On June 30, 2023, the United States Supreme Court agreed to hear an appeal regarding the constitutionality of administrative proceedings in the case of
George Jarkesy and Patriot28 LLC v. SEC, which could have important ramifications on how federal agencies bring actions against alleged wrongdoers. This grant of certiorari stems from a May 18, 2022, Fifth Circuit decision,
Jarkesy v. Sec. & Exch. Comm’n, 34 F.4th 446 (5th Cir. 2022), which held that the use of administrative proceedings by the Securities and Exchange Commission (“SEC”) was unconstitutional, but its reasoning could also impact proceedings before the Federal Trade Commission and other agencies.
As we
previously reported the Fifth Circuit decision was significant and its reasoning went beyond prior cases questioning the constitutionality of aspects of administrative proceedings. First, the Fifth Circuit found that Congress impermissibly delegated its legislative power by allowing the SEC to decide whether to bring enforcement actions as administrative proceedings or in district courts without also providing proper guidance to the SEC on when either option should be utilized. Second, the court found that when the SEC pursued an administrative proceeding, Jarkesy and Patriot28 were improperly deprived of their right to a jury trial. Finally, the court determined that the statutory removal restrictions on SEC administrative judges, which protected them from removal absent certain situations, rendered the administrative judges’ role a violation of Article II of the Constitution.
Assuming the Supreme Court ultimately renders a decision on the same issues addressed by the Fifth Circuit, such a decision (which would not be expected before early 2024), could have sweeping consequences for federal agencies’ ability to initiate lawsuits in front of administrative proceedings.
