The Supreme Court Has Figured Out How to Gut a Bunch of Crucial Federal Laws at Once

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The catastrophe that unfolded at the Supreme Court on Wednesday morning was so suffused with infuriating bad faith that even Justice Elena Kagan, the model of a disciplined jurist, could not stand it. For nearly 50 years, Kagan declared, “no one has had the chutzpah” to make the argument before the court that the Securities and Exchange Commission had no right to fine wrongdoers—an anti-historical, anti-textual theory that would hobble the federal government’s ability to enforce statutes that protect the public from harm. No one, that is, until Wednesday, when six conservative justices lined up to endorse the theory, telegraphing their intention to kneecap the SEC and other agencies that impose regulations against lawbreakers.

The case, Jarkesy v. SEC, is complicated in the details but pretty simple in the end. It asks whether federal agencies can continue to do something that they’ve done for more than a century and that no court (including SCOTUS) has ever forbidden: adjudicate the government’s claims against a private party for violating “public rights” established by Congress. Do you think that securities fraud, consumer scams, environmental crimes, labor violations, and a ton of other misdeeds should be efficiently and consistently penalized? Then you are out of luck, because the Supreme Court is poised to strip much of that enforcement power from the federal government.

George Jarkesy’s case provides an unsympathetic vehicle for this long-standing conservative project. A right-wing talk-radio host, Jarkesy created two hedge funds that managed $24 million in assets. He and his firm lied to their 120 investors about where their money was going while dramatically overvaluing holdings to justify extortionist management fees. The SEC launched an administrative proceeding, adjudicated before an administrative law judge at the agency, and prevailed. The agency fined Jarkesy $300,000, barred him from participation in the securities industry, and ordered him to give up nearly $685,000 in unlawful gains.

This kind of thing happens every day across the government. It’s a key foundation of federal law enforcement, one of Congress’ favored methods of protecting the American people. Yet Jarkesy argued that the entire process was unconstitutional. He raised three challenges: First, he argued that the SEC’s adjudication violated his Seventh Amendment right to a jury trial; second, that the administrative law judge’s independence violates the president’s executive authority; and third, that the SEC’s ability to decide where it would bring the case—within the agency or in federal court—violates the nondelegation doctrine. The U.S. Court of Appeals for the 5^th Circuit endorsed all three claims in an opinion that proudly flouted multiple, unbroken lines of Supreme Court precedent.

Wednesday’s arguments focused primarily on this first theory: that adjudicating securities fraud before an administrative law judge violates the right to a trial by a jury. This right arises from the Seventh Amendment, which provides a jury trial in some civil cases. Current Supreme Court precedent breaks it down like this: When the U.S. government seeks to enforce a congressional statute that prohibits or punishes wrongdoing, it is enforcing “public rights.” And these enforcements don’t implicate the Seventh Amendment. That means they can be brought within an agency, before administrative law judges, who are shielded from removal by the commission. As Kagan put it on Wednesday, quoting major precedent, the Seventh Amendment “is no bar to the creation of new rights or to their enforcement outside the regular courts of law.”

This system is the only plausible way that the executive branch can carry out the duties assigned to it by Congress. Federal agencies rely on administrative adjudication to penalize polluters, scammers, abusive employers, crooked banks, and a whole range of unsavory parties. Obviously, these agencies can’t send anyone to prison, and their procedures must comply with due process. Their goal is to catch countless cases that would otherwise slip through the cracks—often because the harm involved applies to the public at large, or to potential harms that haven’t yet caused an injury. If the government had to bring these cases in federal court, the judiciary would be overwhelmed, its docket flooded with disputes that it lacks the time or resources to resolve by trial. Claims would be decided by a jury of laypeople rather than expert ALJs with deep familiarity over the subject matter. This system would produce wildly disparate and contradictory outcomes, depriving agencies of the ability to use adjudication for the creation of coherent policymaking.

No advocate of good government would desire such a system or anything like it. Yet that’s exactly the system this Supreme Court evidently wishes to create. The conservative justices railed against administrative adjudication throughout arguments on Wednesday, framing them as an odious threat to individual liberty. Chief Justice John Roberts asked Principal Deputy Solicitor General Brian Fletcher, who defended the SEC, why the court shouldn’t chuck its precedents because they’re just so damn old. “The extent of impact of government agencies on daily life today is enormously more significant than it was 50 years ago,” Roberts huffed. (Never mind that the population has grown by 100 million people and the economy has suffered a Great Recession in the interim.) The “threat” of agency enforcement “is far greater today,” he told Fletcher, so isn’t it time to drop a bomb on agency adjudication? Justice Neil Gorsuch propounded a Schoolhouse Rock version of the Seventh Amendment, lecturing Fletcher about how the right to a jury trial “is a very important foundational freedom in American society and a check on all branches of government.”

Justice Amy Coney Barrett used her time to defend Jarkesy and other fraudsters’ right to keep their ill-gotten gains. “Why do you need civil penalties?” she asked Fletcher—that is, the $300,000 fine imposed by the SEC. Why should agencies be able to fine wrongdoers rather than telling them, in a stern voice, to stop doing wrong? Justice Samuel Alito accused Fletcher of endorsing “a pretty patent evasion of the 7^th Amendment” by asserting that a right can be “nullified simply by changing the label.” Justice Clarence Thomas evidently thinks the entire SEC is unconstitutional; his questions were so tiresome that Justice Sonia Sotomayor said Thomas has “already written on this issue,” so Fletcher should make his point, then move along, rather than wasting time on Thomas’ fringe beliefs.

Justice Brett Kavanaugh, too, signaled support for gutting the SEC’s enforcement power, but he had another issue on his mind: the independence of administrative law judges. SEC commissioners can’t remove these judges without good cause, and the president can’t remove SEC commissioners without good cause—two layers of protection that prevent the president from interfering with agency adjudications, fatally undermining their fairness and consistency. An audibly grouchy Kavanaugh derided these protections as a “problematic” interference with executive authority. If the court agrees, it will give the president and his appointees new powers to fire administrative law judges, rigging the proceedings in favor of a preferred party. A future Donald Trump presidency, for instance, could stack the SEC—and a bunch of other agencies—with cronies who reward his allies and punish his enemies.

Let’s be clear about something: The ostensible historical basis for these supposedly originalist theories do not exist. They have been fabricated by conservative activists in recent years to justify a partisan assault on the administrative state. The 5^th Circuit supported its view of the Seventh Amendment by making up a quote by William Blackstone, a key inspiration for constitutional law; the real quote offers zero support for Jarkesy’s argument. Kavanaugh’s theory of executive power rests in part on several embarrassing mistakes made and repeated by activist scholars that badly warp the historical record. It also ignores evidence from 1793 that the president has no free-floating right to appoint and remove adjudicators. The theory that agencies can’t adjudicate disputes contradicts practice reaching back to the founding. And as both Kagan and Justice Ketanji Brown Jackson pointed out again and again on Wednesday, all these terrible ideas flout the Supreme Court’s own entrenched precedent, which “resolves the case” top to bottom.

The only comfort to be found during these awful arguments was what wasn’t said: No justice seriously asserted that the SEC somehow violates the nondelegation doctrine, a theory that would neuter it entirely by preventing any enforcement whatsoever. It’s not much consolation. For more than two hours, the Republican-appointed justices took turns propounding bogus originalism to justify hamstringing agencies and transforming them into a lap dog of the president. Chutzpah is really far too kind a word for it.