The 6-3 decision ruled the SEC’s in-house administrative courts are unconstitutional, clawing back a key tool the agency has leveraged in enforcing securities laws.
The Biden administration has warned such a decision would threaten agencies across the federal government with similar structures including the Federal Trade Commission, the IRS, the Environmental Protection Agency and the National Labor Relations Board (NLRB).
Chief Justice John Roberts, writing for the majority, said forcing defendants to go through the SEC’s in-house system rather than a federal district court violates their Seventh Amendment right to a jury trial.
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Roberts wrote.
“Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands.”
Justice Sonia Sotomayor read her dissent aloud from the bench, a rarity used to underscore sharp disagreements in a case. It was just the second time this term a justice read a dissent from the bench.
“Today’s ruling is part of a disconcerting trend: When it comes to the separation of powers, this Court tells the American public and its coordinate branches that it knows best,” Sotomayor wrote.
The decision was a big win for conservative and business interests that have sought to demolish the SEC’s in-house enforcement mechanism as part of a broader attack on the “administrative state.”
Although the case, SEC v. Jarkesy, has received less attention than some other cases on the Supreme Court’s docket this term scrutinizing the scope of executive branch powers, legal experts have described the impacts of the SEC case as potentially wide-ranging.
Corporate giants have taken aim at the constitutionality of administrative law judges on the NLRB, the federal agency charged with enforcing U.S. labor laws. Facing NLRB complaints from alleging illegal harassment and firings of unionizing employees, Amazon, Starbucks, SpaceX and Trader Joe’s have each challenged the constitutionality of the New Deal-era agency in recent months.
Elon Musk’s SpaceX cited SEC v. Jarkesy in a January complaint against the NLRB that argued the agency’s structure is unconstitutional because it improperly protects its members and administrative law judges from removal.
The Hill’s Zach Schonfeld and Taylor Giorno have more here.
