Bennett v. U.S. Sec. & Exch. Comm'n

Citation844 F.3d 174
Decision Date16 December 2016
Docket NumberNo. 15-2584,15-2584
Parties Dawn J. BENNETT ; Bennett Group Financial Services, LLC, Plaintiffs–Appellants, v. U.S. SECURITIES AND EXCHANGE COMMISSION, Defendant–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

ARGUED: Andrew Joseph Morris, MORVILLO LLP, Washington, D.C., for Appellants. Melissa N. Patterson, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Gregory Morvillo, Eugene Ingoglia, Ellen M. Murphy, MORVILLO LLP, New York, New York, for Appellants. Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Beth S. Brinkmann, Deputy Assistant Attorney General, Mark B. Stern, Mark R. Freeman, Megan Barbero, Daniel Aguilar, Tyce R. Walters, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Rod J. Rosenstein, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee.

Before MOTZ, KING, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge Duncan wrote the opinion, in which Judge Motz and Judge King joined.

DUNCAN, Circuit Judge:

Dawn Bennett and her firm, Bennett Group Financial Services, LLC, (collectively, "Bennett") appeal the district court's dismissal on jurisdictional grounds of her suit challenging the constitutionality of the administrative enforcement proceeding that the Securities and Exchange Commission ("SEC" or "Commission") brought against her. For the following reasons, we join the Second, Seventh, Eleventh, and D.C. Circuits that have addressed the issue, and affirm.

I.
A.

Congress has authorized the Commission to address potential violations of the federal securities laws, including the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78a et seq., either by filing an enforcement action in federal district court or by instituting an administrative proceeding. See, e.g., 15 U.S.C. §§ 78u(d), 78u-1(a)(1), 78u-3. Congress further authorized the SEC to delegate its adjudicative functions to an administrative law judge ("ALJ"), while "retain[ing] a discretionary right to review the action of any such" ALJ on "its own initiative" or at a party's request. Id.§ 78d-1(a)-(b). The SEC implemented this framework through its Rules of Practice. See17 C.F.R. § 201.110. When the Commission initially assigns enforcement proceedings to an ALJ, the ALJ holds a hearing and makes an initial decision, which the respondent may appeal by petitioning for review before the full Commission. Id.§§ 201.360(a)(1), 201.410(a). The Commission reviews the ALJ's initial decision de novo and may take additional evidence. See id.§§ 201.410, 201.411(a), 201.452; see alsoJarkesy v. SEC, 803 F.3d 9, 13 (D.C. Cir. 2015). Whether or not a party seeks further administrative review, the Commission alone—not the ALJ—has the authority to issue the agency's final decision in the proceeding. 17 C.F.R. § 201.360(d)(2).

In the Exchange Act, Congress has provided that judicial review of administrative enforcement proceedings shall be available directly in the appropriate court of appeals. 15 U.S.C. § 78y(a)(1). When an aggrieved person files a petition, the jurisdiction of the court of appeals becomes exclusive. Id. 78y(a)(3). For judicial review of final Commission orders, the Exchange Act specifies what constitutes the agency record, id.§ 78y(a)(2), the standard of review, id.§ 78y(a)(4), and the process for seeking a stay of the Commission order either before the Commission or in the court of appeals, id.§ 78y(c)(2). Against this background, we turn to the present dispute.

B.

Dawn Bennett founded Bennett Group Financial Services, LLC as an independent investment firm around 2006. Around January 2012, the Commission began investigating Bennett and her firm.

On September 9, 2015, the Commission instituted an administrative proceeding against Bennett to determine whether, as the SEC's Division of Enforcement alleged, Bennett had violated the antifraud provisions of the federal securities laws by materially misstating the amount of assets managed for investors, materially misstating investor performance, and failing to adopt and implement adequate written policies for calculating and advertising assets managed and investment returns. In re Bennett Grp. Fin. Servs., LLC, Exchange Act Release No. 75864, 2015 WL 5243888 (Sept. 9, 2015) (order instituting proceedings). The proceedings sought to determine whether Bennett's conduct warranted disgorgement, civil monetary penalties, a cease-and-desist order, and a securities industry bar. Id. at *9–10. The Commission assigned the initial stages of the proceeding to an ALJ. Id. at *10. The ALJ scheduled a hearing on the merits of Bennett's case for January 25, 2016. In re Bennett Grp. Fin. Servs., LLC, SEC Release No. 3269, 2015 WL 12766768 (Oct. 29, 2015) (ALJ scheduling order).

On October 30, 2015, Bennett filed this action in federal district court, seeking to enjoin the administrative proceeding and a declaration that it is unconstitutional. The Complaint alleged that the SEC's administrative enforcement proceedings violate Article II of the United States Constitution, which provides that "[t]he executive Power shall be vested in a President of the United States," U.S. Const. art. II, § 1, cl. 1, and that "the Congress may by Law vest the Appointment of such inferior Officers, as they think proper ... in the Heads of Departments," id.§ 2, cl. 2. Specifically, Bennett alleged that (1) ALJs count as "inferior Officers" and that the SEC's Commissioners—collectively, a "Head" of a "Department"—failed to appoint them, and (2) those ALJs enjoy at least two levels of protection against removal, which impedes presidential supervision over their exercise of "executive Power" and thereby contravenes the separation of powers. Cf.Free Enterprise Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 492, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010).

The district court determined it lacked jurisdiction over Bennett's case and dismissed the action on December 10, 2015. Bennett timely appealed, seeking an injunction pending appeal and expedited review. Dkt. No. 9 (Dec. 28, 2015). This court denied both requests. Dkt. No. 19 (Jan. 22, 2016).1

II.
A.

We review de novo a district court's dismissal of a complaint for lack of subject-matter jurisdiction. Nat'l Taxpayers Union v. U.S. Soc. Sec. Admin., 376 F.3d 239, 241 (4th Cir. 2004).

B.

Federal district courts generally have "original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331 ; see also id.§ 2201. However, Congress may expressly divest the district courts of jurisdiction over certain claims. See, e.g., Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 5, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). Congress can also impliedly preclude jurisdiction by creating a statutory scheme of administrative adjudication and delayed judicial review in a particular court. See, e.g., Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 207, 114 S.Ct. 771, 127 L.Ed.2d 29 (1994).

Three Supreme Court decisions principally inform our analysis of the inquiry presented: Thunder Basin Coal Company v. Reich, Free Enterprise Fund v. Public Accounting Oversight Board, and Elgin v. Department of the Treasury.2 We discuss each in turn.

C.
1.

In Thunder Basin, the Supreme Court considered a petitioner's pre-enforcement challenge to the Federal Mine Safety and Health Amendments Act of 1977, 30 U.S.C. § 801 et seq. (" Mine Act"). 510 U.S. at 202, 114 S.Ct. 771. Thunder Basin, a coal company, objected to a Mine Act regulation that required it to post the names of certain union representatives authorized under the statute to accompany the Secretary of Labor during physical inspections of mines. Seeid. at 203–04, 114 S.Ct. 771 (citing 30 C.F.R. § 40.4 ). Rather than seek review of the regulation through the Mine Act's judicial-review scheme, Thunder Basin filed a lawsuit in federal district court alleging that requiring it to challenge the regulation through the statute's judicial- review scheme violated due process. Id. at 205, 114 S.Ct. 771.

The Supreme Court rejected Thunder Basin's argument. The Court described the Mine Act's "detailed structure for reviewing violations of ‘any mandatory health or safety standard, rule, order, or regulation promulgated’ under the Act." Id. at 207, 114 S.Ct. 771 (quoting 30 U.S.C. § 814(a) ). Under the Mine Act, a mine operator can challenge an adverse agency order before an ALJ, subject to discretionary review by the Federal Mine Safety and Health Review Commission ("MSHRC"). Id. at 207–08, 114 S.Ct. 771 ; 30 U.S.C. § 823(d)(1). A mine operator can petition the MSHRC to review the ALJ's decision, or the MSHRC can direct a review at its own initiative. See30 U.S.C. § 823(d)(1), (2)(A)(i). If the mine operator remains dissatisfied with the MSHRC's decision, it can challenge that decision in the appropriate federal court of appeals, which exercises "exclusive" jurisdiction over such cases. 30 U.S.C. § 816(a)(1) ; see alsoThunder Basin, 510 U.S. at 208, 114 S.Ct. 771.

In reviewing the statutory scheme, the Court further noted that Congress demonstrated its ability to preserve district-court jurisdiction in limited circumstances: the Mine Act expressly authorizes district-court jurisdiction over actions by the Secretary of Labor to enjoin habitual violations and coerce payment of civil penalties; by contrast, "[m]ine operators enjoy no corresponding right but are to complain to the Commission and then to the court of appeals." Thunder Basin, 510 U.S. at 209, 114 S.Ct. 771 (footnote omitted). Based on the "comprehensive review process," the Court found that congressional intent to preclude district-court jurisdiction over pre-enforcement claims was "fairly discernible." Id. at 208, 216, 114 S.Ct. 771. Moreover, the Court concluded that "petitioner's statutory and constitutional claims"—even a constitutional claim that...

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