Review of agency adjudication leaves Supreme Court with a puzzle

WASHINGTON (CN) — A challenge to how federal agencies bring charges for law infringements left the Supreme Court between a rock and a hard place on Wednesday as the justices confronted a dispute that diverged from its precedents but did not move to overrule them. 

Led by the conservative supermajority, there seemed to be some agreement that private citizens are entitled to have government agency charges against them reviewed by a jury; they're not limited to an administrative law judge's review. 

“What sense does it make to say the full constitutional protections apply when a private party is suing you, but we're going to discard those core constitutional historic protections when the government comes at you for the same money?” Justice Brett Kavanaugh asked. 

Justice Samuel Alito said refusing a jury trial violated a constitutional premise. 

“Isn't the theory of the Seventh Amendment that people in this country should have protection against having their liberty or property taken away by officials who are answerable to a powerful executive — that the jury should be set up as a buffer between in that situation?” the Bush appointee said. 

Although this view carried the day, it was not clear how the justices would achieve it. A major roadblock in the court’s path is nearly five decades of the justices’ own precedent, stemming from Atlas Roofing Company v. Occupational Safety and Health Commission. 

In 1977, Atlas held that Congress had the power to give executive agencies authority to adjudicate violations to public rights statutes without infringing the Seventh Amendment right to a jury trial. In the case at hand, George Jarkesy said his constitutional rights were violated when the Securities and Exchange Commission brought an administrative action against him, but critically he did not ask the court to overrule Atlas, putting the justices in a bind. 

“This court's decision in Atlas Roofing considered many of the same arguments presented today and reaffirmed that Congress does not violate the Seventh Amendment when it authorizes an agency to impose civil penalties in administrative proceedings to enforce a federal statute,” Brian Fletcher, principal deputy solicitor general at the Justice Department, said during Wednesday's arguments.

“Respondents have not asked this court to overrule Atlas or the long line of precedents on which it rested, and they also haven't identified any relevant distinction between that case and this one.” 

The SEC charged Jarkesy with violations of the Securities Act, the Exchange Act and the Advisers Act and said he had lied to investors, misrepresented investment strategies and arbitrarily inflated the value of a hedge fund he operated. 

Jarkesy’s case was brought before an administrative law judge, a specialized judge who works within the executive branch and hears cases brought by federal agencies. Administrative proceedings and the judges that conduct them differ from lawsuits brought before the judiciary. As in Jarkesy’s case, administrative actions are decided by agency judges and cannot be brought before a jury. 

Jarkesy claims the Securities and Exchange Commission violated the Seventh Amendment, which codified the right to a jury trial, when carrying out this proceeding. 

“Congress has steadily expanded the SEC's authority over the past several decades and now, like a house that's been added onto too many times, it's crushing the original foundation,” Sidney Michael McColloch, an attorney from Texas representing Jarkesy, told the high court Wednesday. 

An administrative law judge ruled against Jarkesy. He was ordered to pay a $300,000 civil penalty and barred from activities within the industry while his company had to disgorge almost $700,000 in illicit gains. 

The Fifth Circuit reversed the ruling, finding constitutional violations in the agency proceedings. A divided court said Jarkesy’s Seventh Amendment rights were violated by the government’s refusal to bring his case before a federal court, where a jury could have decided the case. The court also found Congress erred in shielding administrative law judges from presidential removal and giving agencies the ability to conduct internal adjudications. 

Although Jarkesy did not ask the justices to overrule Atlas, Chief Justice John Roberts pondered if the increase in federal government power over the past five decades warranted changes. 

“Atlas Roofing is 50 years old, and the extent of impact of government agencies on daily life today is enormously more significant than it was 50 years ago,” the Bush appointee said. “I mean, should that be a concern or us or a consideration when we're trying to consider what power the government has to take away the jury trial right or, as an antecedent to that, to take away the right to go into court?” 

Roberts’ sentiment over the growing intrusion of the federal government on American life was echoed by his conservative colleagues. 

“This is not your grandfather's SEC,” Justice Neil Gorsuch said. 

Gorsuch said administrative adjudication was originally limited to insider trading claims against private parties but the government has since expanded those claims to private individuals. 

Justice Elena Kagan said the case before them didn't raise any questions the Supreme Court hasn't already answered. 

“One of the oddities of this case is, if you look at the question presented and then you read Atlas Roofing, you wonder why this case is here, in other words, that Atlas Roofing simply resolves the issue,” the Obama appointee said. 

Jarkesy argued that the only reason the issue had been considered settled law for so long was because no one had challenged it until now. 

“Nobody has had the, you know, chutzpah — to quote my people — to bring it up since Atlas Roofing,” Kagan said. 

The government’s warnings about the broad consequences of a decision upending agency adjudication posed the biggest issue for the justices who quarreled with the court’s precedents. 

“We think this is a separation-of-powers matter, and this strand of the public rights doctrine is a reflection of it being a core exercise of executive power sometimes to adjudicate matters and apply the law to the facts and impose consequences,” Fletcher said. “It's immigration, it's seizing goods, it's taxes, it's customs all throughout our history. It happens all the time.” 

If agencies were forced to bring all administrative actions to federal courts, the government warned the justices, it would mark a sea change for the administration of the country’s laws.

“The assessment and collection of taxes and penalties, customs and penalties, the immigration laws, the detention and removal of non-citizens, all of those things are things that are done in the first instance and have long been done in the first instance by administrative officers,” Fletcher said.

“And if you adopt the rule that it's only things that we can say can be done exclusively by the administrative officers without any judicial review at all, then I think you're in a really untenable choice in those areas and lots of others too.” 

Follow @KelseyReichmann

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit