Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Welcome
Go
Free Newsletter Sign Up

High Court Urged to Allow SEC Judge Challenges in District Court

July 1, 2022, 6:28 PM

People challenging the constitutionality of the SEC’s in-house judges should be able to go straight to federal district court without completing an internal agency review process first, a CPA told the US Supreme Court.

Michelle Cochran in her Thursday opening brief asked the high court to affirm an appellate decision in her favor, where the en banc US Court of Appeals for the Fifth Circuit ruled that federal district courts have jurisdiction to hear structural constitutional challenges to the Securities and Exchange Commission’s administrative law judges.

She is opposing the commission’s effort to persuade the justices to reverse the appellate court’s December ruling.

The SEC began an administrative proceeding against the certified public accountant after she allegedly failed to comply with auditing standards under federal securities law.

She appealed to the full commission after an in-house judge imposed a $22,500 penalty and a five-year bar on practicing before the agency, but her case was reassigned to a different ALJ for a new proceeding following the Supreme Court’s 2018 Lucia v. SEC opinion.

The high court in that case held that the SEC’s in-house judges had been unconstitutionally appointed.

Jurisdiction

Cochran then sued to block the new ALJ proceeding, arguing that the in-house judges’ protection against removal from office is unconstitutional. She twice lost for failing to appeal within the agency before turning to federal courts.

The full Fifth Circuit in 2021 gave Cochran a new shot at stopping the administrative proceeding against her after a 9-7 majority determined federal securities laws don’t actually strip lower courts of jurisdiction to hear constitutional challenges like this one.

The SEC petitioned the Supreme Court for review of the en banc decision in March, and the high court in May agreed to consider the case.

Cochran’s case overlaps with a similar one—Axon Enterprise Inc. v. FTC—involving Federal Trade Commission in-house judges, so the government asked the Supreme Court to coordinate the briefing. The high court agreed, directing Cochran to file her opening brief first despite being the respondent.

‘Paramount Importance’

Congress didn’t expressly strip federal district courts of jurisdiction to hear claims like Cochran’s, she said in her opening brief. And “given the paramount importance of statutory text, stripping jurisdiction based on mere implications is at best a shaky enterprise.”

The relevant section of the law doesn’t “say a word about divesting district courts of jurisdiction” but instead focuses on when federal appellate courts may take up “challenges to certain agency actions.”

Even if this limited jurisdictional grant implicitly strips district courts of the ability to review final SEC orders, Cochran isn’t challenging a final order, so lower courts should still be able to hear her claim, the brief said.

The US Solicitor General—representing both the SEC and the FTC—has until Aug. 8 to file a consolidated response brief on the merits of both cases.

The New Civil Liberties Alliance and Latham & Watkins LLP represent Cochran.

The case is SEC v. Cochran, U.S., No. 21-1239, brief filed 6/30/22.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com