US Supreme Court Could Dismantle Federal Government’s Powers in 2024

United States Supreme Court Justices pose for their official portrait at the Supreme Court in Washington on Oct. 7, 2022. Alex Wong/Getty Images

With the U.S. Supreme Court slated to return to session on Jan. 8, the second part of the high court’s term could hand down rulings that either curb or expand the federal government’s powers—sometimes known as the administrative state.

Analysts have said that three cases that the high court is hearing related to the federal bureaucracy this term, including the Consumer Financial Protection Bureau (CFPB) v. Community Financial Services of America, the Securities Exchange Commission (SEC) v. Jarkesy, and Loper Bright Enterprises v. Raimondo.

SEC v. Jarkesy

Hedge fund manager George Jarkesy was penalized by the SEC for violating securities fraud law, which he appealed. The U.S. 5th Circuit Court of Appeals sided with the plaintiff, arguing in a ruling that the SEC violated the Constitution’s Seventh Amendment, which provides the right to have a jury trial, and it also found that Congress engaged in overreach by delegating its own power when allowing an agency—in this case, the SEC—to hold administrative proceedings rather than file a lawsuit in a civil court against Mr. Jarkesy.

The SEC had held an in-house proceeding and used its own administrative law judges, who work as independent officials within the executive branch who oversee internal hearings and adjudicate disputes between the agency and other parties.

Supreme Court arguments in that case were heard on Nov. 29. According to court reporters, the arguments focused on whether the Constitution’s Seventh Amendment bars the federal securities agency from issuing penalties in internal proceedings without giving a defendant the ability to have a trial by jury.

During the hearing, Chief Justice John Roberts suggested that federal agencies have obtained more power over the public in recent years. “Should that be a concern for us or a consideration?” he asked Department of Justice (DOJ) attorneys representing the SEC in the case.

Justice Brett Kavanaugh suggested to the DOJ lawyer, Brian Fletcher, that the Jarkesy case would impact other federal agencies.

“I don’t want you to think that it’s just about SEC, and it can just go to court,” Mr. Fletcher said, according to reports.

“No, I know, [Federal Trade Commission] and others, I’m aware,” said the justice.

“EPA, Agriculture, I mean, it’s really all over,” replied Mr. Fletcher, referring to the Environmental Protection Agency, and the U.S. Department of Agriculture.

“FERC,” said Justice Kavanaugh, referring to the Federal Energy Regulatory Commission.

CFPB v. Community Financial Services of America

In the CFPB case, the agency had asked the Supreme Court to rescind a ruling by a lower court that determined the agency’s funding structure runs afoul of the Constitution. That ruling was also handed down by the U.S. 5th Circuit Court of Appeals earlier this year.

Lawyers for the DOJ argued in their petition that the ruling calls into question virtually every CFPB action since the agency’s inception in 2011 under the Obama administration.

The case stems from a challenge by two payday lending groups that sued to overturn a CFPB rule aimed at combating what the agency calls “unfair and abusive” practices in the industry. The 5th Circuit overturned the rule on Oct. 19, holding in the process that the CFPB’s funding through the Federal Reserve, rather than budgets passed by Congress, violated the separation of powers principle in the U.S. Constitution.

The CFPB said in its petition that the 5th Circuit “relied on an unprecedented and erroneous understanding” of the Appropriations Clause of the U.S. Constitution, which requires government spending to be authorized by Congress.

The CFPB said in its petition that the 5th Circuit “relied on an unprecedented and erroneous understanding” of the Appropriations Clause. “Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The appropriations clause requires nothing more,” it added.

Republicans have long opposed the creation of the CFPB. The Supreme Court in 2020 ruled in another case that the protection Congress originally afforded the CFPB director, who could only be fired for cause, was unconstitutional.

Depending on how the Supreme Court rules this term, the CFPB’s “future is on the line before the Court,” Better Markets, a consumer advocacy group, wrote in a recent report.

Loper Bright Enterprises v. Raimondo

In May 2023, the high court opted to take the case, Loper Bright Enterprises v. Raimondo, which will decide on the question whether the court should overrule the Chevron doctrine, which has long been criticized by conservatives who call it unconstitutional.

Then-President Barack Obama is seen signing the Dodd-Frank Wall Street Reform and Consumer Protection Act alongside members of Congress in a file photo. It established the CFPB in 2011. Saul Loeb/AFP/Getty Images

Critics object to its application without a clear framework to resolve statutory ambiguity, leaving too much discretion with the courts to engage in results-oriented decisioning. The Chevron v. Natural Resources Defense Council case, issued in 1984, is considered a key facet of administrative law and requires courts to defer the federal agencies’ reasonable interpretations of statutes that are unclear.

The case, according to University of Georgia School of Law professor Adam D. Orford, is significant because the Chevron doctrine “is potentially implicated any time a federal agency makes a rule to implement a federal statute and chooses to fill in gaps or do any other thing not specifically contemplated by Congress,” adding that there are “thousands of rulemakings” by agencies each year.

“As one of the most-used decision rules in the federal courts, any significant change to the way courts review agency rulemaking authority will have wide-ranging impacts on the functioning of the entire federal bureaucracy—particularly in a legislative environment like today’s, where it is probably not possible for Congress to agree on legislation containing extremely detailed instructions on many issues that are currently the subject of regulation,” he wrote.

Reuters contributed to this report.