U.S. Supreme Court Agrees to Hear Nondelegation Case

The U.S. Supreme Court on June 30, 2023, agreed to hear the case of SEC v. Jarkesy.¹ The case is an appeal of a U.S. Court of Appeals for the Fifth Circuit decision that held that the U.S. Securities and Exchange Commission's (SEC) use of administrative law judges (ALJs) is unconstitutional.² The Fifth Circuit's decision was based on three separate theories: 1) that the use of administrative proceedings to seek civil penalties for common law claims violates the Seventh Amendment of the U.S. Constitution's right to a jury trial; 2) that the SEC's discretion to choose between enforcing securities laws through administrative proceedings or through court actions violates the nondelegation doctrine; and 3) that the multiple levels of for-cause removal protection for SEC ALJs violates the appointments clause of Article II of the Constitution.

Though a decision upholding the Fifth Circuit on any of those three theories could be used to constrain the authority of multiple federal agencies, a decision based on the nondelegation doctrine could be the most restrictive on agency authority of any Supreme Court decision to date.

Background

The nondelegation doctrine is rooted in Article I of the Constitution's grant of legislative authority to Congress. Proponents of the theory believe that this implies Congress is not allowed to delegate discretion to the executive branch that amounts to policymaking authority. The nondelegation doctrine was last used to strike down two laws in 1935.³ Since then, courts have applied the "intelligible principle" test to uphold exercises of agency discretion where Congress provided at least some minimal level of guidance as to how that discretion should be exercised. In the past few years, multiple justices of the Court's conservative wing have advocated for a strengthening of the nondelegation doctrine to eliminate any agency discretion with respect to setting policy. Most recently the nondelegation doctrine was raised in a 2019 case, Gundy v. United States.⁴ All four conservative justices participating in the case signaled support for strengthening the nondelegation doctrine, although the effort did not receive enough votes to succeed at that time.

The nondelegation doctrine is related to the major questions doctrine as established in last year's West Virginia v. EPA⁵ but goes a step further in its implications for agency authority. The major questions doctrine is utilized when an agency has been granted broad discretion and it has exercised that discretion in a manner that has major policy implications and that was not clearly authorized by law. When an agency violates the major questions doctrine, the underlying rule is vacated but the agency can still regulate in the same area with a more narrowly tailored or less impactful rule. A stronger nondelegation doctrine could be used whenever an agency exercises any amount of policy discretion, not just major policy discretion. Additionally, the remedy is not to vacate the agency's rule but to hold that the statute granting that policy discretion is unconstitutional, removing the agency's ability to regulate in that area entirely and potentially affecting more rules than just the challenged rule.

A strengthened nondelegation doctrine could have profound implications for climate regulations. The Federal Trade Commission (FTC), for example, has broad statutory authority to prosecute "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce."⁶ The terms "unfair methods of competition" and "unfair or deceptive acts or practices" are not defined by law, giving the FTC nearly unfettered discretion to make policy choices about what types of business practices are unfair. The FTC is currently considering updates to its "Green Guides" that provide the agency's definitive interpretation of how it will exercise its unfair and deceptive practices authority to target environmental marketing claims such as "carbon-neutral" and "net zero." This broad authority, however, may run afoul of a strengthened nondelegation doctrine.

Other examples include the SEC's proposed climate disclosure rule, which would require publicly traded companies to disclose their greenhouse gas emissions and business risks related to climate change. That proposed rule relies on multiple provisions in the securities laws that give the SEC authority to make rules that it deems "necessary or appropriate" for the public interest or protection of investors.⁷ Such broad authority to define "necessary or appropriate" measures that may rest on policy decisions may also be challenged under a nondelegation doctrine theory. Other climate rules administered by the U.S. Environmental Protection Agency (EPA) and other agencies rely on similar statutory provisions to consider undefined factors in rulemaking or to consider specific, often competing, policy factors without defining how to weight each factor.⁸

It is anticipated that SEC v. Jarkesy will be heard in the Court's next term and likely decided by the end of June 2024. Impacts to climate rules would be realized only after those rules are separately challenged, meaning that even if the nondelegation doctrine is strengthened, the impacts to climate rules could be years away. The government has argued that the type of discretion at play in Jarkesy is simple enforcement discretion – a traditional executive power, not policy discretion. If the Court agrees with that argument, the Court could overturn or uphold the Fifth Circuit on one of the other two theories without strengthening the nondelegation doctrine at this time.

Notes

¹ Case No. 22-859.

² Jarkesy v. SEC, 34 F.4th 446 (5th Cir. 2022).

³ ALA Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935); Panama Refining Co. v. Ryan, 293 U.S. 388 (1935).

⁴ 139 S. Ct. 2116 (2019).

⁵ 2022 WL 2347278 (2022).

⁶ 15 U.S.C. § 45.

⁷ 15 U.S.C. §§ 77g, 78l, 78m, and 78o.

⁸ See e.g., 42 U.S.C. § 7545(o)(2)(B)(ii) (directing EPA to consider five specific factors when setting renewable fuel volume obligations but not specifying how to weight the factors and also allowing EPA to consider "other factors").

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