3d at 23 (reaching a similar conclusion).ȱȱPut another way, the

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

Ŝ Investment Advisers Act charges, is aȱȈvehicle by whichȈȱthe appellants seek to

7 prevail in the proceeding.ȱȱElgin, 132 S. Ct. at 213ų.ȱȱThe claim identifies a

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

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

ŗŖ construction.

ŗŗ The dissent argues that the appellantsȇȱAppointments Clause claim is as

ŗŘ collateral to the SECȇs administrative scheme as the accounting firmȇs

ŗř Appointments Clause claim was in Free Enterprise.ȱȱSee ante at 16Ȭ1ű.ȱȱWe are not

ŗ4 persuaded by the analogy.ȱȱThe Supreme Courtȇs jurisdictional conclusion in Free

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

ŗŜ procedural link between constitutional claim and administrative proceeding that

ŗ7 exists here.ȱȱThe accounting firm objected to actions that the PCAOB had taken

ŗ8 entirely outside the scope of the SECȇs scheme of administrative and judicial
řŖ

ŗ review — actions that could not be the subject ofȱȈany Commission orders . . .

Ř from which review might be sought.ȈȱȱFree Enterprise, 561 U.S. at Ůų0.ȱȱThe firm

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

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

ś proceeding that would provide for an administrative adjudication and

subsequent judicial review.Ŝ Ŝ ȱȱHere, by contrast, the appellantsȇȱAppointments

7 Clause claim targets an aspect of an ongoing administrative proceeding.ȱȱWe

8 think that distinction significantly alters theȱȈwholly collateralȈȱanalysis, such

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

ŗŖ this case.ȱȱSee Jarkesy, Ų03 F.3d at 23 (noting that a constitutional challenge might

ŗŗ qualify as collateral if itȱȈwere filed in court before the initiation of any

ŗŘ administrative proceeding,Ȉȱas in Free Enterprise, but concluding that



Ŝ In explaining why the accounting firmȇs Appointments Clause claim qualified as

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

Ȉobject[ion] to the [PCAOBȇs] existence.ȈȱȱśŜŗ U.S. at 49Ŗ.ȱȱLike the D.C. Circuit, we do

not read that languageȱȈto define a new category of collateral claims that fall outside an

otherwise exclusive administrative scheme.ȈȱȱJarkesy, 8Ŗř F.řd at Ř4.ȱȱIn our view, the

Supreme Court classified the accounting firmȇs claim as wholly collateral because the

PCAOBȇs disputed actions could not be reviewed by the Commission, which meant that

the firmȇs Appointments Clause challenge to those actions fell entirely outside the scope

of the administrative scheme and could not be resolved by a CommissionȱȈorder[] . . .

from which [judicial] review might be sought.ȈȱȱFree Enterprise, śŜŗ U.S. at 49Ŗ.
řŗ

ŗ constitutional challenges were not collateral when raised in response toȱȈmultiple

Ř aspects of [an] ongoing proceedingȈ).

ř C. Agency Expertise

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

ś appellantsȇȱAppointments Clause claim falls outside the SECȇs expertise.ȱȱThis is a

Ŝ close question.ȱȱAs an initial matter, the Supreme Courtȇs decision in Free

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

8 analyzing the constitutional sufficiency of its appointments.ȱȱThere, the Court

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

ŗŖ fellȱȈoutside the Commissionȇs competence and expertiseȈȱbecause the claim

ŗŗ raised onlyȱȈstandard questions of administrative law,Ȉȱwhich were unrelated to

ŗŘ anyȱȈstatutoryȈȱorȱȈfactȬbound inquiriesȈȱthat the SEC might be singularly

ŗř qualified to perform.ȱȱ561 U.S. at Ůų1.

ŗ4 Under Touche Ross, that conclusion might end our analysis of agency

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

ŗŜ ongoing SEC administrative proceeding in federal district court solely because

ŗ7 the legal substance of the challenge fell outside the administrative tribunalȇs

ŗ8 expertise and could not be usefully developed through its factfinding.ȱȱ60ų F.2d
řŘ

ŗ at 5űű.ȱȱBut the Supreme Court has since adopted a broader conception of agency

Ř expertise in the jurisdictional context.ȱȱElgin, in particular, emphasizes that an

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

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

ś See Jarkesy, Ų03 F.3d at 2ŲȬ2ų (noting thatȱȈElgin . . . clarified . . . that an agencyȇs

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

7 determinativeȈȱof whether the agency can bring its expertise to bear).

8 In Elgin, federal employees who allegedly had been discharged for

9 violating a statutory command sought reinstatement by challenging the

ŗŖ constitutionality of the statute.ȱȱCongress had previously created an

ŗŗ administrative process to adjudicate specified personnel decisions regarding

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

ŗř Protection Board (ȈMSPBȈ) and subject to review in the Federal Circuit.ȱȱBefore

ŗ4 completing that administrative process, the employees attempted to raise their

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

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

ŗ7 MSPBȇs expertise because the MSPB disclaimed authority to determine the

ŗ8 constitutionality of a federal statute.ȱȱElgin, 132 S. Ct. at 2130Ȭ31, 21Ů0.
řř

ŗ The Supreme Court disagreed.ȱȱAlthough the MSPB had indeed disclaimed

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

ř several ways in which the agency mightȱȈotherwiseȈȱbring its expertiseȱȈto bearȈȱ

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

ś Ȉpreliminary questions unique to the employment contextȈȱthat mightȱȈobviate

Ŝ the need to address the constitutional challenge.ȈȱȱId. at 21Ů0.ȱȱSecond,ȱȈthe

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

8 statutory interpretation could alleviate constitutional concerns.ȈȱȱId.ȱȱAnd third,

9 Ȉan employeeȇs appeal [could] involve other statutory or constitutional claims

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

ŗŗ federal statute,Ȉȱwhose resolutionȱȈin the employeeȇs favor might fully dispose of

ŗŘ the case.ȈȱȱId.ȱȱIn light of those potential applications of agency expertise to other

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

ŗ4 Ȉno reason to conclude that Congress intended to exemptȈȱthe employeesȇȱ

ŗś constitutional challengeȱȈfrom exclusive review before the MSPB and the Federal

ŗŜ Circuit.ȈȱȱId.

ŗ7 Applying Elginȇs approach here, we think that the SEC might bring its

ŗ8 expertise to bear on the appellantsȇȱproceeding by resolving accompanying
ř4

ŗ statutory claims that itȱȈroutinely considers,Ȉȱand whichȱȈmight fully dispose of

Ř the caseȈȱin the appellantsȇȱfavor.ȱȱ132 S. Ct. at 21Ů0.ȱȱIn particular, the

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

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

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

Ŝ issues in the appellantsȇȱproceeding would improperly skip over their

7 Appointments Clause claim, which raises aȱȈthresholdȈȱissue that logically

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

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

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

ŗŗ ȈthresholdȈȱchallenge to its administrative proceeding as a whole soon after the

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

ŗř jurisdiction over that challenge, in part because it feared that the oil companyȇs

ŗ4 victory on other grounds in the administrative proceeding would evade, and

ŗś improperlyȱȈmoot,Ȉȱthe threshold issue.ȱȱStandard Oil Co. of Cal. v. FTC, 5ų6 F.2d

ŗŜ 13Ų1, 13Ųű (ųth Cir. 1ųűų), revȇd, ŮŮų U.S. 232 (1ųŲ0).ȱȱThe Supreme Court

ŗ7 expressly rejected that rationale and reversed, explaining:

ŗ8 [O]ne of the principal reasons to await the termination of agency

ŗ9 proceedings is to obviate all occasion for judicial review.ȱȱThus, the
řś

ŗ possibility that [the oil companyȇs] challenge may be mooted in

Ř adjudication warrants the requirement that [the company] pursue

ř adjudication, not shortcut it.

4

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

Ŝ omitted).ȱȱIn light of that passage, we are inclined to read Elginȇs mention of

7 Ȉother statutory or constitutional claimsȈȱthat mightȱȈfully dispose of the case,Ȉȱ

8 132 S. Ct. at 21Ů0, to include the Investment Advisers Act charges here.

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

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

ŗŗ established federal practice regarding analogous disputes, that the appellants

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

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

ŗ4 grounds only if the order is adverse.ȱȱBy the same logic, a favorable Commission

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

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

ŗ7 review.ȱȱIt follows, we think, that the Commission may bring its expertise to bear

ŗ8 in a manner potentially relevant to the constitutional issue by resolving the

ŗ9 statutory charges against the appellants.ȱȱFor that reason, the final Thunder Basin

ŘŖ factor lends minimal support to the appellantsȇȱjurisdictional argument.ȱȱSee
řŜ

ŗ Jarkesy, Ų03 F.3d at 2ų (concluding thatȱȈthe Commissionȇs expertise can otherwise

Ř be brought to bear on the issues in [the respondentȇs] proceedingȈȱbecauseȱȈthe

ř agency could moot the need to resolveȈȱthe respondentȇs constitutional claims,

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

ś that he did not commit the securitiesȬlaw violations of which he stands accusedȈȱ

Ŝ (internal quotation marks omitted)); Bebo, űųų F.3d at űű3 (ȈElgin explained that

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

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

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

ŗŖ CONCLUSION

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

ŗŘ Congress intended the appellantsȇȱAppointments Clause claimȱȈto be reviewed

ŗř withinȈȱthe SECȇs exclusiveȱȈstatutory structure.ȈȱȱFree Enterprise, 561 U.S. at ŮŲų

ŗ4 (quoting Thunder Basin, 510 U.S. at 20ű).ȱȱTheȱȈthresholdȈȱnature of the claim does

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

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

ŗ7 agency proceedings.ȱȱTo the contrary:ȱȱȈMany respondents in SEC proceedings

ŗ8 join substantive defenses to their securities charges together with challenges to
ř7

ŗ the Commissionȇs actions or authority.ȱȱIt makes good sense to consolidate all of

Ř each respondentȇs issues before one court for review, and only after an adverse

ř Commission order makes that review necessary.ȈȱȱJarkesy, Ų03 F.3d at 2ųȬ30.ȱȱWe

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

ś Circuits in Bebo and Jarkesy, that the appellants must await a final Commission

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

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

8 by the SEC is VACATED.
Tilton 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

1
so 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,

2
facially 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.

3
1 DRONEY, Circuit Judge, dissenting:

2 This case is nearly indistinguishable from Free Enterprise Fund

3 v. Public Co. Accounting Oversight Board, 561 U.S. 477 (2010).ȱȱIt differs

4 in only one significant way: administrative proceedings have begun

5 against the appellants.ȱȱThe majority concludes that this distinction

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

7 ongoing proceedings means that the three factors identified by the

8 Supreme Court in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994)

9 for determining whether Congress intended to limit jurisdiction of

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

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

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

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

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

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

16 those two factors are always satisfied.ȱ ȱ The majority bases its
2

1 understanding of this substantiveȬtoȬprocedural switch in those two

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

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

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

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

6 that those two Thunder Basin factors must be analyzed substantively

7 to determine their weight in each particular case.ȱȱȱ

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

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

10 Enterprise, and the application of the remaining factor does not

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

12 subject matter jurisdiction to consider the constitutional challenge.ȱȱȱ

13 I. The Thunder Basin Factors

14 The Supreme Court in Thunder Basin identified the following

15 three factors as helpful in determining whether a statute which

16 provides for administrative review of agency action was intended by
3

1 Congress to preclude district court jurisdiction over claims before a

2 final administrative determination: whether the claims are “wholly

3 collateral to a statuteȇs review provisions,” whether they are

4 “outside the agencyȇs expertise,” and whether “a finding of

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

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

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

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

administrative body.” Id. at 207, 212–13.1 9 ȱȱȱ

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

11 third factor, “meaningful judicial review,” but it is the majority’s



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 between asking (1) whether Congress intended to 

preclude district court jurisdiction 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 relevant 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 Congress 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

1 application of the two other factors—“wholly collateral” and

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

3 There are three cases in which the Supreme Court has

4 reviewed the application of these three factors: Thunder Basin, Free

5 Enterprise, and Elgin.ȱȱȱȱIn each, the Supreme Court’s analysis of the

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

7 focused on the substance of the claims.

8 In Thunder Basin, a nonȬunion mine owner filed an action in

9 district court challenging its employees’ designation of certain union

10 representatives to be involved in safety inspections under the

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

12 The Mine Act provided for administrative hearings and decisions

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

14 Appeals.ȱȱRespondents contended that this “comprehensive review

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

16 intended that the safety claim be exclusively reviewed in the
5

1 “statutory structure,” id. at 212, and that there was no subject matter

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

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

4 be brought in an administrative proceeding, the Supreme Court

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

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

7 with no mention of the procedural aspects of the case.ȱȱId. at 213–14

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

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

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

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

12 the agency has “extensive experience interpreting the walkȬaround

13 rights” that were at issue).ȱȱ

14 The Supreme Court engaged in the same sort of substantive

15 analysis in Free Enterprise.ȱȱIn Free Enterprise, an accounting firm filed

16 an action in the district court which challenged a report issued by
6

1 the newly created Public Company Accounting Oversight Board

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

3 the SarbanesȬOxley Act of 2002 and its members were appointed by

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

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

6 utilize the statutory administrative review proceedings available

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

8 firm challenged the appointments of the PCAOB members by the

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

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

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

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

13 accounting firm’s claim.

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

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

16 substance of the constitutional claim as it related to agency expertise,
7

1 561 U.S. at 491 (“[T]he statutory questions involved do not require

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

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

4 terms of the substantive content of the challenge, id. at 490.

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

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

7 collateral to any Commission orders or rules from which review

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

9 of the claim.

10 II. Elgin v. Department of Treasury

11 The third case in which the Supreme Court addressed the

12 Thunder Basin factors was Elgin v. Department of Treasury, 132 S. Ct.

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

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

15 agency’s expertise” factors, but I disagree.ȱȱI believe the outcome in
8

1 Elgin was not produced by varying those factors, but by the different

2 type of constitutional claim presented.ȱȱ

3 In Elgin, the plaintiffs challenged their dismissal from federal

4 employment for failure to comply with the Military Selective Service

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

6 available to them the right to challenge their dismissals through

7 administrative hearings before the Merit Systems Protection Board

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

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

10 arguments were that the Selective Service Act discriminates on the

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

12 attainder.ȱȱId. at 2131.ȱȱNotably, the plaintiffs made no challenge to

13 the available administrative process; they argued only that the

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

15 administered by the MSPB—was unconstitutional.ȱȱUnsurprisingly,



2

 One of the plaintiffs did pursue remedies through 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

1 then, the Supreme Court’s analysis of the “wholly collateral” and

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

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

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

5 Enterprise.

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

7 factor rejected the plaintiffs’ argument that their constitutional

8 claims had “nothing to do” with the “dayȬtoȬday personnel actions

9 adjudicated by the MSPB.”ȱȱId. at 2139.ȱȱThe Supreme Court pointed

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

11 statutes is “precisely the type of personnel action regularly

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

13 Service Reform Act (“CSRA”)] scheme.”ȱȱId. at 2140.ȱȱWhether or not

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

15 in the words of the Supreme Court—“a challenge to CSRAȬcovered
10

1 employment action brought by CSRAȬcovered employees requesting

2 relief that the CSRA routinely affords.”ȱȱId.ȱȱ

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

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

5 procedurally intertwined with, an administrative proceeding,”

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

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

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

9 them, id. at 2139.ȱȱHowever, that overstates what the Supreme Court

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

11 meant nothing more than that the plaintiffs were challenging actions

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

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

14 no challenge that would end ongoing proceedings could be

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

16 interpretation would swallow the rule, for there would no longer be
11

1 any need to evaluate the substance of a claim as long as the claim

2 could somehow serve to end administrative proceedings in a

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

4 Enterprise (and, in fact, with Elgin, which looked carefully at the

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

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

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

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

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

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

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

12 constitutional claim has no relation to the securities laws entrusted

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

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

15 considered “wholly collateral” to the administrative scheme.
12

1 As for the “outside the agency’s expertise” factor, the Elgin

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

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

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

5 constitutional challenge.”ȱȱId. at 2140.ȱȱThis described the situation in

6 Elgin, where before deciding that the Selective Service Act was

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

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

9 constructive discharge occurred as well as whether additional

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

11 fully dispose of the case.”ȱȱId.ȱȱThose decisions could be informed by

12 its agency expertise in the area of employment law. Id.ȱȱIn such a

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

14 on the constitutional claim.ȱ ȱId. (quoting Thunder Basin, 510 U.S. at

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

16 jurisdiction or the appropriate composition of an adjudicatory
13

1 body—such as the Appointments Clause challenge presented in this

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

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

4 to address the constitutional challenge.”ȱȱ

5 The majority nonetheless concludes that the Elgin Court

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

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

8 accompanying, potentially dispositive issues in the same

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

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

11 statutory or constitutional claims that the MSPB routinely considers,

12 in addition to a constitutional challenge to a federal statute.”ȱȱElgin,

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

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

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

16 Majority Op. at 33Ȭ34.
14

1 That interpretation does not comport with the language of

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

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

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

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

6 interpretation be consistent with the facts underlying and the setting

7 of Elgin, where the potentially dispositive issue was clearly a

8 “preliminary” or “threshold question.”

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

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

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

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

13 a plaintiff may prevail on the merits.ȱȱThis would turn a substantive



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 questions,” not additional pathways to preclusion. 

See Elgin, 132 S. Ct. at 2140 (“But petitioners overlook 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 “that 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

1 factor into a purely procedural—and binary—one, which is

2 inconsistent with the description of the factor in Thunder Basin, Free

3 Enterprise, or Elgin itself.

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

5 one must conclude that the Supreme Court intended to eliminate

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

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

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

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

10 seems to believe is now unnecessary.ȱȱȱ

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

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

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

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

15 review to an administrative body.” Thunder Basin, 510 U.S. at 207.ȱȱ



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, the implication of the majority’s reading of Elgin is likely to be even greater 

than this. 
16

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

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

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

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

5 Congress intended to be reviewed within the CSRA scheme.”ȱȱ132 S.

6 Ct. at 2136.ȱȱȱ

7 I would apply the three Thunder Basin factors for divining

8 legislative intent faithful to Thunder Basin, Free Enterprise and Elgin.

9 III. Application of the Thunder Basin Factors

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

11 The Supreme Court in Free Enterprise concluded that the

12 constitutional claim there was “wholly collateral” to any

13 administrative proceedings that might be brought against the

14 plaintiffs.ȱȱThat challenge was essentially the same as the challenge

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

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

17 explained that the plaintiffs’ “general challenge to the Board is
17

1 ‘collateral’ to any Commission orders or rules from which review

2 might be sought” because they “object to the Board’s existence, not to

3 any of its auditing standards.”ȱ ȱ Free Enterprise, 561 U.S. at 490

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

5 existence of SEC administrative proceedings conducted by ALJs

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

7 Appointments Clause.ȱȱȱ

8 The majority finds that this factor weighs against jurisdiction

9 based only on its interpretation of Elgin, which I have addressed

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

11 between the Appointments Clause challenge in Free Enterprise and

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

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

14 weighs strongly in favor of jurisdiction.

15 B. “Outside the Agency’s Expertise”

16 In Free Enterprise, the Supreme Court explained that the

17 Appointments Clause claim relating to the appointment of the
18

1 PCAOB by the SEC was “outside the Commission’s competence and

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

3 no “technical considerations of agency policy.”ȱ ȱId. at 491 (internal

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

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

6 determination of the appointment authority for the PCAOB

7 members in Free Enterprise, the SEC has no particular expertise in

8 determining whether the system of appointing its Administrative

9 Law Judges comports with the Appointments Clause of the

10 Constitution.ȱȱȱ

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

12 only that this Thunder Basin factor has been changed by Elgin.ȱȱFor

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

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

15 SEC in Free Enterprise.ȱ ȱ I would find that this factor also weighs

16 strongly in favor of jurisdiction.
19

1 C. “Meaningful Judicial Review”

2 The “meaningful judicial review” factor presents the only

3 significant difference between the present case and Free Enterprise.ȱȱI

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

5 preclusion because a subsequent appeal to this Court following a

6 final Commission order is available.

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

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

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

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

11 as to whether subsequent judicial review here would be

12 “meaningful.”

13 The majority is correct in noting that Free Enterprise differed

14 from this case in that no reviewable administrative order was

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

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

17 17.ȱȱAnd as the Free Enterprise Court noted, “[w]e normally do not
20

1 require plaintiffs to bet the farm by taking the violative action before

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

3 marks and alterations omitted).

4 The Free Enterprise situation was not so different from the

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

6 administrative proceedings once concluded would have led to an

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

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

9 Forcing the appellants to await a final Commission order

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

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

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

13 The majority finds that the “litigant’s financial and emotional costs



5 Given that the vast majority of all SEC administrative proceedings end in settlements rather than 

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

farm.” See Brian Mahoney, SEC Could Bring More Insider Trading Cases In-House, LAW360

(June 11, 2014), http://www.law360.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 settle,” 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

1 in litigating the initial proceeding are simply the price of

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

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

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

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

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

7 proceedings will be complete, rendering the possibility of obtaining

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

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

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

11 point.ȱȱȱ

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

13 “postȬproceeding relief . . . suffices to vindicate the litigant’s

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

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

16 Germain v. Connecticut National Bank, 930 F.2d 1038, 1040 (2d Cir.
22

1 1991) involved an interlocutory appeal of the denial of a jury trial

2 demand in a bankruptcy proceeding and the application of the

3 collateral order doctrine exception that an order be “effectively

4 unreviewable on appeal.”ȱȱȱDȇIppolito v. American Oil Co., 401 F.2d

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

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

7 was a “final judgment” under 28 U.S.C. § 1291.ȱȱIn re alȬNashiri, 791

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

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

10 commission trial.ȱȱAnd FTC v. Standard Oil Co. of California, 449 U.S.

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

12 Federal Trade Commission caused “irreparable injury” allowing for

13 judicial review or whether final agency action was necessary.

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

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

16 understand that being forced to undergo an allegedly
23

1 unconstitutional proceeding may play into the analysis of whether

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

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

4 could obtain review of their constitutional claims against the board

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

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

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

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

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

10 Id. at 490–91.ȱȱȱ

11 The Supreme Court in Free Enterprise also explained that the

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

13 the reporting requirements and auditing standards to which they are

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

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

16 where no administrative proceedings had yet been formally brought
24

1 against them.ȱȱ561 U.S. at 513 (emphasis added).ȱȱThis suggests that

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

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

4 determination of whether postȬproceeding review is “meaningful.”

5 IV. Conclusion

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

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

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

9 factors clearly mirror those in Free Enterprise, and the available

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

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

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

13 Thunder Basin, 510 U.S. at 212.ȱȱȱ



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 relevant that Congress continues 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 matters relevant to their own particular 

circumstances would seem consistent with that Congressional intent. 
25

1

2 I would reverse the decision of the district court and remand

3 for an adjudication of the merits of the Appointments Clause claim.