Amicus Curiae Brief — Christopher M. Gibson, Petitioner v. Securities and Exchange Commission, et al.

No. 20-276

In the

Supreme Court of the United States

____________________

C HRISTOPHER G IBSON ,

Petitioner,

v.

S ECURITIES AND E XCHANGE C OMMISSION , ET AL .,

____________________

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

___________________

MOTION FOR LEAVE TO FILE AND

BRIEF AMICUS CURIAE OF

PACIFIC LEGAL FOUNDATION

IN SUPPORT OF PETITIONER

_______________________

G LENN E. R OPER

Pacific Legal Foundation

1745 Shea Center Dr.

Ste. 400

Highlands Ranch, CO 80129

Telephone: (916) 419-7111

geroper@pacificlegal.org

O LIVER J. D UNFORD

Counsel of Record

Pacific Legal Foundation

4440 PGA Blvd., Ste. 307

Palm Beach Gardens, FL 33410

Telephone: (916) 503-9060

odunford@pacificlegal.org

Counsel for Amicus Curiae

Pacific Legal Foundation

i

MOTION FOR LEAVE

Amicus curiae PACIFIC LEGAL FOUNDATION (PLF) respectfully moves for leave to file the accompanying brief,

under Supreme Court Rules 21, 33.1, and 37.2. PLF

timely served notice of its intent to file the brief. Petitioner

consented, but Respondents’ counsel did not respond.

PLF frequently participates as lead counsel and as

counsel for amici in cases addressing the separation of

powers and administrative law. It writes in support of Petitioner here because the question presented raises significant issues concerning the proper scope of agency power

and the right of due process for those subject to agency

regulation.

Below, PLF draws on its nearly 50 years of experience

and provides a discussion of first principles that will inform the Court’s consideration of the Petition. Accordingly, PLF respectfully asks the Court to grant it leave to

file this amicus brief.

ii

TABLE OF C ONTENTS

Page(s)

M OTION FOR L EAVE ................................................ i

TABLE OF AUTHORITIES ................................................. iv

I DENTITY AND I NTEREST

OF A MICUS C URIAE ........................................................... 1

I NTRODUCTION AND

S UMMARY OF A RGUMENT ................................................ 2

R EASONS TO G RANT THE P ETITION .............................. 3

I. THE COURT SHOULD DECIDE WHETHER THE

CONSTITUTION’S SEPARATION OF POWERS AND

DUE PROCESS GUARANTEES ALLOW

CONGRESS TO DELEGATE THE JUDICIAL

POWER OF THE UNITED STATES TO THE

EXECUTIVE BRANCH ............................................... 3

A. The Separation of Powers and

Due Process ........................................................ 3

B. The Problems with Thunder Basin.................. 4

1. The Constitution Trumps

Acts of Congress .......................................... 5

2. The Thunder Basin Test Ignores

Threshold Constitutional Questions .......... 6

3. The SEC Improperly Exercises the

Judicial Power of the United States .......... 7

II. LOWER COURTS’ APPLICATION OF

THUNDER BASIN DENIES LITIGANTS

THEIR RIGHT TO DUE PROCESS .............................. 9

iii

A. Under the Lower Courts’ Application of

Thunder Basin, No Constitutional Challenge

to an Agency’s Structure of Proceedings Will

Be “Of the Type that Congress Intended to be

Reviewed Within Statutory Schemes” .......... 11

B. The Thunder Basin Factors Tip the

Scales in the Government’s Favor ................. 14

1. No Meaningful Review .............................. 14

2. Agencies Have No Expertise in

General Questions of Administrative

and Constitutional Law ............................. 16

3. Congress is Incentivized to Draft

“Comprehensive” Statutes to Prevent

Judicial Review .......................................... 18

III.

LITIGANTS SHOULD BE ENCOURAGED

TO BRING CONSTITUTIONAL CHALLENGES..... 20

C ONCLUSION ..................................................................... 22

iv

TABLE OF AUTHORITIES

Page(s)

C ASES

Bank of La. v. FDIC,

919 F.3d 916 (5th Cir. 2019) .........................................12

Bebo v. SEC,

799 F.3d 765 (7th Cir. 2015), cert.

denied, 136 S. Ct. 1500 (2016) ................ 6, 12, 16, 18–19

Bennett v. SEC,

844 F.3d 174 (4th Cir. 2016) .................................passim

Bowen v. Michigan Acad. of Family Physicians,

476 U.S. 667 (1986) ......................................................6–7

Bowsher v. Synar,

478 U.S. 714 (1986) .................................................... 4, 20

Cochran v. SEC,

969 F.3d 507 (5th Cir. 2020) ........................... 6, 9, 12, 13

Dep’t of Transp. v. Ass’n of Am. R.R.,

575 U.S. 43 (2015) ..........................................................21

Elgin v. Dep’t of Treasury,

567 U.S. 1 (2012)....................................................passim

Free Enter. Fund v. PCAOB,

561 U.S. 477 (2010) ................................................passim

Gibson v. SEC,

795 F. App’x 753 (11th Cir. 2019) ..................................6

Hill v. SEC,

825 F.3d 1236 (11th Cir. 2016) ........................... 6, 12, 14

Jarkesy v. SEC,

803 F.3d 9 (D.C. Cir. 2015) ........................... 6, 12, 14, 17

Lucia v. SEC,

138 U.S. 2044 (2018) ................................................ 20–21

v

Marbury v. Madison,

5 U.S. (1 Cranch) 137 (1803) ................................ 5–6, 23

Martin v. Hunter’s Lessee,

14 U.S. (1 Wheat.) 304 (1816) .................................... 2, 9

Myers v. United States,

272 U.S. 52 (1926) ..........................................................10

Oil States Energy Srvcs., LLC v.

Greene’s Energy Group, LLC,

138 S. Ct. 1365 (2018)....................................................18

Rapanos v. United States,

547 U.S. 715 (2006) ..........................................................1

Sackett v. EPA,

566 U.S. 120 (2012) ..........................................................1

Seila Law, LLC v. CFPB,

140 S. Ct. 2183 (2020)....................................................20

Stern v. Marshall,

564 U.S. 462 (2011) ..........................................................2

Thunder Basin Coal Co. v. Reich,

510 U.S. 200 (1994) ................................................passim

Tilton v. SEC,

824 F.3d 276 (2d Cir. 2016), cert.

denied, 137 S. Ct. 2187 (2017) ..............................passim

U.S. Army Corps of Eng’rs v.

Hawkes Co., Inc.,

136 S. Ct. 1807 (2016)......................................................1

Webster v. Doe,

486 U.S. 592 (1988) ......................................................6–7

Whitman v. Am. Trucking Ass’ns, Inc.,

531 U.S. 457 (2001) ........................................................18

vi

S TATUTES

15 U.S.C. § 78-d-1(a)–(b) ....................................................14

§ 78u-2 ............................................................................11

§ 78y(a)(2) ......................................................................15

§ 78y(a)(4) ......................................................................15

§ 78y(c)(2) ......................................................................15

28 U.S.C. § 1331 ....................................................................5

R EGULATIONS

17 C.F.R. § 201.100, et seq. ................................................15

§ 201.110 .........................................................................14

§ 201.232 .........................................................................15

§ 201.233(a) ....................................................................15

§ 201.411(a) ....................................................................15

§ 201.452 .........................................................................15

C ONSTITUTIONS

U.S. Const. amend. V ...........................................................3

art. III ....................................................................passim

art. III, § 1 .......................................................................2

art. III, § 2, cl. 1 ..............................................................2

R ULES

Sup. Ct. R. 21......................................................................... i

33.1.................................................................................... i

37.2.................................................................................... i

37.2(a) ...............................................................................1

37.6....................................................................................1

vii

O THER AUTHORITIES

Baird, G. Douglas,

Blue Collar Constitutional Law,

86 Am. Bankr. L.J. 3 (2012) .........................................10

Baude, William,

Adjudication Outside Article III,

133 Harv. L. Rev. 1511 (2020).............................. 2, 8–10

Chapman, Nathan S. & McConnell,

Michael W., Due Process as Separation

of Powers,

121 Yale L.J. 1672 (2012)...................................... 3–4, 10

Frankfurter, Felix, The Public and Its

Government (Yale Univ. Press 1930) .........................16

Hamburger, Philip, Is Administrative Law

Unlawful? (2014) ...........................................................10

Lawson, Gary, Take the Fifth . . . Please!:

The Original Insignificance of the Fifth

Amendment’s Due Process of Law Clause,

2017 B.Y.U. L. Rev. 611 (2017) ................................ 8, 10

Lawson, Gary, The Rise and Rise of the

Administrative State,

107 Harv. L. Rev. 1231 (1994)......................................16

Nelson, Caleb, Adjudication in the Political

Branches,

107 Colum. L. Rev. 559 (2007) ................................. 4, 15

The Federalist No. 10 (Madison)

(J. Cooke ed. 1961) .................................................. 14–15

1

I DENTITY AND I NTEREST

OF A MICUS C URIAE 1

Founded in 1973, PACIFIC LEGAL FOUNDATION is a

nonprofit, tax-exempt, California corporation established

for the purpose of litigating matters affecting the public

interest. PLF provides a voice in the courts for Americans

who believe in limited constitutional government, private

property rights, and individual freedom.

PLF is the most experienced public-interest legal organization defending the constitutional principle of separation of powers in the arena of administrative law. PLF’s

attorneys have participated as lead counsel or counsel for

amici in several cases involving the role of the judiciary as

an independent check on the executive and legislative

branches under the Constitution’s Separation of Powers.

See, e.g., U.S. Army Corps of Eng’rs v. Hawkes Co., Inc.,

136 S. Ct. 1807 (2016) (judicial review of agency interpretation of Clean Water Act); Sackett v. EPA, 566 U.S. 120

(2012) (same); Rapanos v. United States, 547 U.S. 715

(2006) (agency regulations defining “waters of the United

States”).

This case raises core questions concerning the “judicial Power of the United States.” PLF offers a discussion

of first principles that should illuminate the Court’s review.

Pursuant to this Court’s Rule 37.2(a), Counsel of record for all parties received notice at least 10 days prior to the due date of the Amicus

Curiae’s intention to file this brief. Petitioner consented, but Respondents’ counsel did not respond. Pursuant to Rule 37.6, Amicus

Curiae affirms that no counsel for any party authored this brief in

whole or in part, and no counsel or party made a monetary contribution intended to fund the preparation or submission of this brief. No

person other than Amicus Curiae, its members, or its counsel made a

monetary contribution to its preparation or submission.

1

2

I NTRODUCTION AND S UMMARY OF A RGUMENT

The judicial power is “the power to bind parties and to

authorize the deprivation of private rights.” William

Baude, Adjudication Outside Article III, 133 Harv. L. Rev.

1511, 1513–14 (2020). “The judicial Power of the United

States” is “vested in one supreme Court, and in such inferior courts as the Congress may from time to time ordain

and establish.” U.S. Const. art. III, § 1. And this power, so

vested, “extend[s] to all Cases, in Law and Equity, arising

under the Constitution [and] the Laws of the United

States” and “to Controversies to which the United States

[is] a party ….” Id., art. III, § 2, cl. 1.

As a result, Congress “cannot vest any portion of the

judicial power of the United States, except in courts ordained and established by itself.” Martin v. Hunter’s Lessee, 14 U.S. (1 Wheat.) 304, 330–31 (1816). Rather, the

“Constitution assigns that job—resolution of the mundane as well as the glamorous, matters of common law and

statute as well as constitutional law, issues of fact as well

as issues of law—to the Judiciary.” Stern v. Marshall, 564

U.S. 462, 484 (2011) (cleaned up).

Here, the SEC seeks to deprive Petitioner of private

rights through an in-house administrative action overseen

by an SEC-employed administrative law judge. Petitioner

contends that the SEC’s proceedings are constitutionally

invalid. Under the Constitution, these matters are reserved for resolution in the Judicial Branch. But according to the court below, the initial adjudication of these judicial questions is assigned to the Executive Branch.

This Court should grant the Petition and decide

whether the Constitution’s separation of powers and the

allied guarantee of due process allow the federal government to deprive individuals of private and constitutional

3

rights outside Article III or whether the Federal Government is vested with an undifferentiated governmental

power.

R EASONS TO G RANT THE P ETITION

I. THE COURT SHOULD DECIDE WHETHER THE

CONSTITUTION’S SEPARATION OF POWERS AND

DUE PROCESS GUARANTEES ALLOW

CONGRESS TO DELEGATE THE JUDICIAL

POWER OF THE UNITED STATES TO THE

EXECUTIVE BRANCH

A. The Separation of Powers and Due Process

The Constitution’s separation of powers is based on

traditions—going back to Magna Carta—that preclude

government from depriving individuals of life, liberty, or

property except by the law of the land or with due process

of law. The meaning of “due process of law” and “law of

the land” “evolved over a several-hundred-year period,

driven … by the increasing institutional separation of lawmaking from law enforcing and law interpreting.” Nathan

S. Chapman & Michael W. McConnell, Due Process as

Separation of Powers, 121 Yale L.J. 1672, 1679 (2012). But

from at least the middle of the Fourteenth Century, “due

process” “consistently referred to the guarantee of legal

judgment in a case by an authorized court in accordance

with settled law.” Id. “It entailed an exercise of what became known as the judicial power to interpret and apply

standing law to a specific legal dispute.” Id. And when the

Fifth Amendment was adopted, it was universally understood that due process applied to “executive officials and

courts. It meant that the executive could not deprive anyone of a right except as authorized by law, and that to be

legitimate, a deprivation of rights had to be preceded by

certain procedural protections characteristic of judicial

process: generally, presentment, indictment, and trial by

4

jury.” Id. Accordingly, “[g]enerations of Americans assumed that once core private rights had vested in a particular individual, the allied requirements of due process

and the separation of powers protected them against

many forms of interference by the political branches.”

Caleb Nelson, Adjudication in the Political Branches, 107

Colum. L. Rev. 559, 562 (2007).

Neither the traditional understandings, nor the Constitution’s express separation of powers and guarantees of

due process, allow exceptions for the Administrative

State’s concentrated powers. To the contrary, the “declared purpose of separating and dividing the powers of

government, of course, was to diffuse power the better to

secure liberty.” Bowsher v. Synar, 478 U.S. 714, 721 (1986)

(emphasis added) (cleaned up). Perceived benefits of administrative processes do not change the calculus: that “a

given law or procedure is efficient, convenient, and useful

in facilitating functions of government, standing alone,

will not save it if it is contrary to the Constitution,” for

“convenience and efficiency are not the primary objectives—or the hallmarks—of democratic government.”

Free Enter. Fund v. PCAOB, 561 U.S. 477, 499 (2010)

(cleaned up).

B. The Problems with Thunder Basin

Nonetheless, under this Court’s Thunder Basin regime, courts routinely approve “delayed” judicial review

of (judicial) determinations made outside Article III.

Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994). As

the court below explained, “Congress may allocate to an

administrative body the initial review of such claims, and

when it does, the court must undertake the analysis set

forth” in Thunder Basin. Pet. App. 4a. In these cases—

despite the Constitution’s exclusive vesting of “the judicial

5

Power of the United States” in Article III courts and Congress’s expressly granting federal district courts “original

jurisdiction of all civil actions arising under the Constitution [and] laws . . . of the United States,” 28 U.S.C.

§ 1331—courts are required to determine whether Congress implicitly intended to strip district courts of jurisdiction in favor of Article I agencies. The two-prong test

asks (1) whether this congressional intent is “fairly discernible in the [relevant] statutory scheme,” and

(2) whether a litigant’s “claims are of the type that Congress intended to be reviewed within [a] statutory structure.” Thunder Basin, 510 U.S. at 207, 212 (internal quotation marks omitted). Under the second prong, courts

consider (A) whether a litigant’s claims will (eventually)

receive meaningful judicial review; (B) whether agency

expertise can be brought to bear on the litigant’s claims;

and (C) whether those claims are wholly collateral to the

statute’s review provisions. Id. at 212–15; see also Elgin v.

Dep’t of Treasury, 567 U.S. 1, 8–10, 15 (2012).

This test and its application by lower courts raise significant constitutional concerns. Not only does it require

courts to (attempt to) divine and defer to Congress’s implied intent, it is based on two fatally deficient premises—

that Congress has the authority to delegate the “judicial

power of the United States” outside Article III and that

the Executive Branch has the authority to exercise judicial power.

1. The Constitution Trumps

Acts of Congress

It is the “very essence of judicial duty” to determine

whether the Constitution or a conflicting legislative act

governs the case to which they both apply. Marbury v.

Madison, 5 U.S. (1 Cranch) 137, 177 (1803). Since the Con-

6

stitution is a “superior, paramount law,” an ordinary “legislative act contrary to the constitution is not law.” Id.

And, therefore, “the constitution, and not such ordinary

act, must govern the case.” Id. at 178. To conclude otherwise “would subvert the very foundation of all written

constitutions.” Id. It would declare an act “entirely void”

according to the principles and theory of our Constitution,

but “completely obligatory” in practice. Id. It would “prescrib[e] limits” on the legislature but “declar[e] that those

limits may be passed at pleasure.” Id.

2. The Thunder Basin Test Ignores Threshold

Constitutional Questions

Under Thunder Basin and Elgin, however, courts ask

“only whether Congress’ intent to preclude district court

jurisdiction [is] fairly discernible in the statutory

scheme.” Elgin, 567 U.S. at 9–10 (internal quotation

marks and citations omitted). And circuit courts, including

the Eleventh Circuit here, 2 have deferred to Congress and

held that the review provisions of federal securities laws

require initial judicial review—of even constitutional

claims—by the Executive Branch.

This result is not surprising since Elgin sidestepped

the Court’s earlier concern about the “‘serious constitutional question’ that would arise if a federal statute were

construed to deny any judicial forum for a colorable constitutional claim.” Webster v. Doe, 486 U.S. 592, 603 (1988)

(quoting Bowen v. Michigan Acad. of Family Physicians,

Gibson v. SEC, 795 F. App’x 753 (11th Cir. 2019) [Pet. App. 1a–6a].

See also Cochran v. SEC, 969 F.3d 507 (5th Cir. 2020); Tilton v. SEC,

824 F.3d 276 (2d Cir. 2016), cert. denied, 137 S. Ct. 2187 (2017); Bennett v. SEC, 844 F.3d 174 (4th Cir. 2016); Hill v. SEC, 825 F.3d 1236

(11th Cir. 2016); Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015); Bebo v.

SEC, 799 F.3d 765 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016).

2

7

476 U.S. 667, 681 n.12 (1986)). According to Elgin, arguments calling for Webster’s “heightened standard” must

not “overlook[]” its “necessary predicate,” namely, a statute that purports to “deny any judicial forum” for a colorable constitutional claim. Elgin, 567 U.S. at 9. But Elgin

itself overlooked necessary predicate questions—most

importantly whether the Constitution precludes Congress

from delegating judicial power to the Executive Branch

and whether the Constitution bars the Executive Branch

from exercising that power.

3. The SEC Improperly Exercises the Judicial

Power of the United States

Instead of grappling with these questions, the Thunder Basin/Elgin regime skips ahead and authorizes “delayed judicial review,” Thunder Basin, 510 U.S. at 207—

on the erroneous assumption that an administrative

agency’s “initial” review is something other than judicial

review.

Yet there can be no doubt in this case that the SEC’s

initial adjudication was an exercise of judicial power. In

the “Initial Decision,” the ALJ concluded that Petitioner

violated federal securities laws, ordered him to disgorge

$82,088 and pay a civil penalty in the amount of $102,000,

and suspended his licenses with a right to reapply after

three years. Pet. App. 58a, 95a, 99a. The ALJ also rejected

Petitioner’s argument that SEC ALJs have been unconstitutionally appointed. Id. 108a–109a. These are quintessentially judicial questions, and their resolution is a quin-

8

tessentially judicial act. And all of these issues will be reviewed—on appeal—by the full Commission, 3 which may

also review other constitutional questions. Id. 105a.

Thus, the Executive Branch, acting through the SEC

here, both deprived Petitioner of his private rights—his

property and his right to pursue a lawful avocation—and,

also, issued a ruling on Petitioner’s claim that the ALJ adjudicating the action was unconstitutionally appointed. 4

And in doing so, the Executive Branch exercised the judicial power of the United States. See Baude, 133 Harv. L.

Rev. at 1513–14 (The judicial power is “the power to bind

parties and to authorize the deprivation of private

rights.”); id. at 1520 (“The judicial power attaches special

consequences to judicial adjudications, most especially legally binding judgments.”).

Therefore, the problem with the Thunder Basin/Elgin

regime is not that the “delayed judicial review” follows an

initial (here, SEC) administrative review, conducted with

adjudicatory-like processes. It’s not “about the process of

adjudication.” Baude, 133 Harv. L. Rev. at 1513. 5 The

problem in these cases is that when “delayed judicial re-

Order Granting Petition for Review and Scheduling Briefs, In re

Christopher M. Gibson, SEC No. 3-17184, Release No. 88799 (SEC

3

May 1, 2020).

As Petitioner explains, without a (rarely granted) stay, the SEC can

impose and enforce monetary penalties and license suspensions before a litigant has access to a court of law. See Pet. at 6–7.

5

See also Gary Lawson, Take the Fifth . . . Please!: The Original Insignificance of the Fifth Amendment’s Due Process of Law Clause,

2017 B.Y.U. L. Rev. 611, 631 (2017) (“Executive procedures, even

highly formal, court-like executive procedures, may or may not be a

good idea, and they may or may not serve any number of functions,

but they cannot legitimate a deprivation that is not otherwise legitimate.”).

4

9

view” finally takes place, an administrative agency has already conducted a judicial review and has already deprived the litigant of his private rights; i.e., has already

imposed a binding judgment. 6 The Executive Branch has

(already) exercised the “judicial Power of the United

States.”

Considering the above, the Fifth Circuit’s framing

presents the issue in stark terms: “This appeal is not

about whether [a litigant] will have the opportunity to

press her separation-of-powers claim. She will. It instead

asks: Where and when?” Cochran, 969 F.3d at 511. Even if

the timing of judicial review (the “when”) were not itself

problematic, the forum for resolving judicial disputes (the

“where”) is one that cannot be brushed aside.

II. LOWER COURTS’ APPLICATION OF

THUNDER BASIN DENIES LITIGANTS

THEIR RIGHT TO DUE PROCESS

As noted above, Congress “cannot vest any portion of

the judicial power of the United States, except in courts

[it] ordained and established.” Hunter’s Lessee, 14 U.S.

at 330–31 (emphasis added). Nor, of course, can the Executive Branch exercise the judicial power. Rather, the “predominant principle of executive action is that it cannot deprive people of life, liberty, or property without judicial

process.” Baude, 133 Harv. L. Rev. at 1541 (emphasis

added). And, “one of the most fundamental requirements”

of the Fifth Amendment’s Due Process Clause is “one of

form and legality—as a limit on the legislature’s ability to

dispense with the courts.” Id. (footnote omitted). Therefore, “it has aptly been said that the Due Process Clause

As the Second Circuit noted, the Dodd-Frank Act “dramatically expanded the SEC’s authority to impose penalties administratively,

making it essentially ‘coextensive with [the SEC’s] authority to seek

penalties in Federal court.’” Tilton, 824 F.3d at 279 (citation omitted).

6

10

is an ‘instantiation of separation of powers’ and that ‘[d]ue

process and Article III in this sense are fused at the hip.’”

Id. (quoting Chapman & McConnell, 121 Yale L.J. at 1672;

and Douglas G. Baird, Blue Collar Constitutional Law, 86

Am. Bankr. L.J. 3, 8 (2012)).

When, therefore, litigants are required to slog through

one or, upon an administrative appeal, two Executive

Branch judicial adjudications before they may access an

Article III court, they are denied their long-standing due

process right against arbitrary deprivation of private

rights. See Myers v. United States, 272 U.S. 52, 293 (1926)

(Brandeis, J., dissenting) (“The doctrine of the separation

of powers was adopted by the convention of 1787 not to

promote efficiency but to preclude the exercise of arbitrary power.”). Cf. also Lawson, 2017 B.Y.U. L. Rev. at 631

(“There was no need for the Fifth Amendment in 1791 to

tell courts that they could not deprive people of life, liberty, or property without due process of law. Due process

of law just was, in an existential sense, what courts did

when they were doing their jobs properly.”) (citing PHILIP

HAMBURGER, IS ADMINISTRATIVE LAW UNLAWFUL? 157

(2014) (“The common law had its own ideals about the personnel, structure, and mode of proceeding of its courts—

ideals that could be summed up as the due process of

law.”)). The lower courts’ application of Thunder Basin ignores this foundational principle, as well as important related principles of fairness.

11

A. Under the Lower Courts’ Application of

Thunder Basin, No Constitutional

Challenge to an Agency’s Structure of

Proceedings Will Be “Of the Type that

Congress Intended to be Reviewed Within

Statutory Schemes”

Under Thunder Basin, courts ask, in addition to

whether Congress’s jurisdictional intent is “fairly discernable,” whether a litigant’s claims are “of the type that

Congress intended to be reviewed within [the SEC’s] statutory scheme.” Thunder Basin, 510 U.S. at 207, 212 (internal quotation marks omitted). This depends on three factors: whether a litigant’s claims will (eventually) receive

meaningful judicial review; whether agency expertise can

be brought to bear on the litigant’s claims; and whether

those claims are wholly collateral to the statute’s review

provisions. Id. at 212–15. These factors, at least as applied

by the lower courts construing the securities laws’ review

provisions, all favor the government and prejudice a litigant’s chances of obtaining immediate review of (at least)

his constitutional challenges to an agency’s structure.

Perhaps most glaringly, whether a regulated party receives initial judicial review turns on the administrative

agency’s choice of forum. The SEC has the option of enforcing the securities laws in court or in house. 15 U.S.C.

§ 78u-2. If the SEC chooses to proceed in district court,

then the respondent will receive immediate judicial review

of his constitutional claims. But if the SEC initiates an administrative enforcement action, the lower courts have

concluded that the respondent may not access Article III

courts, even for constitutional challenges to the agency itself or to administrative proceedings themselves, until the

administrative process is complete.

12

The circuit courts have concluded that these constitutional challenges are “of the type that Congress intended

to be reviewed within [the SEC’s] statutory scheme.”

Thunder Basin, 510 U.S. at 207, 212 (internal quotation

marks omitted). See, e.g., Jarkesy, 803 F.3d at 17. They

also contend that Elgin narrowed Free Enterprise Fund,

under which immediate district-court review was required

for a challenge, like Petitioner’s claims here, to the

agency’s constitutional validity or to its (allegedly) unconstitutional adjudicative procedures. Free Enter. Fund, 561

U.S. at 490. See, e.g., Bebo, 799 F.3d at 769–72 (acknowledging that under Free Enterprise Fund the SEC-review

statute does not strip district courts of jurisdiction “to

hear at least certain types of constitutional claims,” but

ultimately concluding that Elgin had narrowed the jurisdictional holding of Free Enterprise Fund).

According to the Fourth Circuit, Free Enterprise

Fund was limited to situations in which no reviewable

SEC action was possible. In those cases, review outside

the statutory scheme was permissible. Bennett, 844 F.3d

at 183. But when a litigant raising a constitutional claim is

a respondent in an SEC administrative-enforcement action, that litigant “necessarily challenges” an SEC action

and, therefore, review within the statutory scheme is required. Id. See also Cochran, 969 F.3d at 515 (“Cochran,

like the bank that sued the FDIC, is ‘already embroiled in

an enforcement proceeding’; she does ‘not have to “bet the

farm” to challenge agency action. The farm [is] already on

the table.’”) (quoting Bank of La. v. FDIC, 919 F.3d 916,

927 (5th Cir. 2019)); Hill, 825 F.3d at 1243 (“Here, in contrast [to Free Enterprise Fund], the respondents do challenge Commission action—action which, if allowed to proceed, necessarily will result in a final Commission order.”).

13

In Free Enterprise Fund, the Public Company Accounting Oversight Board had merely investigated alleged violations, but had not charged an accounting firm.

Id., 561 U.S. at 487. There, the regulated party was permitted immediate judicial review of its constitutional challenges. But, in the case below, as in the other circuit-court

cases referenced here, the respondents have been

charged—and, in Petitioner’s case here, already sanctioned by the agency.

Thus, application of the Thunder Basin/Elgin regime

appears to result in a situation in which regulated parties

are permitted initial judicial review of their constitutional

claims only if they are not threatened with the deprivation

of their private rights. Absent an express provision otherwise, how could a constitutional challenge to an agency’s

structure or existence ever not be “of the type Congress

intended to be reviewed within [a] statutory structure”?

Free Enterprise Fund, 561 U.S. at 489 (citation omitted).

Cf. Cochran, 969 F.3d at 515 (“The seemingly anomalous

result that a party subject to the less onerous agency action of investigation may run to federal court while a party

that has been charged must wait flows directly from the

principle that federal court jurisdiction is a matter of statute. . . . There is no scheme for judicial review of SEC investigations, so falling back on general federal question

jurisdiction does not undermine any contrary congressional path.”). Therefore, even assuming that the statutory-review provisions do not, as argued above, violate the

Constitution’s separation of powers by allowing Executive

Branch agencies to exercise the judicial power, this Court

should still accept this case for review to address whether

this anomalous result is consistent with litigants’ rights of

due process and simple fairness.

14

B. The Thunder Basin Factors Tip the Scales

in the Government’s Favor

The same problems exist under each of the three

“Thunder Basin factors”—whether a litigant’s claims will

(eventually) receive meaningful judicial review; whether

agency expertise can be brought to bear on the litigant’s

claims; and whether those claims are wholly collateral to

the statute’s review provisions. Id. at 212–15.

1. No Meaningful Review

Courts routinely find that delayed judicial review is

“meaningful” enough, but they give short shrift to the

harms that occur before that “meaningful” review and as

a consequence of the delay. 7 As the Eleventh Circuit observed, SEC administrative actions “differ from cases

brought in federal district courts in several respects.”

Hill, 825 F.3d at 1238. When the SEC proceeds in-house,

either the full Commission or an SEC-employed ALJ adjudicates the action. 15 U.S.C. § 78-d-1(a)–(b); 17 C.F.R.

§ 201.110. The process violates the legal maxim that “[n]o

Lower courts dismiss arguments that delayed review unfairly makes

litigants spend time and money in allegedly unconstitutional proceedings. According to the D.C. Circuit, the “only independent harms [a

respondent] will face as a result of his continuing to undergo the Commission proceeding are the burdens abided by any respondent in an

enforcement proceeding or any criminal defendant who must wait for

vindication.” Jarkesy, 803 F.3d at 28. “The judicial system tolerates

those harms, and they are insufficient for us to infer an exception to

an otherwise exclusive scheme.” Id. (emphasis added). But the SEC

is not part of the judicial system. Delays incurred in the judicial system are not analogous to delays in the adjudication of private rights

outside the judicial system. This regime also ignores the advantages

gained by agencies in terms of preventing judicial review of their actions. See Tilton, 824 F.3d at 298 n.5 (Droney, J., dissenting) (98% of

respondents settle; and in a “number of cases” the SEC “threaten[s]

administrative proceedings” before ALJs in a calculated effort to

compel settlement).

7

15

man is allowed to be a judge in his own cause, because his

interest would certainly bias his judgment, and, not improbably, corrupt his integrity.” The Federalist No. 10, at

59 (Madison) (J. Cooke ed. 1961). This maxim is violated

twice in the SEC process—first when the ALJ hears the

case and then again when the full Commission reviews an

ALJ’s decision.

Further, in these proceedings, the “respondent” is not

afforded a jury, and neither the Federal Rules of Civil Procedure nor the Federal Rules of Evidence apply. Instead,

the SEC’s Rules of Practice control. 17 C.F.R. § 201.100 et

seq. These rules allow only limited discovery, often at the

discretion of the ALJ. Id. §§ 201.232, 201.233(a). On appeal to the full Commission, the Commission “may affirm,

reverse, modify, set aside or remand for further proceedings, in whole or in part, an initial decision” and it “may”—

or may not—“make any findings or conclusions that in its

judgment are proper and on the basis of the record.” Id. §

201.411(a). And it may—or may not—allow the submission of additional evidence. Id. § 201.452.

For the supposedly meaningful judicial review of final

SEC orders, “the Exchange Act specifies what constitutes

the agency record, [15 U.S.C.] § 78y(a)(2), the standard of

review, id. § 78y(a)(4), and the process for seeking a stay

of the Commission order either before the Commission or

in the court of appeals, id. § 78y(c)(2).” Bennett, 844 F.3d

at 177. This “delayed” judicial review therefore denies private parties the right to a judicial determination of facts

and law. See Nelson, 107 Colum. L. Rev. at 590 (When core

private rights are at stake, “not just any sort of ‘judicial’

involvement [will] do,” and courts must “be able to exercise their own judgment” about the details relevant to a

particular case or controversy.). This review burdens the

party’s ability to succeed on appeal because when circuit

16

courts finally hear these cases, they must defer to the

agency’s own factual determinations and, in many cases,

to the agency’s legal interpretations. Cf. Gary Lawson,

The Rise and Rise of the Administrative State, 107 Harv.

L. Rev. 1231, 1248–49 (1994) (“[T]he agency decision, even

before the bona fide Article III tribunal, possesses a very

strong presumption of correctness on matters both of fact

and of law.”) (footnote omitted).

None of this provides “meaningful” judicial review.

2. Agencies Have No Expertise in

General Questions of Administrative

and Constitutional Law

Agency “expertise” has uniformly meant expertise in

complex, technical areas. That’s the raison d’etre of the

Administrative State. See, e.g., Felix Frankfurter, The

Public and Its Government 152 (Yale Univ. Press 1930)

(“[T]he staples of contemporary politics—the organization of industry, the control of public utilities, the well-being of agriculture, the mastery of crime and disease—are

deeply enmeshed in intricate and technical facts, and must

be extricated from presupposition and partisanship.”).

In contrast, as this Court recognized, “standard questions of administrative law” that do not require “technical

considerations of agency policy” are outside an agency’s

competence and expertise. Free Enter. Fund, 561 U.S. at

491 (cleaned up). See also Elgin, 567 U.S. at 29–30 (Alito,

J., dissenting) (joined by Ginsburg and Kagan, JJ.)

(“[C]onstitutional challenges to the laws that [agencies]

administer … lie outside the realm of special agency expertise.”). Lower courts acknowledge that this point “has

some force.” Bebo, 799 F.3d at 767 (noting that a constitutional challenge to the agency “can reasonably be characterized” as outside the scope of the agency’s expertise).

17

But in Thunder Basin and Elgin, the Court dismissed

this common-sense approach and decided that agency expertise should be “brought to bear” as a means of judicial

abdication. And the lower courts have routinely avoided

thorny constitutional issues. The Fifth Circuit, for example, stated that the “benefit of agency expertise should instead be assessed by looking at the overall case, so this

factor accounts for the possibility that the agency’s resolution of other issues ‘may obviate the need to address the

constitutional challenge.’”) (quoting Elgin, 567 U.S. at 22–

23)).

Similarly, the D.C. Circuit said that it could “fairly discern Congress’s intent to preclude suits by respondents in

SEC administrative proceedings in the mine-run of

cases,” because, “‘[g]enerally, when Congress creates procedures designed to permit agency expertise to be

brought to bear on particular problems, those procedures

are to be exclusive.’” Jarkesy, 803 F.3d at 16 (quoting Free

Enterprise, 561 U.S. at 489). But the “particular problem”

at issue in these cases—whether the SEC’s administrative-enforcement proceedings are constitutionally valid—

has nothing to do with the SEC’s expertise. As Jarkesy

itself noted, the “securities laws contain an equally comprehensive structure for the adjudication of securities violations in administrative proceedings”—not constitutional violations Id. (emphasis added).

Finally, the same analysis would apply to many federal

agencies. Constitutional challenges could be raised

against agencies whose expertise varies from, as here, securities (SEC), to communications (FCC), elections

(FEC), and competition (FTC). How do the agencies’ varying areas of expertise establish that a litigant’s constitutional claims are “of the type that Congress intended to be

18

reviewed within the statutory scheme” that each agency

administers? Thunder Basin, 510 U.S. at 212.

In fact, courts are “at no disadvantage in answering”

questions of administrative and constitutional law. Free

Enter. Fund, 561 U.S. at 491 And the Constitution has decided that it is to the advantage of the people’s liberties

that only courts answer such questions, at least when the

potential deprivation of private rights is threatened. Cf.

Oil States Energy Srvcs., LLC v. Greene’s Energy Group,

LLC, 138 S. Ct. 1365, 1380 (2018) (Gorsuch, J., dissenting)

(“The Constitution ‘reflects a judgment by the American

people that the benefits of its restrictions on the Government outweigh the costs.’”) (citation omitted). Ultimately,

it is the Judicial Branch’s duty to police the Constitution’s

separation of powers and hold the political branches accountable for overreach. Whitman v. Am. Trucking Ass’ns,

Inc., 531 U.S. 457, 473 (2001). The Court should reconsider

whether an agency’s technical expertise can be used as a

shield to delay and, often, prevent judicial review.

3. Congress is Incentivized to Draft

“Comprehensive” Statutes to

Prevent Judicial Review

This Court “has not explained precisely how to make

th[e wholly-collateral] determination.” Tilton, 824 F.3d at

287; see also Bebo, 799 F.3d 765, 773 (7th Cir. 2015) (same);

Bennett, 844 F.3d at 186 (determining whether a claim is

“wholly collateral” is “not free from ambiguity”).

In response, courts have found that a litigant’s constitutional claims are not wholly collateral to a statutory-review provision either because (1) the claims are substantively intertwined with the merits; or because (2) the

claims have been raised in response to, and so are procedurally intertwined with, an administrative proceeding,

19

i.e., the constitutional claims are used as a vehicle to challenge an agency’s administrative proceeding. See Bennett

at 186–87; Bebo at 774 (concluding that “this unsettled issue does not affect the outcome of this case”).

Since Elgin, courts have relied on the second reading.

But unless one fits within the razor-thin parameters of

Free Enterprise Fund, it is difficult to imagine a scenario

in which a regulated party’s constitutional claims are not

“the vehicle by which” the party challenges an agency’s

substantive charges. Elgin, 567 U.S. at 22. Indeed, when

a party is already the subject of an administrative-enforcement proceeding, it appears to be impossible for that

party to obtain immediate judicial review of constitutional

challenges to the laws that agencies administer.

This is a factor that will virtually never work in a private party’s favor. In Bennett, the respondent argued that

her constitutional claim was wholly collateral to the SEC

proceeding “because it challenge[d] the legality of the forum itself and [did] not seek to affect the merits of [the]

SEC proceeding.” Id., 844 F.3d at 187. The Fourth Circuit

acknowledged that at “one level, this makes conceptual

sense: Even if she is successful in challenging the appointment of the Commission’s ALJs, the SEC could still bring

a civil enforcement action in district court on the same

substantive charges.” Id. But the court ultimately ruled

that Elgin’s reading controls, “even though it reduces the

factor’s independent significance.” Id. Thus, Courts will

be hard pressed to recognize any constitutional claim to

be “wholly collateral” from the statutes that form the basis of an agency’s claims—effectively removing this factor

from the Thunder Basin analysis.

Finally, to the extent this factor remains relevant, it

provides another excuse to give dispositive jurisdictional

control to the SEC itself. For example, the Second Circuit

20

held that the respondent’s constitutional claim was not

“wholly collateral” to the securities statutes because the

SEC “chose to enforce the Investment Advisers Act

against the appellants by initiating an administrative proceeding and appointing an ALJ to act as the hearing officer.” Tilton at 288 (emphasis added); see id. (“As the district court recognized, it is difficult to see how the Appointments Clause claim can still be considered collateral

to any Commission orders or rules from which review

might be sought, since the ALJ and the Commission will,

one way or another, rule on those claims and it will be the

Commission’s order that the appellants will appeal.”)

(cleaned up).

All of this runs counter to common sense, not to mention the Constitution’s carefully balanced separation of

powers. See Elgin, 567 U.S. at 29–30 (Alito, J., dissenting)

(“[C]onstitutional challenges to the laws that [agencies]

administer” “are [] wholly collateral to other types of

claims” that agencies are “empowered to consider.”). The

Court should grant review and clarify what, if anything,

the “wholly collateral” factor means.

III.

LITIGANTS SHOULD BE ENCOURAGED TO

BRING CONSTITUTIONAL CHALLENGES

The SEC’s separation-of-powers violation “inflict[ed]

a ‘here-and-now’ injury” that must be remedied by a

court. Seila Law, LLC v. CFPB, 140 S. Ct. 2183, 2196

(2020) (quoting Bowsher, 478 U.S. at 727 n.5); see Free

Enter. Fund, 561 U.S. at 513 (same). Under the Thunder

Basin regime, however, litigants are prevented from initial judicial review and are incentivized by the time and

expense of the administrative process to give up before

the promised “delayed” judicial review. This runs counter

to this Court’s express recognition that citizens should

have incentives to bring constitutional claims. Cf. Lucia v.

21

SEC, 138 U.S. 2044, 2055 n.5 (2018) (“Appointments

Clause remedies are designed not only to advance those

purposes [preventing structural constitutional violations]

directly, but also to create incentives to raise Appointments Clause challenges.”).

Thunder Basin poses an especially vexing problem—it

reinforces separation-of-powers violations while simultaneously making it more difficult to challenge those violations. And, of course, in establishing the United States

government, the sovereign people assigned to three—and

only three—different “departments” “their respective

powers” and “establish[ed] certain limits not to be transcended by those departments.” Marbury, 5 U.S. at 176

(1803). If “those limits do not confine the persons on whom

they are imposed, and if acts prohibited and acts allowed,

are of equal obligation[,]” then the “distinction, between a

government with limited and unlimited powers, is abolished[.]” Id. at 176–77. “The Constitution does not vest the

Federal Government with an undifferentiated ‘governmental power.’” Dep’t of Transp. v. Ass’n of Am. R.R., 575

U.S. 43, 67 (2015) (Thomas, J., dissenting).

The Court should grant the Petition and reconsider

whether the Thunder Basin regime of “delayed judicial

review” following an initial judicial review by an administrative agency is consistent with the Constitution’s separation of powers and the allied guarantees of due process.

22

CONCLUSION

The Petition should be granted.

DATED: October 2020.

Respectfully submitted,

G LENN E. R OPER

Pacific Legal Foundation

1745 Shea Center Dr.

Ste. 400

Highlands Ranch, CO 80129

Telephone: (916) 419-7111

geroper@pacificlegal.org

O LIVER J. D UNFORD

Counsel of Record

Pacific Legal Foundation

4440 PGA Blvd., Ste. 307

Palm Beach Gardens, FL 33410

Telephone: (916) 503-9060

odunford@pacificlegal.org

Counsel for Amicus Curiae

Pacific Legal Foundation