United States: D.C. Circuit Joins Seventh Circuit In Rejecting Court Challenges To Pending SEC Administrative Enforcement Proceedings

The U.S. Court of Appeals for the District of Columbia Circuit held today that federal District Courts do not have subject-matter jurisdiction to entertain challenges to ongoing SEC administrative enforcement proceedings. A party to a pending administrative proceeding must defend against that proceeding and then seek review from the SEC Commissioners and, eventually, the federal appellate courts.

The D.C. Circuit's decision in Jarkesy v. SEC follows the Seventh Circuit's August 2015 decision in Bebo v. SEC in rejecting preemptive constitutional attacks on pending SEC administrative proceedings. In a potentially significant sentence, however, the D.C. Circuit observed that "[t]he result might be different if a constitutional challenge were filed in court before the initiation of any administrative proceeding (and the plaintiff could establish standing to bring the judicial action)" (emphasis added). The decision thus flags the potential tension between being too late and being too early to circumvent established procedures for review of SEC proceedings.

Factual Background

The SEC initiated an administrative proceeding against Jarkesy in March 2013. In January 2014, days before the commencement of the hearing before an SEC administrative law judge ("ALJ"), Jarkesy sought injunctive relief in federal District Court to block what he called an unconstitutional administrative proceeding. Although some of Jarkesy's constitutional arguments appear to have been specific to the proceeding against him, others were "facial" constitutional attacks, including that the SEC's use of an administrative proceeding (i) deprived Jarkesy of his right to equal protection by denying him a jury trial and by subjecting him to "class of one" treatment (because other litigants have the benefits of federal-court proceedings) and (ii) violated the "non-delegation doctrine" and "separation of powers" principles.

The District Court dismissed the case, holding that it lacked subject-matter jurisdiction to entertain the challenge in light of the statutory procedures for review of rulings in administrative proceedings. Under applicable law, a respondent in an SEC administrative proceeding may file a petition for review with the Commission, which can either adopt the ALJ's initial decision as the final decision of the agency or grant the petition and conduct de novo review. If the Commission's final decision is adverse, the respondent may seek judicial review under 15 U.S.C. § 78y(a)(1) either in the D.C. Circuit or in the Circuit Court where the respondent resides or has his or her principal place of business.

Jarkesy appealed the dismissal of his suit, and the D.C. Circuit affirmed.

D.C. Circuit's Decision

The D.C. Circuit agreed with the District Court that the statute provides the exclusive route for judicial review of challenges to pending administrative proceedings even where a party to such a proceeding contests the SEC's authority to proceed administratively in the first place. The court concluded that Congressional intent to require litigants to proceed exclusively through the statutory scheme of judicial and administrative review was "fairly discernible in the statutory scheme" and that Jarkesy's claims were "of the type Congress intended to be reviewed within [the] statutory structure."

The court spent little time on the first part of the analysis, because it viewed Congressional intent as relatively clear. The more complicated question was whether Jarkesy's claims were of the type that Congress intended to subject to the statutory structure. To make that assessment, the court applied the three-part test from the Supreme Court's 1994 decision in Thunder Basin Coal Co. v. Reich: the presumption of initial administrative review followed by appellate review will be upset if (i) preclusion of District Court review "could foreclose all meaningful judicial review," (ii) the District Court suit is "wholly collateral to a statute's review provisions," and (iii) the claims are "outside the agency's expertise." The Seventh Circuit's Bebo decision had considered the first factor to be the "most critical" one, but the D.C. Circuit conducted a "holistic analysis" of all three factors "without assessing whether the capacity for meaningful review would alone suffice to negate [District Court] jurisdiction."

No Foreclosure of Meaningful Judicial Review. The D.C. Circuit held that Jarkesy would not be deprived of meaningful judicial review if he were required to present his constitutional claims first to the ALJ and the Commission and then to the applicable appellate court. The possibility that the ALJ and the Commission might not be able to rule on facial constitutional attacks to the authorizing statute is not determinative: as long as those claims "can eventually reach an Article III court fully competent to adjudicate them, it is of no dispositive significance whether the Commission has the authority to rule on them in the first instance during the agency proceedings."

In so ruling, the D.C. Circuit distinguished Jarkesy's situation from that of the challengers in Free Enterprise Fund v. Public Company Accounting Oversight Board, in which the Supreme Court held that subject-matter jurisdiction existed to adjudicate a facial challenge to the statute creating the Public Company Accounting Oversight Board (the "PCAOB"). In Free Enterprise, the PCAOB had simply begun an investigation of the petitioners; no proceedings were in progress. Jarkesy, in contrast, did not sue until after the administrative proceeding against him had begun, so he "would not have [had] to erect a Trojan-horse challenge to an SEC rule or 'bet the farm' by subjecting himself to unnecessary sanction under the securities laws."

Not Wholly Collateral to Statute's Review Provisions. The court concluded that Jarkesy's claims were "inextricably intertwined with the conduct of the very enforcement proceeding the statute grants the SEC the power to institute and resolve as an initial matter." According to the court, Jarkesy's claims were the "vehicle by which Jarkesy seeks to prevail in his administrative proceeding," and he had raised the same claims as affirmative defenses before the ALJ. The court also rejected "the idea that one could divine an exception to an otherwise exclusive administrative scheme based on the distinction between various types of constitutional challenges" such as facial versus as-applied attacks.

Not Outside Agency's Expertise. As for the third factor – whether the plaintiff's claims were "outside the agency's expertise" – the D.C. Circuit observed that the Supreme Court's post-Free Enterprise decision in Elgin v. Department of Treasury had clarified that "an agency's relative level of insight into the merits of a constitutional question is not determinative." The court noted that a narrow focus on whether the Commission has expertise in constitutional issues "overlooks the Commission's development of concurrent familiarity in issues that regularly arise in the course of its proceedings." The court therefore saw "no reason to conclude that Congress intended to exempt Jarkesy's non-delegation challenge, or any of his other constitutional defenses, from the administrative scheme."

Jarkesy's Implications

Challenges to SEC administrative proceedings continue to be a hot topic. Those challenges involve at least two sets of issues: the existence of subject-matter jurisdiction to bring the challenge, and the viability of the challenger's substantive constitutional claims. The D.C. Circuit addressed only the jurisdictional issue in Jarkesy.

Like the Bebo decision, Jarkesy was written narrowly and can be limited to its facts. The ruling technically applies only to District Court challenges brought after administrative proceedings have commenced. Future litigants might try to distinguish the case in situations involving District Court proceedings filed before administrative proceedings have been initiated – although, as the D.C. Circuit observed, such suits could be met with standing and ripeness arguments. Whether some "just right" middle ground exists between too late (and therefore precluded) and too early (and therefore not ripe) remains to be seen.

Jarkesy might also have involved a narrower set of "facial" constitutional attacks than have a number of other cases proceeding through the judicial system. Jarkesy does not appear to have clearly raised attacks based on the Appointments Clause (whether ALJs can constitutionally be appointed by anyone other than the President or the SEC Commissioners) or, perhaps, the separation-of-powers doctrine (whether ALJs are unconstitutionally protected from removal by the President). The D.C. Circuit simply assumed for the sake of argument that Jarkesy had adequately presented a "non-delegation" challenge. Nor does Jarkesy appear to have argued that the SEC's procedural rules for administrative proceedings violate the Due Process Clause. (The SEC last week proposed new rules in an effort to address some of those issues.) In addition, several of Jarkesy's constitutional arguments appear to have focused on the facts of his particular proceeding. Nevertheless, the D.C. Circuit's apparent refusal to distinguish among different types of constitutional arguments might undermine efforts to cabin Jarkesy based on which constitutional issues were and were not presented in that case.

Additional appeals involving challenges to SEC administrative proceedings are pending in the Second and Eleventh Circuits. Those courts will likely need to address Jarkesy's and Bebo's jurisdictional rulings in addition to any merits issues presented.

D.C. Circuit Joins Seventh Circuit In Rejecting Court Challenges To Pending SEC Administrative Enforcement Proceedings

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions