Cochran v. U.S. Sec. & Exch. Comm'n, 19-10396

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Citation: 20 F.4th 194
• Docket Number: No. 19-10396,19-10396
• Parties: Michelle COCHRAN, Plaintiff—Appellant, v. U.S. SECURITIES AND EXCHANGE COMMISSION ; Gary Gensler, in his official capacity as Chairman of the U.S. Securities and Exchange Commission ; Merrick Garland, U.S. Attorney General, Defendants—Appellees.
• Decision Date: 13 December 2021

20 F.4th 194

Michelle COCHRAN, Plaintiff—Appellant,
v.
U.S. SECURITIES AND EXCHANGE COMMISSION ; Gary Gensler, in his official capacity as Chairman of the U.S. Securities and Exchange Commission ; Merrick Garland, U.S. Attorney General, Defendants—Appellees.

No. 19-10396

United States Court of Appeals, Fifth Circuit.

FILED December 13, 2021

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, Daniel J. Aguilar, U.S. Department of Justice, 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, and Merrick Garland.

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

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

Allyson Newton Ho, Bryan M. Clegg, AT, Bradley G. Hubbard, Ashley E. Johnson, Esq., Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, Jacob T. Spencer, Gibson, Dunn & Crutcher, L.L.P., Washington, DC, for Amicus Curiae Texas Public Policy Foundation.

Michael David Pepson, Americans for Prosperity Foundation, Arlington, VA, for Amicus Curiae Americans for Prosperity Foundation.

Before Owen, Chief Judge, and Jones, Smith, Stewart, Dennis, Elrod, Southwick, Haynes, Graves, Higginson, Costa, Willett, Duncan, Engelhardt, Oldham, and Wilson, Circuit Judges.¹

Haynes, Circuit Judge, joined by Jones, Smith, Elrod, Willett,² Duncan, Engelhardt, Oldham, and Wilson, Circuit Judges:

The question presented is whether a provision of the Securities Exchange Act

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of 1934 ("Exchange Act"), 15 U.S.C. § 78y, implicitly strips federal district courts of subject-matter jurisdiction to hear structural constitutional claims. The district court held yes, and a panel of our court affirmed. Rehearing the case en banc, we determine that the Exchange Act does not disturb the district court's jurisdiction over such claims.

Therefore, as explained below, we AFFIRM the district court's judgment in part, REVERSE in part, and REMAND for further proceedings consistent with this opinion.

I. Background

In April 2016, the Securities and Exchange Commission ("SEC") brought an enforcement action against Michelle Cochran, a certified public accountant. The SEC alleged that Cochran violated the Exchange Act by, inter alia , failing to comply with auditing standards issued by the Public Company Accounting Oversight Board ("PCAOB") when performing quarterly reviews and annual audits between 2010 and 2013. After a hearing, an SEC administrative law judge ("ALJ") ruled against Cochran, imposing a $22,500 penalty and a five-year ban on practicing before the SEC. The SEC adopted the ALJ's decision. Cochran objected.

Before the SEC ruled on Cochran's objection, the Supreme Court intervened. In Lucia v. SEC , the Court held that SEC ALJs are officers of the United States under the Appointments Clause, who must be appointed by the President, a court of law, or a department head. ––– U.S. ––––, 138 S. Ct. 2044, 2049, 2051 & n.3, 201 L.Ed.2d 464 (2018). Because the ALJ who had issued the initial decision in Lucia had not been appointed by a person or entity in one of those three categories (but had instead been appointed by SEC staff members), the Court remanded the case to the SEC for further proceedings before a constitutionally appointed ALJ. Id. at 2050, 2055.

In response to Lucia , the SEC remanded all pending administrative cases for new proceedings before constitutionally appointed ALJs.³ Cochran's case was reassigned to a new ALJ.

Cochran filed suit in federal district court to enjoin the SEC's administrative enforcement proceedings against her. Though the SEC had fixed the appointment problem Lucia addressed, Cochran contended it did not fix a removability problem Lucia declined to reach: she alleged that, because SEC ALJs enjoy multiple layers of "for-cause" removal protection, they are unconstitutionally insulated from the President's Article II removal power. Cochran also asserted that the SEC violated her due process rights by failing to adhere to its own rules and procedures.

The district court dismissed Cochran's case for lack of subject-matter jurisdiction, reasoning that because § 78y permits judicial review of final SEC orders in the courts of appeals, the Exchange Act implicitly strips district courts of jurisdiction to hear challenges to ongoing SEC enforcement proceedings. In the district court's view, Cochran was required to raise her constitutional claims in the ALJ proceeding and then petition for review in the Fifth Circuit or the District of Columbia Circuit if she was dissatisfied with the outcome. Cochran timely appealed, and we enjoined the SEC administrative proceedings pending appeal.

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Subsequently, a panel of this court affirmed the district court's dismissal of Cochran's claims for lack of jurisdiction. Cochran v. SEC , 969 F.3d 507, 511–18 (5th Cir. 2020). Although there was no disagreement on the ultimate decision to affirm as to Cochran's due process claim, the panel reached a 2-1 decision affirming on the removal power claim. See id. at 518 & n.1 (Haynes, J., dissenting in part). We then granted rehearing en banc. Cochran v. SEC , 978 F.3d 975 (5th Cir. 2020) (mem.).

II. Jurisdiction and Standard of Review

The sole issue on appeal is whether the district court had subject-matter jurisdiction over Cochran's claims.⁴ Nevertheless, the district court undoubtedly had "jurisdiction to determine its own jurisdiction." United States v. Ruiz , 536 U.S. 622, 628, 122 S.Ct. 2450, 153 L.Ed.2d 586 (2002). We have appellate jurisdiction under 28 U.S.C. § 1291. We review de novo a district court's dismissal for lack of subject-matter jurisdiction. Rothe Dev., Inc. v. U.S. Dep't of Def. , 666 F.3d 336, 338 (5th Cir. 2011).

III. Discussion

The SEC presents two bases for affirming the district court. First, the SEC argues that Congress implicitly stripped district courts of jurisdiction to hear structural constitutional claims under § 78y. Second, the SEC argues that Cochran's claims are not yet ripe. We discuss and reject each argument in turn.

A. Implicit Jurisdiction Stripping

We first consider the text of § 78y. We conclude that it did not explicitly or implicitly strip the district court of jurisdiction over Cochran's claim. We next consider Supreme Court precedent. The Supreme Court has already rejected the SEC's precise jurisdictional argument under § 78y, so we do the same. Finally, we independently consider the so-called " Thunder Basin factors." We conclude those factors do not warrant departing from the statutory text or deviating from the Supreme Court's interpretation of § 78y.

1. Statutory Text

Congress gave federal district courts jurisdiction over "all civil actions arising under the Constitution." 28 U.S.C. § 1331 (emphasis added). Not some or most—but all. It is undisputed that Cochran's removal power claim arises under the Constitution. Moreover, the Supreme Court has repeatedly told us that "when a federal court has jurisdiction, it also has a ‘virtually unflagging obligation ... to exercise that authority.’ " Mata v. Lynch , 576 U.S. 143, 150, 135 S.Ct. 2150, 192 L.Ed.2d 225 (2015) (ellipsis in original) (quoting

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Colo. River Water Conservation Dist. v. United States , 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976) ); see, e.g., Quackenbush v. Allstate Ins. Co. , 517 U.S. 706, 716, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996) ("We have often acknowledged that federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress.").

It is true, however, that Congress can limit district court jurisdiction if it so chooses. See Sheldon v. Sill , 49 U.S. 441, 449, 8 How. 441, 12 L.Ed. 1147 (1850) (confirming congressional control over lower federal court jurisdiction). The SEC argues that Congress chose to limit district court jurisdiction by enacting § 78y. That section provides, in relevant part:

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). By giving some jurisdiction to the courts of appeals, the SEC argues, Congress...