Bennett v. U.S. Securities & Exchange Commission , 844 F.3d 174 ( 2016 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-2584
DAWN J. BENNETT; BENNETT GROUP FINANCIAL SERVICES, LLC,
Plaintiffs – Appellants,
v.
U.S. SECURITIES AND EXCHANGE COMMISSION,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15-
cv-03325-PWG)
Argued: October 28, 2016 Decided: December 16, 2016
Before MOTZ, KING, and DUNCAN, Circuit Judges.
Affirmed by published opinion. Judge Duncan wrote the opinion,
in which Judge Motz and Judge King joined.
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.
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. See 17 C.F.R. § 201.110. When the
2
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 also Jarkesy 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.
3
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
4
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 (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
1 Subsequently, in its initial decision, the ALJ found that
Bennett willfully violated numerous provisions of the securities
laws, barred her from the industry, and imposed disgorgement and
civil penalties collectively exceeding $4 million. Bennett Grp.
Fin. Servs., LLC, Exchange Act Release No. 1033, 2016
(Continued)
5
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 (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 (1994).
Three Supreme Court decisions principally inform our
analysis of the inquiry presented: Thunder Basin Coal Company v.
WL 4035560, at *47–49 (ALJ July 11, 2016) (default decision).
The Commission granted Bennett’s petition for review, and
briefing was to be completed by November 4, 2016. Bennett Grp.
Fin. Servs., LLC, Exchange Act Release No. 4491, 2016 WL 4426912(Aug. 22, 2016).
6
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. 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. See id. at 203–04 (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.
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
2 Thunder Basin, 510 U.S. 200 (1994); Free Enterprise, 561
U.S. 477 (2010); Elgin, 132 S. Ct. 2126 (2012).
7
(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; 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. See 30 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 also Thunder Basin, 510 U.S.
at 208.
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(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. Moreover, the Court
8
concluded that “petitioner’s statutory and constitutional
claims”--even a constitutional claim that challenged the
legitimacy of the administrative process itself--could be
“meaningfully addressed in the Court of Appeals.” Id. at 215.
2.
Several years later, in Free Enterprise, the Supreme Court
considered whether a district court could exercise jurisdiction
over another pre-enforcement challenge--an Article II challenge
to the Public Company Accounting Oversight Board (“PCAOB” or
“Board”)--despite the Exchange Act’s judicial-review provision
found at 15 U.S.C. § 78y. 561 U.S. at 489. The Board is a
government-created private, nonprofit corporation that
supervises accounting firms under the SEC’s oversight. Under
the Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat.
745 (codified as amended in scattered sections of 15 U.S.C.),
the SEC would appoint the PCAOB’s five members, and only some of
the Board’s actions required SEC approval. Free Enterprise, 561
U.S. at 489–90. The statute’s judicial-review scheme provided
for review of the Commission’s final rules and orders, such as
sanctions imposed following administrative adjudication, but
offered no path to judicial review for Board actions that did
not require SEC approval. See id.In Free Enterprise, the Board “inspected [an accounting]
firm, released a report critical of its auditing procedures, and
9
began a formal investigation” of its practices. Id. at 487.
Under the statute, none of those regulatory actions would result
in a Commission rule or order, and so could not trigger a path
to judicial review under § 78y. See id. at 489–90. Petitioners
sued in federal district court, arguing that the Board
contravened the separation of powers, because Board members
enjoyed two layers of for-cause removal that impeded
presidential supervision of executive power, and the
Appointments Clause, because Board members were officers that
required presidential appointment and Senate advice and consent.
Id. at 487–88. Petitioners sought an injunction preventing the
Board from exercising its powers, and a declaration that it was
unconstitutional. Id. at 487.
The Free Enterprise Court held that § 78y did not preclude
the district court from exercising jurisdiction on the facts
presented. Id. at 491. Because the Board had not undertaken
regulatory action that would yield a reviewable Commission order
or rule, the petitioners would have had to “challenge a Board
rule at random” or “bet the farm” by voluntarily incurring a
sanction in order to trigger § 78y’s mechanism for
administrative and judicial review. Id. at 490 (citation
omitted). The Court concluded that this was not a “‘meaningful’
avenue of relief.” Id. at 491 (quoting Thunder Basin, 510 U.S.
at 212). The Court also noted that the petitioner’s
10
constitutional challenge was “‘collateral’ to any Commission
orders or rules from which review might be sought,” and “outside
the Commission’s competence and expertise” because it did not
involve technical considerations or fact-bound inquiries. Id.
at 490, 491. Therefore, the Court held that § 78y did not strip
the district court of jurisdiction over petitioners’ claims.
3.
In Elgin, the last decision in our trilogy, federal
employees’ failure to comply with a federal statute prompted
their discharge from government agencies. Elgin v. Dep’t of
Treas., 132 S. Ct. 2126, 2131 (2012). Elgin, one of the
employees, appealed his dismissal to the Merit Systems
Protection Board (“MSPB”) pursuant to a “comprehensive system”
for resolving personnel decisions involving federal employees
established by Congress in the Civil Service Reform Act of 1978
(“CSRA”). Id. at 2130 (quoting United States v. Fausto,
484 U.S. 439, 455 (1988)). That process requires adjudication
first before the MSPB, subject to review in the Federal Circuit,
which has exclusive jurisdiction over such appeals. Id.at 2130–31. Before the administrative process had concluded,
however, Elgin joined a suit in federal district court in which
petitioners argued that the statutes providing the basis for
their discharge were unconstitutional. Id. at 2131.
11
The Elgin Court held that the CSRA precluded district-court
jurisdiction over petitioners’ claims. Id. at 2130. After
reviewing the “painstaking detail” of the CSRA’s provisions for
federal employees to obtain judicial review of adverse
employment actions, the Court concluded that Congress evinced a
“fairly discernible” intent to deny covered employees an
additional avenue of review in district court. Id. at 2134.
Significantly, the Court rejected the argument that it should
carve out constitutional claims from the judicial-review scheme
and allow them to proceed in district court, noting that “a
jurisdictional rule based on the nature of a[] . . .
constitutional claim . . . is hazy at best and incoherent at
worst.” Id. at 2135.
Petitioners raised “three additional factors” to argue that
their claims were not the type that Congress intended to exclude
from the statute’s judicial-review scheme, but the Court
disagreed on each point. Id. at 2136. First, the Court
emphasized that petitioners could receive meaningful review “in
the Federal Circuit, an Article III court fully competent to
adjudicate” their claims. Id. at 2137. Second, the Court
reasoned that petitioners’ constitutional claims were “the
vehicle by which” petitioners sought to reverse the discharge
orders, and thus were not “wholly collateral” to the statutory
scheme. Id. at 2139–40. Third, even though the MSPB could not
12
rule on the constitutionality of the statute, the Court noted
that its expertise could “otherwise be ‘brought to bear’” on
“many threshold questions that may accompany a constitutional
claim.” Id. at 2140 (quoting Thunder Basin, 510 U.S. at 214–
15). Thus, petitioners could not proceed outside the statutory
scheme and had to wait for judicial review in due course.
D.
Under Thunder Basin and its progeny, determining whether
Congress has impliedly divested district-court jurisdiction over
agency action involves a two-step inquiry. First, we ask
whether Congress’s intent to preclude district-court
jurisdiction is “fairly discernible in the statutory scheme.”
Thunder Basin, 510 U.S. at 207; see also Elgin, 132 S. Ct.
at 2132; Free Enterprise, 561 U.S. at 489. This involves
examining the statute’s text, structure, and purpose. Elgin,
132 S. Ct. at 2133. Second, we ask whether plaintiffs’ “claims
are of the type Congress intended to be reviewed within this
statutory structure.” Thunder Basin, 510 U.S. at 212; accord
Elgin, 132 S. Ct. at 2136–40. At this second stage, we consider
three factors. We focus on (1) whether the statutory scheme
“foreclose[s] all meaningful judicial review.” Thunder Basin,
510 U.S. at 212–13; see also Elgin, 132 S. Ct. at 2132; Free
Enterprise, 561 U.S. at 490–91. We also consider (2) the extent
to which the plaintiff’s claims are “wholly collateral” to the
13
statute’s review provisions, and (3) whether “agency expertise
could be brought to bear on the . . . questions presented.”
Thunder Basin, 510 U.S. at 212, 215; see also Elgin, 132 S. Ct.
at 2139–40; Free Enterprise, 561 U.S. at 490–91. Against this
background, we apply the Thunder Basin framework to the facts
before us. 3
III.
A.
1.
At the first step of our analysis, we readily discern from
the text and structure of the Exchange Act Congress’s intent to
channel claims first into an administrative forum and then on
appeal to a U.S. Court of Appeals. Like the Mine Act in Thunder
Basin, the Exchange Act includes a comprehensive scheme that
provides for judicial review in the appropriate court of
appeals, with substantially the same authority to affirm,
modify, enforce, or set aside final agency orders in whole or in
part, as well as authority to consider new arguments, reject
findings of fact, remand to adduce new evidence, and issue
stays. Compare 15 U.S.C. § 78y, with 30 U.S.C. § 816(a).
3 Bennett concedes that the Thunder Basin framework governs
whether the district court had jurisdiction to entertain her
suit. Appellants’ Br. at 8. Because we rule on jurisdictional
grounds, we do not reach the merits of Bennett’s claim.
14
Moreover, Congress demonstrated it knew how to preserve
district-court jurisdiction, but declined to do so: “like the
Mine Act, the statute here specifically authorizes district
courts to exercise jurisdiction over certain actions brought by
the agency but not by private parties.” Nat’l Taxpayers Union,
376 F.3d at 243; see also Thunder Basin, 510 U.S. at 209.
Compare 15 U.S.C. § 78u(d)(1), with 30 U.S.C. § 818. Our sister
circuits have concluded that the provisions in the Exchange Act
are “nearly identical,” Jarkesy, 803 F.3d at 16–17, and
“materially indistinguishable,” Hill v. SEC, 825 F.3d 1236, 1242
(11th Cir. 2016), from the provisions in the Mine Act that the
Thunder Basin Court found eliminated district-court
jurisdiction. We agree. Congressional intent to deny
collateral district-court challenges is “fairly discernible”
from the text and structure of the Exchange Act.
2.
Bennett advances two main arguments at Thunder Basin step
one, both of which we find unpersuasive. 4
4
Bennett also claims that the “painstaking detail” in the
Exchange Act’s judicial-review provision “tells us nothing about
the scope of the SEC’s jurisdiction to issue . . . orders.”
Appellants’ Br. at 24. That argument leaps ahead: we decide
here whether the district court had jurisdiction, which depends
on the scope of the review scheme; we do not decide the scope of
the SEC’s jurisdiction or the constitutional legitimacy of ALJ
appointments, questions that go to the merits.
15
She first relies on language in Free Enterprise taken out
of context: “The Government reads § 78y as an exclusive route to
review. But the text does not expressly limit the jurisdiction
that other statutes confer on district courts. See, e.g.,
28 U.S.C. §§ 1331, 2201. Nor does it do so implicitly.”
561 U.S. at 489. Bennett argues that this language is
dispositive of the issue before us because she, too, asserts an
Article II challenge to the agency’s authority.
Bennett reads too much into the Free Enterprise Court’s
conclusion, which is distinguishable on the facts. 5 Looking at
the statutory text, the Court noted that § 78y “provides only
for judicial review of Commission action, and not every Board
action is encapsulated in a final Commission order or rule.”
Free Enterprise, 561 U.S. at 490. The Free Enterprise
petitioners challenged the constitutionality of the Board
members’ appointments before enforcement; no Board rule directly
implicated petitioners’ challenge, nor had the Board issued a
sanction against the petitioners. There was thus no reviewable
“Commission action,” nor even a guarantee that the Board’s
investigation would eventually culminate in reviewable
“Commission action.” The Court reasoned that, in such
5
We also note that most of the Supreme Court’s reasoning in
Free Enterprise centered not on the text of the statute, but on
the three Thunder Basin step-two factors, which we discuss
below.
16
circumstances, Congress would not have intended petitioners to
challenge a Board rule at random or incur a sanction in order to
trigger judicial review under § 78y. The Court therefore
allowed petitioners’ claims against the Board to proceed outside
the statutory scheme.
Here, by contrast, Bennett necessarily challenges
“Commission action.” Id. The Commission has instituted an
administrative disciplinary proceeding against Bennett, and she
challenges the legitimacy of the ALJ presiding over that
proceeding. Unlike an inspection or investigation, a
disciplinary proceeding results in a final Commission order.
See 17 C.F.R. §§ 201.411(a), 201.360(d)(2). Thus, unlike the
petitioners’ claims in Free Enterprise, Bennett’s constitutional
claims “fall within the fairly discernible scope of § 78y’s
review procedures” because the proceedings will result in a
reviewable Commission order. Hill, 825 F.3d at 1243.
Bennett’s second textual argument fares no better. Bennett
argues the Exchange Act’s saving clause, which provides that
“the rights and remedies provided by this chapter shall be in
addition to any and all other rights and remedies that may exist
at law or in equity,” 15 U.S.C. § 78bb(a)(2), shows Congress did
not intend to make the statutory remedies exclusive, and thus
indicates that congressional intent to preclude district-court
17
review of constitutional claims of the type she raises here is
not “fairly discernible” from the text.
Bennett cites Abbott Laboratories v. Garner, a case in
which the Supreme Court found a similar saving clause “strongly
buttressed” its conclusion that the statute had not eliminated
district-court jurisdiction over a challenge to a regulation.
387 U.S. 136, 144 (1967), abrogated on other grounds by Califano
v. Sanders, 430 U.S. 99 (1977). There, however, the Court
emphasized that the judicial-review provision in the statute did
not cover the particular claim at issue: The statute provided
“special-review procedures” to deal with technical factual
determinations, id. at 144, for “certain enumerated kinds of
regulations, not encompassing those of the kind involved” in the
case, id. at 141 (footnote omitted). Here, by contrast, the
judicial-review provision in § 78y encompasses all objections to
final agency action, including the constitutional objections
Bennett raises. See Hill, 825 F.3d at 1244. 6
6That a statute both grants exclusive jurisdiction to a
U.S. Court of Appeals to review final agency action and includes
a saving clause preserving rights and remedies is not internally
inconsistent. For instance, Congress may have wanted to channel
all claims to a particular forum (with the judicial-review
scheme) while simultaneously preserving the Commission’s ability
to enforce state securities laws (via the saving clause).
Further, the Supreme Court has recently construed the Exchange
Act’s saving clause narrowly when it found that the clause did
not preserve antitrust claims. See Credit Suisse Sec. (USA) LLC
v. Billing, 551 U.S. 264, 275 (2007).
(Continued)
18
We conclude that Congress’s intent to preclude district-
court jurisdiction is “fairly discernible” from the statutory
scheme here.
B.
At the second stage of inquiry, in determining whether
Bennett’s claims “are of the type Congress intended to be
reviewed within th[e] statutory structure,” we consider the
three Thunder Basin factors: (1) meaningful review,
(2) collateral claims, and (3) agency expertise.
510 U.S. at 212. We address each factor in turn. 7
7 We agree with our sister circuits to have addressed the
matter that meaningful judicial review is the most important
factor in the Thunder Basin analysis. See Hill, 825 F.3d
at 1245 (stating that meaningful judicial review is “the most
critical thread in the case law”) (quoting Bebo v. SEC, 799 F.3d
765, 774 (7th Cir. 2015)); Tilton v. SEC, 824 F.3d 276, 282
(2d Cir. 2016) (same); see also Nat’l Taxpayers Union, 376 F.3d
at 243 (concluding that the Thunder Basin Court “rested its
conclusion” on the availability of meaningful judicial review).
But see Jarkesy, 803 F.3d at 22 (concluding that the Thunder
Basin factors are “guideposts for a holistic analysis”). This
interpretation is most consistent with the Supreme Court’s
treatment. In Thunder Basin, the Court noted that it would
uphold district-court jurisdiction “particularly where a finding
of preclusion could foreclose all meaningful judicial review.”
510 U.S. at 212–13 (emphasis added); see also Elgin, 132 S. Ct.
at 2132 (emphasizing the availability of some judicial review at
beginning of Thunder Basin’s two-step analysis); Free
Enterprise, 561 U.S. at 490–91 (focusing on petitioners’
inability to meaningfully pursue their constitutional claims
under the administrative scheme and discussing meaningful relief
when assessing whether the claims were “wholly collateral”).
19
1.
With respect to meaningful review, Bennett contends that
post-proceeding consideration of her constitutional challenge
will be meaningless under § 78y because the violation is
exposure to the unconstitutional proceeding, rather than any
adverse decision on the merits. 8 Characterizing her claim as a
“structural, prophylactic” challenge to the constitutionality of
the forum itself, she contends that the only appropriate relief
is an injunction to halt the allegedly unconstitutional
administrative proceeding before it occurs. Appellants’ Br.
at 26.
The Supreme Court has rejected analogous arguments. With
respect to the nature of the constitutional challenge, in
Thunder Basin the Court recognized that “[a]djudication of the
8
In her reply brief, however, Bennett suggests that her
true concern is a sanction. Reply Br. at 11. If so, then
Bennett’s claim has even less merit for two reasons. First,
contrary to her assertion, her claim does “seek to affect the
merits of the SEC proceeding,” Appellants’ Br. at 40, and so is
not “wholly collateral.” Second, the statute’s judicial-review
scheme ensures “meaningful review” because a court of appeals
can remedy any sanctions order. If the Commission imposes
sanctions in its final order, Bennett can request a stay pending
judicial review before the Commission, 17 C.F.R. § 201.401, and
before the court of appeals once it obtains exclusive
jurisdiction, 15 U.S.C. § 78y(c)(2). Even if Bennett fails to
obtain a stay, the court of appeals can vacate a Commission
order in whole. Id. § 78y(a)(3). Bennett cannot demonstrate
she is likely to suffer irreparable injury while awaiting
judicial review. See Thunder Basin, 510 U.S. at 218; Hill, 825
F.3d at 1247.
20
constitutionality of congressional enactments has generally been
thought beyond the jurisdiction of administrative agencies,”
510 U.S. at 215 (quoting Johnson v. Robison, 415 U.S. 361, 368
(1974)), but that “[t]his rule is not mandatory.” Id. The
Thunder Basin Court--evaluating a similar judicial-review scheme
under the Mine Act--found that petitioner’s “constitutional
claims . . . [could] be meaningfully addressed in the Court of
Appeals,” even when the petitioner there challenged the
constitutionality of the administrative process itself.
510 U.S. at 215. 9 Moreover, the Supreme Court has similarly
rejected the drawing of jurisdictional lines between agencies
and federal courts based on the nature of constitutional claims.
See Elgin, 132 S. Ct. at 2135–26 (noting that the line between
facial, as-applied, and other constitutional challenges to
statutes is “hazy at best and incoherent at worst”). Bennett
fails to explain why an Appointments Clause challenge to the ALJ
presiding over her proceeding differs appreciably from the
contention in Thunder Basin that compelling a firm to challenge
9 The Elgin Court similarly held that Congress can require
plaintiffs to bring challenges to the constitutionality of
statutes exclusively through the administrative scheme, even
when the initial agency cannot rule on the constitutional
question and the reviewing court lacks the power to conduct a
hearing to find facts relevant to that determination.
132 S. Ct. at 2136–39.
21
a regulation through the Mine Act’s judicial-review scheme
violates due process. Both attack the legitimacy of the forum. 10
Relatedly, Bennett argues that an unconstitutional
proceeding is, itself, the harm that she should be allowed to
avoid. The burden of defending oneself in an unlawful
administrative proceeding, however, does not amount to
irreparable injury. FTC v. Standard Oil Co. of Cal., 449 U.S.
232, 244 (1980). In Standard Oil, a company sued in district
court to enjoin an ongoing administrative proceeding, arguing
that the entire proceeding was unlawful because the agency had
initiated it without the evidentiary basis required by statute.
Id. at 235. The Court concluded that Standard Oil had to first
complete the administrative process before reaching a federal
court, and that this scheme provided meaningful judicial review.
See id. at 238. The Court emphasized that “the expense and
annoyance of litigation is ‘part of the social burden of living
under government.’” Id. at 244 (quoting Petroleum Expl., Inc.
v. Pub. Serv. Comm’n, 304 U.S. 209, 222 (1938)). Bennett argues
Standard Oil is inapposite because it did not involve a
10 Moreover, in analogous cases, federal courts require
litigants who unsuccessfully challenge the constitutionality of
the initial tribunal--including the authority of the presiding
decision maker--to endure the proceeding and await possible
vindication on appeal. See Tilton, 824 F.3d at 285 (discussing
cases).
22
constitutional claim. 11 But that distinction makes no material
difference for assessing the meaningfulness of judicial review
here, because Thunder Basin and Elgin establish that petitioners
can obtain meaningful review of constitutional claims through a
statutory scheme similar to the one here. Thunder Basin,
510 U.S. at 215–16; Elgin, 132 S. Ct. at 2136–39; see also Hill,
825 F.3d at 1246–47. 12
11 Bennett also argues that the injury is not just the
expense and emotional toll of litigation, but also the
“institutional integrity” of the government structure and her
individual liberty interest. The cases she cites undermine
these arguments. See CFTC v. Schor, 478 U.S. 833, 852 (1986)
(upholding scheme that “hew[ed] closely to the agency model
approved” previously by the Court “in Crowell v. Benson, 285
U.S. 22 (1932)”); Bond v. United States, 564 U.S. 211, 223
(2011) (stating that only when individuals “suffer otherwise
justiciable injury” and participate “in a proper case” may they
argue a structural constitutional objection, including that the
structure protecting individual liberty is compromised).
12 Bennett tries to distinguish Elgin and other similar
cases denying alternative avenues of appeal by arguing that in
those cases a reviewing court could provide “complete relief” by
reversing the final order issued in the initial forum, whereas
under the judicial-review scheme at issue here a court of
appeals could never issue the injunctive relief she seeks
because the proceedings would already have concluded. This
argument suggests that a court of appeals’ order ruling on
Bennett’s Appointments Clause claim and vacating any sanction
the Commission imposes would not provide “complete relief.”
That cannot be. Bennett “has no inherent right to avoid an
administrative proceeding at all.” Jarkesy, 803 F.3d at 27.
Bennett also assumes she is entitled to her preferred remedy--an
injunction in district court. That is also incorrect. As a
general matter, the Supreme Court has long recognized that
Congress may substitute remedies for illegal action. Cf. Cary
v. Curtis, 44 U.S. (3 How.) 236 (1845) (holding congressional
statute withdrew traditional right of action against customs
(Continued)
23
Furthermore, cases in which the Supreme Court has concluded
that post-proceeding judicial review was not meaningful are
distinguishable in critical respects. Bennett places principal
reliance on Free Enterprise, where the Supreme Court held that
§ 78y was not an exclusive route to judicial review on the facts
of that case. But unlike the plaintiffs in Free Enterprise,
Bennett is already embroiled in an enforcement proceeding. To
bring her challenge to the constitutionality of ALJ appointments
before an Article III court, Bennett need not “bet the farm”--in
fact, she need not take any additional risks. Id. at 490. She
has already allegedly committed the actions that violate federal
securities laws.
Bennett misreads Free Enterprise when she asserts that the
case “applies the principle that a litigant who challenges the
collectors for illegally exacted duties and that aggrieved
parties were not unconstitutionally deprived of all access to
the courts because common-law remedies remained); McKesson Corp.
v. Div. of Alcoholic Beverages & Tobacco, Dep’t. of Bus.
Regulation of Fla., 496 U.S. 18, 36–37 (1990) (explaining that
for unlawfully exacted taxes pre- or post-deprivation remedies
satisfy due process). Thunder Basin applies this principle and
says that Congress can require persons subject to administrative
adjudication to pursue their claims exclusively there first
before reaching an Article III court. 510 U.S. at 216. We also
note that this case “does not present the ‘serious
constitutional question’ that would arise if an agency statute
were construed to preclude all judicial review of a
constitutional claim.” Thunder Basin, 510 U.S. at 215 n.20
(quoting Bowen v. Mich. Acad. of Family Physicians, 476 U.S.
667, 681 n.12 (1986)).
24
constitutionality of an agency forum is not required to endure
the administrative process and incur a sanctions order before
she has access to a court.” Reply Br. at 11. That is too
broad. What animated the Court in Free Enterprise was not that
a plaintiff might need to defend against a sanctions order
before the agency prior to reaching federal court, but rather
that the choice petitioners in that case faced--incur penalties
for noncompliance or challenge a rule at random--made federal
judicial review not meaningfully accessible. See 561 U.S.
at 490; see also Thunder Basin, 510 U.S. at 218. That concern
is not present here, because the SEC has instituted disciplinary
proceedings against Bennett and she can pursue her claims
through the administrative scheme. 13
13
Other cases in which the Supreme Court has concluded that
post-proceeding judicial review was not meaningful are
distinguishable because they involved proceedings that “posed a
risk of some additional and irremediable harm beyond the burdens
associated with the dispute resolution process.” Tilton, 824
F.3d at 286. In McNary v. Haitian Refugee Center, Inc., the
Court allowed a class of undocumented aliens to raise a due-
process challenge to immigration proceedings in district court,
rather than pursue eventual review in a court of appeals
pursuant to the statutory scheme, in part because most aliens
could “ensure themselves review in courts of appeals only if
they voluntarily surrender[ed] themselves for deportation,” a
“price . . . tantamount to a complete denial of judicial review
for most undocumented aliens.” 498 U.S. 479, 496–97. In
Mathews v. Eldridge, the Court allowed a recipient of Social
Security disability benefits to raise a due-process challenge to
administrative exhaustion requirements in district court because
“his physical condition and dependency upon the disability
benefits [meant] an erroneous termination would damage him in a
(Continued)
25
In short, we conclude Bennett can obtain meaningful
judicial review of her constitutional claims under § 78y by
proceeding in the administrative forum and raising her claims in
a federal court of appeals in due course.
2.
Turning to the second Thunder Basin factor, the reference
point for determining whether a claim is “wholly collateral” is
not free from ambiguity. On the one hand, the Supreme Court has
compared the merits of a constitutional claim to the substance
of the charges at issue. See Eldridge, 424 U.S. at 330
(concluding that due-process claim was “entirely collateral to
[the] substantive claim of entitlement”). On the other hand,
the Court has considered whether a claim is “wholly collateral
to [the] statute’s review provisions.” Elgin, 132 S. Ct.
at 2136 (quoting Free Enterprise, 561 U.S. at 489). Under this
standard, claims are not wholly collateral when they are “the
vehicle by which [petitioners] seek to reverse” agency action.
Id. at 2139.
Bennett argues for the first reading: Her constitutional
claim is “wholly collateral” to the proceeding “because it
challenges the legality of the forum itself and does not seek to
way not recompensable through retroactive payments.” 424 U.S.
319, 331 (1976). Bennett has not shown that she will suffer
similar irreparable injury.
26
affect the merits of [the] SEC proceeding.” Appellants’ Br.
at 40. At one level, this makes conceptual sense: Even if she
is successful in challenging the appointment of the Commission’s
ALJs, the SEC could still bring a civil enforcement action in
district court on the same substantive charges.
However, we think the second reading is more faithful to
the more recent Supreme Court precedent, even though it reduces
the factor’s independent significance. Moreover, we are joined
in that interpretation by several of our sister circuits that
have considered the issue. See Jarkesy, 803 F.3d at 22–23;
Tilton, 824 F.3d at 287–88. But see Bebo, 799 F.3d at 773–74
(declining to decide among interpretations); Hill, 825 F.3d
at 1251–52 (same).
Bennett’s claim appears to be the “vehicle by which she
seeks” to vacate the ALJ’s initial findings. Elgin, 132 S. Ct.
at 2139. Indeed, the SEC investigated her for three years, but
she did not file suit in district court until after the SEC
instituted proceedings before the ALJ. 14 Free Enterprise--which
focused on whether the claim was procedurally-entwined with the
14 Bennett argues that if she had brought a pre-enforcement
challenge in district court, the SEC would have moved to dismiss
her claim as premature. How the SEC would have responded in
this situation, let alone how a court would have ruled, is an
attenuated hypothetical that cannot meaningfully inform our
review. The fact remains that Bennett did not bring such a
challenge.
27
proceeding--is instructive. There, “[p]etitioners’ general
challenge to the Board [wa]s ‘collateral’ to any Commission
orders or rules from which review might be sought.” See 561
U.S. at 490. Here, by contrast, Bennett’s claim arises out of
the enforcement proceeding and provides an affirmative defense.
If she succeeds, Bennett will invalidate a Commission order.
Therefore, her claim is not wholly collateral.
3.
The third Thunder Basin factor--agency expertise--also
points toward precluding district-court jurisdiction. Bennett
argues that her challenge to the constitutional sufficiency of
ALJ appointments lies outside the SEC’s expertise. Free
Enterprise held as much, reasoning that an Appointments Clause
challenge to the PCAOB raised only “standard questions of
administrative law,” rather than “fact-bound,” industry-
specific, or technical inquiries on which the SEC has special
“competence and expertise.” 561 U.S. at 491. Subsequently,
however, in Elgin the Supreme Court “adopted a broader
conception of agency expertise in the jurisdictional context.”
Tilton, 824 F.3d at 289; see also Hill, 825 F.3d at 1250–51;
Bebo, 799 at 771; Jarkesy, 803 F.3d 28–29. There, the Court
held that Congress had precluded jurisdiction, reasoning that
the Merit Systems Protection Board could “apply its expertise”
to “threshold questions that may accompany a constitutional
28
claim” against a federal statute, even when the agency
disclaimed authority to resolve those constitutional claims.
Elgin, 132 S. Ct. at 2140. The Court noted that the agency
“might fully dispose of the case” or “alleviate constitutional
concerns” by resolving “preliminary questions” or statutory
questions it “routinely considers.” Id. Thus, the agency’s
expertise could “be brought to bear.” Id.The Commission could bring its expertise to bear here by
concluding that the Division of Enforcement’s substantive claims
are meritless, thereby fully disposing of the case before
reaching the constitutional question. Indeed, the Supreme Court
has emphasized that “one of the principal reasons to await the
termination of agency proceedings is ‘to obviate all occasion
for judicial review.’” Standard Oil, 449 U.S. at 244 n.11
(quoting McGee v. United States, 402 U.S. 479, 484 (1971)).
Although that may be unlikely to occur here, given that Bennett
has apparently eschewed all other defenses, 15 as a matter of law,
under Elgin the agency-expertise factor points toward precluding
district-court jurisdiction.
15Neither Bennett nor her counsel appeared at the initial
hearing. Bennett Grp. Fin. Servs., LLC, Exchange Act Release
No. 1033, 2016 WL 4035560, at *2 (ALJ July 11, 2016) (default
decision). Bennett does not challenge the merits or details of
the specific SEC proceeding. Appellants’ Br. at 2.
29
IV.
In § 78y, Congress established a comprehensive process for
exclusive judicial review of final Commission orders in the
federal courts of appeals. From the text and structure of the
statute, it is fairly discernible that Congress intended to
channel all objections to such orders--including challenges
rooted in the Appointments Clause--through the administrative
adjudication and judicial review process set forth in the
statute. The three Thunder Basin factors indicate that
Bennett’s claims are of the type Congress intended to be
reviewed within this framework. If the Commission rules against
her, Bennett can obtain meaningful judicial review of her
constitutional claims in a competent Article III court in due
course. The wholly collateral and agency expertise factors also
point toward preclusion.
Adopting Bennett’s argument would provide no limiting
principle: Anyone could bypass the judicial-review scheme
established by Congress simply by alleging a constitutional
challenge and framing it as “structural,” “prophylactic,” or
“preventative.” That conflicts with Elgin’s admonition that
distinguishing among types of constitutional claims for
jurisdictional purposes is a fool’s errand. And it conflicts
with established precedent that Congress has the power to
channel statutory and constitutional claims into administrative
30
adjudication in the first instance, so long as it provides for
judicial review in an Article III court. Cf. Crowell v. Benson,
285 U.S. 22 (1932). Bennett cannot short-circuit that process.
Accordingly, the judgment of the district court is
AFFIRMED.
31