The Checks and Balances Letter, June 2022: Fifth Circuit finds constitutional flaws in SEC enforcement

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review the United States Supreme Court’s (SCOTUS) recent decisions concerning statutory authority and final agency actions; a decision out of the United States Court of Appeals for the Fifth Circuit that found constitutional deficits with the Securities and Exchange Commission’s enforcement proceedings; and new legislation that seeks to relocate federal agency headquarters out of Washington, D.C. 

At the state level, we take a look at North Carolina legislation that aims to allow the state’s administrative law judges to nullify state agency rules and two new state-level reports that examine administrative agencies in Wisconsin and Mississippi.

We also highlight a review by administrative law scholar Cass Sunstein examining law professor Thomas Merrill’s latest book and a Scott Rasmussen national survey gauging public sentiment on federal regulatory activity. As always, we wrap up with our Regulatory Tally, which features information about the 154 proposed rules and 265 final rules added to the Federal Register in May and OIRA’s regulatory review activity.

In Washington

SCOTUS silent on Chevron, weighs in on final agency actions

What’s the story?

Since the last edition of Checks and Balances, the U.S. Supreme Court has issued opinions and granted certiorari in administrative law cases that shed light on both the future of Chevron deference and the limits of final agency actions.

In American Hospital Association v. Becerra, the justices on June 15 unanimously held that the U.S. Department of Health and Human Services (HHS) exceeded its statutory authority when it reduced certain Medicare reimbursement rates. Though some commentators had anticipated that the case would provide the court with an opportunity to limit Chevron deference, Justice Brett Kavanaugh made no mention of the doctrine in the majority opinion, leading SCOTUSblog analyst James Romoser to question whether “the doctrine may be shunned into oblivion” rather than explicitly overturned.

In George v. McDonough, the court on June 15 held 6-3 that a “clear and unmistakable error” (CUE) does not include subsequent changes to laws or regulations. Kevin George had sought to overturn the denial of his disability benefits, claiming that the U.S. Department of Veterans Affairs (VA) committed a CUE by basing their denial on later-invalidated regulations. The court disagreed and found that the VA’s regulatory changes can only retroactively affect open—rather than final—agency decisions. 

The court on May 16 granted certiorari in another case concerning final agency actions (and administrative law judges). Securities and Exchange Commission v. Cochran questions whether federal district courts can concurrently hear constitutional challenges to the SEC’s administrative law judges in cases where the agency has yet to issue a final adjudicative order. The case is scheduled for argument during the court’s October 2022-2023 term.

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Fifth Circuit finds constitutional flaws in SEC enforcement

What’s the story? 

A divided three-judge panel of the United States Court of Appeals for the Fifth Circuit on May 18 found a trio of constitutional deficits with the Securities and Exchange Commission’s (SEC) enforcement proceedings that could affect the future scope of federal agency authority.

The panel held in Jarkesy v. Securities and Exchange Commission (SEC) that the SEC administrative law judges’ (ALJs) two layers of removal protections unconstitutionally insulate them from presidential oversight; that the agency’s adjudication proceedings violate the Seventh Amendment right to a jury trial; and that Congress unconstitutionally delegated legislative power to the SEC by failing to provide the agency with an intelligible principle to guide its enforcement actions.

“Congress has given the Securities and Exchange Commission substantial power to enforce the nation’s securities laws. It often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property. But the Constitution constrains the SEC’s powers by protecting individual rights and the prerogatives of the other branches of government,” wrote Judge Jennifer Walker Elrod in the opinion.

Should Jarkesy reach the U.S. Supreme Court on appeal, the case could “set up the prospect that the Supreme Court may curtail the SEC’s administrative powers, and the powers of federal administrative agencies generally,” according to The National Law Review.

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New legislation aims to relocate federal agency headquarters 

What’s the story?

U.S. Senator Joni Ernst (R-Iowa) and U.S. Representative Bill Johnson (R-Ohio) on May 12 filed bicameral legislation that aims to move federal agency headquarters out of Washington D.C.

The Strategic Withdrawal of Agencies for Meaningful Placement (SWAMP) Act seeks to create a competitive bidding process for cities around the country to house federal agency headquarters. The bill’s authors claim that relocating agency headquarters out of Washington D.C. has the potential to distribute federal agency jobs to new parts of the country and bring agency officials in closer proximity to the citizens and entities they regulate.

“It’s time to enable other cities, if they choose, to house federal government agencies to ensure that isolated, unelected career bureaucrats can begin immersing into the American fabric and living among the people they’ve pledged to serve,” Johnson told The Iowa Torch.

President Donald Trump (R) in 2020 relocated the Bureau of Land Management’s (BLM) headquarters from Washington D.C. to Colorado with the goal of bringing the agency closer to the public lands it manages. The following year, President Joe Biden (D) returned the agency’s headquarters to Washington, D.C., arguing in part that a leadership presence in the nation’s capital is necessary for BLM and other agencies to carry out their missions.

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In the states

North Carolina bill would allow state ALJs to nullify agency rules

What’s the story? 

North Carolina state Representative Sarah Stevens (R) on May 18 filed legislation that aims to place a check on state agency authority by granting the state’s administrative law judges (ALJs) the power to nullify certain agency rules.

Under existing law, North Carolina ALJs have the power to declare an agency rule void “as applied in a particular case” if the rule meets three criteria: (1) the rule exceeds the agency’s statutory authority, (2) the rule is ambiguous in its direction for regulated parties, and (3) the rule is not required for the agency to fulfill its statutory duty. House Bill 991 would broaden ALJs’ authority to declare rules that meet the three-part criteria void in all applications, not only with respect to a specific agency enforcement.

North Carolina’s ALJs serve as a central panel housed in the state Office of Administrative Hearings—meaning that they are not employed by the same state agencies whose internal enforcement actions they adjudicate. Some states and the federal government allow agencies to employ their own ALJs with certain safeguards in place aimed at protecting ALJ independence from agency influence.

House Bill 991 was pending in the House Judiciary Committee as of June 14.

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New reports shed light on state-level administrative agencies 

What’s the story? 

Two new reports from state-level advocacy groups aim to serve as resources for citizens to better understand the role of administrative agencies within the Wisconsin and Mississippi state governments.

“The Citizen’s Guide to the Wisconsin Administrative State,” published by the Wisconsin Institute for Law and Liberty, examines how administrative agencies function within the state’s separation of powers framework, how agencies issue binding rules, and how Wisconsin citizens and the state legislature can hold agencies accountable. “As the administrative state has become increasingly ascendant in all aspects of our lives,” wrote authors Lucas Vebber and Eric Searing, “it has become more important than ever for everyday citizens to get involved, demand transparency, and provide the necessary oversight to hold bureaucrats accountable.”

“Drain the Swamp? The Administrative State in Mississippi,” published by the Mississippi Center for Public Policy (MCPP), examines 222 state government agencies and proposes solutions for elected officials to improve agency accountability. “[W]e discovered that there is a serious accountability deficit [in Mississippi],” said MCPP CEO and President Douglas Carswell. “Big, powerful bureaucratic organizations are able to impose rules and spend public money without meaningful accountability to the public.”

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Should agencies or courts interpret statutes?

A recent book review in The New York Review by administrative law scholar Cass Sunstein questions whether federal agencies or the judicial branch have the right to interpret statutes. Sunstein reviewed Columbia law professor Thomas W. Merrill’s new book, The Chevron Doctrine: Its Rise and Fall, and the Future of the Administrative State. In his review, Sunstein weighed in on what he considers to be ominous judicial decisions that constrain federal agencies from addressing urgent social problems:

“Does the Centers for Disease Control and Prevention have the authority to impose a mask mandate on people who travel on planes, trains, and buses? In April a federal district court in Florida offered a clear answer: Absolutely not. The court gave an exceedingly narrow reading to the CDC’s powers under laws enacted by Congress. In the process, it sent an unmistakable signal: some conservative judges will not allow federal agencies to protect public safety and health unless Congress has unambiguously given them the authority to do so.

“That signal is ominous. In a period of congressional deadlock, federal agencies often have to take the lead in responding to urgent social problems. During the Covid-19 pandemic, many of the nation’s most important decisions about vaccinations, air travel, masks, social distancing, and more have been made by White House officials, the CDC, the Food and Drug Administration, and the Occupational Safety and Health Administration (OSHA). Policy responses to climate change have also primarily come from the White House, the Environmental Protection Agency (EPA), and other agencies.

“Because public policy is often made by administrative agencies, it can shift dramatically from one administration to another. Whether we are speaking about public health, civil rights, clean air, health care, food safety, tobacco, or immigration, fundamental policy judgments might well depend less on Congress than on who wins the presidency.”

Want to go deeper

  • Click here to read the full text of “Who Should Regulate?” by Cass Sunstein. 


56% of voters favor a proposal that would require congressional approval before federal agencies could issue binding regulations

​​A Scott Rasmussen national survey found that fifty-six percent (56%) of voters favor a proposal that would require congressional approval before federal agencies could issue legally binding regulations, including 22% who strongly favor it. Twenty-nine percent are opposed and 16% are not sure.

The survey also found that large majorities support reforms that would limit agencies’ power. Sixty-seven percent (67%) believe that Americans should have the right to a trial by jury before federal agencies can penalize them for violating regulations, 81% say that agencies should be required to provide individuals with an opportunity to respond before imposing penalties, and 74% favor a requirement that agencies reveal any evidence they possess that might help people contest that agency’s decisions.

Click here to visit Scott Rasmussen’s Number of the Day on Ballotpedia and view the questions posed to voters.


Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s May regulatory review activity included the following actions:

  • Review of 42 significant regulatory actions. 
  • Six rules approved without changes; recommended changes to 33 proposed rules; two rules withdrawn from the review process; one rule subject to a statutory or judicial deadline.
  • As of June 1, 2022, OIRA’s website listed 114 regulatory actions under review.
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