824 F.3d 276
2d Cir.2016Background
- The SEC brought administrative enforcement charges under the Investment Advisers Act against Lynn Tilton and related investment firms, adjudicated before an SEC administrative law judge (ALJ).
- Two days after the SEC initiated the administrative proceeding, Tilton sued in the Southern District of New York seeking to enjoin the proceeding, alleging the ALJ’s appointment violated the Appointments Clause of Article II.
- The SEC moved to dismiss for lack of subject-matter jurisdiction, arguing the statutory administrative-and-judicial review scheme (ALJ → Commission review → federal court of appeals) implicitly precludes district-court suits challenging ALJ appointments while a proceeding remains pending.
- The district court dismissed the suit; the Second Circuit affirmed, applying the Thunder Basin/Elgin/Free Enterprise framework to conclude Congress intended exclusive initial review through the SEC process and that the Appointments Clause claim must await Commission final order and petition for review in a court of appeals.
- The panel majority held the Appointments Clause claim is reviewable meaningfully after a final Commission order, is not wholly collateral to the SEC’s review scheme (because it was raised as a defense in the ongoing proceeding), and falls within the agency’s capability to affect the dispute (e.g., by resolving statutory charges and mooting the constitutional issue).
- Judge Newman concurred; Judge Droney dissented, arguing Free Enterprise controls and that the Appointments Clause claim is wholly collateral and outside the SEC’s expertise such that district-court jurisdiction should be permitted.
Issues
| Issue | Plaintiff's Argument (Tilton) | Defendant's Argument (SEC) | Held |
|---|---|---|---|
| Whether federal district courts have subject-matter jurisdiction to hear a pre-enforcement Appointments Clause challenge to an SEC ALJ while an administrative proceeding is pending | The Appointments Clause challenge is a threshold, collateral constitutional claim that cannot be meaningfully remedied after the proceeding; immediate district-court review is required | Congress implicitly precluded district-court jurisdiction: the SEC’s comprehensive administrative scheme provides meaningful judicial review after final Commission order and thus preclusion applies | Held: District courts lack jurisdiction; appellants must await final Commission order and then seek review in a court of appeals (dismissal affirmed) |
| Whether an Appointments Clause defense raised during an SEC administrative proceeding is "wholly collateral" or "outside the agency’s expertise" under Thunder Basin/Elgin/Free Enterprise | The claim is wholly collateral and outside the SEC’s expertise (constitutional issue regarding appointment), so it falls outside the administrative-review bar | The claim is procedurally intertwined (raised as an affirmative defense), could be mooted by agency resolution of statutory charges, and thus is within the statutory review scheme | Held: Claim is not wholly collateral (procedurally intertwined) and agency expertise can be brought to bear indirectly; these factors do not overcome preclusion |
Key Cases Cited
- Elgin v. Department of the Treasury, 132 S. Ct. 2126 (2012) (Supreme Court presumption that constitutional claims may be channeled into agency review when agency can address threshold or related statutory issues)
- Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (2010) (Appointments Clause challenge allowed in district court where no meaningful route to judicial review existed through the agency scheme)
- Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994) (three-factor test for whether statutory scheme precludes district-court jurisdiction: meaningful judicial review, wholly collateral, outside agency expertise)
- Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015) (SEC administrative-review scheme precludes district-court suits in many Appointments Clause challenges; similar reasoning)
- Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015) (affirming preclusion of district-court jurisdiction for Appointments Clause challenges to SEC ALJs)
- Touche Ross & Co. v. SEC, 609 F.2d 570 (2d Cir. 1979) (older precedent allowing pre-merits district-court review where agency expertise was irrelevant)
- FTC v. Standard Oil Co. of California, 449 U.S. 232 (1980) (postponing judicial review where administrative process could obviate need for review; expense of proceeding not irreparable injury)