In an opinion today, Judge Berman denied a motion to enjoin an SEC administrative enforcement proceeding.  The proceeding was challenged on the ground that SEC administrative law judges are too insulated from executive oversight for purposes Article II of the Constitution, as interpreted by the Supreme Court in Free Enterprise Fund v. Pub. Co. Accounting Oversight Ed., 561 U.S. 477 (2010). Judge Berman agreed with the plaintiff on a threshold procedural point:  he ruled that the issues could be raised in district court, as opposed to raising them exclusively in the administrative proceeding itself (or on direct appeal to the Court of Appeals), because, absent a collateral challenge, the plaintiff would endure the very proceeding she was trying to block.  As Judge Berman observed: “The American Heritage New Dictionary of Cultural Literacy, 3d. Ed. (2005), defines the colloquial expression ‘you can’t unscramble an egg’ to mean ‘some processes are irreversible.’” But Judge Berman found the plaintiff was unlikely to succeed on the merits because he found that SEC ALJs’ insulation from removal was appropriate, given their adjudicatory (rather than policymaking) functions:

This Court finds no basis for concluding . . . that the statutory restrictions upon the removal of SEC ALJs are “so structured as to infringe the President’s constitutional authority.” SEC ALJs perform solely adjudicatory functions, and are not engaged in policymaking or enforcement. “There can be little doubt that the role of the modern federal hearing examiner or administrative law judge . . . is ‘functionally comparable’ to that of a judge. His powers are often, if not generally, comparable to those of a trial judge: He may issue subpoenas, rule on proffers of evidence, regulate the course of the hearing, and make or recommend decisions.” Fed. Mar. Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 756 (2002) (quoting Butz v. Economou, 438 U.S. 478, 513 (1978)) . . . . The challenged (good cause) limitations upon the removal of an SEC ALJ will in no way “impede the President’s ability to perform his constitutional duty.” Indeed, invalidating the “good cause” restriction upon the removal of SEC ALJs—the so-called “second layer” of tenure protection—would undermine the ALJs’ clear adjudicatory role and their ability to “exercise[] . . . independent judgment on the evidence before [them], free from pressures by the parties or other officials within the agency.” Butz, 438 U.S. at 513–14. That same layer of good cause protection is provided for in the APA and applies to ALJs across numerous federal agencies. (See Gov’t Opp’n. at 5.) It exists “to guarantee the independence of hearing examiners.”

We have covered prior cases challenging SEC ALJ proceedings here, here and here. [DISCLOSURE:  Brune & Richard, along with Skadden, represents the plaintiffs in a challenge to an SEC administrative proceeding, and that case raises similar issues, among others.]