'Nothing Unexpected' in SEC Petitioner's Brief in Jarkesy Admin Law Case

Congressional delegation of authority and enforcement power to agencies and the tenure protections of agency administrative law judges aren't unconstitutional, argued the SEC in a petitioner's brief before the U.S. Supreme Court Monday in SEC v. Jarkesy. The brief hewed closely to the arguments the SEC made in its loss before the 5th U.S. Circuit Court of Appeals, law professors and attorneys told us. “There’s nothing unexpected in it,” emailed Arizona State law professor Ilan Wurman, who filed an amicus brief in the case supporting neither party. A SCOTUS decision in SEC v. Jarkesy could have ramifications for other federal agencies that use ALJs, such as the FCC (see 2211030063).

The case stems from a 2013 SEC enforcement action against George Jarkesy and investment firm Patriot28 over securities violations by their hedge funds. The SEC eventually ruled against Jarkesy, but the 5th Circuit U.S. Court of Appeals vacated that result in 2022, ruling it was unconstitutional for Congress to give the SEC discretion over whether enforcement matters are adjudicated in front of its ALJ, that imposing civil penalties in agency hearings with no jury violated the 7th Amendment, and that ALJs are unconstitutionally difficult for the president to remove.

The SEC tack in Monday’s filing was consistent with what it argued at the 5th Circuit and in its filings asking SCOTUS to grant certiorari, said St. John’s University law professor Anthony Sabino, who filed an amicus brief supporting Jarkesy. The 5th Circuit’s ruling against the SEC “rests on a misunderstanding of what constitutes ‘legislative power,’” said Monday’s brief. The SEC's exercising “enforcement discretion” over whether its enforcement actions end up before an ALJ or the courts is a “core executive power that stems from the President’s authority to ‘take Care that the Laws be faithfully executed,’” the SEC said.

Arguments that ALJ tenure protections are unconstitutional because they prevent the president from directly removing them from office are incorrect, the SEC said. “Because adjudicators have a distinctive need for decisional independence, Congress has more leeway to grant tenure protection to them than to other executive officers.” Saying such protections are unconstitutional “would upset longstanding practice and would undermine Congress’s efforts to promote the actual and perceived fairness of agency hearings,” the SEC said.

A SCOTUS ruling limiting ALJ tenure protections would “effectively and constitutionally cabin executive power, affirm axioms of checks and balances, and safeguard the separation of powers,” wrote Sabino in his amicus last week. Sabino said in an interview Monday if SCOTUS rules that ALJ protections are unconstitutional, the opinion would likely be limited to SEC ALJs, because the court “doesn’t decide anything unless it has to.” That opinion would still likely be used to challenge ALJ rulings at other agencies, he said. Standard General unsuccessfully sought to use the 5th Circuit’s Jarkesy ruling to make such a challenge at the FCC in March (see 2303070081).

The SEC brief and an amicus brief Monday from the Forum of U.S. Administrative Law Judges both delved into where fraud and SEC enforcement proceedings fall under the public rights doctrine, which concerns agency authority to adjudicate disputes without jury trials.

The 5th Circuit ruled fraud actions can’t be resolved without jury trials in part because that's how they were treated historically in 18th Century English courts, but that ruling was based on inaccurate quotations, said the ALJ group. The 5th Circuit “misreads” its own historical evidence, the Forum said. “Fraud prosecutions in English courts were principally matters in equity, not common law, and therefore did not require juries.” The SEC in its Monday brief argued that securities laws are different from historical fraud prosecutions because “they authorize the government to seek civil penalties even if no private person has yet suffered harm from the defendant’s violation.” Wurman said the SEC’s argument amounts to saying all legal obligations created by Congress can be adjudicated without jury trials. The source of a law shouldn’t affect that, he said.