In this commentary: Oh, certainly not illegal, and if not, then see what has “changed”.

From: legal_reality@earthlink.net
To: legal_reality@earthlink.net
Sent: 6/12/2015 11:05:25 P.M. Eastern Daylight Time
Subj: Fwd: JUDGE RULES ADMINISTRATIVE COURT SYSTEM ILLEGAL AFTER 81 YEARS

13 June A.D. 2015

Armstrong, the author of the forwarded commentary (below), means well, and he has some really insightful analysis in several areas.  He’s also a “constitution-ist” at heart, which simply means that the tint in his glasses is just a little different from the tint in this author’s glasses.

The title of Armstrong’s discussion is, shall we say, a bit overbroad.  This author finds it fair to say that Armstrong wants that entire “administrative” system done away with, and, of course, Armstrong is in good company.  However, that’s simply not going to happen, and it might not happen even if we were back on a system of honest weights and measures.

The trial court’s ruling is available, and this author can provide a .pdf file of a de-linked version made available through Lexis. What follows is a de-hornswagglesed rendition.

The plaintiff in that matter, HILL, traded some stock and made $744,000.  The SEC called it “insider trading” and wanted to bust him for it by processes conducted by the SEC’s own administrative forum.  HILL objects to the SEC’s selection of forum for resolution of that dispute.  That’s pretty practical on HILL’s side, for it surely can’t be much different from being hauled before the “tax court” on a “tax” matter.  The results are fairly predictable on a good many issues.

He seeks a preliminary injunction, and he argues four “constitutional” points:

(1) the Dodd-Frank Act violates Article I of the Constitution because it gives the SEC unfettered discretion to select its forum;

(2) the SEC’s decision to prosecute the claims against him in the administrative proceeding rather than the district court violates his Seventh Amendment right to a jury trial; and

(3) (A) the first of two claims under Article II of the Constitution, that the ALJ’s appointment violates the Appointments Clause of Article II because he was not appointed by the President, a court of law, or a department head, and

(4) (B) the second of the two Art. II claims, that the ALJ’s two-layer tenure protection violates the Constitution’s separation of powers, specifically the President’s ability to exercise Executive power over his inferior officers.”Both of Plaintiff’s arguments depend on this Court[‘s] finding that the ALJ is an inferior officer who would trigger these constitutional protections.”  For which reason, the court analyzes whether the SEC’s ALJ position is that of an inferior officer.As for keeping the lid on, this trial court’s ruling is superb!

As for review of this in terms of reality, the analysis isn’t anything like as long.

(1) For the first one, choice of forum for dispute resolution, since there is no “constitution,” there’s nothing about Art. I that’s relevant.  What isrelevant is whether HILL has somehow consented to arbitration in/by the SEC.  That’s something that may very well be part and parcel of participating in that particular investment scheme/plan/game.  This author has no direct confirmation at the moment, either way, as to whether the mere act of trading stocks, etc., is an act of consent to SEC arbitration.A point the trial court makes is that up until just a few years ago, the SEC was restricted to taking only those who were “registered” into their arbitration forum.  Of course, to be “registered” is to have consented to everything, including SEC’s arbitration.  Presently, the SEC purports to have authority regarding “any person.”  This author expects that should be read as “any person who consents to SEC arbitration,” and that then begs the question as to when/how someone “may” so consent.

What Armstrong doesn’t yet have in his wheelhouse for such matters is that all “agency” activity (all “administrative” activity) is arbitration.  No arbitration forum has authority without the consent of both (all) parties.  So, if HILL is, in fact, subject to SEC arbitration, and it appears that he is (whether that consent occurred while/because he was trading stocks or after the dispute arose is the $64 Question in the mind of this author), then Art. I is wholly and completely irrelevant.  Because why?  Because HILL consented to SEC arbitration. The SEC most assuredly does not have unfettered discretion in its choice of forum.  There’ll be authority for the SEC’s arbitration if and only if the HILLs of the world have consented to such arbitration. So, if that’s where the SEC drags “any person,” and if that party hasn’t already consented to such alternate dispute resolution process, then the thing that makes all the difference in the world is that party’s formal non-consent to arbitration.

To throw the “constitution” at the matter is to be confused about “federal.” Where one accepts what we’ve all been taught, namely that “federal” means either “national,” or “constitutional,” or both, then one is likely to throw the “constitution” at these purely commercial matters/issues. However, to break through that barrier and come to terms with the fact that “federal” means “by agreement,” then this whole smoke and mirrors called “administrative law” comes crashing down.

There’s not one word said, overtly, about HILL’s consent.  It’s suggested, though, in what is said, and what is said is that his “constitutional” objection to forum selection is overruled.

(2) For this second one, the trial court overrules HILL’s objection that he’s being denied a jury trial.  He’s not being denied anything if he’s consented to SEC-sponsored arbitration.  There is no Seventh Amendment, for there is nothing there to amend.  Beyond that, we don’t have Juries; we have administrative advisory panels.  Those are a right smart better to have than nothing, to be sure, but they no more have the authority to determine the law than they have the ability to jump to the moon and back.

((3) A & (4) B of the Art. II claims) For this third one, the trial court sustained HILL’s objection to the manner in which the SEC’s ALJs come into their positions. These objections are raised under Art. II, which, of course, doesn’t exist, but which provides a basis for reining in on the SEC.  The trial court finds that the SEC’s ALJ are “inferior officers,” and, as such, they may be appointed by a particularly limited means, i.e., whether by the president, by the heads of the department, or by the judiciary.  Since that’s not how the ALJ assigned to HILL’s matter obtained his position as an ALJ, the court has stopped the SEC from proceeding in their arbitration with HILL.

So, it approaches outrageous, and it’s definitely irresponsible, to say, in a headline on a note commenting on this HILL v. SEC ruling, that the arbitration process, fully sustained and encouraged by the rulings on the first two “constitutional” points, has somehow been rendered “illegal.”  No, it most certainly has not, and no, it most certainly will not be.

What has been changed, by this trial court’s ruling, which has yet to be reviewed up the chain of command (next stop, 11th Cir.; then, the Supremes), is the manner in which the SEC’s ALJs are appointed.  That’s a major change, no doubt, but it’s a “gadget defense,” in that it’s 100% fixable by the SEC.  So, it’s a temporary thing.  Long term, it might or might not make one stinkin’ bit of difference as to the determination of whether there’s “insider trading” going on, here, or not.  HILL’s arbitration matter will linger until there’s a duly appointed ALJ, and then what’s going to be different?  Nothing.  Why not?  Because it most certainly appears that he’s consented to SEC arbitration.

It might not be possible to trade stocks (at least trade those stocks) and to avoid consenting to SEC arbitration.  That “gotcha agreement” has not yet been studied into by this author.  But, there’s zero question that the SEC’s own forum is a forum of binding arbitration, and there’s only one way to get into that form of alternative decision-making: 100% voluntarily (whether we realized our voluntary act at the moment it happened or not).

So, once the SEC has properly appointed ALJs, they’ll be right back doing their arbitration thing.

Harmon L. Taylor
Legal Reality
Dallas, Texas

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Posted on June 10, 2015 by Martin Armstrong