Fifth Circuit Upholds Challenge to SEC Administrative Law Judges, Ruling Structure Unconstitutional
In a significant legal decision, the U.S. Court of Appeals for the Fifth Circuit has ruled that the structure of administrative law judges (ALJs) at the Securities and Exchange Commission (SEC) is unconstitutional. The ruling, handed down in the case
Fifth Circuit Upholds Challenge to SEC Administrative Law Judges, Ruling Structure Unconstitutional
In a significant legal decision, the U.S. Court of Appeals for the Fifth Circuit has ruled that the structure of administrative law judges (ALJs) at the Securities and Exchange Commission (SEC) is unconstitutional. The ruling, handed down in the case William Babbitt v. SEC ALJ Robert E. Carney et al., No. 20-10375, challenges the constitutionality of the SEC's use of specially appointed ALJs to hear enforcement actions.
The Fifth Circuit’s decision follows a challenge brought by several companies and individuals who argued that the ALJs at the SEC lack the constitutional independence required for fair proceedings. The court agreed, finding that the manner in which these judges are selected and employed violates Article II of the Constitution, which mandates that officers of the United States must be appointed through proper channels.
Chief Judge Carl E. Stewart wrote the majority opinion, supported by Judges James L. Dennis and Leslie Southwick. In his ruling, Chief Judge Stewart emphasized that “the SEC’s practice of hiring ALJs as ‘employees’ rather than appointing them as ‘Officers of the United States’ undermines the structural safeguards designed to ensure impartiality in administrative adjudications.” This decision reverses a lower court's dismissal of similar challenges and sets a precedent for future cases.
The implications of this ruling are far-reaching, potentially affecting not only the SEC but also other federal agencies that rely on specially appointed ALJs. Attorneys representing those challenging the SEC’s practice stated that “today’s decision underscores the importance of adhering to constitutional principles in administrative proceedings.” In contrast, the SEC's legal team has already signaled their intent to appeal the ruling to the Supreme Court, arguing for the necessity and effectiveness of current judicial practices.
FedKite Wire
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