In SEC v. Jarkesy, the financial regulatory agency had charged conservative radio host George Jarkesy Jr. with securities fraud for allegedly misrepresenting and inflating the assets in two investment funds he ran. After an internal judicial proceeding, the SEC found Jarkesy guilty and fined him $300,000 in 2013. In response, Jarkesy brought suit against the agency, challenging not only the fine but also the SEC’s right to even conduct an administrative judicial process in the first place.
Jarkesy raised three arguments against the SEC’s case against him. First, he said that it was an unconstitutional delegation of power for Congress to allow federal agencies to conduct administrative proceedings. Second, he alleged that those proceedings violated his 7th Amendment right to a trial by jury. And, third, he argued that the administrative law judges, who oversee such proceedings, are unconstitutionally protected from removal by the president.
Two conservative judges on the U.S. Court of Appeals for the 5th Circuit agreed with Jarkesy’s arguments in 2022, ruling that Congress “unconstitutionally” provided the SEC with the power to choose whether to bring proceedings inside the agency or in federal courts.
But by deeming it unconstitutional for Congress to give the agencies broad discretion in how they act under the law, this ruling threatened to upend huge swaths of federal agency rule-making and enforcement. Agencies including the Federal Trade Commission, Immigration and Customs Enforcement and the Environmental Protection Agency make routine use of administrative adjudications to enforce laws passed by Congress. A decision finding this delegation of authority unconstitutional could upend the enforcement of countless laws on the books.
During arguments before the Supreme Court on Wednesday, the court’s six conservative justices appeared hostile to the SEC and favorable to Jarkesy’s arguments ― or at least some of them ― but not necessarily on board with the sweeping conclusions of the 5th Circuit.
During Wednesday’s arguments, the justices largely homed in on Jarkesy’s claim that the SEC’s ability to choose to prosecute him in an administrative proceeding violated his 7th Amendment right to a jury trial.
In questioning Deputy Solicitor General Brian Fletcher, arguing on behalf of the SEC, the conservative justices asked whether the government could take away a person’s 7th Amendment rights just by passing a law to create an administrative adjudication process.
“It does seem to me to be curious… that you have that right until the government decides you don’t have it,” Chief Justice John Roberts said. “That doesn’t seem to me to be the way it should work.”
The justices also pressed Fletcher on the limits of what laws Congress could pass to move enforcement from the courts and toward federal agency administrative proceedings. Roberts asked about a hypothetical law giving the executive branch authority to oversee all federal highways and conduct enforcement actions for all traffic on them. Justice Neil Gorsuch proposed a hypothetical sedition law that gave a federal agency the power to prosecute citizens for anti-government speech within that agency.
Fletcher, for his part, argued that the court had already provided agencies with broad discretion on enforcement through administrative proceedings in a series of precedents, the most prominent being 1977’s Atlas Roofing v. Occupational Safety and Health Review Commission. In that decision, the court ruled that Congress had the authority to delegate power to agencies to pursue administrative adjudications without infringing on 7th Amendment rights.
This argument focused heavily on the distinction between the court’s grant of an agency’s power to act on claims involving public rights (those claimed by the government as covering the public good, like the integrity of securities markets) as opposed to private rights involving private property and liberty.
The liberal justices seemed to agree.
“It could not have been clearer that what they were saying [in Atlas Roofing] was that the 7th Amendment was no bar to Congress making a decision that certain kinds of claims were best adjudicated in administrative agencies,” Justice Elena Kagan said.
“I think we’re pretty close” to agreement, Jarkesy’s lawyer Michael McColloch replied.
“If we’re pretty close ― because, I think, that just resolves the whole case!” Kagan replied to laughs in the courtroom. “I mean, that’s the issue. That’s the results.”
But McColloch said “that’s where we part ways.” Instead, he argued that the “prophylactic” workplace safety claims central in the Atlas Roofing case could not be brought in a federal court but the fraud claims made by the SEC against his client were substantially similar to the type of charges Jarkesy could face in criminal court. He also added that no one has actually challenged Atlas Roofing in 50 years.
Kagan did not seem terribly impressed. “Nobody has had the chutzpah ― to quote my people ― to bring it up since Atlas Roofing!” she said.
Though the conservative justices appeared amenable to the argument that Jarkesy’s 7th Amendment rights were violated, it was unclear what result they, or even Jarkesy’s lawyer, would reach.
In a back-and-forth with Justice Sonia Sotomayor, McColloch seemed to waffle on what outcome he and his client wanted. The 5th Circuit’s ruling had made broad claims that Congress delegated unconstitutional power to agencies of the executive branch, which in turn threatened a range of actions taken across the federal government. But McColloch argued that the result he wanted was limited ― even while asking the court to overturn Atlas Roofing.
“We are not arguing for a big change in the law,” McColloch said.
McColloch said that the change he sought shouldn’t implicate administrative judgments or rule-makings involving customs, immigration, Social Security and a further variety of agency powers. In response to Sotomayor, he further said that agencies should still be allowed to engage in adjudications so long as they resulted in the offending party giving up ill-gotten gains rather than being fined.
This sounded like a request for a ruling far more narrow than the one the 5th Circuit provided. Whether the conservatives on the court, with a long antipathy to the federal administrative state, seek that narrower course remains to be seen.
This is just the latest attack on federal administrative agencies launched in the courts by conservatives. Earlier this term, the Supreme Court heard arguments in a case that could gut the enforcement powers of the Consumer Financial Protection Bureau, and it will hear arguments in another case in January that could gut agency regulatory authority.
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