Notice & Comment

Nondelegation in SEC v. Jarkesy: Flying under the Radar, by Will Yeatman

Based on my personal interactions, most lawyers seem to think little of the nondelegation claim in SEC v. Jarkesy. Even Mr. Jarkesy seems somewhat lukewarm to the nondelegation argument, as it’s discussed in the respondent’s brief for only two pages, which is far less than was devoted to the other two constitutional claims. In this post, I hope to flesh out the nondelegation issue in SEC v. Jarkesy, and why I believe it’s a bigger deal than most people seem to think.  

Given that Jarkesy’s other constitutional claims have dominated the discussion surrounding the case, I’ll briefly restate the nondelegation controversy.  The respondent argues there is no “intelligible principle” to limit the SEC’s choice whether to bring enforcement actions in Article III courts or within the agency. And because this statutory authorization lacks a limiting principle, it’s an unconstitutional delegation of legislative authority.  

In response, the SEC argues that the nondelegation doctrine is wholly inapposite to the case. According to the SEC, its choice between judicial or administrative enforcement flows from “classic executive power” and, therefore, “does not implicate the nondelegation doctrine, which prohibits Congress from unlawfully delegating legislative power.” Pet. Br. at 34 (emphasis in original). Beyond the irony of an “independent” agency cloaking itself in “classic executive power,” the SEC’s nondelegation defense is demonstrably incorrect.    

As a general matter, it is uncommon for agencies to have a choice between judicial and administrative enforcement. Typically, when Congress authorizes an agency to pursue punitive remedies in an administrative adjudication, the agency is limited to prosecuting in its in-house tribunals. By lodging original jurisdiction with administrative courts alone, Congress intends to tap that agency’ies’ supposed “efficiency” and “expertise.” To be clear, I’m not allowing that regulatory agencies  actually possess these attributes; in 2022, the mean and median age of cases on the SEC’s appellate docket were 2,177 days and 2,291 days, respectively, which is certainly no better than federal courts. My only point here is that Congress abides a discernible legislative design when it locks most agencies into administrative enforcement.  

Though rare, when Congress creates some sort of venue choice for regulatory enforcement, the enabling act usually limits the agency’s discretion. Indeed, Congress has set such limits in multiple ways.  

Under the Federal Power Act, for example, the Federal Energy Regulatory Commission may pursue civil money penalties of up to $1,000,000 for fraud-like “market manipulation.” And FERC may enforce these penalties in either administrative or judicial forums. FERC, however, doesn’t get to pick; instead, Congress devolved this crucial decision to the defendant. See 16 U.S.C. § 823b(d)(2)(B). In identical fashion, the Fair Housing Act empowers the defendant to decide whether civil penalties should be adjudicated in federal court or in an administrative proceeding before the Department of Housing and Urban Development. See 42 U.S.C. § 3612(a).   

Congress employed a different legislative design at the Environmental Protection Agency (EPA). Under the Clean Water Act, for example, the EPA may seek civil money penalties either in its in-house tribunal or a federal court. The agency, moreover, can enforce the statute with a degree of independence from the Justice Department (though not as much independence as the SEC). Despite the EPA’s quasi-independent litigation authority, these venue-choice decisions are constrained by the very structure of the penalty. The EPA can impose administrative penalties of up to $25,000 without having to comply with the Administrative Procedure Act. If the EPA conducts an on-the-record hearing, then the agency may pursue administrative penalties of up to $10,000 per violation, but the total penalty is capped at $125,000. To seek the highest level of penalties ($25,000 per violation, uncapped), the EPA must go to court, where the defendant has the right to a jury trial. See 33 U.S.C. § 1319(d), (g); Tull v. United States, 481 US 412 (1987). Here, the limiting principle is straightforward: the greater the civil penalty, the more due process afforded the defendant. Other EPA enabling acts feature this same design, including the Safe Drinking Water Act and the Clean Air Act.  

Unlike the agencies discussed above, the SEC’s choice of venue is unconstrained by any limiting principle whatsoever. The SEC may seek identical million-dollar penalties in either an administrative tribunal or federal court. Furthermore, the SEC handles its own civil enforcement litigation, independently from the Justice Department. In either forum, prosecution is brought by the agency’s Division of Enforcement, which boasts scores of attorneys, accountants, and investigators. This is an uncommon discretion.  

As a related aside, the respondent’s brief explains, “At the time of Jarkesy’s ‘trial’ in 2014, the agency had, over the last 200 contested cases, compiled an in-house win rate of exactly 100%, contrasted with a 61% success rate over the same time period in Article III courts.”  

In sum, most enabling acts evince a clear legislative design in how Congress structured an agency’s choice among venues for enforcement. If these delegations reflect “legislative” power in most other contexts—and they plainly do—then they don’t magically become “classic executive power” in the SEC’s hands. No, they remain “legislative.” And because there is no limiting principle, the SEC’s unfettered discretion contravenes the Constitution.   

Crucially, the SEC’s nondelegation violation cannot be viewed in isolation; instead, it is bound with the jury trial question also presented in Jarkesy. Whenever a statute gives an agency a choice between administrative and judicial enforcement, isn’t Congress signaling that there’s no functional difference between venues? After all, the sine qua non of agency adjudication is its comparative (vis a vis courts) advantages in expertise and efficiency. This putative superiority is why we tolerate the separation of powers problems inherent to housing prosecutors and judges under the same roof at administrative agencies. While most regulatory regimes reflect the (supposed) comparative competences of judicial and administrative courts, those at the SEC do not. Of course, the agencies’ (assumed) expertise and efficiency are important tenets in the Supreme Court’s convoluted “public rights” doctrine for the Seventh Amendment. To the extent that these qualities are absent from the legislative design, then the “public rights” rationale is undermined.  

Put differently, the only justification for SEC’s anomalous discretion is administrative expediency. Surely that’s an insufficient basis to deprive defendants of their Sseventh Aamendment rights.  

Will Yeatman is a legal fellow at Pacific Legal Foundation, a nonprofit legal organization that has defended Americans’ liberties when threatened by government overreach and abuse for the last 50 years.   

Print Friendly, PDF & Email