969 F.3d 507
5th Cir.2020Background
- The SEC brought an enforcement action against CPA Michelle Cochran and elected to proceed before an ALJ.
- While the ALJ proceeding was pending (after Lucia), Cochran sued in district court seeking to enjoin the enforcement action, arguing ALJs’ multi-layered for-cause removal protections violate separation-of-powers and asserting a due-process claim.
- The district court dismissed for lack of subject-matter jurisdiction, citing the SEC’s exclusive judicial-review statute (15 U.S.C. § 78y); Cochran appealed and this Court temporarily enjoined the SEC proceeding.
- The Fifth Circuit majority held the SEC’s post-adjudication review scheme is the exclusive path for raising constitutional challenges to SEC enforcement actions and affirmed dismissal; the stay of the SEC proceeding was dissolved.
- The panel relied on Bank of Louisiana v. FDIC and on a unanimous line of circuits holding parties must raise such challenges on direct appeal to the court of appeals after a final agency order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a defendant in an ongoing SEC enforcement action may bring a pre-adjudication constitutional challenge in district court | Cochran: § 1331 permits district-court review of constitutional claims now | SEC: 15 U.S.C. § 78y channels review to courts of appeals after final Commission order, displacing § 1331 | Held: No; § 78y is the exclusive route—district court lacks jurisdiction over pre-adjudication constitutional challenges |
| Whether the SEC’s § 78y review provision implicitly precludes district-court jurisdiction | Cochran: general federal-question jurisdiction remains available for constitutional claims | SEC: specific statutory scheme and exclusivity language show Congress intended channeling to appellate review | Held: § 78y and related provisions show a fairly discernible intent to preclude district-court intervention |
| Whether a separation-of-powers (removal-power) challenge to ALJs is excepted from Thunder Basin preclusion analysis | Cochran: structural removal claims are different and should be heard immediately in district court | SEC: structural claims are not exempt; Thunder Basin factors require post-adjudication review | Held: The removal-power claim must be raised through the statutory review scheme (not in district court) |
| Whether Cochran’s due-process claim may be heard in district court | Cochran: due-process violations justify immediate district-court jurisdiction | SEC: due-process claims are intertwined with the enforcement proceeding and subject to § 78y | Held: District court lacked jurisdiction over the due-process claim as well; it must await agency final order and appeal |
Key Cases Cited
- Lucia v. SEC, 138 S. Ct. 2044 (2018) (SEC ALJs are "Officers of the United States" for Appointments Clause purposes)
- Free Enter. Fund v. PCAOB, 561 U.S. 477 (2010) (invalidated multi-layered for-cause removal protections)
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (framework for when statutes implicitly preclude district-court jurisdiction)
- Elgin v. Dep't of Treasury, 567 U.S. 1 (2012) (test for when an agency review scheme displaces general federal jurisdiction)
- Bank of La. v. FDIC, 919 F.3d 916 (5th Cir. 2019) (Fifth Circuit held FDIC review scheme channels separation-of-powers and other challenges to appellate review)
- Bennett v. SEC, 844 F.3d 174 (4th Cir. 2016) (precluding district-court pre-enforcement Appointments Clause challenges)
- Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016) (same)
- Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016) (same)
- Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015) (same)
- Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015) (same)