In June 2024, the U.S. Supreme Court issued two landmark rulings, Securities & Exchange Commission v. Jarkesy and Loper Bright Enterprises v. Raimondo, each of which have widespread implications on the powers of the executive branch. While neither decision specifically addressed the powers of national security- or foreign policy-focused agencies, such as the Department of Commerce's Bureau of Industry and Security (BIS) or the Department of the Treasury's Office of Foreign Assets Control (OFAC), some of the broader language in these decisions might bring into question whether these agencies – who are often granted sweeping regulatory deference and broad enforcement powers – may see an erosion of their authority. 

Jarkesy – Leave Common Law Claims to the Courts, Not Agencies 

On June 27, 2024, the Court issued a ruling that invalidated the Security and Exchange Commission (SEC)'s statutory authority to impose civil penalties for fraud violations in a forum outside of federal court. The case concerned whether the SEC could impose a civil penalty against the defendant for fraud through the SEC's in-house administrative forum, as opposed to federal court. Even though Congress authorized the SEC to do so in-house, the Court ruled that the SEC civil penalty action implicated the Seventh Amendment to the U.S. Constitution, which establishes the right to a trial by jury in "suits at common law." The Court's decision focused on the fact that civil monetary penalties had traditionally been imposed by juries at common law, particularly in cases that involved common law fraud.

Jarkesy's Exception – Public Rights: Over the past 50 years, the Court established an exception to the Seventh Amendment jury trial right in cases involving "public rights." The Court made clear in its opinion in Jarkesy that this exception cannot be permitted to swallow the general presumption in favor of a right to a jury trial before an Article III Court and should be limited to cases analogous to those traditionally excepted from the jury trial right, which include (but do not appear to be limited to) "collection of revenue, customs enforcement, immigration, and the grant of public benefits." Beyond this list of traditionally excepted "public rights," the Court did not further elaborate on a test for whether a claim falls into the public rights exception. 

Loper Bright – Ambiguous Statutes Do Not Automatically Mean Agency Deference

On June 28, 2024, the Court issued a ruling overturning the nearly 40-year-old doctrine known as Chevron deference, which required courts to defer to an executive agency's reasonable interpretation of ambiguous statutes, even if the Court would have found a different interpretation to be the better one. Loper Bright overruled Chevron, holding that courts must, in construing an ambiguous statute, exercise their "independent judgment" in deciding the correct interpretation of the statute, and may not simply defer to any agency interpretation that is permissible. 

The Court rejected the view that agencies are experts that are better equipped to interpret statutory ambiguities, instead noting that courts can do their "ordinary job" of interpreting statutes "with due respect for the views of the Executive Branch" which may help inform a court's judgment. This last point is important: while courts will no longer defer to any "permissible" interpretation of an ambiguous statute, they are still permitted to consider and give great weight to a well-reasoned agency interpretation of the law. The better the agency's reasoning, the more deference it will be given and the more likely a court will find its reasoning to be the correct interpretation of an ambiguous law.

Jarkesy and Loper Bright in the National Security Context

Neither Jarkesy nor Loper Bright cited any explicit "national security" or "foreign affairs" carve out in their respective opinions. Thus, unless and until challenged, the holdings of such cases may be applicable for agencies that administer and enforce national security-focused regulations, including those under the Departments of Treasury and Commerce. Below we discuss potential implications of the cases to the national security-focused agencies:

Jarkesy in particular creates potential limitations on agency enforcement power for sanctions, export controls, and anti-money laundering (AML) violations, among others. Executive bodies such as OFAC, BIS, the Financial Crime Enforcement Network (FinCEN), and the Committee on Foreign Investment in the United States (CFIUS) rely on authorities within their regulations to issue civil monetary penalties for potential violations. 

• OFAC, for example, can take a host of administrative actions per its regulations, including issuing, unilaterally, a civil monetary penalty or engaging in settlement negotiations with a potential violator of U.S. sanctions. Such broad enforcement mechanisms may mean a potential violator has little bargaining power with the national security agencies and also serve to deter private actors from committing future violations.
• It's unclear whether the largely undefined "public rights" exception from Jarkesy includes cases involving matters of national security or foreign affairs, particularly in cases involving the administrative imposition of monetary penalties imposed for fraudulent or willful conduct that may have required a jury trial at common law. Practitioners and their clients alike should pay close attention to future suits challenging administrative penalties and, if appropriate, consider contesting such penalties based on the holding in Jarkesy.

A potential increase in civil challenges to OFAC, BIS, FinCEN, and CFIUS regulations.

• Historically, there have been few cases where private actors have successfully challenged interpretations by national security agencies, such as OFAC, of statutes within their area of expertise. Moreover, Loper Bright left intact the Court's 2019 decision in Kisor v. Wilkie, which held that some deference must be given to an agency's interpretation of its own ambiguous regulations, so long as the regulations are truly ambiguous and the agency's interpretation is both reasonable and in fact a product of its own expertise. The reversal of the Chevron doctrine and the limiting of agency deference could prompt further limitations on the Kisor rule, thus providing an easier path for potential litigants to challenge the ever-increasing and complex regulations of national security agencies. 
• All of this is against the backdrop of the Biden administration issuing a flurry of new regulations or notice of proposed rulemakings (NPRMs) concerning technology-related investments to and from China. While such rules and NPRMs might come in effect in the near future, they are likely to face challenges based on both Jarkesy and Loper Bright.

For more information, please contact:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Laura Deegan, ldeegan@milchev.com, 202-626-5942

Caroline J. Watson, cwatson@milchev.com, 202-626-6083

Melissa Burgess, mburgess@milchev.com, 202-626-5914

Manuel Levitt, mlevitt@milchev.com, 202-626-5921

Annie Cho, acho@milchev.com, 202-626-1570

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