Tag: SEC v. Jarkesy

In SEC v. Jarkesy, SCOTUS puts kibosh on administrative enforcement proceedings for civil penalties

Near the end of its term, SCOTUS decided SEC v. Jarkesy, the case challenging the constitutionality of the SEC’s administrative enforcement proceedings. There were three questions presented, and Jarkesy had been successful in the appellate court on all three:

“Whether statutory provisions that empower the Securities and Exchange Commission (SEC) to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment.   

Whether statutory provisions that authorize the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine.   

Whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection.”

Had SCOTUS broadly decided that the statute granting authority to the SEC to elect to use ALJs violated the nondelegation doctrine, the case had the potential to be enormously significant in limiting the power of the SEC and other federal agencies beyond the question of ALJs. After all, Jarkesy had contended that, in adopting the provision in Dodd-Frank permitting the use of ALJs but by providing no guidance on the issue, “Congress has delegated to the SEC what would be legislative power absent a guiding intelligible principle” in violation of that doctrine. A column in the NYT discussing  Jarkesy explained that, if “embraced in its entirety, the nondelegation doctrine could spell the end of agency power as we know it, turning the clock back to before the New Deal.” And in Bloomberg, Matt Levine wrote that “a total victory on the nondelegation argument…could mean that all of the SEC’s rulemaking (and every other regulatory agency’s rulemaking) is suspect, that every policy decision that the SEC makes is unconstitutional. Much of U.S. securities law would need to be thrown out, or perhaps rewritten by Congress if they ever got around to it. Stuff like the SEC’s climate rules would be dead forever.” (For a discussion of the nondelegation doctrine, see the SideBar in this PubCo post.) But that didn’t happen. During oral argument, the Justices did not even give lip service to the nondelegation question—the discussion was instead focused almost entirely on the question of whether the SEC’s use of an ALJ deprived Jarkesy of his Seventh Amendment right to a jury trial (see this PubCo post).  In its decision, the majority held that, in the SEC’s action seeking civil penalties against Jarkesy for securities fraud, Jarkesy was entitled to a jury trial under the Seventh Amendment. And, “[s]ince the answer to the jury trial question resolve[d] this case,” SCOTUS did “not reach the nondelegation or removal issues.” Nevertheless, it was yet another strike against the administrative state.