For some time, the Securities and Exchange Commission (SEC) has had a choice of prosecutorial forums. It has been able to choose between prosecuting violators of securities laws before an Article III judge or before one of its own administrative judges. Nothing governed its choice; no rule instructed the SEC how to choose one forum or the other. The Fifth Circuit has now ruled, in Jarkesy v. SEC, that giving the SEC this choice violates the Constitution’s separation of powers.
Before diving into the details, it’s worth considering why this aspect of the separation of powers is essential to our constitutional structure. People choose who will represent them every two years in the House of Representatives. This is important because only Congress can decide the rules under which people live. But what if that wasn’t the case? What if Congress authorized the president to write new laws? In that case, electing new members of Congress would be almost meaningless. Without Congress having a supermajority, the president could veto anything Congress did while continuing to write new laws himself.
You might think such a scenario is impossible, but it happened in England. Under what was called the Divine Right of Kings, the Proclamation by the Crown Act of 1539 gave King Henry VIII the power to issue laws as “though they were made by an act of Parliament.” Sir William Blackstone called it “a statute, which was calculated to introduce the most despotic tyranny.” Thankfully, Parliament came to its senses in only a few years and was able to get rid of it.
The idea that the legislature cannot properly delegate its powers was discussed by John Locke and incorporated into the very idea of the separation of powers by the Founders. As part of the Bill of Rights, James Madison proposed an amendment that “the Legislative Department shall never exercise the powers vested in the Executive or Judicial, nor the Executive exercise the powers vested in the Legislative or Judicial, nor the Judicial exercise the powers vested in the Legislative or Executive Departments.”
But Roger Sherman (a signer of the Declaration of Independence and proposer of bicameral legislature) objected that it was “unnecessary, inasmuch as the Constitution assigned the business of each branch of the Government to a separate department.” Madison admitted the Vesting Clauses already required this, so his amendment wasn’t included in the Bill of Rights.
For about 150 years, this absolute prohibition on delegation was maintained. In J. W. Hampton, Jr. & Company v. United States (1928), the Supreme Court relaxed this requirement. It allowed such delegations as long as they had an “intelligible principle.” The idea was that Congress is meant to make the significant decisions—that is, to decide the “principle”—and the executive was to follow the instruction of Congress.
This departure from the anti-delegation norm really jumped the rails a few years later, when the Court held that the “public interest” (NBC v. United States (1943)) and what is “just and reasonable” (FPC v. Hope Natural Gas (1944)) were sufficiently intelligible principles for the executive to execute. These are tests for an “intelligible principle” that appear hard to fail. Nonetheless, the Court required at least something to be decided by Congress.
Many decades later, Congress passed the 2010 Dodd-Frank Act, which authorized the SEC to seek penalties in its own internal administrative forum. Dodd-Frank expanded the SEC’s options. It had previously had the option of pursuing prosecution before an Article III court. Notably, Congress never provided the SEC with a rule or a standard that explained how it should choose either option. There was no “intelligible principle” at all that governed the choice.
That leaves such authority valid only if it’s a purely executive power—which would not require delegation. The Fifth Circuit cited the Supreme Court in INS v. Chadha (1983), which defined the legislative power as “altering the legal rights, duties and relations of persons,” and Oceanic Steam Navigation Co. v. Stranahan (1909), which explained that assigning cases to agency adjudication was “peculiarly within the authority of the legislative department.” In short, an intelligible principle was required, but none was provided.
It’s worth considering how different administrative forums are from Article III courts. For example, administrative forums will often allow the admission of hearsay evidence. (Hearsay evidence allows for something like a game of telephone; one person tells another person something, who then might tell the Court something else.) In contrast, because mistakes in transmission can occur, hearsay evidence is generally—absent some special exceptions— considered unreliable in federal court. There are dozens of other similar procedural protections in Article III courts. In effect, the SEC was arguing in Jarkesy that it was allowed to decide whether the person it is prosecuting should be given the protections found Article III courts or not. On this question, it lost.
Congress alone should decide which procedural protections defendants are assigned when accused of wrongdoing. The SEC can’t give special, “important,” or influential people more procedural protections than the rest of us. Everyone has to be judged using the same rules—those that Congress makes. That valuable principle will be respected as long as the Fifth Circuit’s ruling is.