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Cochran v. United States SEC

Cochran v. United States SEC

United States Court of Appeals for the Fifth Circuit

December 13, 2021, Filed

No. 19-10396

Opinion

 [*197]  Haynes, Circuit Judge, joined by Jones, Smith, Elrod, Willett,2 Duncan, Engelhardt, Oldham, and Wilson, Circuit Judges:

The question presented is whether a provision of the Securities Exchange Act of 1934 [*198]  ("Exchange Act"), 15 U.S.C. § 78y, implicitly strips federal district courts of subject-matter jurisdiction to hear structural constitutional claims. The district court held yes, and a panel of our court affirmed. Rehearing the case en banc, we determine that the Exchange Act does not disturb the district court's jurisdiction over such claims.

Therefore, as explained below, we AFFIRM the district court's judgment in part, REVERSE [**3]  in part, and REMAND for further proceedings consistent with this opinion.

I. Background

In April 2016, the Securities and Exchange Commission ("SEC") brought an enforcement action against Michelle Cochran, a certified public accountant. The SEC alleged that Cochran violated the Exchange Act by, inter alia, failing to comply with auditing standards issued by the Public Company Accounting Oversight Board ("PCAOB") when performing quarterly reviews and annual audits between 2010 and 2013. After a hearing, an SEC administrative law judge ("ALJ") ruled against Cochran, imposing a $22,500 penalty and a five-year ban on practicing before the SEC. The SEC adopted the ALJ's decision. Cochran objected.

Before the SEC ruled on Cochran's objection, the Supreme Court intervened. ] In Lucia v. SEC, the Court 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. 138 S. Ct. 2044, 2049, 2051, 201 L. Ed. 2d 464 & n.3 (2018). Because the ALJ who had issued the initial decision in Lucia had not been appointed by a person or entity in one of those three categories (but had instead been appointed by SEC staff members), the Court remanded the case to the SEC for further proceedings before a constitutionally [**4]  appointed ALJ. Id. at 2050, 2055.

In response to Lucia, the SEC remanded all pending administrative cases for new proceedings before constitutionally appointed ALJs.3 Cochran's case was reassigned to a new ALJ.

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20 F.4th 194 *; 2021 U.S. App. LEXIS 36687 **

MICHELLE COCHRAN, Plaintiff—Appellant, versus U.S. SECURITIES AND EXCHANGE COMMISSION; GARY GENSLER, in his official capacity as Chairman of the U.S. Securities and Exchange Commission; MERRICK GARLAND, U.S. Attorney General, Defendants—Appellees.

Subsequent History: US Supreme Court certiorari granted by SEC v. Cochran, Michelle, 2022 U.S. LEXIS 2425 (U.S., May 16, 2022)

Prior History:  [**1] Appeal from the United States District Court for the Northern District of Texas. USDC No. 4:19-CV-66.

Cochran v. SEC, 969 F.3d 507, 2020 U.S. App. LEXIS 25525, 2020 WL 4593226 (5th Cir. Tex., Aug. 11, 2020)Cochran v. United States SEC, 2019 U.S. Dist. LEXIS 49751, 2019 WL 1359252 (N.D. Tex., Mar. 25, 2019)

CORE TERMS

district court, judicial review, challenges, court of appeals, courts, enforcement proceeding, constitutional claim, final order, collateral, proceedings, power to remove, cases, administrative proceeding, appointed, factors, federal court, agency expertise, expertise, removal, Exchange Act, separation-of-powers, strip, accounting firm, parties, pre-enforcement, target, statutory-review, ripe, progress, adjudicate

Administrative Law, Agency Adjudication, Presiding Officers, Administrative Law Judges, Constitutional Law, The Presidency, Appointment of Officials, Civil Procedure, Appeals, Standards of Review, De Novo Review, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Oral Arguments, Reviewability of Lower Court Decisions, Preservation for Review, Jurisdiction, Jurisdictional Sources, Statutory Sources, Governments, Courts, Authority to Adjudicate, Judicial Review, Reviewability, Jurisdiction & Venue, Evidence, Burdens of Proof, Allocation, Standing, Securities Law, Subject Matter Jurisdiction, Postoffering & Secondary Distributions, Federal Jurisdiction, Preclusion, En Banc Determinations, Judicial Precedent, Scope of Provisions, Limitations on Remedies, Judicial Officers, Judges, Duty of Judge to Sit, Inability to Proceed, Disqualification & Recusal, Federal Judges, Justiciability, Ripeness, Rationale for Ripeness, The Judiciary, Case or Controversy, Ripeness, Tests for Ripeness