Bennett v. U.S. Securities & Exchange Commission
844 F.3d 174
4th Cir.2016Background
- Dawn Bennett and her firm were the subject of an SEC administrative enforcement proceeding instituted in September 2015, assigned initially to an SEC administrative law judge (ALJ).
- Bennett sued in district court seeking to enjoin the ALJ proceeding and to declare the ALJ appointment and protections unconstitutional under Article II and the Appointments Clause.
- The district court dismissed for lack of subject-matter jurisdiction; Bennett appealed to the Fourth Circuit.
- The Exchange Act provides that final SEC orders are reviewed exclusively in the appropriate U.S. Court of Appeals under 15 U.S.C. § 78y, with detailed procedures for administrative and appellate review.
- The Fourth Circuit applied Thunder Basin’s two-step framework (and related Supreme Court precedent) to decide whether § 78y precludes Bennett’s district-court suit.
- The Fourth Circuit affirmed dismissal, holding Bennett must pursue her Appointments Clause and separation-of-powers claims through the administrative process and then in the court of appeals under § 78y.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 78y precludes district-court jurisdiction over Bennett’s pre-enforcement constitutional challenge | Bennett: Article II/Appointments Clause and removal protections make ALJs principal/inferior officers and unconstitutional; district court may enjoin the proceeding | SEC: Exchange Act’s § 78y channels review to the court of appeals; Congress intended exclusive appellate review | Held: § 78y fairly discernible to preclude district-court jurisdiction; dismissal affirmed |
| Whether administrative + appellate review would be a meaningful remedy | Bennett: Post hoc review is not meaningful because the harm is being forced to litigate in the allegedly unconstitutional forum; she needs pre-enforcement relief | SEC: Bennett is already in a disciplinary proceeding that will produce a final Commission order subject to § 78y review and stays; appellate review will be meaningful | Held: Appellate review is meaningful here; Bennett can obtain relief on appeal and seek stays when appropriate |
| Whether Bennett’s constitutional claims are "wholly collateral" to the statutory review scheme | Bennett: Challenge to the forum is collateral to the merits and should be heard in district court | SEC: Claim arises from the enforcement proceeding and is the vehicle to overturn the ALJ decision, so not wholly collateral | Held: Claim is not wholly collateral (it is the vehicle to reverse agency action) |
| Whether agency expertise counsels for administrative exhaustion | Bennett: Appointments Clause question is outside SEC expertise and thus should proceed in district court | SEC: SEC can resolve threshold matters and its processes can obviate need for judicial review; Elgin supports agency involvement even if it cannot finally decide constitutional claims | Held: Agency expertise favors preclusion; the SEC can address threshold issues and the scheme should be used first |
Key Cases Cited
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (establishes two-step framework for determining when Congress precludes district-court jurisdiction in favor of statutory review schemes)
- Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (2010) (distinguishes when § 78y does not preclude district-court review because no meaningful route to appellate review exists)
- Elgin v. Department of the Treasury, 567 U.S. 1 (2012) (holds comprehensive administrative-review schemes can preclude district-court jurisdiction even for constitutional claims)
- Federal Trade Commission v. Standard Oil Co. of California, 449 U.S. 232 (1980) (explains requirement to complete administrative process before obtaining judicial review)
- Crowell v. Benson, 285 U.S. 22 (1932) (supports Congress’s authority to channel certain claims into administrative adjudication)