How Justice Jackson Would Adjudicate Jarkesy

by Tanner Dowdy, Notes and Comments Editor, University of Cincinnati Law Review Vol. 91

I. Introduction

The Take Care Clause is back in the headlines.¹ And once again, a court has construed its language to render removal restrictions placed on executive officers unconstitutional.² This time, it was the Fifth Circuit in Jarkesy v. Sec. & Exch. Comm’n, 34 F.4th 446 (5th Cir. 2022).³ Jarkesy involved a fiery hedge fund manager named George Jarkesy who faced an SEC enforcement action for securities fraud.⁴ Never one to back down, Jarkesy countered that the SEC proceedings against him—which included adjudications under administrative law judges (“ALJs”) cushioned by removal restrictions—violated the Seventh Amendment, Intelligible Principle Test, and Take Care Clause.⁵ The circuit panel agreed with Jarkesy…on everything.⁶ SEC enforcement actions may never be the same.

A close follower of constitutional law will find the removal power holding in Jarkesy unsurprising. Striking the ALJ removal restrictions harmonizes with a bevy of recent federal precedents—i.e., Free Enterprise Fund and Seila Law—that deride removal restrictions nested across the federal bureaucracy.⁷ Close followers of constitutional law also know that whittling away removal restrictions has spurred jurisprudential polarization. The array of opinions in Seila Law (the Court’s latest removal power case) proves that one side deems at will removal as indispensable for executive power; while the other side as a myth created by those who resent bureaucratic bloat.⁸ No matter one’s predilections, the stark divide that has emerged on the court should concern those who prefer stable jurisprudence.

Is there a framework for the removal power that would achieve greater consensus? This article posits there is; and it comes in the form of Justice Jackson’s Youngstown concurrence.⁹ Part II provides background on the removal power and Jackson’s concurrence. Part III applies Jackson’s concurrence to a hypothetical removal power case. By the conclusion of this article, the following will be clear: Justice Jackson’s lauded tripartite framework offers untapped potential for stabilizing removal power jurisprudence.

II. Background

a. The Evolution of the Removal Power

The President’s removal power is typically sourced to the Take Care Clause or Vesting Clause—both cabined in Article II.¹⁰ But nowhere in the Constitution can one locate an express mention of a President’s removal powers.¹¹ Nor can one find debate over the removal power in the records of the delegates to the Constitutional Convention.¹² Over a century after the Convention, the Court first confronted this historical ambiguity in Myers v. United States.¹³

In Myers, Chief Justice Taft (Cincinnati Law’s very own) laid the foundation for a robust removal power.¹⁴ Over dissents from Justices Holmes, Brandeis, and McReynolds, Taft found an unfettered removal power over inferior officers to be implicit from the Constitution and the sources surrounding its ratification.¹⁵ To Taft, inferior executive branch officials were extensions of a President’s authority and thus subject to removal at will.¹⁶

The bright line rule in Myers was blurred by Humphreys Executor in 1935.¹⁷ Humphreys presented a challenge to the Federal Trade Commission’s (“FTC”) leadership structure, which contained a panel of bipartisan officers who could only be removed for cause.¹⁸ In analyzing the FTC’s structure, the court created a new distinction, referring to FTC officials as “quasi-judicial and quasi-legislative” as opposed to purely executive.¹⁹ The court upheld the removal protections enjoyed by this newly created class of “quasi” officials.²⁰ Suffice it to say that in the decades that followed Humphreys, quasi-officials enjoyed great job security.

But winds are starting to shift. In the Court’s latest removal power case, Seila Law v. CFPB, the majority opted for a balanced approach.(See Seila Law LLC v. Consumer Financial Protection Bur., 140 S. Ct. 2183 (2020).[/mfn] Seila presented another challenge to removal restrictions placed on an alphabet agency official.²¹ This time it was the head of the Consumer Financial Protection Bureau (“CFPB”).²² Writing for the majority, Chief Justice Roberts first acknowledged that Presidents generally enjoy Myers style at will removal power.²³ But he noted two exceptions to the general presumption Myers inscribed.²⁴ Exception one: where agencies have structures akin to the FTC in Humphreys—multiple quasi-officials on a panel protected by for cause removal restrictions.²⁵ Exception two: where the officials in question are inferior officers with limited duties and no policymaking powers.²⁶ Because the CFPB was headed by a single official protected with for cause removal restrictions, and therefore did not fit into either of the two exceptions, its structure was deemed unconstitutional.²⁷

For admirers of incrementalism, Seila was laudable. But for those who admire clarity, Seila was frustrating. Absent from Seila was an application of Justice Jackson’s Youngstown concurrence. This is a curious absence; after all, Justice Jackson created the framework to resolve thorny separation of powers issues between Congress and the President—which is exactly what removal power cases present.²⁸

b. The Youngstown Concurrence

When President Truman seized the Youngstown mills in the spring of 1952, he probably assumed that his actions, if challenged, would be supported by the “New Deal” justices strewn across the Supreme Court.²⁹ He was wrong: Justice Black’s majority opinion in Youngstown held that absent authority granted by Congress, President Truman lacked any power to seize the mills.³⁰ Five justices agreed but expressed alternative ways to think about the problem.³¹ No opinion from that five has proven more influential than Justice Jackson’s.³²

Justice Jackson’s eloquent prose should not obfuscate the simplicity of his method, which created a tripartite framework for Truman’s seizure to be placed in.³³ Basket one of the tripartite is the peak power zone. Here, unless the President and Congress are acting blatantly unconstitutional—like enacting and enforcing a ban on political speech—the President is at the peak of his power.³⁴ As Justice Jackson remarked, a President’s power in this zone “includes all that he possesses in his own right plus all that Congress can delegate.”³⁵

Basket two: the twilight zone. Here, Justice Jackson acknowledged that certain situations do not lend to easy analysis.³⁶ This dose of realism is refreshing; sometimes, whether Congress has spoken on the issue being litigated is unclear. And if that is the case, Jackson urged judges to defer to the “imponderables” of the time.³⁷

Last is the weak zone. Here, the President is acting against the express will of Congress.³⁸ And unless Congress has explicitly nullified a President’s delegated executive power—like the commander in chief power—the President’s claim “must be scrutinized with caution.”³⁹

Jackson’s framework offers a well-accepted methodology for analyzing presidential power.⁴⁰ In Youngstown, the extent of Truman’s war powers were disputed.⁴¹ But the framework can be applied just as gracefully when the removal power is disputed.

III. Discussion

a. Framing the Issue

Two assumptions underlie the following analysis. Assumption number one: most (if not all) Presidents would welcome an expanded removal power. And that leads to assumption two: the most direct way to challenge a removal restriction would be for a President to ignore a for cause restriction. Accordingly, this article centers its analysis around a hypothetical that presents a direct challenge to a removal restriction. Even better, our hypothetical has a Jarkesy bent. Here it goes: President Biden, wishing to rid the SEC of ALJs he deems too soft on hedge funds, fires a few ALJs at will, thereby affronting the for cause removal restrictions the ALJs enjoy. Like President Truman seizing the mills to assert his war time powers, President Biden is asserting that the ALJ removal restrictions erected by Congress are preventing him from exercising control over the SEC as he wishes.

Before proceeding, it is worth noting that Presidents often choose to adhere to removal restrictions. But even where a President obeys a removal restriction, citizens still routinely challenge the restrictions—just recall Seila and Jarkesy. So, to be clear: just because a President is following a law does not mean the law is valid or immune from suit. And in a case where a private litigant—not the President—is asserting a removal power restriction is unconstitutional, the case still presents fundamental questions about the balance of power between the President and Congress. Therefore, whether it is a hedge fund manager like Jarkesy bringing suit, or, as in our hypothetical, President Biden bringing suit, applying Youngstown makes sense.

b. Applying the Youngstown Framework

1. The Peak Power Zone

Recall that in the peak power zone, the President and Congress act in a concerted fashion.⁴² Therefore, in our hypothetical, the peak power zone is eliminated since President Biden is expressly affronting Congress by firing the ALJs at will. That said, a peak power labeling would make sense if President Biden fired the ALJs according to removal rules. But remember, unless the concerted action between the President and Congress is blatantly unconstitutional (like political speech bans), the President should win in the peak zone. Logic dictates that if President Biden chose to follow the removal rules, his action should not be placed in the peak power zone. Let us break this down piece by piece. Congress enacted a law giving President Biden authority to remove officers according to certain rules…check. President Biden, removing the ALJs, acted pursuant to Congress’ removal rules…double check. But would this concerted action be blatantly unconstitutional? This is where the trouble kicks in.

Those who believe removal restrictions to be blatantly unconstitutional must admit that, in the peak power zone, a President adhering to a removal restriction is placed in the unusual scenario of effecting an unconstitutional restriction that curbs his own power. In other words, a President adhering to a removal restriction would lose, but would not want to if he cares at all about his power. Regardless, there is no language in the Constitution—unlike for freedom of speech in the First Amendment—that makes adhering to a statutory removal restriction automatically dubious.⁴³ To quote Justice Jackson, a President acting pursuant to a removal restriction would be supported “by the strongest of presumptions and the widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it.”⁴⁴ Where the Constitution is silent on the nature of the underlying power—like it is for the removal power—it would be ridiculous to assert Jackson’s burden of persuasion is met. To the contrary, the honest answer is that, when it comes to the nature of the executive removal power, the power “distribution is uncertain.”⁴⁵

2. The Twilight Zone

Recall that in the twilight zone, the Constitution is silent or ambiguous on the nature of the power being litigated.⁴⁶ According to Justice Jackson, judges in the twilight zone should resolve the issue based on “the imperatives of events and contemporary imponderables rather than on abstract theories of law.”⁴⁷ Because our hypothetical presents an uncertain power distribution, it is best to analyze the issue in the twilight zone. Below, Part 4 provides a cursory discussion on the imponderables of our time. But before contemplating imponderables, let us dispense with the weak zone.

3. The Weak Zone

Again, let us start with logic. Those who loathe removal restrictions must frame removal power cases as either:

(1) a loss for Presidents in the peak power zone (remember however that the peak power zone is inapplicable to our hypothetical as we have pitted President Biden directly against Congress), or
(2) a win for Presidents in the the weak zone.

We have already covered the issues with option (1). Problems are equally apparent with option (2). A defense of option (2) would go as follows: President Biden, acting against the will of Congress though he may be, is justified in doing so because Congress has infringed upon an obvious delegation of executive power he retains. This is a pro-executive position and has followers on the Court.⁴⁸ But this author finds the argument a stretch. A win in the weak zone should be exceedingly rare; reserved only for those cases where Congress has blatantly intruded into executive power. For instance, if Congress enacted a law (which, by the way, would need to be signed by the President) removing the President as Commander in Chief, that would certainly intrude upon executive power. If Congress enacted such a law, the law should fall. But in our scenario, Congress did no such thing. Rather, Congress merely curbed the edges of a removal power, found nowhere in the Constitution, that President Biden attempted to exercise in an unfettered manner. That is a textbook twilight zone case.

4. Deferring to the Imponderables

Having established that our hypothetical case belongs in the twilight zone, it is incumbent to weigh the imponderables. Unfortunately, there is little jurisprudence available to courts for analysis in the twilight zone.⁴⁹ However, when looking to the imponderables, there are a few obvious questions judges could ask. For example, are analogous removal restrictions common in state agencies? Does the restriction imposed promote the goals Congress tasked to the agency where the restriction resides? Is there a valid reason why Congress would desire to have an ALJ protected from at will presidential removal? Without a protracted discussion, the answer to each of these questions is yes.

Data collected from Ballotpedia proves that among the states, the removal power is not settled as purely executive: “Of the 26 state constitutions granting removal power, 12 states protected agency officials from at-will removal by requiring governors to cite a specific cause first.”⁵⁰ Florida has a particularly protective scheme, where some officials can only be removed with senate or cabinet approval.⁵¹ Though how the states treat executive removal is not dispositive of the issue, it is good evidence that the issue should not be casted in “abstract” and reductionist “legal theory” that oversimplifies reality at the federal level.⁵²

Unfortunately for President Biden in our hypothetical, there are additional imponderables that support upholding the ALJ removal restrictions. In protecting the liberty of states and citizens, the founders were concerned with exorbitant executives unchecked by Congress.⁵³ It would be perplexing to posit that, at a time when federal agencies are so large, further empowering executive control over it would ensure more liberty. There is plenty of documentation highlighting, not least the enumerated powers themselves, that the Founders intended Congress to be a sturdy bulwark against unilateral power abused in matters of finance and the economy.⁵⁴ A principal way a tyrannical executive is checked is through statutory buffers that are “necessary and proper.”⁵⁵ Ensuring that ALJs are protected from manipulation so that they can adjudicate complex securities law violations is certainly proper—perhaps even necessary given the increased financialization that contributed to the Great Financial Crisis.⁵⁶

Of course, there are additional imponderables to look to. And if Justice Jackson’s framework were applied, perhaps a sophisticated test would emerge ensuring removal power jurisprudence becomes practical—not divisive and absolutist. It is also worth noting that imponderables can cut the other way. The key benefit in being honest about the removal power is that the court would play a more active role in contouring its boundaries. Though more litigation may be unwanted in the beginning, over time established rules and patterns would form. And, to evade litigation in the future, Congress would begin to exercise caution when drafting removal restrictions.

IV. Conclusion

The purpose of this article was to advocate for the exploration of new solutions to removal power cases. For those who detest the size of the federal bureaucracy, this article may be unsatisfying. But for those who harbor that position, here is a closing note of hope: remember that in addition to invalidating the ALJ removal restrictions, the Jarkesy panel used the intelligible principle test to invalidate SEC adjudications.⁵⁷ Perhaps jurists have been choosing the wrong Taft opinion to target the bureaucracy (the intelligible principle test stems from Taft’s opinion in J.W. Hampton Jr. & Company v. United States).⁵⁸

This author sympathizes with the position that the federal bureaucracy could use some trimming. But gradually expanding the removal power is not the right solution. After all, allowing Presidents to remove leadership across the bureaucracy in an ad hoc fashion could, rather than counter bureaucratic bloat, lead to corruption and political instability. It is time to stop pretending that the removal power is black or white. Once that honest admission is made, a new door opens. Jackson’s Youngstown concurrence is waiting on the other side.

Cover Photo “Supreme Court” by Mark Fischer is licensed under CC BY-SA 2.0.

Tanner Dowdy

Tanner Dowdy is a Kentuckian born and raised. Before law school, Tanner attended the University of Kentucky where he majored in Finance and Political Science. It was at UK, fusing together these majors, where Tanner became passionate about the interplay between law and capital markets. His contributions to the law review reflect that passion. After law school, Tanner plans to practice in the securities law space. In his free time, you can find Tanner outdoors, collecting vintage records, running, lifting, or visiting new coffeeshops and breweries with friends!

References

1
Maria Loyola, A Judicial Ruling Challenges the SEC’s Illegal Power, The Wall St. J. (May 22, 2022, 4:23 PM), https://www.wsj.com/articles/judicial-ruling-challenges-sec-jarkesy-security-and-exchange-commission-illegal-seventh-amendment-fifth-circuit-constitution-executive-power-11653247133.
2
Id.
3
See Jarkesy v. Securities & Exch. Comm’n, 34 F.4th 446, 449 (5th Cir. 2022).
4
Id.
5
Id.
6
Id.
7
See Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477 (2010) (striking down two layers of removal protection for officials in the Public Company Accounting Oversight Board); Seila Law LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020) (striking down a removal restriction that protected the director of the Consumer Financial Protection Bureau).
8
See Seila Law LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020).
9
Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 634 (1952) (Jackson, J., concurring).
10
U.S. Const. art. II, § 3.
11
Seila Law LLC, 140 S. Ct. at 2225 (Kagan, J., dissenting).
12
Id. at 2229.
13
Myers v. United States, 272 U.S. 52, 176 (1926).
14
Id.
15
Id.
16
Id.
17
See Humphrey’s Ex’r v. United States, 295 U.S. 602 (1935).
18
Id. at 619-20 (emphasis added).
19
Id. at 625.
20
Id. at 632.
21
Id.
22
Id.
23
Id. at 2197-99.
24
Id. at 2199-2200.
25
Id.
26
Id.
27
Id. at 2201-08 (emphasis added).
28
See Michael Coenen & Scott M. Sullivan, The Elusive Zone of Twilight,62 B.C.L. Rev. 741, 752 (2021).
29
Justices Black, Douglas, Frankfurter, Reed, and Jackson were all FDR appointees. Vinson, Burton, Clark, and Minton were appointed by Truman. See Justices 1789 to Present, Supreme Court of the United States, https://www.supremecourt.gov/about/members_text.aspx (last visited June 20, 2022).
30
Youngstown, 343 U.S. at 589.
31
See id. at 593-666.
32
Coenen & Sullivan, supra note 29, at 752.
33
Id. at 742.
34
Youngstown, 343 U.S. at 635-36 (Jackson, J., concurring).
35
Id. at 635.
36
Id. at 637.
37
Id.
38
Id. at 637-38.
39
Id. at 638.
40
Coenen & Sullivan, supra note 32, at 752-53.
41
Id. at 749.
42
Youngstown, 343 U.S. at 635-36 (Jackson, J., concurring).
43
See Seila Law LLC, 140 S. Ct. at 2225 (Kagan, J., dissenting).
44
Youngstown, 343 U.S. at 637 (Jackson, J., concurring) (emphasis added).
45
Id.
46
Id.
47
Id.
48
Seila Law, 140 S. Ct., at 2218-19 (Thomas, J., concurring).
49
See Coenen & Sullivan, supra note 29.
50
Executive Control of Agencies: State Executive Removal Power over Agency Officials, Ballotpedia, https://ballotpedia.org/Executive_control_of_agencies:_State_executive_removal_power_over_agency_officials (last visited June 20, 2022).
51
Id.
52
See e.g., Youngstown, 343 U.S. at 635-36 (Jackson, J., concurring).
53
The Federalist No. 76 (Alexander Hamilton).
54
Seila Law, 140 S. Ct., at 2237-38 (Kagan, J., dissenting).
55
See e.g., M’Culloch v. State, 17 U.S. 316, 413-15 (1819).
56
See 140 S. Ct. 2183, 2238 (2020) (Kagan, J., dissenting).
57
Jarkesy, 34 F.4th 446, 449 (5th Cir. 2022).
58
J.W. Hampton, Jr., & Co. v. United States,276 U.S. 394 (1928).