Well, it’s Groundhog Day at the Securities and Exchange Commission. Again. At least, that’s what it must feel like for Michelle Cochran.

The SEC first began its administrative enforcement proceedings against Ms. Cochran six years ago. At that time, she went through a complete administrative hearing. But alas, in 2018, the Supreme Court ruled in Lucia v. Securities and Exchange Commission that the SEC’s administrative law judges were unconstitutionally appointed. In response, the SEC vacated the first enforcement hearing and instructed Ms. Cochran to start all over again. But Ms. Cochran believes that the SEC’s administrative adjudication process is still unconstitutional because its ALJs are insulated from removal. Nevertheless, the SEC is asking Ms. Cochran to have a hearing before an ALJ and go before the SEC for an administrative appeal, all before appealing to an Article III judge, where, if she wins, her reward will be a third trip through the SEC enforcement process.

Rather than just accept this process, Ms. Cochran sued in federal court, arguing that SEC ALJs are unconstitutional since they can only be removed for certain reasons.

In response, the agency claimed that the court did not have jurisdiction to even hear that argument, because Ms. Cochran had not exhausted her administrative processes before the agency. The Securities and Exchange Act provides that a person “aggrieved by a final order of the Commission” may “obtain review of the order in the United States Court of Appeals” for the appropriate circuit. According to the government, this provision is implicitly exclusive: a person cannot obtain review of an SEC enforcement action unless it is a “final order” and unless they raise their challenge in the appropriate court of appeals.

For Ms. Cochran, this would make no sense. The agency’s position would require her to endure the very process she believes to be unconstitutional before she could go to court and argue that it is unconstitutional.

The district court agreed with the agency, as did the Court of Appeals for the Fifth Circuit. However, the Fifth Circuit granted a rehearing en banc and reversed in relevant part. Thus, according to the Fifth Circuit, Ms. Cochran could have her day in court. The government sought and was granted a writ of certiorari from the Supreme Court.

At issue before the Supreme Court is the question of whether a citizen must endure an unconstitutional agency enforcement process before they can challenge the process itself. The answer to this question depends in large part on whether the Securities and Exchange Act implicitly strips federal courts of jurisdiction.

Lurking behind this question are serious issues of separation of powers. As Justice Thomas has emphasized, “[t]he Constitution does not vest the Federal Government with an undifferentiated ‘governmental power.’” Instead, there are legislative, executive, and judicial powers, that, with some limited exceptions, are generally vested exclusively in the legislative, executive, and judicial, branches, respectively.

Historically, the adjudication of private rights has required the exercise of judicial power, while the adjudication of so-called public rights—things that were typically within the discretion of the executive or the legislature, such as the disposition of property rights held by the government or access to the commons—was viewed as outside of the judicial power.

Resolving Cochran’s constitutional claims involves the adjudication of private rights. Thus, resolving such claims requires the exercise of judicial power, which the Constitution reserves to Article III courts. Forcing respondents to first raise these claims before an administrative tribunal either raises serious separate of powers concerns (because an executive branch agency would be exercising judicial power) or requires respondents to spend years raising inherently futile claims before an administrative tribunal that has no authority to resolve them.

A better approach would be to limit claims of implied preclusion to public rights cases that administrative agencies might actually have the authority to resolve. If Congress wishes to give an agency judicial power or force respondents to endure years of futile proceedings, the Court should require it to make its intent clear.

But Ms. Cochran’s claims should not be precluded even under the Court’s existing framework for implied preclusion. Traditionally, the Court has looked to three factors derived from Thunder Basin Coal Company v. Reich to assess claims of implied preclusion: (1) Whether a claim is outside the agency’s expertise; (2) whether a claim is wholly collateral to the underlying enforcement proceeding; and (3) whether forcing respondents to endure an enforcement process first deprives respondents of meaningful judicial review.

In Free Enterprise Fund v. Public Company Accounting Oversight Board, the Court noted that “constitutional claims are . . . outside the Commission’s competence and experience.” Moreover, although some courts of appeals have found to the contrary, a constitutional challenge to the agency’s structure is “wholly collateral” to the underlying enforcement claim: whether or not removal restrictions on SEC ALJs violate Article II of the Constitution has no direct bearing on whether or not Ms. Cochran’s underlying conduct violated the Securities and Exchange Act.

Much of the debate surrounding the application of the Thunder Basin factors concerns what is “meaningful” judicial review. We live in a time where administrative agencies “wield[] vast power and touch[] almost every aspect of daily life,” forming “a veritable fourth branch of the Government.”

For some courts, “the expense and annoyance of litigation is part of the burden of living under government.” Accordingly, judicial review is “meaningful” as long as it does not require a potential litigant to “incur penalties for noncompliance or challenge a rule at random” to access judicial review. In their view, since cases like Ms. Cochran’s apply to prior conduct and since Ms. Cochran can eventually access an Article III court, there is meaningful judicial review.

Others believe that this view of what is “meaningful” is far too accommodating to agencies. With many administrative enforcement proceedings, the process is the punishment. After being acquitted of criminal allegations, former Labor Secretary Raymond Donovan famously asked “Which office do I go to to get my reputation back?” Prolonged administrative enforcement actions take a heavy toll on respondents’ reputations, even if they ultimately win. Moreover, SEC enforcement proceedings are generally less favorable for respondents than Article III proceedings, can easily result in six- or seven-figure legal bills, and have astonishingly high success rates for the government—according to some estimates, the agency prevails before ALJs 90% of the time. As a result, it is little wonder that the overwhelming majority—by some estimates, 98%—of SEC cases settle.

A better approach is to give the word “meaningful” some, well, meaning, and allow respondents to raise collateral constitutional challenges without having to first endure years of reputational harm and significant expense pursuing adjudications in a futile administrative process.

The Court will consider the claims in Securities and Exchange Commission v. Cochran alongside similar claims in Axon v. Federal Trade Commission. Oral argument is set for November 7, 2022.


Gary M. Lawkowski is counsel of record for an amicus brief filed in SEC v. Cochran by Citizens United and Citizens United Foundation. Many of the arguments discussed above are derived from the amicus brief.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].