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By Sarah May on
 November 30, 2023

SCOTUS hears arguments in case that could upend powers of administrative state

The U.S. Supreme Court on Wednesday heard arguments in a case regarding the power of the Securities and Exchange Commission (SEC) to enforce -- in-house -- investor safeguard laws, and based on the tenor of the proceedings, observers believe the justices may be poised to deliver a serious blow to the White House specifically and federal agencies in general, as Reuters reports.

The stakes in the case of Securities and Exchange Commission v. Jarkesy are viewed as quite high, in that a decision against the administration's position could potentially threaten the power of what many conservatives decry and refer to as the “administrative state.”

At issue in the case is a lower court decision that declared unconstitutional the SEC's practice of adjudicating -- and often levying financial penalties for -- cases before administrative judges of its own choosing.

Back in 2022, the 5th U.S. Circuit Court of Appeals determined that the sort of proceedings in question represented a violation of the Seventh Amendment's right to a jury trial.

That ruling came following a challenge from hedge fund manager George Jarkesy, who had himself been fined and banned from securities trading by the SEC after he was found to have committed fraud.

The position taken by Jarkesy in the court below and at the Supreme Court – one which has garnered support from the business lobby and other conservative-leaning groups – is that the powers afforded to the SEC in terms of its enforcement mechanisms are administrative overreaches that work to deny accused individuals the same rights they would enjoy in a conventional federal court setting.

According to SCOTUSblog, several justices on the court's conservative majority appeared sympathetic to Jarkesy's position, with Justice Clarence Thomas having already made clear his stance that the notion that a federal agency could adjudicate “public” rights in the absence of a jury is simply inapplicable in any proceeding that would deprive an individual of property.

Justice Neil Gorsuch seemed to agree, saying that because the elements involved in the administrative proceeding are very close to those involved in common law fraud cases, Congress lacks the authority to send such disputes to an agency where a jury is unavailable.

“Congress is free to proscribe [fraud] and extend [the common law action] any way it wants. It just can't take a way a person's right to be heard before his peers,” Gorsuch said.

Chief Justice John Roberts weighed in, saying, “It does seem to me to be curious that -- and unlike most constitutional rights -- you have that right until the government decides that they don't want you to have it. That doesn't seem to me the way the Constitution normally works.”

Querying a lawyer from the Biden Justice Department on the issue, Justice Brett Kavanaugh wondered, “What sense does it make to say the full constitutional protections apply when a private party is suing you, but we're going to discard those core constitutional, historic protections when government comes at you for the same money?”

Liberal Justices Elena Kagan, Sonia Sotomayor, and Ketanji Brown Jackson appeared to see things differently, with Kagan saying that the issue in Jarkesy's case does not equate to common-law fraud and that it was her understanding that the Seventh Amendment protects private rights of action that the common law has created and given to private parties to enforce...But when Congress has created a new right, a new duty, you know, the duty that exists under the Securities and Exchange Act,” it was properly under the agency's enforcement purview.

Those who support the administration's position on the issue have expressed concern that limitations on congressional delegation of enforcement powers to agency actors could cause massive disruptions to the existing functions of administrative law judges with regard to Social Security matters, issues before the National Labor Relations Board and Federal Trade Commission, and adjudication within the Occupational Safety and Health Administration, forcing such cases into already-backlogged federal courts.

Though certain of the conservative justices appeared to have made up their minds on the arguments in this case, SCOTUSblog noted that the positions of Justices Samuel Alito, Amy Coney Barrett, and Kavanaugh were somewhat less obvious, and thus all eyes will be on the high court next year when a decision is issued in what could prove pivotal to the fate of the often-lamented administrative state.

Written By:
Sarah May

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