SEC v. Cochran

DOUBLE TENURE PROTECTION FOR ADMINISTRATIVE LAW JUDGES

The SEC contends that tenure protections granted to ALJs are constitutional and consistent with the President’s power to remove officers. Brief for the Federal Parties, at 57. The SEC argues that Congress granted ALJs a large degree of protection from removal from their positions, unless the removal is for cause. Id. at 56–57. The SEC notes that, in Free Enter. Fund v. Pub. Co. Oversight Bd., the Supreme Court found that Presidents, in order to discharge their executive authority, cannot face a double tenure situation where both the principal officer and the subordinate inferior officer enjoy for-cause removal protection. Id. at 57. The SEC, however, asserts that the Court did not decide the constitutionality of removal protection for SEC ALJs because, unlike the Public Company Accounting Board, SEC ALJs fulfill an adjudicatory role. Id. The SEC argues that removing double tenure would undermine the goal of maintaining the independence of ALJs. Id. The SEC additionally contends that Cochran’s claim of unconstitutionality does not actually affect “the proper mode and timing of judicial review.” Id. at 58. The SEC maintains that this determination is Congress’ responsibility and therefore there is no need to advance legal claims over the constitutionality of ALJs outside of an administrative adjudication. Id. The SEC states that any such claim should go to the Court of Appeals, after the end of administrative adjudication. Id. at 42–43.

Cochran counters that, under Free Enter. Fund, it is an unconstitutional use of executive power to have double tenure for ALJs. Brief for Respondent, Michelle Cochran at 34–35. Cochran contends that constitutional claims over double tenure are distinct from the original SEC claim brought during administrative adjudication. Id. Cochran also notes such constitutional arguments are beyond the expertise of the agency to adjudicate. Id. at 36. Cochran believes the unconstitutional nature of the ALJs creates serious harm to respondents facing administrative adjudications. Id. at 37. Accordingly, Cochran argues that the possibility of such harm requires the district court to hear the constitutional claim prior to the end of the SEC adjudication; otherwise, claimants will likely be deprived of meaningful judicial review. Id. at 37. Cochran views the ALJs tenure protection as a “structural constitutional infirmity,” which litigants often do not have the opportunity to challenge due to the pressure of settlement. Id. at 48–49. The U.S. Chamber of Commerce (“Chamber of Commerce”), in support of Cochran, asserts that Cochran’s constitutional claim is outside the merits of any specific administrative proceeding and part of a much larger constitutional contestation of administrative adjudications that are shielded by double tenure from executive oversight. Brief of Amicus Curiae U.S. Chamber of Commerce, in Support of Respondent at 12–13, 16.

THE IMPACT OF THUNDER BASIN AND ELGIN ON CONSTITUTIONAL CHALLENGES

The SEC argues that the Supreme Court’s decisions in both Thunder Basin Coal Co. v. Reich and Elgin v. Dep’t of the Treasury support the notion that Cochran’s claim is properly raised only at the conclusion of agency proceedings, consistent with “statutes that channel review to courts of appeals.” Brief for the Federal Parties, at 43. The SEC maintains that, in Thunder Basin, the Court indicated that district courts generally lack the authority to adjudicate challenges to ongoing agency proceedings. Id. at 31–32. Furthermore, the SEC posits that Elgin supports the notion that there is no need for a “clear congressional statement” eliminating district court review. Id. at 32–33. The SEC contends that the Court set forth the rules in Thunder Basin and Elgin because subjecting administrative adjudications to immediate judicial review would create parallel adjudication, unnecessarily duplicate review of any adjudicative agency proceeding, and generate confusion over which constitutional claims are susceptible of immediate judicial review. Id. at 44, 46. The SEC asserts that Thunder Basin and Elgin are applicable to the case at bar and that Free Enter. Fund is factually distinct from Cochran’s claim because, unlike the petitioner in Free Enter. Fund, Cochran is already subject to liability and does not need to take further action to obtain judicial review. Id. at 40–41. The SEC urges that Elgin and Thunder Basin do not minimize the opportunity for judicial review of a constitutional challenge at the end of the administrative adjudication process. Id. at 51–52. The SEC argues that placing the opportunity for constitutional challenges at the end of the process ensures the constitutional challenge is actually necessary, legally ripe, or worthy of judicial review, as the defendant’s claim can fully proceed through the administrative adjudication on the merits. Id.

Cochran agrees that Elgin and Thunder Basin both limited judicial review within federal district court. Brief for Respondent, at 26–27. However, Cochran cites Free Enter. Fund, asserting that in cases of constitutional claims, district courts are not explicitly stripped of their authority unless there is a clear congressional statement. Id. at 27, 32. Cochran counters that the SEC and lower courts have impermissibly expanded the scope of Thunder Basin, which, she maintains, intended to protect district court jurisdiction. Id. at 43. The only exceptions to district court jurisdiction, Cochran contends, are specific statutory exceptions, and not vice-versa. Id. at 44. Cochran argues that lower courts have incorrectly interpreted meaningful judicial review to mean the possibility of “accessible” review after an adjudicatory proceeding. Id. at 45. The Institute for Justice (“IJ”), in support of Cochran, emphasizes that the primary issue is that Thunder Basin and Elgin have allowed courts to infer congressional intent to strip jurisdiction from district courts and transfer it to administrative proceedings. Brief of Amicus Curiae Institute for Justice, in Support of Respondent at 17. IJ states that to strip jurisdiction from district courts, Congress must “do so expressly, clearly, and directly in a statute’s plain text.” Id. at 17–18.

THE AUTHORITY OF THE EXCHANGE ACT AND THE ADMINISTRATIVE PROCEDURE ACT IN SEC ADJUDICATION

The SEC claims that the only statutory authority that details the review process of administrative SEC adjudications is the Exchange Act, which states that judicial review occurs only at the appellate level after the conclusion of administrative adjudication. Brief for Federal Parties at 12. Any attempt to review earlier, the SEC elaborates, is contrary to the Administrative Procedure Act (“APA”). Id. The SEC asserts that Congress purposefully constructed this review structure to promote efficiency. Id. at 15–16. The SEC emphasizes that the SEC has “exclusive review” under 15 U.S.C. § 78y of the Exchange Act, and that Congress intended to bar respondents in administrative adjudications from contesting an SEC proceeding. Id. at 21. The SEC posits that the APA allows the Exchange Act to construct an “exclusive mechanism” to review an SEC decision. Id. at 17. The SEC contends that any attempt to contest the structure of judicial review found in the Exchange Act is only allowed under the APA when a statute lacks a strong review mechanism, which is not applicable to the Exchange Act. Id. at 25.

Cochran counters that § 78y creates exclusive review of her claim because her claim has nothing to do with the final SEC adjudication, and she has not yet been subject to final adjudication. Reply of Respondent, Michelle Cochran at 6–7. Atlantic Legal Foundation, in support of Cochran, argues that Cochran’s constitutional claim “does not depend on the validity of any substantive aspect of the Exchange Act.” Brief of Amicus Curiae Atlantic Legal Foundation, in support of Respondent at 13–14. Cochran also maintains that the APA does not apply to her claim because her argument concerns whether federal district courts have jurisdiction, which, she asserts, is not a topic within the APA’s statutory mandate. Reply of Respondent at 7–8. Cochran also maintains that the APA is irrelevant to her claim because it was enacted a decade after the Exchange Act provisions at issue. Id. at 8.