Dawn J. Bennett v. U.S. Securities and Exchange
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 8:15-cv-03325-PWG. [999988402]. [15-2584]
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 1 of 31
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. (8:15cv-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.
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 2 of 31
DUNCAN, Circuit Judge:
Dawn
Bennett
Services,
court’s
LLC,
and
her
firm,
(collectively,
dismissal
on
challenging
the
enforcement
proceeding
Bennett
“Bennett”)
jurisdictional
constitutionality
that
the
Group
appeal
grounds
of
Financial
the
district
of
the
her
suit
administrative
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
Securities
of
the
Exchange
federal
Act
of
securities
1934
laws,
(“Exchange
including
Act”),
15
the
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.
further
authorized
functions
to
an
the
SEC
to
administrative
delegate
law
its
judge
Congress
adjudicative
(“ALJ”),
while
“retain[ing] a discretionary right to review the action of any
such”
ALJ
on
“its
Id. § 78d-1(a)-(b).
own
initiative”
or
at
a
party’s
request.
The SEC implemented this framework through
its Rules of Practice.
See 17 C.F.R. § 201.110.
2
When the
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 3 of 31
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
ALJ’s
and
the
initial
decision
de
novo
may
take
additional evidence.
See id. §§ 201.410, 201.411(a), 201.452;
see
SEC,
also
Jarkesy
v.
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
available
administrative
directly
in
the
15 U.S.C. § 78y(a)(1).
petition,
exclusive.
the
enforcement
appropriate
When
jurisdiction
an
of
Id. 78y(a)(3).
proceedings
aggrieved
the
For
court
court
of
files
appeals
review
be
appeals.
person
of
judicial
shall
of
a
becomes
final
Commission orders, the Exchange Act specifies what constitutes
the
agency
id. §
record,
78y(a)(4),
id.
and
§
the
78y(a)(2),
process
for
the
standard
seeking
a
of
stay
review,
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 4 of 31
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
investors,
misstating
materially
the
amount
misstating
of
assets
for
performance,
investor
managed
and
failing to adopt and implement adequate written policies for
calculating
returns.
Release
and
advertising
assets
managed
and
investment
In re Bennett Grp. Fin. Servs., LLC, Exchange Act
No.
75864,
2015
instituting proceedings).
WL
5243888
(Sept.
9,
2015)
(order
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 5 of 31
and a declaration that it is unconstitutional.
alleged
that
the
SEC’s
violate
Article
II
provides
that
“[t]he
President
of
the
of
administrative
the
United
executive
United
enforcement
States
Power
States,”
The Complaint
Constitution,
shall
U.S.
proceedings
be
Const.
vested
art. II,
which
in
a
§ 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.
denied both requests.
Dkt. No. 9 (Dec. 28, 2015).
This court
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 6 of 31
II.
A.
We
review
complaint
de
lack
for
novo
of
a
district
court’s
subject-matter
dismissal
jurisdiction.
of
a
Nat’l
Taxpayers Union v. U.S. Soc. Sec. Admin., 376 F.3d 239, 241 (4th
Cir. 2004).
B.
Federal
district
jurisdiction
of
Constitution,
courts
all
laws,
civil
or
generally
actions
treaties
of
expressly
divest
certain claims.
the
district
courts
jurisdiction
administrative
“original
under
United
the
States.”
However, Congress may
of
jurisdiction
over
See, e.g., Shalala v. Ill. Council on Long Term
Care, Inc., 529 U.S. 1, 5 (2000).
preclude
arising
the
28 U.S.C. § 1331; see also id. § 2201.
have
by
adjudication
particular court.
Congress can also impliedly
creating
and
a
delayed
statutory
judicial
scheme
review
of
in
a
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
Appeal: 15-2584
Reich,
Doc: 49
Free
Filed: 12/16/2016
Enterprise
Fund
Pg: 7 of 31
v.
Public
Accounting
Board, and Elgin v. Department of the Treasury. 2
Oversight
We discuss each
in turn.
C.
1.
In
Thunder
petitioner’s
Basin,
the
pre-enforcement
Supreme
challenge
Court
to
considered
the
Federal
a
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
30 C.F.R. § 40.4).
through
filed
the
a
Mine
lawsuit
mines.
See
id.
at
203–04
(citing
Rather than seek review of the regulation
Act’s
in
judicial-review
federal
district
scheme,
Thunder
Basin
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.”
2
Id. at 207
Thunder Basin, 510 U.S. 200 (1994); Free Enterprise, 561
U.S. 477 (2010); Elgin, 132 S. Ct. 2126 (2012).
7
Appeal: 15-2584
Doc: 49
(quoting
30
Filed: 12/16/2016
U.S.C.
Pg: 8 of 31
§ 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”).
§ 823(d)(1).
Id. at 207–08; 30 U.S.C.
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
appeals,
which
cases.
decision
in
exercises
the
appropriate
“exclusive”
federal
jurisdiction
court
over
of
such
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
court
Congress
demonstrated
jurisdiction
in
its
ability
limited
to
preserve
circumstances:
the
districtMine
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.”
(footnote
omitted).
Based
Thunder Basin, 510 U.S. at 209
on
the
“comprehensive
review
process,” the Court found that congressional intent to preclude
district-court
jurisdiction
“fairly discernible.”
over
pre-enforcement
Id. at 208, 216.
8
claims
was
Moreover, the Court
Appeal: 15-2584
Doc: 49
concluded
that
claims”--even
legitimacy
Filed: 12/16/2016
“petitioner’s
a
of
Pg: 9 of 31
statutory
constitutional
the
claim
administrative
and
that
constitutional
the
itself--could
process
challenged
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.
government-created
561 U.S. at 489.
private,
nonprofit
The Board is a
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.
U.S. at 489–90.
Free Enterprise, 561
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 10 of 31
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.
sued
in
federal
contravened
enjoyed
the
two
district
separation
layers
presidential
of
See id. at 489–90.
court,
of
powers,
for-cause
supervision
arguing
of
that
because
the
Board
Board
members
that
removal
executive
Petitioners
impeded
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
administrative
omitted).
order
and
to
trigger
judicial
review.
§ 78y’s
Id.
mechanism
at
490
for
(citation
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
10
that
the
petitioner’s
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
constitutional
challenge
was
Pg: 11 of 31
“‘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.
at 490, 491.
Id.
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.
Treas.,
132
employees,
S.
Ct.
appealed
2126,
his
2131
Elgin v. Dep’t of
(2012).
dismissal
Elgin,
to
the
one
Merit
of
the
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
484 U.S. 439, 455 (1988)).
(quoting
United
States
v.
Fausto,
That process requires adjudication
first before the MSPB, subject to review in the Federal Circuit,
which
has
at 2130–31.
exclusive
jurisdiction
over
such
appeals.
Id.
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.
11
Id. at 2131.
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 12 of 31
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
additional avenue of review in district court.
an
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
disagreed
statute’s
on
each
judicial-review
point.
Id.
at
scheme,
2136.
but
First,
the
Court
the
Court
emphasized that petitioners could receive meaningful review “in
the Federal Circuit, an Article III court fully competent to
adjudicate”
reasoned
their
that
claims.
Id.
petitioners’
at
2137.
constitutional
Second,
the
Court
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 13 of 31
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.”
15).
Id. at 2140 (quoting Thunder Basin, 510 U.S. at 214–
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
whether
involves
Congress’s
a
two-step
intent
inquiry.
to
First,
preclude
we
ask
district-court
jurisdiction is “fairly discernible in the statutory scheme.”
Thunder
Basin,
at 2132;
Free
510
U.S.
Enterprise,
at
207;
561
see
U.S.
also
at
Elgin,
489.
132
This
examining the statute’s text, structure, and purpose.
132 S. Ct. at 2133.
S. Ct.
involves
Elgin,
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.
three factors.
At this second stage, we consider
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 14 of 31
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
appeals,
with
review
substantially
in
the
the
same
appropriate
authority
court
to
of
affirm,
modify, enforce, or set aside final agency orders in whole or in
part, as well as authority to consider new arguments, reject
findings
stays.
of
fact,
Compare
remand
to
adduce
15 U.S.C. § 78y,
3
new
with
evidence,
and
issue
30 U.S.C. § 816(a).
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
Appeal: 15-2584
Doc: 49
Moreover,
Filed: 12/16/2016
Congress
Pg: 15 of 31
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.”
376
F.3d
at
243;
see
also
Thunder
Nat’l Taxpayers Union,
Basin,
510
U.S.
Compare 15 U.S.C. § 78u(d)(1), with 30 U.S.C. § 818.
at
209.
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
jurisdiction.
collateral
Court
We
found
agree.
district-court
eliminated
Congressional
challenges
is
district-court
intent
“fairly
to
deny
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 16 of 31
She first relies on language in Free Enterprise taken out
of context: “The Government reads § 78y as an exclusive route to
review.
that
But the text does not expressly limit the jurisdiction
other
statutes
28 U.S.C. §§ 1331,
confer
2201.
561 U.S. at 489.
on
district
Nor
Bennett
does
argues
courts.
it
do
that
so
this
See,
e.g.,
implicitly.”
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,
petitioners
561 U.S. at 490.
challenged
the
The
Free
constitutionality
Enterprise
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
guarantee
action,”
investigation
“Commission
would
action.”
nor
even
a
eventually
The
Court
5
culminate
reasoned
that
the
in
that,
Board’s
reviewable
in
such
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 17 of 31
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,
“Commission
by
contrast,
action.”
Id.
Bennett
The
necessarily
Commission
has
challenges
instituted
an
administrative disciplinary proceeding against Bennett, and she
challenges
the
proceeding.
disciplinary
legitimacy
Unlike
an
proceeding
of
the
ALJ
inspection
results
in
a
presiding
or
final
See 17 C.F.R. §§ 201.411(a), 201.360(d)(2).
over
that
investigation,
Commission
a
order.
Thus, unlike the
petitioners’ claims in Free Enterprise, Bennett’s constitutional
claims
“fall
within
review
procedures”
the
fairly
because
reviewable Commission order.
the
discernible
proceedings
scope
will
of
§ 78y’s
result
in
a
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 18 of 31
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,
Bennett raises.
including
the
constitutional
objections
See Hill, 825 F.3d at 1244. 6
6
That 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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 19 of 31
We conclude that Congress’s intent to preclude districtcourt jurisdiction is “fairly discernible” from the statutory
scheme here.
B.
At
the
Bennett’s
reviewed
three
second
claims
within
Thunder
(2) collateral
510 U.S. at 212.
stage
“are
th[e]
of
of
inquiry,
the
type
statutory
Basin
claims,
determining
Congress
structure,”
factors:
and
in
intended
we
to
consider
(1) meaningful
(3) agency
whether
be
the
review,
expertise.
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 20 of 31
1.
With respect to meaningful review, Bennett contends that
post-proceeding
will
be
exposure
consideration
meaningless
to
the
under
of
her
§ 78y
unconstitutional
adverse decision on the merits. 8
constitutional
because
the
proceeding,
challenge
violation
rather
than
is
any
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
administrative
to
proceeding
halt
the
before
allegedly
it
occurs.
unconstitutional
Appellants’
Br.
at 26.
The Supreme Court has rejected analogous arguments.
respect
to
the
nature
of
the
constitutional
challenge,
With
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 21 of 31
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
constitutionality
of
510 U.S. at 215. 9
the
petitioner
the
there
administrative
challenged
process
the
itself.
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
statutes is “hazy at best and incoherent at worst”).
to
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
Appeal: 15-2584
a
Doc: 49
Filed: 12/16/2016
regulation
through
violates due process.
Relatedly,
the
Mine
Pg: 22 of 31
Act’s
judicial-review
scheme
Both attack the legitimacy of the forum. 10
Bennett
argues
that
an
unconstitutional
proceeding is, itself, the harm that she should be allowed to
avoid.
The
burden
administrative
of
defending
proceeding,
irreparable injury.
232, 244 (1980).
however,
oneself
does
in
an
not
unlawful
amount
to
FTC v. Standard Oil Co. of Cal., 449 U.S.
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)).
Standard
Oil
is
inapposite
because
10
it
did
Bennett argues
not
involve
a
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
constitutional claim. 11
Pg: 23 of 31
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 24 of 31
Furthermore, cases in which the Supreme Court has concluded
that
post-proceeding
judicial
review
distinguishable in critical respects.
was
not
meaningful
are
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 25 of 31
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.”
broad.
a
Reply Br. at 11.
That is too
What animated the Court in Free Enterprise was not that
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
at 490; see also Thunder Basin, 510 U.S. at 218.
561
U.S.
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 dueprocess 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
Appeal: 15-2584
Doc: 49
In
Filed: 12/16/2016
short,
review
judicial
we
conclude
of
her
Pg: 26 of 31
Bennett
constitutional
can
obtain
claims
meaningful
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,
at 2136 (quoting Free Enterprise, 561 U.S. at 489).
132
S. Ct.
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 27 of 31
affect the merits of [the] SEC proceeding.”
at 40.
Appellants’ Br.
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.
at 2139.
Elgin, 132 S. Ct.
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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
proceeding--is
challenge
to
instructive.
the
Board
Pg: 28 of 31
There,
[wa]s
“[p]etitioners’
‘collateral’
to
any
general
Commission
orders or rules from which review might be sought.”
U.S. at 490.
See 561
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
administrative
the
PCAOB
law,”
raised
rather
only
than
“standard
questions
“fact-bound,”
of
industry-
specific, or technical inquiries on which the SEC has special
“competence and expertise.”
however,
in
Elgin
the
561 U.S. at 491.
Supreme
Court
Subsequently,
“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
28
accompany
a
constitutional
Appeal: 15-2584
claim”
Doc: 49
Filed: 12/16/2016
against
disclaimed
a
federal
authority
to
Pg: 29 of 31
statute,
resolve
Elgin, 132 S. Ct. at 2140.
even
the
agency
constitutional
those
when
claims.
The Court noted that the agency
“might fully dispose of the case” or “alleviate constitutional
concerns”
by
resolving
“preliminary
questions”
questions it “routinely considers.”
expertise could “be brought to bear.”
Id.
or
statutory
Thus, the agency’s
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
reaching the constitutional question.
of
the
case
before
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.’”
(quoting McGee
v.
United
Standard
States,
Oil,
402
449
U.S.
at
U.S.
479,
484
244
n.11
(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.
15
Neither 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
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 30 of 31
IV.
In § 78y, Congress established a comprehensive process for
exclusive
judicial
review
of
federal courts of appeals.
statute,
it
channel
all
rooted
in
is
fairly
adjudication
to
such
Appointments
and
The
three
Bennett’s
claims
are
Bennett
can
orders
Congress
in
the
Thunder
of
obtain
process
Basin
the
intended
orders--including
review
type
reviewed within this framework.
her,
that
Clause--through
judicial
statute.
Commission
From the text and structure of the
discernible
objections
the
final
to
challenges
the
administrative
set
forth
factors
Congress
in
indicate
intended
the
that
to
be
If the Commission rules against
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
principle:
Anyone
established
challenge
Bennett’s
by
and
could
Congress
framing
“preventative.”
distinguishing
argument
That
among
it
bypass
simply
as
the
by
provide
alleging
of
with
established
precedent
that
a
limiting
constitutional
admonition
constitutional
Congress
scheme
“prophylactic,”
Elgin’s
jurisdictional purposes is a fool’s errand.
with
no
judicial-review
“structural,”
conflicts
types
would
claims
or
that
for
And it conflicts
has
the
power
to
channel statutory and constitutional claims into administrative
30
Appeal: 15-2584
Doc: 49
Filed: 12/16/2016
Pg: 31 of 31
adjudication in the first instance, so long as it provides for
judicial review in an Article III court.
285 U.S. 22 (1932).
Cf. Crowell v. Benson,
Bennett cannot short-circuit that process.
Accordingly, the judgment of the district court is
AFFIRMED.
31
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?