Supreme Court to Weigh in on Case that Poses a Threat to Federal Agencies' Power

The U.S. Supreme Court has recently agreed to take up a case that could have far-reaching implications for federal agencies' power and the use of administrative courts. In Jarkesy v. SEC, the Court will examine whether administrative courts, including those utilized by the Securities and Exchange Commission (SEC), are constitutional.

The case centers around George R. Jarkesy, Jr., who faced an enforcement action brought by the SEC before an administrative law judge (ALJ). The ALJ ruled that Jarkesy had violated the Securities Act of 1933 and other laws. However, Jarkesy appealed the SEC's decision to the U.S. Court of Appeals for the Fifth Circuit, which subsequently overturned the SEC's judgment against him.

The Fifth Circuit's ruling rested on three key grounds, each raising constitutional concerns regarding the use of administrative proceedings by federal agencies:

·     The circuit court found that the SEC's administrative proceedings violated the Seventh Amendment right to a jury trial. In these proceedings, parties are not entitled to a jury trial, which the court deemed to be a violation of constitutional rights.

·     The court ruled that ALJs were unconstitutionally protected from removal. This independence of ALJs, according to the Fifth Circuit, raised concerns about the separation of powers and the accountability of these administrative judges.

·     The court concluded that the SEC had been granted excessive power due to its ability to choose whether to bring enforcement actions before an ALJ or a federal district judge. This discretionary authority was seen as an unconstitutional delegation of power.

As a result of the Fifth Circuit's ruling, the SEC found itself blocked from conducting internal enforcement actions against potential rule breakers located within the Fifth Circuit's jurisdiction. However, the SEC is now appealing the Fifth Circuit's decision to the Supreme Court in an attempt to reverse the ruling and safeguard its administrative proceedings.

The potential ramifications of the Supreme Court's decision in this case are significant. If the Court upholds the Fifth Circuit's ruling, it could curtail administrative proceedings nationwide and impose limitations on federal agencies' use of these proceedings. This, in turn, would restrict the power of these agencies to enforce regulations and carry out their duties in a streamlined manner.

The case reflects a broader trend of skepticism toward expansive federal regulatory power within the current Supreme Court, which now has a conservative majority. The Court's ruling in Jarkesy v. SEC could have implications for other administrative proceedings and regulatory actions carried out by various federal agencies beyond the SEC.

The legal battle is set to unfold in the coming months, and legal experts are closely monitoring the case's developments. The outcome will undoubtedly shape the future landscape of federal agencies' authority and could further define the boundaries between executive and judicial powers within the administrative system.