Cochran v. Sec. & Exch. Comm'n

• Decision Date: 11 August 2020
• Docket Number: No. 19-10396,19-10396
• Citation: 969 F.3d 507
• Parties: Michelle COCHRAN, Plaintiff-Appellant v. SECURITIES AND EXCHANGE COMMISSION; Jay Clayton, in his official capacity as Chairman of the U.S. Securities and Exchange Commission; William P. Barr, U. S. Attorney General, in his Official Capacity, Defendants-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

969 F.3d 507

Michelle COCHRAN, Plaintiff-Appellant

v.SECURITIES AND EXCHANGE COMMISSION; Jay Clayton, in his official capacity as Chairman of the U.S. Securities and Exchange Commission; William P. Barr, U. S. Attorney General, in his Official Capacity, Defendants-Appellees

No. 19-10396

United States Court of Appeals, Fifth Circuit.

FILED August 11, 2020

REVISED August 12, 2020

Margaret A. Little, New Civil Liberties Alliance, Washington, DC, Karen L. Cook, Karen Cook, P.L.L.C., Dallas, TX, for Plaintiff-Appellant

Joshua Marc Salzman, U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, Daniel J. Aguilar, U.S. Department of Justice, Washington, DC, Rebecca Cutri-Kohart, U.S. Department of Justice, Civil Division, Washington, DC, Brian Walters Stoltz, U.S. Attorney's Office, Northern District of Texas, Dallas, TX, for Defendants-Appellees Securities and Exchange Commission, William P. Barr

Joshua Marc Salzman, U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, Daniel J. Aguilar, U.S. Department of Justice, Washington, DC, Rebecca Cutri-Kohart, U.S. Department of Justice, Civil Division, Washington, DC, for Defendant-Appellee Jay Clayton

Samuel Wollin Cooper, Paul Hastings L.L.P., Houston, TX, for Amici Curiae Phillip Goldstein, Mark Cuban, Nelson Obus

Ashley Charles Parrish, Esq., King & Spalding, L.L.P., Washington, DC, for Amici Curiae Cato Institute, Cause Of Action Institute, Competitive Enterprise Institute

Allyson Newton Ho, Ashley E. Johnson, Esq., Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, Kayla Ferguson, Attorney, Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, for Amicus Curiae Texas Public Policy Foundation

Before OWEN, Chief Judge, and HAYNES and COSTA, Circuit Judges.

GREGG COSTA, Circuit Judge:

Judicial review of Securities and Exchange Commission proceedings lies in the courts of appeals after the agency rules. 15 U.S.C. § 78y. This appeal asks whether a party may nonetheless raise a constitutional challenge to an SEC enforcement action in federal district court before the agency proceeding ends. All five courts of appeals to address the question have held that a party cannot circumvent the SEC judicial review statute that way. 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). Just last year we held the same for the Federal Deposit Insurance Corporation's judicial review provision in an appeal raising the separation-of-powers claim asserted in this case. See Bank of La. v. FDIC , 919 F.3d 916 (5th Cir. 2019). Bound by Bank of Louisiana and in accord with the unanimous view of other circuits, we hold that the statutory review scheme is the exclusive path for asserting a constitutional challenge to SEC proceedings.

I.

The SEC brought an enforcement action against Michelle Cochran. It alleged that Cochran, a CPA, failed to comply with auditing standards in violation of the Securities Exchange Act. Under that law, the SEC can initiate enforcement proceedings in district court, before the Commission, or before an administrative law judge. 15 U.S.C. §§ 78d-1(a), 78u(d). The SEC elected to proceed before an ALJ.

While Cochran's case was pending, the Supreme Court held that SEC ALJs are Officers of the United States whom the President, a court of law, or a department head must appoint. Lucia v. SEC , ––– U.S. ––––, 138 S. Ct. 2044, 2049, 2051, 201 L.Ed.2d 464 (2018). Before Lucia , SEC staff selected ALJs. Id. at 2050. Following Lucia , the SEC reassigned all adjudications to judges whose appointments had, by then, been ratified by the Commission.

After the new ALJ took over Cochran's case, Cochran filed this lawsuit in district court. She sought to enjoin the enforcement action because although there is no longer a problem with how ALJs are appointed, Cochran contends there is still a problem with how they can be removed. The constitutional problem, in her view, is that the ALJs enjoy multiple layers of "for cause" removal protection. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd. , 561 U.S. 477, 484, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010) (holding unconstitutional removal protections for officers of the Public Company Accounting Oversight Board). Cochran also alleged a due process violation on the ground that ALJs do not follow SEC rules and procedures.

The district court dismissed for lack of subject jurisdiction. It concluded that 15 U.S.C. § 78y provides the exclusive means for asserting these claims before an Article III court—in the court of appeals after a final order issues. After Cochran appealed, a panel of this court enjoined the SEC proceeding pending this court's decision.

II.

This appeal is not about whether Cochran will have the opportunity to press her separation-of-powers claim. She will. It instead asks: Where and when? As these are questions of federal court jurisdiction, Congress gets to answer them. Sheldon v. Sill , 49 U.S. 441, 442, 8 How. 441, 12 L.Ed. 1147 (1850) ("[T]he disposal of the judicial power, except in a few special cases, belongs to Congress; and the courts cannot exercise jurisdiction in every case to which the judicial power extends, without the intervention of Congress, who are not bound to enlarge the jurisdiction of the Federal courts to every subject which the Constitution might warrant.").

Cochran contends that Congress supplied the answer to the jurisdictional issue in the general federal question statute, which allows district courts to hear cases "arising under the Constitution." 18 U.S.C. § 1331. The SEC counters that the specific review provision for SEC enforcement actions displaces the general jurisdiction statute. Section 78y states:

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.

15 U.S.C. § 78y(a)(1).

Congress may strip federal courts of jurisdiction explicitly or implicitly. See Thunder Basin Coal Co. v. Reich , 510 U.S. 200, 207, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994). The SEC argues that section 78y, by channeling review directly to the court of appeals, does the latter. This type of judicial review scheme divests district courts of jurisdiction if the statute evinces a "fairly discernible" intent to limit jurisdiction, and the claims at issue are the type that Congress intended the agency to review. Elgin v. Dep't of Treasury , 567 U.S. 1, 9–10, 132 S.Ct. 2126, 183 L.Ed.2d 1 (2012).

A.

The text and structure of the Securities Exchange Act reveal the necessary intent to limit district court jurisdiction. Id . Starting with the text, the grant of jurisdiction to the aggrieved person's local circuit or the D.C. Circuit only after issuance of a final order implies that other courts lack jurisdiction. See Jarkesy , 803 F.3d at 16 ; Free Enter. , 561 U.S. at 489, 130 S.Ct. 3138 ("Generally, when Congress creates procedures designed to permit agency expertise to be brought to bear on particular problems, those procedures are to be exclusive."); see also ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 107 (2012) ("[S]pecification of the one implies exclusion of the other. ..."). That suggestion moves into the realm of certainty (which the caselaw does not even require) when one considers another provision declaring that the court of appeals has "exclusive" jurisdiction "to affirm or modify and enforce or to set aside the order in whole or in part." 15 U.S.C. § 78y(a)(3) ; Jarkesy , 803 F.3d at 16. Other provisions set forth exhaustion requirements, the standard of review the court of appeals is to follow, and the process for remanding to "adduce additional evidence." 15 U.S.C. §§ 78y(c)(1); (a)(4); (a)(5) ; Jarkesy , 803 F.3d at 16. It would undermine those rules if a party could seek review in a district court not constrained by those rules. This comprehensive scheme for a postadjudication appeal straight to the court of appeals makes it "fairly discernible that Congress intended to deny ... an additional avenue of review in district court." Elgin , 567 U.S. at 12, 132 S.Ct. 2126.

The structure of the SEC enforcement scheme provides further evidence for that conclusion. As mentioned, 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 agency's statutory power to select the forum would be illusory if defendants could file an action in district court. Jarkesy, 803 F.3d at 17 ; Tilton , 824 F.3d at 282 n.3. And the provision authorizing the SEC to seek injunctive relief in district courts, 15 U.S.C. § 78u(d)(1), would be unnecessary if district courts retained residual jurisdiction over SEC matters.

We thus conclude that the SEC judicial review scheme exhibits a general intent to deprive district courts of subject matter jurisdiction, joining every other circuit that has reached the issue. Bebo , 799 F.3d at 768 -69; Jarkesy , 803 F.3d at 16-17 ; Tilton , 824 F.3d at 281-82 ; Hill , 825 F.3d at 1242-45 ; Bennett , 844 F.3d at 181-82 ; see also Bank of La. , 919 F.3d 916, 923 (5th Cir. 2019) (citing each of the other circuits’ cases with approval while analyzing the FDIC judicial review provision).

B.

This general intent to displace district court jurisdiction does not end the matter. We must still assess whether Congress intended to funnel the kind of claim Cochran asserts through the statutory review scheme. Thunder Basin , 510 U.S. at 212–16, 114 S.Ct. 771. This is where Cochran pushes back on the dismissal...