Shifting Tides: Assessing the Supreme Court's Impact on Federal Agency Powers

Shifting Tides: Assessing the Supreme Court's Impact on Federal Agency Powers

July 17, 2024 | by The KNA Pearl Team

In late June 2024, the Supreme Court issued two significant decisions impacting federal agency authority. The first, Securities and Exchange Commission v. Jarkesy, ruled that the SEC must pursue civil penalties for securities fraud in federal court rather than its internal forums, clarifying this requirement narrowly. Despite sensational headlines suggesting broader implications, the decision does not invalidate the SEC’s use of in-house courts for non-fraud cases under Dodd-Frank. The ruling is unlikely to immediately change SEC practices significantly, as the agency has predominantly utilized its administrative forum for certain enforcement actions and appeals.

Chief Justice Roberts delivered a majority opinion with limited practical impact in Jarkesy, emphasizing specific procedural requirements without broadly challenging the SEC's enforcement capabilities. However, the decision reflects a broader judicial trend towards reevaluating the powers and procedures of federal agencies, suggesting potential future challenges to agency adjudication processes.

Security Exchange Commission vs Jarkesy (Brief Summary):

• The case involves the SEC's enforcement action against securities fraud, questioning the constitutionality of the SEC's in-house adjudication process.


• The Supreme Court ruled that defendants have the right to a jury trial when the SEC seeks civil penalties for securities fraud, impacting the SEC's in-house courts.


• Justices Gorsuch and Thomas concurred, emphasizing the importance of Article III courts in protecting constitutional rights and criticizing the erosion of judicial authority in non-Article III tribunals.


• Conclusion: The SEC can seek civil penalties for securities fraud in federal court or in-house, with constitutional questions about the right to a jury trial. The Supreme Court has addressed these concerns, emphasizing the importance of protecting constitutional rights in enforcement actions.

The subsequent decision, Loper Bright Enterprises v. Raimondo, marked a more profound shift by ending the long-standing Chevron deference doctrine. This doctrine had mandated judicial deference to federal agency interpretations of ambiguous statutes, granting agencies significant leeway in regulatory matters. The Court's ruling now requires federal courts to independently interpret statutes without defaulting to agency interpretations, aiming to restore judicial oversight over statutory interpretation.

Loper Bright Enterprises v. Raimondo (Brief Summary):

• Justice Neil Gorsuch critiques the Chevron doctrine for allowing the Executive Branch to displace statutory meaning.


• Justice Gorsuch emphasizes the importance of judicial independence and accurate statutory interpretation.


• Gorsuch questions the reliance on Chevron in judicial decisions and advocates for a principled approach.


• Judicial opinions should not be viewed as comprehensive codes but as explanations for court dispositions. Judges should exercise independent judgment and not blindly defer to agency interpretations.


• Conclusion: Gorsuch calls for moving away from Chevron, highlighting the need for accurate statutory interpretation and judicial independence.

The Chevron doctrine, established in 1984, had been instrumental in upholding agency authority by allowing agencies to interpret statutes where Congress had not provided explicit guidance. This deference had led to numerous court decisions favoring agency interpretations across various federal statutes, illustrating its pervasive influence on regulatory matters. However, Loper Bright's rejection of Chevron deference represents a significant shift towards a more skeptical judicial approach to agency discretion.

Despite ending Chevron deference, Loper Bright does not eliminate all forms of judicial deference to agency interpretations. Instead, it encourages courts to engage in a nuanced evaluation of agency interpretations on a case-by-case basis, termed as doctrines of "respect" rather than full deference. Agencies can still advocate their interpretations in court, but courts are now required to conduct independent assessments of statutory meanings and agency actions.

The implications of these rulings suggest a recalibration of federal agency authority, potentially curbing the expansive regulatory powers agencies have historically wielded. For stakeholders in the regulated community, these decisions offer greater opportunities to challenge regulatory actions and assert legal constraints on agency initiatives.

For more information on this topic, please contact the authors, KNA PEARL.