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

 

CASE SUMMARY

James Madison once said that the concentration of all government powers in one branch is “the very definition of tyranny.” Yet, today, administrative agencies regularly exercise all three of those powers. They issue rules with the force of law. They enforce laws. And they prosecute people through a system of administrative proceedings before administrative law judges or ALJs, who are hired by the agency prosecuting you.

NCLA client Michelle Cochran fell prey to this system in 2016, when the U.S. Securities and Exchange Commission (SEC) accused her of violating federal accounting standards. Ms. Cochran, a Texas CPA, had worked as an auditor with a small accounting firm until 2013. A single mother, Ms. Cochran started as a part-time employee to make ends meet. Three years after she left the firm, the SEC brought an enforcement action against the firm and named her as a defendant, claiming that she aided and abetted the firm’s alleged rule violations.

Representing herself pro se, Ms. Cochran fought the allegations against her in a proceeding before an ALJ hired by the SEC to hear the case. At the time, SEC ALJs were not appointed by the president like normal judges. They were hired by the prosecuting agency like any other civil servant. Not surprisingly, ALJs rule for the SEC in most cases. In fact, the ALJ assigned to Ms. Cochran’s case often warned defendants that he never ruled against the SEC in enforcement proceedings.

In 2017, Ms. Cochran’s ALJ ruled against her, imposing a $22,000 fine and banning her from practicing as an accountant before the SEC for five years.

Then something surprising happened June, 2018. In Lucia v. SEC, the U.S. Supreme Court ruled that SEC ALJs were not properly appointed under the Constitution. ALJ’s, the Court held, are “officers of the United States” under the Appointments Clause of Article II and must be appointed by the president rather than hired by the agency. The Court held that Raymond Lucia, the petitioner in the case (whom NCLA also now represents) had been denied a hearing by a properly appointed ALJ. The SEC then concluded that everyone with pending enforcement proceedings against them had to be retried before new ALJs. Ms. Cochran was one of those people.

In 2018, the SEC assigned her case to a new ALJ for a do-over. She would now have to go through the entire enforcement process for a second time.

But there remains another constitutional problem with the SEC’s ALJs. In order to “faithfully execute the laws,” which is his duty under the Constitution, the president must not only be able to appoint all federal officers, he must be able to remove them as well. But SEC ALJs, like most civil servants, are protected by what amounts to life tenure. If the president cannot remove “officers” such as ALJs, then he can’t control the administrative agencies he’s charged with overseeing.

The consequence, for Ms. Cochran, is that her second enforcement proceeding is just as unconstitutional as her first—which means that after being prosecuted yet a second time, she will ultimately have to run the SEC enforcement gauntlet all over again. NCLA represents Ms. Cochran to prevent that unjust result. The SEC knows its ALJs remain in violation of the Constitution, because the government admitted in Lucia v. SEC that even if they were properly appointed, SEC ALJs would still violate the president’s power to remove them.

The SEC should not be allowed to wage an unconstitutional war of attrition against Michelle Cochran or anyone else. It is bad enough that administrative agencies are permitted to force individuals like her to defend themselves before administrative law judges—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.

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CASE STATUS: Active

CASE START DATE: January 18, 2019

DECIDING COURT: U.S. Court of Appeals for the Fifth Circuit

JUDICIAL COURT IN WHICH NCLA BROUGHT SUIT: U.S. District Court for the Northern District of Texas

CASE DOCUMENTS

January 20, 2021 | AUDIO: Cochran v SEC, CA5 oral argument
January 14, 2021 | Appellant’s Reply Brief on Rehearing En Banc
December 7, 2020 | Brief of Amici Curiae Cato Institute and Competitive Enterprise Institute in Support of Plaintiff-Appellant on Rehearing En Banc
December 7, 2020 | Brief of Amicus Curiae Americans for Prosperity Foundation in Support of Plaintiff-Appellant and Reversal on Rehearing En Banc
December 1, 2020 | Brief of Phillip Goldstein, Mark Cuban, and Nelson Obus as Amici Curiae in Support of Appellant and Reversal of the District Court’s Order on Rehearing En Banc
November 30, 2020 | Appellant’s Opening Brief on Rehearing en Banc
October 30, 2020 | Order Granting Petition for Rehearing En Banc
October 1, 2020 | Brief of Texas Public Policy Foundation as Amicus Curiae in Support of Rehearing En Banc
October 1, 2020 | Brief of Amici Curiae Cato Institute and Competitive Enterprise Institute in Support of Plaintiff-Appellant’s Petition for Rehearing En Banc
September 24, 2020 | Petition for Rehearing En Banc in the United States Court of Appeals for the Fifth Circuit
Aug 11, 2020 | Decision of the Fifth Circuit Court of Appeals in Cochran v. SEC
Nov 5, 2019 | Oral Argument on Michelle Cochran’s Challenge to SEC AlJ Removal Protections
Sept 24, 2019 | Fifth Circuit Court of Appeals Per Curiam Order Granting Injunction Pending Appeal

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

Click here to read the full legal document. 

Sept 24, 2019 | Oral Argument That Secured an Injunction Staying Administrative Proceedings for Michelle Cochran
Aug 30, 2019 | Appellant's Reply Brief

The U.S. Supreme Court reviewed the identical statutory scheme in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010) and emphatically concluded that Article III courts are not stripped of jurisdiction and therefore must decide structural questions of constitutional administrative law…

Click here to read the full legal document. 

Aug 16, 2019 | Appellant's Opposed Motion For Injunction Pending Appeal

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.

Click here to read the full legal document. 

Jun 17, 2019 | Brief of Phillip Goldstein, Mark Cuban, and Nelson Obus as Amici Curiae in Support of Appellant and Reversal of the District Court's Order

Michelle Cochran’s (“Cochran” or “Ms. Cochran”) appeal challenges the United States Securities and Exchange Commission’s (the “SEC” or “Commission”) use of administrative law judges (“ALJs”) in enforcement proceedings. See generally Lucia v. SEC, 138 S. Ct. 2044 (2018) (finding that SEC ALJs were unconstitutionally appointed). 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. Instead, when the SEC elects to use an administrative proceeding, whether before an ALJ or the Commissioners of the SEC (the “Commissioners”), the SEC determines a respondent’s liability and punishment without the involvement of a jury. Such proceedings disregard the protections guaranteed to litigants by the United States Constitution, and lead to unequal and unjust results.

Click to read the full Amicus Curiae

Jun 17, 2019 |Brief Of Texas Public Policy Foundation As Amicus Curiae In Support Of Plaintiff-appellant

The undersigned counsel of record certifies that the following listed persons or entities as described in the fourth sentence of Rule 28.2.1 have an interest in the outcome of this case. These representations are made so that the judges of this Court may evaluate possible disqualification or recusal.

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Jun 17, 2019 |Amicus Brief For The Cato Institute, Cause Of Action Institute, And The Competitive Enterprise Institute In Support Of Plaintiff-appellant

The undersigned counsel of record for amici certifies that the following listed persons and entities as described in the fourth sentence of Fifth Circuit Rule 28.2.1, in addition to those listed in the Plaintiff-Appellants’ Certificate of Interested Persons, have an interest in the outcome of this case. These representations are made in order that the judges of this Court may evaluate possible disqualification or recusal. Amici: The Cato Institute, Cause of Action Institute, and the Competitive Enterprise Institute are all not-for-profit corporations exempt from income tax under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3). None has a parent corporation and no publicly-held company has a 10% or greater ownership interest in any of them.

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Jun 11, 2019 | Appellant’s Opening Brief, Cochran v. SEC

This case arises out of the SEC’s effort to subject Michelle 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 unconstitutionally appointed in violation of Article II…

…While Ms. Cochran’s proceeding was pending, the Supreme Court decided Lucia v. SEC, voiding the enforcement proceeding against the petitioner and holding that he was entitled to a hearing before a new, properly appointed ALJ or before the Commission itself. 138 S. Ct. at 2054–55. Recognizing that the same problem existed with all of its ALJs, the SEC attempted to “ratify” the ALJs’ previous appointments, and then it reassigned all pending enforcement matters, including Ms. Cochran’s, to new ALJs.

The reinstituted proceeding against Ms. Cochran is just as unconstitutional as the original proceeding, however—and the SEC knows it…

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Mar 25, 2019 | Memorandum Opinion and Order

MEMORANDUM OPINION and ORDER

Came on for consideration the above-captioned action wherein Michelle Cochran is plaintiff and the U.S. Securities and Exchange Commission (“SEC”), Jay Clayton in his official capacity as SEC Chairman, and William Barr1 in his official capacity as U.S. Attorney General, are defendants. The court, having considered the complaint, plaintiff’s motion for preliminary injunction, the response, the reply, and the applicable authorities, finds that this action should be dismissed for lack of subject matter jurisdiction.

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Mar 15, 2019 | Plaintiff’s Reply Brief in Support of Motion for Preliminary Injunction
Feb 8, 2019 | Plaintiff’s Brief in Support of Motion for Preliminary Injunction
Jan 18, 2019 | Cochran v. SEC Complaint for Declaratory and Injunctive Relief

PRELIMINARY STATEMENT

“1. This action arises from the SEC’s attempt to subject plaintiff Michelle Cochran to an administrative proceeding that violates Article II of the United States Constitution and the due process clause of the Fifth Amendment.

2. On June 21, 2018, the U.S. Supreme Court held in Lucia v. SEC, 138 S. Ct. 2044 (2018), that the SEC had been appointing its administrative law judges in violation of the Appointments Clause of Article II. The Supreme Court not only nullified the proceeding against the petitioner, Raymond Lucia, it ordered the SEC to reassign his matter to a new, properly appointed ALJ. In an effort to cure the constitutional defect, the SEC attempted to “ratify” the Case 4:19-cv-00066-A Document 1 Filed 01/18/19 Page 1 of 23 PageID 1 2 appointment of all of its ALJs on August 22, 2018 and followed with an order reassigning all pending enforcement proceedings to new ALJs…”

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Dec 31, 2018 | Helterbran Cochran Motion for Ruling on the Pleadings

“In response to the October 2, 2018 Order issued by Administrative Law Judge Carol Fox Foelak, Respondent Michelle L. Helterbran Cochran objects to the reinstituted proceeding in this case. Ms. Helterbran moves for an order dismissing this matter, pursuant to Rule 250(a) of the Commission’s Rules of Practice, 17 C.F.R. § 201.250(a), because the statutory deadline within which this case had to be tried has passed. See also 5 U.S.C. § 556(c)(9), (10) (powers of ALJs); 17 C.F.R. § 201.360(b) (initial decisions by ALJs). In the alternative, Ms. Helterbran moves for an order referring this matter for trial before the Securities and Exchange Commission, as this ALJ is barred from adjudicating this matter under Article II of the United States Constitution because she enjoys multiple layers of unconstitutional removal protections. Finally, and also in the alternative, Ms. Helterbran moves for an order staying this matter pending adjudication of constitutional objections raised in the United States District Court.”

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PRESS RELEASES

January 14, 2021 | NCLA En Banc Fifth Circuit Reply Brief Refutes SEC’s Objections to Hearing Constitutional Challenge

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.

 

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December 9, 2020 | NCLA’s Constitutional Claim at En Banc Fifth Circuit Against SEC ALJs Draws Strong Amicus Support

Washington, DC (December 9, 2020) – This week liberty-minded organizations Americans for Prosperitythe 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

November 30, 2020 | NCLA Asks Full 5th Cir. to Find Federal Court Jurisdiction over Constitutional Claim Against SEC ALJ

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

October 30, 2020 | Full Fifth Circuit Bench to Hear Constitutional Challenge to SEC’s Unlawful Administrative Proceedings

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

October 2, 2020 | NCLA Constitutional Case Against SEC Administrative Law Judges Draws Strong Amicus Support

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

September 24, 2020 | NCLA Asks Full Fifth Circuit to Rehear Case Concerning Unlawful SEC Administrative Proceedings

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.

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August 11, 2020 | NCLA Client Michelle Cochran Absorbs Temporary Setback from Fifth Circ. Court of Appeals Decision

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

November 22, 2019 | Watch: NCLA Video Exposes Injustice Behind SEC’s Administrative Hearings

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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Sept 25, 2019 | NCLA Wins Stay Pending Appeal from Fifth Circuit in Post-Lucia SEC Case

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.

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Jun 11, 2019 | NCLA Asks Fifth Circuit Court of Appeals to Put an End to Unconstitutional SEC Hearings

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

Mar 28, 2019 | Texas Federal Judge Expresses ‘Deep Concern’ with Potentially Unconstitutional ALJ Proceedings for NCLA Client

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

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January 22, 2021 | Judges Swallowing Their Whistle

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 LuciaChristopher GibsonJoel FlemingAxon 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.