Source: https://www.scribd.com/document/413777685/Cochran-v-Securities-and-Exchange-Commission
Timestamp: 2019-09-19 10:50:45
Document Index: 83260105

Matched Legal Cases: ['§ 501', '§ 702', '§ 78', '§ 78', '§ 1331', '§ 201', '§ 201', '§ 201', '§ 201', '§ 201', '§ 1331', '§ 702', '§ 78', '§ 1331', '§ 78', '§ 1331', '§ 1331', '§ 1331', '§ 78', '§ 78', '§ 78', '§ 1331', '§ 78', '§ 201', '§ 201', '§ 201', '§ 201', '§ 201', '§ 78', '§ 78']

Cochran v. Securities and Exchange Commission | Complaint | Amicus Curiae
How many constitutional infractions must one endure at the hands of the government before getting the chance to be heard in an Article III court? According to the Securities and Exchange Commission (SEC), the answer is at least two. In April 2016, the SEC commenced an enforcement proceeding against Michelle Cochran for alleged violations of federal accounting regulations. The proceeding took place before an administrative law judge who was reported at the time to have said to defendants that “they should be aware he had never ruled against the agency’s enforcement division.” True to his word, the SEC judge issued an initial decision ruling in the SEC’s favor. Ms. Cochran was fined $22,500 and banned from practicing as an accountant for at least five years. But before the SEC could finalize its order against Ms. Cochran, the Supreme Court ruled in Lucia v. SEC that administrative law judges are “inferior officers” subject to the Appointments Clause. Because SEC judges had not been appointed by the “President alone…Courts of Law, or…Heads of Departments”—as required by Article II—the Supreme Court invalidated all ongoing administrative enforcement proceedings before the SEC, including the one against Ms. Cochran. After Lucia, the SEC attempted to cure this constitutional defect by “ratifying” its administrative law judges’ prior appointments. The problem is that by addressing its Appointments Clause violation, the SEC is forced to violate the Constitution’s Removal Clause. In Free Enterprise Fund v. PCOB, the Supreme Court held that “officers” of the United States may not be insulated from presidential control by more than one layer of tenure protection. Yet the SEC’s judges enjoy employment protections, and they are removable by SEC commissioners, who also enjoy employment protections. That is, the SEC’s administrative law judges are “officers” with at least two layers of tenure protections, and, therefore, run afoul of the Supreme Court’s reading of the Removal Clause in Free Enterprise Fund. In its Lucia brief, the SEC acknowledged this constitutional quandary. Notwithstanding this concession, and although the SEC has the discretion to bring its enforcement proceedings in an original action before an Article III court, the agency reassigned Ms. Cochran’s case to a new administrative law judge. As a result, the SEC knowingly subjected Ms. Cochran to a second unconstitutional enforcement proceeding, which remains ongoing. Enough is enough. In January, with the help of the New Civil Liberties Alliance, Ms. Cochran filed suit against the SEC in a federal district court in Texas. She argued that she should not have to undergo a second unconstitutional enforcement proceeding. To be clear, she’s not asking the court to void the SEC’s charges against her or otherwise diminish the SEC’s enforcement power. Ultimately, Ms. Cochran seeks only for a federal court—and not an unconstitutional administrative law judge—to try the SEC’s case against her. On March 25, 2019, the district court dismissed her case for lack of subject-matter jurisdiction, concluding that Congress intended to preclude district court jurisdiction over Ms. Cochran’s constitutional claims and channel those claims through the administrative process. Ms. Cochran has appealed the district court’s order to the U.S. Court of Appeals for the Fifth Circuit. The Cato Institute, joined by the Cause of Action Institute and the Competitive Enterprise Institute, today filed a brief in support of Ms. Cochran. We argue that the district court misconstrued (and thereby trivialized) Ms. Cochran’s serious ongoing constitutional injury. In addition, we argue that parties like Ms. Cochran may never get any opportunity to seek or obtain redress for their constitutional injury, and even if they do it will be too late to undo or remedy the injury. Because this case alleges a colorable constitutional claim of ongoing ultra vires government action, and because Congress canno
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Case: 19-10396 Document: 00514999477 Page: 1 Date Filed: 06/17/2019
No. 19-10396
JAY CLAYTON, in his official capacity as Chairman of the U.S.
WILLIAM P. BARR, U.S. ATTORNEY GENERAL,
On Appeal from the United States District Court, Northern District of
Texas, No. 4:19-CV-66-A, Honorable John McBryde, Presiding
AMICUS BRIEF FOR THE CATO INSTITUTE,
CAUSE OF ACTION INSTITUTE, AND
Ilya Shapiro Ashley C. Parrish
CATO INSTITUTE Russell G. Ryan
1000 Mass. Ave. NW KING & SPALDING LLP
Washington, DC 20001 1700 Pennsylvania Ave., NW
Telephone: (202) 842-0200 Washington, DC 20006
Email: ishapiro@cato.org Telephone: (202) 626-2627
Facsimile: (202) 626-3700
Email: aparrish@kslaw.com
Case: 19-10396 Document: 00514999477 Page: 2 Date Filed: 06/17/2019
The undersigned counsel of record for amici certifies that the
following listed persons and entities as described in the fourth sentence
of Fifth Circuit Rule 28.2.1, in addition to those listed in the Plaintiff-
Appellants’ Certificate of Interested Persons, have an interest in the
outcome of this case. These representations are made in order that the
Amici: The Cato Institute, Cause of Action Institute, and the
Competitive Enterprise Institute are all not-for-profit corporations
exempt from income tax under section 501(c)(3) of the Internal Revenue
Code, 26 U.S.C. § 501(c)(3). None has a parent corporation and no
publicly-held company has a 10% or greater ownership interest in any of
Counsel for Amici: Ashley C. Parrish and Russell G. Ryan, both
of King & Spalding LLP; Ilya Shapiro of the Cato Institute; and John J.
Vecchione of Cause of Action Institute.
/s/ Ashley C. Parrish
Attorney of record for Amici
Case: 19-10396 Document: 00514999477 Page: 3 Date Filed: 06/17/2019
CERTIFICATE OF INTERESTED PERSONS .......................................... i
TABLE OF AUTHORITIES ......................................................................iii
INTEREST OF AMICI ............................................................................... 1
INTRODUCTION AND SUMMARY OF ARGUMENT ............................ 3
ARGUMENT ............................................................................................... 6
I. The Constitutional Injury Alleged Here Is a Serious Ongoing
Harm That is Entirely Distinct from the Ordinary Burden of
Litigation. .......................................................................................... 6
II. The Sister-Circuit Rulings Followed by the District Court
Erred in Applying Thunder Basin and its Progeny. ...................... 14
A. Securities Exchange Act Section 25 Evidences No
Congressional Intent to Divest Jurisdiction. ........................ 16
B. The SEC Has No Specialized Expertise in Addressing
the Stand-Alone Constitutional Claims Here. ...................... 18
C. Delayed Post-Agency Review Under Securities
Exchange Act Section 25 Provides No Meaningful
Remedy for the Ongoing Constitutional Injury Alleged
Here. ....................................................................................... 19
Case: 19-10396 Document: 00514999477 Page: 4 Date Filed: 06/17/2019
799 F.3d 765 (7th Cir. 2015) ........................................................... 15
327 U.S. 678 (1946) ........................................................................... 3
Bennett v. SEC,
844 F.3d 174 (4th Cir. 2016) ........................................................... 15
Collins v. Mnuchin,
896 F.3d 640,
reh’g en banc granted, 908 F.3d 75 (5th Cir. 2018) .......................... 8
Corr. Servs. Corp. v. Malesko,
534 U.S. 61 (2001) ............................................................................. 4
103 F. Supp. 3d 382 (S.D.N.Y. 2015) .............................................. 15
Elgin v. Dep't of Treasury,
567 U.S. 1 (2012) ............................................................................... 4
Free Enterprise Fund v. Public Co. Accounting Oversight Bd.,
561 U.S. 477 (2010) ............................................................... 4, 17, 19
FTC v. Standard Oil Co. of Cal.,
449 U.S. 232 (1980) ..................................................................... 5, 12
Gupta v. SEC,
796 F. Supp. 2d 503 (S.D.N.Y. 2011) .............................................. 15
Hill v. SEC,
114 F. Supp. 3d 1297 (N.D. Ga. 2015),
vacated and remanded, 825 F.3d 1236 (11th Cir. 2016) ............... 15
825 F.3d 1236 (11th Cir. 2016) ....................................................... 15
Case: 19-10396 Document: 00514999477 Page: 5 Date Filed: 06/17/2019
Ironridge Global IV, Ltd. v. SEC,
146 F. Supp. 3d 1294 (N.D. Ga. 2015) ............................................ 15
803 F.3d 9 (D.C. Cir. 2015) ............................................................. 15
Jennings v. Rodriguez,
138 S. Ct. 830 (2018) ....................................................................... 10
358 U.S. 184 (1958) ......................................................................... 12
Lucia v. SEC,
138 S. Ct. 2044 (2018) ......................................................... 18, 21, 26
McNary v. Haitian Refugee Center, Inc.,
498 U.S. 479 (1991) ................................................................. 8, 9, 10
491 U.S. 350 (1989) ........................................................................... 8
510 U.S. 200 (1994) ........................................................................... 4
Tilton v. SEC,
824 F.3d 276 (2d Cir. 2016) ............................................................. 15
Touche Ross & Co. v. SEC,
609 F.2d 570 (2d Cir. 1979) ....................................................... 11, 12
5 U.S.C. § 702 ............................................................................................. 3
15 U.S.C. § 78y.................................................................................. passim
15 U.S.C. § 78bb........................................................................................ 18
28 U.S.C. § 1331................................................................................ passim
Case: 19-10396 Document: 00514999477 Page: 6 Date Filed: 06/17/2019
17 C.F.R. § 201.155 ................................................................................... 23
17 C.F.R. § 201.180 ................................................................................... 23
17 C.F.R. § 201.221 ................................................................................... 24
17 C.F.R. § 201.240 ................................................................................... 22
17 C.F.R. § 201.310 ................................................................................... 24
In re optionsXpress, Inc.,
SEC Rel. No. 33-10125, 2016 SEC LEXIS 2900
(Aug. 18, 2016) ................................................................................. 24
In re Pending Administrative Proceedings,
SEC Rel. No. 33-10536, 2018 SEC LEXIS 2058
(Aug. 22, 2018) ................................................................................. 26
In re Tilton,
SEC Initial Dec. Rel. No. 1182, 2017 SEC LEXIS 3051
(Sept. 27, 2017) ................................................................................ 20
SEC Rel. No. 4815, 2017 SEC LEXIS 3707 (Nov. 28, 2017).......... 20
In re Timbervest, LLC,
SEC Rel. No. 40-4103, 2015 SEC LEXIS 3854
(Sept. 17, 2015) ................................................................................ 25
SEC Rel. No. 40-5093, 2018 SEC LEXIS 3633 (Dec. 21, 2018) ..... 22
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“SEC Wins with In-House Judges,” WALL ST. J.
(May 6, 2015) ................................................................................... 20
Adam M. Katz,
Note, Eventual Judicial Review,
118 COLUM. L. REV. 1139 (2018) ............................................... 15, 19
J. Nolette,
“Post-Lucia, It’s Déjà Vu With the SEC,” Sec. Law 360,
April 22, 2019, available at:
https://www.law360.com/articles/1151580/post-lucia-it-s-
deja-vu-with-the-sec ........................................................................ 15
Urska Velikonja,
Are the SEC’s Administrative Law Judges Biased? An
92 WASH. L. REV. 315 (2017) ............................................... 20, 22, 25
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The Cato Institute (“Cato”). Cato was established in 1977 as a
nonpartisan public policy research foundation dedicated to advancing the
principles of individual liberty, free markets, and limited government.
Cato’s Robert A. Levy Center for Constitutional Studies was established
in 1989 to promote the principles of limited constitutional government
that are the foundation of liberty. Toward those ends, Cato publishes
books and studies, conducts conferences, issues the annual Cato Supreme
Court Review, and files amicus briefs with the courts.
Cause of Action Institute (“CoA Institute”). CoA Institute is a
501(c)(3) nonpartisan, nonprofit strategic oversight group committed to
ensuring that government decision-making is open, honest, and fair. CoA
Institute uses various investigative, legal, and communications tools to
educate the public on how government accountability, transparency, and
the rule of law protect liberty and economic opportunity. As part of this
mission, it works to expose and prevent government and agency misuse
1The parties have consented to the filing of this brief. No part of the brief
was authored by counsel for a party, and no person other than the amici,
their members, or or their counsel contributed money that was intended
to fund the preparation or submission of this brief.
Case: 19-10396 Document: 00514999477 Page: 9 Date Filed: 06/17/2019
of power by, among other things, representing third-party plaintiffs in
actions against the federal government and appearing as amicus curiae
before federal courts.
The Competitive Enterprise Institute (“CEI”). CEI, founded in
1984, is a non-profit public policy organization dedicated to advancing
the principles of free enterprise, limited government, and individual
liberty. CEI frequently publishes original research and commentary on
business and finance, as well as related government policies and
regulations. It also regularly participates in litigation, as both a party
and an amicus curiae, concerning the scope and application of financial
rulings and the federal agencies which promulgate them.
This case is important to amici because it involves core separation-
of-powers issues, the democratic accountability of executive officers, and
threats to federal court access when citizens have legitimate complaints
about unconstitutional governmental action.
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Federal district courts are generally presumed to have plenary
jurisdiction when private citizens allege colorable claims that federal
executive-branch agencies and officials are pursuing punitive
governmental action against them without legitimate constitutional
authority. Such claims present quintessential federal questions falling
squarely within the jurisdictional grant of 28 U.S.C. § 1331 (“The district
courts shall have original jurisdiction of all civil actions arising under the
Constitution … of the United States”). See also 5 U.S.C. § 702
(authorizing judicial relief, including injunctive relief, when a person is
“suffering legal wrong because of agency action, or [is] adversely affected
or aggrieved by agency action”). The exercise of federal court jurisdiction
over those claims is essential to protecting constitutional commitments
to the rule of law, separation of powers, due process, individual liberty,
and political accountability. See generally Bell v. Hood, 327 U.S. 678, 684
(1946) (“it is established practice for [the Supreme Court] to sustain the
safeguarded by the Constitution”); Corr. Servs. Corp. v. Malesko, 534 U.S.
Case: 19-10396 Document: 00514999477 Page: 11 Date Filed: 06/17/2019
61, 74 (2001) (“injunctive relief has long been recognized as the proper
means for preventing entities from acting unconstitutionally”).
In certain cases — most notably Thunder Basin Coal Co. v. Reich,
510 U.S. 200 (1994), Free Enterprise Fund v. Public Company Accounting
Oversight Board, 561 U.S. 477 (2010), and Elgin v. Department of
Treasury, 567 U.S. 1 (2012) — the Supreme Court has recognized a
limited exception to this presumption of federal question jurisdiction in
the administrative law context. These cases hold that if Congress has
enacted a statute providing for delayed, post-agency appellate review of
adverse agency action, and if Congress’s intent to strip district courts of
their presumptive jurisdiction over challenges to agency action is either
explicit or “fairly discernible,” then district courts may lack jurisdiction
to adjudicate at least some kinds of challenges to agency action
notwithstanding Section 1331.
Explicitly acknowledging concern and reservations about the result
in this case, the court below held that Section 25 of the Securities
Exchange Act of 1934 (15 U.S.C. § 78y) is one of those jurisdiction-
stripping statutes. It therefore found no jurisdiction to adjudicate
plaintiff-appellant Michelle Cochran’s complaint that the Securities and
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Exchange Commission (“SEC”) is pursuing her (for a second time) in an
administrative law-enforcement proceeding overseen by an SEC
administrative law judge (“ALJ”) who lacks legitimate constitutional
authority to conduct the proceeding or to issue binding orders and
commands against her during the course of the proceeding.
The court below was right to harbor concerns and reservations. It
cited the Supreme Court’s decision in Federal Trade Commission v.
Standard Oil Co. of California, 449 U.S. 232 (1980), as essentially
binding authority and cited several appellate decisions outside the Fifth
Circuit as persuasive authority. But the Standard Oil case is plainly
distinguishable, and the non-binding decisions from other circuits suffer
from at least two fundamental errors. First, as discussed below, they
misconstrued (and thereby trivialized) the serious ongoing constitutional
injury alleged in cases like this one by conflating that injury with the
mere burden and expense of administrative litigation or the punitive
statutory sanctions that might be imposed if securities law violations are
ultimately proved. Second, they overlooked the practical reality that Ms.
Cochran and similarly-situated victims of this type of constitutional
injury, if limited to delayed post-agency appellate review under
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Securities Exchange Act Section 25, may never get any opportunity to
seek or obtain redress for their constitutional injury, and even if they do
it will be too late to undo or remedy the injury.
Because this case alleges a colorable constitutional claim of ongoing
ultra vires government action, and because Section 25 cannot reasonably
be read to strip district courts of jurisdiction over such a claim, this Court
should allow the case to proceed in the district court.
Ms. Cochran’s complaint in this case asserts her right not to be
forced, without her consent, to participate in adjudicative proceedings
conducted by an ALJ who lacks proper constitutional authority. She is
not challenging the SEC’s general authority to prosecute her or to seek
sanctions for the securities law violations she is alleged to have
committed. Nor is she questioning in her complaint the merits of the
SEC’s claims or the severity of the sanctions that could be imposed
against her, although she has asserted defenses to those claims in the
pending SEC administrative proceeding.
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For purposes of her complaint in the district court, it makes no
difference whether Ms. Cochran ultimately wins or loses on the merits at
the SEC administrative level — she suffers the same constitutional
injury regardless of the outcome. Moroever, if she succeeds on her claims
in the district court, the administrative process would not be thwarted.
The relief she requests would only oblige the SEC to adjust its processes
to comply with constitutional requirements, perhaps by adjudicating the
administrative proceeding itself rather than relying on an administrative
The gravamen of the constitutional harm that Ms. Cochran’s
complaint seeks to avoid is thus entirely distinct from any sanctions that
might be imposed against her in the administrative proceeding. In
particular, she asserts that the executive-branch officer assigned by the
SEC to oversee the administrative proceeding against her is essentially
acting ultra vires — that is, she claims that the ALJ has no legitimate
constitutional authority to conduct the proceeding at all, because the ALJ
(like other SEC ALJs) is currently insulated by at least two layers of
protection from removal by the president. If she is right, this
constitutional injury is not only very serious but also occurring in each of
Case: 19-10396 Document: 00514999477 Page: 15 Date Filed: 06/17/2019
many dozens of other pending and future SEC administrative
proceedings assigned to the SEC’s ALJs.2 Because she has lodged a
colorable constitutional claim, federal courts have a duty to address it
promptly rather than letting her injury persist until it is too late to
provide meaningful relief. Cf. New Orleans Pub. Serv., Inc. v. Council of
New Orleans, 491 U.S. 350, 358–59 (1989) (citing cases back to 1821 for
the proposition that where federal jurisdiction is present, courts cannot
“abdicate” it in favor of another jurisdiction).
McNary v. Haitian Refugee Center, Inc., 498 U.S. 479 (1991) is
instructive. There, several pro-immigration groups and unsuccessful
applicants for an amnesty program challenged as unconstitutional the
practices and procedures used by the federal agency responsible for
administering the program. Despite the availability of delayed, post-
agency review of final determinations under the relevant statute, and
despite an explicit statutory bar against other forms of judicial review of
such final determinations (the kind of bar not found in the Securities
2 This court recently discussed at length the essential role played by
presidential removal power in preserving our constitutional separation
of powers and ensuring executive-branch accountability. See Collins v.
Mnuchin, 896 F.3d 640, reh’g en banc granted, 908 F.3d 75 (5th Cir.
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Exchange Act’s relevant provisions), the Supreme Court upheld the
district court’s jurisdiction to challenge the constitutionality of the
“practices and policies” adopted by the agency in evaluating amnesty
In doing so, the Court emphasized the crucial distinction between
challenges to the overall manner in which an agency adjudicates claims
and the individualized decisions reached on the merits of any particular
adjudicated claim. It held that the post-agency appellate review
provision in the relevant statute “applies only to review of denials of
individual [amnesty] applications,” and that because the district court
complaint “[did] not seek review on the merits of a denial of a particular
application, the District Court’s general federal-question jurisdiction
under 28 U.S.C. § 1331 to hear this action remain[d] unimpaired by [the
relevant post-agency appellate review statute].” McNary, 498 U.S. at
494. As the Court explained:
[T]he individual respondents in this action do not seek a
substantive declaration that they are entitled to [amnesty]
status. Nor would the fact that they prevail on the merits of
their purportedly procedural objections [in the district court]
have the effect of establishing their entitlement to [amnesty]
status. Rather, if allowed to prevail in this action,
respondents would only be entitled to have their case files
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reopened and their applications reconsidered in light of the
newly prescribed [agency] procedures.
The Court also emphasized the singular focus of the applicable
statutory provision authorizing post-agency appellate review, which
applied only to “a determination respecting an [amnesty] application.”
Id. at 491–92. It held that “the reference to ‘a determination’ describes a
single act rather than a group of decisions or a practice or procedure
employed in making decisions,” indicating Congress’s intent that post-
agency appellate review should apply only to “individual denials” of
amnesty status and not to “general collateral challenges to
unconstitutional practices and policies used by the agency in processing
applications.” Id. at 492; cf. Jennings v. Rodriguez, 138 S. Ct. 830, 839-
41 (2018) (upholding jurisdiction, notwithstanding statutory limitations,
in case challenging the extent of “the Government's detention authority
under the ‘statutory framework’ as a whole,” and “contesting the
constitutionality of the entire statutory scheme under the Fifth
The same logic applies here. Post-agency appellate review under
Securities Exchange Act Section 25 is singularly focused on the “final
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order” that is issued at the conclusion of a proceeding. 15 U.S.C. § 78y(a).
The statutory language does not imply any intent to force litigants who
object to the constitutional legitimacy of the proceeding itself to wait for
a final order. Nor does it imply any intent to bar collateral challenges to
the constitutionality of the practices and procedures used by the SEC to
adjudicate its proceedings.
The Second Circuit’s decision in Touche Ross & Co. v. SEC, 609 F.2d
570 (2d Cir. 1979), is also instructive. There, as in Ms. Cochran’s case
here, an accounting firm and several of its individual accountants were
charged in an SEC administrative proceeding with alleged securities law
violations arising from services they performed as auditors of corporate
financial statements, and the respondents filed a complaint in district
court challenging the legitimacy of the proceeding itself. After the
district court dismissed the complaint for failure to exhaust
administrative remedies, the Second Circuit affirmed in part and
reversed in part, carefully distinguishing between those parts of the
complaint that challenged the underlying merits of the SEC claims and
the part that separately challenged the SEC’s authority to conduct the
proceeding at all.
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Although affirming dismissal of the former parts of the complaint,
the court concluded that the district court had jurisdiction to adjudicate
the latter. Id. at 574-77 (citing Leedom v. Kyne, 358 U.S. 184 (1958) and
other cases). It did so because, as to the challenge to the SEC’s authority
to conduct the proceeding: (1) “there is no need for further agency action
to enable us to reach the merits of [that] challenge,” id. at 574; (2) “to
require appellants to exhaust their administrative remedies would be to
require them to submit to the very procedures which they are attacking,”
id. at 577; (3) “the issue is one of purely statutory interpretation,” id.; and
(4) “[w]hile the Commission has the power to declare its own rule invalid,
it is unlikely that further [administrative] proceedings would produce
such a result,” id. Each of these reasons is equally applicable to Ms.
Cochran’s case.3
Against this weight of authority, the district court relied on Federal
Trade Commission v. Standard Oil Co. of California, 449 U.S. 232 (1980),
3Although the concurring opinion in Touche Ross focused on the separate
and additional relief that might eventually become available under
Section 25, it appears from the opinion that neither the SEC nor any
judge on the panel ever considered the possibility that a future SEC
might someday argue that Section 25 somehow stripped the district
courts of jurisdiction to hear a complaint such as the one at issue there
Case: 19-10396 Document: 00514999477 Page: 20 Date Filed: 06/17/2019
but that case is plainly distinguishable. Standard Oil did not challenge
the constitutionality of the FTC’s method of adjudicating its
administrative complaints, but rather raised a case-specific challenge to
the sufficiency of the evidence supporting the particular administrative
complaint filed against it. The company’s complaint thus raised the
quintessential type of challenge typically committed to the agency’s
discretion and competency to adjudicate, because it raised matters that
were not only intertwined with the ongoing administrative proceeding
but overlapped with it almost entirely. Standard Oil made no claim that
the ALJ overseeing its administrative proceeding lacked legitimate
constitutional authority to conduct the proceeding. Nor did it raise any
other wholly-collateral challenge to the constitutionality of the
proceeding or the method of adjudication.
Moreover, unlike Ms. Cochran, Standard Oil was attempting to
shoehorn its preemptive strike into the rubric of “final agency action”
under the relevant post-agency review statute, and had even convinced
the court of appeals that the mere filing of the administrative complaint
constituted “final agency action” subject to post-agency review. That is
plainly not the case here. Ms. Cochran makes no claim that the SEC has
Case: 19-10396 Document: 00514999477 Page: 21 Date Filed: 06/17/2019
entered a “final order” against her for purposes of post-agency review
under Securities Exchange Act Section 25. To the contrary, she seeks
immediate collateral relief in the district court because she objects to
being subjected to an unconstitutional proceeding before an ALJ who
lacks constitutional authority to conduct it. She also realizes that it will
be too late to obtain meaningful relief from her constitutional injury if
she is forced to wait until after the SEC enters a final order, which is not
likely to happen for many months if not years.
In short, the Supreme Court’s characterization of Standard Oil’s
alleged harm — the mere “expense and disruption” to a multi-billion
dollar corporate behemoth of having to litigate an administrative
complaint before an adjudicator whose constitutional legitimacy the
company did not dispute — has little or no relevance to the plight of
individual litigants like Ms. Cochran, who have already endured one
multi-year round of ALJ proceedings that were ultimately thrown out as
constitutionally illegitimate and now face the specter of another.
Erred in Applying Thunder Basin and its Progeny.
Numerous jurists have issued thoughtful and comprehensive
opinions reaching essentially the same conclusions that amici urge here.
Case: 19-10396 Document: 00514999477 Page: 22 Date Filed: 06/17/2019
See, e.g., Tilton v. SEC, 824 F.3d 276, 292-99 (2d Cir. 2016) (Droney, J.,
dissenting); Gupta v. SEC, 796 F. Supp. 2d 503 (S.D.N.Y. 2011) (Rakoff,
J.); Duka v. SEC, 103 F. Supp. 3d 382 (S.D.N.Y. 2015) (Berman, J.); Hill
v. SEC, 114 F. Supp. 3d 1297 (N.D. Ga. 2015) (May, J.), vacated and
remanded, 825 F.3d 1236 (11th Cir. 2016); Ironridge Global IV, Ltd. v.
SEC, 146 F. Supp. 3d 1294 (N.D. Ga. 2015) (May, J.).4 Instead of
following these well-reasoned opinions, the district court largely followed,
without substantive analysis, five cases from sister circuits that have
held in various contexts that Securities Exchange Act Section 25
implicitly divests district courts of jurisdiction to adjudicate challenges
to the constitutionality of SEC administrative proceedings.5 Those cases
purported to apply the reasoning of Thunder Basin, Free Enterprise, and
Elgin to the kind of post-agency appellate review authorized by Section
4 Accord Adam M. Katz, Note, Eventual Judicial Review, 118 COLUM. L.
REV. 1139, 1162–72 (2018) (thoughtful analysis consistent with cases cite
above and with positions taken in this brief); J. Nolette, “Post-Lucia, It’s
Déjà Vu With the SEC,” Sec. Law 360, April 22, 2019, available at:
https://www.law360.com/articles/1151580/post-lucia-it-s-deja-vu-with-
the-sec (same).
5 Bennett v. SEC, 844 F.3d 174, 188 (4th Cir. 2016); Hill v. SEC, 825 F.3d
1236, 1241 (11th Cir. 2016); Tilton, 824 F.3d at 291; Bebo v. SEC, 799
F.3d 765, 767 (7th Cir. 2015); Jarkesy v. SEC, 803 F.3d 9, 12 (D.C. Cir.
Case: 19-10396 Document: 00514999477 Page: 23 Date Filed: 06/17/2019
25, with each case largely following those that preceded it. Each of these
out-of-circuit cases was wrongly decided for essentially the same reasons,
and they should not be followed.
Thunder Basin, Free Enterprise, and Elgin collectively set forth a
framework for determining whether and when a post-agency appellate
review statute strips district courts of the jurisdiction they would
otherwise possess under 28 U.S.C. § 1331 or elsewhere. The essential
test is whether Congress’s intent to divest jurisdiction is “fairly
discernable” from the statutory review scheme and whether the claims
at issue are of a type Congress intended to be exclusively channeled into
post-agency review. In making this determination, courts consider the
statute’s language, structure, and purpose, along with whether the
claims can be afforded “meaningful review” on post-agency review. Two
important factors are whether the claim falls within the agency’s area of
expertise and whether it overlaps legally or factually with the type of
dispute the agency is authorized to hear.
Congressional Intent to Divest Jurisdiction.
When a private citizen colorably challenges the constitutional
legitimacy of an executive-branch officer assigned to adjudicate a law-
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enforcement proceeding that threatens to brand her a wrongdoer and
impose punitive sanctions, the Thunder Basin analysis points decidedly
against a conclusion that Congress intended to divest district courts of
subject matter jurisdiction. Indeed, the Supreme Court has already
specifically declared, in Free Enterprise, that the very same statute at
issue in Ms. Cochran’s case — Securities Exchange Act Section 25 —
evidences no such congressional intent:
[T]he text [of Section 25] does not expressly limit the
jurisdiction that other statutes confer on district courts. See,
e.g., 28 U.S.C. § 1331. Nor does it do so implicitly.
Free Enterprise, 561 U.S. at 489 (emphasis added). The district court
made no attempt to reconcile this unequivocal statement from Free
Enterprise with its contrary conclusion that Section 25, in fact, does
implicitly limit jurisdiction under 28 U.S.C. § 1331.
Beyond that discrepancy, the district court misconstrued the text of
Section 25 and its surrounding statutory scheme. Post-agency appellate
review under Section 25 is explicitly permissive rather than mandatory.
See 15 U.S.C. § 78y(a)(1) (an aggrieved litigant “may” seek post-agency
review in a court of appeals). This permissive language must also be read
in conjunction with a nearby provision that explicitly preserves “any and
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all” other avenues of relief. See id. § 78bb(a)(2) (“the rights and remedies
provided by this chapter shall be in addition to any and all other rights
and remedies that may exist at law or in equity”). In addition, Section
25 makes clear that appellate court jurisdiction becomes exclusive only
after the SEC issues a final order, only if an aggrieved litigant chooses to
invoke it and, even then, only when the SEC files its administrative
record with the court. See id. § 78y(a)(3). Read together, these statutory
provisions negate any reasonable inference that Congress intended even
to limit, much less to divest, district courts of jurisdiction under 28 U.S.C.
§ 1331 to adjudicate colorable constitutional challenges raised many
months or even years before any final order could ever be issued.
the Stand-Alone Constitutional Claims Here.
As explained above, there is no factual or legal overlap between the
complaint in this case and the underlying merits of the SEC claims
against Ms. Cochran in the administrative proceeding. Nor does the SEC
possess special expertise in resolving the constitutional removal question
at the heart of this case. As to this lack of specialized expertise, the court
need look no further than Lucia v. SEC, 138 S. Ct. 2044 (2018), in which
the Solicitor General took the unusual step of confessing error in the
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SEC’s longstanding insistence that its ALJs were properly appointed,
and the Supreme Court ultimately agreed that the SEC had gotten it
wrong all along. See also Free Enterprise, 561 U.S. at 491 (noting that
challenge to constitutional standing of executive officers requires no
technical agency expertise and presents “standard questions of
administrative law, which the courts are at no disadvantage in
answering”).6
In large part because it misconstrued the nature of the
constitutional injury that Ms. Cochran asserts, the district court also
erroneously concluded that her injury can be adequately remedied on
post-agency review under Securities Exchange Act Section 25. That is
plainly not the case. In the real world, most SEC administrative
6 As one commentator has observed, the approach taken by the out-of-
circuit cases relied upon by the district court erroneously treats these two
important Thunder Basin factors — lack of factual overlap and lack of
agency expertise — as essentially irrelevant whenever a statute provides
any subsequent opportunity for judicial review, and then compounds that
error by interpreting “meaningful judicial review” to require only some
form of “eventual judicial review.” Katz, supra, 118 COLUM. L. REV. at
1162-72 (2018) (emphasis in original).
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respondents never get any opportunity to seek post-agency review under
Section 25, and even for the relatively few who do, that review comes far
too late to provide meaningful relief for the type of constitutional injury
As the district court itself tacitly acknowledged, post-agency review
under Section 25 is categorically unavailable to litigants who ultimately
prevail in the administrative process, because the statute allows review
only to litigants who are “aggrieved” by the SEC’s “final order.” 15 U.S.C.
§ 78y(a)(1). According to published empirical analyses, SEC
administrative litigants prevail in at least ten percent of fully
adjudicated cases. Urska Velikonja, Are the SEC’s Administrative Law
Judges Biased? An Empirical Investigation, 92 WASH. L. REV. 315, 346-
53 (2017); Jean Eaglesham, “SEC Wins with In-House Judges,” WALL ST.
J. (May 6, 2015); see, e.g., In re Tilton, SEC Initial Dec. Rel. No. 1182,
2017 SEC LEXIS 3051 (Sept. 27, 2017) (ALJ Decision) and SEC Rel. No.
4815, 2017 SEC LEXIS 3707 (Nov. 28, 2017) (SEC Finality Notice)
(litigant previously denied access to federal court to challenge
constitutional authority of ALJ appointment ultimately prevailed after
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ALJ hearing but before Supreme Court held in Lucia that SEC ALJs were
not constitutionally appointed).
Although successful litigants undoubtedly welcome their escape
from the threat of punitive sanctions, Section 25 provides no remedy for
the constitutional injury they have already endured from having been
forced for many months (and perhaps years) to obey the ultra vires
commands of a federal officer. Nor do they have any incentive to devote
additional time and expense to pressing ahead with their constitutional
claims, because by that point the constitutional injury cannot be undone
or meaningfully remedied by a court of appeals. Accordingly, under the
district court’s interpretation of Section 25, a successful defense on the
underlying merits does nothing to remedy the constitutional injury
already suffered or, as the SEC argued in the district court, to “moot” that
injury; to the contrary, success on the merits renders the constitutional
injury permanent, irreversible, and entirely unreviewable.
Section 25 likewise offers no relief to the large portion of SEC
administrative litigants who agree to settle with the SEC before a final
order is entered in their case. Although many litigants settle before an
ALJ is even assigned to their case, others settle during or after the ALJ
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phase of the proceeding. E.g., In re Timbervest, LLC, SEC Rel. No. 40-
5093, 2018 SEC LEXIS 3633 (Dec. 21, 2018) (Commission final
settlement order dropping fraud charges more than five years after
initiation of administrative proceeding and more than four years after an
unconstitutional ALJ, following a hearing, had imposed fraud-based
penalties that were then upheld on initial appeal to SEC); see also Urska
Velikonja, supra, 92 WASH. L. REV. at 340, 346 and 364-65 (noting that
many SEC litigants settle at some point after contested litigation is
underway but before a final judgment or order is entered).7
Regardless of when they settle, however, none of these settling
litigants have any hope of obtaining court of appeals review of their case
under Section 25, because SEC rules and policy require all settling
litigants to expressly waive their right to “judicial review by any court.”
SEC Rules of Practice, Rule 240, 17 C.F.R. § 201.240. Section 25 thus
7 It is reasonable to conclude that at least some administrative litigants
who settle immediately — that is, before an ALJ is appointed — do so
partially out of concern about the perceived unfairness of ALJ
proceedings and the knowledge that independent oversight by any Article
III judicial officer is unlikely to occur for years, if ever. See Urska
Velikonja, supra, 92 WASH. L. REV. at 365 (noting that “willingness to
settle may be affected by their perception that ALJs are less fair,” and
that “[t]he SEC has reportedly threatened investigated parties with
litigation before ALJs if they are unwilling to settle”).
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offers no more help to these settling litigants than it does to prevailing
litigants, because in either case their constitutional injury becomes
permanent, irreversible, and unreviewable. Stated another way, if a
litigant settles after enduring proceedings before an unconstitutional
ALJ, the SEC essentially gets away with that constitutional violation,
Nor is it a practical option for SEC administrative litigants to stand
on principle and refuse to participate in what they believe to be ultra
vires proceedings under the control of a federal officer who lacks lawful
authority to conduct the proceeding or to issue them commands. Even if
a litigant nominally preserves the constitutional objection for later
appeal, otherwise declining to participate in the proceeding would mean
“betting the farm” on the constitutional objection, because refusing to
obey the ALJ would inevitably lead to a default on the merits of the SEC’s
underlying securities law claims, with associated punitive sanctions
imposed. See generally SEC Rules of Practice, Rule 155, 17 C.F.R.
§ 201.155 (default if litigant fails to appear at a hearing or conference,
fails to answer or respond to a motion, or fails to timely cure a deficient
filing), Rule 180, 17 C.F.R. § 201.180 (default if litigant fails to make a
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required filing or to timely cure a deficient filing), Rule 220, 17 C.F.R.
§ 201.221 (default if litigant fails to file an answer), Rule 221 (default if
litigant fails to appear at a prehearing conference), and Rule 310, 17
C.F.R. § 201.310 (default if litigant fails to appear at a hearing). And
that default would be virtually impossible to undo later without
ultimately winning the constitutional argument, because the SEC would
almost certainly affirm the default if appealed, and unless the court of
appeals ultimately sustained the constitutional objection, the court
would likely be required by Section 25 to uphold the default on the
underlying merits. See 15 U.S.C. § 78y(c)(1) (“No objection to an order or
rule of the Commission, for which review is sought under this section,
may be considered by the court unless it was urged before the
Commission or there was reasonable ground for failure to do so”); id.
§ 78y(a)(4) (SEC factual findings are “conclusive” as long as supported by
“substantial evidence”).8
8 Arguing the constitutional issue to the SEC commissioners would
plainly be futile considering the SEC’s many adjudicative opinions
already rejecting this argument. See, e.g., In re optionsXpress, Inc., SEC
Rel. No. 33-10125, 2016 SEC LEXIS 2900 at 75-79 (Aug. 18, 2016)
(Opinion of the Commission); In re Timbervest, LLC, SEC Rel. No. 40-
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All of which leaves the relatively few SEC litigants who have the
resources and fortitude to endure the entire SEC administrative process
(in Ms. Cochran’s case for a second time) but ultimately lose on the
merits.9 Then and only then can they finally seek the limited appeallate
relief promised by Section 25. But even if they eventually prevail on their
constitutional claim in the appeals court, by that point the constitutional
injury has already been suffered and is effectively irreversible. The court
of appeals cannot undo or meaningfully remediate it at that point.
Indeed, ironically, the most likely outcome would be the Pyrrhic victory
of a remand to the SEC to start all over again from Square One, before
another ALJ purporting to be cleansed of all constitutional infirmity, as
happened when the Supreme Court held that SEC ALJs had not been
4103, 2015 SEC LEXIS 3854 at 46-49 (Sept. 17, 2015) (Opinion of the
9As noted by one academic who has conducted exhaustive research on
SEC enforcement case statistics: “Only a small minority of enforcement
actions are contested to the end and ultimately decided by a dispositive
motion or after trial. Of the cases that are not filed as settled, more than
half ultimately settle. Of the remainder, most are decided by default or
voluntarily dismissed because the defendant died, ceased to exist, could
not be served, or some similar reason, and only a sliver are contested to
the end and decided by a judge, a jury, or an ALJ.” Urska Velikonja,
supra, 92 WASH. L. REV. at 340.
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constitutionally appointed. See Lucia, 138 S. Ct. at 2055-56 (2018) (“the
‘appropriate’ remedy for an adjudication tainted with an appointments
violation is a new ‘hearing before a properly appointed’ official” (citation
omitted)); In re Pending Administrative Proceedings, SEC Rel. No. 33-
10536, 2018 SEC LEXIS 2058 (Aug. 22, 2018) (reassigning more than 100
then-pending administrative proceedings pursuant to Lucia).
In sum, far from guaranteeing a meaningful remedy for the type of
constitutional injury alleged by Ms. Cochran, post-agency appellate
review under Section 25 is a largely empty promise for most SEC
administrative litigants All those who settle with the SEC or prevail on
the merits are completely denied any opportunity to seek such review
and, even for those who lose on the merits or default, any review comes
far too late or carries far too much litigation risk to be meaningful. To
effectively protect private citizens from the irreparable constitutional
harm inflicted by a constitutionally illegitimate law-enforcement
proceeding launched against them, district courts must be available and
stand ready to intervene before the injury becomes effectively
irremediable. The district court’s erroneous conclusion that Section 25
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provides adequate or meaningful post-agency relief, and thus strips it of
its presumptive subject-matter jurisdiction, should be reversed.
For these reasons, the Court should reverse the district court.
Ilya Shapiro Ashley Parrish
John J. Vecchione Email: aparrish@kslaw.com
1875 Eye Street, N.W., Ste. 800
Telephone: (202) 499-4232
Email: john.vecchione
@causeofaction.org
Case: 19-10396 Document: 00514999477 Page: 35 Date Filed: 06/17/2019
I certify that on June 17, 2019, I caused the foregoing amicus brief
to be filed with the Court electronically using the CM/ECF system, which
will send a notification to all counsel of record.
Case: 19-10396 Document: 00514999477 Page: 36 Date Filed: 06/17/2019
P. 32(a)(7)(B) because:
√ this brief contains 5,330 words, excluding the parts of
the brief excluded by Fed. R. App. P. 32(a)(7)(B)(iii).
√ this brief has been prepared in a proportionally space
typeface using Microsoft Word in Century Schoolbook 14-
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