United States District Court, S.D. California
RAYMOND J. LUCIA COMPANIES, INC., and RAYMOND J. LUCIA, SR., Plaintiffs,
U.S. SECURITIES AND EXCHANGE COMMISSION, JAY CLAYTON, in his official capacity as Chairman of the U.S. Securities and Exchange Commission, and MATTHEW G. WHITAKER, in his official capacity as Acting United States Attorney General, Defendants.
ORDER: (1) GRANTING DEFENDANTS' MOTION TO
DISMISS, AND (2) DENYING PLAINTIFFS' MOTION FOR
PRELIMINARY INJUNCTION AS MOOT
Dana M. Sabraw United States District Judge.
before the Court are Defendants' Motion to Dismiss for
lack of jurisdiction,  and Plaintiffs' Motion for Preliminary
Injunction. The motions have been fully briefed. As discussed
below, Defendants' jurisdictional arguments are moored to
settled and well-reasoned case law. The Court follows those
cases, grants Defendants' motion to dismiss and denies as
moot Plaintiffs' motion for preliminary injunction.
authorized the United States Securities and Exchange
Commission (“SEC”) to bring civil actions to
enforce violations of the Securities Exchange Act of 1934
(“Exchange Act”) and regulations promulgated
thereunder. The SEC may bring these civil actions in either a
federal district court or in an administrative
proceeding. See, e.g., 15 U.S.C. §§
78u(d), 78u-1(a)(1), 78u-3. In an administrative proceeding,
the SEC itself may preside over the proceeding, (17 C.F.R.
§ 201.110), or it “may, and typically does,
delegate that task to an ALJ.” Lucia v. SEC,
138 S.Ct. 2044, 2049 (2018) (citing 15 U.S.C. §
78d-1(a); 17 C.F.R. § 201.110).
the SEC delegates review, the ALJ holds an evidentiary
hearing and renders an initial decision with factual findings
and conclusions of law. 17 C.F.R. § 201.360(a)(1), (b).
The SEC may review the ALJ's decision, either upon
request or sua sponte. Id. §
201.360(d)(1). Regardless of whether the ALJ's decision
is appealed, the administrative process culminates in a final
order issued by the SEC. Id. § 201.360(d)(2);
Hill v. SEC, 825 F.3d 1236, 1238 (11th Cir. 2016).
The aggrieved party may then seek judicial review of the
final order in a federal court of appeals pursuant to 15
U.S.C. § 78y(a)(1) of the Exchange Act, which
“provides a detailed scheme for appellate court review
of final Commission orders.” Hill, 825 F.3d at
1238. Once the aggrieved party files a petition for review,
the court of appeals has exclusive jurisdiction to affirm,
modify, or vacate the order. 15 U.S.C. § 78y(a)(3).
Raymond Lucia was a financial planning professional. (Compl.
¶ 16.) He and his company, Plaintiff Raymond J. Lucia
Companies, Inc., marketed a retirement savings strategy
called “Buckets of Money, ” under which
retirement savings were divided among assets of different
risk levels and periodically reallocated as those assets
changed in value. (Id. ¶ 19.)
September 5, 2012, the SEC issued an order instituting
proceeding (“OIP”) against Plaintiffs.
(Id. ¶ 29.) The SEC alleged that Plaintiffs
used misleading presentations to deceive prospective clients
and charged Plaintiffs with violating various provisions of
the Exchange Act and the Investment Advisers Act of 1940
(“Advisers Act”). (Id. ¶¶ 35,
40.) ALJ Cameron Elliot was assigned to adjudicate the case.
(Id. ¶ 40.) ALJ Elliot had not been appointed
by the SEC, but by the Chief ALJ. (Id. ¶ 41.)
ALJ Elliot issued an initial decision following a hearing on
the matter. He concluded Plaintiffs violated the securities
law and imposed sanctions. Lucia, 138 S.Ct. at
appealed to the SEC arguing, in part, that the administrative
proceeding was invalid because ALJ Elliot had not been
properly appointed under the Appointments Clause, and thus
lacked constitutional authority to perform his job.
Id. The SEC affirmed ALJ Elliot's decision.
(Compl. ¶ 50.) Plaintiffs then appealed to the D.C.
Circuit, which affirmed the SEC's decision. (Id.
¶ 54.) Subsequently, the Supreme Court granted
certiorari and reversed the D.C. Circuit's decision.
(Id. ¶ 57.) The Supreme Court held that SEC
ALJs are “Officers of the United States, ” and as
such must be appointed by the President, “Courts of
Law, ” or “Heads of Departments” under the
Appointments Clause. Lucia, 138 S.Ct. at 2055; Art.
II, § 2, cl. 2. Because ALJ Elliot had not been properly
appointed, the Court held that Plaintiffs were entitled to a
new hearing before “a properly appointed
official”- specifically “another ALJ (or by the
Commission itself).” Id.
the Lucia case was pending before the Supreme Court,
the SEC issued a general order, which, among other things,
ratified the appointment of its ALJs. (Compl. ¶
On September 12, 2018, ALJ Carol Fox Foelak was assigned to
the case. (Id. ¶ 94.) Plaintiffs moved to
dismiss the proceedings before ALJ Foelak, which was denied.
See Raymond J. Lucia Cos., Admin. Proc. Release No.
6628, 2019 SEC LEXIS 1744 (A.L.J.) (July 15, 2019 Order). The
hearing is scheduled to commence on March 2, 2020. See
id., Admin. Proc. Release No. 6657, 2019 SEC LEXIS 2111
(A.L.J.) (August 16, 2019 Order).
filed the subject Complaint seeking to enjoin the
administrative proceeding before ALJ Foelak on grounds that
(1) SEC ALJs have multiple levels of protection against
removal which violates Article II of the U.S. Constitution,
and (2) the SEC's proceeding “violates its own
rules of practice and their mandatory deadlines” and
thereby deprives Plaintiffs of due process. (Compl.
¶¶ 100-16.) Plaintiffs contend that because the SEC
and its ALJs lack authority to address threshold
constitutional challenges, the Court must exercise
jurisdiction over these claims.
Plaintiffs filed their motion for preliminary injunction,
Defendants filed an unopposed Ex Parte Motion to
Stay Proceedings During Lapse in Appropriations, which was
granted by the Court. Defendants thereafter filed a Notice of
Restoration of Appropriations, and on April 4, 2019, the
Court held an informal telephonic conference. The parties
informed the Court of ongoing settlement negotiations and
requested a further stay pending settlement discussions. The
parties also agreed that in the absence of settlement,
Defendants would file a motion to dismiss on jurisdictional
grounds and the Court could simultaneously address that
motion along with Plaintiffs' motion for preliminary
injunction. Because the case did not settle, the Court
addresses the parties' motions.