ALF Argues SEC Lacks Expertise To Rule On Its Own Constitutionality
The Supreme Court has agreed to hear two separate cases that raise essentially the same question: Can an SEC or FTC civil enforcement target file a district court action challenging the constitutionality of how these independent regulatory agencies’ in-house adjudicatory proceedings are structured? Or to obtain judicial review of such a structural constitutional claim, does the enforcement target first have to suffer through the administrative proceeding claimed to be unconstitutional—and lose?
ALF has filed merits-stage amicus briefs in both cases: first, in Axon Enterprise, Inc. v. FTC, No 21-86 (see case summary), and now in SEC v. Cochran, No. 21-1239. In both cases, ALF argues that justice delayed is justice denied.
Whether the Securities Exchange Act of 1934 strips federal district courts of jurisdiction to adjudicate structural constitutional claims challenging Securities and Exchange Commission administrative proceedings.
Additional Background:
In Axon Enterprise, the Ninth Circuit held that the Federal Trade Commission Act’s judicial review provision, 15 U.S.C. § 45(a), which allows final FTC cease-and-desist orders to be appealed to a federal court of appeals, impliedly strips federal district courts of federal-question jurisdiction over constitutional challenges to the structure of FTC administrative enforcement proceedings. See 986 F.3d 1173 (9th Cir. 2021). Axon Enterprise contends that FTC in-house adjudications are unconstitutional because the FTC’s administrative law judge enjoys multi-layer, for-cause-only protection from termination in violation of the President’s removal power. Axon also contends that the secretive procedure that the FTC and Department of Justice Antitrust Division use to allocate antitrust cases between themselves is unconstitutional.
In Cochran, however, the Fifth Circuit, sitting en banc, held that the Securities Exchange Act’s judicial review provision, 15 U.S.C. § 78y, which allows final SEC orders to be appealed to a federal court of appeals, does not strip district courts of jurisdiction to hear structural constitutional claims. See 20 F.4th 194 (5th Cir. 2021). The SEC appealed the Fifth Circuit’s en banc ruling. To resolve the split of authority between Axon Enterprise and Cochran (and similar decisions in other circuits), the Supreme Court has granted certiorari in both cases.
ALF’s Amicus Brief:
ALF’s amicus brief in Cochran complements its amicus brief in Axon Enterprise. Both briefs were authored by ALF Executive Vice President & General Counsel Lawrence Ebner.
The Axon Enterprise amicus brief explains why, under Supreme Court precedent, delayed judicial review of structural constitutional claims in a court of appeals following an adverse final order in an FTC administrative adjudication cannot be meaningful. See Free Enterprise Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 489 (2010); Elgin v. Dep’t of the Treasury, 567 U.S. 1, 15 (2012); Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 212-13 (1994). ALF’s Axon Enterprise brief also explains that the FTC’s extensive use of consent decrees to resolve enforcement complaints without an adjudicatory hearing heightens the need for exercise of district court jurisdiction over structural constitutional claims.
ALF’s amicus brief in Cochran focuses on why claims that challenge the constitutional legitimacy of SEC administrative enforcement proceedings are outside the agency’s competence and expertise, and thus, under Free Enterprise Fund, should not have to await the virtually inevitable adverse outcome of an SEC in-house adjudication before being heard by an Article III court. More specifically, the en banc Fifth Circuit correctly found that “Cochran’s removal power claim is outside the SEC’s expertise,” and thus, “weighs against preclusion.” 20 F.4th at 207, 208. This is because Cochran’s claim “does not depend on a special understanding of the securities industry. . . . Nor is there any suggestion that the SEC is an experienced adjudicator of structural constitutional issues.” Id. at 208. ALF’s brief also criticizes the dissenting opinion, including its overly broad view of “agency expertise,” which would automatically postpone judicial review based on the unlikely possibility that an enforcement target might prevail on the merits before an SEC administrative law judge or the Commissioners themselves.
