July 5, 2023
ALJ Drama Heads to SCOTUS
Last year, a divided 5th Circuit panel ruled that the SEC’s administrative law judge system, as currently operated, was unconstitutional. That’s a big deal in and of itself, but as Liz blogged at the time, some suggest that the decision could undermine not just the ALJ system, but a big chunk of the SEC’s rulemaking authority. In light of the stakes involved, it shouldn’t come as a big surprise that the SCOTUS granted the SEC’s petition for cert last week. This excerpt from SCOTUSBlog’s post on the case sets forth the issues to be addressed by the Court:
(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.
The SEC has not fared well in the SCOTUS when it comes to challenges to its ALJ system – and unlike a lot of other issues, the Court’s skepticism toward the the agency’s use of ALJs has been bipartisan. In 2018, for example, Justice Kagan wrote the majority opinion in SEC v. Lucia, in which the Court by a 7-2 vote invalidated the SEC’s process for appointing ALJs. Earlier this year, she authored the Court’s unanimous opinion in SEC v. Cochran, which permitted defendants in ALJ proceedings to raise certain structural challenges to those proceedings in federal court, without having to first complete the administrative proceedings.
Stay tuned. Depending on how the SCOTUS rules on this case, there could be some pretty fundamental changes to how the SEC does business when it comes to enforcement – and perhaps rulemaking as well.
– John Jenkins