The 5th Circuit just dismantled the SEC's power to enforce securities law.

[mahatmakanejeeves]

You're next, OSHA.

The 5th Circuit just dismantled the SEC's power to enforce securities law. This decision is beyond radical. It is nihilistic.

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Anyway, the implication of this decision is that most (all?) agency enforcement power is unconstitutional. Which, in plain English, means that the federal government can't enforce a huge swath of regulations. I mean, this is basically striking down the administrative state.

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In 2016, then-professor Amy Coney Barrett cited this outcome—unraveling of the "administrative state"—as something correct-on-the-merits but impossible and would never happen

in 2016, Amy Coney Barrett published an academic article about so-called technically-wrong-but-impossible-to-reverse "super-precedent", in which in the *opening paragraph* she uses Brown v. Board of Education as an example

https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1619&context=jcl

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Opinion
Matt Levine

Is the SEC Unconstitutional?
Also Wells Fargo fake interviews and the continuing Musk Twitter drama.

By Matt Levine
May 19, 2022, 1:29 PM EDT

{snip}

Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit. @matt_levine

[Budi]

1. "And another hardy F You to the anti-Clinton coalition"

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And once again, a hardy FUCK YOU goes out to the Anti-Clinton coalition of 2016 who let Trump nominate 6 judges to this court, making it the graveyard of humanity that it's become.

Mark Joseph Stern
@mjs_DC
· 22h
The 5th Circuit just dismantled the SEC's power to enforce securities law. This decision is beyond radical. It is nihilistic.

"Burn it all down!" , they screechd

[elleng]

4. Important issue for many years.

Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), was a landmark case in which the United States Supreme Court set forth the legal test for determining whether to grant deference to a government agency's interpretation of a statute which it administers.[1] The decision articulated a doctrine now known as "Chevron deference".[2] The doctrine consists of a two-part test applied by the court, when appropriate, that is highly deferential to government agencies: "whether the agency's answer is based on a permissible construction [emphasis added] of the statute", so long as Congress has not spoken directly to the precise issue at question. . .

Under the Supreme Court's ruling in Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803), United States federal courts have the authority to judicially review the statutes enacted by Congress, and declare a statute invalid if it violates the Constitution. But the Constitution sets no express limits on how much federal authority can be delegated to a government agency. Rather, limits on the authority granted to a federal agency occur within the statutes enacted by Congress. It is also worth noting that federal courts are constitutionally of "limited jurisdiction". Congress bestowed on them the authority to adjudicate administrative matters in 1948. [28 USC sec. 1331 (1948)]

In 1974 the Supreme Court stated that deference depends on an administrative interpretation being consistent with the agency's other statements and being consistent with the congressional purpose:

We have recognized previously that the weight of an administrative interpretation will depend, among other things, upon "its consistency with earlier and later pronouncements" of an agency. Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944). See generally 1 K. Davis, Administrative Law Treatise §§ 5.03-5.06 (1958 ed. and Supp. 1970). . . . In order for an agency interpretation to be granted deference, it must be consistent with the congressional purpose. Espinoza v. Farah Mfg. Co., 414 U. S. 86 (1973); Red Lion Broadcasting Co. v. FCC, 395 U. S. 367, 381 (1969).[5] . .

The issue facing the Court was what standard of review should be applied by a court to a government agency's own reading of a statute that it is charged with administering.

The Court, in an opinion by Justice John Paul Stevens, upheld the EPA's interpretation. A two-part analysis was born from the Chevron decision (called the "Chevron two-step test&quot , where a reviewing court determines:

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute . . . Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

—?Chevron U.S.A. v. NRDC, 467 U.S. 837, 842-43 (1984).

Chevron is probably the most frequently cited case in American administrative law,[8] but some scholars suggest that the decision has had little impact on the Supreme Court's jurisprudence and merely clarified the Court's existing approach.[9] The ruling that the judiciary should defer to a federal agency's interpretation of ambiguous language from Congressional legislation relevant to the agency is often referred to as the Chevron deference. Several of the EPA's rulings for emissions regulations, as well as the Federal Communications Commission's stance on net neutrality have been based on cases decided on the Chevron deference.[10]

OPPOSITION:

The United States House of Representatives in the 115th Congress passed a bill on January 11, 2017, called the "Regulatory Accountability Act of 2017", which, if made into law, would change the doctrine of Chevron deference.[17][18][19] According to Charles Murray in By the People: Rebuilding Liberty Without Permission,

Chevron deference augments that characteristic of prerogative power by giving regulatory bureaucrats a pass available to no private citizen and to no other government officials — including the president and cabinet officers — who function outside the regulatory state. For everyone except officials of the regulatory state, judges do not defer to anything except the text of the law in question and the body of case law accompanying it.[20]

Supreme Court Justice Neil Gorsuch (son of Anne Gorsuch, who was head of EPA at the time of the events which led to the Chevron decision) has also written opinions against Chevron deference,[21] with news commentators believing that Gorsuch may rule against Chevron deference on the Supreme Court.[22]

In the U.S. Supreme Court case City of Arlington, Tex. v. FCC,[23] the dissent by Chief Justice Roberts joined by Justice Kennedy and Justice Alito objected to excessive Chevron deference to agencies:

My disagreement with the Court is fundamental. It is also easily expressed: A court should not defer to an agency until the court decides, on its own, that the agency is entitled to deference.[23]: 1877 

In Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., we established a test for reviewing "an agency's construction of the statute which it administers." 467 U.S. 837, 842, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If Congress has "directly spoken to the precise question at issue," we said, "that is the end of the matter." Ibid. A contrary agency interpretation must give way.[23]: 1878 

"It is emphatically the province and duty of the judicial department to say what the law is." Marbury v. Madison, 1 Cranch 137, 177, 2 L.Ed. 60 (1803). The rise of the modern administrative state has not changed that duty. Indeed, the Administrative Procedure Act, governing judicial review of most agency action, instructs reviewing courts to decide "all relevant questions of law." 5 U.S.C. § 706.[23]: 1880 

Likewise before joining the U.S. Supreme Court, 10th Circuit Judge Gorsuch in his concurrence in Gutierrez-Brizuela v. Lynch[24] also objected to excessive Chevron deference to agencies: . . .

https://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natural_Resources_Defense_Council,_Inc.

https://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natural_Resources_Defense_Council,_Inc.

[CousinIT]

2. Destroying the administrative state was the Trump-Bannon promise. With their packed court, it's done

. . . .At least since the Franklin Roosevelt administration, federal agencies have had wide latitude to implement the policies the president campaigned on. And agency-initiated regulations answer such important questions as who has access to health care, how much workers are paid for their labor, and a wide range of environmental questions that go well beyond the Clean Power Plan.

So, no matter what issue you care about, there is likely a federal regulation that shapes the nation’s approach to that issue. If the Supreme Court strips the government of much of its power to promulgate these regulations, it could effectively grind down the Biden presidency — not to mention dismantle much of American law.

https://www.vox.com/22276279/supreme-court-war-joe-biden-agency-regulation-administrative-neil-gorsuch-epa-nondelegation

[mahatmakanejeeves]

5. What was that guy's name, the one who wanted the government so small he could drown it in

a bathtub? My mind's drawing a blank right now.

Grover Norquist, that's the one, right?

[CousinIT]

6. Yea, that Norquist weasel. n/t

[mahatmakanejeeves]

3. More:

This seems like a pretty consequential decision https://ca5.uscourts.gov/opinions/pub/20/20-61007-CV0.pdf

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uh doesn't this sort of gut any federal agencies' abilites to enforce their own regulations without going to court every time?

I’m pretty sure that is the plan of these rulings.

Link to tweet

[mahatmakanejeeves]

7. SEC in-house judges violate right to jury trial, appeals court rules

May 18, 2022
4:32 PM EDT
Last Updated a day ago

SEC in-house judges violate right to jury trial, appeals court rules

By Jody Godoy
2 minute read

Summary
• 5th Circuit overturned SEC finding against hedge fund manager and advisor
• Split court said defendants in securities fraud cases involving penalties have the right to a jury trial

(Reuters) - The Securities and Exchange Commission's in-house judges violate the U.S. Constitution by denying fraud defendants their right to a jury trial and acting without necessary guidance from Congress, the 5th U.S. Circuit Court of Appeals ruled on Wednesday. ...The court ruled 2-1 in favor of hedge fund manager George Jarkesy Jr and investment advisor Patriot28 LLC, overturning an SEC administrative law judge's determination that they committed securities fraud. ... A spokesperson for the SEC and counsel for the petitioners did not immediately respond to a request for comment on Wednesday.

The Dodd-Frank Act, which Congress passed after the 2008 financial crisis, expanded the SEC's ability to seek penalties in its administrative proceedings.

In the ruling Wednesday, the majority said that because seeking penalties is akin to debt collection, which is a private right, the defendants were entitled to a jury trial. ... The SEC had argued that it was acting to protect investors and enforce public rights found in the securities laws.

The majority also found that SEC judges, known as administrative law judges, lack authority under the Constitution because Congress did not provide guidance on when the SEC should bring cases in-house instead of in a court. ... U.S. Circuit Court Jennifer Walker Elrod, joined by Circuit Court Judge Andrew Oldham, penned the majority opinion.

{snip}

[mahatmakanejeeves]

8. A federal appeals court says the S.E.C.'s use of an in-house judge violates defendants' rights.

Daily Business Briefing

A federal appeals court says the S.E.C.’s use of an in-house judge violates defendants’ rights.

The ruling by an appeals court covering Texas, Louisiana and Mississippi applies only in that territory, but it’s the latest challenge to the way the agency handles enforcement actions.

By Matthew Goldstein
May 18, 2022

A divided federal appeals court panel on Wednesday threw a wrinkle into how the Securities and Exchange Commission prosecutes some enforcement actions by declaring that its administrative proceedings can violate a defendant’s constitutional rights. ... The U.S. Court of Appeals for the Fifth Circuit, in a 2-1 decision, ruled that the S.E.C. violated a hedge fund manager’s Seventh Amendment right to a jury trial when it let an in-house judge decide a civil fraud case. Such administrative proceedings are common among regulatory agencies, which use them to decide some enforcement actions.

The ruling from the Fifth Circuit — one of the nation’s most conservative federal appellate courts — is another legal challenge to the S.E.C.’s growing reliance on administrative law judges, rather than the filing of civil complaints in federal court. But for the moment, the ruling’s impact is limited to federal courts in the court’s jurisdiction, which covers Texas, Louisiana and Mississippi. ... “The Seventh Amendment guarantees petitioners a jury trial because the S.E.C.’s enforcement action is akin to traditional actions at law to which the jury-trial right attaches,” Circuit Judge Jennifer Walker Elrod wrote in the majority opinion.

Judge Elrod, who was appointed to the court by former President George W. Bush, said the S.E.C. did not have the authority to bring such a case before an administrative court because it did not involve solely “public rights.” ... The majority opinion said the in-house judge’s ruling against George Jarkesy in a securities fraud case should be vacated and sent back to the regulator. The court said the S.E.C. must act in accordance with the appellate court’s ruling, presumably requiring the case to be refiled in federal court.

{snip}

This month, the Supreme Court said it would take up another Fifth Circuit ruling that raised a challenge to a different aspect of the S.E.C.’s administrative proceeding process. In 2018, the Supreme Court ruled 7-2 that administrative law judges at the S.E.C. had been appointed to office in an unconstitutional manner.

[mahatmakanejeeves]

9. Now, for the clickbait interpretation of the decision:

Fifth Circuit Bashes the Administrative State, Rules in Favor of GOP Political Donor and Show Host Accused of Securities Fraud by SEC

AARON KELLER May 19th, 2022, 1:47 pm

The U.S. Court of Appeals for the Fifth Circuit on Wednesday issued a scathing 30-page opinion which excoriates administrative agencies in general and the Securities and Exchange Commission in particular.

The court’s 2-1 holding said that the SEC’s administrative proceedings against a right-wing talk show host, Republican donor, and hedge fund promoter accused of securities fraud violated at lest two separate clauses of the U.S. Constitution. It also said that the President of the United States should have more power to remove SEC judges from office. The upshot of the Fifth Circuit’s opinion was to vacate an SEC judgment that previously required the host, donor, and hedge fund promoter — whose political activities and media appearances were not mentioned or addressed in the opinion — to disgorge alleged “ill-gotten gains” and pay SEC-imposed fines — all of which totaled nearly a million dollars.

The majority analysis supported “limiting federal government power over crime” and bemoaned the effects of the “strong hand of the federal government.” Citations to English common law treatises, Thomas Jefferson, James Madison, and the Federalist Papers jockeyed with and perhaps even overwhelmed citations to actual case law and constitutional provisions in the majority opinion, though the latter were naturally part of the analysis.

The SEC accused George R. Jarkesy Jr. of having “worked closely with” another individual “to launch two hedge funds that raised $30 million from investors,” according to a 2013 press release. “Jarkesy and his firm John Thomas Capital Management (since renamed Patriot28 LLC) inflated valuations of the funds’ assets, causing the value of investors’ shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker.”

{snip}

[elleng]

10. from Robert Reich:

The Fifth Circuit court dealt a major blow to the Securities and Exchange Commission’s ability to enforce securities law and seek penalties for violations. In its 2-1 ruling, the court said that using SEC judges, also known as administrative law judges, is unconstitutional because it denies fraud defendants their right to a jury trial. The court also said that SEC judges have no authority under the Constitution because Congress did not provide guidance on when the SEC should bring cases in-house instead of a court.
Here’s what this decision means: the Fifth Circuit gutted the ability of a regulatory agency to enforce federal law. Congress has the power to give federal agencies the authority to enact regulations that protect us in our daily lives. Congress defines each agency’s goals, but leaves it up to the health and safety experts in those agencies to craft and enforce regulations. For instance, the FDA didn’t need congressional approval to recall the defective baby formula that was making babies sick. The SEC doesn’t need congressional approval to charge hedge fund managers with securities fraud.
But this ruling says that the SEC actually doesn’t have the power to enforce securities law, meaning all other agencies’ enforcement power could be at risk. That means the federal government has essentially lost the ability to enforce regulations. This decision won’t just apply to the SEC: gutting regulations has been a key part of the Republican agenda for decades. I know regulations don’t sound very exciting, but it’s how the government keeps us safe: OSHA protects us in our workplaces, the EPA keeps our air fresh and our water clean, the FDA makes sure we don’t get sick from eating certain foods, et cetera.
Make no mistake: deregulation is anti-worker, anti-consumer, and anti-environment. If this agenda succeeds, we all lose.

(FB)

[mahatmakanejeeves]

11. The 5th Circuit's Ambush Against the SEC Is Unprecedented and Shocking

Mark Joseph Stern Retweeted

I think any hot-takes on what precedents SCOTUS is or is not eager to reconsider needs to take into account the 5th Circuit's role in forcing their hand, in flagrant disregard of the rule that courts' are supposed to let SCOTUS overturn its own decisions.

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A deeply frightening and important piece from
@BlakeProf
on the 5th Circuit's wild decision using a "false, fairy tale version" of history to strike at the heart of the administrative state and the federal civil service. https://slate.com/news-and-politics/2022/05/5th-circuit-sec-securities-fraud-civil-service.html
@Slate

slate.com
The 5th Circuit’s Ambush Against the SEC Is Unprecedented and Shocking
Our most radical court is threatening to turn the executive branch into an instrument of the president’s personal power.

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JURISPRUDENCE

The 5th Circuit’s Ambush Against the SEC Is Unprecedented and Shocking

Two conservative judges are threatening to turn the executive branch into an instrument of the president’s personal power.

BY BLAKE EMERSON
MAY 20, 2022 11:13 AM

On Wednesday, a panel of the 5th U.S. Circuit Court of Appeals issued a shocking opinion in Jarkesy v. Securities and Exchange Commission, which held that key powers and structures of the Securities and Exchange Commission are unconstitutional. The 5th Circuit has become something of a think-tank in the conservative legal movement’s effort to limit the federal government’s regulatory power. Wednesday’s ruling is no exception. If the Supreme Court adopted it in full, the decision would significantly decrease Congress’ authority to regulate the economy and combat private corruption, magnify the powers of the courts to thwart administrative agencies, and potentially increase political control over agency adjudicators and the civil service.

Jarkesy departs widely from precedent in some key respects. But this is not entirely a case of appellate judges going rogue. With its transformative, loosely reasoned rulings on issues like the constitutionality of the Consumer Financial Protection Bureau and the legality of COVID-19 vaccination and testing requirements, the Roberts court has opened its doors to novel arguments that strike at the heart of federal agencies’ operations.

Accepting this invitation, Judge Jennifer Walker Elrod, joined by Andrew Oldham, held that the Securities and Exchange Commission exercises unconstitutional power in no less than three respects. Each of Elrod’s conclusions is problematic, and one is simply outlandish. But before getting into the details, it’s worth taking a step back to understand what’s at stake.

The SEC is a paradigmatic administrative agency. Created during the New Deal, it has the power to enforce securities laws by issuing regulations, deciding cases, and bringing enforcement actions in federal court. Congress has extended its powers over the years, including in the Dodd-Frank Act of 2010. The Act authorized the agency to impose civil penalties through administrative adjudication. In the case at issue, the SEC relied on this power to impose $300,000 in civil penalties against George Jarkesy for securities fraud. The power to impose civil penalties through administrative adjudication is significant, but it’s hardly anomalous. Both the Environmental Protection Agency and the Occupational Safety and Health Review Commission, for instance, have the power to impose penalties in this way.

{snip}

[mahatmakanejeeves]

12. After Roe, conservative legal tactics will aim for structural reform

Opinion | After Roe, conservative legal tactics will aim for structural reform

By Jason Willick Columnist

May 20, 2022 at 8:31 a.m. EDT

Roe v. Wade has been so central to U.S. judicial politics for so many decades that it is hard to imagine what issue or issues would dominate without it. If the Supreme Court votes to withdraw the federal courts from abortion policy battles, as a leaked opinion by Justice Samuel A. Alito Jr., suggests, the conservative legal movement will have achieved its most high-profile objective — but lost its political raison d’etre.

So where would the movement set its sights next? Reversing rights to contraception or same-sex marriage, as some fear? That’s highly unlikely, as Yale Law School’s Akhil Amar has cogently explained. The court’s controversial abortion precedents are uniquely vulnerable to constitutional attack. Most justices have no interest in pressing against a gay-rights consensus that is increasingly deep and broad. And even if they were interested, the legal opportunities would be few and far between.

While the commentariat was fixated on this red herring, conservative appellate judges from the U.S. Court of Appeals for the 5th Circuit (which covers Texas, Mississippi and Louisiana) on Wednesday issued a ruling far more likely to define the next generation of constitutional conflict. The decision in Jarkesy v. Securities and Exchange Commission wasn’t about a culture-war dispute, but the structure of American government itself — and it reflected the conservative legal conviction that a runaway administrative state is a leading threat to American democratic values.

The 5th Circuit’s muscular ruling, arising from a securities fraud case, significantly limits the prerogatives of the SEC. Until now, the SEC could accuse people or companies of financial wrongdoing and determine their responsibility in an internal “administrative proceeding” instead of through a trial in the judicial branch. These proceedings are run by administrative law judges — civil servants who work for the SEC — and the accused do not have the benefit of a jury hearing the case. ... The majority of the three-judge 5th Circuit panel blasted this process from multiple directions. It found, first, that those accused in such SEC fraud actions have the constitutional right to a jury trial. Second, that Congress had unconstitutionally granted the SEC, an executive-branch agency, “legislative” power. And third, that administrative law judges are too difficult for the president to remove.

{snip}

Opinion by Jason Willick
Jason Willick writes a regular Washington Post column on legal issues, political ideas and foreign affairs. Before coming to The Post in 2022, he wrote for the Wall Street Journal and the American Interest. Twitter https://twitter.com/jawillick

[mahatmakanejeeves]

13. From Reason: Bad Day in Court for the Administrative State

Bad Day in Court for the Administrative State