![]() ![]() The panel reasoned that administrative law judges are sufficiently powerful to trigger these requirements, but they can only be removed from office for good cause - and then only with the participation of SEC commissioners and members of the Merit Systems Protection Board, who are themselves only removable for cause. In general, federal officials whose authority is significant enough to qualify them as “inferior officers” must face a prospect of removal by the president and therefore cannot be protected by two or more layers of “for cause” protection for removal. Third, the Fifth Circuit held that administrative law judges who preside over the SEC’s administrative tribunals enjoy an unconstitutional degree of tenure protection, which hinders the president’s ability to remove them under the Take Care Clause of Article II of the Constitution. Although the nondelegation doctrine has scarcely been used by courts to strike down federal statutes since the New Deal, the Fifth Circuit’s ruling may be the latest sign of judicial interest in reviving it. To delegate authority to an agency, Congress must articulate an “intelligible principle” to guide the authority’s exercise, and the panel reasoned that Congress overstepped by granting the SEC unfettered discretion in forum selection. In particular, the court noted that Congress gave the SEC extensive powers to decide not only whether and in what venue to bring enforcement actions, but also whether the respondent has access to “certain legal processes” afforded in district court actions or is denied those rights in an administrative proceeding. Second, the Fifth Circuit held that Congress unconstitutionally delegated to the SEC legislative power when it empowered the agency to decide whether to bring an enforcement action in an administrative tribunal or in federal court. FIFTH CIRCUIT COURT OF APPEALS TRIALThe petitioners therefore had a right to jury trial for the liability-determination portion of the case. The Fifth Circuit held that the Seventh Amendment applies to proceedings where the SEC is seeking to obtain civil penalties, and although the SEC also sought such equitable remedies as disgorgement of ill-gotten gains and a securities industry bar, the court reasoned that all the remedies stemmed from the same facts. Indeed, the panel noted that the SEC has the option to bring enforcement actions in federal courts. It reasoned that the action against the petitioners resembled a traditional common law claim - such as a civil action for fraud - and was not uniquely suited for adjudication within an agency. ![]() The Fifth Circuit’s conclusions may significantly constrain the SEC’s - and perhaps other agencies’ - future ability to litigate certain enforcement actions before administrative tribunals.įirst, the Fifth Circuit ruled that the SEC’s adjudication procedure violated Seventh Amendment rights to jury trial. The case arose from the SEC’s enforcement action brought against the manager of two hedge funds and the funds’ unregistered investment adviser (the petitioners) before the agency’s in-house administrative law judge. Court of Appeals for the Fifth Circuit identified three independent constitutional flaws in the administrative adjudication system of the Securities and Exchange Commission (SEC). FIFTH CIRCUIT COURT OF APPEALS SERIESJarkesy is the latest in a series of cases challenging the constitutionality of administrative proceedings, two of which have been recently taken up by the U.S.Tenure protection afforded to administrative law judges unconstitutionally interferes with the president’s ability to remove a judge. ![]()
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