Mark Chenoweth and John Vecchione are joined by NCLA Senior Litigation Counsel Russ Ryan to celebrate a major win for Father Emmanuel Lemelson. After more than ten years of litigation, the SEC has finally dismissed its follow-on proceeding—an extraordinary retreat that underscores the constitutional problems with agency-run tribunals. Hear how the case unfolded, why the Commission quietly folded, and what it means for future challenges to administrative power.

John Vecchione: If you think that unwritten law doesn't affect you, think again. Whether you're a business owner, a professional, just a average citizen, you are unknowingly going to fall under vague and unofficial rule. And when bureaucrats act like lawmakers, they're really restricting your liberty without the consent of the governed. Welcome to Unwritten Law. This is John Vecchione. I'm here with Mark Chenoweth and we are very pleased to be joined by Russ Ryan, who represents Father Lemelson in ongoing proceedings with the SEC. And we’ve talked about this case before but we’ve got some really amazing news, Russ. What's going on?

Russ Ryan: Yesterday the SEC dismissed it’s follow-on administrative against Father Lemelson. We had had asked the commission to do so back in June. There was a briefing back then but it had been all quiet ever since, although the commission did stay the proceeding pending a decision on the motion at our request and the staff of the SEC had stipulated to that. But yesterday, the commission finally did the right thing and basically ended what's now an over-a-decade pursuit of our client.

John Vecchione: And no notice to you? This just came out. They didn't call you and say this was coming or anything?

Russ Ryan: No, they have this equivalent of the ECF system where you're supposed to get an electronic notification. But as of this morning, I still haven’t seen anything. It was just serendipitous that I happened to learn about the decision. I usually check the SEC website on a periodic basis…

Mark Chenoweth: You wanna see if they’ve caved to anything that you’ve demanded of them.

Russ Ryan: Just see what's going on in other cases, if anything.

John Vecchione: But this order dismissing proceeding is pretty amazing. I was taking a look at it and they, first of all, cited the court cases and what the courts had said rather than ignoring it. And we should probably explain. In the federal case Father Lemelson got a five- year –

Russ Ryan: Injunction.

John Vecchione: – injunction…

Mark Chenoweth: Kinda “follow the law” injunction.

John Vecchione: Exactly. And the SEC, as it often does, was doing a follow-on procedure before its own ALJ’s to do lifetime bans and stuff like that. And in this particular case, the courts, both the district court and the Fourth Circuit, had said, “If you go for a lifetime ban, you can appeal that again because that doesn’t look good to us.” What did the lower court say? Actually, I’m gonna actually read this because I find it amazing to be in this thing. They say, at the beginning of this, “The district court imposed the injunction after jury found Lemelson had made three misrepresentations or omissions but found that the vision of enforcement did not establish that Lemelson had engaged in a scheme to defraud.

After imposing the five-year injunction, the district court expressed its view that it would be excessive for the commission to impose a lifetime ban in any follow-on proceeding,” which is unusual.

Mark Chenoweth: That might be a good reason not to bring a follow-on proceeding.

John Vecchione: And on appeal the U.S. Court of Appeals for the First Circuit affirmed the jury’s verdict and the court’s imposition of five-year injunction but quoted the district court’s statement that a lifetime ban would be excessive in any subsequent follow-on proceeding and observed, the First Circuit, mind you, if the SEC imposes an associational bar, Lemelson may appeal that decision in a separate action. So, there's really a lot of brushback pitches and brushback pitches from the First Circuit against an agency. You don’t see that every day.

Mark Chenoweth: But the agency stepped right back to the plate, didn't they?

John Vecchione: Pages of stuff.

Russ Ryan: And so, that was the basis for the injunction. But the SEC had also demanded over two million dollars in financial sanctions and the district court said, “No, only $160,000.” And the SEC had asked for disgorgement of unlawful gains and the district court essentially said, “You haven’t proved –

John Vecchione: “…there are any.”

Russ Ryan: – that there's any unlawful gains caused by these three isolated sentences, so I’m not giving you any disgorgement.” So, the SEC of course touted that as a big win, but in reality it was pretty much a victory for Father Lemelson.

Mark Chenoweth: It was just north of bupkis for the SEC.

Russ Ryan: But just out of habit, they then get their injunction and they go and they open their own administrative follow-on proceeding where the same lawyers who prosecuted in court then go to the commission and say, “You should ban this guy for life,” even though the judges, the district court and the First Circuit had said, “Don't ban him for life.”

Mark Chenoweth: This just goes to show how it’s not good to have the same person involved in the prosecuting and the judging because they lose their perspective. And even in the wake of outside commentary, let’s say, from the district court and the First Circuit, it was practically bean ball in Bean Town and they still didn't get the brushback message.

And then, in doing so we express no view on the matters of any of the parties’ claims, allegations or defenses.” Now, I will say this. They almost never say that “this is in the public interest.” I agree with them. I agree with them it’s in the public interest, but they don’t usually look at it this way. This is kinda shocking. And who is Vanessa A. Countryman?

Russ Ryan: She's the secretary –

John Vecchione: Oh.

Russ Ryan: – of the commission.

John Vecchione: Okay, got it.

John Vecchione: The orders to go out?

Russ Ryan: – pass the commission. Yeah.

Mark Chenoweth: So, this takes a vote of the commission to decide this?

Russ Ryan: Yes, yes, to dismiss it like this. Yes.

Mark Chenoweth: But that's a good sign.

John Vecchione: It’s a very wise decision. They knew they’d be facing more court decisions, but I have been stunned by the SEC but also the FTC and a lot of these agencies. They just run their heads into buzzsaws all the time with things, where any lawyer would tell you, “What are you doing this? What’s the extra thing you're gonna get by all this stuff you're expending and all you're doing because pushing it that far you might get pushback from the courts?” So, I have to say I’m kinda shocked by this whole thing. It does seem very reasonable.

Mark Chenoweth: Well, Russ, we haven't talked about the buzzsaw that you had prepared for the SEC at the D.C. Circuit. Do you wanna…?

Russ Ryan: Right….

Mark Chenoweth: They say that they had found it unpersuasive because “Lemelson has not shown that he had been prejudiced in these proceedings” et cetera. But I think they were persuaded by another proceeding that was [inaudible – Crosstalk]?

Russ Ryan: Yeah, that's kinda the elephant in the room.

Mark Chenoweth: Right.

Russ Ryan: And we talked about this maybe a week or so ago on this show. We filed our opening brief I think it’s three weeks ago, maybe not even –

Mark Chenoweth: The timing’s uncanny.

Russ Ryan: – in the D.C. Circuit. And the DOJ, which is representing the SEC needs to respond to that brief…

Mark Chenoweth: Right but just to say, we were attacking the legitimacy of follow-on proceedings –

Russ Ryan: Exactly.

Mark Chenoweth: – sort of lock, stock and barrel.

Russ Ryan: This one in particular on several constitutional grounds including that, following Jarkesy, that it was depriving Father Lemelson of an Article III adjudication and a jury trial, and it was violating his due process rights under the Fifth Amendment because the commission cannot possibly be an impartial adjudicator after it has spent the last five years litigating against the very same person out in federal court. So, all those issues were pretty perfectly teed up in our opening brief to the D.C. Circuit…

Mark Chenoweth: If we do say so ourselves.

Russ Ryan: I’m just speculating here but I don't think –

Mark Chenoweth: They might have found that persuasive?

Russ Ryan: – that was irrelevant to the prosecutorial discretion exercised in making the underlying proceeding go away entirely. So, interestingly, the SEC asked for a month’s extension to file their response brief and that was just granted yesterday too.

Mark Chenoweth: Interesting.

Russ Ryan: You never know what’s going on behind the scenes, but I think somebody wise decided “We need to…”

Mark Chenoweth: “…make this one go away?”

Russ Ryan: Yeah.

Russ Ryan: Right. “We do not want “Jarkesy 2.0” out of the D.C. Circuit.””

John Vecchione: On these facts, certainly –

Russ Ryan: Yeah.

John Vecchione: – right?

Russ Ryan: Yeah. We had great facts.

Russ Ryan: Well, one context here is this may be the first time that the actual current SEC Commissioners –

John Vecchione: Got a look?

Mark Chenoweth: The new ones?

Russ Ryan: – were actually focused on this case.

Mark Chenoweth: You're talking about the new ones?

Russ Ryan: Yeah.

Mark Chenoweth: Since January 20th?

Russ Ryan: Yes. Although there's two that are carryovers, but it’s a completely different look at the commission right now as compared to what it was late last year.

Mark Chenoweth: You're saying Chairman Atkins and Chairman Gensler are not the same?

Russ Ryan: Yeah. And the motion we filed to dismiss this administrative proceeding goes into some detail about the way that the commission over time has delegated so much of its statutory responsibility down to the staff level, that in a case like this it’s not unusual for the entire case to go on for years and the actual commissioners, it’s not even on their radar screen.

Mark Chenoweth: They don’t even know it’s happening.

Russ Ryan: The secretary has the delegated authority to open the follow-on if it’s based on an injunction.

Mark Chenoweth: If only the czar knew, huh, what's happening?

Russ Ryan: Yeah. So, part of the reason we filed that motion was to try to get it up to the politically appointed commissioners because they’ve got the perspective and judgment that the staff who was so wedded to these cases just doesn’t seem to be able to exercise. They're set in their ways. And it’s gratifying we finally get the commissioners attention. Although we would have maybe liked a better written decision on the merits of what we were claiming, the result is really gratifying. And I think again they did the right thing but I think it’s because we finally got the attention of those who are actually accountable.

Mark Chenoweth: I was just gonna say, Russ, would you recommend that other people pursue this strategy? We have the lovely brief that you wrote for the D.C. Circuit right there on our website for everyone to go and look. If you're stuck in similar kinds of, what we would consider, unjust follow-on proceedings, should they take a –

Russ Ryan: Yeah.

Mark Chenoweth: – similar tack and take a look at your brief?

Russ Ryan: There is something of a copycat case. I can’t remember. I think it’s here in the District of Columbia, where another father and son have been in the same vortex for years...

Mark Chenoweth: Father and son but no “lemel?”

Russ Ryan: Right, yeah.

Mark Chenoweth: Okay, go ahead. Sorry, John.

Russ Ryan: So, they reached out to me. Their lawyers reached out to me late last year and said, “Hey, we find this case interesting that you're doing. We’re thinking about doing the same thing.” And they adopted a lot of the same arguments that we did. My understanding of that case is the government has moved to dismiss it. It’s been fully briefed and it’s pending before a different district judge in D.C. So, we’ll see how that one goes, but there's at least the issues we’ve raised, which I think are really big ones following up on Jarkesy. The Cochran issue is there too; whether the district court has jurisdiction to intercede in an ongoing proceeding is front and center in that case too. So, I’ll be following it closely.

If it goes to the D.C. Circuit, I suspect we’ll be more than a little bit interested in reiterating our arguments in an amicus brief. So, see how that goes.

John Vecchione: Well, I just wanna congratulate you. This is a really great decision. And it came out of the administrative body but when they make a good decision that's okay too. Although you’re right. God save me from competent opponents because you wanna get the court to tell them and then have it in writing. But nonetheless, this is really great for the client as well.

Russ Ryan: I’d be remiss if I didn't thank you too, John, as my second chair on this case and a valuable resource along with Andreia Trifoi, our colleague. And I should give a nod to Doug Brooks who’s a fantastic litigator out in Boston at the Libby Hoopes firm. He’s been involved. He’s been defending Father Lemelson way longer than we have and he was an instrumental part of this successful outcome.

John Vecchione: Getting those statements from the judge. All right.

Russ Ryan: Exactly.

John Vecchione: All right. Well, a great, great outcome and we will see you all next time on Unwritten Law.

Mark Chenoweth: As we like to say here at NCLA, let judges judge. Let legislators legislate, and stop bureaucrats from doing either.

[End of Audio]

Duration: 16 minutes