Courthouse Steps Oral Argument: SEC v. Cochran

Event Video

Listen & Download

On November 7, 2022, the U.S. Supreme Court will hear oral argument in Michelle Cochran v. U.S. Securities and Exchange Commission. In April 2016, the Securities and Exchange Commission (SEC) brought an enforcement action against Michelle Cochran, a certified public accountant, alleging that she had failed to comply with federal auditing standards. A SEC administrative law judge (ALJ) determined Cochran had violated federal law, fined her $22,500, and banned her from practicing before the SEC for five years. The SEC adopted the ALJ’s decision, and Cochran objected.


Before the SEC could rule on Cochran’s objection, the Supreme Court decided Lucia v. SEC, in which it held that SEC ALJs are officers of the United States under the Appointments Clause, who must be appointed by the President, a court of law, or a department head. In response to the Lucia ruling, the SEC remanded all pending administrative cases for new proceedings before constitutionally appointed ALJs, including Cochran’s.


Cochran filed a federal lawsuit arguing that while Lucia may have addressed one constitutional issue with ALJs, it left uncorrected another problem: because SEC ALJs enjoy multiple layers of "for-cause" removal protection, they are unconstitutionally insulated from the President's Article II removal power. The district court dismissed her case for lack of subject-matter jurisdiction based on five circuit courts of appeal ruling that the Exchange Act implicitly stripped district courts of the jurisdiction to hear challenges to ongoing SEC enforcement proceedings. Arguing that in 2010, the Supreme Court had unanimously ruled in Free Enterprise Fund that nothing in the Exchange Act stripped federal court jurisdiction either explicitly, or implicitly, Cochran appealed to the U.S. Court of Appeals for the Fifth Circuit. A three judge panel affirmed the dismissal 2-1, but later, the Fifth Circuit sitting en banc, reversed 9-7, holding that Cochran had district court jurisdiction to bring her challenge to the SEC ALJ’s removal protections.


The case is set to be argued on Nov 7, 2022. We will break down the oral argument for this case on the next day, November 8, 2022.



  • Margaret A. Little, Senior Litigation Counsel, New Civil Liberties Alliance


As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Event Transcript



Chayila Kleist:  Hello, and welcome to The Federalist Society's webinar call. Today, November 8th, 2022, we host a post oral argument courthouse steps in Michelle Cochran versus the US Securities and Exchange Commission which was argued just yesterday before the Court. My name is Chayila Kleist, and I'm Assistant Director of Practice Groups here at The Federalist Society. As always, please note that all expressions of opinion are those of the expert on today's call as The Federalist Society takes no position on any particular legal or public policy issues. In the interest of time, I'll keep my introduction of our speaker brief, but if you'd like to know more, you can access her full bio at


Today, we are fortunate to have with us Miss Margaret A. Little. Miss Little is the senior counsel at the New Civil Liberties Alliance with over three decades of experience as a trial and independent litigator representing both individuals and high-profile litigants in state and federal courts, including before the United States Supreme Court. She regularly speaks, blogs, and publishes on the topic of the constitutionality of various exercises of governmental power. Her work has been published by law reviews, legal publications, the Wall Street Journal, Law and Liberty, and The Manhattan Institute. Lastly, and perhaps most pertinent to this event, she has been tracking yesterday's hearings on Cochran, and now joins us to give her breakdown and perspective on how those went and what we can perhaps expect as this case moves forward.


One last thing. Throughout the panel, if you have any questions, please submit them through the question-and-answer feature so that our speaker will have access to them when we get to that portion of today's webinar. With that, thank you for being with us today. Miss Little, the floor is yours.


Margaret A. Little:  Thank you, Chayila. I'm very happy to join you. Let me add that NCLA, the New Civil Liberties Alliance, where I'm senior litigation counsel has represented Michelle Cochran since 2018. We also represented Ray Lucia after his Supreme Court win on the SEC appointments of ALJs in the Ninth Circuit and we represent a gentleman called Christopher Gibson in the Eleventh Circuit. So we have a lot of background and experience with these issues on removal. And I'm happy to report that I think we had a good day in court at the Supreme Court yesterday.


The issue, for those of you who haven't been following these cases, is quite simple. It's whether the Securities and Exchange Act of 1934 strips federal district courts of jurisdiction to adjudicate structural constitutional claims challenging the SEC administrative proceedings and the ALJ's removal protections. What was striking at the argument was there was an implicit assumption by all nine justices that dual tenure protection is unconstitutional. The actual issue there did not get much discussion and seemed to be conceded, although the justices were not considering the merits. They were considering whether there was jurisdiction to address the merits or the claim.

Justice Gorsuch landed some powerful points. He said early on in the argument that the case for federal jurisdiction seemed clear and indisputable. And then he asked, "What am I missing here?" This was when he was in the Axon argument which is a related case. And he pointed out the statutes require either a final order or, in the case the FTC, a rule, an order, a license, or sanction, or relief. And none of those were present in any of these cases. So we got off to a good start in the argument.


And the discussion in SEC v. Cochran as well as FTC v. the Axon case falls into really three large categories. First, does the statutory system strip federal courts of jurisdiction? And neither statute, neither the FTC statute nor the SEC statute, contains any language whatsoever that strips jurisdiction. In addition, Michelle Cochran was in a particularly good posture because the statute that she was being prosecuted under which is the 1934 act's provision for administrative proceedings not only has no provision that strips jurisdiction, but it has a provision that makes it quite clear that nothing in the '34 act takes away any existing jurisdiction in other courts. So she had a very strong case, but the FTC also had a very strong case, and it appears that many of the justices agreed.


Free Enterprise Fund decided the case in 2010, and in that case, all nine justices agreed that federal court jurisdiction could be found to consider removal questions. And that was unanimous. And then a less than unanimous holding of Free Enterprise Fund is that you cannot have more than one layer of tenure protections under the same provision. So we had a strong case going and certainly the Axon Company did as well. And the judges seemed to agree with this. I'm quoting from portions of the argument. Justice Roberts said, "Doesn't Free Enterprise stand as a pretty insurmountable barrier to your argument?" he said, addressing Malcolm Stewart who argued for the government. And Justice Kagan expressed the same opinion that it appeared the issue has already been decided by Free Enterprise Fund or at least a strong case can be made for that.


There's a second body of law that gets considered in these cases and that is a case called Thunder Basin and Elgin. For those of you who have toiled in these fields, you know that Thunder Basin is a pretty powerful obstacle to getting matters out of administrative proceedings and into district court. Now, we had argued on behalf of Michelle Cochran that Thunder Basin was atextual and it should be a matter of plain statutory construction under the '34 act that you can go into district court just as the Supreme Court had held in 2010 in the free Enterprise case. Paul Clement, arguing for Axon, took a slightly different tact. He said, "Because Thunder Basin is there and because we satisfy all three conditions for finding district court jurisdiction under Thunder Basin, they would win on that point." It's kind of a nice conjunction in that we argued statutory construction as our strongest argument. We agreed with Mr. Clement that Michelle Cochran could also satisfy the three aspects of Thunder Basin, and so it was a situation where you had parties in very similar positions arguing that you could win either way.


Thunder Basin has three elements that you have to satisfy. If you want to get into district court, you have to show that in the administrative scheme with the administrative law judges, that the issue you want to have cited, in this case the removal protection constitutionality, is wholly collateral to the specific issues in the case. Secondly, you have to show that it is not something the agency expertise or competence could add to. And the third is whether the statutory scheme deprives someone of meaningful judicial review.


As I say, Paul Clement, arguing for Axon, made a very powerful case that all three elements were satisfied. One new development at the argument was -- I think it was Justice Alito who said, "Well, do you have to satisfy all three aspects of Thunder Basin or is two or one sufficient?" Something to which no one really had an answer. And that explains a great deal of why Justice Kavanaugh said that he had found that Thunder Basin in fact was giving the lower courts lots of trouble. It would be nice to see Thunder Basin questioned. Indeed, one of the amicus who filed in support of Michelle Cochran made the case for why the Court should just abandon the Thunder Basin analysis because it was not helpful.


We argued on behalf of Michelle Cochran, and this was Greg Garre who presented the argument, that the Thunder Basin case and Elgin really don't have anything to say about this kind of question because in both cases, the parties who were challenging the administrative proceeding were not challenging the ability of an administrative law judge to rule in their case because of improper removal protections. They, in the case of Elgin, they just wanted to bring a constitutional claim also in federal court and that exhausts the administrative process. And in Thunder Basin it had to do with a line posting rule, and again, because that statute had provided for administrative proceedings for such posting requirements that you would have to stay in the administrative proceeding before you could proceed to review in the circuit courts. Again, just to repeat the point, the arguments we made is neither one of those cases tell you anything about what happens when you are challenging the removal protections of the adjudicator who should not be sitting on your case at all.


In addition to Justice Kavanaugh saying that he had concerns with Thunder Basin that it had not been helpful, we think that between Michelle Cochran's arguments and those made on behalf of Axon that the parties were able to establish that not only did the issue to be presented not fall within the agency's expertise, it didn't even fall into their competence. And furthermore, the issue is wholly collateral. Doesn't matter what is at issue in the case, it matters, are you making a challenge to the structure of the agency itself, which is what we were doing. And finally, the idea that meaningful judicial review could occur after you've already suffered the constitutional harm, the here and now constitutional harm of going through an administrative proceeding before a judge who does not have the power to rule in the case at all, is not meaningful judicial review.


So that moves us -- we have the statutory argument which I tried to set forth, the case law argument, and then what I actually think is the most powerful of all the arguments which is just shear logic. Here's what Justice Alito had to say on the logic. "What sense does it make for a claim that goes to the very structure of the agency having to go through the administrative process?" And he added in questioning the government lawyer, "Isn't it in your interest to get this decided soon? This hangs over all of your proceedings." So he was making both an efficiency argument but also this is an issue ripe for decision by the Supreme Court. So we were very glad to hear those observations.


Justice Roberts put it in a somewhat different way. This is a series of cases that are in a constellation around some fairly basic propositions. And to have people have to go over and over and over again does make the case about direct resolution of these claims pretty strong. Michelle Cochran in particular had a very strong case because she had had an adjudication already in 2016 and 2017 and then before her decision could become final, the Lucia case was decided which meant her ALJ had not been properly appointed. So the SEC ordered her into a repeated proceeding. When they did so, Michelle came to NCLA, and we filed a suit in district court saying she's already been through one of these proceedings. The SEC ALJs already have unconstitutional removal protections and she should not have to go through these serial two repeated hearings.


The Court seemed sympathetic to that. Justice Thomas had a great way of looking at this. He asked the government lawyer, "What would it look like to have an ALJ decide these things?" Because the somewhat irrational view of the government about who should decide this and when is, if you have to bring your case that the ALJ has on constitutional removal protections, what's the ALJ supposed to say? I'm sitting unconstitutionally? They're unlikely to do that. They have an implicit bias that they shouldn't rule in that way. And so I think the justices got the illogic of that.


Justice Thomas also asked, how many years has this been going on? And that's the important question here because one of the things that we were able to establish and that in fact were, we had amicus support on, is how these cases. These administrative proceedings can drag on. Michelle Cochran has been in administrative proceedings for six years. Ray Lucia was eight years. Christopher Gibson -- seven years. George Jarkesy -- seven years. A guy out in the Tenth Circuit, David Vandermeer ten years. And I think the justices seemed concerned that Americans were being tied up in these endless reputation ruining resource draining proceedings that go on far longer than an average federal court proceeding.


The government did an odd thing too -- the government lawyer. When he was asked about many of these concepts, he dragged out an APA claim that said "Well, sort of by implicit reasoning that you should have to go through the APA proceeding first." Now, that issue was never argued by the SEC below in the Cochran case. It was in the Axon case. But he just did not make a compelling case for that. In fact, if I can find the language here, Justice Gorsuch said, "I just want to make sure I understand. 28 US Code 1331 which is the provision of the US Code that grants jurisdiction to district courts to hear constitutional claims -- and we have jurisdiction under that -- the FTC Act grants jurisdiction to courts of appeals for cease-and-desist orders. The SEC grants jurisdiction to courts of appeals for final orders. There is no withdrawing of jurisdiction anywhere in those statutes, and now you're asking us to turn to the APA to discern that; is that correct?" So that was a fun exchange.


There was some argument on the other side. I think Justice Sotomayor and Justice Jackson did the bulk of the questioning on that and both were concerned with the idea that people who are in these administrative proceedings shouldn't be able to escape out from under the proceedings by bringing just any old constitutional claim in the federal courts. The questioning didn't seem to be getting a lot of satisfactory answers on that. One of the things Paul Clement argued effectively was, "Well, it's true that these removal protections should be heard in federal district court, but say an agency decided that, in their administrative proceedings, you would not be able to call witnesses to testify on your own behalf." And his remark to the court is, "Wouldn't you want district courts to have jurisdiction of a claim like that?" And there didn't seem to be much push back on that as well.


So we feel, as I say, that the justices did a good job of stripping down the issues to their essences and whether it's a matter of statutory interpretation of the FTC Act or the SEC Act or whether it's how you apply the factors in Thunder Basin or whether you hold these cases to the rules set forth in Free Enterprise Fund which is the rule of decision both on jurisdiction which was unanimous and also the merits which says you cannot have more than one layer of tenure protection. Another good argument made by Paul Clement was on the Collins severance issue is that what you really can't have is courts or agencies saying, "Well, okay. They're more than one layer so let's strip the tenure protections under Title Five section 7521 which is the merit system's protection board tenure protection because that's under an entirely different title." It's not something that some of the titles have changed for the securities law or the FTC Act and to have either an agency or a court reach out and try to sever a provision of Title Five is pretty clearly beyond the purview of any adjudicator.


One difference that is important to these cases is that, in the Lucia case, that was an appointments defect and in fact, that was something that the SEC could cure. So after the Lucia decision was handed down, it appointed the commission made formal appointments of its ALJs, or so they tell us, and then assigned all of the cases for retrial. Here, we have multiple layers of tenure protection whether it be the merit system's protection board or the ALJ's protection under their assignment to whatever agency they're in or the commissioner's own tenure protections. You just have way too many layers of tenure protection here.


So those are some of the highlights of the argument. I don't think Mr. Stewart had a great day in court. I think there were a lot of questions about the cases that he did not have good responses to whether it be on the statutory interpretation, whether it be how you apply Thunder Basin, or whether it be the logical argument that it's just simply irrational to force people to go through administrative proceedings and then go to circuit court to challenge them only to find that the whole procedure they had gone through is unconstitutional.


One of the helpful things, although it did not come up much at argument, is that we have a poster child for what the world looks like when you have to do that. That's George Jerks, and most people attending this event will be familiar with that case. But for those who aren't, Mr. Jarkesy first tried to get into district court in 2015 and he was denied that relief even though he had some constitutional claims, due process claims. So he had to go through the entire administrative process which took seven years. He took his case to the Fifth Circuit Court of Appeals and in a decision that has caught the attention of most people, the Fifth Circuit ruled, his panel ruled two to one, that he had been denied his jury trial rights, Seventh Amendment jury trial rights by the seventh proceeding. He had also been adjudged by someone who had too many tenure protections and also that the decision whether to charge him in administrative proceedings or in federal courts violated the nondelegation clause.


So we have a strong example of what the world looks like if someone is forced to go through this and what comes out of that understanding is that he's gone through seven years of a very draining process that now has to be set aside all together. I think the Court is -- at least several members of the Court including Justice Alito, the chief justice, Justice Kavanaugh, and Justice Thomas all seem to understand that we can't let these cases just fester and sit around without getting the issue of whether the ALJ proceedings are constitutional. And we should not put people through those proceedings that are very extended and very biased. The rules of civil procedure do not apply. The rules of evidence do not apply. Very often, the presumptions of innocence are reversed and the ALJs put the burden on the respondent to show why the SEC does not have a claim against them. And then the review is, in these statutes, is you get your ALJ opinion, then it gets reviewed by the commission which is the very organization that voted to charge you in the first place.


So I think this is a case that has the potential to make serious inroads as to whether there should be administrative adjudication at all. And I don't have too much more to say. I think I have one question. As the justices said, this is actually a pretty simple case. And I'll share one moment of jocularity. Justice Gorsuch said, "Well, isn't this simplistic?" And Paul Clement said, "No. I think straightforward is a better word, Your Honor." And then they decided to agree that perhaps textual was the best word to use for that. So let me go to the Q&A here. Chayila, do you want to ask me some questions?


Chayila Kleist:  Absolutely. So our first question comes from Paul Avelar. He's asked, "Given the logic questions in the recent Carr v. Saul decision, are there any chances we see something more forceful against administrative exhaustion when constitutional rights are at issue?"


Margaret A. Little:  Based on what I heard yesterday, the answer to that is, yes. I think the justices are waking up to the fact that -- and this is, by the way, a holding from Free Enterprise Fund that agencies lack competence to decide constitutional questions -- a proposition that seems to me it should have been obvious to the lower courts that had been ruling otherwise but weren't. When this argument was made there were seven circuits that said you had to go through the administrative exhaustion and only one circuit court decision -- that's in Cochran -- had ruled otherwise.


Chayila Kleist:  Okay. Our next question comes from Carl Schneider. "Are you aware of any legislative efforts to deal with the timeliness of a challenge to the ALJ? Was failed legislation discussed?"


Margaret A. Little:  No. There was no discussion of failed legislation. The only legislative effort I'm somewhat familiar with is, several years ago there was some proposed legislation that essentially said, "Well, now the SEC has the option of charging you in district court or in administrative proceedings," and the legislation would have given the respondent in the administrative proceeding the right to essentially remove the case to federal court so that they would have the same option as to where their case would be heard. That legislation did not pass.


Chayila Kleist:  James Cusack asks regarding Justice Thomas's question, "Isn't the point not just that an ALJ is unlikely to hold given human nature that he lacks constitutional authority, but that arguably such a holding would itself lack authority?" Based on the fact that if an ALJ lacks authority, then they don't have the authority to hold they lack authority. If that circle makes sense.


Margaret A. Little:  You said it. I mean, that is the strange logic. And interestingly enough, in the FTC case and also case I'm aware of in the DEA, a few administrative law judges admitted, "Hey, this goes to my own capacity to sit. I can't decide this question." A holding that I'm sure aggravated the people they report to, but they're right. Even setting aside the competence issue to decide a constitutional question, there's a bias and self-interest that's plain as the nose on your face that a judge can't be the judge in his own case.


Chayila Kleist:  I have a question as we have more coming in through the question-and-answer feature.


Margaret A. Little:  Okay.


Chayila Kleist:  What are the -- you just discussed this a little bit, but what are the implications of this case, if the Court finds in Miss Cochran's favor, what will change regarding lower court's and ALJ's jurisdiction, and are there any cases pending or precedents of which you're aware that would be affected or possibly overturned?


Margaret A. Little:  Well, I think the Jarkesy case is the next case out there that is going to get a lot of attention. And again, to remind you of what happened in Jarkesy is that the Fifth Circuit Court of Appeals panel held two to one that Mr. Jarkesy had been denied his jury trial rights, also that his ALJ had too many removal protections, and finally the nondelegation issue. The most recent activity in that case is that the Fifth Circuit declined to review that en banc, so the next thing up is whether the SEC will petition for certification on that. And I don't have a crystal ball, but it would seem likely that the SEC would not be happy leaving that decision unappealed.


Chayila Kleist:  Okay. Question from Tom Palmer. He notes he's not a lawyer but asks, "What would the world look like without an administrative state or is that -- no one's arguing for that in this case? Would these judgements default to law enforcement?"


Margaret A. Little:  Okay. Well, first of all, we're not arguing, certainly, on behalf of Michelle Cochran, nor is anyone else in the Axon case arguing that there shouldn't be an administrative state. Administrative agencies have been around for a long time. There are things they can lawfully do. But it is certainly NCLA's position that adjudication is not one of those things and that's because it’s the government bringing a case against you that might deprive you of your reputation, your livelihood, your assets, and that should be brought in a separate branch of government where -- the adjudicating branch of government and be decided in federal court.


The flood -- we call this the flood gates argument -- that did come up at argument -- not a lot but there was some concern from Justices Jackson and Sotomayor about "Well, how do we discern what is a good constitutional claim that really should go to court from one that's just strategic on the part of the respondent to try to get out from under the administrative proceeding?" And it was discussed at argument that in fact, one way the courts can do this -- I believe it was Justice Kavanaugh -- is that they can apply the standards for preliminary injunctions which is what you would want in such a case and if you can make a case on likelihood of success on the merits and irreparable harm etc. then that kind of thing which is what courts do every day -- it would be a very effective mechanism to weed out meritorious constitutional claims from those that are just strategic and designed to avoid or do an end run around the administrative process.


Chayila Kleist:  Next question comes from Greg Childers. "Do you think the federal courts want to perform more agency adjudication?"


Margaret A. Little:  Depends on the judge for sure. I will say this. I think one of the problems has been -- and I used the term deference here not in the Chevron sense but just in a general attitude of deference is that, for decades now, courts are very used to deferring to administrative agencies whether it be Chevron or Stinson or our deference. I think we've counted up to something like 16 different names for deference to courts, but also that courts are very used to, if there's some sort of administrative process that will resolve a case without a court having to get to it, I think there's a natural tendency for courts to want to defer to that process and require administrative exhaustion.


But I think many judges are -- including several appellate judges in the Fifth Circuit and even Michelle Cochran's trial court judge held that he was deeply concerned with the fact that she has already been put through one very long extended proceeding and was probably poised to go through a second one that would be set aside and that these rounds of repeated adjudications really can't be tolerated. So I think both through the mechanisms and the way these cases have come to the Court's attention and a lot of scholarship including that of Philip Hamburger which gets quoted in the Cochran decision and quoted in several other decisions in this field. There's a newfound concern with what people are doing.


Finally, I would say that people assume that this whole world of administrative adjudication might collapse under these decisions and that's really -- shouldn't be a matter of concern. There's five SEC ALJs. The FTC has one. I think the CFTC, if I remember, had one or two. And most administrative law judges are social security judges and that's a completely different situation because what a social security person is doing is they're going to government asking for a benefit and the judge is making a very simple decision, "Do you qualify for this benefit?" But in these enforcement actions, the SEC or the FTC is bringing the power of the government to bear upon you in the way that is only done in federal courts in civil or criminal trials. And these penalties can be life destroying, reputation destroying. They carry huge monster fines sometimes.


I believe a study that has been cited by the chamber of commerce showed that the average cost of defending an SEC claim is well over a million dollars, and most people just don't have those resources. And so all that would need to be done, if the courts decide as I hope they will decide, is that, if you have a jury trial right or a right to be tried by a judge who is not so insulated from removal, that you should just go to the federal district courts. We're talking about appointing maybe a hundred or slightly more new district judges if the workload is the consideration, and that's not a high price to pay at all for protecting people's constitutional rights. I think there would be -- I mean, people are dying to become federal judges and that would then ensure that people are tried in the courts which have jurisdiction to hear them, in which they have the constitutional protections of the government carrying the burden of proof, the federal rules of evidence and civil procedure, jury trial rights, and all of the really essential safeguards for keeping adjudication in separate branch of government.


Chayila Kleist:  Thank you. And I think that answer ties into the next two questions. The first of which comes from Eileen O'Connor who says, "Thank you for providing the context and background for the Cochran and Jarkesy cases. Regarding those people, have they been able to earn a living while these cases have been proceeding through the courts?"


Margaret A. Little:  Well, we just did an event at NCLA and it's a podcast. So here's what I can tell you. Michelle Cochran, when she was served with the SEC claim, was in a job she loved. And when she was charged by the SEC, she went to the appropriate person and said, "These are the charges. I know I can defend against them." And because she was a CPA working for a firm that did SEC type work, she was fired for just being charged. And Ray Lucia, who also was represented by NCLA, can't get a job as a schoolteacher because they'll do a background check and find a charge by the SEC. And George Jarkesy, I believe he's worked, but he can't get financing because no bank will lend him money, and he's very restricted in what he's able to do. And there's not one of these people that does not have a story that this is life altering.


Chayila Kleist:  Our next question comes from James McNamee. He asks whether there's a movement to limit administrative judges to a maximum of one year to decide and then, if that doesn’t work, allow the defendant to go to district court.


Margaret A. Little:  Well, that movement would need to include some sort of penalty if the commission does not decide in a timely manner because one of the points we make and in fact, was in the Cochran case, was at the SEC, there are rules. They have to rule within a certain time. I believe it's something like 360 some days under their own rules. And they just grant themselves extensions. There are something like a couple thousand cases I think, maybe somewhat less than that, of cases where there have been serial extensions by the commission of its own time to rule. So if you wanted to have such a system, you better figure out a way to make the SEC or the FTC comply with their own deadlines because they don't. And that's one of the terrible asymmetries of this system is that the rules get extended for the SEC whereas the lord help the respondent who misses a deadline. They are held to them. The SEC and the agencies are not.


I would add one more thing. I don't know that I would like a rule where there was a one-year time to decision or otherwise you go to court because that exposes you to two separate hearings. And one of the things that was really clearly thought through and expressed in the en banc decision at this circuit court of appeals below was the idea that somehow it was more efficient or fast to go through agency proceedings is a fiction. In fact, it just prolongs everything, and you have to go through years and years of proceedings.


We had a really good amicus written by Citizen's United in this case and they make this important argument that -- it's a little complex but it's worth understanding. The agency has years to investigate you and they do for years, and they can gather tons of documents, tons of evidence. Then they charge you. You've got sometimes as little as 60, 90, maybe 120 days to respond and be ready to defend yourself. When it's a large case, they just do this document dump and it's impossible for you to prepare an effective defense. So you have your hearing, again, in this hearing, you're very limited in your ability to call witnesses, there are sometimes no depositions that are permitted. So preparing to defend on a case is very hamstrung, constrained. And then the ALJ hears your case and then he can sit on that for years before deciding.


So all of the timing decisions in how this proceeds works against the respondent and in favor of the commission. It would be kind of like a federal district court that said "Well, okay. You, the defendant, have some very strict short deadlines and you better comply and you, the government, file for an extension, you get it." And no one would tolerate that in federal district court. And the fact that that goes on in the administrative proceedings is a disgrace.


Chayila Kleist:  Our next question comes from John Sheller. He asks, "How would this ruling affect various employment agencies such as NLRB, DULL, EEOC, etc.?" And I'll add, if you could answer that for both sides either way it's ruled.


Margaret A. Little:  Okay. Well, let's say the Court decides that you have to go under exhaustion. You can't go to federal court. I think that's pretty much the status quo. So that whatever goes on in those agencies wouldn't change. I do want to say that these proceedings are very agency specific. For example, as I explained earlier, the SEC had a jurisdiction preserving statute. The FTC didn't, but neither one of them had a jurisdiction stripping statute. And the agencies have individualized rules about how long you have to respond to a complaint or how long the administrative proceeding goes on. Whether there are -- I guess I would call them junior varsity versions of discovery rights or depositions that you can take a few but not very many. All of those differ from one agency to the next. And so I can't tell you exactly how that would operate.


Now, let's say that Axon and Cochran win here. I think that's a huge problem and the reason why is the tenure protections are all statutory. Unlike in the Lucia case, where you had an appointments problem that could be fixed by the agency, here you have a removal problem that cannot be fixed. One of the things we were very happy to hear yesterday is -- the issue came up because in the Collins case there was a finding that the removal of protections were improper, but the decision essentially said, "Well, no harm, no foul." Harmless error, or you got to show how your decision would've differed had they not had those removal protections. And the Court seemed very receptive to the important argument. Well, if that's going to be how it turns out when you find out you have an unconstitutional judge, you darn well better figure that out early before the proceeding takes place, so you don't have to do this backward look at a proceeding that was flawed from the beginning and decide whether the defect actually harmed you.


Chayila Kleist:  Our next question comes from Dylan Burk. He notes the dissent in Jarkesy argued that Congress actually did provide guidance that fraud cases can be decided in either of two ways and in article three court or administrative proceedings. And therefore, there were no nondelegation problems. And he asks, "What is the correct way to interpret the intelligible principal standard?"


Margaret A. Little:  Well, I have written before that the intelligible principal standard is neither intelligent nor principled. So that's my view. But I think that's a problem in these cases because usually the intelligible principle -- it can be as vague as to regulate in the public interest which is one of the case citations from the Supreme Court that a standard that vague is sufficient to get agency power. So again, it would depend on what the intelligible principle is in the specific agency on the nondelegation claims.


I will say this candidly, I think that the nondelegation claim in Jarkesy is going to be the hardest one for them to prevail on. But that's not that it's so much a bad claim, it's just that nobody has won a nondelegation case since, I think, 70 years or something like that. And in Gundy, which was the Supreme Court's last serious nondelegation case, there seemed to be a receptiveness on the part of the Court to hear nondelegation claims. Justice Alito was certainly not ready to hear that in that particular case which involved an unfortunately pretty sordid sex offender registry defendant. But I do think the courts are willing to start taking harder looks at the nondelegation cases and that the people who want to preserve such themes probably need to have a pretty strong argument of why there's an intelligible principle to guide the agency action on that.


Chayila Kleist:  Okay. Our next question comes from Dennis Chapman. He asks, "Has there been any consideration of pulling the ALJs out of agencies and setting up a separate court for administrative matters along the lines of a court of claims or bankruptcy courts?"


Margaret A. Little:  I'm a practitioner not an academic. I believe there's some academic literature on that and that certainly would be one way to set things up. And it is true that Congress does have the right to determine jurisdiction of the federal court. So if Congress decided that some kind of system like that would work, it could try it. I will say this. A very important study -- this is a government study -- a GAO study of the patent judges showed that patent judges admitted to a very high percentage rate of feeling pressured to change their decisions to conform with the administrative people overseeing them. And that's a troubling report. It comes from the government itself. And so I think setting up separate courts as the patent courts are set up doesn't really solve the problem and could in fact make it worse.


Chayila Kleist:  Well, our next question comes from Jared Cox who asks if there's a statute of limitations barring enforcement of civil penalty orders five years after the alleged violation.


Margaret A. Little:  Yeah. The statute of limitations question is really interesting. Normally, it's a five year one. That's sort of the default statute. Although, I think there are statutes of limitations that are shorter if the statute provides for one. And the problem is that when these people get charged in the unconstitutional proceedings, the general rule of thumb is even if it's set aside or vacated, you can't just escape the charges because the decision got reversed. And that's the general rule in courts as well. If you get charged criminally or civilly in federal courts and then there's an appeal and then that decision gets reversed, unless it's utterly decisive of the case, very often you have to go back and be retried.


So I think there's a body of law that provides that statutes of limitations -- as long as the original action was brought within the time, that you really can't make a successful argument that on remand your case, should be dismissed because it got restarted too late. That's too bad because what happens, and this is what I call the big lie, and it was some testimony by Andrew Ceresny who was then the SEC Enforcement Director. He testified that "Well, yes. You don't have the same procedural and legal protections in administrative proceedings, but they go faster. And getting those cases decided more quickly is important because the witness's memories fade, the documents are -- that you once thought you could get are unavailable."


Well, I represent Michelle Cochran, and I can tell you that she has virtually no hope that the documents she could use to defend herself even exist anymore. The events that she's been charged with go back to 2010 through 2013. Key witnesses are likely unavailable.  And so this idea that they can reverse your case in her case twice and go back and have a brand new totally fair trial whether it be, in her case it would have to be in federal district court or before the commission. Her ability to defend herself has been seriously compromised by the passage of time. And so the idea that these administrative proceedings are swifter is an illusion.


I might also add that the idea that the judges are experts is also an illusion. One of the things that I put into the amicus brief in the Lucia case back in 2018 -- I did some research on the backgrounds of all the SEC ALJs. Not one of them had any background in securities law whatsoever. Most of them came from the social security division, and I believe one came from the FCC and was a communications -- had a communications background. That's pretty frightening, number one, that they are not familiar with the area of the law but it's also -- it just the language we put in our amicus brief was "The expertise emperor has no clothes." So many arguments were made in the early days of the administrative state that we were turning our government over to experts. That's not the case. These ALJs do not have a background in securities law, and I will say a review of their decisions suggests that that impairs their ability to fairly rule in these cases.


Chayila Kleist:  Okay. Well, barring any last-minute questions that come in, I have a last question for you. Do you have a read, even a general or unsolidified one, on how this case may be ruled? I know you have a hope for how it may be ruled, but do you have [indiscernible 53:01] for how it may be and what the breakout of the Court might be?


Margaret A. Little:  Yeah. I'm not a professional court watcher. There are wonderful ones out there and they read every decision, and they could predict usually with great accuracy how the case goes. Let me just say this, the hostile questioning came from Justice Jackson and Justice Sotomayor who seem more inclined to be concerned about agencies being able to retain what has been through jurisdiction over these things. Justice Kagan is also a potential vote against Cochran and Axon, but I will say, from her questioning, and she's also knowledgeable about administrative law, she seemed to at least ask questions that were consistent with thinking the Free Enterprise Fund decided this case and that the other comment she made, which was a lot of fun, on Thunder Basin the government's brief -- and again, I briefed this in California, Texas, in the Eleventh Circuit on an initial petition to the Supreme Court and then all the way through the Fifth Circuit Court of Appeals through en banc, and the government was always arguing Thunder Basin is going to win this case.


Well, in their brief in this case, it does not even show up until page 51. So Justice Kagan says at argument, "I was surprised to see that Thunder Basin doesn't even show up in your brief until page 51." And then she says to Mr. Stewart, "Are you afraid of losing on Thunder Basin?" So that was a surprising question. It certainly elicited some quiet amusement in the Court, and I would say that based upon her questioning, I don't see Justice Kagan as a dissent -- as a sure dissent, let me just put it that way. So let me say, we're hoping for 6-3 but 7-2 is not out of reach if the questioning and oral argument is any indication.


Chayila Kleist:  Okay. Well, thank you. I'm going to wrap us here. I know it's a couple minutes early, but I will give you back three and a half minutes of your time. On behalf of The Federalist Society, I want to thank you, Miss Little, for the benefit of your time and our audience for joining and participating. We welcome listener feedback at [email protected]. And as always, please keep an eye on our website and your emails for announcements about upcoming virtual events. With that, thank you all for joining us today. We're adjourned.