ARGUMENT

I. FREE ENTERPRISE FUND ESTABLISHES JURISDICTION AND SHOWS THAT PLAINTIFFS ARE LIKELY TO PREVAIL ON THE MERITS

A. This Court Has Jurisdiction
In the hopes of avoiding judicial scrutiny of its administrative scheme, the government insists that 15 U.S.C. § 78y (which provides only for review of Commission final orders) is Plaintiffs’ exclusive avenue for judicial review. That is wrong. This court has jurisdiction under Article III and 28 U.S.C. § 1331. As Plaintiffs have explained, yet the government refuses to acknowledge, FEF held that nothing in 15 U.S.C. § 78y ousts that jurisdiction, even implicitly. 561 U.S. at 489. Neither ALJs nor the Commission can decide whether the Commission’s ALJs enjoy impermissible layers of tenure protection because agencies lack power to right such constitutional wrongs. La. Pub. Serv. Comm’n v. F.C.C., 476 U.S. 355, 374 (1986). Notably, the Lucia decision itself calls for lower courts, not ALJs, to address this question. 138 S. Ct at 2050 n.1.

B. Plaintiffs Are Likely to Succeed on the Merits Because FEF Prohibits Multiple Layers of Tenure Protection for ALJs
Plaintiffs are entitled to a preliminary injunction because Lucia held that SEC ALJs are inferior officers and FEF forbids more than a single layer of tenure protection for “officers of the United States.” 561 U.S. at 492. The multiple layers that protect SEC ALJs from removal make them unaccountable to either the President or his alter ego, a Head of Department. When Congress nests protections in Matryoshka-doll-like fashion— an “officer” who is only removable for cause by another “officer” who is only removable for cause by a department head who is only removable for cause by the President—it effectively immunizes executive officers of the President from removal by the President, defeating the design of Article II. Justice Breyer called this the “embedded constitutional question” in Lucia. 138 S. Ct. at 2060 (Breyer, J., concurring).

Contrary to the government’s submission, the holding of FEF is not limited to “unusual” tenure protections that were specific to the PCAOB. FEF’s concern was with layers of protections when it noted that “[w]e deal with the unusual situation, never before addressed by the Court, of two layers of for-cause tenure … two layers are not the same as one.” FEF at 501. FEF did sever the unusual barriers, but what FEF actually held was that the President may not be separated from officers by more than a single level of for-cause protection:
While we have sustained in certain cases limits on the President’s removal power, the Act before us imposes a new type of restriction—two levels of protection from removal for those who nonetheless exercise significant executive power. Congress cannot limit the President’s authority in this way.

FEF at 514. Nothing in FEF stated that the Court’s holding turned on the specific kind of protections from removal at issue or cabined the Court’s holding to the specific language in Sarbanes-Oxley, and it is disingenuous to suggest otherwise.

The SEC’s argument that the holding of FEF does not apply to ALJs is equally flawed. The Court in FEF had no occasion to apply its holding to ALJs in the case, because ALJs were not at issue. The footnote on which the SEC relies simply made that clear and stated that whether ALJs were “officers of the United States” was “disputed.” See 561 U.S. at 507 n. 10. After Lucia, there is no dispute.

Now that Lucia has established that SEC ALJs are inferior officers, the conclusion that they violate Article II under FEF is unavoidable. The SEC desperately wishes to avoid this conclusion, however, because it has a profound impact on this case. If Lucia means anything, it means that the SEC lacks the power to force Plaintiffs to litigate another void enforcement proceeding.

As Justice Breyer noted in his concurring opinion, 5 U.S.C. § 7521 does not grant the Commission the power to institute removal proceedings at all, because the MSPB has the independent and exclusive power to remove ALJs, 1 and the board itself enjoys removal protections. Lucia, 138 S. Ct. at 2016. Thus, this court cannot adopt SEC’s proposed construction. See Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 842-43 (1984) (“If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.”)

Significantly, the government’s proposed construction of § 7521 does not cure the second level of constitutional infirmity found in the removal protections afforded the Commissioners. “[M]ultilevel protection from removal” preventing removal of the heads of a department violate the Constitution. 561 U.S. at 484. Thus, even if “good cause” protection for ALJs means “any cause,” the President cannot remove the ALJ without going through two layers of decisionmakers who themselves enjoy tenure protection. See FEF, 561 U.S. at 487 (Commissioner removal only for “inefficiency, neglect of duty, or malfeasance in office”); MFS Sec. Corp. v. SEC, 380 F.3d 611, 619-20 (2d Cir. 2004).

The government’s suggestion in footnote 14 of its opposition that this court sever the offending tenure protection provisions of § 7521 to save the SEC’s administrative scheme can only occur if the court assumes jurisdiction and agrees with Plaintiffs on their likelihood of success on the merits. But even severing the “for cause” provisions of § 7521 still leaves the impermissible double layers of tenure protection of the MSPB and the Commission itself in place and thus fails to cure the constitutional defect.

The Department of Justice’s position that an SEC ALJ’s removal protections are unlawful was well-articulated in Lucia. Br. For Resp’t Supporting Pet’r (U. S. Solicitor General), Lucia v. SEC, 2018 WL 125162, at *52-53 (U.S. Feb. 21, 2018). The Solicitor General was right then, and Plaintiffs should prevail now under that view.

 

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