Supreme Court appears ready to deal another blow to federal agencies' administrative powers

The Supreme Court appears open to reversing federal agencies’ longstanding capacity to adjudicate and enforce certain federal laws, potentially dealing the latest in a series of blows to the executive branch’s administrative powers. 

The conservative majority on the court consistently expressed skepticism toward the Biden administration’s argument that existing precedent protected agencies as they adjudicated laws written by Congress, instead suggesting individuals and private entities had a right to defend themselves from civil penalties before a jury. 

The case centered on a hedge fund manager George Jarkesy and investment adviser Patriot28 challenging the Securities and Exchange Commission’s decision to charge them with securities fraud. The government challenged the case to the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit last year ruled in a 2-1 decision against the agency. The circuit court’s objections were threefold, namely that the government imposing a civil penalty without a trial by jury is a violation of the Seventh Amendment to the Constitution, it was an improper delegation of authority for Congress to allow the SEC to determine whether to adjudicate a case in-house or before a federal court and SEC’s administrative law judges that decide on civil penalties are not able to be fired at-will. 

The case could have widespread impact, impacting agencies and ALJs across government. Many government offices rely on in-house “tribunals” to carry out enforcement provisions of federal statute, ranging from the Environmental Protection Agency to the Federal Trade Commission and the Agriculture Department. 

The oral arguments on Wednesday focused primarily on the right to a jury trial and spent far less time on ALJ removal and “non-delegation doctrine.” Brian Fletcher, the principal deputy solicitor general at the Justice Department, argued the government’s adjudication of violations of law was a “classic exercise of executive power.” Because the matter in Jarkesy involved the government and a private entity, rather than two private entities, the “public rights doctrine” dictates the executive branch can adjudicate the matter without violating the Seventh Amendment that would otherwise require a jury trial. 

Chief Justice John Roberts and Associate Justice Neil Gorsuch were among those pushing back on that argument, suggesting the government could then make any matter a public right and infringe on the rights of individuals. Gorsuch proposed an example in which the government decided to revive the Sedition Act and create an agency that levied fines at individuals defaming the government and could do so without offering a trial by jury. 

“That has to be the implication of your argument,” Gorusch said. 

Fletcher countered the Seventh Amendment is relevant when a lawsuit arises from a private lawsuit seeking monetary damages that is based in “common law” rather than a specific statute passed by Congress. Associate Justice Amy Coney Barrett said she didn’t understand why Fletcher was making that distinction, while Associate Justice Brett Kavanaugh called it “odd.” 

“The purpose of the separation of powers is to protect individual liberty and your individual liberty, it would seem as even more, or at least equally, affected when the government is coming after you,” Kavanaugh said. 

Fletcher repeatedly pointed to a 1976 case Atlas Roofing Company v. Occupational Safety and Health Commission in which the Supreme Court found Congress has the power to grant agencies' the authority to adjudicate new public laws. Associate Justices Elena Kagan and Ketanji Brown Jackson both said that precedent “resolves the issue” and it was therefore an open and shut case. 

The precedent spelled out that “it's permissible for Congress to give adjudications to executive officials,” Fletcher said, “and that Congress has a lot of flexibility in deciding how to provide judicial review.” 

Roberts noted the precedent is 50 years old, while Gorsuch said the current agency is “not your grandfather’s SEC.” 

“We all agree Congress has a lot more problems on its plate today than it did 100 years ago, or even 50 years ago,” Gorsuch said, “but that doesn't mean that the constraints of the Constitution somehow evaporate.” 

Fletcher suggested Congress and the courts have repeatedly allowed agencies discretion in enforcing public rights, as evidenced by lawmakers creating far more agencies to do so. Roberts said it "undermines the whole point of constitutional protection in the first place" if federal employees can pick and choose the venue in which they would find more success.

Nick Bryner, an associate professor of law focusing on administrative law at Louisiana State University, said he was surprised how much of the arguments focused on the Seventh Amendment issue, though he noted the six conservative justices “all seemed very skeptical” of the government’s arguments. He noted, however, that some of the justices seemed aware the Fifth Circuit’s ruling was “extreme and radical” and could “shake up the way administrative agencies work in a big way.” 

Kavanaugh, for example, noted the logistical issues with forcing administrative matters at agencies across government to go to court, which Fletcher argued would create a “huge imposition.” Gorsuch and others drew a distinction between an agency offering benefits, such as the Social Security Administration, and those levying penalties, such as the SEC. 

“Based on that line of questioning, I’m inclined to think that the court might not touch the more explosive issues of the non-delegation doctrine, which would really limit the scope of what agencies can do, and the issue of ALJ removal, which would even further undermine the independence that agency officials have from political interference,” Bryner said. 

He predicted the court could take a narrow approach of sending some securities fraud claims to the courts, “without declaring the whole enterprise of agency adjudication unconstitutional.” Still, he added, it would mark another blow against the government’s regulatory authority and provide more fodder in the court’s future terms. 

Last year, the court established a legal theory known as the "major questions doctrine," setting the precedent that agencies have little leeway in creating new regulations with major economic impact or political salience that rely on powers not clearly laid out in statutory text. The court later this term will hear arguments in multiple cases challenging the Chevron deference, which says broadly that courts must defer to agencies when interpreting ambiguous statutory language. 

S. Michael McCollough, Jarkesy’s attorney, said his client was facing a traditional fraud case with roots dating back to 18th century England, meaning his case was covered by common law and the Seventh Amendment. When Kagan pressed him that cases concerning the government and a private entity were settled law, he countered that was only because no one had brought it up. 

"No one's had the chutzpah, to quote my people, to bring it up,” Kagan said.