The Supreme Court Should Review Jarkesy

In Jarkesy v. SEC, the court of appeals for the Fifth Circuit found three features of the internal administrative court system at the Securities and Exchange Commission to be unconstitutional. The Solicitor General’s Office (SG), which represents the SEC in the Supreme Court, recently petitioned the Supreme Court to review the Jarkesy decision.

The SG’s request was straightforward on two questions presented to the Court. First, the SG challenged the appellate court conclusion that Congress could not eliminate the jury trial right by permitting an agency to bring a fraud case for a monetary penalty as an administrative proceeding (AP). Fraud cases for a monetary penalty had been tried by juries in common-law courts for many years. The SG argued that the critical issue was whether the SEC’s enforcement of a fraud claim was a “public right,” which Congress may assign to an agency adjudication without a jury, or a private right. The SG said precedent supported finding the SEC claim to be a public right.  That appears correct under existing doctrine, but the Court could use the occasion to reconsider the scope of the public rights cases and hold that Article III requires a government enforcement case for sanctions to be tried in federal court.

The second question the SG presented to the Court concerned the SEC’s unguided discretion to choose to bring an enforcement case either as an AP or in district court.  The Fifth Circuit had said that the choice was a legislative decision Congress needed to direct with statutory standards. The SG’s petition said the decision was a core executive function involving the exercise of enforcement discretion. The SG also seems to have the better side of this question.

The SG’s position on the third issue was not straightforward. The third issue was whether there were too many obstacles to the President’s ability to fire the SEC administrative law judge who tried the defendant’s case. In general, the President needs to have authority to remove executive officers. I posted my views on this part of the SG’s petition in the Notice & Comment blog of the Yale Journal on Regulation. The SG’s position was not acceptable because it urged the Court to assume that SEC commissioners have for-cause protections from removal when that assumption is not the truth. The President may remove an SEC commissioner at will. 

Whether the Fifth Circuit or the SG is right on the issues addressed in Jarkesy does not detract from their high importance. They affect several agencies and many defendants caught up in agency enforcement cases and deserve to be settled by the Supreme Court. The Court should decide to review the case. 

A Supreme Court decision on the merits could provide beneficial guidance on more than the specific issues in Jarkesy. Aside from the specifics, the Fifth Circuit decision reflects a growing disquiet with agencies using internal administrative proceedings to decide their own enforcement cases, a disquiet I share but for different reasons. My view is that a federal agency should not have authority to bring law enforcement claims within an internal agency court system because the administrative process, at least as traditionally structured and operated, does not provide the defendant a fair and impartial forum.