On November 29, the US Supreme Court heard an oral argument in SEC v. Jarkesy, a case of paramount importance to agency adjudication. The justices deliberated for nearly two and a half hours to clarify whether the US Constitution permits the Securities and Exchange Commission (SEC) to impose civil penalties via its in-house adjudication system, or whether the agency must try the case before a federal court jury.
Jarkesy raised three constitutional issues, with the court focusing mainly on one, and many legal scholars speculate a majority of the court may rule against the SEC. According to some commentators, the court’s decision potentially holds significant implications for the federal government’s powers, particularly when enforcing complex regulatory schemes. Meanwhile, others suggest that the case could have much less drastic effects by implementing a “right to remove.”
This solution stipulates that a party regulated by the SEC should have the right to move an SEC enforcement action for civil penalties from an in-house agency to federal court. This historical proposal builds upon the American Bar Association’s recommendation three decades ago that Congress should legislate such a right to move, and it aligns with the stance of the US Chamber of Commerce nearly a decade ago. In 2022, Senate Republicans introduced a version of this right to remove proposal in JOBS Act 4.0.
Importantly, the discussion around the right to move is not only about fairness and due process for regulated parties but also about the constitutional problems Jarkesy presents. It echoes Fed. R. Civ. P. 73, which allows parties’ consent to facilitate a trial by a magistrate judge and serves as a similar concept in agreement-based dispute resolution like arbitration.
The SEC itself can give effect to the right to remove without waiting for Congress, which already has recognized a similar right in agency adjudication, including the Fair Housing Act, the Federal Power Act, and the Energy Policy and Conservation Act.
Furthermore, this right to remove would likely address the constitutional challenges anticipated by Jarkesy without threatening the future of administrative enforcement. As seen in the more recent case of United States v. Arthrex where the Supreme Court amended the Patent Act to permit agency-head review of patent adjudications to face a similar constitutional challenge. Hence, it comes with the hope that Congress, the SEC, or even the Supreme Court will recognize this right.
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