Deep Dive Episode 232 – The Implications of Jarkesy v. SEC for Administrative Tribunals

In May, the U.S. Fifth Circuit Court of Appeals vacated a decision of the Securities and Exchange Commission that hedge-fund manager George Jarkesy had committed securities fraud. The case, Jarkesy v. SEC, stuck down an important enforcement provision of Dodd-Frank and represents a potential strengthening of nondelegation and unitary executive principles. As a consequence, it could have far-reaching implications that go far beyond the securities laws.

The panel held that the SEC had violated the defendant’s 7th amendment right to a trial by jury because fraud is not a “public right” claim triable by administrative tribunal but a traditional claim that must be tried by a court. The panel also held that the law giving the SEC authority to choose between court trials and administrative trials of such claims constituted an unconstitutional delegation of legislative authority, in violation of the nondelegation doctrine. Finally, the court chipped away at the SEC’s independent status, holding that restrictions on removing administrative law judges only for cause infringed on the president’s vested authority to see that the laws be faithfully executed, in violation of the Constitution’s separation of powers.

What does Jarkesy mean for the future of administrative law? Was the Fifth Circuit following the principles laid down in recent Supreme Court precedent? Or has it struck out on its own, perhaps in an effort to spur the Supreme Court to further curtail the administrative state? The SEC has asked for en banc review. The decision creates an apparent split with the Ninth Circuit decision in Decker Coal v. Pehringer (2021) and could be headed to the Supreme Court.


Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.

[Music and Narration]


Introduction:  Welcome to the Regulatory Transparency Project’s Fourth Branch podcast series. All expressions of opinion are those of the speaker.


On August 16, 2022, The Federalist Society’s Regulatory Transparency Project hosted a virtual event titled, “The Implications of Jarkesy v. SEC for Administrative Tribunals.” The following is the audio from that event.


Steven Schaefer:  Hello, and welcome to this Regulatory Transparency Project virtual event. My name is Steven Schaefer, and I’m the Director of the Regulatory Transparency Project. Today, we are excited to host a discussion entitled, “The Implications of Jarkesy v. SEC for Administrative Tribunals.”  To discuss this topic, we are excited to have with us a stellar panel of experts. 


After the discussion between our experts, if time allows, we will go to audience Q&A. Please enter any questions you have into the Q&A function at the bottom of your Zoom window. Note, as always, The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speakers joining us. 


Our first speaker is Jonathan Adler. Jonathan Adler is the inaugural Johan Verheij Memorial Professor of Law, and Director of the Coleman P. Burke Center for Environmental Law at the Case Western Reserve University School of Law, where he teaches courses in environmental, administrative, and constitutional law. Professor Adler is the author of or editor of seven books, including Business and the Roberts Court, Oxford University Press, 2016; and Rebuilding the Ark: New Perspectives on Endangered Species Act Reform, AEI Press, 2011; and over a dozen book chapters. 


His articles have appeared in publications ranging from the Harvard Environmental Law Review and Supreme Court Economic Review to the Wall Street Journal and USA Today. Adler is a regular contributor to the legal blog the Volokh Conspiracy, where he contributes on environmental law, administrative law, and constitutional law. That can be found at; that is 


Adler has testified before Congress a dozen times, and his work has been cited in the U.S. Supreme Court. A 2016 study identified Professor Adler as the most cited legal academic in administrative and environmental law under age 50. Professor Adler is a senior fellow at the Property and Environment Research Center in Bozeman Montana, and at the Center for the Study of the Administrative State at the George Mason University School of Law.  He holds a BA magna cum laude from Yale University, and a JD summa cum laude from the George Mason University School of Law. 


We are excited to host our second speaker, Mario Loyola, who is a law professor at Florida International University College of Law, where he teaches environmental law, and is a Senior Fellow at the Competitive Enterprise Institute. He is the Director of the Environmental Finance and Risk Management Program in the Institute of Environment, and FIU Preeminent Program. Loyola has worked on environmental policy and regulatory issues for many years, both in and out of government. He is a former associate director for regulatory reform at the White Council on Environmental Quality, and has also served at the Pentagon and in the U.S. Senate.  


He has published extensively in National Review, the Atlantic, and the Wall Street Journal, in addition to academic and policy journals. Loyola wrote an op-ed for the Wall Street Journal on Jarkesy v. SEC, titled “A Judicial Ruling Challenges the SEC’s Illegal Power.” He has also written “The Concurrence of Powers: on the Proper Operation of the Structural Constitution” for New York University’s Journal of Law and Liberty. He received a BA in European history from the University of Wisconsin, and a JD from Washington University School of Law. 


To moderate this discussion, we are pleased to have with us Devin Watkins. Devin is an attorney at the Competitive Enterprise Institute. He previously worked at the Cato Institute as a legal associate, and interned at the Institute for Justice. At the Cato Institute, Watkins worked on a variety of Supreme Court cases, and one of the briefs he worked on was cited by the Supreme Court. His op-eds have appeared in National Review online, the Hill, Time, and The Federalist, among others. Watkins has written about Jarkesy v. SEC and other topics on the Competitive Enterprise blog,; that is 


Watkins holds a Juris Doctor cum laude from George Mason University’s Antonin Scalia Law School, where he was the development editor on the Mason Law Review. Prior to his legal career, Watkins was a senior software developer at Intel and WebMD. He graduated with a Bachelor of Science in Computer Science from Stevens Institute of Technology in Hoboken, New Jersey. Watkins is a member of the Virginia State Bar, the District of Columbia Bar, the U.S. District Court for the District of Columbia Bar, and the US Court of Appeals for the Columbia Circuit Bar. Devin, I will hand it on over to you.


Devin Watkins:  Thanks. We’re here to talk about what is a real blockbuster case, in my view. There are a lot of judges out there that they issue a rather narrow opinion, and they kind of avoid some of the more tricky constitutional or larger issues that might be involved on the case, if they can decide it narrowly. That is not what the Fifth Circuit did in this case. It issued three separate decisions, all as alternative holdings. And each of which is a very big and important decision that will not just affect the SEC, necessarily, but could affect the entire administrative state. 


So I’m going to go through each of those three, and then we’re going to talk to our two experts. And once they’re done, we’ll see if they want to talk amongst themselves before we go on to audience questions. The three primary holdings in this case. This case started with the SEC bringing a fraud case, a securities fraud case, against George Jarkesy. And the question was about the authority of the SEC. The first holding concerned the right of a jury trial under the Seventh Amendment. Because the SEC had accused him of securities fraud, the Fifth Circuit held that securities fraud was similar enough to common law fraud that existed at the time of the founding. As such, the Seventh Amendment right to a jury trial was triggered in this case. 


Normally, there’s a separate line of cases that says that when Congress creates some new public right that really hadn’t existed at the founding, that they can assign that to an administrative forum that doesn’t have a jury. But, because this case was securities fraud and fraud was so similar, the Fifth Circuit said that could not be done by Congress, that the SEC had to afford him a jury trial right, which would usually mean going to an Article III court, because administrative forums don’t usually handle jury trials. The second decision in this case concerned nondelegation. 


That’s a big deal, because nondelegation actually blocking action by agencies is rather rare. Generally, nondelegation is used to construe statutes narrowly to limit the authority of the agency, in certain contexts. But that’s not what the Fifth Circuit held here. Congress had given the SEC the authority to decide whether to bring the case in an Article III court with full authority with all of the protections afforded to a defendant in that case. For instance, hearsay would not be allowed as evidence. 


Or it could bring the action in its own administrative forum where it selected the ALJs — by the way, those ALJs almost always decide in favor of the SEC — and it has the authority to kind of control that proceeding a lot more. It does not have a jury trial in that kind of proceeding. And so that choice between either bringing it in an Article III court or bringing it in an administrative forum was, in the opinion of the court, a legislative choice, and that it structured the rights and privileges of the defendant. 


The Fifth Circuit said that because this was a legislative choice, and Congress didn’t give any intelligible principle or tell the SEC when it should decide to go one direction rather than the other direction, that was an unconstitutional violation of the nondelegation doctrine. The last decision of the Fifth Circuit concerned removal of the ALJ. The administrative law judge heard Jarkesy‘s case, heard all the evidence. It made the initial decision for — it was the original fact-finder for the case. 


The problem was that the administrative law judge could not be removed by the president without cause. That alone wouldn’t be a problem, but the removal of the ALJ had two other people that had to be convinced, that also were protected from removal by cause. That’s the Merit Systems Protection Board, which is absolutely protected by for-cause removal, and, potentially, the SEC commissioners themselves. I know the SEC likes to think of itself as protected by for-cause removal, although there might be some question about that if you look at the actual statute. 


But, regardless, the SEC thinks that they’re protected by for-cause removal, and that would be at least two, maybe three different layers of for-cause removal for the president to be able to remove this administrative law judge. And that’s important, because the president has the constitutional responsibility to see that the law is faithfully executed, and if the president believes that an administrative law judge is failing to properly execute the law, and not doing what the law tells the ALJ to do, it should be, under the Constitution, the president’s authority to remove that ALJ for cause. 


Now, because of the multiple levels of for-cause removal, that could not happen. There was previous case law on this, in Free Enterprise Fund, that had applied this to a different agency. And, really, the new law here was in applying that to the SEC. So those are the three different decisions of the court, each of which is monumental, and we could probably spend all day talking about each one of them. But with that, I’m going to turn it over to Mario Loyola, which will talk about this case and say what his thoughts were on each of these three sections of the opinion. 


Mario Loyola:  Thank you Devin, for that great overview. And thanks to RTP for putting this on. Jonathan, it’s a pleasure to be with you here again. And thanks to everyone for joining. I just want to start with kind of a high-level view, and then go into the weeds a little bit. This case is really interesting, because it hits at both sides of what some of us see as the dissolving separation of powers among the branches of the federal government. The second issue that Devin mentioned has to do with whether there was an impermissible delegation of legislative authority to the executive branch in the law, that gave the SEC the power to choose between an administrative tribunal or an Article II court in bringing those cases, in bringing fraud cases. 


Then the third issue goes to, as Devin mentioned, to whether there’s an unconstitutional impairment of the removal power over officers of the United States that are involved in executing the executive function of law enforcement that’s vested in the president under Article II. And from a separation of powers point of view, the argument is, at least superficially, paradoxical. The argument would be we want to claw back to Congress the legislative authority that is vested in Congress. But, on the other hand, we also want to claw back to the executive branch the authority that’s vested in the president. 


And that’s paradoxical because, on the one hand, we’re saying Congress has given too much power to an executive agency, too much legislative power to an executive agency, with respect to that second issue. And it has taken away too much power from the president, with respect to the third issue. And so, I think, as we discussed yesterday in the case of West Virginia v. EPA, which also raised, at least in the concurrence by Gorsuch, a nondelegation issue, we may be headed to a period of time where the federal judiciary starts to become much more formalistic in its approach to separation of powers questions, where, suddenly, for the first time in a long time, it’s starting to ask a threshold question of what kind of power is this that we’re looking at? Is this a legislative power? Is this an executive power? 


And from there we go on to two relevant categories. There is, in the nondelegation literature, in the law-review literature, a very rich and lively debate between the functionalists and the formalists. And the functionalists point out that, even in James Madison’s fever dreams of all power getting accumulated in the hands of just a few — which may be justly defined as the definition of tyranny, or whatever — he understood that executive officers exercising purely executive functions would sometime have to make policy judgments, those policy judgments could be characterized, potentially, as quasi-legislative, and that the differences between executive and legislative and judicial are often not so clear. 


If they were clearer, then, perhaps, the Administrative Procedure Act wouldn’t have elided the difference between executive actions and exercises of delegated legislative authority the way that it has, to the bane of lawyers and law students and judges ever since. So, in the first case, the first of the two — and I’ll pass over the issue about whether fraud is a traditional right or a public right, and just dive into — for the purposes of making the most of time, I’ll dive into the nondelegation issues. 


And that’s because we’ve seen — and I think Jonathan will, hopefully, talk about this a little bit more, but ever since Justice Gorsuch’s now-famous dissent in Gundy v. United States several years ago, watchers of things constitutional law in the federal judiciary have been asking themselves, “Is the Court inching toward the revival of the nondelegation doctrine?” I use the word “revival” somewhat advisedly, because, as Elena Kagan points out, we’ve never really had a nondelegation doctrine, except for a pair of cases in the late 1930’s. And I would say one reason that we have not had a nondelegation doctrine is that the nondelegation doctrine is very difficult, just conceptually speaking, to think about. 


This is an opinion that the Fifth Circuit, I think it’s fair to say, has — in football, now that it’s the start of NFL season, we talk about quarterbacks that throw the receiver open. They don’t throw the ball to where the receiver is, or even where the receiver is going to be. They throw the ball somewhere else, and then if the receiver wants to catch it, he’ll find that he was glad that the ball was thrown where it was. But he’s going to have to make an adjustment. I think that this is a situation where the Fifth Circuit might be trying to throw, if not the Supreme Court, at least Chief Justice Gorsuch [sic], open, so to speak, and give him a chance to further develop the discussion of nondelegation that Gorsuch spent several pages on in his dissent in Gundy v. United States


I’ll say a word about that dissent, because I think it’s going to keep coming up. In that dissent, Gorsuch goes to the very beginning of the republic, the exercise of starting by quoting the Federalist Papers, and even Montesquieu, and so forth, and then goes through nondelegation cases of the Washington administration — a phrase we don’t often use, there was a Washington administration at the start of our republic — and then gives us — it wasn’t so much an attempt to develop a workable nondelegation doctrine, as it was a history of nondelegation cases and Supreme Court judgements that have sounded some kind of nondelegation principle. 


In that respect, it’s more of, like, a helpful first Wikipedia article about nondelegation than it is — with all respect to Justice Gorsuch, sometimes you have to go through that exercise first, before you can actually develop a doctrine. And this is a doctrine that’s going to take a long time to develop, if it can be developed, and if it has not hit its high-water mark, as some of my colleagues think. So we go from there to the — now let’s take a deep dive into the decision in Jarkesy. Of course, those people who are familiar with the history of delegated legislative power, which now is the basis of most of the law in United States, which is done by agencies, not by Congress — the longstanding principle is that there have to be intelligible principles, in order to guide the delegation of law-making authority that Congress has made to an executive agency. 


And so what the Court here does is that it says it has to undertake two functions. First of all, it has to say that this, the choice of this completely arbitrary power to decide whether to bring fraud cases before its own tribunals, or whether to bring them before Article III courts, is not like an exercise of prosecutorial discretion, it is an exercise of legislative power. That’s step one. And then, if it answers that it is an exercise of legislative power, then it gets to step two, in which it says, “Here we’ve had lots of cases where we asked whether there were sufficient intelligible principles. Here, there are no intelligible principles at all.” 


So, of course, that second issue turns entirely on where you land on the first question, because the lack of intelligible principles doesn’t matter at all, if you decided that the power to choose which kind of tribunal to bring the case in was like prosecutorial discretion and just an executive function, not the exercise of legislative power at all. And I think that where the Court came down — so here the essential holding of the Fifth Circuit is that the power to decide whether to bring this within Article III Courts or within its own tribunals before two completely different bodies of law, and with different rights and obligations, and different legal consequences in the end, is a legislative power, because it is essentially defining private rights. 


And so the Court there is drawing a distinction between the power that the SEC was given in Dodd-Frank to decide where to bring these kinds of cases, and the power that you normally associate with prosecutorial discretion where the prosecutor can sometimes bring a civil case, as opposed to a criminal case. Both of those are within Article III courts, and so I think that that’s a distinction that many people might find to be a distinction without a difference. And I hope Jonathan will shed some light on that. But I will say that these kinds of distinctions, I predict, are going to be more common in the years ahead, as courts start to engage in this more formalistic analysis of exactly what is prosecutorial discretion, and where does it end. 


It’s clear, for example, that there are many instances where prosecutorial discretion has the potential to trench on legislative power. To give one clear example, among my favorites was the announcement, years ago, it might have been exactly ten years ago, where we discovered one day that the IRS had announced, on some IRS blog, that it was suspending collection of the employer mandate under Obamacare. Where that’s a tax obligation that exists by operation of law, essentially, there in that case the IRS decision to not collect it was tantamount to a post-enactment veto of that part of Obamacare. It was clearly — executive authority there was clearly being elevated to some kind of a neo, post-hoc veto. 


Same under DACA, where DACA announces that its not going to prosecute an entire set of cases. In general, and moving forward, that’s not an exercise of prosecutorial discretion. That’s an exercise of legislative authority which should not exist. And, if it did exist, it might have been a violation of the supposed nondelegation doctrine. So, anyway, all that to say, that extended discussion to say that this is very important in the years ahead to start asking ourselves exactly where does prosecutorial discretion end? Where does legislative power begin? Because there is a gray area between the two, and it will be increasingly important to constitutional decisions in the years ahead. 


I think that a more straightforward issue — I’ll say that here the Court’s decision, that this was an exercise of pure legislative authority, as opposed to prosecutorial discretion — is based on the completely different set of laws and obligations and rights and procedures that attach to a defendant in an Article III court proceeding, as opposed to administrative proceedings by the SEC. I will say that that is probably going out on a limb. Professor Adler probably agrees with that. 


I will also say that it is a very ambitious holding, an example of the Fifth Circuit trying to throw the Supreme Court open if it’s going to go to the Supreme Court. And one great indication of just how ambitious this Fifth Circuit opinion was is that it cites Philip Hamburger. And Philip Hamburger, of course, has written 1,000 pages to the effect that there shouldn’t be any delegation of rulemaking authority at all and that, therefore, the entire federal government, as we know it today, is unconstitutional. 


So, moving on to the third issue in the Court, which is the second issue that I wanted to discuss, which is the issue of, we might say, the unitary executive problem. Of course, here, the issue is Article II vests the executive power in the president. We go back to Humphrey’s Executor was a case that said, “Well, if an agency or these host of independent commissions created by President Wilson and so forth, if an agency had, or an agency official is imbued with quasi-legislative or quasi-judicial functions, then it’s not purely an executive officer. In that case, then Congress can shield that person from removal by the president.” And this is where the administrative state that was created by Woodrow Wilson, which was not independent when Woodrow Wilson created it, that’s an important point that people forget — all these people were removable by the president. 


When Woodrow Wilson created all of these now-independent commissions, it was a conservative Supreme Court, in 1935, in the case of Humphrey’s Executor, trying to stick it to the progressive Franklin Roosevelt, who cut all of these independent agencies free, who cut the umbilical cord on all of these independent agencies and set them free. I take Edwin Meese’s position on this. Agencies are not quasi-this or quasi-that. These are all executive officials. And they should be subject to the removal power by the president. 


And this is where, if we’ve got an uncertain number of votes for the nondelegation doctrine on the Supreme Court today, I think that we have got maybe more votes for a change in the law here. And I say that because maybe my single biggest influence in becoming a proponent of the unitary executive was the article “Presidential Administration,” by Elena Kagan, who described, normative and descriptive, all the ways in which President Clinton could and should, and legitimately so, controlled all executive officers in the executive branch, and all the powers delegated to them. She said, “I’m not talking about independent agencies.” But everything she said in that article was clearly applicable to independent agencies by extension. 


And so I think that here we’ve got a more significant and sustainable part of the opinion where the Fifth Circuit joins other circuits in starting to really chip away at the unaccountable administrative state of independent agencies, by really impairing, at a very important Securities and Exchange Commission, with very important administrative law judges, their ability to function outside of presidential removal, which goes to the core of the independent agency. 


I will say, when I wrote an op-ed — and I’ll close with this — I wrote an op-ed about this for the Wall Street Journal some months ago when the Fifth Circuit decision came out. And, within a couple of weeks, I had half a dozen or more emails from people saying, “Thank you for writing that. And I’m so grateful for this judgment. I got really shafted by the SEC for this or that securities situation, and I’ve never been able to appeal, and it’s so unfair. And, hopefully, now we can get justice.” So anyway, I’ll close there and hand it over to Jonathan to elaborate, explain where I went wrong, and tell me what’s really going on. 


Jonathan Adler:  All righty. Well, it’s a pleasure to be here, to be talking about this with Devin and Mario. What I want to briefly do is put the Fifth Circuit opinion in a little bit of context, because I think, in evaluating an opinion like this, we do have to remember we’re looking at an opinion of an intermediate appellate court, and not of the Supreme Court, and that cuts in some different directions, in terms of how we think about the opinion. And then I want to walk through what I think are the good, bad, and the ugly holdings of the opinion, and what they signify. 


So, as I mentioned, as an initial matter, we have to remember this is an opinion of an intermediate court. It’s not operating on a clean slate. It’s not operating in a context in which it can redefine the law or sweep aside or disregard or overrule precedent. It can’t even overrule the precedent of its own circuit, because it’s just a three-judge panel. And so that means that, as is often the case with intermediate appellate courts, certain options aren’t on the table, or shouldn’t be on the table. 


I should also say that my own view about how circuit courts should operate — certainly what we hear from nominees when they go before the Senate Judiciary Committee, certainly what I heard from my judge when I clerked on the DC circuit — is that it’s not merely a question of whether or not there is 100 percent on-point Supreme Court precedent controlling an outcome, but, really, what does the overall fabric of precedent suggest is the best or most proper outcome in a given case. And, certainly, my own view is that circuit court judges are obligated to reach conclusions that do fit within the overall fabric of the law and precedent when deciding an individual case. And that often requires circuit courts to reach conclusions that are not particularly satisfying, that do not necessarily align with the original public meaning of the Constitution, and, especially in administrative law, that produce outcomes that don’t make sense or are not how we would be designing the railroad to begin with. We had it from the start. 


But I do think that is how we should think about circuit court opinions. For those that follow my blog — and I’ve often written blog posts pointing out when, in my view, circuit court judges flub finding precedent. And, whether or not that precedent is right or wrong, they have an obligation to do so. And so that’s where I’m coming from on this. The second thing that I think is just worth noting — and Devin noted this in his initial summary of what the Fifth Circuit did — the Fifth Circuit decided all three issues, even though it was not necessary to decide all three issues to resolve the case. And it resolved them as alternative holdings. 


That’s an interesting and aggressive posture for a court to take, especially for a lower court to take. There are many who would argue — and I’m certainly sympathetic to this view — that courts should decide no more than they have to to resolve the case at hand and provide the desired relief to one of the parties. So, in a case like this, that would suggest that once the court was able to conclude that the SEC’s actions were improper or unconstitutional — as applied to Jarkesy — and could provide Jarkesy with all of the relief that Jarkesy was entitled to, that it was time to put down the pen, step away from the word processor and leave the rest for another day. This circuit did not do that. And so it reaches some issues it maybe didn’t need to reach. 


It also means that, for purposes of potential en banc review or Supreme Court review, it’s teeing up more than perhaps needs to be teed up. And for those that would like to see the administrative state scaled down, deconstructed, brought to heel, made consistent with the Constitution, whatever, I think we can just, as a strategic matter, we can ask the question whether or not teeing up so much so aggressively is the smartest thing to do, because it might produce a premature resolution of certain questions, or, as I’ll talk about in a minute, for certain questions on the agenda, on a set of facts or in a given posture that are not the best facts or the best posture for what might be the desired outcome. 


And we will certainly see how that plays out. The SEC has already asked for en banc review of this opinion on all three issues. I don’t think there’s any question that the SEC will seek certiorari if the Fifth Circuit does not grant en banc review on one or more of these questions. Now, on to the good, bad, and the ugly of this opinion. And I’ll try and be relatively brief, because I want to hear Mario’s pushback, as I’m sure there will be some, and to hear your questions. 


The good, the thing that I think the court got right, the easiest thing to resolve, is the question about ALJ removal, whether or not ALJs — limitation on the removal of administrative law judges at the SEC violates Article II. The Supreme Court has made explicit this is an open question. This is a question not controlled by existing precedent. The Supreme Court has also given us the rules necessary to reach the conclusion that the Fifth Circuit reached. The Supreme Court has said that SEC ALJ’s are officers, albeit inferior officers. It said that in Lucia. That was a 6-3 opinion, if I recall correctly. And it has said that double for-cause removal, within the contours of the SEC, is unconstitutional.


And so I think that’s a pretty clear connect-the-dots, as has already been discussed, that holding. The strongest argument against that, that you see in the dissent, that you see the SEC try to make in its petition for en banc review, is, well, there’s this language in cases like Morrison v. Olsen, that suggests we should have a more functional or pragmatic approach to these questions. We should really be looking at what truly interferes with the executive power. We should not be taking a formalist approach to these questions. And, yes, that was the overall approach that the court used in cases like Morrison v. Olsen


But the more recent appointment and removal cases, decisions like PCAOB v. Free Enterprise Fund, more recently sealed law, are very formalist opinions, make very clear that we’re interested in identifying: is this individual an officer? If they are an officer, then certain rules apply. I think the Fifth Circuit followed Supreme Court precedent quite clearly there. And that’s the good part of the opinion. 


And I would note, in the SEC’s petition for en-banc rehearing, they don’t even argue that the panel was wrong. They just say, “Well, it’s an important removal question, and so you should give it the fuller review, the more complete review that en banc review would provide.” I think they realize that they’ve lost that question, and that they will ultimately lose that question at the Supreme Court when it gets there. 


The next issue, what I think is kind of a bad result — not because I dislike the outcome, not because I think the outcome produces tremendous consequences for the administrative state, like a lot of articles and pundits were saying when this opinion came out, but because I think it stretched and evaded relevant precedent, and so, from the standpoint of an intermediate appellate court, I’m not sure it really was the right outcome — was the decision related to the truly trial right. 


For good or ill, and I am sympathetic to the “for ill” formulation, the Supreme Court has said that when it comes to the adjudication of public rights, that the Congress can provide for the adjudication of such rights in non-Article III fora, and that can provide for the adjudication of such claims without triggering the Seventh Amendment’s jury right. I’m very uncomfortable with this line of cases. I think if you were to look very carefully at why we have a Seventh Amendment jury trial right in cases of common law — what sorts of concerns that right was designed to protect against, the idea that the government could prosecute you for something, albeit civilly, seek fines and other penalties, and not implicate your jury trial right — that would be a very aggressive position to take. 


At the time of the founding, I think it’s certainly at odds with what was understood to be the public meaning of the right that was being protected. But we have a lot of precedent that points in the other direction. And Atlas Roofing v. OSHA is still good law. Yes, Justice White, in a dissent in a later case, lamented that Atlas Roofing wasn’t being followed the way he thought it read or the way he intended it to be understood. But that doesn’t indicate it was overruled. The Granfinanciera v. Nordberg decision, I think, reaffirmed this basic idea that public rights like the government enforcement of a regulatory restriction — in Atlas Roofing, it was the unsafe workplace regulation — is the sort of thing that Congress may put in an administrative proceeding before an ALJ without a jury trial right. 


And I think that while the Fifth Circuit certainly tried to find ways around that holding, I found them pretty unconvincing. And I don’t think it’s really in line with relevant Supreme Court opinion. So, while I’d be open and perhaps even happy if the Supreme Court ultimately goes that direction, I’m uncomfortable with the lower court getting there ahead of the Supreme Court. So that’s the bad. But what’s the ugly? I think the nondelegation holding makes no sense. 


Essentially, what the Fifth Circuit held is that an individual case-specific determination about how to proceed against a specific individual regulated entity, against a specific defendant, is an exercise of legislative power. No it’s not. In fact, were the legislature to try to take action against a specific regulated entity or a specific defendant, we’d be worried about whether it was a bill of attainder. We’d be worried about whether or not that’s something legislature can even do. There are legitimate questions that the jury trial question, Seventh Amendment question raised about whether to not it’s proper to have an administrative proceeding as an option. 


But if it is an option, the decision by an agency, by a prosecutor, to pursue one type of enforcement action versus another, is the archetypal exercise of executive power. And, yes, that choice can affect the constitutional rights of the defendant, just as the decision to pursue criminal proceedings versus civil proceedings, just as the decision to pursue prosecution under one statute versus another may affect what’s at jeopardy, may affect the extent of the penalties, may even affect the sorts of constitutional rights that are answered. 


Just to give one quick example — because I know I’m going on long, and then I’ll stop — but one consequence of choosing a criminal proceeding versus civil proceeding is whether or not the Fifth Amendment right to self-incrimination, or how strongly that right applies. In a criminal proceeding, one’s invocation of the Fifth Amendment right to stay silent cannot be used against the defendant. In a civil proceeding, it can. Some folks may have seen recent news stories talking about this distinction. That clearly matters. That’s a big deal. And a prosecutor who decides to pursue an action civilly versus criminally, may even do so because the prosecutor wants to put the defendant at a disadvantage. 


That doesn’t make it an exercise of legislative power. It’s an exercise of executive power. It’s the sort of exercise of executive power that is presumptively beyond judicial review and is not required to have an intelligible principle. So I thought that that portion of the opinion is really unsupportable, and what I would characterize as the ugly in the good, bad, and the ugly formulation. And I should just say — last point — I think it’s a really risky claim for the Fifth Circuit to make, as well, because, by framing this as an alternative holding, the Fifth Circuit is essentially saying you can’t reverse this unless you reverse this too. 


And if I were thinking about what sort of case I want to go before the U.S. Supreme Court to try and reinvigorate the nondelegation doctrine, I would not be looking at a case like this, where the underlying power question is so clearly executive and is so far divorced from things like broad legislative rulemaking. I would really be looking for another case. And so, I think that for those who want to see a reinvigoration of the nondelegation doctrine, this holding could actually turn out to backfire, if it does ultimately get Supreme Court review. So I’ll stop there, and I look forward to questions and Mario’s rejoinder.


Devin Watkins:  Currently, there are no questions in the forum. Please ask your questions under Q&A. So, until then, I’m going to start answering some questions of the participants. I’ll start with Jonathan Adler. Concerning prosecutorial discretion, how it, in some ways, is similar, and some ways, is different than what the SEC is doing here. My understanding is that, as a prosecutor going after a defendant, they kind of choose what the outcome they want is, what they’re asking the court to do. They might choose and say that the defendant, they think, violated this statute and they want them thrown in prison. That kind of thing. That would suggest a criminal forum. 


Or they might say, “I’m seeking to seize this money from this person in a civil forum,” based on the outcome that the prosecutor is seeking. This seems a little bit different, in that the outcome doesn’t determine the forum. They aren’t seeking criminal penalties in one type, and civil penalties, like monetary penalties, in the other. It’s the same kind of remedies in both of the different types. Is that somewhat different in your mind? Or is that just immaterial?


Jonathan Adler:  I don’t think it matters for the question of whether or not it is legislative or executive power. It might be relevant for other sorts of complaints. So, under lots of regulatory statutes, you may have overlap with the sorts of monetary penalties that are available when prosecutions are pursued civilly, versus criminally. Now, there may be arguments that some of the civil penalties that exist under some regulatory statutes are so severe that they should only be available in criminal proceedings. I’m open to that argument. 


But that’s a different argument. That’s essentially a due process type of argument. That’s not a delegation argument. That’s not an argument that the case-specific decision about how to pursue enforcement against an individual regulated entity is somehow legislative power. It’s executive power. So my claim is not that executive power is not constrained. It is not that agencies don’t sometimes play games with their prosecutorial discretion to try and effectuate something that is quasi-legislative under the guise of executive power. I accept those arguments fully. 


My claim is that the precise thing here that the Fifth Circuit characterized as legislative power just isn’t. And if we were to characterize it as legislative power, and we were to then think about, for example, immigration law, or other areas where agencies clearly have a range of options to pursue on a case-by-case basis when they enforce the statute, we would be taking a whole bunch of things outside of the sort of discretion that we’ve generally understood that agencies have. And there is a wide range of case law we would have to reconsider, as it relates to the sort of executive discretion, enforcement discretion, that agencies have. 


So, in a sense, what I’m saying is not that there aren’t problems with the SEC, not that there aren’t problems with regulatory enforcement, but that we want to identify the precise nature of the problem And I think that the Fifth Circuit here just made a category error, in that it is uneasy about some things about the way the SEC goes about enforcing its rules, but picked up the wrong tool, or the wrong categorization of what the problem is, and, I think, made a mistake in that regard. 


Devin Watkins:  Seeing no questions at the moment, I will ask another one. 


Mario Loyola:  Can I just jump in and add to what Jonathan said?


Devin Watkins:  Sure.


Mario Loyola:  So I think that it’s important for people to try to understand this case to see that the first and second issues that the court decided are related. And it really is related. And you can see it most clearly if you think about the due process, if you think about the entire problem as a set of due process concerns for the court. So if the court decides, “Okay, this particular fraud claim shouldn’t be tried before an administrative tribunal at all, because you would expect to see it in court,” if that is true, now you’ve got another problem to solve, which is, well, so, if you can bring exactly the same claim on exactly the same set of facts, before exactly the same kinds of defendants, in these two completely different sets of tribunals, with completely different potential outcomes, depending on your choice, that’s a lot of arbitrary power. 


So there’s a problem there. It’s a due process problem. But what kind of a problem is it, in particular? And I think that that’s where the court is saying, ” This is not,” — and I think that it reached — to use Jonathan’s great phrasing of this — it reached for not just the nondelegation tool, but, in particular, for the formalist distinction among different kinds of powers, perhaps a little bit too aggressively. Because, even if you think that the power that the SEC is exercising, in a world in which it’s been decided that it can bring that public right claim in either an Article III court or before an administrative tribunal, even if you find that problematic, even if you think that it’s a nondelegation issue, you have to admit that it is a challenging category problem, from the point of view of, is this more like prosecutorial discretion, or like the exercise of legislative power. 


I think that it is, in some fundamental ways, not like prosecutorial discretion. Because I think — and this is the point that I think Devin is getting to — is that it’s the exact same penalty, exact same set of facts. You could just walk into a room and say, “All right, if your last name is from A to M, then you’re off to SEC tribunal. And if your last name is from N to Z, then you’re off to Article III courts.” And so I think it’s a very close case. I think that the fact that the determination is being made case-by-case is what makes it look a lot like the exercise of prosecutorial discretion. 


But I think that the sweeping degree of arbitrariness and the set of rights that the agency is empowered, under this law, to confer under particular — one defendant, a hundred defendants, all defendants, really makes it at least somewhat understandable that judges would look at this and say, “You know what, this kind of crosses the line into a legislative power. And since we’re just doing nondelegation, for the first time since 1939 anyway, we might as well swing for the fences and see where the ball lands.” 


Devin Watkins:  So we’ve got a couple questions in the queue now. The first question concerns the en banc review that’s currently being requested. And they’re asking, “Is it possible, or do you think that the en banc review is going to, perhaps, take up this panel opinion and then modify it in such a way that it either makes the Supreme Court review more or less likely?”


Jonathan Adler:  It certainly can. So when en banc review is granted, the panel opinion is vacated. And so the Fifth Circuit could decide to take this case en banc, could, for example decide the case solely on the removal question, decide that, therefore, the SEC proceeding was invalid, and leave it at that, and not reach the other questions. So the en banc court could narrow the holding of the court. And we’ll have to see. 


As I mentioned, the SEC filed a petition for en banc earlier this month, and the response on behalf of Jarkesy was just filed — I’m looking at it now — it was just filed July 18. So the Fifth Circuit’s considering now whether or not to rehear this case en banc. And I’d say there’s a decent chance. I mean, en banc is always rare, but a case like this would seem to be a reasonable candidate. The Fifth Circuit did take some prior removal-related cases en banc — Collins v. Mnuchin, which the Supreme Court, I guess, decided two years ago. The Fifth Circuit had taken it en banc. So it’s certainly possible. 


Mario Loyola:  I have a question, by the way, for you, Devin, or for anybody in the audience, or for Jonathan, which is, is there anything about this — let’s assume that the en banc is denied, or, basically, generally upholds the decision in the way that it is now. Is there something, particularly in the third issue about the ALJs, that would more or less force the Securities and Exchange Commission to appeal to the Supreme Court, because of the impact on its ability to conduct administrative tribunals?


Devin Watkins:  I don’t think the third question is going to do it. I think the nondelegation question is going to do that. Because if they can’t choose between an administrative forum or an Article III forum, that potentially knocks out both forums, meaning they can’t bring any cases under either fora.


Mario Loyola:  But that was limited to one — that second issue on nondelegation is limited to just one provision of Dodd-Frank.


Devin Watkins:  Yes, but at least that provision would not be –, or any others that similarly gave them a choice between forums that did not have any intelligible principle to decide between them.


Jonathan Adler:  I have a slightly different take on that, in part because, given that these are alternative holdings, it’s not entirely clear how they fit together. That is to say, given the jury trial conclusion and the removal conclusion, ALJs are no longer an option. And if they’re no longer an option, then there’s no longer a nondelegation problem. And I suspect that might have been one reason why the court was willing to deal with all three questions, in that it could resolve the nondelegation issue, but, by redressing all of the questions, not necessarily the SEC, without the ability to enforce this provision at all.


Mario Loyola:  So Jonathan, I’m not sure. Let me push back on that a little bit, if I can. So the first two issues on the public right and the nondelegation issue go to just that narrow Dodd-Frank fraud claim, right?


Jonathan Adler:  Right.


Mario Loyola:  Whereas, the ALJ cuts across all of the administrative proceedings at the Securities and Exchange Commission. So, even if the Fifth Circuit was to be reversed on the first two, it can still be upheld on the third one. And now SEC has lost its ALJs, right?


Devin Watkins:  Technically, it can still bring it.


Jonathan Adler:  No, I agree with that. I agree with that. My only point is the concern that Devin raised, which was the concern we saw in a lot of the commentary on this opinion, which is that this doesn’t merely take out administrative proceedings. It takes out all SEC enforcement of the affected provisions of Dodd-Frank, because of the nondelegation problem. If the agency cannot choose between going to court and going to an administrative proceeding, then the agency can’t bring any action. But if the ALJ decision and the jury right decision eliminate one of the two options, well, then there’s no longer a nondelegation problem, because the agency only has one option. 


Just real quick on the ALJ thing. There is this question about whether or not the Fifth Circuit opinion creates a split with the Ninth Circuit. There is a Ninth Circuit opinion involving another agency — I’m now blanking on which agency — that is arguably different. But at least the Supreme Court wants to reach this question. And, after Lucia, everyone knew that this question had to be resolved relatively soon about whether or not ALJ’s removal can be limited. The Court has an easy way — this is an easy vehicle for that question. And the Court could take that question and just simply vacate everything else, if it wanted to.


Devin Watkins:  So, although that decision eliminating or blocking the ALJs because of the two layers of for-cause removal does stop ALJs from being used, the Commission itself could hear all these cases without ever needing an ALJ, under the rules, as far as I’m aware. So it doesn’t necessarily eliminate an administrative forum, and the choice, then, between the administrative forum and an Article III court. 


Jonathan Adler:  Wouldn’t the same intelligible principle problem exist there?


Devin Watkins:  Yes, exactly. The intelligible principle problem would exist between the administrative forum of the Commissioners, and the Article III court. Just eliminating the ALJs doesn’t actually solve the nondelegation problem. 


Mario Loyola:  So the typical case I understood, previously to this opinion, of an SEC proceeding against somebody, internally, is when a person has broken broker-dealer rules or something like that, and the proceeding is aimed at terminating the license or coming to some agreement where the person’s never going to act as a broker-dealer again, or whatever. Those proceedings are done by ALJs, aren’t they?


Devin Watkins:  Yes, they are. But it is at the option of the SEC. They’ve chosen to give it to ALJs, but, under the rules, they don’t have to. They could do it themselves if they wanted to. They just don’t want to spend the time it takes to go do these full trials themselves. 


Mario Loyola:  And when you say, “do it themselves,” what do you mean by that? Like, do it themselves as a party to an Article III proceeding?


Devin Watkins:  I mean, rather than there be an ALJ, have the Commission itself be the deciding fact-finder in the case, where the motions and everything would go directly before the commission.


Mario Loyola:  Okay, got it. 


Devin Watkins:  So we’re just about out of time, here. I’m not sure we have time for another question. 


Mario Loyola:  Well, we have two minutes, let’s try. I’m not sure. I think this question, “What agencies are most at risk of attack if this decision stands, certainly on the Article II issue, removal issue.” What do you guys think?


Jonathan Adler:  Well, I mean, the question would be whether or not there’s a way to distinguish social security ALJs which are — I forget the numbers, but are the vast majority of them. There are somewhere in the ballpark — I think it’s 1700 or so ALJs throughout the federal government. And the lion’s share of those are in the social security administration. There are questions about ALJs and sometimes they have a different name in some other agencies. 


It certainly relates to agencies that use administrative proceedings as part of their enforcement, as opposed to benefits administration, like in the social security context. And the Seventh Amendment holding certainly would have implications for Department of Interior, EPA, other agencies, OSHA — agencies that use administrative proceedings for enforcement.


Devin Watkins:  Yeah, as far as I’m aware, the Supreme Court has fairly explicitly said that the social security ALJs, because it’s not a kind of adversarial forum, are likely to be held to be quite a bit different in the way that they’re used. Okay, well it’s 3:00 now, so I think we’re about out of time. 


Steven Schaefer:  Thank you to all of our experts who have joined us today to discuss the implications of “Jarkesy v. SEC for Administrative Tribunals.” And thank you to our audience for joining us. To find out more about webinars, podcasts, papers, and other content like this, please visit us at That is Thank you.




Conclusion:  On behalf of The Federalist Society’s Regulatory Transparency Project, thanks for tuning in to the Fourth Branch podcast. To catch every new episode when it’s released, you can subscribe on Apple Podcasts, Google Play, and Spreaker. For the latest from RTP, please visit our website at




This has been a FedSoc audio production.

Jonathan Adler

Johan Verheij Memorial Professor of Law and Director, Coleman P. Burke Center for Environmental Law

Case Western Reserve University School of Law

Mario Loyola

Senior Research Fellow, Environmental Policy and Regulation, Center for Energy, Climate, and Environment

The Heritage Foundation

Devin Watkins


Competitive Enterprise Institute

Regulatory Process

The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speaker(s). To join the debate, please email us at [email protected].

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