The Administrative State Suffers a Body Blow in Ruling From the Fifth Circuit

The scholar who has been in the van against the administrative state, Philip Hamburger, tells the Sun he wants the Supreme Court to read the work of a Czech writer and statesman, Vaclav Havel. He quotes Mr. Havel’s imperative that we are obligated to “live in truth” and that “it is time for the Supreme Court to do just that when it comes to administrative law and the Constitution.”That time drew closer this week, when the United States Court of Appeals for the Fifth Circuit ruled against the Securities and Exchange Commission in Jarkesy v. SEC. In a 2-to-1 decision, the circuit riders held that numerous practices of the commission run afoul of the Constitution.Mr. Hamburger, who teaches at Columbia and founded a new civil rights organization to challenge the administrative state, calls that outcome “a profound repudiation of both administrative rulemaking and adjudication.” It is a sign, he believes, that “the administrative state is beginning to crumble.”Jarkesy turned on the processes employed by the SEC in penalty proceedings. The Fifth Circuit panel of judges held that those procedures were deficient in three crucial areas. The first is the constitutional promise to a trial by jury.In vacating a conviction for securities fraud, Judge Jennifer Walker Elrod’s majority opinion held that the use of an administrative law judge, rather than a federal judge, to adjudicate the case violated the Seventh Amendment right to a jury trial.While Congress is empowered to forswear jury trials in suits that do not derive from common law origins, charges of fraud like those here do derive from that source and thus cannot be adjudicated by administrative law judges rather than juries of one’s peers. This distinction is drawn in the text of the Seventh Amendment itself, which mandates that the “right of trial by jury shall be preserved” only in “suits at common law.” This excludes suits that emerge from what is called “equity,” a once separate but since merged body of civil law that includes remedies like injunctions and specific performance rather than monetary damages. In asserting the common law right to a jury trial, the court wrote that “Congress cannot change the nature of a right, thereby circumventing the Seventh Amendment, by simply giving the keys to the SEC to do the vindicating.” Bureaucratic noise cannot obscure the constitutional signal. Next, the court faulted Congress for failing to provide an “intelligible principle” to curate which cases would be heard by administrative law judges and which would head to traditional federal courts. This dereliction of duty meant that the SEC was unduly empowered to decide an essentially legislative question.Lastly, the riders of the Fifth Circuit held that the administrative law judges enjoyed a protection against being fired that was too robust, being that the board empowered to terminate them for cause consisted of members who were also fireable only for cause. This double layer was ruled unconstitutional because it impinged on the president’s ability to fulfill his constitutional mandate to “take Care that the Laws be faithfully executed,” which courts have read as granting the commander in chief leeway to fire officers of the executive branch. Jarkesy’s fate is unclear, as the SEC has not yet decided its course of action. What does seem clear, however, is that this is an area of law in ferment. Another case from the riders of the Fifth Circuit that challenges SEC procedures, Cochran v. SEC, was recently granted certiorari by the Supreme Court.Professor Hamburger, whose not-for-profit law firm has helped win so many cases that the Sun headlined one editorial, “The Hamburger Court,” observed that “we are seeing lower courts push back against Supreme Court doctrine. It is a reminder that correction of error comes not only from above but also from below.” With this latest case, partisans of the administrative can feel the ground shaking beneath their feet.

The Administrative State Suffers a Body Blow in Ruling From the Fifth Circuit

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