WASHINGTON (CN) — Judges working within the federal bureaucracy could find themselves more vulnerable to the whims of political power after the Supreme Court reviews a case from a hedge fund manager accused of violating federal securities law.
On the high court’s docket next week is a case involving the workhorses of the federal government: career civil servants who stand at their posts regardless of which party takes up residence on Pennsylvania Ave.
A ruling from the conservative Fifth Circuit aims not only at limiting a core function of governing but also the job security and impartiality of those undertaking that task. The Supreme Court will review the matter to decide if the appeals court went too far or if the justices themselves want to shift the balance of power within the American governing system.
At the center of that debate will be specialized judges, known as administrative law judges, working within the executive branch to hear cases brought by federal agencies. George Jarkesy faced an administrative proceeding like this when the Securities and Exchange Commission charged him with lying to investors, misrepresenting investment strategies, and arbitrarily inflating the value of his fund's holdings.
Because they work within federal agencies, administrative law judges fall under the executive branch, unlike other judges within the judicial branch. There are about 2,000 of these judges working across 30 agencies; by comparison, there are about 900 judges working throughout the judiciary.
Appointment of administrative law judges originally differed from their peers in the judiciary, requiring applicants to qualify through a merit-based selection process overseen by agency heads. In contrast, federal district and circuit court judges are nominated by the president. Like their appointment process, administrative law judge’s firing process is also not under the president’s authority — a key issue in the case before the justices next week.
An administrative law judge found Jarkesy violated the Securities Act, the Exchange Act and the Advisers Act with his actions. His violations resulted in a civil penalty of $300,000. Jarkesy was barred from activities within the industry and his company was forced to disgorge almost $700,000 in illicit gains.
Although Congress empowered agencies to bring these types of suits under the Administrative Procedure Act, there is still an appeals process through the judiciary. Jarkesy asked the Fifth Circuit to intervene in his case, and the conservative appeals court obliged.
A divided panel of the Fifth Circuit reversed the administrative law judge’s ruling, finding Congress unconstitutionally empowered agencies to bring administrative proceedings for civil penalties against people like Jarkesy. The broad ruling took aim at the core of agency adjudication, including the government’s ability to bring administrative cases and the shields that protect the judges who hand down their rulings.
Protecting administrative law judges from presidential interference was Congress’ way of blocking the government’s civil servants from partisan interference. Should the Fifth Circuit’s ruling be upheld by the Supreme Court, those guardrails could vanish, giving the president full authority to fire these judges.
“If the lower court’s decision stands, history has taught that disruption within the SEC is likely to ensue, followed by swift, if not immediate, action from the President,” the Federal Administrative Law Judges Conference wrote in an amicus brief.
Just five years ago, the Supreme Court handed down Lucia v. SEC, finding that administrative law judges were “officers of the United States.” The classification altered the appointment of these judges.
Then-President Donald Trump issued an executive order less than a month after Lucia which moved administrative law judges from the competitive service and to the selective service. The highly selective merits selection process was out, and appointment — by the president, head of department or court of law — was in.
Follow @KelseyReichmann
