When Father Emmanuel Lemelson criticized a pharmaceutical company, the SEC came after him. Ten years later, the fight continues — with questions of jury trials, due process, and agency bias at the center. Mark Chenoweth, John Vecchione, and Russ Ryan unpack the case.

Mark Chenoweth: If you think that Unwritten Law doesn’t affect you, think again. Whether you’re a business owner, a professional, just an average citizen, you are unknowingly going to fall under vague and unofficial rules. And when bureaucrats act like lawmakers, they’re really restricting your liberty without the consent of the government.

John Vecchione: Welcome to Unwritten Law. Mark Chenoweth and I, John Vecchione, am joined by our colleague Russ Ryan who has filed an opening brief in the case of Reverend Father Emmanuel Lemelson vs. The SEC. This case has had many permutations, many different forum. Fora? I don’t know, but something like that. This is the latest shot in this very long-running fight between Father Lemelson and the SEC. What’s this brief about, Russ? What’s going on?

Russ Ryan: Well, Fr. Lemelson is now 10 years into his entanglement with the SEC.

Mark Chenoweth: Round 10.

John Vecchione: I just wanna interrupt in that all of our SEC cases are all like Jarndyce vs. Jarndyce. Right? All these people who get involved with the SEC, it’s forever, forever war.

Mark Chenoweth: If you fight.

John Vecchione: If you fight. Yeah.

Russ Ryan: Exactly. That’s the big thing. Ninety or so percent just roll over, but the ones who fight really get entangled and it’s just a lifelong problem.

Mark Chenoweth: Yeah. So, the message from the SEC is either settle or we’ll wear you down for a decade.

John Vecchione: Settle and be gagged!

Mark Chenoweth: Yeah. Settle and be gagged or we’ll wear you down for a decade. That’s where we are on this.

John Vecchione: I’m sorry. We’ve decided to vent before letting you answer your question.

Mark Chenoweth: That’s right. We still don’t know what this case is about. Sorry.

John Vecchione: Go ahead.

Mark Chenoweth: Pretty minor relief.

John Vecchione: And then to pay a fine but it was like a very –

Russ Ryan: $160,000.00.

John Vecchione: But 10% or less of what they were asking.

Russ Ryan: Yeah. They were asking for like two and a half million.

John Vecchione: Yeah.

Russ Ryan: But the SEC is allowed then under the statutes to use that injunction as a predicate to start its own administrative proceeding in order to see whether they wanna bar or suspend the person who was enjoined.

Mark Chenoweth: These are called follow-on proceedings.

Russ Ryan: Exactly. Exactly. Now, one of the arguments we made is if the SEC sues you in court and gets an injunction and wants to bar you, it should ask the judge to include that bar in the injunction and have to justify the need for that bar before an independent adjudicator. But historically, what the SEC does is it uses this statutory authority to open up a second prosecution against the same person. Then it decides, ultimately, whether or not to bar the person.

Mark Chenoweth: Let me guess. It usually decides that you’ve been through enough and that you don’t need any more punishment from the SEC. Is that how it usually goes?

Russ Ryan: You’d be wrong if you thought that.

Mark Chenoweth: Oh, man. Okay. I thought I had the SEC pegged.

Russ Ryan: In fact, we cited some academic surveys on this and literally every single time the SEC opens a follow-on proceeding, it bars the person or suspends. Occasionally, it suspends them not for life, but almost always a bar. The few exceptions are if the injunction that started the whole follow on gets vacated. Obviously, there’s no longer a basis. Or if they can’t find the person to serve them. But otherwise, it’s 100% success rate on the follow-ons. That’s not surprising because, after all, the SEC is the one who has been litigating against you for the past five, 10 or in the Father’s case almost 10 years. Throughout that litigation has been telling federal courts that you’re a bad person and you need to be punished.

Mark Chenoweth: Yeah. I think the public choice political science literature had not permeated the DC Circuit at that point in the 80s.

Russ Ryan: So, the case has just the whole panoply of issues we’re interested in. That’s why I like this case so much.

Mark Chenoweth: Isn’t this the case where they got Chevron and Jarkesy wrong? Do I remember this correctly?

Russ Ryan: Yes, yes. So, after the SEC filed this follow-on proceeding – we were not involved at the time – it kind of just was dormant for three years. The SEC, like most of its adjudicative docket, just sat on it and did absolutely nothing. When we got involved, we filed a complaint in the district court here in DC saying the court should stop that proceeding because it’s denying him a fair adjudication, and for other reasons including denying him a jury trial or an Article III adjudication.

We then asked the SEC to stay its proceeding pending the outcome of the court case. The SEC said, “No. We’re not gonna do that. In fact, we’re gonna assign the case now to an ALJ.” Which they hadn’t done over the preceding three years. So, that gave us the hook to add a charge to our complaint that the ALJ is subject to unconstitutional removal protection. So, we’ve got that issue. We’ve got the –

Mark Chenoweth: Which the Supreme Court still hasn’t decided after four or five opportunities, or three or four.

Russ Ryan: Right, right. We’ve got the due process argument, the deprivation of an unbiased adjudicator, we’ve got the Jarkesy issues, the jury trial issue, and we’ve got the Article III adjudication issue. As I alluded to before, we’ve got what they call a res judicata defense which is, “Look. You had your shot at this guy in federal court. You had the opportunity to seek an injunction barring him. And now, what you’re trying to do is get a second bite at the apple.” So, in total, it’s five different claims.

Mark Chenoweth: I like all of them, Russ.

Russ Ryan: Yeah, so do I. The district court said it lacked subject matter jurisdiction over two of the claims, which were the jury trial claim and the res judicate claim. Basically, in my opinion, not –

Mark Chenoweth: Saying the ALJ needed to decide those first?

Russ Ryan: Yeah. You have to go through the whole SEC gauntlet before you can get those in court.

Mark Chenoweth: Oh, now I remember. They relied on the old Jarkesy case from the DC Circuit.

Russ Ryan: Yeah. That’s kinda crazy that the district court’s decision cited the ALJ decision in the Jarkesy SEC case, which was titled – Jarkesy’s name was not –

Mark Chenoweth: Right.

Russ Ryan: It was John Thomas Capital Management but there were two or three other respondents, one of whom was George Jarkesy.

Mark Chenoweth: George Jarkesy. Yeah.

Russ Ryan: So, this –

Mark Chenoweth: He already went through the adjudicative process, made it all the way up to the Supreme Court and won. So, you can’t cite that case anymore. That’s how that works.

John Vecchione: Well, don’t forget, in Relentless the district court cited the vacated First Circuit case. So, you know.

Mark Chenoweth: If a precedent…if you like it enough, John.

John Vecchione: Yeah.

Russ Ryan: So, yeah. The district court cited the ALJ opinion that said, “No, you’re not entitled to a jury trial in a case like this.” But that was the very decision that was overturned in the Jarkesy case. I’m not sure the district court realized that. There was no indication that the district judge realized that.

Mark Chenoweth: The clerk might have let a judge down in this situation. One hopes.

Russ Ryan: The other interesting thing is, and Jarkesy is another one of these cases like the ones we mentioned earlier, where it’s interminable. Jarkesy had –

Mark Chenoweth: It even sounds a little bit like the Dickens case, Jarkesy does.

John Vecchione: Yes, it is. Jarndyce v. Jarndyce.

Mark Chenoweth: His lawyers, by the way, were our lawyers, our local counsel, in the Cochran case.

Russ Ryan: Yes, Mike McCullough and Karen Cook.

Mark Chenoweth: Right.

Russ Ryan: So, yeah. I think when they got involved – I’m not sure they were involved from the get-go in the SEC case, but when they got involved, they tried to go to court just like Cochran, Michelle Cochran and now what Father Lemelson is trying to do. When they got to the DC Circuit, the DC Circuit was one of the first courts to say, “No. The courts have no jurisdiction unless and until you go through the whole SEC process and get a final sanction order against you.”

Mark Chenoweth: But then we’ve got Justice Kagan to overturn that in a 9-0 decision in the Cochran case. So…

Russ Ryan: Right.

Mark Chenoweth: You’d think that’s bad law now. Right?

Russ Ryan: Yeah. So, the district court cited that DC Circuit precedent too which is maybe technically distinguishable but –

John Vecchione: Is this Blinder?

Russ Ryan: No. This is Jarkesy against SEC.

Mark Chenoweth: Jarkesy one or something like that.

John Vecchione: Got it.

Russ Ryan: Yeah, Jarkesy one. Yeah. So, we’ll get to it. Yeah. I mentioned the –

John Vecchione: Right. I thought it had a different name. I’ve got it though.

Russ Ryan: I didn’t mention it by name. Yeah, yeah.

Mark Chenoweth: Blinder is the ’88 case that you mentioned, Russ.

Russ Ryan: Yeah. That’s exactly right. I’ve always really though that that Blinder case was wrongly decided. Now, it’s just me. I mean, I think the decision was written by Judge Star and also Ruth Bader Ginsburg was on the panel.

Mark Chenoweth: That’s a star panel.

Russ Ryan: Yeah. I mean –

John Vecchione: It’s a heavy lift, we’re saying.

Russ Ryan: Yeah. I’m a little bit sheepish about saying it’s wrong.

Mark Chenoweth: We’ve got Russ Ryan on one side though.

Mark Chenoweth: You don’t like that one either, if I recall, Russ.

Russ Ryan: No. That should be at or around the top of our list of Supreme Court cases to seek to get overturned.

Mark Chenoweth: Yeah. I’ve heard Russ is not gonna retire until we overturn that case, John.

Russ Ryan: That’s another one of these. But all Withrow did was say it’s okay for the same commission to authorize an administrative prosecution that is prosecuted by its staff against a person, and then later come back as the appellate judge. That’s bad enough. That’s like saying you can bring back the Grand Jury that indicted a person to sit as the court of appeals if the person is convicted.

Mark Chenoweth: Yeah. The one sort of saving grace there is that when these cases do take 10 years, sometimes the composition of the SEC is different by the time it gets done.

Russ Ryan: Yeah, but that complicates the legal argument because it’s not a matter of recusal at that point. It’s a matter of institutional bias where even if it’s –

Mark Chenoweth: Well, the staff attorney should still be the same.

Russ Ryan: Yeah, and they often are.

Mark Chenoweth: Yeah.

Russ Ryan: But let’s face it. If you’re the current chair or commissioner of the SEC, even if you disagree with what your predecessors did, there’s a certain institutional integrity that you wanna uphold. It’s just like Supreme Court stare decisis. It’s a big deal if they say, “No, our predecessors got it wrong.” So, you go in from the get-go knowing that –

Mark Chenoweth: It’s a thumb on the scale at least, maybe a fist.

Russ Ryan: Yeah. There’s no question. Although, these cases like Withrow and Blinder just kind of brush that off as if to say, “Look. These administrators are pure as the driven snow. They’re as fair as fair can be. And why would we assume that they can’t just toss aside all of human tendencies that everyone just assumes in every other context of life?”

John Vecchione: Also, this does remind me of the FDC case, and I think AMG you cite a number of them, but when those got to the Supreme Court we did about – what? Before ALJs how often anyone won? And they did win once or twice, but every time they won, the commission itself reversed the ALJ who found against them. Right? Because they also have that power. So, it was 100%, 100% loss. I mean, it’s Stalinist. You can’t imagine an Article III judge looking at this and saying, “Wow, that’s a heck of a win streak for them. How do they do it?”

Mark Chenoweth: They must have a brilliant lawyer.

John Vecchione: Brilliant lawyers and to be right so often.

Mark Chenoweth: Yeah.

Russ Ryan: So, you know, the case has some pretty meaty issues that are right in our wheelhouse that we’ve prevailed on in cases like Cochran and Jarkesy. We weren’t Jarkesy’s counsel, but we were heavily involved as amicus. We’re now before the DC Circuit. We just filed the opening brief last week and we’ll see what happens.

Mark Chenoweth: It sounds like at least with one of the five issues, there is an on-point DC precedent going the other way that the panel might have to follow.

Russ Ryan: Yes.

Russ Ryan: Yes. I mean, technically, that case is distinguishable because it provided a provision of a different Federal Securities law, but the text of the two statutes is substantially similar. We’ve tried to distinguish it on the ground of in Blinder there is no…there’s nothing in the record suggesting that the SEC engaged in a parallel media campaign against the Blinder Firm the way it did with Father Lemelson. That then triggers a competing line of DC Circuit precedent which has vacated administrative action where the decision makers had made public statements, extra tribunal statements.

Mark Chenoweth: Right, right.

Russ Ryan: Public press statements, either interviews or the like, where they indicated – they betrayed a prejudgment of the issues.

Mark Chenoweth: We saw that with Commission Adler in the magnet safety case out in the Tenth Circuit for the Consumer Product Safety Commission, a similar issue.

Russ Ryan: Yes. Although I think – I remember you telling me look at that case. I think eventually he got away with it.

Mark Chenoweth: Well, we can get into that off air, but I think that Tenth Circuit precedent is still good law, I think.

Russ Ryan: But I thought it said he didn’t do anything bad enough to toss out the result. Maybe I misread that.

Mark Chenoweth: Well, I’ll go back and take a look. But anyway, it was a similar kind of accusation at the least that if you’ve engaged in this prejudicial or this media campaign that suggests that you’ve already formed your opinion, then you can’t sit as the judge in appeal.

Russ Ryan: Yeah. It gets into this again. All of the commissioners – well, for the most part, when those press releases were issued most of the commissioners have cycled out by now. But still, the press releases were issued in the name of the institution.

John Vecchione: And they’re on the website now.

Russ Ryan: Yes. They’re still on the website. So, that is institutional prejudgment of the matters that are currently pending before the agency.

Mark Chenoweth: Well, and usually like in the recusal context, for example, for federal judges, the question isn’t is the judge bias. The question is, is there a perception? Is there a reasonable perception of bias? I don’t see how anyone could look at this situation and not think there was a reasonable perception of bias against Mr. Jarkesy.

Russ Ryan: Yeah. I can’t either. Other than the Blinder case, I couldn’t find any other SEC adversary who had raised this argument. Maybe because they saw Blender or Blinder and thought it was futile.

Mark Chenoweth: I like the pronunciation Blinder because it has a certain connotation about the judges that I might wanna apply to that precedent.

Russ Ryan: I should mention too that the lawyer for Blinder was really a brilliant securities defense lawyer, Art Matthews. He’s no longer with us, but I took great comfort when I read that decision and saw he was counsel for the –

Mark Chenoweth: Mr. Blinder?

Russ Ryan: Yeah, the respondent or the person saying this is crazy. You can’t do this. So, I don’t know. I’m optimistic that we should prevail on at least some of these issues. I think we’re right on literally every one of them. It’s frustrating but…

Mark Chenoweth: Well, I like our winning streak against the SEC better than their streak as pertains to our clients. So, I like our chances, Russ. We’ll see!

Russ Ryan: Yeah. One of the arguments we made in one context is agencies don’t have any expertise or competence in deciding constitutional questions and statutory questions that are beyond their remit, essentially. We did cite a string cite of SEC cases where they tried to moonlight as either APA or statutory interpreters outside the securities context or the constitution, and they’ve lost every single one of them when they got to the Supreme Court.

Russ Ryan: Thank you. Thank you.

John Vecchione: And you’ve been listening to Unwritten Law.

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

[End of Audio]

Duration: 21 minutes