N.D. Ga. Judge Leigh May Issues Injunction for Gray Financial and Denies One for Timbervest

Events are flowing fast and furious on the continuing litigation of the constitutionality of the SEC’s administrative enforcement proceedings.  We previously reported that S.D.N.Y. Judge Richard Berman issued a favorable ruling to Barbara Duka and withheld deciding whether to issue a preliminary injunction for seven days pending possible SEC action.  See SDNY Court Ups the Ante, Allowing Duka Injunctive Action To Proceed on Appointments Clause Issue.  Now, N.D. Ga. Judge Leigh May, who was the first to rule that the appointment of SEC administrative law judges was likely to be in violation of Article II of the Constitution in Hill v. SEC (see Court Issues Preliminary Injunction Halting Likely Unconstitutional SEC Proceeding), has issued another preliminary injunction based on the same analysis in Gray Financial Group, Inc. v. SEC.  See Order Enjoining SEC in Gray Financial Group v. SEC.

But the respondents in the administrative proceeding In the Matter of Timbervest, LLC et al.were denied a preliminary injunction by Judge May.  See Order Denying Preliminary Injunction in Timbervest v. SEC.  Unlike the Hill and Gray Financial cases, the administrative trial in the Timbervest administrative proceeding was already completed — and petitions for review from both the Timbervest respondents and the Division of Enforcement were in the midst of consideration by the Commission — when the Timbervest parties commenced their action seeking preliminary relief after Hill v. SEC was decided.  The fact that the case was at a different stage was critical to Judge May, who find that becuase the burden of an extensive administrative trial could no longer be avoided, the justification for a preliminary injunction was far less compelling for Timbervest as compared to the other cases.

Judge May still found that, like the other cases, Timbervest was likely to succeed on the merits of its case, but that was not enough to support the issuance of the preliminary injunction.  Here is what she said on that:

The Court finds that Plaintiffs have not satisfied the remaining preliminary injunction factors as Plaintiffs have failed to meet their burden that they will be irreparably harmed if this injunction does not issue.  Plaintiffs seek limited relief: they request the Court enjoin the SEC’s ability to publish its decisions or enforce those decisions against them until this matter is resolved; they do not seek to enjoin the proceeding or prevent the SEC from issuing its final order. However, unlike the procedural posture in the Court’s prior decisions in Gray and Hill, Plaintiffs waited until the ALJ had issued his initial decision and this case was before the SEC itself before filing this motion.  Plaintiffs have already gone through the entirety of the administrative procedure before the ALJ—thus, no injunction will cure or prevent Plaintiffs’ prior obligation to defend itself before
the ALJ.  And any harm which Plaintiffs have already suffered by virtue of the initial decision being published has already been experienced; removing the ALJ’s initial decision from the website would not prevent a future harm.

Plaintiffs argue that by virtue of the initial decision being posted, they are subject to the results of an unconstitutional procedure. . . .  But even if the Court were to order the initial decision to be taken down, the initial decision has been publicly available since August 2014 and articles have been published about it.  Reality dictates that the results of the initial decision will still be available in the public domain even if the decision is removed, albeit not in its most formal version.

Plaintiffs also argue that they may be subject to additional harm if the SEC publishes a final order or imposes additional future action against them while their appeal from the SEC’s final order is pending.  The Court finds that any future harm as to the judgment is speculative at this point as it has not yet been imposed.  See Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) (noting that plaintiffs must show “irreparable injury is likely in the absence of an injunction” and stating that “[i]ssuing a preliminary injunction based only on a possibility of irreparable harm is inconsistent with our characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.”) (emphasis in original).  And the SEC stated at the hearing that the SEC often stays its final orders pending appeal, so even if the SEC decides to impose future action against Plaintiffs, the SEC could agree to stay that harm (e.g., any bars, fines, or suspensions) pending appeal.  Therefore, the Court DENIES Plaintiffs’ Motion.

Slip op. at 27-29.

Finally, in connection with the appeal of the preliminary injunction issued in Hill v. SEC, Judge denied the SEC’s request for a stay of her order pending appeal.  See Order Denying SEC Stay Motion in Hill v. SEC.  She said:

The Court finds that a stay of the preliminary injunction pending appeal is not warranted. First, for the reasons stated in this Court’s Order in this case, . . . and the reasons the Court has since stated in two other very similar cases, Gray Financial Group, Inc. v. SEC, No. 1:15-cv-492-LMM, and Timbervest, LLC v. SEC, 1:15-cv-2106, the Court finds that the SEC has not made a strong showing it is likely to succeed on the merits.  As well, the Court notes that the SEC is only foreclosed from conducting an administrative proceeding in front of an ALJ who was not appointed by the SEC itself—the SEC Commissioners may conduct the hearing against Plaintiff at any time or appoint the SEC ALJ directly.  They may also elect to bring their claims in district court. Thus, the Court does not find the SEC is irreparably injured or the public interest is affected as the SEC still has a channel to pursue Plaintiff—even through an administrative proceeding if it chooses.  However, if the stay is lifted, Plaintiff would have to participate in a likely unconstitutional proceeding which would cause a substantial injury. Thus, the SEC’s Motion to Stay is DENIED.

Order at 4.

In showing she is willing to parse through the different factors in these cases and reach varying decision based on the applicable standards, Judge May gains credibility for a reasoned approach to this volatile issue.

Straight Arrow

August 6, 2015

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One thought on “N.D. Ga. Judge Leigh May Issues Injunction for Gray Financial and Denies One for Timbervest

  1. Pingback: What Is the SEC Backup Plan if It Loses the ALJ Constitutionality Issue in Court? | Securities Diary

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