Petitions of the week
Another federal agency challenges adverse ruling by 5th Circuit
on Mar 31, 2023 at 4:43 pm
The Petitions of the Week column highlights a selection of cert petitions recently filed in the Supreme Court. A list of all petitions we’re watching is available here.
Next term the justices will hear the government’s appeal of a decision by the U.S. Court of Appeals for the 5th Circuit that found the funding mechanism for the Consumer Financial Protection Bureau unconstitutional. This week, we highlight cert petitions that ask the court to consider, among other things, whether to reverse a second 5th Circuit ruling that invalidated powers of the agency charged with regulating investments, the Securities and Exchange Commission.
Congress passed legislation in the aftermath of the Great Depression to rein in the markets for trading securities and other financial vehicles. To enforce these laws, Congress created the SEC. It granted the agency the power to regulate investors through either lawsuits in federal court or internal hearings in front of an administrative law judge, or ALJ.
In 2013, the SEC ordered George Jarkesy and his advisory firm, Patriot28, to appear before an ALJ regarding their alleged mismanagement of a pair of hedge funds controlling $24 million. Jarkesy responded by suing the agency, arguing that its structure and enforcement powers violated the Constitution.
Under federal law, investors may challenge only final internal decisions by the SEC in the courts of appeals. Accordingly, a federal district court told Jarkesy he had to wait until his agency hearings had finished before he could bring suit. The ALJ resumed hearings regarding Jarkesy’s conduct, and the agency eventually charged him with violating the securities laws.
His day in court finally having arrived, Jarkesy appealed his constitutional challenge to the 5th Circuit. A divided three-judge panel issued its decision in May of last year, nearly a decade after the legal battle began.
The 5th Circuit agreed with Jarkesy that three pillars of the SEC violate the Constitution. First, it held that Congress flouted the Seventh Amendment, which guarantees the right to a jury trial in most civil lawsuits, by permitting the SEC to seek civil penalties through internal proceedings instead of in court. Second, the appeals court concluded that the grant of broad authority to the agency to choose between those two options as enforcement tools overstepped the doctrine that Congress must provide an “intelligible principle” when delegating regulatory power. Finally, the court ruled that Congress violated the separation of powers by shielding ALJs from removal by the SEC without the permission of an external review board, while limiting the president’s power to fire members of that board as well as the agency’s commissioners.
In Securities and Exchange Commission v. Jarkesy, the government asks the justices to reverse the 5th Circuit’s decision. The court has a long history, the government argues, of upholding laws in which Congress establishes “public rights” and provides for their enforcement through administrative proceedings as entirely consistent with the Seventh Amendment. The SEC’s authority to enforce the securities laws through internal hearings or federal lawsuits does not pose a constitutional problem, the government continues, because that choice is a purely executive function – not a legislative power delegated by Congress. Finally, the government contends that the double layer of removal protections for ALJs respects the separation of powers because the president’s control over executive officials does not extend to “quasi-judicial” officers who perform a purely adjudicative, as opposed to a policy-making, role.
A list of this week’s featured petitions is below:
Marin v. Garland
Issue: Whether the government’s removal of a noncitizen from the United States moots the noncitizen’s challenge in a petition for review of the agency’s denial in “withholding-only” immigration proceedings of deferral of removal or withholding of removal.’
Securities and Exchange Commission v. Jarkesy
Issues: (1) Whether statutory provisions that empower the Securities and Exchange Commission to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment; (2) whether statutory provisions that authorize the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine; and (3) whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection.
Diaz-Rodriguez v. Garland
Issue: Whether the provision of the Immigration and Nationality Act providing that noncitizens may be removed, and are ineligible for many forms of discretionary relief from removal, if they have been “convicted of … a crime of child abuse, child neglect, or child abandonment” encompasses a conviction for a state crime of child endangerment that criminalizes a negligent act creating a risk of harm to a child, even if no harm actually ensues.
Ohio v. D.R.
Issue: Whether the 14th Amendment’s due process clause entitles juvenile sex offenders to hearings at which courts have discretion to lift statutorily mandated sex-offender-registration obligations.