Another challenge to the SEC’s use of administrative proceedings to charge individuals has failed. Yesterday, Judge Richard Berman of the Southern District of New York rejected Barbara Duka’s attempt to enjoin the SEC’s in-house action against her. As we reported, Duka, formerly of Standard & Poors, argued the SEC’s action was unconstitutional because the administrative law judges who adjudicate such cases are too insulated from removal by the President. Judge Berman disagreed, ruling that Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), did not establish “a categorical rule forbidding ‘two levels of good-cause’” tenure protection, and that under the applicable “functional test to determine whether and when statutory limitations on the President’s power to remove executive officers violate Article II,” the SEC’s ALJ position passes muster.
Notably, Duka had more success in getting the court to address the merits of her arguments than Laurie Bebo, whose similar challenge was recently dismissed after a federal district court judge in Wisconsin concluded the court lacked jurisdiction to hear Bebo’s case. Noting that courts are more likely to find jurisdiction over facial pre-enforcement challenges to agency actions than as-applied ones, Judge Berman ruled the three criteria for subject matter jurisdiction were met, paving the way for him to address the substance of Duka’s argument. First, according to Judge Berman, the absence of jurisdiction could foreclose meaningful judicial review of Duka’s claim for declaratory and injunctive relief, which would be moot if she could not pursue her case until the allegedly unconstitutional proceeding had taken place, at which time “there would be no proceeding to enjoin.” Second, her claim was “wholly collateral” to the administrative proceeding because, as Duka argued, she “asserts a facial challenge to the very ‘existence’ of the Administrative Proceeding.” And third, “the constitutional claim posed in this injunctive/declaratory judgment case is outside the SEC’s expertise.” Nonetheless, Judge Berman held Duka was unlikely to succeed on the merits of her claim that ALJs “enjoy two layers of tenure protection” that effectively shields them from removal by the president and rejected her attempt to enjoin the administrative proceedings.
Our sister blog’s report on the opinion can be read here. As the SDNY Blog notes, Brune & Richard LLP currently represents a plaintiff in an action asserting a similar constitutional challenge.