Michelle Cochran v. U.S. Securities and Exchange Commission

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Exhibit A

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IT IS ORDERED that Appellant’s motion for an injunction pending appeal under Federal Rule of Appellate Procedure 8 is GRANTED…

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This case arises out of the SEC’s effort to subject Ms. Cochran to a second unconstitutional enforcement proceeding after the Supreme Court concluded in Lucia v. SEC, 138 S. Ct. 2044 (2018), that the administrative law judge (ALJ) who presided over her first proceeding was appointed in violation of Article II. She filed this lawsuit in the United States District Court for the Northern District of Texas on January 18, 2019 and a motion for preliminary injunction soon thereafter. She contends that the second enforcement proceeding against her is also void
because her new ALJ is unconstitutionally insulated from removal by the President in violation of Article II. After Lucia, that conclusion follows as a matter of course under the Supreme Court’s previous decision in Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477 (2010) (“FEF”)—a point asserted by the
U.S. Solicitor General in Lucia.

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Washington, DC (September 27, 2023) — While bravely battling the Securities and Exchange Commission for nearly seven-and-a-half long years, NCLA client Michelle Cochran turned her administrative enforcement ordeal into a nightmare for the agency. Now her ordeal will be officially over, but the SEC’s woes are just beginning. The New Civil Liberties Alliance has secured a stipulation from the SEC under which NCLA will dismiss its federal district court action against the agency in exchange for SEC’s promise that it has ended its long-running enforcement case targeting her and “… will not bring a future administrative proceeding against Cochran[.]” NCLA celebrates this major victory with our client, whose valiant fight against Administrative State overreach achieved watershed reform at the U.S. Supreme Court.

In April 2023, Ms. Cochran unanimously won her argument at the U.S. Supreme Court, which held that she could bring “fundamental, even existential” constitutional challenges in federal court before enduring administrative adjudication. This landmark ruling freed Americans trapped in interminable regulatory purgatory to seek relief in federal court from these ersatz proceedings where the agency is prosecutor, judge, jury and first court of appeal—or as the High Court put it, where “agencies, as currently structured, are unconstitutional in much of their work.”

But before Ms. Cochran could renew her challenge in the wake of the decision finding district court jurisdiction to hear her constitutional claims against the agency, SEC announced the unprecedented dismissal of 42 pending enforcement cases. These June 2, 2023, dismissals included NCLA clients Ms. Cochran and Marian Young and former client Christopher Gibson. That order followed a disturbing court filing over a year earlier, in April 2022, while Ms. Cochran’s case was pending at the Supreme Court. In that filing, SEC revealed that members of its enforcement staff had for years illegally downloaded and gained access to privileged adjudicative documents.

The agency downplayed its deliberate pilfering of electronic files as a “control deficiency.” But the June 2 mass dismissal of its open cases divulged that this breach occurred in dozens more cases than originally reported and had been known to the SEC for years. The order self-servingly provided dismissal relief only to open cases—the very defendants who could now challenge SEC in court—while irrationally denying such relief in closed or settled cases where tainted adjudication damage is equally likely and now rendered permanent and possibly irremediable.

SEC had aggressively pursued Ms. Cochran in administrative proceedings since 2016, falsely accusing her of aiding and abetting alleged federal accounting paperwork violations by a small Texas accounting firm where she had not worked since 2013. SEC forced her into multiple, years-long administrative enforcement proceedings adjudicated by agency-appointed “Administrative Law Judges,” who were unconstitutionally appointed and shielded from presidential removal. Once the court accepts it, this stipulation ends SEC’s attack on Ms. Cochran.

NCLA also filed a mandamus petition in April on behalf of Ms. Young and her company, asking the U.S. Court of Appeals for the Fifth Circuit to issue an order compelling the SEC Commissioners in In re Marian P. Young and Saving2Retire, LLC to either dismiss the case or else promptly decide the appeal in the agency’s eight-year-old case. Rather than await the Fifth Circuit’s ruling on NCLA’s mandamus petition, SEC abandoned its administrative case against Ms. Young as well.

In April 2023, Christopher Gibson accepted the Supreme Court’s invitation in its Cochran decision to challenge his seven-years-long biased and unconstitutional adjudication. He sued SEC for trying him before an unconstitutional ALJ exercising improper judicial power and violating his Seventh Amendment right to a jury trial. SEC dismissed Mr. Gibson’s administrative charges rather than subject its proceedings to constitutional scrutiny in a federal court.

NCLA released the following statements:

“The reason SEC gave for its mass dismissal of every open case affected by this disturbing internal data breach is an obvious pretext. SEC is manipulating court dockets to avoid judicial review of its rigged agency adjudication scheme because it is afraid of what a court will discover behind the curtain—namely, biased trials that deny targets their rights to due process, and access to a real court with a jury, in a separate branch of government, as promised in our Constitution.”
— Peggy Little, Senior Litigation Counsel, NCLA

“The full scope of NCLA’s Supreme Court victory in Cochran was not apparent until SEC dismissed 42 pending enforcement cases—including some legitimate cases the agency had no business dismissing. This unprecedented action naturally raises the question: ‘What is the SEC so afraid of?’ By taking its ball and going home, SEC seeks to avoid accountability for both its unlawful internal data practices and its unconstitutional internal adjudication scheme. Unfortunately for the SEC, NCLA does not plan to let it off the hook so easily. Michelle Cochran’s battle is over and won, but the war against SEC’s disdain for constitutional due process is just beginning.”
— Mark Chenoweth, President and General Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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Washington, DC (June 5, 2023) — The U.S. Securities and Exchange Commission (SEC) dismissed dozens of enforcement cases Friday, including two involving current NCLA clients (Michelle Cochran, Marian Young) and one of a former client (Christopher Gibson). The agency revealed on June 2, 2023, that members of its enforcement staff had gained illicit access to confidential adjudicative documents and downloaded them in far more cases than originally reported, exposing rot in a hopelessly compromised in-house adjudication regime.

SEC publicly admitted in April 2022 to the existence of a so-called control deficiency within its administrative adjudication system. It said the agency’s Chair had launched an internal review of the issue (using a contractor dependent on staying in SEC’s good graces for its other agency business). At that time, the agency specifically divulged that SEC Division of Enforcement personnel had accessed adjudication material in the SEC v. Cochran case, temporarily making the material available to everyone in the Division, including attorneys who prosecuted Ms. Cochran on SEC’s behalf. Now it turns out agency personnel had done the same thing in dozens more cases.

NCLA filed a federal court Complaint in November 2022, alleging that SEC failed to comply with FOIA requests, denying access to records concerning this same “control deficiency.” On Friday, SEC announced its discretionary decision to dismiss more than 40 pending enforcement cases connected to the egregious problem. SEC said it dismissed the cases to conserve agency resources, but it appears to be trying to avoid scrutiny of its misconduct.

In April 2023, Ms. Cochran won her argument before the U.S. Supreme Court that she had the right to challenge the constitutionality of her Administrative Law Judge’s (ALJ) removal protections in federal court before undergoing an administrative adjudication. This landmark ruling was a major victory for NCLA—and a major blow to SEC and to administrative adjudication generally. It freed Americans, many of whom had been trapped in interminable regulatory purgatory, to seek relief in federal court from these ersatz proceedings where the agency is prosecutor, judge, jury and first court of appeal. Now, rather than defend against allegations of unconstitutionality before real judges in real federal courtrooms, SEC has waved the white flag. This decision demonstrates just how significant the Cochran victory was. When forced to defend its unconstitutional conduct in front of Article III judges, SEC cannot. Indeed, it will not even try.

NCLA also filed a mandamus petition in April on behalf of Ms. Young and her company, asking the U.S. Court of Appeals for the Fifth Circuit to issue an order compelling the SEC Commissioners in In re Marian P. Young and Saving2Retire, LLC to either dismiss the case or else promptly decide the appeal in the agency’s eight-year-old administrative matter. Rather than await the Fifth Circuit’s ruling on NCLA’s mandamus petition, SEC has now abandoned its administrative case against Ms. Young as well.

Finally, in January 2021, the Supreme Court denied NCLA’s petition for a writ of certiorari in the case of Mr. Gibson. His first hearing before an unconstitutional SEC ALJ for allegedly violating securities laws was nullified following the court’s 2018 Lucia v. SEC decision, but the agency subjected him to a second hearing before another defective ALJ. Immediately after the Cochran decision, Gibson sued in federal district court to vindicate his constitutional rights. SEC’s strategic dismissals seek to deny Cochran, Young, and Gibson their day in court.

Despite its calculated decision to dismiss these cases, SEC must be held to account. NCLA will continue its efforts against the agency’s unconstitutional administrative proceedings system.

NCLA released the following statements:

“This is a strategic retreat by the SEC—a desperate attempt to avoid accountability for denying jury rights and spying on ALJs.”
— Philip Hamburger, Chief Executive Officer and Founder of NCLA

“SEC’s unprecedented dismissal of dozens of enforcement cases is a cynical ploy by the agency to avoid scrutiny of two things. First, SEC seeks to avoid creating precedent in some of these cases that would very likely hold that much of what SEC does in adjudications violates the Constitution. Second, SEC hopes to dodge further inquiry into its so-called control deficiency, which was not a fluke but rather the predictable consequence of locating prosecutorial and adjudicative functions in the same body. While dismissing these cases may slow down the reckoning that is coming for unconstitutional adjudication at the SEC and across the Administrative State, the reckoning is still coming. NCLA will accelerate our litigation plans to make sure of that.”
— Mark Chenoweth, President and General Counsel, NCLA

“Seven short weeks after the Supreme Court decision in Axon/Cochran, SEC just dismissed scores of cases that have been pending before the agency for years. This is undoubtedly because the Axon/Cochran decision threw open federal courthouse doors to provide sunlight and justice for constitutional challenges that Justice Kagan called “fundamental, even existential,” in her unanimous decision. SEC may hope that this gamesmanship will silence Michelle Cochran and other defendants from vindicating their rights to be tried in an Article III court, before a jury, with the full procedural and substantive guarantees promised in the Constitution. But this sweeping attempt to prevent delegitimization of agency adjudication will not avail. Axon/Cochran applies across agencies and in future actions where NCLA plans to continue to expose and put an end to the constitutional defects of agency adjudication.”
— Peggy Little, Senior Litigation Counsel, NCLA

For more information visit these case pages.

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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Washington, DC (April 14, 2023) – In an historic ruling, the U.S. Supreme Court this morning held that Texas Accountant Michelle Cochran has the right to challenge the constitutionality of her Administrative Law Judge’s (ALJ) removal protections in federal court before undergoing an administrative adjudication. Writing unanimously for the Court, Justice Kagan’s opinion stated, “The statutory review schemes set out in the Securities Exchange Act and Federal Trade Commission Act do not displace a district court’s federal-question jurisdiction over claims challenging as uncon­stitutional the structure or existence of the SEC or FTC.” “The ordinary statutory review scheme,” she wrote, “does not preclude a district court from entertaining these extraordinary claims.”

The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, which represents Ms. Cochran in Securities and Exchange Commission, et al. v. Michelle Cochran, commends the court for a decision that will allow our client to plead her case before a real Article III federal court rather than be subjected to an endless series of unlawful agency hearings. Michelle Cochran’s path to the U.S. Supreme Court began when she filed suit in federal district court to enjoin the SEC’s second round of administrative enforcement proceedings against her. Though SEC fixed the appointment problem Lucia v. SEC addressed, Ms. Cochran’s ALJ remained unconstitutional because SEC ALJs still enjoy multiple layers of “for cause” removal protection, a problem Lucia declined to reach and that SEC could not fix on its own—because the insulations from removal are statutory. NCLA also asserted that SEC violated Ms. Cochran’s due process rights by failing to adhere to its own rules and procedures.

The Supreme Court held that Ms. Cochran’s removal power claim, wholly collateral to the Exchange Act’s statutory-review scheme, is outside the SEC’s “sphere of expertise.” Justice Kagan emphasized this point, highlighting that Ms. Cochran’s claims “cannot receive meaningful judi­cial review through the … Exchange Act.” Relying on the Supreme Court’s Thunder Basin Coal Co. v. Reich precedent, the Court held, “All three Thunder Basin factors thus point in the same direction—toward allowing district court review of Axon’s and Cochran’s claims that the structure, or even existence, of an agency violates the Constitution.”

In a strong concurring opinion, Justice Thomas wrote separately to express his “grave doubts about the constitutional propriety of Congress vesting administrative agencies with primary authority to adjudicate core private rights with only deferential judicial review on the back end.” Justice Thomas stated that if private rights are at stake—as they are in Ms. Cochran’s case—“the Con­stitution likely requires plenary Article III adjudication.” Justice Gorsuch wrote separately to say this case should have been decided solely on statutory grounds. He criticized the Court’s superimposing of a judicially created and hard to administer Thunder Basin balancing test on top of Congress’s text, and he pointed out how such a test had caused Ms. Cochran to suffer. Nonetheless, NCLA believes today’s unanimous ruling, strong concurrence from Justice Thomas and strong concurrence in the judgment from Justice Gorsuch, will protect the civil liberty of citizens, like Ms. Cochran, to access federal courts when federal administrative agencies violate constitutional constraints on their power.

NCLA and Latham & Watkins released the following statements:

“Today is a victory for all Americans—especially targets of SEC or FTC administrative enforcement. For decades, Americans have been haled before agencies which act as investigator, prosecutor, judge and their first court of appeal. Whether that is constitutional is, as Justice Kagan notes at the outset, ‘fundamental, even existential.’ Michelle Cochran had the courage to insist that any hearing that put her CPA license at stake must be constitutional. And today the Supreme Court unanimously agreed that she is entitled to her day in court before the constitutional injury takes place.”
— Peggy Little, Senior Litigation Counsel, NCLA 

“We are thrilled that the Supreme Court has unanimously vindicated Michelle’s right to have her day in court to challenge the constitutionality of the administrative apparatus she has fought for nearly a decade against the SEC.”
— Gregory G. Garre, Partner, Latham & Watkins

“From the first hearing forward, it was clear that the odds were stacked against me. I am thrilled that every one of the Supreme Court justices agree that whether this costly, bruising and biased system is constitutional must be heard by a real judge before I have to undergo a second one. I have been stuck in this system for seven years, with everything, including my CPA license, at risk. I’m forever thankful for my incredible representation by NCLA and Latham & Watkins and everyone who has supported us along the way.”
— Michelle Cochran, Plaintiff, SEC et al. v. Michelle Cochran

 “Michelle Cochran and Ray Lucia are heroes for standing up to unconstitutional proceedings at the SEC. NCLA’s very first brief was filed just over five years ago in the SEC v. Lucia case. Today’s Supreme Court victory in SEC v. Cochran vindicates NCLA’s focus on unconstitutional practices that destroy people’s civil liberties. NCLA will make good use of this precedent to continue attacking unlawful administrative power at the SEC, the FTC, and other federal government agencies.”
— Mark Chenoweth, President and General Counsel, NCLA

For more information visit the case page here or watch the video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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Washington, DC (April 14, 2023) – Michelle Cochran’s daughters were little girls when she decided to start the seven-year uphill journey against the Securities and Exchange Commission (SEC) to clear her name. The targets of SEC’s administrative enforcement proceedings do not have the rights available to defendants in civil court proceedings. They lack rights to pretrial discovery, protections of evidentiary rules, and access to a jury trial. Given that SEC employees play judge, jury, and prosecutor, it is hardly surprising that the agency wins the vast majority of the cases it brings through administrative proceedings. Worst of all, SEC Administrative Law Judges (ALJs) enjoy multiple—and therefore unlawful—layers of for-cause protection from removal by the President.

Today the New Civil Liberties Alliance, a nonpartisan, nonprofit civil liberties group, released a new animated video, “The Punishment Is the Process,” inspired by the myth of Sisyphus, to explain the impact that SEC’s ALJs and its in-house administrative proceedings have on the lives of those burdened by the process.

Faced with the prospect of ruinous proceedings helmed by an executive officer acting without the constitutionally required degree of accountability, private citizens like Michelle Cochran turn to one of the most important bastions against unconstitutional government action—federal district courts. But in this case and others like it, SEC has tried to block that essential avenue for vindicating constitutional safeguards, insisting that Congress has insulated SEC’s administrative proceedings from any judicial scrutiny until the agency has decided to conclude them.

The legitimacy of these administrative proceedings is currently in question at the Supreme Court. SEC v. Michelle Cochran asks the Supreme Court to decide whether the scheme of administrative and judicial review in the Securities Exchange Act of 1934 implicitly strips federal district courts of jurisdiction to hear structural constitutional claims challenging the agency’s tribunal.

Now teenagers, Michelle’s girls were proudly present to support their mother during oral argument in her case before the Supreme Court last November. For Michelle and countless others, the process is the punishment at SEC. The Supreme Court should reject SEC’s troubling theory that the Exchange Act strips federal courts of their duty to protect individuals from unconstitutional agency action.

Excerpt from the video:

“At the Securities and Exchange Commission, ALJs have expanded their jurisdiction, acting like federal judges. But they’re not federal judges. ALJs are powerful, biased, unaccountable bureaucrats who secure easy wins for the government agencies they represent at the expense of our civil liberties. What’s worse, ALJs are untouchable because they’re shielded by multiple layers of job security and tenure protection.”

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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Washington, DC (November 7, 2022) – Texas accountant Michelle Cochran’s case seeking to have her challenge to the Securities and Exchange Commission’s (SEC) in-house adjudication scheme heard by an Article III federal judge was argued today at the U.S. Supreme Court. In Securities and Exchange Commission v. Michelle Cochran, the Court is reviewing a Fifth Circuit en banc ruling that district courts have jurisdiction to hear structural constitutional challenges to SEC’s administrative proceedings—before those proceedings take place. Former Solicitor General Greg Garre of Latham & Watkins, advocating for Ms. Cochran, asked the Justices to uphold district court jurisdiction, an important bulwark for individual liberty and a vital check on administrative power.

The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, also represents Ms. Cochran, who originally filed suit against SEC in January 2019 to challenge the Commission’s system of adjudicating enforcement actions with tenure-protected Administrative Law Judges (ALJs) employed by the prosecuting agency. SEC ALJs are insulated by multiple layers of protection from removal by the President, which prevents accountability and violates his constitutional duty to “take Care” that laws are faithfully executed.

The Securities Exchange Act of 1934 vested SEC with regulatory powers that have grown in the decades since the agency’s inception. Originally, the Exchange Act allowed SEC to impose only a limited range of minor administrative sanctions without going to court. Over time, however, this authority has swollen such that nearly half of major enforcement cases are now brought administratively before ALJs who are employed by the same agency that prosecutes the case. SEC-initiated proceedings frequently drag on for several years and take such an enormous personal, financial, and reputational toll that nearly all targets (98%)—even those vigorously asserting their innocence—are forced to capitulate and settle.

The availability of federal district courts to hear structural constitutional claims is an important safeguard for individuals seeking to assert their constitutional rights. Agencies like SEC lack the competence and expertise to resolve such constitutional challenges, but they also have an institutional bias evident from a statistically embarrassing 90+% agency win rate before them. SEC’s home-court advantage can—and does—tie individuals up in yearslong administrative proceedings, exhausting their fortitude and financial wherewithal to fight.

The Fifth Circuit properly held that Congress did not intend this unjust and illogical result. SEC’s position does not rest on the text of any congressionally enacted statute expressly stripping district courts of jurisdiction to hear Constitutional disputes. The Supreme Court should reject SEC’s unfounded theory that the Exchange Act implicitly strips federal district courts of jurisdiction to protect individuals from unconstitutional agency action.

NCLA and Latham & Watkins released the following statements:

“The government’s implicit jurisdiction-stripping theory has no basis in the statutory text, Supreme Court precedent, or common sense. And it unjustly deprives everyday Americans like Michelle Cochran from access to one of the most important bulwarks against unconstitutional governmental action—federal district courts. The Supreme Court has previously recognized the importance of upholding immediate judicial review in this precise context, and we hope it will do so again here.”
— Gregory G. Garre, Partner, Latham & Watkins

“Six years ago, Michelle Cochran endured one adjudication later held to be unconstitutional—and was facing a second unconstitutional SEC proceeding when NCLA stepped in. NCLA has fought in multiple cases through three federal circuits to vindicate the right of Americans to have a federal district court decide whether SEC’s scheme of institutionally biased, unaccountable, tenure-protected ALJ adjudications withstand constitutional scrutiny. The Supreme Court should tell federal courts to exercise their unflagging duty to enforce the Constitution and protect Americans from Kafkaesque proceedings that exact great human cost and destroy individual liberties.”
— Peggy Little, Senior Litigation Counsel, NCLA

“Unless and until the U.S. Supreme Court allows federal district courts to police the unconstitutional aspects of ALJ adjudications, the SEC and other agencies will continue to abuse these lopsided proceedings to turn the process into the punishment for agency enforcement targets. Fortunately, it appears the Court is poised to use Michelle Cochran’s case to restore jurisdiction over structural constitutional challenges.”
— Mark Chenoweth, President, NCLA 

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (September 8, 2022) – A reply brief submitted to the U.S. Supreme Court in SEC v. Cochran today explains why Texas accountant Michelle Cochran has the right to have her original lawsuit against the Securities and Exchange Commission (SEC) heard in federal district court. SEC has tried to block this essential avenue for vindicating constitutional safeguards, insisting that Congress insulated the agency’s administrative proceedings from any meaningful judicial scrutiny until after SEC has issued a final order in the proceeding.

As NCLA’s brief details, SEC has attempted to shift the focus of the case, including by rewriting its own question presented to omit the word “jurisdiction” and pivoting to new arguments that have nothing to do with jurisdiction. This strategy just underscores the weakness of SEC’s arguments on the actual question presented: whether a federal district court has jurisdiction to hear a suit in which the respondent in an ongoing SEC administrative proceeding seeks to enjoin that proceeding because its adjudicator enjoys unconstitutional removal protections.

The Fifth Circuit correctly held, in its en banc ruling in favor of Ms. Cochran, that nothing in the Securities Exchange Act of 1934 strips district courts of jurisdiction over all civil cases arising under the Constitution. Moreover, the Supreme Court already reached an analogous conclusion in Free Enter. Fund v. Public Co. Acct. Oversight Bd., a 2010 case concerning the same statutes and the same kind of structural constitutional defect in SEC proceedings. In Free Enterprise Fund, the Supreme Court rejected the precise argument the SEC makes in its briefing—that the ’34 Act divests district courts of jurisdiction over removal power challenges.

Ms. Cochran is challenging the constitutionality of SEC’s Administrative Law Judges, who enjoy multiple layers of protection from removal. If the president cannot remove these federal “officers,” then he cannot control the agencies he’s charged with overseeing. Ms. Cochran requests that her case be heard before a federal court that is competent to decide the constitutional claims at issue before the unconstitutional ALJ proceeding takes place.

Latham & Watkins partner Greg Garre, a former Solicitor General of the United States, is Counsel of Record. He will present oral argument at the Supreme Court on November 7, 2022. Peggy Little, who successfully argued the case before the en banc Fifth Circuit, is NCLA’s senior litigation counsel on the case.

NCLA released the following statement:

“Under the government’s scheme, individuals charged by the SEC must endure years of unconstitutional administrative proceedings, sometimes lasting nearly a decade, before they can present their structural constitutional claims to a federal court competent to hear them—only to have those proceedings vacated. Ms. Cochran has already endured one such unconstitutional hearing, and if the SEC has its way, that process will expose her to a second to-be-vacated ALJ proceeding followed by a third adjudication over a decade after the events at issue. This process is the punishment! The Supreme Court should affirm the en banc Fifth Circuit and call a halt to this abuse of power.”
— Peggy Little, Senior Litigation Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (July 8, 2022) – Liberty-minded organizations, distinguished civil liberties activists, and prominent leaders in the business community, including Phillip Goldstein, Mark Cuban, and Nelson Obus, are among the sixteen amici curiae who have filed briefs in support of the arguments presented by the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, in the Supreme Court case, SEC v. Michelle Cochran.

NCLA filed an opening brief last week on behalf of Michelle Cochran, a CPA from Dallas, TX, who is challenging the constitutionality of the Securities and Exchange Commission’s (SEC) in-house Administrative Law Judges. Ms. Cochran requests that her case be heard before a real Article III federal court that is competent to decide the claims at issue. SEC employees play judge, jury, and prosecutor, and unsurprisingly, the agency wins the vast majority of the cases it brings through administrative proceedings.

Ten briefs were filed in support of Ms. Cochran and against SEC’s deeply flawed administrative proceedings. Phillip Goldstein, Mark Cuban, Nelson Obus, and Investor Choice Advocates Network filed jointly, as well as Raymond J. Lucia, Sr., George R. Jarkesy, Jr., and Christopher M. Gibson. Separate amicus briefs were presented by Americans for Prosperity Foundation, Atlantic Legal Foundation, The Cato Institute, Citizens United, The Institute for Justice, Pacific Legal Foundation, The U.S. Chamber of Commerce, and Washington Legal Foundation.

NCLA’s lead counsel on the case, Senior Litigator Peggy Little, successfully argued it before the en banc Fifth Circuit. Latham & Watkins partner Greg Garre, a former Solicitor General of the United States, is Counsel of Record at the U.S. Supreme Court. He will present oral argument in the case later this year.

Excerpts from the ten amici curiae briefs submitted in support of NCLA follow:

“The SEC inhouse prosecution scheme is indeed a Potemkin jurisdiction …—in which it acts as investigator, prosecutor, and judge of its own cause— [and is thus] rigged against respondents…. If the SEC wants to prosecute Ms. Cochran and seek substantial civil penalties, it should be required to prove up its case in federal court, subject to the protections of the Federal Rules of Civil Procedure and the Federal Rules of Evidence, not to mention Article III, due process, and the Seventh Amendment. The Constitution requires no less.”
— Americans for Prosperity Foundation

“Because the SEC does not possess the authority, competence, or expertise to address this issue, there is no reason to delay judicial review of Cochran’s structural constitutional claim while she is forced either to participate in the charade of defending herself in a likely unconstitutional (as well as biased) administrative forum, or to indelibly stain her own reputation by signing an SEC-devised consent decree.”
— Atlantic Legal Foundation

“Eventual review, at some point in the remote future, is not meaningful review. The respondent … can default …[o]r she can contest her guilt, in which case she can count on spending years more before the SEC’s interminable adjudicative regime. … The respondent is thus caught in a Catch-22 … That is a choice worthy of Camus or Kafka, not America.”
— The Cato Institute

“When it comes to adjudicating before administrative agencies, the process often is the punishment. The mere whiff of an investigation may cause lasting reputational harms. The adjudication process is long, it is expensive, the procedural deck is stacked against respondents, and the reward for a successful challenge is often getting to start at square one and begin the whole process over again. That is what has happened in this case, where it is Groundhog Day at the SEC.”
— Citizens United and Citizens United Foundation

“The SEC’s ability to selectively forum shop violates the Seventh Amendment and leads to bizarre and unequal results for similarly situated defendants in SEC enforcement actions. A defendant’s constitutional rights should not be held hostage to the whim of a government plaintiff seeking home court advantage. …The SEC can use its home field advantage to pressure defendants like Ms. Cochran to settle, inflicting grievous constitutional injuries without producing an appealable final order. Id. This is not a just, or constitutional, result.”
— Phillip Goldstein, Mark Cuban, Nelson Obus, and Investor Choice Advocates Network

“[T]he agency’s choice to burrow its enforcement actions inside its own agency proceedings … divest[s] the district courts of their jurisdiction to consider constitutional claims, … violat[ing] the separation of powers [and] delegat[ing] to the SEC the legislative power to choose which subjects of its enforcement actions enjoy their full set of constitutional rights—including the right to seek redress of constitutional violations in federal court and the right to a jury trial.”
— The Institute for Justice

“[F]or years…lower courts refused to decide whether Amici were being forced to defend themselves before an unconstitutional tribunal. …This Court therefore should ensure that nobody has to wait for nearly a decade before a court can adjudicate her structural-constitutional dispute with the government.”
— Raymond J. Lucia, Sr., George R. Jarkesy, Jr., and Christopher M. Gibson

“[U]sing administrative agencies as ‘judicial’ fora to deprive parties of their private rights creates a problem—one of constitutional magnitude… Congress does not intend to do what it cannot do under the Constitution. Thus, this Court should clarify that [] every case raising jurisdiction stripping …  must be read alongside key constitutional protections to fully guard against potential infringement of separation of powers and due process.”
— Pacific Legal Foundation

“The SEC’s structure and proceedings are riddled with constitutional problems. … Forcing private parties to suffer through unconstitutional agency proceedings just to challenge those proceedings later inflicts irreparable constitutional harm. … Delayed judicial review also perversely rewards the worst constitutional offenders. The SEC’s particular constitutional flaws—which overlap with and may even exceed the FTC’s flaws—underscore the imperative of pre-enforcement review…. to guard against arbitrary, unchecked agency power.”
— The United States Chamber of Commerce

“Litigation is not cheap. … The Securities and Exchange Commission relishes the ability to use its unlimited resources against individuals who must count their pennies. That is why it seeks review of the en banc Fifth Circuit’s correct decision here. At bottom, the SEC wants to exercise both executive and legislative power without meaningful review by a federal court. This lack of judicial review violates core separation-of-powers principles. … Thunder Basin was wrong when it was decided and is still wrong today. The Court should thus explicitly overrule it.”
— Washington Legal Foundation

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (June 30, 2022) – The New Civil Liberties Alliance and Latham & Watkins have authored an opening brief on behalf of Michelle Cochran in the much-anticipated Supreme Court case, SEC v. Michelle Cochran, which will determine whether federal district courts have jurisdiction to hear structural constitutional objections to administrative proceedings. Ms. Cochran, a CPA from Dallas, TX, is challenging the constitutionality of the Securities and Exchange Commission’s (SEC) in-house Administrative Law Judges (ALJs) and requests that her case be heard before a real Article III federal court that is competent to decide the claims at issue.

Ms. Cochran’s specific objection is that ALJs are executive officers insulated from accountability by multiple layers of protection from removal by the President—a regime the Supreme Court has deemed to violate Article II of the Constitution, which vests executive power in the President and charges him with a duty to “take Care that the Laws be faithfully executed.” First charged by SEC in 2016, Cochran has already endured one full trial before an unconstitutional ALJ that has since been voided. SEC employees play judge, jury, and prosecutor in agency proceedings, so unsurprisingly, the agency wins the vast majority of the cases it brings in house. SEC’s administrative proceedings can take such a crushing personal, financial, and reputational toll that most targets are forced to settle, even if they protest their innocence profusely.

The general jurisdiction that Congress granted district courts is a vital safeguard for individuals seeking to enforce their constitutional rights against the government. But in this case, SEC has tried to block federal court jurisdiction, insisting that Congress, in passing the Securities and Exchange Act of 1934, implicitly blocked its administrative proceedings from any judicial scrutiny until the SEC has decided to conclude them—when it is too late to vindicate Ms. Cochran’s right to avoid undergoing an unconstitutional adjudication. In the SEC’s illogical view, those caught up in the agency’s machinery must endure years of proceedings—superintended by the very official they claim is unconstitutionally unaccountable—before they may set foot inside a federal courthouse. This notion makes no sense—no one should have to undergo an unconstitutional adjudication that is predestined to be set aside once challenged in court afterward.

When Ms. Cochran filed suit in January 2019, five federal courts of appeal had permitted SEC’s backward regime. In December 2021, the Fifth Circuit sitting en banc ruled in Ms. Cochran’s favor and correctly rejected SEC’s troubling theory of implicit jurisdiction-stripping, thus creating a circuit split. NCLA and Latham & Watkins argue that the Fifth Circuit’s judgment should be affirmed, and that the Supreme Court’s analysis can begin—and end—with a straightforward reading of the statutory text and structure, which does not say a word about divesting district courts of jurisdiction over structural constitutional challenges to administrative proceedings.

NCLA’s lead counsel on the case, Peggy Little, successfully argued it before the en banc Fifth Circuit. Latham & Watkins partner Greg Garre, a former Solicitor General of the United States, is Counsel of Record at the U.S. Supreme Court. He will present oral argument for Ms. Cochran there later this year.

NCLA and Latham & Watkins released the following statements:

“The Fifth Circuit correctly ruled that neither the text nor the structure of the Exchange Act stripped federal courts of their duty to protect individuals from unconstitutional agency action. The Supreme Court should affirm that landmark decision course-correcting at least six errant circuit courts that flouted Supreme Court precedent.”
— Peggy Little, Senior Litigation Counsel, NCLA

“As explained in our brief, the SEC’s implicit jurisdiction-stripping theory has no basis in the statutory text, Supreme Court precedent, or common sense. And it unjustly deprives individuals like Michelle Cochran from access to one of the most important bulwarks against unconstitutional governmental action—federal district courts. The Supreme Court has previously recognized the importance of upholding immediate judicial review in this precise context, and it should do so again here.”
— Gregory G. Garre, Partner, Latham & Watkins

“For far too long, SEC has wielded its flawed theory of implicit jurisdiction-stripping to close federal district courts and force targets like Ms. Cochran to endure unconstitutional administrative proceedings. Time’s up for SEC and its unlawful ALJs. This case will ensure federal courts are available to vindicate constitutional rights.”
— Mark Chenoweth, President and General Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (May 17, 2022) – The U.S. Supreme Court has granted certiorari in Securities and Exchange Commission v. Michelle Cochran. The Court will review a Fifth Circuit en banc decision that ruled Texas accountant Michelle Cochran has the right to challenge the constitutionality of her Administrative Law Judge’s (ALJ) removal protections in federal court before undergoing an administrative adjudication. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, represents Ms. Cochran, who originally filed suit against the Securities and Exchange Commission in January 2019 to challenge SEC’s system of adjudicating enforcement actions with tenure-protected ALJs employed by the prosecuting agency. NCLA’s lead counsel on the case is Peggy Little, who successfully argued it before the en banc Fifth Circuit. The Brief for Respondent was filed with valuable assistance from Latham & Watkins LLP. Latham partner Greg Garre, a former Solicitor General of the United States, is Counsel of Record, representing Ms. Cochran.

When Ms. Cochran filed suit in January 2019, five federal courts of appeal had held that SEC targets must first subject themselves to an unconstitutional tribunal before they can challenge this scheme. Because Ms. Cochran prevailed at the Fifth Circuit en banc proceedings, the circuits are now split on the precise question presented by the lawsuit: whether a federal district court has jurisdiction to hear a suit to enjoin an SEC proceeding based on a constitutional defect with removal protections for the administrative law judge (ALJ) conducting the proceeding. That question is vitally important to the hundreds of litigants ensnared in SEC administrative proceedings before ALJs who are unconstitutionally insulated from removal by the President. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and then in turn, Merit Systems Protection Board members—all of whom enjoy “for cause” protections from removal by the President.

In January 2022, just three weeks after the Fifth Circuit split with its sister circuits, the Supreme Court granted review in Axon Enterprise, Inc. v. FTC, which presents the same district court jurisdiction question in the context of the administrative review scheme under the Federal Trade Commission Act. NCLA strongly supports Axon’s position in seeking federal court jurisdiction over the structural constitutional claim in that case. SEC, represented by the Solicitor General, later asked the Supreme Court simply to hold Cochran pending a decision in Axon and dispose of it in light of that decision. But, explained in Ms. Cochran’s response brief to the Supreme Court, a decision under the FTC statute would not necessarily decide the SEC question presented by the Cochran case, leaving hundreds of Americans like Michelle Cochran who are subject to pending SEC administrative proceedings in limbo. By granting cert in Cochran, the Supreme Court can now fully resolve the SEC circuit split, ensure that circuits across the country currently barring federal court review are conclusively overturned by the Court’s decision, and guarantee that individuals like Ms. Cochran who are caught up in the SEC administrative process are not forced to undergo protracted, predestined to-be-vacated administrative proceedings.

The Cochran case is NCLA’s first original lawsuit to be granted cert. It has been just over four years since NCLA’s first court filing, on February 28, 2018, in Lucia v. SEC, to today’s grant of certiorari in the U.S. Supreme Court. The New Civil Liberties Alliance currently has three other cases pending certiorari in the U.S. Supreme Court: Aposhian v. Garland, Buffington v. McDonough, and Romeril v. SEC.

NCLA and Latham & Watkins released the following statements:

“We are thrilled that the Supreme Court has granted cert. to review Michelle Cochran’s right to federal district court jurisdiction to challenge SEC Administrative Law Judges’ multiple—and thus unconstitutional—layers of tenure protection. Federal courts have an unflagging duty to enforce the Constitution before Americans like Michelle must endure years-long administrative adjudications that are predestined to be vacated on constitutional grounds.”
— Peggy Little, Senior Litigation Counsel, NCLA

“NCLA is tremendously grateful to Michelle Cochran for her willingness to fight this important fight and to Greg Garre and his terrific team at Latham & Watkins, who are helping NCLA represent Michelle at the U.S. Supreme Court. Yesterday’s grant of certiorari ensures that the Court will hear all the reasons why the SEC must not be allowed to continue using its unconstitutional ALJ tribunals to violate the civil liberties of enforcement targets.”
— Mark Chenoweth, President and General Counsel, NCLA

“We are pleased with the Supreme Court’s decision to grant review in this important case. Federal courts have long served as a critical safeguard against unconstitutional actions by government actors, and recognizing federal court jurisdiction over structural constitutional challenges to agency proceedings is vital to protecting the individual liberty of individuals like Michelle Cochran who find themselves enmeshed in administrative proceedings and holding government regulators accountable. We look forward to presenting our arguments to the Court.”
— Gregory G. Garre, Partner, Latham & Watkins

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (April 6, 2022) – The U.S. Securities and Exchange Commission (SEC) has disclosed that its enforcement staff accessed documents in at least two adjudicatory matters currently in litigation in federal court, including SEC v. Michelle Cochran. The New Civil Liberties Alliance represents Ms. Cochran in a lawsuit challenging the constitutionality of SEC’s in-house Administrative Law Judges (ALJs), who enjoy multiple layers of protection from removal by President Biden. In December 2021, the en banc U.S. Court of Appeals for the Fifth Circuit ruled in favor of Ms. Cochran, declaring that she has the right to challenge the constitutionality of her ALJ’s removal protections in federal court before undergoing an administrative adjudication.

SEC released a statement yesterday admitting that “administrative support personnel from Enforcement, who were responsible for maintaining Enforcement’s case files, accessed [restricted] Adjudication memoranda via the Office of the Secretary’s databases.” This self-described “control deficiency” is actually an outrageous breach of ethics—and possibly law—by SEC that illustrates why the Constitution forbids housing prosecutorial functions and adjudicatory functions in a single agency.

SEC filed in Cochran simultaneously with publishing the statement, so Ms. Cochran was not informed of SEC’s “control deficiency” when it was discovered. NCLA and Ms. Cochran were only made aware of the Commission’s breach when it was publicly disclosed. The Commission has known about this issue long enough to hire outside investigators, conduct an audit with “dozens of interviews,” and collect documents. Yet critical details, including who knew what and when, remain undisclosed. If this breach of ethics had occurred in private litigation or before a federal court, it would raise red flags. SEC claims “this access did not impact the actions taken by the staff investigating and prosecuting the cases or the Commission’s decision-making in the matters.” At present, there is no way to verify that this breach did not impact Ms. Cochran’s case. To make matters worse, SEC hired an outside firm that regularly does millions of dollars of business with the agency to investigate the scandal. Hiring a firm with a conflict of interest to investigate a conflict of interest hardly inspires confidence.

Restoring the “controls” that were disregarded here is not enough. As this breach has demonstrated, it would be impossible to monitor the internal controls at SEC sufficiently to guarantee that agency staff would not make the same error again. A computer correction of a purported “control deficiency” cannot repair the all-too-human impulse to abuse power, win at all costs, and share information inside an agency. Whatever controls are baked into the software, none of those can remedy the inherent problems that combining the enforcement and adjudication power inside an agency create. The two powers must be structurally separated. Until the adjudicative function is returned exclusively to Article III courts, and those courts rein in SEC’s abusive regulation by guidance and other efforts to expand their regulatory power far beyond what Congress ever contemplated under the Securities Exchange Act of 1934, constitutional order will not have been restored at the SEC.

NCLA released the following statements:

“NCLA has been at the forefront of challenging the concentration of executive, adjudicative, and legislative powers within administrative agencies. This week’s revelation shows, as nothing else can, that SEC allowed its enforcement staff access to the adjudicatory staff’s work product on cases where respondents were fighting for their professional lives and reputations. The Founders, with their deeper understanding of human nature, understood from the beginning that separation of these awesome powers is a precondition of securing liberty. This problem will never be solved until the adjudicative function is returned exclusively to Article III courts.”
— Peggy Little, Senior Litigation Counsel, NCLA

“SEC says it deeply regrets these breaches, but its deep regret does not undo the harms that occurred because of its negligence. It is hard to accept the Commission’s statement of contrition at face value when it did not see fit to disclose the breach to affected parties like our client, Ms. Cochran, until the same time as it informed the general public. Its disclosure fails to establish when the breach was identified and by whom, how long the breach persisted, when the Commission was made aware of the breach, and how many other individuals and entities going through SEC enforcement proceedings—or who have already settled their cases—have been affected. To paraphrase Justice Brandeis, sunlight would be the best disinfectant here.”
— Kara Rollins, Litigation Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (March 29, 2022) – The New Civil Liberties Alliance today filed an early response to the U.S. Securities and Exchange Commission’s March 11 petition for a writ of certiorari in SEC v. Michelle Cochran. NCLA argues that the U.S. Supreme Court should reject the government’s request to hold the Cochran case pending a decision in Axon Enterprise, Inc. v. FTC; instead, it should grant plenary review in Cochran and consolidate the case with Axon for argument next fall.

NCLA’s December 2021 victory in Cochran at the en banc U.S. Court of Appeals for the Fifth Circuit created a circuit split as to whether the scheme of administrative and judicial review in the Securities Exchange Act of 1934 implicitly strips federal district courts of jurisdiction to hear structural constitutional claims challenging SEC administrative proceedings. The Fifth Circuit correctly held that Congress did not “implicitly strip[] district courts of jurisdiction to hear structural constructional claims.

Three weeks after the Fifth Circuit’s momentous decision—the Supreme Court granted certiorari in Axon, which presents the same jurisdiction-stripping question in the context of the Federal Trade Commission (FTC) Act. The Court’s resolution of that question, however, would not necessarily resolve the circuit split, which has arisen in the context of SEC’s distinct statutory scheme. Aside from granting a summary affirmance in Cochran, granting plenary review and hearing the case alongside Axon is the only way to ensure that the Court can fully resolve the circuit split that has closed federal courthouse doors to the constitutional claims of SEC defendants for far too long. Plenary review will also forestall otherwise inevitable spin-off litigation that would accompany an FTC-specific decision in Axon. Such ancillary litigation would add insult to injury for a litigant like Michelle Cochran, who already has been fighting for years for her day in court to present her structural constitutional claims.

By filing a petition for certiorari in this case, the government conceded that this question merits Supreme Court review. The fact that so many circuits—including those hearing the lion’s share of securities enforcement actions—have already weighed in on this issue underscores its national significance. The issue will not subside until the Court addresses the SEC statutory scheme directly. After Dodd-Frank expanded the SEC’s ability to try cases before its in-house administrative tribunals, SEC has brought the vast majority of its enforcement actions before its own administrative law judges (ALJs), where it enjoys a distinct home-court advantage. As a result, individuals are currently forced to litigate for years at great expense in a hostile forum where the ALJ is employed by their prosecutor, before they may ever challenge that ALJ’s constitutional legitimacy.

As the Court has done in some prior instances where the government has asked for a hold, the Supreme Court should instead grant the government’s petition in this case and set it for plenary review alongside Axon.

NCLA released the following statement:

“Michelle Cochran has already endured six years in the interminable waiting room of a federal district court. In 2010, the Supreme Court unanimously held that the same SEC statute does not strip federal district courts of jurisdiction to hear the precise structural constitutional claim she raises here. Five circuit courts ignored that holding, depriving hundreds of SEC respondents of their day in court. SEC’s request for a ‘hold’ petition pending the Supreme Court’s ruling under a different statute would, if granted, unjustly prolong her time in the SEC administrative holding cell. It is long past time to fling open the courthouse doors.”
— Peggy Little, Senior Litigation Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (December 13, 2021) – The full Fifth Circuit bench ruled today that Texas accountant Michelle Cochran has the right to challenge the constitutionality of her Administrative Law Judge’s (ALJ) removal protections in federal court before undergoing an administrative adjudication. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, represents Ms. Cochran in Michelle Cochran v. Securities and Exchange Commission. NCLA applauds this decision, which will allow our client to plead her case before a real Article III federal court rather than be subjected to an endless series of unlawful agency hearings.

At issue before the en banc panel was whether a provision of the Securities Exchange Act of 1934 implicitly strips federal district courts of subject-matter jurisdiction to hear structural constitutional claims. Judge Haynes’s opinion, joined by eight others, reverses and remands the district court’s reluctantly adverse decision. Her decision for the court holds that Section 78y of the Securities and Exchange Act of 1934 neither explicitly nor implicitly strips federal district courts of jurisdiction to decide Article II removal questions. The concurrence delivers a stinging rebuke and devastating renunciation of Wilsonian thinking, saying:

Section 78y reflects the thinking of men like Woodrow Wilson who argued that universal suffrage would make the three branches of government ignorant, indolent, and incapable of regulating modern affairs. Wilson’s solution? He wanted administrative agencies to operate in a separate, anti-constitutional, and anti-democratic space—free from pesky things like law and an increasingly diverse electorate.

As the concurrence pointed out, Woodrow Wilson asked his fellow statesmen to worry less about the constitution of government and more about its administration. The SEC asks the same today: get on with administration and worry less about how our administrative proceedings are constituted another time. The majority rightly rejected this line of thinking today.

The Fifth Circuit’s ruling is in line with the U.S. Supreme Court’s 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board, which held that officers of the United States, including SEC ALJs after the Court’s 2018 decision in Lucia v. SEC, may enjoy only one layer of for-cause removal protection from the President. The district court sought to distinguish Free Enterprise Fund, but the Fifth Circuit has shown that there is no basis to depart from Free Enterprise Fund’s jurisdictional holding. It has recognized that hearing Ms. Cochran’s claim is required by law—and compelled by the Constitution.

The SEC prosecutes people through a system of administrative proceedings before ALJs who are hired by the prosecuting agency. Ms. Cochran fell prey to this system in 2016, when the U.S. Securities and Exchange Commission (SEC) accused her of violating federal accounting standards. ALJs enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—people whom the President can only remove for cause.

Today’s ruling protects the rights of citizens, like Ms. Cochran, to access federal courts when their liberty is threatened by executive-branch action that violates essential separation-of-powers principles. Under 28 U.S.C. § 1331 and Supreme Court precedent, Ms. Cochran has the right to ask ahead of time that her administrative proceeding conform to constitutional requirements. She’s entitled to her day in court. And that day is today.

NCLA released the following statements:

“The Fifth Circuit majority resoundingly vindicated Michelle Cochran’s right to be tried before a constitutional tribunal. In doing so, the court faithfully applied controlling Supreme Court precedent in Free Enterprise Fund, thereby correcting wayward decisions from five other circuit courts of appeals that had consigned Americans to be judged by SEC administrative law judges who enjoy unconstitutional tenure protections. These separation of powers principles are essential to preserving Americans’ individual liberties—as eloquently set forth in the majority and concurring opinions.”
— Peggy Little, Senior Litigation Counsel, NCLA

“This case is an admirable victory not only for Cochran but also for the supremacy of law. The judges clearly understood the stakes and are standing up for the Constitution.”
— Philip Hamburger, President, NCLA

“Today’s en banc decision in Cochran v. SEC is a tour de force. The Fifth Circuit has pointed the way out of the labyrinth of endless administrative hearings that violate people’s civil liberties.”
— Mark Chenoweth, Executive Director and General Counsel, NCLA

For more information visit the case page here or watch the case video here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document 

Washington, DC (January 14, 2021) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, has filed a reply brief in the case of Michelle Cochran v. Securities and Exchange Commission (SEC) which the Fifth Circuit U.S. Court of Appeals will hear en banc on Jan. 20. Ms. Cochran, a single mom from Dallas, TX, was administratively charged with paperwork violations by the SEC. The brief seeks reversal of a federal district court decision that erroneously dismissed Ms. Cochran’s claims for lack of jurisdiction. NCLA argues that the district court must exercise jurisdiction over this case under controlling Supreme Court authority.

The case ultimately challenges the constitutionality of SEC’s in-house Administrative Law Judges (ALJs) and requests that the case be heard before a real Article III federal court that is competent to decide the claims at issue. ALJs enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—people whom the President can only remove for cause.

The U.S. Supreme Court’s 2010 decision in Free Enterprise Fund v. PCAOB held that officers of the United States (which includes SEC ALJs after the Court’s 2018 decision in Lucia) may enjoy only one layer of for-cause removal protection. Otherwise, the President’s Article II duty to ensure that federal officers are doing their jobs is unduly restricted. That same decision unanimously held that district courts do have jurisdiction to hear this kind of constitutional challenge. Furthermore, another Supreme Court case, Thunder Basin, instructs that jurisdiction exists where a claim cannot be meaningfully reviewed otherwise, is collateral, and is outside agency competence and expertise—as in Ms. Cochran’s case.

Ms. Cochran instituted this challenge in the district court so that she would not have to endure a second—and ultimately a third—administrative enforcement proceeding when the second, like the first—is inevitably deemed constitutionally invalid and void. It’s bad enough that administrative agencies are permitted to force individuals like her to defend themselves before ALJs—who aren’t even real judges. But that injustice is compounded when an agency can try someone repeatedly in a process it knows is constitutionally flawed.

NCLA expects the en banc Fifth Circuit to rule for Ms. Cochran, find jurisdiction in the district court for her case, and return it there for a decision on the merits.

NCLA released the following statement: 

“Michelle Cochran has already endured a ruinous, years-long journey through a byzantine administrative process that ultimately was vacated. SEC insists that she go through that same process again with a still-unconstitutional ALJ before her claim can ever be heard by a competent court. Both logically and legally, this question about removal protections for ALJs must be decided beforehand.”

— Peggy Little, Senior Litigation Counsel, NCLA 

Read full case summary here. Watch case video here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (December 9, 2020) – This week liberty-minded organizations Americans for Prosperity, the Cato Institute and Competitive Enterprise Institute, as well as American investors and entrepreneurs Phillip Goldstein, Mark Cuban, and Nelson Obus, filed amicus briefs in support of NCLA’s position that the en banc Fifth Circuit Court of Appeals should find federal jurisdiction for NCLA client Michelle Cochran’s constitutional claim in the case of Michelle Cochran v. U.S. Securities and Exchange Commission. The briefs amici curiae urge the full court to protect the rights of citizens, like Ms. Cochran, to access federal courts when personal liberty is threatened by executive-branch action that violates essential separation-of-powers principles.

NCLA argues that the Securities and Exchange Commission’s administrative law judges (ALJs) enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—appointees themselves whom the president can only remove for cause. This objection needs to be heard by a real Article III federal court before Ms. Cochran is subjected to an unlawful hearing.

NCLA released the following statement: 

“For four years, Michelle Cochran has endured one unconstitutional proceeding after another at the SEC. Even if she ultimately prevails in a federal court, her reward would be a third successive administrative proceeding. This process is death by a thousand administrative cuts. Federal courts have long been the front-line protector of rights safeguarded by the Constitution. As these superb amicus briefs convincingly show, the en banc Fifth Circuit Court of Appeals should find federal jurisdiction for her constitutional claim.” 

— Peggy Little, Senior Litigation Counsel, NCLA 

Excerpts from the three briefs amici curiae submitted in support of NCLA: 

“Unlike defendants in federal court proceedings, respondents in SEC administrative proceedings are not afforded the right to a jury trial or the benefits and protections of the federal rules of evidence and procedure … No defendant’s constitutional right[s] … should be trumped by the whim of a government plaintiff attempting to tip the scales in its favor by [the government’s] unilateral choice of forum.”

— Brief amicus curiae, Phillip Goldstein, Mark Cuban, and Nelson Obus 

“This case presents a recurring, exceptionally important issue: the rights of citizens to access federal courts when personal liberty is threatened by executive-branch action that violates essential separation-of-powers principles. It also highlights the intolerable predicament faced by aggrieved citizens when structural constitutional violations are allowed to persist until any meaningful remedy evaporates … [The SEC] requires private citizens and businesses to endure the entire, multi-year gauntlet of the SEC’s administrative enforcement process before they are afforded an opportunity to convince a court that the process itself is unconstitutional.” 

— Brief amicus curiae, The Cato Institute and The Competitive Enterprise Institute 

“[J]udicially created barriers to timely and meaningful [federal court] review of agency actions are inconsistent with the separation of powers and the text, structure, and history of the U.S. Constitution. Such barriers wrongly place a thumb on the scale in favor of the nation’s most powerful litigant: the federal government. Due process and fairness demand that those facing ultra vires or unconstitutional agency enforcement actions should not have to face years of potentially ruinous costs just to have their day in an Article III court.”   

— Brief amicus curiae, Americans for Prosperity Foundation 

For more information visit the case page here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Read the full document

Washington, DC (November 30, 2020) – Do the securities laws implicitly prevent federal courts from hearing a structural constitutional challenge regarding administrative proceedings conducted by the Securities and Exchange Commission (SEC) before administrative law judges (ALJs) who are insulated from removal by the President by multiple layers of tenure protection? That’s the question NCLA addresses in its opening brief on rehearing en banc filed today in the case of Michelle Cochran v. U.S. Securities and Exchange Commission. The Fifth Circuit vacated the panel decision in the case on October 30 and has scheduled the case for rehearing by the entire court.

In the brief, the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, argues that the federal district courts have jurisdiction over this case and must exercise it under controlling Supreme Court authority. The brief seeks reversal of a district court decision that erroneously dismissed Ms. Cochran’s claims for lack of jurisdiction.

The case, which has drawn strong amicus support, ultimately challenges the constitutionality of SEC’s ALJs and requests that the case be heard before a real Article III federal court that is competent to decide the claims at issue. ALJs enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—people whom the president can only remove for cause. Such stacked, “Matryoshka doll”-like insulation of powerful bureaucrats from presidential control runs contrary to the original design of our Constitution.

The U.S. Supreme Court’s 2010 decision in Free Enterprise Fund v. PCAOB held that officers of the United States (which includes ALJs after the Court’s 2018 decision in Lucia) may enjoy only one layer of for-cause removal protection. Otherwise, the President’s Article II duty to ensure that federal officers are doing their jobs is unduly restricted. That same decision unanimously held that district courts do have jurisdiction to hear removal-based constitutional challenges. Furthermore, another Supreme Court case, Thunder Basin, instructs that where a claim cannot be meaningfully reviewed, is collateral, and is outside agency competence and expertise, as in Ms. Cochran’s case, it should be heard in court.

In accordance with these precedents, Ms. Cochran instituted this challenge in the district court so that she would not have to endure a second—and ultimately a third—administrative enforcement proceeding when the second, like the first—is inevitably deemed void.

NCLA released the following statement: 

“Michelle Cochran seeks only to vindicate her individual liberty right not to undergo an administrative proceeding before an officer who is constitutionally illegitimate. Ms. Cochran has already endured one such unconstitutional proceeding and now the SEC seeks to put her through yet another crushing administrative gauntlet. If a federal court does not step in, she will suffer twice the very constitutional harm she sued to avoid. In this case justice delayed truly is justice denied.”

—Peggy Little, Senior Litigation Counsel, NCLA 

For more information visit case summary page here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (October 30, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, is pleased to announce that the U.S. Court of Appeals for the Fifth Circuit has granted our petition for rehearing en banc in the case of Michelle Cochran v. U.S. Securities and Exchange Commission.

A 2-1 panel decision back in August erroneously dismissed Ms. Cochran’s case claiming a lack of jurisdiction. The panel decision would have illogically forced her to go through a second unconstitutional SEC tribunal before she could raise her constitutional objections.

The case, which drew strong amicus support, challenges the constitutionality of SEC’s Administrative Law Judges (ALJs) and requests that her case be heard before a real Article III federal court that is competent to decide the validity of her claims. ALJs enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—people whom the president can only remove for cause. Such multi-layer insulation of powerful bureaucrats from presidential control runs contrary to the original design of our Constitution.

The panel decision conflicted with the U.S. Supreme Court’s 2010 decision in Free Enterprise Fund v. PCAOB, which held that such officers may only enjoy one layer of for-cause removal protection. Otherwise, the President’s Article II duty to ensure that federal officers are doing their jobs is unduly restricted.

The panel majority also misapplied a prior Fifth Circuit panel decision in the case of Bank of Louisiana v. FDIC, which was decided under an entirely different statute and neither considered nor ruled on any statute or precedent construing the law to be applied in this case.

The panel majority further misconstrued the central jurisdictional holding of the United States Supreme Court in Free Enterprise Fund. That decision unanimously held that district courts do have jurisdiction to hear removal-based constitutional challenges.

NCLA is encouraged that the Court of Appeals has agreed to rehear Michelle Cochran’s important case.

NCLA released the following statements: 

“The full circuit’s vote to reconsider the earlier 2-1 panel decision suggests that the court recognizes the unjust consequences of denying court jurisdiction for constitutional claims raised by Americans in the same plight as Michelle Cochran.  It simply makes no sense to require Ms. Cochran to undergo yet another years-long unconstitutional administrative proceeding before she can challenge its constitutionality. NCLA is hopeful that the full circuit will put an end to this eviscerating merry-go-round and follow the Supreme Court’s unanimous and unambiguous command in Free Enterprise Fund to find jurisdiction so that a competent court can rule on her constitutional question.”

— Peggy Little, Senior Litigation Counsel, NCLA  

“The Fifth Circuit’s decision to rehear this case en banc once again confirms the court’s hard-earned reputation for independent thinking. ‎Too many other federal courts have failed to follow the Supreme Court’s teaching in Free Enterprise Fund. We hope this turn of events bodes well for Michelle Cochran’s chances to vindicate her right not to endure a second, unconstitutional administrative hearing.”

— Mark Chenoweth, Executive Director and General Counsel, NCLA  

Read full case summary here. Watch case video here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (October 2, 2020) – The Texas Public Policy Foundation, the Cato Institute and Competitive Enterprise Institute filed in support of NCLA’s petition for rehearing en banc last night at the U.S. Court of Appeals for the Fifth Circuit in the case of Michelle Cochran v. U.S. Securities and Exchange Commission. The briefs amici curiae urge all judges on the Court to rehear the appeal because the petition raises an issue of exceptional importance—whether the Securities and Exchange Commission (SEC) is conducting its administrative proceedings in an unconstitutional manner.

NCLA’s client, Michelle Cochran, is contesting last month’s 2-1 panel decision that erroneously dismissed her case. Ms. Cochran seeks federal court jurisdiction to challenge the unconstitutional protections from removal by the President enjoyed by Administrative Law Judges (ALJs) at SEC.  If left to stand, the panel’s flawed decision will condemn single mother Michelle Cochran and other Americans like her to another cycle of futile, duplicative, to-be-vacated administrative proceedings that violate the Constitution and Americans’ due process rights.  

“The Fifth Circuit just asked the government to file a brief in response to NCLA’s petition for rehearing en banc. NCLA is encouraged that the Court of Appeals is giving serious consideration to Michelle Cochran’s request to rehear this important constitutional challenge.”

—Peggy Little, Senior Litigation Counsel, NCLA 

Excerpts from the two briefs amici curiae submitted in support of NCLA’s petition: 

“Separation of powers is the genius of our Constitution—and one of its most important liberty-protecting structures. But its vitality depends upon the judiciary carrying out its unique responsibility to enforce that separation and keep the elected branches within their assigned roles. That responsibility is especially important when it comes to safeguarding the rights of ordinary citizens vis-à-vis the vast administrative state… Forcing a separation-of-powers challenger to present that challenge to the same agency adjudicator whose constitutional legitimacy is under scrutiny will inflict precisely the harm that the challenger seeks to prevent—adjudication before a constitutionally illegitimate arbiter.”

— Texas Public Policy Foundation (TPPF) 

“This case presents a recurring, exceptionally important issue concerning citizens’ access to federal court when personal liberty is threatened by ongoing executive-branch action that violates the Constitution’s separation of powers. It also highlights the intolerable predicament faced by citizens when structural constitutional violations are allowed to persist until any meaningful remedy evaporates. The panel majority affirmed the district court’s… [denial of jurisdiction, which] ensures that Cochran will never obtain a meaningful remedy for her constitutional injury.”

— Cato Institute and Competitive Enterprise Institute (CEI)

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (September 24, 2020) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, today filed a petition for rehearing en banc in the U.S. Court of Appeals for the Fifth Circuit in the case of Michelle Cochran v. U.S. Securities and Exchange Commission. NCLA’s client, Michelle Cochran, is contesting last month’s 2-1 panel decision that erroneously dismissed her case based on a purported lack of subject-matter jurisdiction. Ms. Cochran wants to challenge the unconstitutional protections from removal by the President enjoyed by Administrative Law Judges (ALJs) at the Securities and Exchange Commission (SEC).

Instead, the panel decision would deny her the immediate opportunity to have her constitutional claim heard by a real Article III federal judge. The ALJ would not be able to rule on her constitutional claim, so it makes no sense to deny her access to a judge competent to decide the validity of her claims. Forcing her to go through a second unconstitutional SEC hearing before she can raise her constitutional objections is illogical.

Ms. Cochran argues that these ALJs enjoy multiple layers of protection from removal by the President of the United States. Currently, ALJs can only be removed for cause, and the only people who can remove them are SEC Commissioners and the Merit Systems Protection Board—people whom the President can only remove for cause. Such double insulation of powerful bureaucrats from presidential control violates the Constitution.

NCLA seeks full court review on behalf of Ms. Cochran because the panel decision conflicts with a 2010 U.S. Supreme Court decision in Free Enterprise Fund v. PCAOB, which held that federal officers may only enjoy one layer of for-cause removal protection. Two layers of protection (or double insulation) unduly interferes with the President’s Article II constitutional duty to ensure that officers are doing their jobs. The PCAOB case also held unanimously that federal district courts have jurisdiction to hear removal-based constitutional challenges.

The panel majority also misapplies a recent Fifth Circuit panel decision in the case of Bank of Louisiana v. FDIC. That case was decided under an entirely different statute (that explicitly stripped jurisdiction), and the judges there neither considered nor ruled on any statute or issue that bears on the law to be applied in this case.

First charged by the SEC in 2016, Ms. Cochran has already endured one full trial before an unconstitutional ALJ. In 2018, the U.S. Supreme Court ruled in Lucia v. SEC that the ALJ who presided over Ms. Cochran’s first proceeding over four years ago was unconstitutionally appointed in violation of Article II, vacating all proceedings she had gone through in 2016-17.  Now, eight years after the events she was charged for, the SEC insists on retrying her before a still unconstitutional ALJ.

If left to stand, the panel’s flawed decision will condemn single mother Michelle Cochran and other Americans like her to another cycle of futile administrative proceedings that violate the Constitution and due process rights.

Read full case summary here. Watch case video here. 

NCLA released the following statement: 

“Michelle Cochran should not have to go through a second unconstitutional hearing before she is allowed to challenge whether the ALJ—who can impose life-ruining penalties and industry bars on her—is constitutional. This deeply flawed panel majority decision admits that Ms. Cochran might prevail someday on her claims, perhaps at the Supreme Court. NCLA is confident that a consensus of circuit judges will agree with Judge Catharina Haynes’s dissent that forcing Ms. Cochran through a second administrative trial that could later be vacated by a court makes no sense—and deprives her of due process of law and her civil liberties.”

— Peggy Little, Senior Litigation Counsel, NCLA  

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (August 11, 2020) – Today’s 2-1 Fifth Circuit Court of Appeals decision in Michelle Cochran v. U.S. Securities and Exchange Commission was sorely disappointing. After winning a preliminary injunction against the SEC last fall, Ms. Cochran had hoped her constitutional challenge to the agency’s Administrative Law Judges (ALJs) would soon be resolved. Instead, the panel ruling decided that its hands were tied by a prior Fifth Circuit case. Its resulting decision would force Ms. Cochran to defend herself—for a second time—in front of an unconstitutional tribunal inside the SEC before getting to raise her constitutional objections before a real Article III federal court that is competent to decide the validity of her claims. Once she wins her constitutional claim, Ms. Cochran then presumably will have to defend herself—for a third time—before a lawfully removable SEC ALJ many years hence. Judge Catharina Haynes’s superbly reasoned dissent would have prevented this injustice.

Ms. Cochran’s constitutional claim is simple. SEC ALJs enjoy multiple—and therefore unlawful—layers of for-cause protection from removal by the President. That is, the ALJs can only be removed for cause and the only people who can remove them are SEC Commissioners and Merit Systems Protection Board members—people whom the President can only remove for cause. The Supreme Court’s 2018 decision in Lucia v. SEC ruled that ALJs are inferior federal officers. The Supreme Court’s 2010 decision in Free Enterprise Fund v. PCAOB ruled that such officers may only enjoy one layer of for-cause removal protection. Otherwise, the President’s Article II duty to ensure that federal officers are doing their jobs is unduly restricted.

The panel relied on an earlier, distinguishable decision in this circuit in the Bank of Louisiana v. FDIC case, and it misconstrued the central jurisdictional holding of the United States Supreme Court in Free Enterprise Fund. That case demonstrated that district courts do have jurisdiction to hear removal-based constitutional challenges.

NCLA believes the court erred in its decision. First it admittedly takes the easy way out stating that “a prior panel has already done our … work for us,” even though it admits that the FDIC statute, unlike SEC’s, expressly stripped jurisdiction. Second, it fails to quote or even contend with the Supreme Court’s ruling in Free Enterprise Fund that nothing in the SEC laws expressly or implicitly strips jurisdiction over removal questions. Finally, admittedly following other circuits in lockstep, it misapplies each of the three factors that Free Enterprise Fund found required jurisdiction in the federal courts. NCLA plans to appeal today’s decision and will assess its options in due course.

Read full case summary here.

NCLA released the following statements:

“No rational, or constitutional system of justice would require a defendant to first undergo an unconstitutional proceeding before she can challenge its constitutionality. That question has now been before six judges of the Fifth Circuit and four of them agree with Cochran that her claims are likely to succeed on the merits. To make her cycle through another years-long exercise in futility before an ALJ and then the Securities and Exchange Commission, which both lack competence to hear her claims, is a disturbing judicial abdication of the court’s constitutional responsibilities.”

— Peggy Little, Senior Litigation Counsel, NCLA 

“NCLA knew that Michelle Cochran was bravely fighting an uphill battle, but we did not expect the U.S. Court of Appeals for the Fifth Circuit to be an impediment to her pursuit of justice. All Americans have a right to demand a lawful court to be heard in. This ruling, if left to stand, imposes enormous human, professional, reputational and financial costs on SEC defendants. It also represents a profligate waste of government prosecutorial and judicial resources. NCLA will not rest until Americans recover their right to a constitutional hearing.”

— Mark Chenoweth, Executive Director and General Counsel, NCLA

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

Washington, DC (November 22, 2019) – The New Civil Liberties Alliance today released a video putting a human face on the endless litigation journey that many Americans, like single mother Michelle Cochran, are put through by the U.S. Securities and Exchange Commission. The SEC is trying to force NCLA’s client to submit to serial invalid enforcement proceedings before their unconstitutional Administrative Law Judges (ALJs), where the Bill of Rights, the Federal Rules of Civil Procedure, and the Federal Rules of Evidence do not apply.

These ALJs lack the constitutional authority to hear cases, because the multiple levels of protection from removal that they enjoy violate the President’s ability under Article II of the Constitution to “take Care” that the laws are faithfully executed. Yet the agency has been forcing individuals to appear before these ALJs anyway—even though the U.S. Solicitor General told the Supreme Court in the Lucia v. SEC case two years ago that the agency’s ALJs are improperly insulated from removal. Fortunately, the U.S. Court of Appeals for the Fifth Circuit recently enjoined the proceeding against Ms. Cochran, and that same court is currently considering whether or not she may challenge the constitutionality of her ALJ before submitting to another proceeding.

The SEC has brazenly violated Michelle’s civil rights, but she is not alone. Ms. Cochran’s case is one of more than 100 invalid SEC hearings nullified by the U.S. Supreme Court in June 2018. Now the SEC wants to subject her to a second unconstitutional hearing before another ALJ that will also be void. NCLA is taking the SEC to task for dodging federal district court (where the agency would have to play by fair rules and convince an independent judge) and challenging its power to deny Americans a lawful hearing before a constitutional tribunal.

Video Excerpts:

Michelle Cochran, NCLA client: “At this point I am emotionally and financially drained. My livelihood could be in jeopardy. Nobody should have to go through this once, much less twice.” 

Peggy Little, Senior Litigation Counsel, NCLA: “In June of 2018, the United States Supreme court held that the SEC administrative law judges were not constitutionally appointed. As a result, over a hundred cases were vacated and set aside including Michelle Cochran’s.” 

Mark Chenoweth, Executive Director & General Counsel, NCLA: “Our constitutional system was not set up for Congress to create dozens of federal regulatory agencies that combine the legislative, the executive and the judicial power all in one administrative law judge. That’s too much power in the hands of one judge without enough checks.” 

ABOUT NCLA

NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

 
For more information, visit us online: NCLAlegal.org.

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Washington, D.C. – It took barely a couple of hours after oral argument on the motion in New Orleans, for a panel of the U.S. Court of Appeals for the Fifth Circuit to issue an order staying the SEC’s enforcement proceedings against NCLA client Michelle Cochran. The order in Cochran v. Securities and Exchange Commission stays the SEC’s in-house administrative hearing against her until the Fifth Circuit resolves the merits of the appeal now pending before them in Ms. Cochran’s case.

The order from JJ. Edith Jones, Stephen Higginson, and Andrew Oldham reads: “IT IS ORDERED that Appellant’s motion for an injunction pending appeal under Federal Rule of Appellate Procedure 8 is GRANTED.”

The issue due up for appeal on the merits to the Fifth Circuit is whether the SEC may force Ms. Cochran to proceed in front of an SEC administrative law judge (ALJ) who enjoys multiple layers of unconstitutional protection from removal. NCLA and Michelle Cochran are delighted with the decision of the Fifth Circuit panel to stay her constitutionally defective administrative proceeding. Both are also pleased that the court appears willing to consider correcting a path appellate law in other circuits has taken that has been permitting the SEC to impose hearings on defendants that are predestined to be vacated.

The Fifth Circuit’s stay recognizes the enormous human cost and prejudicial delay that senseless, serial prosecutions impose on Americans like Ms. Cochran. Cochran’s case was one of dozens slated for reconsideration after the U.S. Supreme Court’s ruling last June in Lucia v. SEC—which determined the SEC had been using unconstitutionally appointed ALJs. NCLA also represents Mr. Lucia in his post-Supreme Court litigation.

Further details about Michelle’s case are available here.

NCLA released the following statements:

“I am so proud to be represented by NCLA!! Thank you so much for all you are doing for me and for all of the others like me out there!!”—Michelle Cochran, NCLA Client

“NCLA looks forward to a robust challenge to the SEC’s power to deny Americans a hearing before a constitutional tribunal.”—Peggy Little, NCLA Senior Litigation Counsel

“The SEC brazenly violated Michelle Cochran’s civil rights, and the injunction stopping the SEC proceedings against her is an important first step in holding the SEC to account.”—Philip Hamburger, NCLA President

“This victory ensures that Michelle will get a decision from a real judge before she has to endure any further SEC hearings. It should also awaken other courts to the rights at stake here—and the need to protect such rights before administrative hearings ever proceed.”—Mark Chenoweth, NCLA General Counsel

“The court’s ruling will have consequences across the country. The court rebuked the SEC’s attempt to keep federal courts from even questioning what happens at in-house administrative proceedings.”
—Caleb Kruckenberg, NCLA Litigation Counsel

ABOUT NCLA 

NCLA is a nonprofit civil rights organization founded by legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

For more information, visit us online: NCLAlegal.org.

Click to read here

Washington, DC, June 11, 2019—The New Civil Liberties Alliance today filed a brief with the U.S. Court of Appeals for the Fifth Circuit asking to reverse the district court’s decision to dismiss the case of NCLA’s client, Michelle Cochran, for lack of subject-matter jurisdiction.

The U.S. Securities & Exchange Commission is trying to force Ms. Cochran, a single mom living in Texas, to submit to yet another unconstitutional enforcement proceeding before an administrative law judge (ALJ)—and she is not alone. Today, Americans are 10 times more likely to be tried by an unelected bureaucrat than by a federal judge. Ms. Cochran’s case is one of more than 100 invalid SEC hearings nullified following the U.S. Supreme Court’s decision last June in Lucia v. SEC.

In March the lower court expressed “deep concern” with the SEC’s proceedings against her—and the fact she now faces the prospect of prolonged proceedings in a second unconstitutional hearing. Nevertheless, the Court held that precedent compelled its conclusion that Congress gave exclusive jurisdiction over cases such as this to the SEC’s administrative process. But Congress never gave SEC the power to force defendants into hearings in front of unconstitutional ALJs whose decisions cannot stand.

The district court erred in concluding it lacked jurisdiction to hear Ms. Cochran’s objections to the SEC’s unconstitutional hearing. As NCLA’s brief shows, the decision in Lucia held that SEC’s ALJs are “officers” of the United States, thereby changing the legal landscape. Under an earlier precedent called Free Enterprise Fund v. Public Co. Accounting Oversight Board, the Supreme Court made clear that officers of the U.S. may not be insulated from removal by multiple layers of tenure protection without running afoul of the clause in Article II of the Constitution. The clause requires the President to “take Care that the Laws be faithfully executed.” In other words, the President cannot fulfill that obligation if he cannot remove ALJs who are failing to discharge their duties adequately. That case also demonstrated that courts do have jurisdiction to hear removal-based challenges.

Congress created a scheme designed to allow the SEC to resolve certain types of statutory claims, but that scheme does not permit the SEC to feign ignorance of its ALJs’ constitutional defects and thereby subject individuals like Ms. Cochran to serial enforcement proceedings that will be void. By trying to force Ms. Cochran into a hearing before one of its unconstitutional ALJs, the SEC is trying to take advantage of the courts’ reluctance to hear issues before the administrative process is exhausted.

NCLA expects the Fifth Circuit to put an end to this series of void enforcement hearings whose only purpose can be to make the process the punishment.

“The SEC knows that its ALJs violate Article II. It could have brought an enforcement proceeding against Michelle Cochran in federal court, or the Commission could have presided over her proceeding. Instead, the SEC chose to force her into an unconstitutional hearing before an ALJ who lacks the authority to hear her case. The federal courts should not stand by idly and allow SEC to ignore the Constitution.”
—Steve Simpson, Senior Litigation Counsel

“Due process requires governments to bring only valid cases in a timely fashion before lawful courts. Neither the ALJ nor the SEC is empowered to decide whether the ALJ is properly in office. If this appeal fails, it will take years before Ms. Cochran can get back to a federal court empowered to vindicate her rights. Worse, even if she wins, which she will, she then will have to endure a third hearing. No rational—or constitutional—justice system would require such endless appeals and futile proceedings.” —Peggy Little, Senior Litigation Counsel

ABOUT NCLA
NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the administrative state. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unchecked power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online: NCLAlegal.org.

Click to read here

Washington, DC, March 26, 2019 — Today, the U.S. District Court for the Northern District of Texas recognized the inherent injustice in the administrative enforcement process the Securities and Exchange Commission (SEC) has issued against Michelle Cochran, a client of the New Civil Liberties Alliance (NCLA). The SEC’s administrative law judges (ALJs) lack the constitutional authority to hear cases, yet the agency has been forcing individuals to appear before them anyway.

Ms. Cochran has been subjected to one unconstitutional hearing already. On the heels of the Supreme Court’s decision in Lucia v. SEC, she is now being put through a second unconstitutional proceeding but is fighting the SEC’s effort in federal court.

Concluding that the court lacked subject matter jurisdiction, Judge John McBryde dismissed Ms. Cochran’s complaint against the SEC, but not before expressing deep concern for the pointless litigation journey that lies before her.

In his Opinion, Judge McBryde wrote, “The court is deeply concerned with the fact that plaintiff has been subjected to extensive proceedings before an ALJ who was not constitutionally appointed and contends that the one she must now face for further, undoubtedly extended, proceedings likewise is unconstitutionally appointed. She should not have been put to the stress of the first proceedings, and, if she is correct in her contentions, she again will be put to further proceedings, undoubtedly at considerable expense and stress, before another unconstitutionally appointed administrative law judge.”

Unfortunately, the judge concluded that precedent requires that the case be dismissed for lack of jurisdiction. Even so, Judge McBryde added that were it not for the precedent that creates a jurisdictional issue, “the court would give serious consideration to [a] grant of plaintiff’s request for a preliminary injunction.”

Cochran’s case was one of dozens slated for reconsideration after the U.S. Supreme Court’s ruling last June in the case, Lucia v. SEC – which determined the SEC has been using unconstitutionally appointed ALJs. NCLA also represents Mr. Lucia in his post-Supreme Court litigation. Cochran and Lucia filed for injunctions in federal district court seeking the logical, commonsense relief that the question of the constitutionality of their ALJs be decided before those ALJs may try their cases.

“While we respectfully disagree with the Court that it lacks jurisdiction, we appreciate the Court’s deep concern for the possibility that the SEC is forcing individuals like Michelle Cochran to litigate before ALJs who lack constitutional authority to hear their cases.”—Steve Simpson, NCLA Senior Litigation Counsel

“Judge McBryde’s opinion recognizes that forcing Americans to undergo unconstitutional proceedings—and two levels of appeal—before they can vindicate their right to be tried before a lawful judge causes them to suffer the very constitutional injury they are suing to prevent. No rational system of justice would operate in this fashion.‎” —Peggy Little, NCLA Senior Litigation Counsel

NCLA will now appeal Cochran’s case to the Fifth Circuit Court of Appeals.

ABOUT NCLA
NCLA is a nonprofit civil rights organization founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the administrative state. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unchecked power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights. For more information visit us online: NCLAlegal.org.

Click to read here

There’s a frustrating phenomenon in sports where referees will “swallow their whistles” in a close game. At a pivotal moment, a referee will fail to call a foul to avoid the appearance that the refs determined the outcome of the game. The logical fallacy the refs seem to misapprehend (or hope we do) is that their decision to not enforce the rules affects the outcome just as much as if they blew the whistle. Allowing the defense to hack a would-be scorer without consequence decreases the likelihood the offense will score. And unlike simply making a big call—which is the refs’ job, after all—the failure to do so undermines the very system of rules that referees are tasked with officiating.

A similar fallacy befalls another type of official: judges will abdicate their judicial duty to “say what the law is” in the name of judicial modesty or restraint. But like referees swallowing their whistles, these judges are still determining outcomes when they fail to adjudge the cases that come before them—they’re just not doing so based on the rule of law. Moreover, the judges’ failure to apply the law undermines our constitutional system and jeopardizes the individual liberties our system is designed to protect.

The Founders structured our tripartite government with the understanding that power abhors a vacuum. By dividing all governmental power among three coequal branches and ensuring that no one branch accumulates the authority vested in its counterparts, our constitutional structure protects individual liberty against overreach. The “checks and balances” that maintain the division of authority rely, in part, on human nature. The Founders anticipated that public officials’ personal ambition and desire for control would cause each branch of government to try expanding its power. But that power has to come from somewhere—namely, the other branches. The built-in check against attempted overreach is that officials will jealously guard their own authority from overreach by the other branches. When one branch cedes its power instead of guarding it, the system breaks down and another branch fills the power vacuum. Administrative overreach, for example, is possible only because the courts cede their judicial authority and, with it, the check that authority imposes on the political branches.

Judicial abdication can take many forms—perhaps the most obvious of which are the deference doctrines, through which the courts explicitly cede the power of judicial review by deferring to the Executive Branch’s legal interpretations. But other less-apparent forms of judicial abdication abound. Judges in a variety of circumstances, for a variety of reasons, have refused to exercise their judicial office to decide constitutional challenges to administrative overreach. Whether fueled by ideals of modesty or restraint, the courts’ refusal to construe the constitutional limits on administrative authority amasses more power in the Executive Branch at the judiciary’s expense. With the balance of governmental power knocked off kilter, individual liberty suffers.

At least two strains of this form of judicial abdication have come to the forefront following the Supreme Court’s 2018 decision in Lucia v. SEC that administrative law judges (“ALJs”) within the Securities & Exchange Commission (SEC) were improperly appointed officers of the United States. After Lucia, a flurry of similar cases arose challenging the constitutionality of ALJs in other agencies. Appointments Clause challenges are what courts refer to as “structural challenges” because the issue implicates not just one branch but the structural integrity “of the entire Republic” against the diffusion of power. According to the Supreme Court, courts have a “strong interest” in maintaining the separation of powers and should incentivize, rather than deter, litigants from raising such challenges.

Courts, however, have sidestepped their judicial obligation at almost every opportunity in these post-Lucia cases. Two separate lines of cases reaching the Supreme Court ask the Court to confront this failure. In the first line of cases, the parties agree that courts have jurisdiction to decide the constitutional challenge to the ALJs, but the government has asked the courts to nevertheless withhold judicial review based on a judge-made version of “administrative exhaustion.” Created in the name of “prudence,” judges apply exhaustion requirements to refuse to resolve a claim within their subject-matter jurisdiction unless the plaintiff first exhausted that claim by raising it before each level of an administrative agency’s adjudicatory scheme and receiving a final decision from the agency. This rule is agnostic to whether the agency had any expertise or competence to decide the issue in the first place. NCLA and Cato Institute filed an amicus brief with the Supreme Court in Carr v. Saul and Davis v. Saul, urging the Court to severely limit prudential exhaustion doctrines to instances in which an issue implicates an agency’s expertise, discretion, or fact-finding. As NCLA explained, the Constitution doesn’t permit courts to apply the more-expansive version of the rule that the lower courts have created.

In a similar set of cases, courts have imposed limitations on their own jurisdiction to consider Appointments Clause challenges. Applying a set of factors articulated in Thunder Basin Coal Co. v. Reich, courts have effectively renounced their jurisdiction over questions of federal law, requiring litigants to pass through lengthy administrative proceedings before ever (sometimes never) receiving their day in court. NCLA recently argued before the en banc Fifth Circuit Court of Appeals that a panel of the Fifth Circuit and the district court both got it wrong when they held that Congress “impliedly” stripped the district court of jurisdiction over Michelle Cochran’s challenge to an SEC ALJ’s multi-leveled tenure protections. Congress vested district court with jurisdiction over federal questions like the one Ms. Cochran raised, and no other statute has stripped that jurisdiction. But the courts have looked at the mere existence of the Exchange Act’s adjudicatory scheme and determined that Congress likely meant to strip district-court jurisdiction over collateral constitutional questions even though Congress never said so. This atextual abdication of judicial authority resulted in years of unnecessary litigation for respondents in SEC enforcement proceedings who have already faced protracted litigation over their basic right to have their case heard by a competent, constitutionally appointed adjudicator. There’s simply no basis for courts to infer that Congress silently stripped jurisdiction. When Congress has done in the statutory schemes for other agency enforcement proceedings, it has done so explicitly.

Far from the jealous guarding of power on which the Constitution depends, judges have been willing to infer or create additional limitations on their own power. This proclivity for swallowing their judicial whistles has had immediate consequences on the outcome of cases against the government. Respondents like Ray Lucia, Christopher Gibson, Joel Fleming, Axon Enterprises, and Ms. Cochran must repeatedly incur “here and now” constitutional injuries while the courts sit idly by.

Our constitutional design anticipates that tension will exist between coequal branches grappling for power. But the judiciary has gone limp as the Executive Branch pulls at the ropes delimiting administrative authority. Courts must exercise their jurisdiction to the full extent allowed by Congress. If the courts go too far, Congress can and should respond by articulating clear limitations on that jurisdiction. But when courts simply err on the side of abdication, administrative overreach is the inevitable result.