On June 17, 2015, the US Court of Appeals for the Eleventh Circuit, in Hill v. SEC, held that the district court lacked jurisdiction over the respondents' collateral challenge to the constitutionality of SEC administrative enforcement actions ( (11th Cir. June 17, 2016)).

The Eleventh Circuit consolidated two cases on appeal. At issue in both actions was whether respondents in an SEC administrative enforcement action can bypass the Securities Exchange Act of 1934's (Exchange Act's) review scheme by filing a collateral action in federal district court challenging the constitutionality of the administrative proceeding. The Exchange Act permits the SEC to bring an enforcement action in an administrative proceeding under 15 U.S.C. § 78y. The administrative proceeding results in a final order of the SEC, which is then reviewable exclusively by a federal court of appeals.

In the first case, Charles L. Hill, Jr. was a real estate developer who was not registered with the SEC. He purchased several thousand shares of stock in a company that soon after announced a merger with another company. Hill sold his shares, profiting $744,000 but claimed he was unaware of the merger before its public announcement. After a two-year investigation, the SEC charged him in an administrative proceeding. Hill filed two motions before the administrative law judge (ALJ), one challenging the merits of the claims against him and the other raising constitutional arguments against the administrative process itself. Specifically, he argued that:

The ALJ denied both orders. Hill then filed a complaint in federal court, raising the same constitutional arguments, in addition to a new claim under the Appointments Clause of Article II, claiming that, as constitutional inferior officers, the ALJs must be appointed by the President, department heads, or courts of law. He also sought a temporary restraining order (TRO) seeking to enjoin the SEC proceedings. The SEC argued that the district court lacked jurisdiction over these claims because Congress designated the administrative forum and appeal procedure in the Exchange Act under 15 U.S.C. § 78y as the exclusive avenue for review. The district court rejected these arguments and found that ALJs' appointments were likely unconstitutional, granting Hill's TRO.

In the second case, Gray Financial was an investment advisory firm that the SEC also charged in an administrative proceeding for violating federal securities laws. Gray Financial filed a complaint in federal district court, raising the constitutional removal and appointments claims and filing a motion for preliminary injunction. The district court again ruled that it had subject matter jurisdiction and granted Gray Financial's motion, finding that the hiring of SEC ALJs likely violated the Appointments Clause.

The SEC appealed and the court consolidated the appeals.

On appeal, the Eleventh Circuit vacated the orders for injunctive relief and held that the district court lacked jurisdiction over the respondents' collateral attacks. The court first held that Congress's intent to preclude initial review in the district court was fairly discernible in the statutory scheme. Congress intended that the Exchange Act provide the exclusive means for judicial review of an SEC administrative action and foreclosed district court review. The Eleventh Circuit then looked at whether the respondents' claims were the type Congress intended to review within this statutory structure. The court used the framework established by the US Supreme Court in Thunder Basin Coal Co. v. Reich and considered:

(510 U.S. 200 (1994)).

The Eleventh Circuit found that the respondents in an SEC administrative proceeding had access to meaningful judicial review because they could appeal the final decision to a federal court of appeals. The respondents also failed to show any serious injury that the court of appeals could not remedy. The court was unpersuaded by the remaining two arguments, although it noted that they did not cut strongly either way. First, the court found that the respondents' claims are not wholly collateral to those the SEC raised in the administrative proceeding because they are effectively affirmative defenses to the SEC's claims. And second, even if the constitutional claims were outside of the SEC's expertise, the SEC has expertise in deciding the statutory questions in dispute, and a resolution of the statutory questions in the respondents' favor would moot the constitutional issues.

The Eleventh Circuit joined three other circuits that recently concluded that district courts lacked subject matter jurisdiction over challenges to the SEC's administrative proceedings (see Tilton v. SEC, (2d Cir. June 1, 2016); Jarkesy v. SEC, 803 F.3d 9 (D.C. Cir. 2015); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015), cert. denied, 136 S. Ct. 1500 (2016)).