Fifth Circuit pauses SEC action while it resolves appointment power question

On September 24, a panel of judges on the Fifth Circuit Court of Appeals ordered the Securities and Exchange Commission (SEC) to delay enforcement proceedings against an accountant until after the court resolves a pending legal challenge. The accountant, Michelle Cochran, argues that since the president cannot fire the SEC Administrative Law Judge (ALJ) that will oversee her agency hearing, the ALJ has unconstitutional protections. The Fifth Circuit will now decide whether SEC ALJs operate in line with the U.S. Constitution.
 
An ALJ is an official who presides over federal administrative hearings. ALJs serve as both the judge and the jury in an administrative hearing. The Administrative Procedure Act (APA) requires that administrative law judges preside over hearings during formal adjudication proceedings, but they may also preside over hearings during informal adjudication. Adjudication proceedings aim to resolve disputes between either agencies and private parties or between two private parties.
 
According to a summary provided by her lawyers, Cochran’s case started in 2016, when she was charged with violating accounting standards. An SEC ALJ ruled against her in 2017, fined her, and banned her from practicing as an accountant for five years. Soon after, the U.S. Supreme Court decided _Lucia v. SEC_. In that case, the court ruled that SEC ALJs were officers of the United States and had to be appointed by the president according to the procedures in the U.S. Constitution.
 
Since the ALJ who made the 2017 ruling against Cochran was not appointed by the president, the SEC decided that a new, properly appointed, ALJ had to re-hear her case. Now, Cochran is challenging the civil service removal protections that keep presidents from firing SEC ALJs once they have been appointed. She argues that the ALJs enjoy layers of removal protections similar to those the U.S. Supreme Court found unconstitutional in the 2013 case _Free Enterprise Fund v. PCAOB_.
 
Cochran is represented by the New Civil Liberties Alliance (NCLA), a public interest law firm in Washington, D.C. The judges on the Fifth Circuit panel were Reagan-appointee Edith Jones, Obama-appointee Stephen Higginson, and Trump-appointee Andrew Oldham.
 



About the author

Jace Lington

Jace Lington is a staff writer at Ballotpedia and can be reached at jace.lington@ballotpedia.org

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