Bureaucrats in the Dock

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On May 18 this year, in Jarkesy v. SEC, a majority of a three-judge panel of the Court of Appeals for the Fifth Circuit—an appellate court just below the Supreme Court—challenged some of the powers commonly used by the Securities and Exchange Commission (SEC) and other administrative agencies when they charge individuals or companies with wrongdoing. 

The SEC’s actions were not unusual for an administrative agency—requiring a defendant to make his case before an administrative law judge (ALJ) instead of a jury—but the court found that under the Constitution’s Seventh Amendment, George Jarkesy, Jr. was entitled to a jury trial, that many ALJs used by the SEC and other agencies were unconstitutionally independent of the president’s control, and that the authority that Congress had given the SEC to choose an ALJ instead of a jury was also unconstitutional.

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The case received an unusual amount of attention in the media, largely because the SEC is a powerful agency, and the actions of administrative agencies are seldom found to be unconstitutional by courts below the Supreme Court. But another reason may be that the Fifth Circuit’s decision reflects a general concern in the judiciary about the power of administrative agencies—which many call the “administrative state”—and how they fit into our constitutional system.      

In Federalist 78, Alexander Hamilton argued that the members of the federal judiciary should have lifetime tenure—even in a republic—because the courts are intended to be the “Guardians of the Constitution.” This role, he said, will require an “uncommon portion of fortitude” when judges’ decisions upholding the Constitution conflict with the views of the more powerful elected branches. “Nothing can contribute so much,” said Hamilton, to the judiciary’s firmness and independence as “permanency in office.”

The protests that we see today in front of the Supreme Court, and even at the homes of the justices themselves, amply demonstrate the difficulties the judiciary faces as it is called upon to interpret how various policies fit within the constitutional structure the Framers wanted them to protect.

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Chief Justice John Marshall, established the primacy of the Supreme Court, as Hamilton saw it, with the foundational 1803 decision of Marbury v. Madison. There, he ruled not only that the Court could declare acts of Congress unconstitutional, but also that courts could interpret the laws. These two points, never subsequently challenged, reified Hamilton’s assertion that judges were to be the “Guardians of the Constitution.”

There was little change in the structure of the government, or the respective roles of the president and Congress, until the Progressive Era, from about 1880 to 1920, when Woodrow Wilson and Theodore Roosevelt argued for major changes in the government’s structure and role in the economy. During this period, the Interstate Commerce Commission, the Food and Drug Administration, and the Federal Reserve were established to address specific issues that had arisen as the US economy grew quickly. But aside from a few tariff cases, there was little need for the judiciary to interfere in the structure or operations of the government.

That changed with the Great Depression and the New Deal, when the Supreme Court—whose members included distinguished jurists such as Louis Brandeis and Benjamin Cardozo as well as Chief Justice Charles Evans Hughes—ran head-on into the policies of FDR and the progressive Democratic Congress. This confrontation produced two instances—Panama Refining v. Ryan and Schechter Poultry v. United States—where the 1935 Court determined that acts of Congress were unconstitutional because they delegated too much legislative authority to administrative agencies in violation of the Constitution. 

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Chevron became the most cited and interpreted case in administrative law, and administrative agencies reached their greatest level of authority, issuing more than 3000 rules and regulations every year after 1989.

These decisions and others caused President Franklin D. Roosevelt, after the huge Democratic Party victory in 1936, to propose a Court-packing plan. Although Court-packing itself failed, it changed the game. Every member of the 1935 Supreme Court resigned between 1936 and 1941, to be replaced by Roosevelt–appointed justices much less willing to take on the elected branches. 

From then on, the Court assumed a more accommodating posture, finding authority for the vast number of administrative agencies established in and after the New Deal. The Court’s reticence in this respect probably reached its peak in 1984, with Chevron v. Natural Resources Defense Council. There, a unanimous Court declared that “Sometimes the legislative delegation to an agency is implicit, rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation” by the agency.

Here, with what became known as “Chevron deference,” the Court was directing lower courts to accept the administrative agency’s interpretation of its statutory authority—if reasonable—and opened the door to the vast expansion of the administrative state that we see today. In short order, Chevron became the most cited and interpreted case in administrative law, and administrative agencies reached their greatest level of authority, issuing more than 3000 rules and regulations every year after 1989. 

What might be called a constitutional awakening, or at least a renewal of the Supreme Court’s interest in its role as guardian of the Constitution, may have begun in 2013, with City of Arlington v. FCC. There, in a challenge to Chevron deference, Chief Justice Roberts (joined by Justices Kennedy and Alito) wrote that  “We do not leave it to the agency to decide when it is in charge.” 

Significantly, in the same decision, the Chief Justice reiterated Hamilton’s view in Federalist 78 that the judiciary has a special role as guardian of the Constitution: it “is the obligation of the judiciary not only to confine itself to its proper role, but to ensure that the other branches do so as well.”

This was followed in 2015, by Perez v. Mortgage Bankers Association, where a majority recognized that the Administrative Procedure Act of 1946 (APA) had already required that courts—and not agencies—should be interpreting the statute. The Senate Committee considering the APA in 1946 stated: “Judicial review…is indispensable since its mere existence generally precludes the arbitrary exercise of powers or the assumption of powers not granted.” Chevron deference, accordingly, and its support for agency determination of their own authorities, now seemed to be on the way out.

An even more determined interest in protecting the constitutional structure seems to have emerged at the Supreme Court with the arrival of Justice Gorsuch in 2017. At that point, there were five justices—Chief Justice Roberts and Justices Thomas, Alito, Kennedy, and Gorsuch—with serious interests in constitutional structure, and the Court reached out to take one issue (among four others) in Gundy v. United States, then languishing in the lower courts. This case raised the claim that in enacting a 2006 statute, Congress had unconstitutionally delegated legislative authority to the Executive Branch—a violation of the so-called nondelegation doctrine.

The Supreme Court’s interest in constitutional issues related to the administrative state has not gone unnoticed, either by litigants or by judges.

As it turned out, when Gundy was argued, there were only eight justices on the bench. Justice Kennedy had resigned, and his successor, Justice Kavanaugh, had not yet been sworn in. Because the Court was split on such an important case, Justice Alito decided not to vote to challenge the reigning nondelegation approach, but he and Justice Kavanaugh later stated that they would be willing to hear another nondelegation case in the future. In any event, Justice Gorsuch wrote a powerful dissent, joined by the Chief Justice and Justice Thomas, in support of the view that the statute at issue in Gundy had unconstitutionally delegated legislative authority to the Executive Branch.

The Court’s interest in considering this issue—and in reaching down specifically to take the nondelegation question from another case—demonstrated that at least five justices were then concerned about constitutional structure, particularly the separation of powers. This is a fundamental element of the Constitution that seeks to preserve liberty by separating the entire government into three branches—a Congress to make the laws, a president to enforce or carry out the laws, and a judiciary to interpret the laws.

This raised new questions about the authority accumulated in administrative agencies, which might be called the fourth branch of government that appears nowhere in the Constitution but had been acquiring increasing power since the New Deal. Moreover, many scholars and students of government have noted that Congress has continued to hand power to administrative agencies as a way to avoid making difficult decisions itself. An important reason for restraining the growth of the administrative state would be to force Congress itself to address difficult issues through legislation.

The Supreme Court’s interest in constitutional issues related to the administrative state has not gone unnoticed, either by litigants or by judges. Without the Court’s interest in the nondelegation doctrine in Gundy, and the questions about Chevron expressed in City of Arlington and Perez, Jarkesy and his counsel might not have challenged the SEC in the Fifth Circuit, and the Fifth Circuit judges might not have gone beyond settled law. Other litigants would not have brought cases challenging Chevron and raising nondelegation issues in the current Supreme Court term. If the Court takes SEC’s appeal of the Fifth Circuit’s Jarkesy decision in its next term, we’ll get a clearer picture of how the Court views the administrative state.

The Fifth Circuit’s Jarkesy decision reflects the Supreme Court’s renewed interest in challenging the administrative state.

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This article was published by Law & Liberty and is reproduced with permission.

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Americans just witnessed the passage of the Inflation Reduction Act of 2022 without one Republican vote in the U.S. Senate and House (just as Obamacare was passed in 2010). The IRS  will be hiring 87,000 new agents, many armed, to terrorize American taxpayers.

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