Amicus Curiae Brief — Securities and Exchange Commission, Petitioner v. George R. Jarkesy, Jr., et al.

No. 22-859

IN THE

___________

SECURITIES AND EXCHANGE COMMISSION,

V.

PETITIONER,

GEORGE R. JARKESY, JR., ET AL.,

___________

RESPONDENTS.

On Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

__________

AMICUS CURIAE BRIEF OF

THE LIBERTY JUSTICE CENTER

IN SUPPORT OF RESPONDENTS

__________

October 18, 2023

Loren A. Seehase

Counsel of Record

Reilly Stephens

LIBERTY JUSTICE CENTER

440 N. Wells Street

Suite 200

Chicago, Illinois 60654

(312) 637-2280

lseehase@ljc.org

i

QUESTIONS PRESENTED

1. Whether statutory provisions that empower the Securities and Exchange Commission (“SEC”) to initiate

and adjudicate administrative enforcement proceedings seeking civil penalties for common law claims violate the Seventh Amendment.

2. Whether statutory provisions that vest the SEC

with unfettered discretion to choose to enforce common

law fraud claims in the securities laws through an

agency adjudication instead of filing a district court action violate the nondelegation doctrine.

3. Whether Congress violated Article II by affording at

least two levels of for-cause removal protection to the

SEC’s administrative law judges.

ii

TABLE OF CONTENTS

QUESTIONS PRESENTED ......................................... i

TABLE OF CONTENTS.............................................. ii

TABLE OF CONTENTS............................................. iii

INTEREST OF THE AMICUS CURIAE .................... 1

SUMMARY OF ARGUMENT ..................................... 2

ARGUMENT ................................................................ 3

I. The Rule of Law requires separation of the

powers of lawmaking and law enforcement. .. 3

II. The Dodd-Frank Act impermissibly delegates

core legislative powers to the executive. ......... 6

CONCLUSION .......................................................... 11

iii

TABLE OF CONTENTS

Cases

A.L.A. Schechter Poultry Corp. v. United States,

295 U.S. 495 (1935) ............................................... 8

Atlas Roofing Co. v. OSHRC,

430 U.S. 442 (1977) ............................................... 9

Bond v. United States,

564 U.S. 211 (2011) ............................................... 5

BST Holdings, L.L.C. v. OSHA,

17 F.4th 604 (5th Cir. 2021) ................................. 1

Buckley v. Valeo,

424 U.S. 1 (1976) ................................................... 5

Crowell v. Benson,

285 U.S. 22 (1932) ................................................. 9

Den Ex Dem. Murray v. Hoboken Land & Improv.

Co.,

59 U.S. 272 (1856) ................................................. 7

DOT v. Ass’n of Am. R.R.,

575 U.S. 43 (2015) ......................................... 5, 4, 6

Hirabayashi v. United States,

320 U.S. 81 (1943) .............................................. 2-3

J. W. Hampton, Jr., & Co. v. United States,

276 U.S. 394 (1928) ............................................... 8

Marshall Field & Co. v. Clark,

143 U.S. 649 (1892) ............................................... 7

Mistretta v. United States,

iv

488 U.S. 361 (1989) ........................................... 6, 8

Nat’l Broad. Co. v. United States,

319 U.S. 190 (1943) ............................................... 9

Nat’l Horsemen’s Benevolent & Protective Ass’n v.

Black,

No. 22-10387, 2022 U.S. App. LEXIS 31958 (5th

Cir. Nov. 18, 2022) ................................................ 1

NFIB v. DOL, OSHA,

142 S. Ct. 661 (2022) ........................................... 10

Oceanic Steam Navigation Co. v. Stranahan,

214 U.S. 320 (1909) ............................................... 7

Panama Ref. Co. v. Ryan,

293 U.S. 388 (1935) ................................................ 8

Perez v. Mortg. Bankers Ass’n,

575 U.S. 92 (2015) ................................................. 5

Wayman v. Southard,

23 U.S. 1 (1825) ..................................................... 7

Whitman v. American Trucking Associations,

531 U.S. 457 (2001) ............................................... 8

Statutes

15 U.S.C. § 78u-2 ....................................................... 7

Constitutional Provisions

U.S. Const. Art. I, §1 .................................................. 4

U.S. Const. Art. II, §1 ................................................. 4

U.S. Const. Art. III, § 1 .............................................. 4

v

Mass Const. pt.1, art. XXX ........................................ 3

Other Authorities

Gary Lawson, Delegation and Original Meaning,

88 Va. L. Rev. 327 (2002) ...................................... 6

Michael B. Rappaport, The Selective Nondelegation

Doctrine and the Line Item Veto: A New Approach to

the Nondelegation Doctrine and Its Implications for

Clinton v. City of New York,

76 Tul. L. Rev. 265 (2001) ................................. 3, 4

Neomi Rao, Administrative Collusion: How Delegation Diminishes the Collective Congress,

90 N.Y.U. L. Rev. 1463, 1465 (2015) .................. 10

1

INTEREST OF THE AMICUS CURIAE 1

The Liberty Justice Center is a nonprofit, nonpartisan, public-interest litigation firm that seeks to protect economic liberty, private property rights, free

speech, and other fundamental rights. The Liberty

Justice Center pursues its goals through strategic,

precedent-setting litigation to revitalize constitutional

restraints on government power and protections for individual rights.

To advance these goals, the Liberty Justice Center

regularly litigates cases challenging overbroad assertions of regulatory discretion. See Nat’l Horsemen’s Benevolent & Protective Ass’n v. Black, No. 22-10387,

2022 U.S. App. LEXIS 31958 (5th Cir. Nov. 18, 2022)

(striking down Congress’s delegation of regulatory authority to a private industry group); BST Holdings,

L.L.C. v. OSHA, 17 F.4th 604, 609 (5th Cir. 2021) (enjoining the Occupational Safety and Health Administrations’ vaccination mandate) (enjoining the Occupational Safety and Health Administrations’ vaccination mandate).

This case interests amicus because the SEC’s unfettered discretion to decide the forum for enforcement

actions is a violation of the separation of powers, and

the separation of powers is fundamental to the preservation of liberty.

1 Rule 37 statement: No counsel for any party authored any part

of this brief, and no person or entity other than amicus funded its

preparation or submission.

2

SUMMARY OF ARGUMENT

The Securities and Exchange Commission claims

the right to decide for itself whether citizens deserve

the jury trial guaranteed them by the Bill of Rights.

It’s perhaps not a coincidence that the agency prefers

its internal tribunals, since they always win when they

get to make the rules themselves—as opposed to those

cases they bring before juries, who unlike ALJ’s do not

hear arguments presented by their own employer. This

determination as to when and how these securities

fraud claims are adjudicated is a fundamentally legislative decision, and one that Congress declined to

make, instead delegating that determination to the

agency.

This Court’s precedents require such delegations

to, at a minimum, include the standard by which the

agency is to exercise the delegated authority. But here

there is no standard by which they make that determination—no principle, intelligible or otherwise—so it

is entirely at the agency’s caprice.

Amicus submits this brief to emphasize that these

doctrinal limits on delegation are not simply technicalities, but a core protection for liberty, recognized from

the early English common law sources, through the

Founding, and this Court’s jurisprudence, in which the

nondelegation doctrine protects the separation of powers that is fundamental to the rule of law—and the

preservation of liberty. Moments where this Court has

made exceptions to these principles have demonstrated the importance of the rule. See Hirabayashi v.

United States, 320 U.S. 81, 104 (1943) (approving the

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delegation of authority to military commanders to intern citizens of Japanese descent). In ruling for Respondent, this Court should follow John Adams’s proscription, and reaffirm that “[t]he executive shall

never exercise the legislative and judicial powers

. . . to the end it may be a government of laws and not

of men.” Mass Const. pt. 1, art. XXX.

ARGUMENT

I. The Rule of Law requires separation of the

powers of lawmaking and law enforcement.

“There can be no liberty where the legislative and

executive powers are united in the same person.” The

Federalist No. 47 (Madison) (quoting Montesquieu).

The reason, per Montesquieu, is that “apprehensions

may arise, lest ‘the same monarch or senate that

makes tyrannical laws will execute them tyrannically.’” Michael B. Rappaport, The Selective Nondelegation Doctrine and the Line Item Veto: A New Approach to the Nondelegation Doctrine and Its Implications for Clinton v. City of New York, 76 Tul. L. Rev.

265, 307 (2001) (quoting Montesquieu, The Spirit of

the Laws 157 (Anne M. Cohler et al. eds., Cambridge

Univ. Press 1989) (1748)). Or as Locke put it:

It may be too great a temptation to human

frailty, apt to grasp at power, for the same persons, who have the power of making laws, to

have also in their hands the power to execute

them, whereby they may exempt themselves

from obedience to the laws they make, and suit

the law, both in its making and execution, to

their own private advantage.

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Id. (quoting John Locke, THE SECOND TREATISE OF

GOVERNMENT 141, at 73 (J.W. Gough ed., Basil Blackwell 3d ed. 1976) (1690)).

To this end, the “Constitution does not vest the

Federal Government with an undifferentiated ‘governmental power.’” DOT v. Ass’n of Am. R.R., 575 U.S. 43,

67 (2015) (Thomas, J., concurring). Rather, each

branch is granted its own sphere of authority, such

that “‘[a]ll legislative Powers herein granted shall be

vested in a Congress of the United States,’ Art. I, §1,

‘[t]he executive Power shall be vested in a President of

the United States,’ Art. II, §1, cl. 1, and ‘[t]he judicial

Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish,’ Art.

III, §1.” Id.

This structure is not simply technical or formalistic, but is an essential safeguard of liberty. Madison

warned that “[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands,

whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.” The Federalist No. 47 (Madison). “The Framers were concerned not

just with the starting allocation, but with the ‘gradual

concentration of the several powers in the same department.’” Ass’n of Am. R.R., 575 U.S. at 74 (Thomas,

J., concurring) (citing The Federalist No. 51 (Madison)).

“[T]he great security against a gradual concentration of the several powers in the same department consists in giving to those who administer each department the necessary constitutional means and personal

5

motives to resist encroachments of the others.” The

Federalist No. 51 (Madison). The Framers therefore

“built into the tripartite Federal Government [] a selfexecuting safeguard against the encroachment or aggrandizement of one branch at the expense of the

other.” Buckley v. Valeo, 424 U.S. 1, 122 (1976).

“To the Framers, the separation of powers and

checks and balances were more than just theories.”

Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 119 (2015)

(Thomas, J., concurring). “No political truth is certainly of greater intrinsic value, or is stamped with the

authority of more enlightened patrons of liberty than

[the separation of powers].” The Federalist No. 47

(Madison). The same principle can be found in this

Court’s federalism jurisprudence: “denying any one

government complete jurisdiction over all the concerns

of public life, federalism protects the liberty of the individual from arbitrary power. When government acts

in excess of lawful powers, that liberty is at stake.”

Bond v. United States, 564 U.S. 211, 221-22 (2011) (internal quotes and citations omitted). The Vesting

Clauses are therefore exclusive and nondelegable. 2

“When the Government is called upon to perform a

DOT v. Ass’n of Am. R.R., 575 U.S. 43, 67-68

(2015)(Thomas, J., concurring) (“These grants are exclusive”) (citing Whitman v. American Trucking

Assns., Inc., 531 U. S. 457, 472, 121 S. Ct. 903, 149 L.

Ed. 2d 1 (2001) (legislative power); Free Enterprise

Fund v. Public Company Accounting Oversight Bd.,

561 U. S. 477, 496-497, 130 S. Ct. 3138, 177 L. Ed. 2d

706 (2010) (executive power); Stern v. Marshall, 564

U. S. 462, 482-483, 131 S. Ct. 2594, 180 L. Ed. 2d 475

(2011) (judicial power)).

2

6

function that requires an exercise of legislative, executive, or judicial power, only the vested recipient of

that power can perform it.” Ass’n of Am. R.R., 575 U.S.

at 68 (2015) (Thomas, J., concurring) In fact, “Vesting

Clauses, and indeed the entire structure of the Constitution, make no sense [if there is no limit on delegations].” Gary Lawson, Delegation and Original Meaning, 88 Va. L. Rev. 327, 340 (2002); see also Mistretta

v. United States, 488 U.S. 361, 371 (1989) (“The nondelegation doctrine is rooted in the principle of separation of powers that underlies our tripartite system of

Government.”)nondelegation doctrine is rooted in the

principle of separation of powers that underlies our tripartite system of Government.”).

Blackstone “defined a ‘law’ as a generally applicable ‘rule of civil conduct prescribed by the supreme

power in a state, commanding what is right and prohibiting what is wrong.’” Ass’n of Am. R.R., 575 U.S. at

73 (2015) (Thomas, J., concurring). He defined a tyranny as the ability to both make and enforce those

rules. Id. Lord Coke affirmed that the King could not

“change any part of the common law, nor create any

offence by his proclamation, which was not an offence

before, without Parliament.” Id. at 72 (citing Case of

Proclamations, 12 Co. Rep. 74, 75, 77 Eng. Rep. 1352,

1353 (K. B. 1611)). Yet this combination is exactly

what Dodd-Frank authorizes.

II. The Dodd-Frank Act impermissibly delegates

core legislative powers to the executive.

These concerns for the separation of powers, and

ultimately the rule of law, are most acute where they

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implicate the life, liberty, and property of citizens. Although this Court traditionally hesitates to disapprove

delegations of regulatory authority for want of a clear

line, this case is not about some technical area where

the agency can claim subject-matter expertise. This is

a question of the process due to citizens under government investigation, and ultimately prosecution—a

core competency of courts, and a core legislative power

of Congress to determine. See Wayman v. Southard, 23

U.S. 1, 42 (1825) (Congress cannot “delegate to the

Courts, or to any other tribunals, powers which are

strictly and exclusively legislative.”); Marshall Field &

Co. v. Clark, 143 U.S. 649, 692 (1892) (“Congress cannot, under the Constitution, delegate its legislative

power to the President.”). The power to assign disputes

to agency adjudication resides with Congress. For

“matters, involving public rights . . . congress may or

may not bring within the cognizance of the courts of

the United States as it may deem proper.” Den Ex

Dem. Murray v. Hoboken Land & Improv. Co., 59 U.S.

272, 284 (1856). Such power is “peculiarly within the

authority of the legislative department.” Oceanic

Steam Navigation Co. v. Stranahan, 214 U.S. 320, 339

(1909). Yet the executive in this case insists that it is

entitled to make these legislative determinations itself. Section 929P(a) of the Dodd-Frank Act gave the

SEC unfettered discretion to bring securities fraud actions for monetary penalties within the agency or Article III courts. See 15 U.S.C. § 78u-2. And it’s no surprise which the SEC prefers, given that its internal

conviction rate, in its own venue with its own “judges,”

is more or less one hundred percent—much higher

than the mixed results they get from those pesky juries. See Respondents Opp. at 5 & n.5.

8

What’s more, the SEC’s discretion is not bounded

by even the most basic limitations. Nondelegation

principles “do not prevent Congress from obtaining the

assistance of its coordinate Branches,” Mistretta, 488

U.S. at 372 (1989), and few doubt “the inherent necessities of government coordination.” J. W. Hampton,

Jr., & Co. v. United States, 276 U.S. 394, 406 (1928);

see also A.L.A. Schechter Poultry Corp. v. United

States, 295 U.S. 495, 529 (1935) (“[T]he Constitution

has never been regarded as denying to Congress the

necessary resources of flexibility and practicality.”).

Modern jurisprudence, therefore, has allowed for delegations where Congress furnishes an “intelligible principle.” “If Congress shall lay down by legislative act an

intelligible principle to which the person or body authorized to fix such rates is directed to conform, such

legislative action is not a forbidden delegation of legislative power.” Mistretta v. United States, 488 U.S. 361,

372 (1989) (quoting J. W. Hampton, Jr., & Co. v.

United States, 276 U.S. 394, 409 (1928)).

This has not traditionally been a high bar. Indeed,

this Court has “found the requisite ‘intelligible principle’ lacking in only two statutes, one of which provided

literally no guidance . . . [while the other] conferred

authority to regulate the entire economy on the basis

of no more precise a standard than . . . assuring ‘fair

competition.’” Whitman,531 U.S. at 474-76 (2001); see

Panama Ref. Co., 293 U.S. at 421 (“Congress manifestly is not permitted to abdicate or to transfer to others the essential legislative functions with which it is

[constitutionally] vested.”); Schechter Poultry 295 U.S.

at 529 (“Congress is not permitted to abdicate or to

transfer to others the essential legislative functions

with which it is thus vested.”).

9

There’s no debate in this case whether the principle

provided by Congress is intelligible, because there is

no principle in the first place: no standard of reasonableness, no rubric based on the severity or malice of

the charged conduct, not even the most basic requirement that the discretion be exercised in the “public interest.” Nat’l Broad. Co. v. United States, 319 U.S. 190,

225 (1943). It is entirely up to the agency whether a

citizen deserves his Seventh Amendment rights. It can

be as capricious, or as punitive, as it likes.

The government insists there is nothing to see

here, because the decision in question is simply a version of traditional prosecutorial discretion. But prosecutors don’t get discretion as to whether to have a jury;

defendants do. And venue determinations are traditionally cabined by specific rules—in federal criminal

prosecutions, a venue limitation is built right into the

Sixth Amendment (the accused has the right to “an impartial jury of the State and district wherein the crime

shall have been committed”). Simply labeling an enforcement proceeding “civil” rather than criminal does

not absolve Congress of its role in making these determinations. “Congress, in exercising the powers confided to it, may establish ‘legislative’ courts (as distinguished from ‘constitutional courts in which the judicial power conferred by the Constitution can be deposited’) . . . .” Crowell v. Benson, 285 U.S. 22, 50 (1932).

“But the mode of determining matters of this class is

completely within congressional control.” Id. (quotations and citations omitted). “[W]hen Congress creates

new statutory ‘public rights,’ it may assign their adjudication to an administrative agency…”. Atlas Roofing

Co. v. OSHRC, 430 U.S. 442, 455 (1977).

10

Whether Congress intended this discretion is of no

moment, since the doctrine exists to prevent voluntary

abdication of responsibility. “The nondelegation doctrine ensures democratic accountability by preventing” intentional delegations of power. NFIB v. DOL,

OSHA, 142 S. Ct. 661, 667 (2022) (Gorsuch, J., concurring). Of course, Congress prefers to leave difficult decisions to others. “Delegation undermines separation

of powers, not only by expanding the power of executive agencies, but also by unraveling the institutional

interests of Congress.” Neomi Rao, Administrative

Collusion: How Delegation Diminishes the Collective

Congress, 90 N.Y.U. L. Rev. 1463, 1465 (2015). In place

of a clash of ambitions, “[l]awmakers may prefer to collude, rather than compete, with executive agencies

over administrative power and so the Madisonian

checks and balances will not prevent excessive delegations.” Id. The result is a legislature whose members

are less accountable both to their constituents and to

each other.

These values of accountability and responsibility

secure the blessings of our liberty, since where “the

right both of making and of enforcing the laws…are

united together, there can be no public liberty.” 1 W.

Blackstone, Commentaries On The Laws Of England

142 (1765). The Declaration of Independence denounced the King’s “Arbitrary government” and “pretended offenses.” It is this arbitrary tyranny the Constitution was designed to prevent, and the SEC’s

standardless discretion in this case is completely, utterly, and demonstrably arbitrary.

11

CONCLUSION

For the foregoing reasons, and those stated by Respondents, the decision below should be affirmed.

Respectfully submitted,

October 18, 2023

Loren A. Seehase

Counsel of Record

Reilly Stephens

LIBERTY JUSTICE CENTER

440 N. Wells Street

Suite 200

Chicago, Illinois 60654

(312) 637-2280

lseehase@ljc.org