Lead Opinion
The Securities and Exchange Commission (the “SEC” or the “Commission”) enforces the federal securities laws by, among other things, filing actions seeking monetary penalties against alleged transgressors. Under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Pub. L. No. 111-203, 124 Stat. 1376, the SEC’s enforcement actions generally may take either of two forms: a civil lawsuit in federal district court, or an administrative proceeding conducted by the Commission or an administrative law judge (“ALJ”). Where both of those alternatives are available, the choice between them belongs to the SEC without express statutory constraint.
In this case, the SEC chose to seek penalties against the appellants, Lynn Til-ton and several of her investment firms, by commencing an administrative proceeding conducted by an ALJ. That proceeding is subject to two layers of review: A party that loses before the ALJ may petition for de novo review by the Commission, and a party that loses before the Commission may petition for review by a federal court of appeals. Not unlike a lawsuit in district court, therefore, the administrative proceeding ultimately offers the losing party a route to federal appellate review.
The appellants contend that the SEC’s administrative proceeding is unconstitutional because the presiding ALJ’s appointment violated Article II’s Appoint
The district court (Ronnie Abrams, Judge) dismissed the suit for lack of subject matter jurisdiction. Relying in part on the Supreme Court’s decisions in Elgin v. Department of Treasury, — U.S. -,
We agree. By enacting the SEC’s comprehensive scheme of administrative and judicial review, Congress implicitly precluded federal district court jurisdiction over the appellants’ constitutional challenge.
BACKGROUND
Until 2010, the SEC’s authority to impose monetary penalties through administrative proceedings was relatively limited. The agency could not, for example, penalize a non-regulated person such as Tilton through administrative channels. The Dodd-Frank Act dramatically expanded the SEC’s authority to impose penalties administratively, making it essentially “coextensive with [the SEC’s] authority to seek penalties in Federal court.” H.R. Rep. No. 111-687, at 78 (2010). Since then, the SEC has reportedly prosecuted an increasing number of cases through administrative proceedings, with a rate of success notably higher than it has achieved in federal district courts. See Jean Eaglesham, In-House Judges Help SEC Rack Up Wins, Wall St. J., May 7, 2015, at Al.
When the Commission chooses to seek penalties administratively, it must either preside over the proceeding itself or designate a hearing officer — usually an ALJ — to do so. See 17 C.F.R. § 201.110. A presiding ALJ has authority to issue an initial decision, which may become final only by order of the Commission. See id. § 201.360. If a party petitions for review of the ALJ’s initial decision, the Commission ordinarily reviews the decision de novo before issuing a final order. See id. § 201.411. And a final order issued under the securities laws, including the Investment Advisers Act of 1940, 15 U.S.C. § 80b-l et seq., is in turn subject to judicial review by a federal court of appeals, see id. § 80b-13(a) (providing that “[a]ny person or party aggrieved by an order issued by the Commission under [the Investment Advisers Act] may obtain a review of such order in the United States court of appeals within any circuit wherein such person resides or has his principal office or place of business, or in the United States Court of Appeals for the District of Columbia”).
During the past year or so, several respondents in ongoing SEC administrative proceedings have asserted that Article II of the United States Constitution bars the agency’s ALJs from acting as hearing officers. These respondents have made two distinct constitutional arguments: that the ALJs are impermissibly insulated from
In the case at bar, the SEC initiated an administrative proceeding before an ALJ in March 2015, alleging that the appellants had violated the Investment Advisers Act. Two days later, the appellants filed this lawsuit in the United States District Court for the Southern District of New York. They sought to enjoin the SEC’s administrative proceeding on the ground that, among other things, the presiding ALJ’s appointment violated the Appointments Clause.
While the district court heard argument and deliberated, several other federal judges reached conflicting decisions on the same jurisdictional issue, creating a split both within and outside the Southern District. Compare Spring Hill, No. 15-CV-4542 (S.D.N.Y. June 26, 2015) (bench ruling) (Ramos, /.) (concluding that the court lacked jurisdiction over a respondent’s Article II challenge to the ALJ conducting an ongoing administrative proceeding), with Hill v. SEC,
The appellants now ask us to reverse the district court’s jurisdictional dismissal of their Appointments Clause claim and rule, on the merits, that the ALJ presiding over their administrative proceeding was unconstitutionally appointed. At the appellants’ request, we have stayed the SEC’s proceeding pending our decision in this appeal. We review the district court’s determination of subject matter jurisdiction de novo. Scelsa v. City Univ. of N.Y.,
DISCUSSION
The statutes that establish the SEC’s scheme of administrative and judicial review, including the Dodd-Frank Act and the Investment Advisers Act, do not expressly preclude federal district court jurisdiction over the appellants’ Appointments Clause claim. The crucial jurisdictional issue in this case, therefore, is whether the statutes do so implicitly.
To resolve that issue, we must first determine whether it is “fairly discernible” from the “text, structure, and purpose” of the securities laws that Congress intended the SEC’s scheme of administrative and judicial review “to preclude district court jurisdiction.” Elgin,
If we conclude that the SEC’s scheme precludes district court jurisdiction, we must then decide whether the appellants’ Appointments Clause claim is “of the type Congress intended to be reviewed within th[e] statutory structure.” Id. (alteration in original) (quoting Thunder Basin,
Our resolution of these two inquiries—whether Congress intended the SEC’s administrative scheme to preclude district court jurisdiction, and whether the scheme encompasses a respondent’s Appointments Clause challenge to a presiding ALJ—leads us to conclude that the appellants’ lawsuit must be dismissed. Two of our sister circuits recently reached similar conclusions. See Jarkesy v. SEC,
I
As an initial matter, the text, structure, and purpose of the securities laws make clear that Congress intended the SEC’s scheme of administrative review to permit the Commission to bring its expertise to bear in enforcing the securities laws. The scheme enables the SEC’s Division of Enforcement to bring statutory charges before an administrative tribunal and affords respondents the opportunity to gather evidence, present a defense, and appeal any adverse rulings in federal court. In Thun
II
The appellants do not contest that conclusion. They implicitly acknowledge that an SEC administrative proceeding, once initiated, is the exclusive initial forum for claims “requiring the development of a factual record, the exercise of agency discretion, or the application of a statute to particular facts.” Appellants’ Br. at 4. They argue, however, that their Appointments Clause challenge is a distinct type of claim: “a threshold constitutional challenge to agency practice.” Id. at 12. They assert that this type of claim satisfies all three of the Thunder Basin factors and so falls outside the exclusive purview of the SEC’s administrative review scheme.
The district court held that the appellants’ Appointments Clause claim failed to satisfy at least two of the Thunder Basin factors: It would be subject to meaningful judicial review within the SEC’s administrative scheme, and it was not “wholly collateral” to the scheme. Tilton,
We agree with that conclusion. The appellants’ Appointments Clause claim will be subject to meaningful judicial review through administrative channels, a fact-that weighs strongly against district court jurisdiction. See Bebo,
A The Availability of Meaningful Judicial Review
Turning in more detail to the application of the Thunder Basin factors, we first
The appellants’ argument is not without force, as demonstrated by its success in several district courts. See Hill,
i. Free Enterprise
Free Enterprise dealt with the Public Company Accounting Oversight Board (the “PCAOB”), an entity created under the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745, to supervise the practices of accounting firms. The PCAOB’s five members were to be appointed by the SEC, and some — but not all — of the PCAOB’s regulatory actions required SEC approval in the form of a final Commission order. The Sarbanes-Oxley Act, like the Investment Advisers Act before it, permitted losing parties to appeal from an adverse final order to a federal court of appeals. The statute made no provision, however, for federal review of Board actions that did not require SEC approval. See Free Enterprise,
In the Free Enterprise case, the PCAOB had, in the course of its supervisory work, “inspected [a particular accounting] firm, released a report critical of its auditing procedures, and [begun] a formal investigation.” Id. at 487,
The Supreme Court held that the district court could exercise jurisdiction over the accounting firm’s lawsuit, despite the availability of administrative review regarding some other PCAOB actions. Id. at 490-91,
The appellants read Free Enterprise to suggest that judicial review of an Article II challenge to an administrative tribunal is not meaningful if conducted after the tribunal’s proceeding concludes, because of the inherent remedial limitations of post-proceeding review. See Appellants’ Br. at 13, 17-18. We disagree. The Free Enterprise Court’s analysis turned on the accessibility of post-proceeding review by a federal court of appeals- — not on whether such review, if accessible, could adequately remedy the PCAOB’s alleged violation of Article II. Free Enterprise therefore lends no support to the appellants’, characterization of their prospective constitutional injury as irremediable after the conclusion of their administrative proceeding.
ii Touche Ross
The appellants’ reliance on Touche Ross is similarly unavailing. There, the SEC took steps to institute an administrative proceeding against an accounting firm and several of its partners (collectively, “Touche Ross”) under Rule 2(e) of the Commission’s Rules of Practice, which related to the suspension and disbarment of persons practicing before the Commissioner. Touche Ross immediately filed a lawsuit in federal court seeking to enjoin the proceeding on the ground that Rule 2(e) was not authorized by statute.
The district court declined to exercise jurisdiction. It reasoned, in part, that the planned administrative proceeding would not irreparably harm Touche Ross, which meant that Touche Ross was required to exhaust the administrative review process before raising its claims in federal court. See Touche, Ross & Co. v. SEC, No. 76-CV-4489,
On appeal, this Court recognized district court jurisdiction over Touche Ross’s lawsuit. The panel acknowledged that federal challenges to administrative proceedings at “intermediate stages” are generally disfavored, particularly where — as in the case before it — the agency had not acted “plainly beyond its jurisdiction.” Touche Ross,
The Court’s decision did not suggest that a federal court would be unable to vindicate Touche Ross’s challenge to Rule 2(e) after the SEC’s proceeding concluded.
iii. Conflict with Established Practice Regarding Analogous Challenges to a Tribunal’s Constitutional Legitimacy
The appellants’ argument that post-proceeding judicial review of their Appointments Clause claim will be meaningless is not merely unsupported by Free Enterprise and Touche Ross; it is also at odds with established practice in federal court regarding analogous challenges to a tribunal’s constitutional legitimacy. As the district court explained, litigants who unsuccessfully challenge the authority of a presiding judge or jury to decide a case often must wait to appeal the issue until after the court renders a final judgment. See, e.g., Germain v. Connecticut Nat’l Bank,
The Supreme Court applied this principle to facts similar to those presented to us here in FTC v. Standard Oil Co. of California,
The Supreme Court concluded that a federal court would be able to meaningfully review the oil company’s claim after the administrative proceeding ended, and therefore ordered the company’s lawsuit dismissed on jurisdictional grounds. The Court acknowledged that the company would endure “substantial” expense and disruption before the administrative proceeding concluded. Id. But it deemed that hardship to be “part of the social burden of living under government,” rather than a form of irreparable injury justifying immediate judicial review. Id. at 244-45,
In other decisions, the Supreme Court has concluded that post-proceeding judicial review would not be meaningful because the proceeding itself posed a risk of some additional and irremediable harm beyond the burdens associated with the dispute resolution process. See, e.g., McNary v. Haitian Refugee Ctr., Inc.,
We therefore conclude that the appellants will have access to meaningful judicial review of their Appointments Clause claim through administrative channels. See Bebo,
B. Wholly Collateral
We next consider whether the appellants’ Appointments Clause claim is “wholly collateral” to the SEC’s administrative scheme. The Supreme Court has not explained precisely how to make this determination, although Elgin suggests that a claim is not wholly collateral if it serves as the “vehicle by which” a party seeks to prevail in an administrative proceeding. See
The district court here adopted the latter approach. It began its analysis by noting that the appellants’ Appointments Clause claim is substantively “unrelated to the securities violations underlying the administrative proceeding,” such that resolving the challenge “cannot reasonably be characterized as the ‘regular’ or ‘routine’ business of SEC administrative proceedings.” Tilton,
The dissent argues that the appellants’ Appointments Clause claim is as collateral to the SEC’s administrative scheme as the accounting firm’s Appointments Clause claim was in Free Enterprise. See post at 297. We are not persuaded by the analogy. The Supreme Court’s jurisdictional conclusion in Free Enterprise was, in our view, shaped principally by the absence of the type of procedural link between constitutional claim and administrative proceeding that exists here. The accounting firm objected to actions that the PCAOB had taken entirely outside the scope of the SEC’s scheme of administrative and judicial review — actions that could not be the subject of “any Commission orders ... from which review might be sought.” Free Enterprise,
C. Agency Expertise
The final consideration within the Thunder Basin framework is whether the appellants’ Appointments Clause claim falls outside the SEC’s expertise. This is a close question. As an initial matter, the Supreme Court’s decision in Free Enterprise suggests that the SEC does not possess unique legal expertise in analyzing the constitutional sufficiency of its appointments. There, the Court concluded that the merits of an Appointments Clause challenge to the PCAOB fell “outside the Commission’s competence and expertise” because the claim raised only “standard questions of administrative law,” which were unrelated to any “statutory” or “fact-bound inquiries” that the SEC might be singularly qualified to perform.
Under Touche Ross, that conclusion might end our analysis of agency expertise. As noted, the panel there permitted respondents to challenge an ongoing SEC administrative proceeding in federal district court solely because the legal substance of the challenge fell outside the administrative tribunal’s expertise and could not be usefully developed through its factfinding.
In Elgin, federal employees who allegedly had been discharged for violating a statutory command sought reinstatement by challenging the constitutionality of the statute. Congress had previously created an administrative process to adjudicate specified personnel decisions regarding federal employees, which was conducted initially by the Merit Systems Protection Board (“MSPB”) and subject to review in the Federal Circuit. Before completing that administrative process, the employees attempted to raise their constitutional challenge to the statute in federal district court. In an effort to establish federal jurisdiction, they contended that the claim fell outside the MSPB’s expertise because the MSPB disclaimed authority to determine the constitutionality of a federal statute. Elgin,
The Supreme Court disagreed. Although the MSPB had indeed disclaimed authority to resolve constitutional challenges to statutes, the Court identified several ways in which the agency might “otherwise” bring its expertise “to bear” in proceedings that raised those challenges. First, the MSPB could resolve “preliminary questions unique to the employment context” that might “obviate the need to address the constitutional challenge.” Id. at 2140. Second, “the challenged statute [could] be one that the MSPB regularly construes, and its statutory interpretation could alleviate constitutional concerns.” Id. And third, “an employee’s appeal [could] involve other statutory or constitutional claims that the MSPB routinely considers, in addition to a
Applying Elgin’s approach here, we think that the SEC might bring its expertise to bear on the appellants’ proceeding by resolving accompanying statutory claims that it “routinely considers,” and which “might fully dispose of the case” in the appellants’ favor.
It may be argued that the application of agency expertise to the statutory issues in the appellants’ proceeding would improperly skip over their Appointments Clause claim, which raises a “threshold” issue that logically precedes a merits adjudication. Although we are mindful of that concern, the Supreme Court appears to have rejected an analogous argument in Standard Oil. There, the respondent oil company, like the appellants here, sought to raise a “threshold” challenge to its administrative proceeding as a whole soon after the proceeding began. The Ninth Circuit permitted the district court to exercise jurisdiction over that challenge, in part because it feared that the oil company’s victory on other grounds in the administrative proceeding would evade, and improperly “moot,” the threshold issue. Standard Oil Co. of Cal. v. FTC,
[O]ne of the principal reasons to await the termination of agency proceedings is to obviate all occasion for judicial review. Thus, the possibility that [the oil company’s] challenge may be mooted in adjudication warrants the requirement that [the company] pursue adjudication, not shortcut it.
Standard Oil,
Such a reading of Elgin dovetails with our analysis of the availability of meaningful judicial review. We have already concluded, in keeping with established federal practice regarding analogous disputes, that the appellants may adequately vindicate their Appointments Clause claim by first awaiting a final Commission order and then petitioning for judicial review on constitutional grounds only if the order is adverse. By the same logic, a favorable Commission order, including one on statutory grounds, would provide an acceptable resolution of the Appointments Clause claim and obviate any need for judicial review. It follows, we think, that the Commission may bring its expertise to bear in a manner potentially relevant to the constitutional issue by resolving the statutory charges against the appellants. For that reason, the final Thunder Basin factor lends minimal support to the appellants’ jurisdictional argument. See Jarkesy,
CONCLUSION
After considering each of the Thunder Basin factors, we conclude that Congress intended the appellants’ Appointments Clause claim “to be reviewed within” the SEC’s exclusive “statutory structure.” Free Enterprise,
Notes
. The Appointments Clause reads in pertinent part:
[The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.
U.S. Const. Art. II, § 2, cl. 2.
. The appellants also argued before the district court that their presiding ALJ was imper-missibly insulated from presidential removal. They have not pressed that argument on appeal, although they purport to have "preserve[d]” it. Appellants' Br. at 31 n.10.
. The Hill decision concluded that “[tjhere can be no 'fairly discernible’ Congressional intent to limit jurisdiction away from district courts when the text of the statute” permits the SEC to initiate enforcement actions in either "district court [or] administrative proceedings.” Hill,
. Indeed, in a concurring opinion, two members of the panel expressed their confidence in the capacity of post-proceeding judicial review to "correct the occasional excesses and errors that are an inevitable part of the administrative process.” Touche Ross,
. Cf. Learned Hand, The Deficiencies of Trials To Reach the Heart of the Matter, 3 Association of the Bar of the City of New York, Lectures on Legal Topics 89, 105 (1926) (musing that becoming a party to a lawsuit should be ”dread[ed] ... beyond almost anything else short of sickness and death”).
. In explaining why the accounting firm’s Appointments Clause claim qualified as wholly collateral, the Free Enterprise decision at one point characterized the claim as an "objection] to the [PCAOB’s] existence.”
Concurrence Opinion
concurring:
An additional reason why the Appellants in this case must raise their Appointments Clause issue by filing a petition for review in a court of appeals rather than initiate a new action in a district court is a concept that has been called “colorable jurisdiction.” As the Seventh Circuit has explained in a case challenging an order of criminal contempt, “If a court has colorable jurisdiction of a case, though later it is determined that actually it didn’t have jurisdiction, an order of criminal contempt issued by the court before the absence of jurisdiction is determined is valid.” Mann v. Calumet City,
The Supreme Court, without using the phrase “colorable jurisdiction,” made the same point in United States v. United Mine Workers of America,
The concept of colorable jurisdiction has also been deemed relevant to the availability of a collateral attack to challenge a judgment for lack of subject matter jurisdiction. Courts have distinguished between an erroneous assertion of subject matter jurisdiction, where collateral attack is precluded by res judicata, and a clear usurpation of judicial power, where collateral attack is permitted. See Nemaizer v. Baker,
The Administrative Law Judge (“ALJ”) that will be hearing the pending administrative proceeding against the Appellants is not an interloper. The ALJ is an official of the agency, facially clothed with authority to adjudicate the proceeding before her. Whether her appointment comports with the Appointments Clause is a fair question, but there is surely a plausible basis for arguing that her appointment is valid.
With colorable jurisdiction, the ALJ may adjudicate the administrative case, and the losing party will have its opportunity to seek review before the Commission and then petition for review of a final order in a Court of Appeals, see 15 U.S.C. § 80b-13(a).
For this additional reason, I concur in Judge Sack’s opinion for the Court.
Dissenting Opinion
dissenting:
This case is nearly indistinguishable from Free Enterprise Fund v. Public Co. Accounting Oversight Board,
I respectfully dissent. The majority’s application of the Thunder Basin factors has stripped the “wholly collateral” and “outside the agency’s expertise” factors of any significance: in its view, as long as administrative proceedings have been initiated, those two factors are always satisfied. The majority bases its understanding of this substantive-to-procedural switch in those two factors on their application by the Supreme Court in Elgin v. Department of Treasury, - U.S. -,
I conclude that Free Enterprise controls here. In my view, those two factors here have precisely the same weight as they did in Free Enterprise, and the application of the remaining factor does not change the result. Thus, I would find that the district court had subject matter jurisdiction .to consider the constitutional challenge.
I. The Thunder Basin Factors
The Supreme Court in Thunder Basin identified the following three factors as helpful in determining whether a statute which provides for administrative review of agency action was intended by Congress to preclude district court jurisdiction over claims before a final administrative determination: whether the claims are “wholly collateral to a statute’s review provisions,”
I disagree somewhat with the majority’s interpretation of the third factor, “meaningful judicial review,” but it is the majority’s application of the two other factors— “wholly collateral” and “outside the agency’s expertise” — with which I most disagree.
There are three cases in which the Supreme Court has reviewed the application of these three factors: Thunder Basin, Free Enterprise, and Elgin. In each, the Supreme Court’s analysis of the “wholly collateral” and “outside the agency’s expertise” factors has focused on the substance of the claims.
In Thunder Basin, a non-union mine owner filed an action in district court challenging its employees’ designation of certain union representatives to be involved in safety inspections under the Federal Mine Safety and Health Amendments Act (“Mine Act”). The Mine Act provided for administrative hearings and decisions concerning safety issues, and ultimate appeal to the Courts of Appeals. Respondents contended that this “comprehensive review process,” id. at 208,
In its analysis of whether the mine owner’s claims must first be brought in an administrative proceeding, the Supreme Court analyzed the “wholly collateral” and “outside the agency’s expertise” factors only by considering the substance of the claims with no mention of the procedural aspects of the case. Id. at 213-14,
The Supreme Court engaged in the same sort of substantive analysis in Free Enterprise. In Free Enterprise, an accounting firm filed an action in the district court which challenged a report issued by the newly created Public Company Accounting Oversight Board (“PCAOB”). The PCAOB was created as an accounting reform in the Sarbanes-Oxley Act of 2002 and its members were appointed by the SEC. The report had criticized the firm’s
In its analysis of the “wholly collateral” and “outside the agency’s review” factors, the Free Enterprise Court examined the substance of the constitutional claim as it related to agency expertise,
II. Elgin v. Department of Treasury
The third case in which the Supreme Court addressed the Thunder Basin factors was Elgin v. Department of Treasury, — U.S. -,
In Elgin, the plaintiffs challenged their dismissal from federal employment for failure to comply with the Military Selective Service Act by not .registering for the draft. Although the plaintiffs had available to them the right to challenge their dismissals through administrative hearings before the Merit Systems Protection Board (“MSPB”) and subsequent judicial review in the Federal Circuit, they instead brought suit in federal district court.
The Supreme Court’s application of the “wholly collateral” factor rejected the plaintiffs’ argument that their constitutional claims had “nothing to do” with the “day-to-day personnel actions adjudicated by the MSPB.” Id. at 2139. The Supreme Court pointed out that a challenge to dismissal from employment based on federal statutes is “precisely the type of personnel
The majority here concludes that Elgin held that “a claim is not wholly collateral if it has been raised in response to, and so is procedurally intertwined with, an administrative proceeding,” Majority Op. at 287, pointing to the Supreme Court’s statement that the constitutional claims in Elgin were “the vehicle by which [the petitioners] s[ought] to reverse the removal decisions” made against them, id. at 2139. However, that overstates what the Supreme Court did in its application of that factor. That portion of the opinion meant nothing more than that the plaintiffs were challenging actions against them under the statutes committed to the MSPB by attacking the constitutionality of those very statutes — it does not suggest that no challenge that would end ongoing proceedings could be considered collateral to a statute’s review provisions. Such an interpretation would swallow the rule, for there would no longer be any need to evaluate the substance of a claim as long as the claim could somehow serve to end administrative proceedings in a plaintiffs favor. This is inconsistent with Thunder Basin and Free Enterprise (and, in fact, with Elgin, which looked carefully at the substance of the challenge). It would also turn the factor into an easy, binary question: Is a proceeding ongoing? If yes, then no claim that would end the proceeding can be wholly collateral. This cannot be what the Elgin Court intended. In my view, it held only that a claim involving the substance of the very act entrusted to the agency for implementation and requesting the types of relief that the agency regularly gives — -a far cry from the present case, where the constitutional claim has no relation to the securities laws entrusted to the SEC and the requested remedy of disallowing the proceedings before the ALJ is obviously not a routine outcome — cannot be considered “wholly collateral” to the administrative scheme.
As for the “outside the agency’s expertise” factor, the Elgin Court made clear that this factor would weigh against jurisdiction in cases where a claim needing agency expertise was a “threshold” or “preliminary question” that would “obviate the need to address the constitutional challenge.” Id. at 2140. This described the situation in Elgin, where before deciding that the Selective Service Act was unconstitutional the MSPB had to decide “threshold questions” to which the MSPB could apply its expertise, such as whether constructive discharge occurred as well as whether additional claimed violations of employment statutes took place, which “might fully dispose of the case.” Id. Those decisions could be informed by its agency expertise in the area of employment law. Id. In such a context, the MSPB’s expertise could properly be “brought to bear” on the constitutional claim. Id. (quoting Thunder Basin,
The majority nonetheless concludes that the Elgin Court interpreted this factor to mean that “an agency may bring its expertise to bear on a constitutional claim
That interpretation does not comport with the language of Elgin, however, which explicitly set that description out as an example of a situation in which there might be “threshold questions” that would allow the initial agency reviewing the case to not reach the constitutional question.
To read Elgin as broadly as the majority does would mean that as long as a proceeding is ongoing, the “outside the agency’s expertise” factor must weigh against jurisdiction — because any time a proceeding has commenced there is of course some possibility that a plaintiff may prevail on the merits. This would turn a substantive factor into a purely procedural — and binary — one, which is inconsistent with the description of the factor in Thunder Basin, Free Enterprise, or Elgin itself.
In sum, to agree with the majority’s interpretation of Elgin, one must conclude that the Supreme. Court intended to eliminate any substantive analysis of the “wholly collateral” and the “outside the agency’s expertise” factors in any case where an administrative proceeding is ongoing.
The majority’s interpretation also serves to move the Thunder Basin factors away from their original function, which was to assist in a holistic analysis to determine whether it is “fairly discernible” from a “statutory scheme” that Congress “has allocated initial review to an administrative body.” Thunder Basin,
I would apply the three Thunder Basin factors for divining legislative intent faithful to Thunder Basin, Free Enterprise and Elgin.
III. Application of the Thunder Basin Factors
A.“Wholly Collateral to a Statute’s Review Provisions”
The Supreme Court in Free Enterprise concluded that the constitutional claim there was “wholly collateral” to any administrative proceedings that might be brought against the plaintiffs. That challenge was essentially the same as the challenge here: that the appointment of the members of the PCAOB by the SEC violated the Appointments Clause of the Constitution. It explained that the plaintiffs’ “general challenge to the Board is ‘collateral’ to any Commission orders or rules from which review might be sought” because they “object to the Board’s existence, not to any of its auditing standards.” Free Enterprise,
The majority finds that this factor weighs against jurisdiction based only on its interpretation of Elgin, which I have addressed above. I would reject that interpretation. I see no difference between the Appointments Clause challenge in Free Enterprise and here; it is completely collateral to the work of the PCAOB as well as to the work of the SEC and its ALJs. I would find that this factor weighs strongly in favor of jurisdiction.
B. “Outside the Agency’s Expertise”
In Free Enterprise, the Supreme Court explained that the Appointments Clause claim relating to the appointment of the PCAOB by the SEC was “outside the Commission’s competence and expertise,” requiring no understanding of a particular industry and no “technical considerations of agency policy.” Id. at 491,
The majority agrees as far as Free Enterprise goes, concluding only that this Thunder Basin factor has been changed by Elgin. For the reasons discussed above, I disagree. I see no difference in the application of this factor here to the SEC and its application to the SEC in Free Enterprise. I would find that this factor also weighs strongly in favor of jurisdiction.
C. “Meaningful Judicial Review”
The “meaningful judicial review” factor presents the only significant difference between the present case and Free Enterprise. I agree with the majority that this factor tends to weigh in favor of preclusion because a subsequent appeal to this Court following a final Commission order is available.
Nonetheless, I do not believe that the difference between the available judicial review in Free Enterprise and in this case is so significant as to justify a different outcome, given the identical application of the other two factors, as well as a substantial question as to whether subsequent judicial review here would be “meaningful.”
The Free Enterprise situation was not so different from the present one as to require a different outcome, however. Here, the administrative proceedings once concluded would have led to an order subject to judicial review — but only if the appellants had continued litigating before the SEC ALJ and lost on the merits.
Forcing the appellants to await a final Commission order before they may assert their constitutional claim in a federal court means that by the time the day for judicial review comes, they will already have suffered the injury that they are attempting to prevent. The majority finds that the “litigant’s financial and emotional costs in litigating the initial proceeding are simply the price of participating in the American legal system,” Majority Op. at 285, but the issue is less the costs and burden of litigation and more that the appellants are challenging the very existence of the ALJs as a part of the statutory scheme. The appellants seek to enjoin the SEC proceedings, but by the time that they access any judicial review, the proceedings will be complete, rendering the possibility of obtaining an injunction moot even if the final Commission order is vacated. In my view, this diminishes the weight of this factor, for while there may be review, it cannot be considered truly “meaningful” at that point.
The majority cites a number of decisions for the principle that “post-proceeding relief ... suffices to vindicate the litigant’s constitutional claim,” Majority Op. at 285, but none involves an analysis of the “meaningful judicial review” prong of this test. Germain v. Connecticut National Bank,
When it comes to the “meaningful judicial review” factor, it is my view that we need look no further than Free Enterprise itself to understand that being forced to undergo an allegedly unconstitutional proceeding may play into the analysis of whether judicial review is “meaningful.” The Court in Free Enterprise identified a number of possible ways that the plaintiffs in that case could obtain review of their constitutional claims against the board (such as “seleet[ing] and challenging] a Board rule at random” or “incur[ring] a sanction (such as a sizable fine) by ignoring Board requests for documents and testimony,”
The Supreme Court in Free Enterprise also explained that the plaintiffs were “entitled to declaratory relief sufficient to ensure that the reporting, requirements and auditing standards to which they are subject mil be enforced only by a constitutional agency accountable to the Executive, ” and it allowed the plaintiffs to bring their claim at a time where no administrative proceedings had yet been formally brought against them.
IV. Conclusion
For all these reasons, I am unpersuaded that the “meaningful judicial review” prong has enough weight to overpower the other two factors and result in a finding of no jurisdiction. The other two factors clearly mirror those in Free Enterprise, and the available review is not meaningful enough to set those two factors aside. Thus, the Appointments Clause challenge here is not “of the type Congress intended to be reviewed within th[e] statutory structure.”
I would reverse the decision of the district court and remand for an adjudication of the merits of the Appointments Clause claim.
. The majority describes the Thunder Basin factors as coming into play only in the second part of a two-part test, seemingly splitting the analysis between asking (1) whether Congress intended to preclude district court jurisdiction and (2) whether Congress intended for the claims at issue to be reviewed within the statutory structure. Majority Op. at 281. I disagree with this dichotomy and the conclusion that the factors are relevant only to the second inquiry. See, e.g., Elgin,
. One of the plaintiffs did pursue remedies through the MSPB, but declined to appeal the decision he received within the administrative system, instead joining the others in their suit in district court. Elgin,
. That paragraph in Elgin makes clear that each of the sentences cited by the majority at Majority Op. 289-90 are examples of cases with “threshold questions,” not additional pathways to preclusion. See Elgin,
. In fact, in Elgin, only one of tire plaintiffs had initiated administrative proceedings; the others had filed suit directly in the district court but could have initiated proceedings. Elgin,
. Given that the vast majority of all S E C administrative proceedings end in settlements rather than in actual decisions, it might well be that choosing to litigate is, in fact, equivalent to "betting the farm.” See Brian Maho-ney, SEC Could Bring More Insider Trading Cases In-House, Law360 (June 11, 2014), http://www.law3 60.com/articles/547183/sec-could-bring-more-insider-trading-cases-in-house (quoting Andrew Ceresney, the head of the SEC’s Division of Enforcement, as explaining that the "vast majority of our cases settle,” and stating, "I will tell you that there have been a number of cases in recent months where we have threatened administrative proceedings, it was something we told the other side we were going to do and they settled”).
. Since the purpose of the application of the Free Enterprise factors is to determine whether Congress intended to deprive district courts of subject-matter jurisdiction to hear pre-administrative-adjudication claims, it seems relevant that Congress continues to authorize the SEC to choose whether it will pursue violations before its ALJs in administrative proceedings or in the district court as civil actions. To permit those subject to SEC enforcement actions to challenge administrative proceedings in the district courts on the basis of constitutional challenges that have nothing to do with the expertise of the SEC or with factual matters relevant to their Own