Court case with big implications

“The accumulation of all powers, legislative, executive, and judiciary, in the same hands … may justly be pronounced the very definition of tyranny.” — James Madison, Federalist 47

So, were the sainted Madison to see today’s federal government, he would recognize the momentousness of the case the Supreme Court will hear Wednesday, when George Jarkesy, a hedge fund founder, will at last have his day in court.

If he prevails, the constitutional right of access to courts will be vindicated, constitutionally dubious delegations of congressional power will be curtailed, and administrative state agencies will have to respect the separation of powers. Let us hope for what progressives fear: the end of government as they have transformed it.

The Securities and Exchange Commission, having charged Jarkesy in 2013 with fraudulently valuing some assets, put his case not before a federal court and jury but before an SEC administrative law judge. The SEC judge sided with the SEC, imposing a financial penalty, requiring Jarkesy to disgorge some earnings, and barring him from the securities industry.

Jarkesy wants the Supreme Court to affirm, and the SEC wants it to overturn, an appellate court’s ruling that the Constitution’s Seventh Amendment guarantees Jarkesy a right to trial by jury. And that Congress unconstitutionally delegated to the SEC, without the guidance of an intelligible principle, the power to decide the judicial forum for adjudicating disputes. And that the SEC’s administrative law judges are unconstitutionally exempt from presidential removal for policy reasons, which impedes the president’s constitutional duty to see that the laws are “faithfully executed.”

Many targets of SEC enforcement quickly settle cases that the SEC assigns not to a regular court with a neutral judge but to its in-house tribunals. This practice is analogous to prosecutors overcharging defendants to coerce them into plea bargains, vitiating their right to jury trials.

The use of agencies’ courts began in the 1970s. In 1994, law professor Gary S. Lawson — then at Northwestern, now at Boston University — published a Harvard Law Review article (“The Rise and Rise of the Administrative State”) describing what he called the typical enforcement activities of a typical federal agency, the Federal Trade Commission:

“The Commission promulgates substantive rules of conduct. The Commission then considers whether to authorize investigations into whether the Commission’s rules have been violated. If the Commission authorizes an investigation, the investigation is conducted by the Commission, which reports its findings to the Commission. If the Commission thinks that the Commission’s findings warrant an enforcement action, the Commission issues a complaint. The Commission’s complaint that a Commission rule has been violated is then prosecuted by the Commission and adjudicated by the Commission . ... If the Commission ultimately finds a violation, then, and only then, the affected private party can appeal to an Article III court. But the agency decision, even before the bona fide Article III tribunal, possesses a very strong presumption of correctness on matters both of fact and of law.”

Incestuous, isn’t it? Today, Lawson says, the FTC still can operate like this, and other agencies often exercise such abusive power.

The Institute for Justice is representing in an appellate court Joe and Russell Marino, former operators of a New Jersey vegetable farm, which has closed largely because of financial uncertainties caused by the Labor Department. In 2016, department agents notified the Marinos that they were being penalized more than $550,000, with over $320,000 of that because of a single paperwork error. Thus began a five-year ordeal before Labor Department agency judges. After the Marinos lost a four-day trial before a 25-year Labor Department employee, they appealed to a panel of five more judges appointed by the labor secretary. Unsurprisingly, they lost. The government is still trying to penalize them more than half a million dollars without allowing them their day in a real court.

By resisting such abuses, Jarkesy, like the Institute for Justice, is defending the nation’s constitutional structure against unaccountable agencies operating as a fourth branch of government. Jarkesy is asking the Supreme Court to demonstrate, for the benefit of everyone but administrative state bureaucrats, something that Alexander Hamilton said (in Federalist 78) would be required to defend the Constitution against depredations by the elected branches: an “uncommon portion of fortitude.”