Notice & Comment

SG Stumbled in Jarkesy Cert Petition, by Andrew N. Vollmer

A federal court of appeals found that several features of the internal administrative court system at the Securities and Exchange Commission violated the Constitution.  The Solicitor General’s Office (SG), which represents the SEC in the Supreme Court, recently asked the Court to review the court of appeals decision but, on one of the questions presented for review, took the unusual step of asking the Court to assume a critical premise.  The assumption would create a hypothetical case and, what’s more, would be contrary to the truth.  The Court should reject the request but review and decide the issue to correct misunderstandings about the premise.

In Jarkesy v. SEC, one of the conclusions of the Fifth Circuit was that the job protections of SEC administrative law judges violated the Constitution.  They had two levels of insulation from the control of the President.  The SEC could remove them only for good cause determined by a civil service board, and the President needed good cause to remove members of the SEC or the board.  In the 2010 Free Enterprise decision, which also involved the SEC, the Supreme Court concluded that the Constitution did not allow an executive officer to have two levels of tenure protection.  

The SG petitioned the Supreme Court to review the Jarkesy conclusion that SEC ALJs had unconstitutional removal protection.  The SG offered a few arguments but ducked an essential predicate for the Fifth Circuit’s decision:  that “SEC Commissioners may only be removed by the President for good cause.”  The SG took no position on that issue.  Instead, the SG proposed that the Court review the ALJ question and decide it on the “understanding” that SEC Commissioners are removable only for cause.  

The SG reminded the Court that it proceeded this way in Free Enterprise.  That case concerned a statute restricting the ability of the SEC to discharge members of the auditing regulator.  The Court decided the case on the understanding of the parties that the President needed good cause to remove an SEC commissioner, drawing a dissent on that point from Justice Breyer.  

The Court should resist any temptation to follow the SG’s proposal.  First and foremost, it is not true that SEC commissioners have protection against removal by the President.  The President does not need good cause or a reason of any kind to terminate the service of an SEC commissioner.  The statute creating the SEC and the positions of commissioners sets some qualifications and a term of years, but nothing in the statute addresses removal.  

If no statute passed by Congress restricts the President’s ability to fire an executive officer at will, then no restriction exists.  Tenure protections are not implied; they interfere with the President’s executive powers.  The SG conceded it had no statutory support for restrictions on removal of SEC commissioners and knows that SEC commissioners do not have for-cause protections.  The SG and the Court should not pretend that the law is something it is not.  

Second, deciding the constitutional status of SEC ALJs on an assumption (and an incorrect one at that) raises all the concerns federal courts have with advisory and hypothetical opinions.  The principal legal objection is that decisions based on hypotheticals bypass the “cases and controversies” requirement of Article III, which calls for an actual dispute on concrete facts between adversaries.  That doctrine preserves the role and function of the judicial branch.

Other reasons also counsel restraint in assuming positions important to the Court’s constitutional analysis.  When an assumption leads to the invalidation of a congressional enactment, as it did in Free Enterprise and could in Jarkesy, the hypothetical thwarts the will of Congress and deprives the country of the operation of a law that might produce a public good.  It ignores the tradition of requiring strict necessity to judge the constitutionality of an act of Congress, and it produces an outcome that lower courts accept as doctrine and spread to new facts, as the Fifth Circuit accepted Free Enterprise in Jarkesy.  

Decisions rendered on assumptions lend uncertainty and insecurity to legal rights and lead to unjust results.  Free Enterprise is illustrative.  The Court severed a statute specifying grounds for discharging a member of the auditing regulator, and the SEC has used the unrestricted removal power twice to fire members.  When the Court inevitably encounters a live dispute about the job protections for SEC commissioners and concludes that nothing restricts the President’s power to remove them, what happens to the severed statute in Free Enterprise or the removed members of the auditing regulator?  If the Court follows the recommendation of the SG in Jarkesy, what would happen to the ALJs at the SEC or to parties in pending adjudications when the Court later corrects the false premise of for-cause protection for SEC commissioners?  

The SG did not need to propose that the Court assume restrictions on the removal of SEC commissioners to win the ALJ issue for the SEC.  The government should have asked the Court to reverse the Fifth Circuit on the question by determining that SEC commissioners serve at the pleasure of the President.  In that case, ALJs at the SEC would not have two layers of for-cause removal protection and the constitutional violation the Fifth Circuit found would disappear.  

Perhaps the SG did not use this simpler argument because the SEC did not want to take the position that the commissioners’ jobs had less security and therefore were less independent of politics.  We do not know.  What we do know is that the SG’s petition said that the Fifth Circuit’s removal power holding “affects the conduct of ALJ proceedings within a broad range of” federal agencies whose heads have statutory tenure protection.  The SG of course desired a speedy resolution of that issue, but Jarkesy is not the right case.  Another case will develop soon enough to test the constitutionality of the use of ALJs at an agency with leaders actually having statutory restrictions on the President’s ability to remove them.  

Andrew N. Vollmer is a senior affiliated scholar with the Mercatus Center at George Mason University, former professor of law, general faculty, at the University of Virginia School of Law, and former deputy general counsel of the Securities and Exchange Commission.

Print Friendly, PDF & Email