Hill v. Securities & Exchange Commission
114 F. Supp. 3d 1297
N.D. Ga.2015Background
- Charles L. Hill, Jr., an unregistered real-estate developer, was charged by the SEC in an administrative cease-and-desist proceeding under the Exchange Act alleging insider trading; an evidentiary hearing was set for June 15, 2015.
- After Dodd-Frank, the SEC may seek civil penalties against “any person” in administrative proceedings; the SEC chose the administrative forum here.
- SEC administrative proceedings are governed by agency rules (not the Federal Rules), allow broader evidence (including hearsay), generally limit depositions and counterclaims, and provide expedited hearing schedules before an ALJ.
- Hill challenged the administrative forum as unconstitutional: non-delegation (Article I), Seventh Amendment jury-right, and Article II (Appointments Clause and removal protections).
- The ALJ declined to decide some constitutional challenges; Hill filed in federal district court seeking declaratory and injunctive relief to halt the administrative proceeding.
- The district court concluded it had jurisdiction, found Hill likely to succeed on his Appointments Clause claim (ALJs are inferior officers and Hill’s ALJ was not properly appointed), and entered a preliminary injunction enjoining the SEC ALJ hearing before an ALJ not appointed by a department head.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction to enjoin SEC administrative proceeding | Hill: district court may hear pre-enforcement constitutional challenges under §1331/§2201; administrative scheme is not an exclusive review channel | SEC: §78y channels review to the administrative process and then courts of appeals, so district court lacks jurisdiction | Court: district court has jurisdiction; §78y does not preclude district-court review here because delayed review would be inadequate and Hill’s claims are collateral and outside agency expertise |
| Non-delegation (Article I) — SEC forum-selection discretion | Hill: Dodd-Frank gives SEC unfettered discretion to choose forum without intelligible principle | SEC: forum choice is executive prosecutorial discretion (Take Care clause); Batchelder-type prosecutorial choice is permissible | Held: plaintiff unlikely to succeed; forum selection is prosecutorial/executive discretion and not an unconstitutional delegation |
| Seventh Amendment — right to jury trial | Hill: civil penalties are analogous to common-law actions and jury right cannot be removed for those asserted rights | SEC: enforcement seeks public rights; Congress may assign public-right adjudication to administrative tribunals without juries | Held: plaintiff unlikely to succeed; case involves public rights and Congress may assign adjudication to agencies without juries |
| Appointments Clause / Article II — ALJ status and appointment | Hill: SEC ALJs exercise significant authority and are inferior officers; they must be appointed by President, courts, or department head; Hill’s ALJ was not properly appointed | SEC: ALJs are employees (not officers); lack of final-order or contempt power distinguishes them; appointment through OPM is proper | Held: court found SEC ALJs are inferior officers and Hill likely to succeed on Appointments Clause claim; injunction entered forbidding ALJ hearing before an ALJ not appointed by the agency head |
Key Cases Cited
- Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010) (district-court jurisdiction and structural separation concerns in agency-review schemes)
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (statutory scheme may preclude district-court jurisdiction only when Congress clearly intends and claims are reviewable in the statutory structure)
- Freytag v. Commissioner, 501 U.S. 868 (1991) (special trial judges exercising significant authority are inferior officers under the Appointments Clause)
- United States v. Batchelder, 442 U.S. 114 (1979) (prosecutorial choice between statutes is a permissible exercise of executive discretion)
- Atlas Roofing Co. v. Occupational Safety & Health Review Comm’n, 430 U.S. 442 (1977) (Congress may assign adjudication of public-rights matters to administrative tribunals without jury trials)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (Seventh Amendment analysis: historical analogies and character of remedy govern jury right)
- Tull v. United States, 481 U.S. 412 (1987) (two-step Seventh Amendment inquiry: historical analogy and legal/equitable nature of remedy)
- Doe v. FAA, 432 F.3d 1259 (11th Cir. 2005) (district court jurisdiction denied where constitutional claims are inescapably intertwined with administrative proceedings)