SCOTUS hears oral argument in constitutional challenge to SEC enforcement proceedings

By

Caitlin Styrsky

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 oral argument before the U.S. Supreme Court in a constitutional challenge to the enforcement proceedings of the Securities and Exchange Commission (SEC); a challenge to a rule from the Federal Highway Administration (FHWA) establishing greenhouse gas performance measures for states; President Joe Biden’s (D) veto of a Congressional Review Act (CRA) resolution seeking to nullify a small business lending rule; and Meta’s constitutional challenge to the structure and enforcement authority of the Federal Trade Commission (FTC).

At the state level, we take a look at the Florida Department of Transportation’s decision not to participate in the federal Carbon Reduction Program; and a report from the Vermont State Auditor examining inconsistencies in the state’s rulemaking process.

We also highlight recent commentary from legal fellow Will Yeatman on the nondelegation claim in the SCOTUS case Securities and Exchange Commission v. Jarkesy. We wrap up with our Regulatory Tally, which features information about the 149 proposed rules and 252 final rules added to the Federal Register in November and OIRA’s regulatory review activity.

In Washington

SCOTUS hears oral argument in constitutional challenge to SEC enforcement proceedings

What’s the story?

The United States Supreme Court on November 29, 2023, heard oral argument in Securities and Exchange Commission (SEC) v. Jarkesey—a case challenging the constitutionality of the SEC’s administrative enforcement proceedings. 

George Jarkesey and his advisory firm, Patriot28, sued the SEC after the agency brought an administrative proceeding against Jarkesy for violating securities laws. Jarkesy argued that the SEC’s administrative law judges’ two layers of removal protections unconstitutionally insulated them from presidential oversight; that the agency’s adjudication proceedings violated 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.

A divided panel of the United States Court of Appeals for the Fifth Circuit in May 2022 ruled in favor of Jarkesy, and the SEC appealed.

SCOTUSblog analyst Ronald Mann wrote that the court was divided at oral argument, with Justice Neil Gorsuch arguing that “because the elements of the administrative proceeding are similar to the elements of common-law fraud … Congress can’t move the dispute to an agency (without a jury).” Justice Elena Kagan, however, contended that “the Seventh Amendment is no bar to the creation of new rights or to their enforcement outside the regular courts of law.”

The case is expected to be decided in 2024.  

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Republican lawmakers raise constitutional concerns over new greenhouse gas rule, Texas AG files suit

What’s the story?

Republican lawmakers in Congress have argued in recent months that a new greenhouse gas reporting rule from the Federal Highway Administration (FHWA) is unconstitutional, Texas Attorney General Ken Paxton (R) in December filed a lawsuit challenging the rule.

The FHWA on December 7, 2023, issued a final rule requiring state transportation departments and metropolitan planning organizations (MPOs) to establish carbon dioxide measurement targets aimed at reducing greenhouse gas emissions over time. Republican lawmakers in Congress, including U.S. Senator Kevin Kramer (N.C.), argued that the rule exceeds the FHWA’s authority and violates state sovereignty. 

The rule “is contrary to congressional intent, usurps state authority by putting the federal government in the driver’s seat and is fundamentally unworkable in rural states like North Dakota,” argued Kramer in a November 22 statement. 

Texas Attorney General Ken Paxton (R) on December 19 sued the U.S. Department of Transportation in the U.S. District Court for the Northern District of Texas seeking to block the rule, arguing in the complaint that the rule exceeds “the statutory authority granted to [the Department of Transportation] by Congress; is arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law; and is contrary to constitutional right, power, privilege, or immunity.”  

The Washington Post reported that FHWA Administrator Shailen Bhatt stated in November, “We feel that we’re absolutely within our authority. We would not have moved forward if we didn’t feel we had the authority.”

The rule is scheduled to take effect on January 8, 2024.

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Biden vetoes CRA resolution aimed at blocking CFPB lending rule 

What’s the story?

President Joe Biden (D) on December 19, 2023, vetoed a Congressional Review Act (CRA) resolution aiming to nullify a Consumer Financial Protection Bureau (CFPB) rule implementing additional small business lending data collection requirements. The resolution, supported by Republican lawmakers, passed the Senate on October 18, 2023, with a vote of 53-44, and passed the House of Representatives on December 1, 2023, with a vote of 221-202. 

The rule, effective August 29, 2023, implements provisions of the 2010 Dodd-Frank Act. The rule requires that CFPB small business loan applicants provide certain additional demographic information in order to “enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses,” according to the rule.

U.S. Representative Roger Williams (R-Texas) and U.S. Senator John Kennedy (R-La.) filed companion CRA resolutions in Congress disapproving of the CFPB rule. Kennedy argued in a statement that “the CFPB is putting small business owners at risk of having their private financial affairs exposed to a watching world. Reporting these personal details is an invasion of privacy and a waste of resources aimed at furthering the woke agenda.” 

 In his veto message, Biden argued in part that rescinding the rule would “hinder the Government’s ability to conduct oversight of abusive and predatory lenders.”

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Meta challenges FTC’s structure and authority

What’s the story?

The technology company Meta filed a lawsuit on November 29, 2023, in the U.S. District Court for the District of Columbia against the Federal Trade Commission (FTC), arguing that the agency’s administrative adjudication process violates Article III of the U.S. Constitution and Meta’s right to a trial by jury. Meta also challenged the authority of the FTC to act in “a dual role as prosecutor and judge” and the protections from presidential removal granted to commissioners, according to the lawsuit. 

The FTC and Meta reached a consent agreement in 2020 which resulted in a $5 billion fine for Meta for violations of users’ privacy and data. The FTC argued in May 2023 that Meta was not in compliance with the 2020 agreement and proposed changes as a result. The proposal included changes to prohibit “Meta from making money from data it collects on minors … includ[ing] data collected through its virtual-reality products,” according to AP News. 

Meta filed a complaint in an effort to prevent further enforcement proceedings regarding the 2020 agreement. The company asked the court to enjoin the FTC’s enforcement proceedings and to “declare that certain fundamental aspects of the Commission’s structure violate the U.S. Constitution, and that these violations render unlawful the FTC Proceeding against Meta.” Meta argued that the agency’s executive authority to assign disputes to administrative adjudication proceedings violates the due process clause, Article III, and Meta’s right to a trial by jury under the Seventh Amendment. 

The FTC had not responded to the lawsuit as of December 14, 2023. 

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In the states

Florida Department of Transportation declines to participate in federal Carbon Reduction Program

What’s the story? 

The Florida Department of Transportation announced on November 13, 2023, that the state will not participate in the federal Carbon Reduction Program, arguing that the program is an overreach of the Department of Transportation’s (DOT) authority.

The Carbon Reduction Program was authorized under the Infrastructure Investment and Jobs Act of 2021 and aimed to grant federal funds to states to reduce transportation emissions, which the Federal Highway Administration (FHWA) referred to as “carbon dioxide (CO2) emissions from on-road highway sources.” Florida’s transportation department turned down approximately $320 million in federal funds aimed at reducing vehicle emissions with the decision not to participate in the program. 

Florida Department of Transportation Secretary Jared Perdue argued that the law did not authorize “federally-induced mandates for states to track, or achieve a certain level, of reduced CO2 (carbon dioxide) emissions,” and that the federal department had not provided guidance to states on the process by which they would certify emission reductions, according to NBC Miami. 

Sierra Club Florida, an environmental advocacy organization, sent a letter on December 7 to Perdue opposing the “decision to politicize Florida’s roadways and economy and to reject $320 million allocated in 23 USC 104 to keep our air and interstates clear.”

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Vermont state auditor issues report on rulemaking process

What’s the story? 

Vermont State Auditor Douglas Hoffer (D) issued an investigative report on December 1, 2023, arguing that there were inconsistencies in the state’s rulemaking process and providing recommendations for the Legislative Committee on Administrative Rules (LCAR) to implement.

The investigative report noted inconsistencies with legislative rulemaking provisions and executive branch compliance. Most inconsistencies concerned rulemaking deadlines and reporting requirements, according to the report. 

The office made recommendations to the LCAR in the report to “strengthen and simplify the Legislature’s oversight function over Executive branch agencies,” suggesting that the committee issue an annual update to committees about outstanding rules and develop “one-stop locations for all rulemaking provisions and information.” 

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SEC v. Jarkesy and the nondelegation doctrine

In a recent post for the Yale Journal on Regulation’s Notice and Comment blog, Pacific Legal Foundation legal fellow Will Yeatman commented on what he considers to be the significance of the nondelegation claim in SEC v. Jarkesey:

Crucially, the SEC’s nondelegation violation cannot be viewed in isolation; instead, it is bound with the jury trial question also presented in Jarkesy. Whenever a statute gives an agency a choice between administrative and judicial enforcement, isn’t Congress signaling that there’s no functional difference between venues? After all, the sine qua non of agency adjudication is its comparative (vis a vis courts) advantages in expertise and efficiency. This putative superiority is why we tolerate the separation of powers problems inherent to housing prosecutors and judges under the same roof at administrative agencies. While most regulatory regimes reflect the (supposed) comparative competences of judicial and administrative courts, those at the SEC do not. Of course, the agencies’ (assumed) expertise and efficiency are important tenets in the Supreme Court’s convoluted ‘public rights’ doctrine for the Seventh Amendment. To the extent that these qualities are absent from the legislative design, then the ‘public rights’ rationale is undermined.  

Want to go deeper? 

  • Click here to read the full text of “Nondelegation in SEC v. Jarkesy: Flying under the Radar” by Will Yeatman.

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

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

  • Review of 49 significant regulatory actions. 
  • Two rules approved without changes; recommended changes to 44 proposed rules; three rules withdrawn from the review process.
  • As of December 1, 2023, OIRA’s website listed 151 regulatory actions under review.
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