On November 29, 2023, the U.S. Supreme Court will hear oral arguments in Securities and Exchange Commission (SEC) v. Jarkesy, a case that could have significant effects on government’s ability to effectively serve the American people should the court choose to eliminate administrative law judges (ALJs) and resurrect the nondelegation doctrine. There are nearly 2,000 ALJs working as independent officials within the executive branch who preside over administrative hearings in a variety of federal agencies and adjudicate disputes between the agencies and affected parties. In this case, an SEC ALJ found that two hedge funds established by George Jarkesy committed securities fraud against investors. The SEC fined Jarkesy and other parties $300,000; required disgorgement of $685,000 in ill-gotten gains, which the SEC Board of Commissioners upheld; and barred Jarkesy from participating in the securities industry. The U.S. Court of Appeals for the 5th Circuit reversed the decision in an extreme ruling, holding that not only are SEC ALJs unconstitutional, but that Congress lacks the power to give the SEC the ability to adjudicate securities fraud cases under the nondelegation doctrine.
If the Supreme Court upholds this extreme ruling on ALJs, it could pose an existential threat to federal agencies that protect Americans and make determinations on the government benefits they are owed. For example, these judges play important roles in getting Americans the Social Security benefits they are owed, safeguarding their right to join a union or bargain over wages, keeping them safe and unharmed at work, and regulating the safety and cost of U.S. energy sources. And if the court upholds this ruling on the nondelegation doctrine, it will be the first time in nearly a century—and only the third time ever—that this long-discredited legal theory has been used to strike down federal law. It would show that the court is seeking to limit Congress’ powers and put its policy preferences above those of elected officials.
The who, what, and why of SEC v. Jarkesy
WHO: The SEC found that George Jarkesy and his associates violated multiple federal statutes by willfully making materially false statements to client investors about their investment funds. In challenging the SEC’s findings, Jarkesy is seeking to have the entire SEC adjudication process eliminated or reconfigured. This is an extreme stance given decades of rulings holding that administrative adjudications by the SEC do not violate constitutional due process and equal protection rights. Notably, many of the entities that support Mr. Jarkesy’s challenge are founded and funded by right-wing billionaires such as the Koch brothers, the DeVos and Scaife families, and those with deep funding ties to archconservative Leonard Leo.
WHAT: If the Supreme Court upholds the 5th Circuit’s ruling declaring SEC ALJs unconstitutional, it has the potential to create chaos for the millions of Americans and businesses who rely on the professionalism, consistency, and neutrality of independent ALJs across multiple agencies to adjudicate their concerns and protect their interests. Right-wing litigants would likely immediately challenge the constitutionality of ALJs at the National Labor Relations Board and the Occupational Safety and Health Administration, which would hamper the ability of workers to organize for higher pay and benefits and result in more dangerous workplaces—effectively providing significant financial benefits to corporations and employers at the expense of everyday American workers. Furthermore, it would become even harder for hundreds of thousands of seniors to have their Social Security benefit claims adjudicated by the 1,600 ALJs at the Social Security Administration, an agency that conducts more than 650,000 hearings per year. Such a ruling could result in 80 years of administrative law being overturned by removing ALJs’ independent decision-making within their agencies, either eliminating them or creating an appearance of bias in their rulings by putting them under the direction of agency management. In turn, this would flood the federal courts with cases, causing both agencies and the courts to grind to a halt.
Additionally, if the Supreme Court resurrects the nondelegation doctrine, it would create a previously nonexistent tool to aggregate power to the judiciary and curtail Congress’ ability to legislate. For nearly the past century, the Supreme Court has upheld laws enacted by Congress giving agencies the authority to create rules to protect the American people’s interests if the statutes set forth an “intelligible principle.” Such a ruling would overturn long-standing Supreme Court precedent that Congress has broad powers to delegate authority, and eliminating their ability to delegate would “stop the wheels of government and bring about confusion, if not paralysis, in the conduct of public business.”
WHY: This case arose in furtherance of the long-standing conservative attack on the ability of government to help the American people. In 2019, Supreme Court Justice Neil Gorsuch issued a dissent in Gundy v. United States, which was joined by Chief Justice John Roberts and Justice Clarence Thomas, that argued that nondelegation and the intelligible principle theory should be reexamined, opening the door to this challenge. The elimination of ALJs would be a bonus giveaway to the extreme right-wing interests who are supporting this case as part of a trio of matters before the Supreme Court challenging administrative law—and have the potential to significantly limit the government’s ability to respond to Americans’ needs; solve their problems; and protect their health, safety, and the environment. The other two cases—Consumer Financial Protection Bureau v. Community Financial Services Association and Loper Bright Enterprises v. Raimondo—could, respectively, eliminate vast swaths of consumer protections and make the Supreme Court—not Congress or agency experts—the decision-maker on whether a rule enacted at the direction of a statute is reasonable. If the Supreme Court strikes down the laws in any or all of these cases, it would result in windfalls to corporations and significantly harm everyday Americans.
This case exemplifies the end of a multidecade effort by conservative interests to prevent government from functioning. Eliminating ALJs would not benefit everyday Americans who rely on them to adjudicate their benefits and protect them from corporate and financial wrongdoing—but it would benefit the bottom lines of the industries that oppose regulations. However, it goes a step further by attempting to use the nondelegation doctrine to strike down statutes that conservative activists oppose. While the nondelegation doctrine may not be fully realized in this case, corporations are already using the 5th Circuit’s precedent to challenge Medicare’s ability to negotiate for lower drug prices under the Inflation Reduction Act. The Supreme Court must reject this extreme legal theory.