Fifth Circuit Bombshell On SEC ALJs Raises Questions About DEA ALJs

Published date02 June 2022
Subject MatterCorporate/Commercial Law, Government, Public Sector, Corporate and Company Law, Constitutional & Administrative Law, Securities
Law FirmCadwalader, Wickersham & Taft LLP
AuthorMs Jodi Avergun, Keith M. Gerver and William Simpson

In a decision that likely will reverberate throughout the administrative state, a three-judge panel of the United States Court of Appeals for the Fifth Circuit recently held in Jarkesy v. Securities and Exchange Commission1 that the Securities and Exchange Commission's use of its in-house administrative law judges ("ALJs") to adjudicate securities fraud actions seeking the imposition of monetary penalties was unconstitutional for three independent reasons. While the first two reasons the Fifth Circuit discussed are inapplicable to the Drug Enforcement Administration administrative hearing process, the third reason is directly relevant.2 Specifically, the court found that the statutory removal protections afforded to the SEC's ALJs, providing that ALJs cannot be removed from office without a Merit Systems Protection Board hearing, violated the Take Care Clause of Article II of the Constitution by insulating SEC tribunals from Presidential control. Because DEA administrative judges enjoy the same statutory removal protections as those the Fifth Circuit panel found unconstitutional, Jarkesy might serve to invalidate the DEA's judicial hearing processes.

The DEA relies on ALJs to conduct administrative proceedings for the denial, suspension, and revocation of registrations to manufacture, distribute, or dispense controlled substances under the Controlled Substances Act.3 DEA ALJs'like most, if not all, ALJs employed by the federal government'are subject to the same removal protections that the Fifth Circuit found unconstitutional in Jarkesy.4 For this reason alone the DEA's current administrative adjudication regime could be fatally flawed.

Dual-Layer Removal Protections

Article II of the Constitution vests "the executive Power" in the President, and provides the President with the ultimate authority to remove officers'including judicial officers'in the executive branch. Congress may impose modest limitations on that removal power, including certain "for good cause" limitations on the President's removal authority over multimember boards and certain inferior officers.5 However, in 2010, the Supreme Court imposed a bright-line limit on Congress's power to interfere with the President's removal authority, holding in Free Enterprise Fund v. PCAOB that "dual for-cause limitations" on removal of officers violate the separation of powers.6 In other words, an officer cannot constitutionally be insulated from removal by two layers of for-cause removal protections...

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