Cochran v. SECCochran v. SEC
The question presented is whether a provision of the Securities Exchange Act of 1934 (“Exchange Act“),
Therefore, as explained below, we AFFIRM the district court‘s judgment in part, REVERSE in part, and REMAND for further proceedings consistent with this opinion.
I. Background
In April 2016, the Securities and Exchange Commission (“SEC“) brought an enforcement action against Michelle Cochran, a certified public accountant. The SEC alleged that Cochran violated the Exchange Act by, inter alia, failing to comply with auditing standards issued by the Public Company Accounting Oversight Board (“PCAOB“) when performing quarterly reviews and annual audits between 2010 and 2013. After a hearing, an SEC administrative law judge (“ALJ“) ruled against Cochran, imposing a $22,500 penalty and a five-year ban on practicing before the SEC. The SEC adopted the ALJ‘s decision. Cochran objected.
Before the SEC ruled on Cochran‘s objection, the Supreme Court intervened. In Lucia v. SEC, the Court held that SEC ALJs are officers of the
In response to Lucia, the SEC remanded all pending administrative cases for new proceedings before constitutionally appointed ALJs.3 Cochran‘s case was reassigned to a new ALJ.
Cochran filed suit in federal district court to enjoin the SEC‘s administrative enforcement proceedings against her. Though the SEC had fixed the appointment problem Lucia addressed, Cochran contended it did not fix a removability problem Lucia declined to reach: she alleged that, because SEC ALJs enjoy multiple layers of “for-cause” removal protection, they are unconstitutionally insulated from the President‘s Article II removal power. Cochran also asserted that the SEC violated her due process rights by failing to adhere to its own rules and procedures.
The district court dismissed Cochran‘s case for lack of subject-matter jurisdiction, reasoning that because
Subsequently, a panel of this court affirmed the district court‘s dismissal of Cochran‘s claims for lack of jurisdiction. Cochran v. SEC, 969 F.3d 507, 511–18 (5th Cir. 2020). Although there was no disagreement on the ultimate decision to affirm as to Cochran‘s due process claim, the panel reached a 2-1 decision affirming on the removal power claim. See id. at 518 & n.1 (Haynes, J., dissenting in part). We then granted rehearing en banc. Cochran v. SEC, 978 F.3d 975 (5th Cir. 2020) (mem.).
II. Jurisdiction and Standard of Review
The sole issue on appeal is whether the district court had subject-matter jurisdiction over Cochran‘s claims.4 Nevertheless, the district court undoubtedly had “jurisdiction to determine its own jurisdiction.” United States v. Ruiz, 536 U.S. 622, 628 (2002). We have appellate jurisdiction under
The SEC presents two bases for affirming the district court. First, the SEC argues that Congress implicitly stripped district courts of jurisdiction to hear structural constitutional claims under
A. Implicit Jurisdiction Stripping
We first consider the text of
1. Statutory Text
Congress gave federal district courts jurisdiction over ”all civil actions arising under the Constitution.”
A person aggrieved by a final order of the Commission entered pursuant to this chapter may obtain review of the order in the United States Court of Appeals for the circuit in which he resides or has his principal place of business, or for the District of Columbia Circuit, by filing in such court, within sixty days after the entry of the order, a written petition requesting that the order be modified or set aside in whole or in part.
In assessing the merits of this argument, “[w]e start, of course, with the statutory text.” BP Am. Prod. Co. v. Burton, 549 U.S. 84, 91 (2006). See generally Salinas v. U.S. R.R. Ret. Bd., 141 S. Ct. 691, 698 (2021) (noting that there is a “strong presumption favoring judicial review of administrative action” that the Government may rebut only by carrying the “‘heavy burden’ of showing that the statute‘s ‘language or structure’ forecloses judicial review” (quoting Mach Mining, LLC v. EEOC, 575 U.S. 480, 486 (2015))). The text of
First,
Second,
Third,
Any doubts we might have were put to rest by the Supreme Court‘s decision in Free Enterprise Fund v. Public Co. Accounting Oversight Board, 561 U.S. 477 (2010). In Free Enterprise Fund, the Supreme Court rejected the precise argument the SEC makes here—that the Exchange Act divests district courts of jurisdiction over removal power challenges. See id. at 489. Hence, Free Enterprise Fund is squarely on point, foreclosing any possibility that
In Free Enterprise Fund, the PCAOB inspected an accounting firm, issued a report criticizing its auditing practices, and opened a formal investigation. Id. at 487. The accounting firm (and a nonprofit organization it belonged to) then filed suit in federal district court, seeking a declaratory judgment that the PCAOB was unconstitutionally structured, as well as an injunction preventing the PCAOB from exercising its powers. Id. The accounting firm argued that the PCAOB‘s double for-cause removal protection violated the President‘s Article II removal power. Id. It also asserted that the members of the PCAOB had not been properly appointed under the Appointments Clause. Id. at 487–88. Just as it does now, the Government maintained that
The Supreme Court rejected the Government‘s argument and held “the text [of
First, the Court determined that the Government‘s theory would foreclose all meaningful judicial review because “[s]ection 78y provides only for judicial review of [SEC] action, and not every [PCAOB] action is encapsulated in a final [SEC] order or rule.” Id. at 490. The Court explained that the PCAOB‘s investigation of the accounting firm had not led to any sanction and that the PCAOB‘s critical inspection report was not subject to judicial review. Id.
Second, the Court determined that the accounting firm‘s challenge was “collateral” to
Finally, the Court held that the accounting firm‘s constitutional claims were outside the SEC‘s expertise because they were “standard questions of administrative law” that did not require any “fact-bound inquiries” or “‘technical considerations of [agency] policy.‘” Id. at 491 (alteration in original) (quoting Johnson v. Robinson, 415 U.S. 361, 373 (1974)). Consequently, the Court concluded that
The SEC primarily argues that Free Enterprise Fund is distinguishable because, in that case, the PCAOB had not yet commenced an administrative proceeding against the plaintiff accounting firm. Since Cochran is already in the midst of an administrative proceeding, and that proceeding could eventually result in a final SEC order that Cochran may challenge under
The SEC also relies on Bank of Louisiana v. FDIC, where we discussed the “ongoing proceeding” distinction in holding that the district court lacked jurisdiction over a separation-of-powers challenge to an administrative proceeding before the Federal Deposit Insurance Corporation (“FDIC“). 919 F.3d 916, 925–27, 930 (5th Cir. 2019). Critically, the statutory-review scheme at issue in that case differed in a key respect from the Exchange Act‘s: in Bank of Louisiana, the scheme included an explicit statutory bar on any court enjoining “the issuance or enforcement of any . . . [FDIC] order.” Id. at 920 (quoting
As stated above, Free Enterprise Fund is enough to decide this case. However, because the SEC contends otherwise, we will proceed by assuming arguendo that we cannot rely exclusively on Free Enterprise Fund and conduct a further analysis using the so-called ”Thunder Basin factors.” Before doing so, it is necessary to review the Supreme Court‘s two other major precedents on implicit jurisdiction stripping, Thunder Basin itself and Elgin v. Department of Treasury, 567 U.S. 1 (2012).
i. Thunder Basin
In Thunder Basin, the Supreme Court set forth the framework now used to determine whether Congress implicitly precluded initial judicial review by creating a statutory framework that delegates initial review to an administrative agency. See 510 U.S. at 207. First, the Court considered whether Congress‘s intent to preclude district court jurisdiction was “fairly discernible in the statutory scheme.” Id. (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351 (1984)). Then, it addressed whether the claims at issue could “be afforded meaningful review” if the agency considered the claims first. Id. To determine whether a claimant would receive meaningful judicial review, the Court considered three factors: (1) whether “a finding of preclusion could foreclose all meaningful judicial review“; (2) whether the claims were “‘wholly “collateral“‘” to a statute‘s review provisions; and (3) whether the claims were “outside the agency‘s expertise.” Id. at 212–13 (quoting Heckler v. Ringer, 466 U.S. 602, 618 (1984)).
Then the Court applied that framework to the Federal Mine Safety and Health Amendments Act of 1977 (the “Mine Act“),
The Supreme Court held that the Mine Act‘s detailed statutory scheme evidenced Congress‘s intent to preclude district court jurisdiction over pre-enforcement challenges. Id. at 207–10. Further, the Court determined that the Mine Commission had exclusive original jurisdiction over claims like the plaintiff mine operator‘s National Labor Relations Act (“NLRA“) and due process claims. Id. at 216. Although the Mine Commission had no particular experience with the NLRA, the mine operator‘s claims were ultimately about interpretation of the Mine Act‘s posting requirement. Id. at 214–15. That is, the mine operator‘s NLRA challenge was not “wholly collateral” to the provisions of the Mine Act and was actually “squarely within the Commission‘s expertise.” Id. at 212, 214. Further, even if the operator‘s constitutional claim was “beyond” the Mine Commission‘s jurisdiction, the operator‘s “statutory and constitutional claims . . . [could] be meaningfully addressed in the Court of Appeals.” Id. at 215 (citation omitted).
Finally, the Court held that the mine operator had a meaningful opportunity for judicial review of its claims. Id. at 216–18. The Court determined that compliance with the posting requirement would not be overly burdensome for the mine operator because the operator‘s fear that its NLRA rights would be violated was “speculative” and any such violation
ii. Elgin
Decided two years after Free Enterprise Fund, Elgin is the Supreme Court‘s most recent application of the Thunder Basin factors. Although the case further illustrated the framework, it did not break new ground.
In Elgin, the Supreme Court considered whether the Civil Service Reform Act of 1978 (“CSRA“), Pub. L. No. 95-454, 92 Stat. 1111, “provides the exclusive avenue to judicial review when a qualifying employee challenges an adverse employment action by arguing that a federal statute is unconstitutional.” 567 U.S. at 5. Just as it did in Free Enterprise Fund, the Elgin Court applied the Thunder Basin factors.
First, the Elgin Court held that the CSRA‘s “elaborate” statutory-review scheme evidenced Congress‘s intent to foreclose district court jurisdiction. Id. at 10–13. Next, the Court rejected the plaintiff-employees’ argument that the Thunder Basin factors indicated that their claims were not the type Congress intended to be reviewed through the CSRA. Id. at 15–16. The Court concluded that the CSRA offered the plaintiffs meaningful review of their claims because the Federal Circuit was “fully competent to adjudicate [those] claims” on appeal. Id. at 17. Then the Court held that the plaintiffs’ claims were not “wholly collateral” to the CSRA‘s statutory-review scheme because these claims were “the vehicle by which [plaintiffs]
iii. Application of the Thunder Basin Factors
We follow Free Enterprise Fund in breaking the Thunder Basin analysis down into two steps: first, whether a “‘statutory scheme’ displays a ‘fairly discernible’ intent to limit jurisdiction,” and second, whether “the claims at issue ‘are of the type Congress intended to be reviewed within th[e] statutory structure.‘” 561 U.S. at 489 (quoting Thunder Basin, 510 U.S. at 207, 212). At step two, “we presume that Congress does not intend to limit jurisdiction if [1] ‘a finding of preclusion could foreclose all meaningful judicial review‘; [2] if the suit is ‘wholly collateral to a statute‘s review provisions‘; and [3] if the claims are ‘outside the agency‘s expertise.‘”11 Id.
First, Cochran‘s removal power claim is wholly collateral to the Exchange Act‘s statutory-review scheme. Elgin suggests that whether a claim is collateral to the relevant statutory-review scheme depends on whether that scheme is intended to provide the sort of relief sought by the plaintiff. 567 U.S. at 22 (ruling that the employees’ claims were not “wholly collateral to the CSRA scheme” because they were “requesting relief that the CSRA routinely affords“). This rule accords with Thunder Basin: although the mine operator in that case brought claims under the NLRA and the Constitution, it ultimately sought to avoid compliance with the Mine Act‘s posting requirement. 510 U.S. at 205, 213–14. By contrast, the Free Enterprise Fund accounting firm did not seek relief of the sort the Exchange Act‘s scheme is designed to offer; rather than seeking to challenge the propriety of any particular rule or regulation, or to establish that it was not liable for a violation, the accounting firm sought to abolish the PCAOB. 561 U.S. at 490 (explaining that the plaintiffs “object[ed] to the [PCAOB]‘s existence“). That is, the accounting firm‘s claims were structural
As in Free Enterprise Fund, Cochran challenges the existence of SEC ALJs. The nature of her challenge is structural—it does not depend on the validity of any substantive aspect of the Exchange Act, nor of any SEC rule, regulation, or order. Indeed, she is challenging the Exchange Act‘s statutory-review scheme itself. Contra Thunder Basin, 510 U.S. at 218 n.22 (noting that the mine operator “expressly disavow[ed] any abstract challenge to the Mine Act‘s statutory review scheme“). Further, the outcome of her constitutional challenge to the ALJs’ removal protection will have no bearing on her ultimate liability for allegedly violating the securities laws. Consequently, she does not seek relief of the sort the Exchange Act‘s scheme is designed to provide, meaning that the “wholly collateral” factor weighs against preclusion.
Second, Cochran‘s removal power claim is outside the SEC‘s expertise. As in Free Enterprise Fund, there is no doubt that Cochran‘s claim presents only “standard questions of administrative law, which the courts are at no disadvantage in answering.” 561 U.S. at 491. For example, her claim does not depend on a special understanding of the securities industry. Contra Thunder Basin, 510 U.S. at 214–15 (determining that the mine operator‘s NLRA challenge was within the Mine Commission‘s expertise because it rested on interpretation of the Mine Act‘s posting requirement). Nor is there any suggestion that the SEC is an experienced adjudicator of structural constitutional issues. See Carr v. Saul, 141 S. Ct. 1352, 1360 (2021) (noting that “agency adjudications are generally ill suited to address structural constitutional challenges, which usually fall outside the adjudicators’ areas
Third, the Exchange Act‘s statutory-review scheme threatens to deprive Cochran of the opportunity for meaningful judicial review. Thunder Basin and Elgin both held that even if the agency was incapable of adjudicating a constitutional claim, meaningful judicial review was still available in the court of appeals. Thunder Basin, 510 U.S. at 215; Elgin, 567 U.S. at 17. Yet this rule cannot be absolute: even though
The answer is that the Thunder Basin and Elgin plaintiffs sought substantive relief, while the Free Enterprise Fund accounting firm sought
That is, the accounting firm in Free Enterprise Fund asserted that it was harmed by the structure of the Exchange Act‘s statutory-review scheme itself. By contrast, in Thunder Basin, the Court determined that the mine operator would face only “speculative” harm if it complied with the Mine Act‘s statutory-review scheme. 510 U.S. at 216–17. As for Elgin, if the MSPB had granted those plaintiffs the substantive relief they sought—reinstatement, backpay, and attorney‘s fees—their harm would have been fully redressed, and they would have had no basis to seek further review in the court of appeals. 567 U.S. at 22. Accordingly, the structural nature of the accounting firm‘s claim explains the different results in Free Enterprise Fund on the one hand and Thunder Basin and Elgin on the other.
To put it plainly: Free Enterprise Fund held that
The SEC contends Cochran‘s alleged harm is not irreparable, so it urges us to disregard the possibility that Cochran may never get her day in court. On this point, the SEC relies on FTC v. Standard Oil Co. of California, in which the Supreme Court ordered the dismissal of a collateral attack on an administrative enforcement proceeding before the Federal Trade Commission (“FTC“). 449 U.S. 232, 234–37, 247 (1980). There, the Court strongly rebuffed the plaintiff‘s argument that it would suffer irreparable harm if forced to undergo the administrative proceedings because “[m]ere litigation expense, even substantial and unrecoupable cost, does not constitute irreparable injury.” Id. at 244 (quoting Renegotiation Bd. v. Bannercraft Clothing Co., 415 U.S. 1, 24 (1974)); see also id. (further explaining that “the expense and annoyance of litigation is ‘part of the social burden of living under government‘” (quoting Petroleum Expl., Inc. v. Pub. Serv. Comm‘n, 304 U.S. 209, 222 (1938))).
Further, although the threat of irreparable harm may justify pre-enforcement judicial review under principles of equity, see Ex parte Young, 209 U.S. 123, 145–48 (1908), irreparable harm is not ordinarily required to invoke a district court‘s general
The SEC‘s final fallback position—that other statutory schemes will be threatened if we permit structural challenges to the Exchange Act to be brought in district court—fares no better. Specifically, the SEC asserts that there are many administrative schemes similar to the Exchange Act‘s and that these schemes are equally vulnerable to separation-of-powers challenges. Consequently, the SEC contends, if we carve out structural challenges from what it views as the general rule of implied preclusion, “every person hoping to enjoin an administrative proceeding [will be able to] sue in district court to allege that the proceedings were unconstitutional,” wreaking havoc across the Government‘s operations. This is a “policy consideration[] more properly addressed to Congress than to this Court.” Reiter v. Sonotone Corp., 442 U.S. 330, 345 (1979). Such a consideration surely “cannot govern our reading of the plain language” of
In any event, there are four reasons that the approach we take today is unlikely to be as disruptive as the SEC fears. First, this case presents only the issue of whether the Exchange Act divested district court jurisdiction over claims that SEC ALJs are unconstitutionally insulated from the President‘s removal power; our holding extends no further, and the result in other cases, even those concerning similar statutory schemes and claims, may be different.17 Second, even if Congress did not divest jurisdiction, other
Finally, as the Texas Public Policy Foundation notes as amicus curiae, our court does not break new ground by allowing Cochran to challenge her adjudicator at the outset of her case. “Since 1792, federal statutes have compelled district judges to recuse themselves when they have an interest in the suit . . . .” Liteky v. United States, 510 U.S. 540, 544 (1994). Congress has since enacted statutes to expand judicial recusal requirements. 13D Charles Alan Wright et al., Federal Practice and Procedure § 3551 (3d ed. 2002) (citing
To sum up, Cochran‘s removal power claim is wholly collateral to the Exchange Act‘s statutory-review scheme, is outside the SEC‘s expertise, and might never receive judicial review if district court jurisdiction were precluded. Therefore, the Thunder Basin inquiry simply reaffirms that Free Enterprise Fund controls this case and that Cochran‘s removal power claim is within the district court‘s jurisdiction.
B. Ripeness
We now turn to the SEC‘s other argument for affirmance: a lack of ripeness. Ripeness doctrine reflects “Article III limitations on judicial power” and “prudential reasons for refusing to exercise jurisdiction.” Reno v. Cath. Soc. Servs., Inc., 509 U.S. 43, 57 n.18 (1993); see also Abbott Lab‘ys v. Gardner, 387 U.S. 136, 148 (1967) (explaining that the doctrine‘s “basic rationale is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements“), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). The ripeness inquiry hinges on two factors: (1) “the fitness of the issues for judicial decision“; and (2) “the hardship to the parties of withholding court consideration.” Roark & Hardee LP v. City of Austin, 522 F.3d 533, 545 (5th Cir. 2008) (quoting Monk v. Huston, 340 F.3d 279, 282 (5th Cir. 2003)). Generally, issues are fit for judicial decision if “any remaining questions are purely legal ones; conversely, a case is not ripe if further factual development is required.” Id. However, some degree of hardship is always required to establish ripeness. Id.
There is no dispute that Cochran‘s removal power claim is a pure issue of law, meaning that it is fit for judicial decision without any additional
In support of its argument that Cochran‘s claim is not ripe, the SEC principally relies on Energy Transfer Partners, L.P. v. FERC, 567 F.3d 134 (5th Cir. 2009), and TOTAL Gas & Power North America, Inc. v. FERC, 859 F.3d 325 (5th Cir. 2017). As relevant here, in Energy Transfer Partners, a natural gas company challenged the statutory authority of the Federal Energy Regulatory Commission (“FERC“) to require it to participate in trial-type enforcement proceedings before an ALJ. 567 F.3d at 137–38. TOTAL Gas concerned a similar challenge to FERC administrative proceedings, including a structural claim that FERC ALJs were unconstitutionally appointed. 859 F.3d at 334. In both cases, we concluded that the plaintiffs’ claims were not ripe. Energy Transfer Partners, 567 F.3d at 146; TOTAL Gas, 859 F.3d at 339. Based on these cases, the SEC asserts that structural challenges to ongoing administrative enforcement proceedings are not ripe until those proceedings conclude.
Energy Transfer Partners and TOTAL Gas are both materially distinguishable from this case. In Energy Transfer Partners, the plaintiff sought judicial review of particular FERC orders, which we determined were not sufficiently “final” so as to be susceptible to judicial review. 567 F.3d at 136, 139–44. By contrast, Cochran did not seek review of any particular SEC
Like Cochran, the TOTAL Gas plaintiffs sought a declaration that FERC was precluded from conducting administrative enforcement proceedings against them. 859 F.3d at 327. However, in that case, FERC had not actually scheduled a hearing before an ALJ prior to the plaintiffs filing suit. Id. at 336. Consequently, we held that the plaintiffs’ fear of being subjected to a constitutionally defective proceeding was too speculative to establish hardship for ripeness purposes. Id. at 337 (explaining that “whether FERC ultimately takes actions that Total claims would violate its constitutional rights rests on a series of contingencies and is not a certainty“). As the SEC has already assigned Cochran‘s case to an ALJ, her risk of hardship is substantially more concrete than in TOTAL Gas. Therefore, we hold that Cochran‘s removal power challenge is ripe.
Accordingly, we AFFIRM the district court‘s dismissal of Cochran‘s due process claim, REVERSE the dismissal of her removal power claim, and REMAND for further proceedings consistent with this opinion.
I agree with the majority that this case can be resolved based on the statutory text in
First, as should go without saying by now, “our inquiry begins with the statutory text, and ends there as well if the text is unambiguous.” BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004). Here, the text is as unambiguous as can be.
Second, even if the dissent is correct to peer behind the text of
The balance of this opinion joins the dissent in considering “the 80-plus year history of the SEC,” the purported policy “benefit[s] of agency expertise,” and the supposed “efficiency” purpose of
I.
The separation of powers is the defining feature and virtue of our Constitution. As James Madison wrote, “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.” The Federalist No. 47, at 301 (C. Rossiter ed. 1961). So the Founders separated the legislative, executive, and judicial powers into three distinct branches and then balanced them against one another. See The Federalist No. 51, at 321–23; Bowsher v. Synar, 478 U.S. 714, 722 (1986) (“Even a cursory examination of the Constitution reveals the influence of Montesquieu‘s thesis that checks
Wilson and Landis fundamentally disagreed with the Founders’ vision. Wilson and Landis thought the accumulation of all powers into one set of hands was—far from a vice—a virtue. And they wanted those all-powerful hands connected to an administrative agency, far away from the three branches of government the Founders worked so hard to create, separate, and balance. And most of all, Wilson and Landis wanted power as far away from democracy and universal suffrage as possible.
A.
Woodrow Wilson derived his political theories from German historicism. See Ronald J. Pestritto, Woodrow Wilson and the Roots of Modern Liberalism 14 (2005); Philip Hamburger, Is Administrative Law Unlawful? 458 (2014). In 1883, Wilson began his doctoral studies in history and government at Johns Hopkins, where he studied under professors who had themselves been educated in Germany—most notably, Richard T. Ely and Herbert Baxter Adams, who both studied at the University of Heidelberg under Johann K. Bluntschli, a renowned Hegelian state theorist. Pestritto, supra, at 8, 18. These German historicists considered history an evolutionary process. See id. at 9, 14 (citing Joseph Dorfman, The Role of the German Historical School in American Economic Thought, 45 Am. Econ. Rev. 17 (1955)). They viewed history as “a progression of . . . epochs,” through which each age‘s “spirit” becomes more advanced than the one preceding it. Id. at 15. “More advanced historical spirits replace inferior ones through a dialectical process, where progress is the result of great clashes, conflicts, and struggles.” Ibid. (citing G.W.F. Hegel, The Philosophy of History 17–18 (J. Sibree
In Wilson‘s view, administration was key to reaching his idealized future. Wilson lamented that “[u]p to [his] own day all the political writers . . . had thought, argued, dogmatized only about the constitution of government; about the nature of the state, the essence and seat of sovereignty, popular power and kingly prerogative; about the greatest meanings lying at the heart of government; and the high ends set before the purpose of government by man‘s nature and man‘s aims.” Woodrow Wilson, The Study of Administration, 2 Pol. Sci. Q. 197, 198 (1887). Back when the nation was founded, he wrote, “[t]he functions of government were simple, because life itself was simple.” Id. at 199. But things were different now: The “difficulties of governmental action” in the modern era required a new “science of administration which shall seek to straighten the paths of government, . . . [and] strengthen and purify its organization.” Id. at 200–01.
Wilson lauded Europe for embracing this new science and chided America for supposedly staying stuck in the past. The study of administration, Wilson noted, “is a foreign science, speaking very little of the language of English or American principle. It employs only foreign tongues; it utters none but what are to our minds alien ideas.” Id. at 202. Though Wilson appeared to recognize the implications of adopting German political principles, he tried to reassure liberty-minded readers that administration could be “Americanize[d].” Ibid. As Wilson put it:
If I see a murderous fellow sharpening a knife cleverly, I can borrow his way of sharpening the knife without borrowing his
probable intention to commit murder with it; and so, if I see a monarchist dyed in the wool managing a public bureau well, I can learn his business methods without changing one of my republican spots. . . . We can thus scrutinize the anatomy of foreign governments without fear of getting any of their diseases into our veins; dissect alien systems without apprehension of blood poisoning.
Id. at 220.
Notwithstanding his reassurance that German political principles could be Americanized, Wilson elsewhere made clear that he would scrap the Constitution if he could. One of his most notable departures from the Constitution was his distaste for democracy and popular sovereignty—especially after the document was amended to allow for an increasingly diverse electorate. See Perez v. Mortgage Bankers Ass‘n, 575 U.S. 92, 129 n.6 (2015) (Thomas, J., concurring in the judgment) (crediting Wilson‘s “deep disdain for the theory of popular sovereignty” as contributing to the Progressive Era‘s “move from the individualism that had long characterized American society to the concept of a society organized for collective action“); Hamburger, supra, at 371 n.e (noting that Wilson despised democracy and described it as “a stage of development” that had to be left behind).
During his early career—including his time at Johns Hopkins—Wilson “complained bitterly about the ills of universal suffrage.” Pestritto, supra, at 201. In his notes on English historian John Richard Green, Wilson rhetorically questioned:
Is the principle of universal suffrage for instance consistent with those principles of government which bear the sanction of the wisest Englishmen of eight centuries and which have secured personal freedom and political liberty to a great nation
for more than eight hundred years? Is it necessary or even compatible with the healthy operation of a free government?
Woodrow Wilson, Marginal Notes on John Richard Green, in 1 The Papers of Woodrow Wilson 388 (Arthur S. Link ed., 1966). One entry in his diary—which stated that “universal suffrage is at the foundation of every evil in this country“—indicates that Wilson had answered his own questions: “no” and “no.” Woodrow Wilson, Shorthand Diary, in 1 Papers, supra, at 143. And these views didn‘t stay on the pages of his private papers. He also included them in his seminal work on administration:
Even if we had clear insight into all the political past, and could form out of perfectly instructed heads a few steady, infallible, placidly wise maxims of government into which all sound political doctrine would be ultimately resolvable, would the country act on them? That is the question. The bulk of mankind is rigidly unphilosophical, and nowadays the bulk of mankind votes. A truth must become not only plain but also commonplace before it will be seen by the people who go to their work very early in the morning; and not to act upon it must involve great and pinching inconveniences before these same people will make up their minds to act upon it.
And where is this unphilosophical bulk of mankind more multifarious in its composition than in the United States? To know the public mind of this country, one must know the mind, not of Americans of the older stocks only, but also of Irishmen, of Germans, of negroes. In order to get a footing for new doctrine, one must influence minds cast in every mould of race, minds inheriting every bias of environment, warped by the histories of a score of different nations, warmed or chilled, closed or expanded by almost every climate of the globe.
Wilson, The Study of Administration, supra, at 209. And though Wilson “dropped his overt opposition to universal suffrage as he matured,” even his
Wilson‘s concern with democracy was that it “assume[s] a discriminating judgment and a fullness of information on the part of the people touching questions of public policy.” Wilson, The State, supra, at 305. But because he believed people “do not often possess” such judgment, ibid., Wilson concluded that “[t]he people should not govern; they should elect the governors: and these governors should be elected for periods long enough to give time for policies not too heedful of transient breezes of public opinion,” Woodrow Wilson, Notes for “The Philosophy of Politics”, in 9 Papers, supra, at 132; but see Perez, 575 U.S. at 129 n.6 (Thomas, J., concurring in the judgment) (“In President Wilson‘s view, public criticism would be beneficial in the formation of overall policy, but ‘a clumsy nuisance’ in the daily life of Government—‘a rustic handling delicate machinery.‘” (quoting Wilson, The Study of Administration, supra, at 215)). And if a government official must consult the public, he should have to hear only “those who hit upon opinions fit to be made prevalent, and have the capacity to make them so.” Woodrow Wilson, Democracy, in 7 Papers, supra, at 355.
Wilson ran into an obvious problem: The Constitution affirmatively prohibited the anti-democratic administrative system he wanted. Wilson saw the separation of powers and the Founders’ system of checks and balances as two of the Constitution‘s chief defects. While at Johns Hopkins, Wilson wrote:
It is . . . manifestly a radical defect in our federal system that it parcels out power and confuses responsibility as it does. The main purpose of the Convention of 1787 seems to have been to accomplish this grievous mistake. The “literary theory” of checks and balances is simply a consistent account of what our constitution-makers tried to do; and those checks and balances have proved mischievous just to the extent to which they have succeeded in establishing themselves as realities. It is quite safe to say that were it possible to call together again the members of that wonderful Convention to view the work of their hands in the light of the century that has tested it, they would be the first to admit that the only fruit of dividing power had been to make it irresponsible.
Woodrow Wilson, Congressional Government: A Study in American Politics 187 (1885). Like democracy, Wilson thought such structural limitations on power were unnecessary and even incompatible with a functional government. In Wilson‘s view: “No living thing can have its organs offset against each other, as checks, and live.” Woodrow Wilson, The New Freedom 47 (1913).
Wilson‘s primary criticism of the separation of powers was that it made government inflexible and inefficient. See Pestritto, supra, at 5
It was the separation of powers that, among all of the objects of Wilson‘s criticism in the founders’ Constitution, caused him the greatest distress and occupied much of his attention. For Wilson, the separation of powers, and all of the other institutional remedies that the founders employed against the danger of faction, stood in the way of government‘s exercising its power in accord with the dictates of progress.
Id. at 6. For Wilson, that simply would not do.
Wilson therefore set out his own anti-constitutional vision in The Study of Administration. “Judging by the constitutional histories of the chief nations of the modern world,” Wilson believed there were “three periods of growth through which government has passed in all the most highly developed of existing systems.” Wilson, The Study of Administration, supra, at 204. Nations begin in the period of “absolute rulers, and of an administrative system adapted to absolute rule.” Ibid. As they progress, they reach the second period, “that in which constitutions are framed to do away with absolute rulers and substitute popular control, in which administration is neglected for these higher concerns.” Ibid. And finally, they reach a level of sophistication “in which the sovereign people undertake to develop administration under this new constitution which has brought them into power.” Ibid. Wilson was ready to lead America past its own Constitution and into the third period “under this new constitution.” Ibid.
Wilson‘s “new constitution” would ditch the Founders’ tripartite system and their checks and balances for a “more efficient separation of politics and administration, which w[ould] enable the bureaucracy to tend to
Within this new dichotomy, the emphasis in government would shift to administration. This newly conceptualized government—with a new administrative “branch“—would “see[] to the daily rulemaking and regulation of public life.” Pestritto, supra, at 165 (citing Woodrow Wilson, Constitutional Government in the United States 82–85 (1908)). “Administration, after all, is properly the province of scientific experts in the bureaucracy; the experts’ competence in the specific technological means required to achieve those ends on which we are all agreed gives them the authority to administer or regulate progress, unhindered by the realm of politics.” Id. at 127–28.
That of course required concomitant changes to the three branches of constitutional government. And rather than amend the Constitution to accomplish his purposes, Wilson thought it would be far more efficient to simply command the three branches to submit. In Wilson‘s view, Congress must “understand its appropriate role in modern times.” Id. at 136. Specifically, it must “abandon its stubborn insistence on its constitutionally defined duty to legislate” and “cede[] rulemaking authority to the bureaucracy.” Ibid. Only then could Congress step into its new role in “oversee[ing] this function, not . . . attempt[ing] to carry it out itself.” Id. at 165.
The same was true of the President. In Wilson‘s view, a modern President must “look beyond his role as it is defined in the Constitution.” Id.
So too with the courts. Wilson subscribed to Bagehot‘s theory of a “living constitution,” and he believed that judges should “reflect what it is that each generation wants out of government, and not [remain] stuck on an outdated understanding of the purpose and role of government.” Id. at 115–17. “[T]he members of the courts are necessarily men of their own generation,” and Wilson “would not wish to have them men from another.” Wilson, Constitutional Government, supra, at 185, 193.
B.
In the 1930s, President Franklin D. Roosevelt, James Landis, and their fellow progressives picked up where Wilson had left off. “Reflecting th[e] belief that bureaucrats might more effectively govern the country than the American people, the progressives ushered in significant expansions of the administrative state, ultimately culminating in the New Deal.” Perez, 575 U.S. at 129 n.6 (Thomas, J., concurring in the judgment).
One of Roosevelt‘s most pressing progressive projects was securities reform—an issue of debate since the 1907 stock market crash, which came back into the spotlight after the 1929 market crash and the Depression. During his presidential campaign, Roosevelt‘s platform “advocated ‘regulation to the full extent of federal power, of . . . exchanges in securities and commodities.‘” Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42 Stan. L. Rev. 385, 414 (1990) (quoting 7 History of American Presidential Elections 2742–43 (A. Schlesinger, Jr. ed. 1985)).
“The process of transforming Roosevelt‘s securities policy into a bill began within hours of Roosevelt‘s election.” Joel Seligman, The Transformation of Wall Street 50 (1982). Roosevelt‘s advisor,
The next year, in 1934, Roosevelt decided to go further. And whom did Roosevelt tap to lead the effort? Landis, of course. See Karl Shumpei Okamoto, Rereading Section 16(B) of the Securities Exchange Act, 27 Ga. L. Rev. 183, 229 n.153 (1992) (describing Landis as “the principal architect of the [1934] Exchange Act“). Landis‘s first draft of the bill contained a judicial-review provision that is virtually identical to the one Congress enacted in 1934 and that continues to exist in
Any person aggrieved by an order of the Commission may obtain a review of such order in the Circuit Court of Appeals of the United States, with any circuit wherein such person resides or has his principal place of business, or in the Court of Appeals of the District of Columbia, by filing in such court, within sixty days after the entry of such order, a written petition praying that the order of the Commission be modified or be set aside in
whole or in part. A copy of such petition shall be forthwith served upon the Commission, and thereupon the Commission shall certify and file in the court a transcript of the record upon which the order complained of was entered. No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission. The finding of the Commission as to the facts, if supported by evidence, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence the hearing before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order. The jurisdiction of the court shall be exclusive and its judgment an decree, affirming, modifying, or setting side, in whole or in part, any order of the Commission, shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in sections 23 and 240 of the Judicial Code as amended ( U.S.C. title 28, secs. 346 and347 ).
H.R. 7852, 73d Cong. § 23(a) (1934).
Roosevelt reviewed Landis‘s draft bill, and he recommended it go straight to Congress. Thel, supra, at 424–25. When the bill reached the House Committee on Interstate and Foreign Commerce, Landis was the first witness to testify. Id. at 395 n.39. And Landis told Congress that, naturally, he and his agency would be perfect for enforcing the new 1934 Act: “The Federal Trade Commission, I think, can be credited with efficiency in
II.
The dissent makes much of the purposes behind the 1934 Act—including the so-called “investigation/enforcement distinction,” the importance of agency expertise, and the SEC‘s purported need to complete its work without judicial oversight. Obviously, none of this is in the text of the Act itself.
It‘s true, however, that these purposivist concepts date back to Landis. Landis was convinced that bureaucrats had a monopoly on governmental wisdom and that their critics were simply too stupid to understand it. For example, Landis thought it “[s]omewhat hysterical[]” that some derogatorily labeled the administrative state as the “fourth branch” of government. James M. Landis, The Administrative Process 47 (1938). He viewed the condemnation of the fourth branch as superstitious—based “upon the mystical hypothesis that the number ‘four’ bespeaks evil or waste as contrasted with some beneficence emanating from
Landis took particular umbrage at criticisms from the judiciary. Judges who failed to appreciate the SEC‘s efforts were as ignorant as Americans guided by numerology. And that‘s why Landis did not trust courts to review the SEC‘s work. To the contrary, Landis wanted agencies to do the courts’ work.
A.
In The Administrative Process, Landis described the SEC‘s process for investigating potentially fraudulent statements included in a securities registration form. See id. at 136–37. When a registrant filed a statement including seemingly fraudulent statements, the SEC would begin “[a] quiet investigation into the facts.” Id. at 137. If the investigation led the SEC to believe there was in fact fraud, the agency would impose a stop order against the registrant. Ibid. To avoid public attention and the pain of such proceedings, registrants would often try to withdraw their registration statements. Ibid. Landis did not think the SEC‘s targets should get off so easily, however. So the SEC promulgated a rule that disallowed registrants from withdrawing their registration statements without the Commission‘s consent. Ibid. And pursuant to that rule, the SEC would deny its consent and force registrants to defend themselves before the Commission—even after the registrants stated that they did not want to defend themselves or their statements. Ibid.
One such registrant challenged the rule and the SEC‘s enforcement practices. See Jones v. SEC, 298 U.S. 1 (1936). The petitioner asked the Court: (1) whether the SEC could deny a request to withdraw a registration statement, see id. at 18–25; and if so, (2) whether the SEC had the authority
In a stinging rebuke of the SEC, the Court answered each question with an emphatic “no.” The Court concluded that “[t]he act contains no provision upon the subject; and it may not be construed as attempting to confer upon the commission an arbitrary power, under rule or otherwise, to deny, without reason, a motion to dismiss.” Id. at 19. Not only was the Act silent—the Court was also “unable to find any precedent for the assumption of such power on the part of an administrative body.” Ibid. And, of course, “at least in the absence of a statute to the contrary, the power of a commission to refuse to dismiss a proceeding on motion of the one who instituted it cannot be greater than the power which may be exercised by the judicial tribunals of the land under similar circumstances.” Ibid. Given the general rule for the federal courts—“that a plaintiff possesses the unqualified right to dismiss his complaint at law or his bill in equity unless some plain legal prejudice will result to the defendant other than the mere prospect of a second litigation upon the subject matter“—the SEC would need to show prejudice. Ibid. That it could not do. Id. at 22 (“We are unable to find anything in the record, the arguments of the commission, or the decision of the court below that suggests the possibility of any prejudice to the public or investors beyond the assumption . . . that an unlimited privilege of withdrawal would have the effect of allowing registrants whose statements are defective, to withdraw before a stop order was issued and then to submit another statement with slight changes.” (quotation omitted)).
The Court could have concluded there. But instead, it proceeded to explain the danger of adopting the SEC‘s argument to the contrary:
The action of the commission finds no support in right principle or in law. It is wholly unreasonable and arbitrary. It violates the cardinal precept upon which the constitutional
safeguards of personal liberty ultimately rest—that this shall be a government of laws—because to the precise extent that the mere will of an official or an official body is permitted to take the place of allowable official discretion or to supplant the standing law as a rule of human conduct, the government ceases to be one of laws and becomes an autocracy. Against the threat of such a contingency the courts have always been vigilant, and, if they are to perform their constitutional duties in the future, must never cease to be vigilant, to detect and turn aside the danger at its beginning.
Id. at 23–24. If administrative agencies “are permitted gradually to extend their powers by encroachments—even petty encroachments—upon the fundamental right, privileges and immunities of the people,” the Court warned that “we shall in the end, while avoiding the fatal consequences of a supreme autocracy, become submerged by a multitude of minor invasions of personal rights, less destructive but no less violative of constitutional guaranties.” Id. at 24–25.
Having determined that the registrant was entitled to withdraw his registration statement, the Court continued to consider whether the SEC may nevertheless interrogate him. See id. at 25. Given the reason for the stop order had disappeared, the Court concluded that there was no longer any basis to hail the registrant before the tribunal. Ibid. To require his presence without reason, the Court stated, would lead to a mere “‘fishing expedition . . . for the chance that something discreditable might turn up‘—an undertaking which uniformly has met with judicial condemnation.” Id. at 26 (alteration in original) (quoting Ellis v. Interstate Commerce Comm‘n, 237 U.S. 434, 445 (1915)). And “[t]he fear that some malefactor may go unwhipped of justice weighs as nothing against this just and strong condemnation of a practice so odious.” Id. at 27.
Landis stated that he was “startle[d]” by the Court‘s stinging rebuke of his brainchild. Landis, supra, at 138. Had the Court stopped after concluding that the SEC should have allowed the registrant to withdraw his registration statement, Landis said, “one might have regretted its conclusion as weighting the scales in favor of fraudulent promoters, but that would have been all.” Ibid. Instead, the Court went on to compare the SEC to the Star Chamber:
Such an outburst indicates that one is in a field where calm judicial temper has fled. Deep feelings underlie this unguarded
language of Mr. Justice Sutherland. They underlie, too, the suggestion by the Chief Justice that the administrative is prone to abuse the powers intrusted it. . . . If it is fair to apply the legal rule that one intends the natural and probable consequences of his acts, certainly the effect if not the purpose was to breed distrust of the administrative.
Landis was deeply frustrated by the Jones Court‘s rhetoric. In Landis‘s view, the Court‘s reaction to the SEC‘s efforts could be explained only by the judiciary‘s inability to understand his wisdom. And that judicial ignorance spilled over to the public, again to Landis‘s chagrin. Following the Court‘s decision in Jones, “every effort [by the SEC] to deal with fraudulent promoters was met by the accusation that Star Chamber tactics were being employed.” Id. at 140. Thus Landis lamented that America‘s profoundly ignorant people, “who have neither time nor the ability to grasp the precise issue involved by a particular case,” understood the SEC‘s “administrative action as arbitrary and violative of ancient rights and privileges.” Ibid. That was the judiciary‘s fault—not the SEC‘s.
B.
Landis convinced himself that administrative agencies were superior to courts in every relevant way. See id. at 95–97 (arguing the judiciary‘s role should be “committed to the administrative for protection“). Landis presented several reasons for the supposed superiority. For one, agency adjudications were more efficient than court cases. See id. at 19 (“The decisions of those [administrative] authorities which exercise judicial powers are said to be several times as numerous as the recorded decisions of all the Federal judicial courts.” (quotation omitted)). As another, their standards and procedures were more practical. See id. at 49–50 (“Its bending of judicial doctrine and procedure to realistic curvatures tends sometimes to offend the
But above all, Landis emphasized, administrative agencies were staffed by experts—unlike the common lawyers who served in the Third Branch. Judges were “jacks-of-all-trades and masters of none” due to their “breadth of jurisdiction and freedom of disposition.” Id. at 31. And if there‘s anything worse than a judge who‘s unaware of his own “inadequacies,” id. at 123, it‘s a judge who‘s both inadequate and prideful. “We must remember,” Landis told his readers, “until a comparatively short time ago Anglo-American government was essentially government by judges.” Id. at 135. “That class . . . had pride in its handiwork,” he continued, “[b]ut the claim to pride tends, especially in the hands of lesser men, to be a boast of perfection.” Ibid. Secretly insecure about their “lesser vision,” the judges “claim[ed] Delphic powers, and rest[ed] the learning of the law upon an affinity with deep and mysterious principles of justice that none but itself can grasp.” Ibid. Hearing “any criticism of its inadequacies, any suggestion as to its biases,” the judiciary developed a “[d]eep resentment” toward the expert administrators. Ibid. “To admit to the dispensation of justice other individuals, no matter how wise, who are not bound by the older disciplines, [wa]s regarded by horror.” Ibid.
Landis‘s solution to this problem was the same as Wilson‘s: eliminate or at least minimize the role of courts in our constitutional system. Obviously, it would be best to eliminate the courts altogether. Otherwise, “lodg[ing] a great, interpretive power in the judiciary involved the risk that a policy, which initially was given to the administrative to formulate, might be thwarted at its most significant fulcrum by judgments antagonistic to its own.” Id. at 97. It would be far better, in Landis‘s view, that the SEC could
But if courts simply must be part of our constitutional order, Landis said, their role must be minimized as far as possible. Landis disputed the idea that all administrative action must be judicially reviewable. Id. at 124. Rather, courts should be confined to determining little things—like “the regularity of the procedure employed by the administrative” agency. Ibid. And Landis was heartened by the Interwar Congresses, which tended “to decrease rather than to increase the power of judges to impose checks upon the exercise of administrative power.” Id. at 100.
III.
While it‘s clear that Landis wanted to fully insulate his brainchild agency against judicial oversight, it‘s equally clear that the text passed by Congress and signed by the President did not accomplish that purpose. As the Supreme Court recently reminded us:
Efforts to ascribe unenacted purposes and objectives to a federal statute face many of the same challenges as inquiries into state legislative intent. Trying to discern what motivates legislators individually and collectively invites speculation and risks overlooking the reality that individual Members of Congress often pursue multiple and competing purposes, many of which are compromised to secure a law‘s passage and few of which are fully realized in the final product.
Va. Uranium, Inc. v. Warren, 139 S. Ct. 1894, 1907–08 (2019); see also Rodriguez v. United States, 480 U.S. 522, 525–26 (1987) (per curiam) (“[N]o legislation pursues its purposes at all costs.“).
In this case, however, both the dissent and the SEC would have us read
A.
The dissent breaks from the majority most sharply by distinguishing this case from the Supreme Court‘s materially identical case, Free Enterprise. Though both cases involve plaintiffs challenging the removability of the SEC adjudicators overseeing their respective administrative proceedings, the
1.
Let‘s start with the text. The current version of
A person aggrieved by a final order of the Commission entered pursuant to this chapter may obtain review of the order in the United States Court of Appeals for the circuit in which he resides or has his principal place of business, or for the District of Columbia Circuit, by filing in such court, within sixty days after the entry of the order, a written petition requesting that the order be modified or set aside in whole or in part.
The Supreme Court‘s analysis in Free Enterprise tracks the distinction in
The SEC and the dissent attempt to redraw the line created by
2.
One might think that if the investigation-enforcement distinction lacks a textual basis, perhaps it‘s nonetheless a practical tool that neatly tracks two dichotomous sets of on-the-ground SEC activities. Again, wrong. Investigation and enforcement are two stages of the same administrative process, conducted by the same division of the SEC. And it makes little practical sense to draw a neat legal line between them, because the SEC blends the two activities in a variety of ways, and even conducts both simultaneously.
Investigation and enforcement are both carried out by the SEC‘s “Enforcement Division,” which is the division that “[1] recommend[s] the commencement of investigations of securities laws violations, [2] recommend[s] that the Commission bring civil actions in federal court or before an administrative law judge, and [3] prosecut[es] these cases on behalf
If the SEC is not satisfied with the information it can procure voluntarily, it might turn to more formal and coercive investigative tools. The Director of the Enforcement Division can issue a “Formal Order of Investigation,” delegating the SEC‘s statutory authority to subpoena documents and testimony, see
But the investigation does not necessarily stop when the enforcement starts. Staff may continue to issue investigatory subpoenas “under the same investigation file number or pursuant to the same [Formal Order of
Meanwhile, the ALJ—like the SEC staff who just investigated and might still be investigating—may explore the facts by issuing subpoenas, administering oaths and hearing testimony, and receiving relevant evidence from both sides.
Only after the full Commission considers the appeal and issues a final decision may the defendant use
3.
Not only is the dissent‘s investigation-enforcement line atextual and artificial, it‘s also illogical. The dissent suggests that respondents in
Wrong again. Throughout the entire administrative process—regardless of whether enforcement has begun—the target must choose whether to settle or bet the farm. And the SEC places substantial pressure on targets to choose the former. See Jay Clayton, Statement Regarding Offers of Settlement (July 3, 2019), https://perma.cc/MTZ9-5HEE (praising the “demonstrated willingness of the Commission to litigate zealously if a timely and reasonable offer of settlement is not made“); Urska Velikonja, Are the SEC‘s Administrative Law Judges Biased? An Empirical Investigation, 92 Wash. L. Rev. 315, 364–65 (2017) (noting that enforcement-proceeding defendants’ “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“). In addition to such “sticks,” the SEC also uses powerful “carrots” to coerce settlements. For example, the Commission will settle on a “neither admit nor deny” basis that allows defendants to avoid admitting liability; it will also waive important collateral consequences—like the loss of well-known seasoned issuer status—that would otherwise follow from an unfavorable result in enforcement proceedings. See Fagel et al., supra, at 14–17. Given these carrots and sticks, “choosing to litigate is, in fact, equivalent to ‘betting the farm.‘” Tilton v. SEC, 824 F.3d 276, 298 n.5 (2d Cir. 2016) (Droney, J., dissenting).
The investigation-enforcement distinction also illogically precludes Cochran‘s claim as soon as it ripens. Cochran claims that the ALJ presiding over her administrative adjudication was unconstitutionally protected from removal. Before the SEC‘s order instituting proceedings, no ALJ had been assigned to or involved in her case, so any challenge to the removal protections of SEC ALJs would have been unripe. See Abbott Lab‘ys v. Gardner, 387 U.S. 136, 148–49 (1967) (ripeness requires that the effects of the challenged policy be “felt in a concrete way by the challenging parties“). As soon as the SEC issued its order instituting proceedings and assigned an ALJ to Cochran‘s case, her claim ripened because that‘s when an official with an alleged constitutional defect started presiding over her case. But under the dissent‘s dichotomy, that was also the exact moment her claim disappeared. And her claim would remain illusory, under the dissent‘s view, until well after the ALJ in question is finished with the case, at which point the claim would suddenly reappear and could be asserted in a federal court of appeals. Thus, according to the dissent, a removal-power claim can be justiciable during an SEC investigation (e.g., Free Enterprise); ripen and then immediately disappear when the SEC commences an enforcement proceeding (e.g., this case); and reappear again after the SEC concludes its
The dissent nonetheless asserts that allowing Cochran to seek review when her claim ripens would allow a novel and disruptive form of “midenforcement review.” Post, at 72, 85 n.12 (Costa, J., dissenting). This characterization distorts both the law and the facts. First, the law: The door to judicial review remains open under
Second, the facts: Cochran did not wait until the “middle” of her enforcement proceedings to seek judicial review. Rather, once her case was reassigned to a new ALJ following Lucia, she presented her claims by motion to the ALJ and then filed this action—before the ALJ had scheduled a hearing or the SEC had taken any substantial steps to prosecute her case before the new ALJ. If some other enforcement target in some future case actually waits until the middle of an enforcement proceeding before raising a constitutional
In sum, the dissent would bar Cochran from bringing her claim at the most natural time to adjudicate it—once she begins to concretely suffer harm from the allegedly unconstitutionally insulated ALJ. And would do so by relying on an investigation-enforcement distinction that has no basis in the text of § 78y, makes no practical sense in light of the SEC‘s enforcement procedures, and is illogical. Once the investigation-enforcement distinction is rejected as atextual, artificial, and illogical, Free Enterprise plainly controls and gives Cochran the opportunity to bring her claim in district court.
B.
The dissent is quite right that our court is the first to apply Free Enterprise to investigative and enforcement proceedings alike. But in addition to faithfully applying that materially indistinguishable opinion, our approach aligns with other Supreme Court precedent. When faced with a judicial
1.
Begin with the “meaningful judicial review” factor. If funneling a particular claim through the statutory review mechanism will deny a plaintiff meaningful judicial review of that claim, that suggests the statute did not implicitly preclude district court jurisdiction over the claim. Applying this factor to Cochran‘s claim, the key case is Collins v. Yellen, 141 S. Ct. 1761 (2021).
Like Cochran, the petitioners in Collins claimed that agency officials who had made decisions that harmed them were unconstitutionally protected from removal. The Supreme Court agreed with the petitioners that certain removability protections were unconstitutional. But “[a]ll the officers [in question] were properly appointed,” so the Court found that their actions were not automatically rendered void by virtue of the unconstitutional removal protections. Id. at 1787. Thus, because Collins was a removability case, the Supreme Court did not grant the same remedy that it had previously granted in unconstitutional appointment cases—namely, the right to a new hearing before a new ALJ after the constitutional defect was cured. E.g., Lucia
This suggestion indicates that it will be very challenging to obtain meaningful retrospective relief for constitutional removability claims after Collins. Winning the merits of the constitutional challenge will not be enough, as it has been in appointment cases like Lucia. Challengers will also need to identify a retroactively vindicable harm inflicted by the unconstitutional removal protection. It is unclear how often challengers will be able to do this—the examples hypothesized by the Collins Court, like a public statement that an officer would have been removed but for a removal protection, are quite uncommon occurrences. Thus, challengers with meritorious removability claims may often be left without any remedy if they are forced to wait until after enforcement proceedings conclude and bring their claims through § 78y.
The “meaningful judicial review” factor thus requires an alternative path to court for targets of SEC enforcement proceedings. A person subject to an unconstitutional adjudication should at least be able to sue for declaratory relief requiring a constitutionally structured proceeding. Cf. Free Enterprise, 561 U.S. at 513 (finding petitioners “entitled to declaratory relief sufficient to ensure that the . . . standards to which they are subject will be enforced only by a constitutional agency accountable to the Executive“). After Collins, this may be the only way to provide a “‘meaningful’ avenue of
2.
Consider the final two Thunder Basin factors: whether the claims are “wholly collateral” to a statute‘s review provisions, and whether they are “outside the agency‘s expertise.” 510 U.S. at 212 (quotation omitted). The key case here is Carr v. Saul, 141 S. Ct. 1352 (2021).
In Carr, disability claimants before the Social Security Administration whose claims had been rejected by the Administration‘s ALJs argued that the ALJs had not been validly appointed under the Appointments Clause. The Administration responded that the claimants had forfeited this argument by failing to raise it before the agency. The Supreme Court rejected the Administration‘s position, holding that an issue-exhaustion requirement should not be imposed on the petitioners’ Appointments Clause claims. This holding rested on a finding that “adversarial development” of the petitioners’ structural constitutional claim “simply did not exist” in the ALJ proceedings. Id. at 1362 (quoting Sims v. Apfel, 530 U.S. 103, 112 (2000)). This finding suggests that structural constitutional challenges often cannot be meaningfully aired in administrative proceedings. And that supports the conclusion that they are “wholly collateral” to those proceedings.7
The dissent resists this conclusion by arguing that we should consider whether the ALJ has expertise regarding the “overall case,” not the specific claim Cochran wants to bring in district court. Post, at 90 (Costa, J., dissenting). This is appropriate, the argument goes, because the ALJ‘s expertise-guided ruling on other issues might moot Cochran‘s constitutional claim. This approach has several problems. For one, it stacks the deck against judicial review, such that the “agency expertise” factor will always favor the agency—because agency enforcement proceedings, considered in their entirety, always relate to the agency‘s area of expertise. Second, it is flatly inconsistent with Thunder Basin‘s focus on whether “claims . . . [are] outside the agency‘s expertise,” not whether cases are. 510 U.S. at 212. Finally, it rests on an overreading of Elgin v. Department of Treasury, where the Court noted that in the particular dispute in that case, the agency might use statutory interpretation to alleviate the petitioners’ constitutional concerns. 567 U.S. 1, 23 (2012). Elgin did not purport to transform the Thunder Basin test from a claim-focused inquiry to a case-focused inquiry. And Carr establishes beyond any doubt that Cochran‘s claim is outside the expertise of the SEC.
C.
Efficiency was James Landis‘s biggest worry. He called it “the desperate need” of government. LANDIS, supra, at 24. The administrative
First and most importantly, when Congress vests a district court with jurisdiction, it‘s obliged to exercise it—efficiencies aside. Long before Landis lodged his objections, Chief Justice Marshall affirmed that federal courts must take cases within their jurisdiction: “We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given.” Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821). By now it is well established that, with exceptions not relevant here, “federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). The “efficiency” of exercising jurisdiction is irrelevant. If you have it, you exercise it; if you don‘t, you don‘t.
Second, even if efficiency mattered, the exercise of jurisdiction would be no more inefficient in Cochran‘s case than in Free Enterprise, where the Supreme Court held that § 78y did not strip district court jurisdiction during ongoing investigative proceedings. The dissent identifies four inefficiencies that may result from “allowing immediate judicial resolution” of Cochran‘s claim: (1) “three courts w[ill] have devoted time to the agency matter” by the time it concludes; (2) “a respondent will get two bites at a cert petition“;
Third and finally, allowing Cochran to raise her removal-power challenge at the beginning of her enforcement proceeding may prove more efficient than requiring her to first wade through the potentially unconstitutional review process. To see why, consider the case of Raymond Lucia—a case the dissent cites for the proposition that Cochran could get meaningful post-enforcement review of her constitutional claim. Post, at 81 (Costa, J., dissenting). Lucia, using § 78y, prevailed in the Supreme Court after years of SEC enforcement proceedings and appellate review. The Court agreed with Lucia that the SEC ALJ who adjudicated his enforcement proceedings “heard and decided Lucia‘s case without the kind of
* * *
Woodrow Wilson asked his fellow statesmen to worry less about the constitution of government and more about its administration. The SEC asks the same of us today: Let us get on with administration, and you can worry about how our administrative proceedings are constituted another time. The majority is right to reject this argument. Under
This appeal is not about whether Michelle Cochran will have the opportunity to press her separation-of-powers claim—she will. It instead asks: Where and when?
Before today, every court of appeals to consider the question has answered that a person facing an SEC enforcement action may not mount a collateral attack against the agency proceeding in federal district court. Bennett v. SEC, 844 F.3d 174 (4th Cir. 2016); Hill v. SEC, 825 F.3d 1236 (11th Cir. 2016); Tilton v. SEC, 824 F.3d 276 (2d Cir. 2016); Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015); see also Axon Enter., Inc. v. FTC, 986 F.3d 1173 (9th Cir. 2021) (holding same for similar FTC judicial review provision). Now, for the first time in the 80-plus year history of the SEC,1 an appellate court is allowing that district court intervention.2 The majority‘s new path contravenes a statutory scheme that
I.
We are supposed to be chary—not champing at the bit—to create circuit splits. Alfaro v. Comm‘r of Internal Revenue, 349 F.3d 225, 229 (5th Cir. 2003). The majority‘s discounting the wisdom of our brethren is especially pronounced when it comes to the first question this case poses: whether it is “fairly discernible” from the SEC enforcement scheme “that Congress precluded district court jurisdiction” over suits challenging an agency proceeding. Elgin v. Dep‘t of Treasury, 567 U.S. 1, 10 (2012) (first quotation from Thunder Basin, 510 U.S. at 207). Five circuits have considered the question. By a count of 15-0, every judge deciding those cases has answered that the “securities laws’ scheme of Commission adjudication and ensuing judicial review” in an appellate court divests district courts of jurisdiction in the “mine-run of cases.”3 Jarkesy, 803 F.3d at 16; accord
A distinguished D.C. Circuit panel explained why it was not “seriously dispute[d] that Congress meant to channel most challenges to the Commission‘s administrative proceedings through the statutory review scheme.” Jarkesy, 803 F.3d at 17 (Srinivasan, J., joined by Judges Kavanaugh and Randolph); see also Tilton, 824 F.3d at 282 (noting the plaintiffs did not even contest this issue). The language and structure of the SEC judicial review statute are “nearly identical” to those of the Mine Safety Act, which the Supreme Court recognized “implicitly barred” district court jurisdiction over pre-enforcement challenges. Jarkesy, 803 F.3d at 16 (citing Thunder Basin, 510 U.S. at 207–08;
Starting with the text, section 78y‘s grant of jurisdiction to the aggrieved party‘s local circuit or the D.C. Circuit only after issuance of a final agency order channels review through that scheme. See Jarkesy, 803 F.3d at 16; see also Free Enter., 561 U.S. at 489 (“Generally, when Congress creates
The structure of the SEC enforcement scheme provides further evidence that section 78y creates an exclusive review scheme that bypasses district courts. The SEC has three options when pursuing a case. The Commission may adjudicate the case itself, pursue charges before an ALJ, or file suit in district court.
The majority comes up with three reasons to doubt this straightforward analysis that heretofore enjoyed unanimous circuit support. First, it points out that section 78y applies only when there is a “final order of the Commission.” Maj. Op. 6 (citing
Section 78y does nothing new in requiring final agency action before judicial review. Of course, the Administrative Procedure Act imposes that requirement for judicial review of agency action.
We know, however, that the law does not allow pre-enforcement district court suits whenever a judicial review scheme only vests courts of appeals with postenforcement jurisdiction. After all, that describes the two judicial-review statutes the Supreme Court has read to impliedly preclude district court jurisdiction. The Mine Act allows review in the courts of appeals of “an order of the Commission issued under this chapter.”
More broadly, the majority‘s theory that a postenforcement judicial-review scheme cannot limit pre-enforcement challenges is at odds with the very concept of implicit jurisdiction stripping. The premise of implicit preclusion of district court jurisdiction is that an agency enforcement scheme combined with postenforcement judicial review can create “a single review process” in which pre-enforcement judicial challenges “might thwart effective enforcement of the statute.” Thunder Basin, 510 U.S. at 211, 212; id. at 207 (“In cases involving delayed judicial review of final agency actions, we shall find that Congress has allocated initial review to an administrative body where such intent is ‘fairly discernible in the statutory scheme.’” (emphasis added) (quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351 (1984) (quoting Ass‘n of Data Processing Serv. Orgs. v. Camp, 397 U.S. 150, 157 (1970)))). The majority is thus rejecting the Supreme Court‘s doctrine of implied preclusion rather than applying it.
The majority‘s second reason for why it believes section 78y does not channel review to postagency appeals—that the statute says that an appeal “may” be brought in the court of appeals—is even weaker. Statutes authorizing review of agency decisions commonly use the permissive “may.” See, e.g.,
The majority‘s third argument is a curious one. It theorizes that in stating that a court of appeals’ jurisdiction “becomes exclusive on the filing of the record,” the statute somehow means district courts have jurisdiction before that point. Maj. Op. 8 (citing
Beyond these problems with the three novel reasons it identifies for the view that section 78y does not forbid district court jurisdiction, the majority‘s analysis of this first step of the preclusion analysis suffers from a more general analytical misstep. In determining “whether it is ‘fairly discernible’ that Congress precluded district court jurisdiction over petitioners’ claims, we examine [the statute‘s] text, structure, and purpose.”
This first/second step distinction may seem like an academic debate about which doctrinal box to fit various arguments in. But the ramifications are far-reaching of the majority‘s reasoning that section 78y does not create an exclusive review scheme because it is permissive and applies only to those challenging final orders. It would mean that district courts’ federal question jurisdiction under section 1331 applies across the board to claims relating to
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The overarching problem is that the majority analyzes the “discernible intent” question as if it were writing on a blank canvas. But the Supreme Court has already painted the picture. Statutes, with language and structure almost identical to section 78y, that provide for agency adjudication followed by appellate review generally prevent district courts from interfering with enforcement proceedings. Even when the judicial review provision applies only to “final agency action.” Even when the judicial review provision says a party “may” appeal. Even when a court of appeals’ jurisdiction becomes “exclusive” once the agency record is filed. Even when the statute gives the agency a choice to bring an administrative proceeding or lawsuit. As every circuit judge who has looked at the question before today has concluded, the Exchange Act creates an exclusive review scheme once the Commission brings an administrative proceeding.
II.
Having had to engage in a far-too-lengthy dive into what should be the easy question in this case, we arrive at the one that has been the focus in other courts: whether the separation-of-powers claim Cochran asserts is of the type that Congress meant to exclude from district court jurisdiction when it created the SEC-specific scheme or agency review followed by direct appeal to a circuit court. We can conclude that Congress did not intend for a claim to go through the statutory review scheme it created only when: (1) administrative proceedings would foreclose all meaningful judicial review; (2) “the suit is wholly collateral to a statute‘s review provisions“; and (3) the claim is “outside the agency‘s expertise.” Free Enter., 561 U.S. at 489
A.
Meaningful review is available for Cochran‘s separation-of-powers claims. That opportunity exists when a party can raise its claims to a court of appeals following an adverse result before the agency. See Elgin, 567 U.S. at 17; Thunder Basin, 510 U.S. at 215. It is indisputable that such an opportunity exists for separation-of-powers claims brought by parties facing an enforcement action.
Exhibit A is Lucia v. SEC, 138 S. Ct. 2044 (2018), the case Cochran relies on to support the merits of her removal-power claim. Lucia‘s challenge to the appointment of SEC ALJs did not require deviation from section 78y‘s review scheme. That landmark ruling came from a postenforcement appeal that went to the court of appeals and then on the Supreme Court. Id. at 2049−50. Section 78y‘s judicial review proved meaningful for Lucia.
Exhibit B is another leading separation-of-powers case, NLRB v. Noel Canning, 573 U.S. 513 (2014). The Pepsi distributor convinced the D.C. Circuit and Supreme Court that recess appointments to the NLRB were unconstitutional after the NLRB ruled that the company had to execute a collective bargaining agreement. See id. at 520–21; 705 F.3d 490 (D.C. Cir. 2013); 358 N.L.R.B. No. 4 (2012). Judicial review after the agency issued a final order allowed meaningful review of Noel Canning‘s claim under the Recess Appointment Clause.
Exhibit C is a case the Supreme Court decided earlier this year, Carr v. Saul, 141 S. Ct. 1352 (2021). Carr holds that Social Security claimants who lose before an ALJ can raise a separation-of-powers claim during postadjudication judicial review even without exhausting that claim before the agency. Id. at 1356–58, 1362. If postadjudication review were not
Exhibit D is a case pending on our docket, Jarkesy v. SEC, No. 20-61007 (appeal filed Nov. 2, 2020). You may recall the name, as Jarkesy was the person who unsuccessfully tried to file a pre-enforcement suit in federal court in the District of Columbia. See 803 F.3d at 9. After the administrative proceeding against Jarkesy ran its course, he filed an appeal in our court. His appeal raises, among other claims, the same removal-power challenge to SEC ALJs that Cochran is pursuing. Brief for Petitioners, Jarkesy v. SEC, No. 20-61007, at 55–57. Jarkesy is thus using the section 78y path to obtain meaningful review of his separation-of-powers claim.9
The majority cannot deny that parties have been and are raising separation-of-powers claims like Cochran‘s in postenforcement appeals. Tellingly, it is only able to say that “the Exchange Act‘s statutory-review scheme threatens to deprive Cochran of the opportunity for meaningful judicial review.” Maj. Op. 20 (emphasis added). It is not surprising that the majority cites no authority for this “threatens to” standard; its reason for why Cochran‘s claim may not end up in a court shows that this argument proves too much. The majority explains there is no “guarantee” Cochran will obtain judicial review as she may win before the ALJ. Maj. Op. 21. True enough, but that is also true of other constitutional claims (like due process)
The majority thus has to identify something different about claims alleging that an ALJ enjoys improper removal protection. That difference, it concludes, is that even if Cochran wins before the ALJ, she would have suffered the “injury of having to appear before the SEC.”10 Maj. Op. 21. But see Jarkesy, 803 F.3d at 25 (rejecting this argument that a claim can avoid the section 78y review scheme if it involves a harm of “having to undergo a constitutionally deficient proceeding“). But we now know there is a more
Contrary to the undeniable opportunity for review that section 78y affords Cochran, by definition postenforcement review does not exist for a party not facing an enforcement action. As every circuit to consider the question (including this one in 2019) has recognized, that is the critical distinction between a case like this one and Free Enterprise Fund. See Bank of La. v. FDIC, 919 F.3d 916, 926–27 (5th Cir. 2019); Axon Enter., 986 F.3d at 1184; Bennett, 844 F.3d at 186; Hill, 825 F.3d at 1243; Tilton, 824 F.3d at 283−84; Bebo, 799 F.3d at 774−75; Jarkesy, 803 F.3d at 20.
Free Enterprise Fund involved an accounting firm that regulators were investigating but had not yet charged. Bank of La., 919 F.3d at 926 (discussing Free Enter., 561 U.S. at 489–91). The SEC judicial review provision does not provide an avenue for a party to challenge an investigation (as opposed to an actual enforcement proceeding). See
Our prior distinction between an investigation that may never reach an ALJ and a pending adjudication that already has is the same one other courts have recognized.12 See Axon Enter., 986 F.3d at 1184; Bennett, 844 F.3d at 186; Hill, 825 F.3d at 1243; Tilton, 824 F.3d at 283−84; Bebo, 799 F.3d at 774−75; Jarkesy, 803 F.3d at 20. As the Ninth Circuit recently put it, ”Free Enterprise does not appear to address a scenario where there is eventual judicial review, but rather speaks only to a situation of no guaranteed judicial review.” Axon Enter., 986 F.3d at 1184.13
In departing from the reading a unanimous Fifth Circuit panel gave Free Enterprise Fund just two years ago, the majority comes up with a distinction that no other circuit has recognized in the more than ten years since the Supreme Court decided Free Enterprise Fund. The distinction, the majority concludes, is that “the Free Enterprise Fund accounting firm sought structural relief.” Maj. Op. 20–21. The most glaring problem with this theory is that nowhere does Free Enterprise Fund say that district court jurisdiction exists because the claim is a structural one.14 See 561 U.S. at 490;
Instead of saying something along those lines, Free Enterprise Fund emphasizes that the investigative posture the accounting firm found itself in is what made section 78y inapplicable: “Section 78y provides only for judicial review of Commission action, and not every Board action is encapsulated in a final Commission order or rule.” 561 U.S. at 490. The investigation by the Public Company Accounting Oversight Board (PCAOB) was not reviewable under section 78y because an investigation does not culminate in a final agency order. It follows easily from that fact that section 78y did not provide for meaningful review of the claim challenging the Board. Id.; see also Axon Enter., 986 F.3d at 1184 (“[T]he court justified district court jurisdiction on the narrow ground that the challenged action—the Board‘s critical report of the auditing firm—did not amount to a final order that could be appealed to a court under the statutory scheme.“). It also follows that section 78y provides a meaningful avenue of relief for people like Cochran and Lucia who are “embroiled in an enforcement proceeding” and can appeal an adverse agency order. Bank of La., 919 F.3d at 927 (quotation omitted); see also Lucia,
B.
The investigation/enforcement distinction also explains why the Free Enterprise Fund claim was wholly collateral to the section 78y scheme whereas Cochran‘s removal power claim may not be. See Jarkesy, 803 F.3d at 23 (explaining that in Free Enterprise Fund “the Court found that the plaintiffs’ pre-enforcement Article II claims were ‘collateral’ to the SEC administrative-review scheme because the Free Enterprise plaintiffs were not in that scheme at all; hence, their general challenge to the PCAOB‘s existence was ‘collateral to any Commission orders or rules from which [judicial] review might be sought.‘” (quoting Free Enter., 561 U.S. at 490)). Courts analyzing whether a claim is wholly collateral to the administrative scheme have usually asked whether the plaintiff‘s claim arises as a result of the actions the agency took during the challenged proceedings. Bank of La., 919 F.3d at 928−29. Cochran‘s challenge—that the official adjudicating her claim is unconstitutionally insulated from executive control—is “inextricably intertwined with the conduct of the very enforcement proceeding the statute grants the [SEC] the power to institute and resolve as an initial matter.” Id. at 928 (quoting Jarkesy, 803 F.3d at 23). That is,
The majority opinion takes a different approach to this factor, asking whether the substance of Cochran‘s claims is intertwined with the enforcement scheme. Although some circuits have suggested this approach, our court is the first to adopt it. Bank of La., 919 F.3d at 928 (explaining that some circuit courts have suggested this approach though none have adopted it). And the majority‘s view echoes reasoning the Supreme Court has rejected. See Elgin, 567 U.S. at 29–30 (Alito, J., dissenting) (“Administrative agencies typically do not adjudicate facial constitutional challenges to the laws that they administer. Such challenges not only lie outside the realm of special agency expertise, but they are also wholly collateral to other types of claims that the agency is empowered to consider.“).
But even the majority‘s preferred approach on “wholly collateral,” cannot overcome the other two Thunder Basin factors to give the district court jurisdiction despite the statutory scheme of agency adjudication plus an appeal. See Free Enter., 561 U.S. at 489−91 (holding that district court had jurisdiction because all three Thunder Basin factors favored that result); Axon Enter., 986 F.3d at 1187 (“[U]nder Supreme Court precedent the presence of meaningful judicial review is enough to find that Congress precluded
C.
The third Thunder Basin factor—agency expertise—appears at first blush to help Cochran. Purely legal questions that are not interpretations of the agency‘s statute or regulations—like issues of constitutional law—do not generally benefit from agency expertise. See Thunder Basin, 510 U.S. at 215; see also Carr, 141 S. Ct. at 1360 (excusing failure to exhaust in part because an ALJ does not have expertise on a separation-of-powers claim). But the Supreme Court‘s most recent instruction is that we should not just consider whether the agency has expertise with respect to the particular claim the plaintiff wants to resolve in district court. See Elgin, 567 U.S. at 23; Tilton, 824 F.3d at 289 (explaining that Elgin followed “a broader conception of agency expertise” in “emphasiz[ing] that an agency may bring its expertise to bear on a constitutional claim indirectly, by resolving accompanying, potentially dispositive issues in the same proceeding“); Jarkesy, 803 F.3d at 28 (explaining that Elgin “clarified . . . that an agency‘s relative level of insight into the merits of a constitutional question is not determinative” on the agency expertise factor).
The benefit of agency expertise should instead be assessed by looking at the overall case, so this factor accounts for the possibility that the agency‘s resolution of other issues “may obviate the need to address the constitutional
Considering whether a plaintiff might prevail before the ALJ on nonconstitutional grounds is consistent with the principle that we should avoid reaching difficult constitutional claims when alternative resolutions exist. Ashwander v. Tenn. Valley Auth., 297 U.S. 288, 348 (1936) (Brandeis, J., concurring). As Judge Sutton has explained, ”Elgin and Thunder Basin promote” constitutional avoidance because “the crucible of administrative review ensures that the petitioner‘s case presents a true constitutional dispute before the Judiciary steps in to decide those weighty issues.” Jones Bros., Inc. v. Sec‘y of Lab., 898 F.3d 669, 676 (6th Cir. 2018). Allowing separation-of-powers claims to evade the judicial review scheme that Congress created gets constitutional avoidance backward. See Jarkesy, 803 F.3d at 25.
The majority refuses to follow Elgin on this point. Its excuse for not doing so is that Elgin‘s holding is supposedly inconsistent with Free Enterprise Fund and the latter controls because it involved the SEC. Maj. Op. 17 n.11, 20–21 & n.12. But there is no inconsistency. Once again, the fact that the Free Enterprise Fund accounting firm was not a party to an enforcement proceeding explains the different outcome. The firm was being investigated by a Board that it believed (correctly, it turned out) enjoyed unconstitutional removal protection. There was no ALJ to complain to about the
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The Thunder Basin factors thus do not demonstrate that Congress intended to except separation-of-powers claims from the avenues the Exchange Act creates for challenging enforcement proceedings. Just as Lucia followed those procedures to achieve a landmark ruling on the appointment power, Cochran has the same opportunity for her removal power claim.
Cochran contends that allowing immediate judicial resolution of her claim in district court would be the more efficient course. But that is a myopic view as it assumes the arguments an SEC respondent advances in the district court will always be winning ones. What if claims brought in district court fail on the merits? Then, instead of the one court Congress authorized, three courts would have devoted time to the agency matter: (1) the district court pre-enforcement; (2) the court of appeals in its review of the pre-enforcement challenge, and (3) another court of appeals panel in the traditional postenforcement review. Cf. Standard Oil, 449 U.S. at 242 (recognizing that “piecemeal review” prior to the completion of adjudication “is inefficient and upon completion of the agency process might prove to have been unnecessary“). On top of that, a respondent will get two bites at a cert. petition—one pre-enforcement and one post. Multiple layers of unsuccessful pre-enforcement judicial review will be costly to the parties and courts while substantially delaying the agency proceeding. Also problematic is that allowing judicial review both before and after an agency adjudication risks review of the same matter in different circuits, a result that would be inefficient, anomalous, and potentially mischievous. Cf. Elgin, 567 U.S. at 14 (recognizing that allowing district court jurisdiction over challenges to agency proceedings creates the “potential for inconsistent decisionmaking and duplicative judicial review“); see also Jarkesy, 803 F.3d at 30.
Even when the pre-enforcement suit succeeds, allowing multiple layers of review before the agency rules may not necessarily be more efficient. It is not certain that district court litigation, followed by appellate review, would produce a quicker resolution than agency adjudication followed by appellate review. Review schemes that exclude district courts, like those in section 78y, recognize that a “double layer of judicial review” can be
The point, though, is that regardless of whether efficiency concerns tilt in favor of pre-enforcement review in a particular case, systemic concerns about piecemeal review in the mine run of cases counsels against adding layers of review to the scheme the Exchange Act created. See, e.g., Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 374 (1981) (listing reasons that “a party must ordinarily raise all claims of error in a single appeal following final judgment on the merits“). Postenforcement review schemes in administrative law are hardly the only situation in the law when parties have to wait for review of claims that might end their dispute. For example, the general prohibition on interlocutory appeals requires a party to litigate its whole case before challenging on appeal a constitutionally deficient trial. In criminal cases, that means a defendant may spend months (if not years) in prison before an appellate court recognizes that he should not have faced the prosecution in the first place. See Jarkesy, 803 F.3d at 26 (“[W]hen a district court denies a federal criminal defendant‘s pretrial motion, that denial ordinarily is not immediately appealable.“). And abstention doctrines often prevent parties from seeking immediate vindication of constitutional rights in federal court. Id. at 26 (citing Younger v. Harris, 401 U.S. 37, 46 (1971)). Such rules against premature judicial intervention recognize that piecemeal review will often prove less efficient. See Cobbledick v. United States, 309 U.S. 323, 325 (1940) (explaining that the final judgment rule “avoid[s] the obstruction of just claims that would come from permitting the harassment and cost of a succession of separate appeals“).
At the end of the day, however, which system of review is more efficient is beside the point. Congress and the President get to make that policy decision when they enact laws. As every other circuit to consider this question has held, even when it comes to separation-of-powers claims, the
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This case presents a technical but important jurisdictional issue. It is not a referendum on the Presidencies of Woodrow Wilson and Franklin Roosevelt. But see Concurring Op. 30–43.
In sticking to our judicial duty of answering the legal question before us, we take Supreme Court precedent as it is, not as we wish it to be. All five courts of appeals that have applied that caselaw have concluded it compels the same result the district court reached in this case: section 78y creates an exclusive review scheme for pending SEC proceedings that does not allow district court intervention. Today‘s novel ruling to the contrary is at odds with Elgin and Thunder Basin, overrides the Exchange Act‘s exclusive review scheme, will be inefficient for courts and agencies, and injects federal courts into sensitive interbranch disputes before seeing if there are other ways to resolve a case.
Notes
Under the 1934 Act as Landis wrote it, “[a]ny person aggrieved by an order issued by the Commission” could seek judicial review, § 25(a), 48 Stat. at 901 (emphasis added), whereas the current version of
First, Landis‘s version of the statute precluded even more judicial review than the current version of
[T]he long-settled rule of judicial administration [is] that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted. That rule has been repeatedly acted on in cases where, as here, the contention is made that the administrative body lacked power over the subject matter. Obviously, the rules requiring exhaustion of the administrative remedy cannot be circumvented by asserting that the charge on which the complaint rests is groundless and that the mere holding of the prescribed administrative hearing would result in irreparable damage.
Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50–51 (1938). And it cannot be contended that Congress added the word “final” to import this exhaustion-based denial of judicial review into
Second, when Landis wrote the 1934 Act, Congress had not yet enacted the Administrative Procedure Act (“APA“). It enacted the latter in 1946. Thus, when Landis wrote the 1934 Act, its review provision provided the only statutory mechanism to seek judicial view of “an order issued by the Commission,” whereas today targets like Cochran can ignore
We note that several of the other circuits relied on their own precedents in concluding that the plaintiffs’ claims were precluded. See Tilton, 824 F.3d at 285; Hill, 825 F.3d at 1248; Jarkesy, 803 F.3d at 19, 22, 24, 26, 29–30. It is likely that these courts were required to follow their own prior decisions. See Christiansen v. Omnicom Grp., Inc., 852 F.3d 195, 199 (2d Cir. 2017) (per curiam) (explaining that the court is “bound by the decisions of prior panels until such time as they are overruled either by an en banc panel of our Court or by the Supreme Court” (quoting United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir. 2004))); In re Burgest, 829 F.3d 1285, 1287 (11th Cir. 2016) (per curiam) (same); United States v. Eshetu, 898 F.3d 36, 37 (D.C. Cir. 2018) (per curiam) (noting that “one panel cannot overrule another“). By contrast, an en banc decision allows us to consider again any prior precedents, although we do not have any that require a different outcome here, as we explain. See United States v. Anderson, 885 F.2d 1248, 1255 (5th Cir. 1989) (en banc) (noting that, when sitting en banc, we do not “hesitate[]” to overrule incorrect panel decisions). Thus, we are free to focus exclusively on the Supreme Court‘s precedents; based on those precedents, we are bound to rule in Cochran‘s favor, despite our reluctance to disagree with our fellow circuits.
This would reach beyond separation-of-powers claims. See Bebo, 799 F.3d at 775 (noting that “[e]very person hoping to enjoin an ongoing administrative proceeding could make [the] argument” that pre-enforcement review would prevent an unlawful enforcement action). Consider a common dispute in securities cases: whether an investment vehicle is in fact a “security” subject to SEC jurisdiction. See, e.g., SEC v. Edwards, 540 U.S. 389 (2004); SEC v. W.J. Howey Co., 328 U.S. 293 (1946). A party who prevails on that argument in a postenforcement appeal should never have been subject to SEC jurisdiction in the first place. But that statutory claim can be raised in postenforcement appeals, so a district court would not have jurisdiction to consider it.
Thunder Basin demonstrates this point. The mine operator sued in district court arguing that the Secretary of Labor was applying a regulation in violation of the National Labor Relations Act. See 510 U.S. at 204–06. But the Supreme Court held that the mine had to face the enforcement proceeding and could challenge the Secretary‘s interpretation in court only after it lost before the agency. Id. at 216. If the mine ultimately prevailed in a postenforcement appeal, then it would have endured an unlawful enforcement proceeding. And one that implicates the separation of powers as an agency oversteps its Article II role when it takes action that violates law enacted by Congress. But the mine still had to raise its claim through the review scheme Congress created in the Mine Safety Act.
The majority ignores this language we used just two years ago in a case that raised the same separation-of-powers claim about tenure protection that Cochran advances. See Bank of La., 919 F.3d at 921, 930; see also Matter of Bank of La., FDIC-12-489b, FDIC-12-479k, 2016 WL 9050999, at *13 (Nov. 15, 2016)). While not even acknowledging how Bank of Louisiana limits Free Enterprise Fund the way every other circuit has—to cases in which the plaintiff is not “embroiled in an enforcement proceeding,” 919 F.3d at 927 (quotation omitted)—the majority declares that the decision was “addressing the explicit [FDIC statute] at issue.” Maj. Op. 13. But Bank of Louisiana‘s discussion of Free Enterprise Fund had nothing to do with the FDIC statute. See 919 F.3d at 926–27 (distinguishing Free Enterprise Fund without once mentioning the FDIC statute). What is more, Bank of Louisiana repeatedly relies on other circuits’ rulings in SEC cases. See id. at 923−930 (quoting Bennett, 844 F.3d at 186−87; Hill, 825 F.3d at 1249−51; Tilton, 824 F.3d at 286−90; Jarkesy, 803 F.3d at 13−14, 16−17, 19, 22–23, 28−29; Bebo, 799 F.3d at 767, 773).
As the majority does not overrule Bank of Louisiana, the decision‘s holding about Free Enterprise Fund and the Thunder Basin factors apparently remain good law. That is because alternative holdings are binding precedent in our court. United States v. Reyes-Contreras, 910 F.3d 169, 179 n.19 (5th Cir. 2018) (en banc). The majority‘s failure to grapple with Bank of Louisiana‘s application of the three Thunder Basin factors will cause confusion in future cases.
If all these decisions fly in the face of Free Enterprise Fund as the majority contends, then they would have been ripe for summary reversal at the Supreme Court. But thrice the Supreme Court denied cert petitions arguing that Free Enterprise Fund grants district courts’ jurisdiction for separation-of-powers challenges to pending SEC proceedings. Gibson v. SEC, 141 S. Ct. 1125 (Jan. 11, 2021); Tilton v. SEC, 137 S. Ct. 2187 (May 30, 2017); Bebo v. SEC, 136 S. Ct. 1236 (Mar. 28, 2016).
The argument in those cert petitions will sound familiar. For example, one petition argues it is challenging a ruling “fundamentally incompatible with this Court‘s decision in Free Enterprise Fund.” Petition for Certiorari, Tilton v. SEC, No. 16-906, 2017 WL 281861, at *12 (Jan. 18, 2017).
Another problem is that it is difficult to delineate and discern when a claim is a “structural” one, and the majority makes no effort to do so. Consider the claim pending in our court that the Seventh Amendment requires a jury for securities fraud cases being decided in agency proceedings. Brief for Petitioners, Jarkesy v. SEC, No. 20-61007, at 7–34. Is that a structural claim? Maybe so, given that the jury right limits the power of other governmental actors. In some sense, though, every constitutional claim is about the separation of powers as a constitutional right is a limit on government. The categorical exception Cochran seeks thus may be neither a category nor an exception. The Supreme Court noted similar line-drawing problems when it rejected carving out certain constitutional claims from a statute‘s channeling scheme because “a jurisdictional rule based on the nature of a[ ] . . . constitutional claim . . . is hazy at best and incoherent at worst.” Elgin, 567 U.S. at 15; cf. Weaver v. Massachusetts, 137 S. Ct. 1899, 1910 (2017) (noting that the concept of “structural error” in criminal cases should not carry “talismanic significance as a doctrinal matter“).
The dissenting opinion asserts that, because cases like Lucia and Carr have recognized a meaningful opportunity to bring post-enforcement Appointments Clause challenges, and the injury Cochran would suffer from an enforcement proceeding presided over by an unconstitutionally insulated ALJ is supposedly less “serious” than the injury caused by an enforcement proceeding presided over by an unconstitutionally appointed ALJ, Cochran must have a meaningful opportunity for post-enforcement judicial review of her claim. Dissenting Op. at 83–84. In making this curious argument, the dissenting opinion relies solely on the Supreme Court‘s recent decision in Collins, which held that the Director of the Federal Housing Finance Agency was unconstitutionally insulated from the President‘s removal power, but that this constitutional defect did not render the Director‘s acts “void.” 141 S. Ct. at 1787.
Collins does not impact our conclusion in this case because Cochran does not seek to “void” the acts of any SEC official. Rather, she seeks an administrative adjudication untainted by separation-of-powers violations. Although we will not engage in the dissenting opinion‘s efforts to weigh the relative severity of constitutional injuries, Cochran‘s injury is sufficiently serious to justify pre-enforcement review in federal court.
Moreover, the dissenting opinion seems to imply that, because a removal power violation does not render an improperly insulated official‘s acts void, Cochran would not