This Report summarizes opinions issued on May 16 and 23, 2022 (Part I); and cases granted review on May 16, 2022 (Part II).

Case Granted Review: Securities and Exchange Commission v. Cochran, 21-1239

Securities and Exchange Commission v. Cochran, 21-1239.  The Court will resolve “[w]hether a federal district court has jurisdiction to hear a suit in which the respondent in an ongoing Securities and Exchange Commission administrative proceeding seeks to enjoin that proceeding, based on an alleged constitutional defect in the statutory provisions that govern the removal of the administrative law judge who will conduct the proceeding.” The SEC initiated proceedings against certified public accountant Michelle Cochran to determine violations of the Securities Exchange Act of 1934 (Exchange Act or Act) and assigned the matter to an administrative law judge (ALJ) to receive and review evidence and to render an initial decision. The ALJ ruled against Cochran, imposing a $22,500 civil penalty and a five-year ban on practicing before the Commission. In compliance with administrative procedures, Cochran sought review of the ALJ decision. The SEC vacated the decision because under a then-recent Supreme Court ruling, the ALJ had not been properly appointed. The SEC then remanded the matter for rehearing before a properly appointed ALJ. Cochran sued the SEC, Chairman of the SEC, and the Attorney General in district court, alleging “that statutory restrictions on the removal of Commission ALJs violated Article II,” but the district court tossed the suit for lack of subject matter jurisdiction. The court observed that, under the Exchange Act, “a person aggrieved by a final SEC order may obtain review of it in the federal court of appeals.” The court concluded that, by adopting that scheme, Congress had “implicitly divest[ed] district courts of jurisdiction” over challenges to the Commission’s administrative proceedings. The en banc Fifth Circuit reversed the dismissal. 20 F.4th 194.

The Fifth Circuit relied on statutory text, stare decisis, and its own analysis to conclude that Congress did not intend to strip the federal district court of jurisdiction to hear Cochran’s constitutional claim.  The Exchange Act provides that “[a] person aggrieved by a final order of the Commission . . . may obtain review of the order in the United States Court of Appeals . . . or for the District of Columbia Circuit[.]”  15 U.S.C. §78y(a)(1)). The Fifth Circuit concluded that this text neither explicitly nor implicitly stripped the district court of jurisdiction. Next, the court determined that Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), controls this case because it “rejected the precise argument the SEC makes here—that the Exchange Act divests district courts of jurisdiction over removal power challenges.” Finally, the Fifth Circuit applied the factors in Thunder Basin Coal Company v. Reich, 510 U.S. 200 (1994), concluding that (1) “Cochran’s removal power claim is wholly collateral to the Exchange Act’s statutory-review scheme”; (2) “Cochran’s removal power claim is outside the SEC’s expertise”; and (3) ‘the Exchange Act’s statutory-review scheme threatens to deprive Cochran of the opportunity for meaningful judicial review.”

The parties spent little time on the underlying merits in the petition for certiorari and related briefing, and agreed that the Court should grant review given the important jurisdictional issue and creation of a circuit split.  They diverged, however, on when and how the Court should review this matter in light of its grant of certiorari in Axon Enterprise, Inc. v. Federal Trade Commission, 21-86.¹  Axon presents “essentially” the same question in the context of the Federal Trade Commission. The Ninth Circuit there, after applying the Thunder Basin factors, held that the federal district court lacked jurisdiction to consider a structural constitutional challenge.  Here, the SEC proposed that the Supreme Court hold this case pending a decision in Axon and then decide this case accordingly. Cochran requested that her case and Axon be decided together.

1. A summary of Axon may be found at National Association of Attorneys General, Cases Granted Review:  Axon Enterprise, Inc. v. Federal Trade Commission, 21-86, Supreme Court Report, Vol. 29, Issue 8, Part II, February 14, 2022, available at <https://staging.naag.org/attorney-general-journal/supreme-court-report-axon-v-ftc-21-86/. [↩]