Hill v. Sec. & Exch. Comm'n, 15-12831

• Decision Date: 17 June 2016
• Docket Number: No. 15-12831, No. 15-13738,15-12831
• Citation: 825 F.3d 1236
• Parties: Charles L. Hill, Jr., Plaintiff–Appellee, v. Securities and Exchange Commission, Defendant–Appellant. Gray Financial Group, Inc., Laurence O. Gray, Robert C. Hubbard, IV, Plaintiffs–Appellees, v. U.S. Securities and Exchange Commission, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

825 F.3d 1236

Charles L. Hill, Jr., Plaintiff–Appellee

v.Securities and Exchange Commission, Defendant–Appellant.

Gray Financial Group, Inc., Laurence O. Gray, Robert C. Hubbard, IV, Plaintiffs–Appellees

v.U.S. Securities and Exchange Commission, Defendant–Appellant.

No. 15-12831

No. 15-13738

United States Court of Appeals, Eleventh Circuit.

June 17, 2016

Stephen E. Hudson, Akash Desai, Hillary Dawn Rightler, Joshua Cole Hess, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, for Plaintiff–Appellee Charles L. Hill, Jr.

Terry R. Weiss, Kathryn S. Gostinger, Ernest L. Greer, Michael James King, Greenberg Traurig, LLC, Atlanta, GA, for Plaintiffs–Appellees Gray Financial Group, Inc., Laurence O. Gray, Robert C. Hubbard, IV.

Mark B. Stern, Megan Barbero, Matthew J. Berns, Mark R. Freeman, Adam Grogg, Jean Lin, Steven A. Myers, Jennifer Ricketts, Susan K. Rudy, Justin M. Sandberg, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC, John Andrew Horn, Lawrence R. Sommerfeld, U.S. Attorney's Office, Atlanta, GA, for Defendant–Appellant.

Stephen Andrew Best, Alex Lipman, Justin S. Weddle, Brown Rudnick LLP, Washington, DC, for Amicus Curiae.

Before ED CARNES, Chief Judge, JILL PRYOR and RIPPLE,^* Circuit Judges.

JILL PRYOR

, Circuit Judge:

Congress authorized the Securities and Exchange Commission (“SEC” or the “Commission”) to bring civil actions to enforce violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and regulations promulgated thereunder. The Commission is empowered to bring such an action either in federal district court or in an administrative proceeding before the Commission. See 15 U.S.C. §§ 78u(d)

, 78u-1, 78u-2, 78u-3. An SEC administrative enforcement action culminates in a final order of the Commission, which in turn is reviewable exclusively by the appropriate federal court of appeals. 15 U.S.C. § 78y.

The issue presented in this consolidated appeal is whether respondents in an SEC administrative enforcement action can bypass the Exchange Act's review scheme by filing a collateral lawsuit in federal district court challenging the administrative proceeding on constitutional grounds. In both now-consolidated cases, the district court held that it had jurisdiction to entertain such challenges. The court further concluded that at least one of the constitutional claims presented was substantially likely to succeed on the merits. To avoid what it determined would be irreparable harm, the district court enjoined the administrative proceedings. The Commission appealed.

After consideration of the parties' briefs and with the benefit of oral argument, we conclude that the district court lacked jurisdiction over the respondents' collateral attacks. We find it “fairly discernible” from the review scheme provided in 15 U.S.C. § 78y

that Congress intended the respondents' claims to be resolved first in the administrative forum, not the district court, and then, if necessary, on appeal to the appropriate federal court of appeals. Thunder Basin Coal Co. v. Reich , 510 U.S. 200, 207, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994) (internal quotation marks omitted). We see no indication that Congress intended to exempt the type of claims the respondents raise here from the review process it created. See id. ; Elgin v. Dep't of Treasury , ––– U.S. ––––, 132 S.Ct. 2126, 2136–40, 183 L.Ed.2d 1 (2012). Accordingly, we vacate the district court's preliminary injunction orders and remand with instructions to dismiss the actions for lack of jurisdiction.

I. BACKGROUND

A. SEC Administrative Proceedings and Judicial Review

SEC administrative actions differ from cases brought in federal district court in several respects. The administrative action begins when the Commission serves the respondent with an Order Instituting Proceedings (“OIP”). The Commission then presides over the action, but it typically delegates review to an Administrative Law Judge (“ALJ”). See 15 U.S.C. § 78d-1(a)

-(b) ; 17 C.F.R. § 201.110. Unlike an action brought in federal court, in a proceeding before the Commission the Federal Rules of Civil Procedure and Evidence do not apply, and the respondent does not enjoy the right to a jury trial. Instead, the SEC's Rules of Practice, 17 C.F.R. § 201.100 et seq., govern administrative proceedings. Among other differences, the Rules of Practice provide for more limited discovery. For example, the Rules of Practice allow the taking of depositions at the Commission's discretion, only upon a finding that the prospective witnesses will be unavailable to testify at the hearing. Id. §§ 201.233(b), 201.234(a). The Rules of Practice also do not provide for routine document production, instead requiring parties to request that the ALJ issue subpoenas. See id. § 201.232. Administrative actions proceed relatively quickly along fixed timelines set by the rules. See id. § 201.360(a)(2).

When the Commission delegates review to an ALJ, the ALJ holds an evidentiary hearing and then renders an initial decision with factual findings and conclusions of law. Id. § 201.360(a)(1), (b). Either party may appeal the initial decision to the Commission, id. § 201.410, or the Commission may review it on its own initiative. Id. § 201.411(c). The Commission's review authority is broad. “[It] may affirm, reverse, modify, set aside or remand for further proceedings, in whole or in part, an initial decision by a hearing officer and may make any findings or conclusions that in its judgment are proper and on the basis of the record.” Id. § 201.411(a). Conversely, if there is no appeal to the Commission, and the Commission declines to exercise its right to review sua sponte , the ALJ's initial decision becomes the final decision of the Commission for all purposes. 15 U.S.C. § 78d-1(c)

. Regardless of whether the initial decision is appealed, the administrative process culminates in a final order of the Commission.

The aggrieved party may then seek review in the United States Court of Appeals either for the circuit in which she resides or has her principal place of business or for the District of Columbia Circuit. 15 U.S.C. § 78y(a)(1)

. The aggrieved party may request that the Commission stay enforcement of its order pending judicial review. 17 C.F.R. § 201.401. Section 78y then provides a detailed scheme for appellate court review of final Commission orders.

The process of obtaining judicial review begins with the filing of a petition in the court of appeals that triggers the court's jurisdiction. 15 U.S.C. § 78y(a)(1), (3)

. Upon the filing of the record in the court of appeals, the court's jurisdiction becomes exclusive. Id. § 78y(a)(3). Although other provisions of the Exchange Act provide limited district court jurisdiction over some types of securities-related claims,¹ the Act contains no express authorization for district court review of a final Commission order.

Section 78y

then details how the court of appeals reviews a final order of the Commission. The statute grants the reviewing court broad authority “to affirm or modify and enforce or to set aside the [final Commission] order in whole or in part.” Id. § 78y(a)(3). The reviewing court must accept the Commission's factual findings that are supported by substantial evidence, but, if appropriate, the court may remand to the Commission for additional fact finding. Id. § 78y(a)(4)–(5). The statute prohibits the reviewing court from considering a newly-raised objection to a final Commission order unless there was “reasonable ground” for failing to raise the objection first before the Commission. Id. § 78y(c)(1). The statute generally authorizes the reviewing court to stay enforcement of the Commission's order pending judicial review “to the extent necessary to prevent irreparable injury.” Id. § 78y(c)(2).

B. Factual Background

1. Charles L. Hill, Jr.

The respondent in the first case in this consolidated appeal is Charles L. Hill, Jr., a real estate developer in Georgia who is not registered with the SEC. In June and early July, 2011, Mr. Hill purchased several thousand shares of stock in a company called Radiant Systems, Inc. (“Radiant”). On July 11, 2011, after the markets closed, Radiant announced a merger agreement with NCR Corporation. The next day, Mr. Hill sold all of his Radiant shares, profiting in the amount of approximately $744,000. Mr. Hill maintained that he was unaware of the merger before its public announcement. Nonetheless, in February 2015, after a two-year investigation in which Mr. Hill cooperated fully with the SEC, the Commission served him with an OIP. The SEC sought a cease and desist order, a civil penalty, and disgorgement, alleging that Mr. Hill unlawfully profited from non-public information.

The ALJ scheduled a hearing on the OIP for June 15, 2015. In the meantime, Mr. Hill filed two motions for summary disposition, the first challenging the merits of the claims against him and the second raising as affirmative defenses constitutional arguments going to the heart of the administrative process itself. Specifically, in the second motion Mr. Hill argued that (1) the administrative proceeding violates the removal protections of Article II of the United States Constitution because ALJs are protected by two layers of tenure, (2) administrative enforcement actions before an ALJ violate the non-delegation doctrine under Article I of the Constitution, and (3) the grant of discretion to the Commission to bring this action in an administrative forum violates his Seventh Amendment right to a jury trial. In separate orders, the ALJ denied both motions. As regards the constitutional issues, the ALJ concluded that he lacked authority to rule on the constitutionality of a particular provision of the Exchange Act and thus could not resolve Mr. Hill's second and third arguments. The ALJ also expressed doubt that he had the authority to reach Mr. Hill's first argument, but nonetheless rejected it on the merits.

Five days after the ALJ issued his order on Mr. Hill's...