Duka v. U.S. Securities & Exchange Commission

103 F. Supp. 3d 382, 2015 U.S. Dist. LEXIS 49474, 2015 WL 1943245
CourtDistrict Court, S.D. New York
DecidedApril 15, 2015
DocketNo. 15 Civ. 357(RMB)(SN)
StatusPublished
Cited by13 cases

This text of 103 F. Supp. 3d 382 (Duka v. U.S. Securities & Exchange Commission) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Duka v. U.S. Securities & Exchange Commission, 103 F. Supp. 3d 382, 2015 U.S. Dist. LEXIS 49474, 2015 WL 1943245 (S.D.N.Y. 2015).

Opinion

DECISION & ORDER

RICHARD M. BERMAN, District Judge.

“When a Federal court is properly appealed to in a case over which it has by law jurisdiction, it is its duty to take such jurisdiction_The right of a party plaintiff to choose a Federal court where there is a choice cannot be properly denied.” New Orleans Pub. Serv., Inc. v. New Orleans, 491 U.S. 350, 358, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) (quoting Willcox v. Consol. Gas Co., 212 U.S. 19, 40, 29 S.Ct. 192, 53 L.Ed. 382 (1909))

I. Introduction

This is one of a series of cases which seeks to enjoin on constitutional grounds the United States Securities and Exchange Commission from adjudicating within that agency alleged civil violations of the securities laws by persons- not associated with regulated entities. The principal contention of Plaintiff Barbara Duka (and others) is that the administrative law judges who adjudicate such cases pursuant to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub.L. No. 111-203 (“Dodd-Frank”), are insulated unlawfully from oversight by the President who, under Article II of the Constitution, is vested with the “executive power,” including the ability to hold executive officers accountable by removing them from office. The SEC responds that the federal district courts are without subject matter jurisdiction where, as here, the Commission has elected to proceed within the agency.1

For the reasons set forth below, the Court finds, first, that it has subject matter jurisdiction to examine Duka’s plea that the SEC administrative proceedings against her be halted but, second, that Duka is not entitled to preliminarily enjoin the SEC proceedings because she is “unlikely to succeed on [386]*386the merits” of her constitutional claim.2 ,3

II. Background

On January 16, 2015, Barbara Duka (“Plaintiff’ or “Duka”), formerly a co-manager of the commercial mortgage backed securities group of Standard & Poor’s Rating Services (“S & P”), filed a complaint in this Court against the United States Securities and Exchange Commission (“SEC” or “Government” or “Commission”) seeking declaratory and injunctive relief. (Compl., dated Jan. 16, 2015 (“Compl.”), ¶ 1.) The Complaint seeks to prevent Duka “from being compelled to submit to an [allegedly] unconstitutional [SEC administrative] proceeding” which, in fact, was initiated against her on January 21, 2015. (Compl. ¶¶ 2, 5.) Plaintiff contends that the SEC administrative law judges (“ALJs” or “SEC ALJs”) who are responsible for adjudicating SEC administrative proceedings (“Administrative Proceeding(s)”) “enjoy at least two layers of tenure protection,” which insulate them from Presidential oversight. (Id. ¶ 3.) According to Plaintiff, SEC Administrative Proceedings are, thus, unconstitutional on their face because they violate Article II of the United States Constitution.4 (Id.)

Administrative Proceedings

The Administrative Procedure Act, 5 U.S.C. § 500 et seq. (“APA”), authorizes executive agencies of the government such as the SEC to conduct Administrative Proceedings before an ALJ. ALJs have the authority to “administer oaths and affirmations”; “issue subpoenas authorized by law”; “rule on offers of proof and receive relevant evidence”; “regulate the course of the hearing”; and “decide the case.” 5 U.S.C. §§ 556, 557. The ALJ serves as the finder of fact and of law (ie., there are no juries). (Compl. ¶ 21.) Executive agencies, including the SEC, may appoint “as many administrative law judges as are necessary.” Id. § 3105. SEC ALJs are assigned their cases by the Chief Administrative Law Judge of the SEC pursuant to authority delegated to the Chief ALJ by the Commission. 17 C.F.R. § 200.30-10.

Prior to the enactment of Dodd-Frank, the SEC was authorized to impose civil penalties in Administrative Proceedings only against “regulated personfs]” or companies. See Gupta, 796 F.Supp.2d at 507. Before Dodd-Frank, in order to obtain civil penalties from non-regulated entities, the SEC was required to file a civil enforcement action in federal district court. See id. Dodd-Frank authorized the SEC to elect to impose civil penalties in Administrative Proceedings against “a person if the Commission finds, on the record ... that such person ... is violating or has violated any provision of [the Exchange Act], or any rule or regulation issued under [the Exchange Act].” 15 U.S.C. § 77h-1(g)-

The defendant in an SEC Administrative Proceeding (such as Duka) may appeal an ALJ’s decision to the Commission, which is comprised of five Commissioners (one of whom is Chairman) appointed by the President.5 17 C.F.R. § 201.410. Or, [387]*387the Commission may review an ALJ’s decision “on its own initiative.” Id. § 201.411(c). The Commission “may affirm, reverse, modify, set aside or remand for further proceedings.” Id. § 201.411(a). If a defendant does not appeal and if the Commission does not initiate review on its own, the Commission will issue an order making the ALJ’s decision “final.” Id. § 201.360(d)(2).

A person who is aggrieved by a final order of the Commission may seek judicial review in the United States Court of Appeals for the circuit in which he or she resides or has his or her principal place of business, or before the United States Court of Appeals for the District of Columbia Circuit. 15 U.S.C. § 78y(a)(l).

All ALJs, including SEC ALJs, are removable from employment by their respective agency heads (in this case, the Commission) but only for “good cause.” Good cause must be “established and determined” by the Merit Systems Protection Board (“MSPB”), an independent federal agency which handles federal employee appeals of adverse employment actions. 5 U.S.C. § 7521; 5 C.F.R. § 930.211(a). The SEC Commissioners, in turn, “cannot themselves be removed by the President except [for] inefficiency, neglect of duty, or malfeasance in office.” Free Enterprise Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 487, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010) (citation omitted).

The SEC Proceeding against Plaintiff

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Bluebook (online)
103 F. Supp. 3d 382, 2015 U.S. Dist. LEXIS 49474, 2015 WL 1943245, Counsel Stack Legal Research, https://law.counselstack.com/opinion/duka-v-us-securities-exchange-commission-nysd-2015.