The Fifth Circuit's opinion creates a circuit split that raises the possibility of a Supreme Court review.
On December 13, 2021, the Fifth Circuit issued an en banc opinion in Cochran v. U.S. Securities & Exchange Commission et al., finding that the Securities Exchange Act of 1934 does not strip federal district courts of subject matter jurisdiction over a claim that an SEC Administrative Law Judge was "unconstitutionally insulated" from the President's Article II removal power. In so holding—and as noted by the dissenting opinion, which was joined by six judges—the court reached a conclusion that is contrary to the six other courts of appeal that had considered the issue.
The Fifth Circuit began its analysis with the premise that "Congress gave federal district courts jurisdiction over 'all civil actions arising under the Constitution.' ... Not some or most—but all." And, while Congress had the power to limit district court jurisdiction, the plain text of section 78y of the 1934 Act demonstrated that Congress did not do so. Beyond the statutory text, the Fifth Circuit concluded that the Supreme Court had rejected the notion that the 1934 Act divests district courts of jurisdiction over removal power challenges in Free Enterprise Fund v. Public Co. Accounting Oversight Board, 561 U.S. 477 (2010). Indeed, the Fifth Circuit found that Free Enterprise Fund was "squarely on point" and that "every material aspect of the Supreme Court's reasoning in Free Enterprise Fund would seem to apply with equal force here."
Further, application of the factors articulated by the Supreme Court in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994), the case that sets forth the framework used to determine if Congress implicitly precluded judicial review, "reaffirm[ed]" that Free Enterprise Fund controls this issue and that the district court had subject matter jurisdiction. Finally, the court rejected the argument that the constitutional challenge was not ripe.
The Fifth Circuit's holding in Cochran may provide respondents in SEC enforcement actions with grounds to collaterally challenge the action in federal court and, more generally, creates a circuit split that may lead to another ruling from the Supreme Court about the constitutionality of SEC ALJs.
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