With the Supreme Court hearing argument in SEC v. Jarkesy on Wednesday, a lot of focus will be on the three separate constitutional questions presented in the case:

1. whether in-house SEC adjudication that imposes a civil penalty for fraud liability offends the Seventh Amendment right to a jury trial and should instead be brought in federal court;
2. whether Congress violated the nondelegation doctrine by providing the SEC with no “intelligible principle” for deciding whether to pursue a civil-penalty action before an administrative law judge (ALJ) or in a federal court; and
3. whether how the SEC is structured violates the constitutional rule from Free Enterprise Fund v. PCAOB that Congress cannot impose two levels of removal protection between ALJs and the President.

The Fifth Circuit answered all three questions in the affirmative, and I would be shocked if the Supreme Court agreed on all three. But it’s quite possible that Jarkesy will succeed on at least one of them. If that happens, the Court will then need to grapple with the appropriate remedy.

On the first and second questions, the parties seem to agree that the remedy is to require all SEC civil-penalty actions to be brought in federal court, not in-house adjudication proceedings before an ALJ. On the third, Jarkesy argues that the remedy is just vacatur of the civil penalty order, as severing any of the removal protections “leaves the Court with no way to rewrite the statutory scheme or surgically delete the offending provisions.” The Solicitor General, by contrast, argues that if there is a constitutional violation with respect to the third question, the Court should sever any removal protections for ALJs, which would make them removable at will by the Commission. As I blogged before United States v. Arthrex was decided, at-will removal of ALJs would threaten their decisional independence in real and potentially catastrophic ways. Indeed, shortly after the Solicitor General took this position, a group of administrative law professors (who had filed an amicus brief in the case) asked for oral argument time to “argue that the preferred remedy is to retain the express limits for ALJs that Congress included 77 years ago in the Administrative Procedure Act, rather than the implied limits for SEC Commissioners, which have never been codified by Congress.” The Court denied the request.

In a new draft essay forthcoming in the Ohio State Law Journal, David Zaring and I argue for a different remedial path: In certain circumstances such as here, the regulated party should have a right to remove an enforcement action from an in-house agency adjudication to an Article III federal court. This right to remove would avoid the constitutional issues presented in Jarkesy. It would also, in our view, result in better administrative policy, at least when it comes to the agency adjudications that implicate civil penalties or otherwise get close to the private-rights line. In so doing, the right to remove retains a well-established, effective alternative to federal court litigation—formal adjudication under the Administrative Procedure Act (APA)—if both the government and the regulated entity find that alternative to be preferable, without unilaterally expanding the regulatory authority of the SEC or the workload of the federal courts.

Congress could enact this right to remove by statute. And, we argue, the SEC should adopt it via internal administrative law, even before the Court decides Jarkesy. The SEC could and should certainly explore that option if the Supreme Court invalidates its in-house adjudication scheme on any of the three grounds raised in Jarkesy.

But what about the Court? Could it recognize a right to remove in Jarkesy itself? In Part II.C of our essay, we sketch out two ways that the Court could potentially do so.

1. The Arthrex Approach. In United States v. Arthrex, a majority of the Court adopted a remarkably similar, and similarly creative, statutory interpretation to remedy a separation-of-powers problem with the Patent Trial and Appeals Board. There, it was undisputed that Congress did not grant final decisionmaking authority the agency head, such that administrative patent judges (who are not Senate confirmed officers) had final decisionmaking authority. The Federal Circuit found that unconstitutional and remedied it by severing the removal protections for administrative patent judges—the same remedy the Solicitor General proposes here. The Supreme Court agreed with the Federal Circuit that the agency structure is unconstitutional, but it chose a different remedy: the Court struck down the Patent Act’s prohibition on agency-head review.

This was a complete rewriting of the statute—a proposal which I thought would have required Congress to enact. But the Court grounded this severance on the fact that “the structure of the [U.S. Patent and Trademark Office] and the governing constitutional principles chart a clear course: Decisions by APJs must be subject to review by the Director.” As the Court further observed, this “tailored approach” “does not result in an incomplete or unworkable statutory scheme” and “would follow the almost-universal model of adjudication in the Executive Branch.”

So too here. Recognizing a regulated party’s right to remove an enforcement proceeding to federal court is similarly a more tailored approach that does not result in an unworkable statutory scheme. The contrary remedial options would either eliminate agency adjudication of civil penalties entirely or subject all agency adjudication at the SEC to ALJs who enjoy zero tenure protection and thus suspect decisional independence from the Commission. Either approach would do great damage to Congress’s unequivocal decision to allow for agency adjudication in SEC enforcement actions. Making ALJs at-will employees, moreover, would depart from “the almost-universal model of adjudication in the Executive Branch,” which envisions a trial-level adjudication before a decisionally independent ALJ and a final decision by a politically accountably agency head.

2. The Axon Approach. Alternatively, the Court could leverage its decision last Term in Axon Enterprise v. FTC, which held that regulated parties can seek interlocutory review in a federal district court of structural separation-of-powers challenges to agency adjudication and need not wait until a final agency action can be reviewed in a federal court of appeals. The Court could declare prospectively that regulated parties in civil penalty cases can go to district court to enjoin the SEC in-house adjudication—essentially removing the adjudication to federal court by forcing the agency to bring the action there. And the Court could declare that a failure to file an Axon challenge results in constructive consent to the agency adjudication as a constitutional matter.

We explore these options in greater detail in our draft essay, so I will not flesh out those details more here. But I want to close with three observations. First, as an old-fashioned textualist, I am nervous about courts refashioning statutes as a matter of severability or constitutional avoidance. But a majority of this Court doesn’t seem to share my hesitance. If the Court were inclined to craft a right-to-remove remedy in Jarkesy, Arthrex strikes us as a more compelling (though still creative) path than Axon.

Second, as we note in the conclusion of our essay, we are not arguing for a right to remove in all agency adjudications. This would not be a good remedy, for instance, in high-volume adjudication systems involving quintessential public rights—like veterans and social security benefits, Medicare reimbursement claims, and immigration. But it seems like a suitable remedy here, in lower-volume enforcement adjudications. And it might also be an ideal remedy for the dual-layer removal issues at multi-member independent agencies—where eliminating all removal protections for ALJs or overruling a longstanding precedent in Humphrey’s Executor are the only other potential remedies available to the Court.

Finally, this blog post is already too long, but I’d note that in Part III of our essay we make the policy case for the right to remove. In particular, we explore the reasons why regulated entities might opt for administrative proceedings when given a choice between them and federal district court. In particular, administrative adjudication offers advantages in terms of adjudicator expertise, adjudicative speed, and litigation expenses. An alternative rule that requires all matters to be brought in federal court would impose substantial costs on the judicial system. And perhaps most importantly, the right to remove would create a market for law, encouraging the SEC to make their in-house adjudication system even more expert driven, expedient, efficient, fair, and otherwise attractive for regulated entities in order to compete with the Article III judicial alternative.