The Supreme Court has started its October 2020 term with eight members and still hearing arguments remotely. In the first order list of the year, the court has declined to hear Jalbert v. SEC, which asked whether disgorgement awards violate separation-of-powers principles, closing, for now, a vein of cases opened by the Kokesh decision in 2017. Overshadowing the term's debut, of course, is the recent death of Justice Ruth Bader Ginsburg and the planned hearings for Judge Amy Coney Barrett, whose hearing may be complicated by a recent coronavirus outbreak among leading Republicans.
Vacancy planned to be filled. On October 12, 2020, all eyes will be on the Senate Judiciary Committee as the confirmation process begins for Judge Amy Coney Barrett. The expedited process will begin with opening statements on October 12, October 13 and 14 will be devoted to questioning, and the mark-up process will start on October 15. These plans may be complicated by three Republican senators having tested positive for COVID-19—including Committee members Mike Lee (R-Utah) and Thom Tillis (R-NC).
Given the frenetic pace of recent events, it may be folly to make predictions, but the Republican leadership is adamant that the hearings will proceed as scheduled. Senate Majority Leader Mitch McConnell has indicated that all Republican members of the Judiciary Committee will participate, noting that members have successfully participated virtually since May 2020. The Democratic leadership has criticized this move, arguing that it is too hazardous to hold hearings until the outbreak is "fully behind us."
Judge Barrett had long resided on President Trump's list of potential nominees and was nominated on September 26, 2020, to fill the seat left vacant by the death of Justice Ginsburg. She has served on the Seventh Circuit bench since late 2017, but has left little from which to divine her leanings on securities matters. She has, however, addressed more generally her views on the role of the judiciary in law review articles. Also, during her speech accepting the nomination, Judge Barrett remarked on her clerkship with Justice Scalia, noting his "incalculable influence" on her life. "His judicial philosophy is mine, too: A judge must apply the law as written," she said. Judges are not policymakers, she continued, and must set aside any such views that they might hold.
Jalbert denied. The Court denied certiorari for Jalbert v. SEC, which was considered during the Court's "long conference" on September 29, 2020. Jalbert v. SEC asked whether a federal government agency's order imposing unauthorized penalties labeled "disgorgement" is void in relevant respects because the agency did not have the power to impose penalties without explicit congressional authorization.
According to the petition, the disgorgement awarded in this case constituted a penalty because the money was directed to the Treasury instead of being disbursed to victims. By imposing a penalty lacking any statutory authorization, the petition argued, the SEC created a penalty—a legislative power belonging solely to Congress. It is noteworthy that the petitioner waived the right to judicial review of the SEC order at issue as part of a settlement, leading to the First Circuit's affirming the district court's dismissal on those grounds; concerning this point, the petition asserted that structural separation-of-powers violations cannot be waived.
The separation of powers angle in Jalbert distinguished that case from the decision last term in Liu v. SEC. In Liu, the Court upheld the SEC's ability to seek disgorgement in civil proceedings as a form of equitable relief, so long as the award is limited to the net profits of the wrongdoer and funds go to victims. This opinion resolved many of the questions remaining post-Kokesh, but it will be left to the circuit courts to hash out the ramifications of Liu, specifically what constitutes net profits, and when disgorgement is "for the benefit of investors."
While the denial of certiorari has removed Jalbert from the docket, disgorgement is still before the court in a series of cases involving the Federal Trade Commission. Certiorari has been granted for two of these cases, which are now consolidated: AMG Capital Management, LLC v. FTC (19-508) and FTC v. Credit Bureau Center (19-825). These petitions concern Section 13 of the Federal Trade Commission Act, which authorizes that commission to seek "injunctions," and whether the FTC may seek an injunction under that section ordering the return of unlawfully obtained funds. The court has yet to address the fate of another petition, Publishers Business Services, Inc. v. FTC (19-507), that, like Jalbert, frames the Section 13(b) question in terms of separation-of-powers principles.
Pending petitions. There are currently three securities-related petitions before the Court:
- Olan v. U.S. (20-306): asking whether the Court's holding in Dirks v. SEC, requiring proof of "personal benefit" to establish insider-trading fraud, applies to Title 18 statutes that proscribe fraud in language virtually identical to the Title 15 anti-fraud provisions at issue in Dirks. A response is due on November 9, 2020.
- Gibson v. SEC (20-276): asking whether Congress has implicitly stripped federal district courts of jurisdiction to adjudicate separation-of-powers challenges to the authority of SEC ALJs to preside over enforcement proceedings. This case addresses the issue of the constitutional status of the multiple layers of tenure accorded to SEC ALJs that was raised by Justice Breyer in his concurrence and dissent in Lucia v. SEC. A response is due on October 5, 2020.
- Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System (20-222): asking whether a defendant in a securities class action may rebut the presumption of classwide reliance recognized in Basic Inc. v. Levinson by pointing to the generic nature of the alleged misstatements in showing that the statements had no impact on the price of the security, even though that evidence is also relevant to the substantive element of materiality. A response is due on October 23, 2020.