What the Supreme Court’s SEC decision means for the administrative state

Thursday morning, the Supreme Court released its ruling on Securities and Exchange Commission v. Jarkesy, a case largely focused on federal agencies’ power to make and enforce policy.

Blake Emerson, professor of law and political science at the University of California, Los Angeles, joined “Marketplace” host Kai Ryssdal to discuss the majority’s apparent antipathy toward agency powers as expressed in the decision. Below is an edited transcript of their conversation.

Kai Ryssdal: First blush, what do you make of this decision?

Blake Emerson: So this opinion is of a piece with a number of cases that the Supreme Court has recently laid down that significantly limit the powers of Congress to regulate the economy to promote public health and public safety, and this opinion on the Securities and Exchange Commission’s authority to impose penalties in its in-house courts furthers that overall project. 

Ryssdal: This is not just about the Securities and Exchange Commission, though, that’s kind of the point.

Emerson: Yes, very much so. So the powers that the court said the SEC unconstitutionally exercised are powers that other agencies also hold. So for instance, the Centers for Medicare & Medicaid Services has closely analogous powers, their power related to taxation very much like that. And if we look beyond the the narrow ruling of the case about penalties to this broader question about regulatory agencies’ powers to regulate what the court calls “private rights,” like rights to property and contract, there’s a much larger swath of agencies like the National Labor Relations Board and the Federal Trade Commission that could come under threat now that the court has made this significant change in law.

Ryssdal: Am I going too far if I say that these regulatory agencies and the powers they exercise are how the economy works?

Emerson: I think they’re certainly central to the way in which the economy has operated, at least since the New Deal. The theory of the administrative state in the United States is that we want to have a free market economy, but there are many cases where the market doesn’t function properly, or where there are values other than maximizing profit, that the people through Congress want to recognize so that the Securities and Exchange Commission, for instance, was created in response to the Great Depression in order to counter widespread fraud and abuse in the sale and marketing of securities. And this opinion takes away one of the tools, one of the key tools in the arsenal that these kinds of agencies have to limit those kinds of abuses.

Ryssdal: Does it then follow that there may be more financial fraud and abuse if the Securities and Exchange Commission doesn’t have these powers?

Emerson: Yes, well, in a very straightforward way, you can, you can think of this kind of ruling as increasing the costs to agencies like the SEC of enforcing law, and at the same time decreasing the cost for people who want to break the law doing so. Because this will make it harder for the SEC to enforce the various securities laws that Congress had given that responsibility to administer.

Ryssdal: The phrase that comes to mind here, professor, is “chilling effect,” right? 

Emerson: Absolutely. And that’s consistent with a number of other rulings that the Supreme Court has laid down, that send a very strong signal both to other courts, to lower courts in the federal judiciary, as well as to Congress and to administrative agencies, that they are under very close scrutiny by the Supreme Court, and the court will look skeptically at their exercise of significant powers.

Ryssdal: Well, so let’s play this forward a little bit, because either tomorrow or Monday now, I understand, are going to be more decision days. And we’ve still got a case coming about the Chevron deference, about whether we ought to defer to regulatory agencies in interpretation of law. What does today’s decision and the body of work that you’ve just cited lead you to believe about what might happen with the understanding that trying to spitball what the court is going to do is a fool’s errand?

Emerson: That’s right. It’s always hard to make predictions, but I think it is very likely that the court will either overrule or significantly limit what’s called Chevron deference. And Chevron deference is a principle going back to the 1980s. But it’s also more deeply rooted in American administrative law, that when a statute is unclear, when it could mean more than one thing, the courts are supposed to accept the executive agency’s interpretation of the statute if it’s reasonable. And the theory of this rule is that agencies both have scientific and technical expertise that the courts lack, and they’re also more democratically accountable than the courts because the president exercises a lot of control over the people who are in charge of agencies. So it is fair to say this has been a bedrock principle of administrative law going back many decades. And it is, it is a doctrine that many on the court, including, for example, Justice [Neil] Gorsuch, have expressed a lot of skepticism about because they worry that this doctrine takes away power that constitutionally belongs to the courts, the power to interpret law, and that in so doing it threatens liberty, the liberty of citizens. Now proponents of Chevron deference will tell you that given that these are the questions that regulatory agencies like the Environmental Protection Agency, or like the Food and Drug Administration or the National Labor Relations Board, the questions that these agencies answer and address in their policymaking are often very technical and politically sensitive. The courts just don’t have the right tools to answer those questions. And moreover, there are often very significant public interest or even public rights that are at issue in programs to protect the public health and safety. But the court, the court has given, I’d say, a lot of notice that Chevron is on the chopping block. And so I expect to see that doctrine either overruled or severely limited.

Ryssdal: Do you ever sit back — here comes the free response question. Do you ever sit back as a guy whose job it is to figure out administrative law and and teach it to new lawyers, do you ever sit back and wonder how the administrative state and how this economy runs became so vilified?

Emerson: Yeah, it’s a good, it’s a good question. I think what has happened over the course of the past 40 years or so, is that we have really profound not only legal, but also political disagreements about the proper role of the federal government in regulating the economy, in trying to, to prevent unfair practices and trying to avoid harmful pollution, things of that nature. And unfortunately, that has broken down along partisan lines, where you have one, the Republican Party tends to be opposed to such measures and the Democrats are broadly in favor of it. And whenever, whenever you have that kind of partisan split in law, it tends to be damaging to the fabric of the legal system because it becomes a political football. And so depending on which justices are nominated to the court and who is the president, you end up getting these really wild shifts in policy. Another side to it that I would, I would note is that Congress has not shown a lot of willingness or alacrity to get in the game and to write new statutes, to refine the powers of agencies to respond to legitimate concerns that sometimes agencies, you know, exercise inappropriate, broad powers without adequate consultation. And so in the absence of that kind of legislative action, what we see increasingly is more and more unilateral presidential action. And that’s something that the courts, understandably, sometimes look on with worry and with skepticism. And so today, we’re seeing, we’re seeing the culmination of that process in what Justice [Elena] Kagan has called, in another opinion, an existential threat to the administrative state.