Supreme Court Questions Regulatory Agency Adjudication Power

Multiple U.S. Supreme Court justices seemed skeptical Wednesday of regulatory agency power when it comes to handling adjudications differently from court proceedings -- specifically the right to trial by jury (docket 22-859). The SEC, in SEC v. Jarkesy, is seeking to overturn a 2022 decision by the Fifth U.S. Circuit Court of Appeals rejecting the agency's administrative judgment in a securities fraud case. The appellate court decision was seen having implications for administrative law judge (ALJ) power at regulatory agencies broadly, including the FCC (see 2205260050).

"It seems problematic to say the government can deprive you of your property, your money in a tribunal" that can appear to be partial to the government given that the ALJ is housed in an executive agency and the commissioners initiate the enforcement process and oversee the enforcers, Justice Brett Kavanaugh said during Wednesday's oral argument. "That doesn't seem like a neutral process."

SCOTUS' Atlas Roofing decision -- holding that Congress can give an executive agency power over adjudicating violations of a new public rights statute without infringing on the right to a jury trial -- dates to the 1970s, and government agency impact on daily life "is enormously more significant" since then, Chief Justice John Roberts said. He said concerns about government power to take away the right to a jury trial "is far greater today." He called it "curious ... that you have that right until the government decides that they don't want you to have it." Echoed Justice Neil Gorsuch, "This is not your grandfather's SEC," with penalties not being part of its original 1930s design.

Justice Elena Kagan seemingly pushed back, saying that while administrative agencies are more powerful today, "our problems have only gotten more complicated and difficult." She said it is usually Congress, "not this court," that decides how to resolve them and whether expert agencies are the appropriate route. Gorsuch later conceded that while Congress faces stickier regulatory issues than in the past, this "doesn't mean that the constraints of the Constitution somehow evaporate."

Justice Samuel Alito challenged the textual argument that the Seventh Amendment, regarding the right to a jury trial, doesn't apply in the case because the SEC enforcement action was not strictly speaking a lawsuit. U.S. Principal Deputy Solicitor General Brian Fletcher said a proceeding assigned to executive officers to find facts and apply the law is not a suit. He said Congress can provide trial-type procedures to make proceedings fair, but that doesn't change the nature of the power being applied. He said Article III and the due process clause serve as a constraint on agency proceedings. Fletcher repeatedly cited Atlas in his oral argument.

The government's argument found support from several justices. For example, Justice Ketanji Brown Jackson said her reading of Atlas "solves a lot of the concerns" about Congress shifting certain actions into administrative proceedings. She added the Seventh Amendment seems implicated only if common law claims are shifted into administrative proceedings. Kagan also indicated that she thought Atlas squarely resolves the issue. "If you look at the questions presented ... you wonder why this case is here," she said.

The respondents faced seemingly less-challenging questioning from most justices. The public/private rights doctrine -- with Congress having the discretion to direct public rights cases to adjudicators like ALJs but not private rights cases -- "is frankly a mess," lacking clarity, said lawyer Michael McColloch, representing respondent George Jarkesy. "[But] we're not asking for a big change in the law. We're saying when a common law claim or something approximating the same purposes ... is thrown into a statutory scheme, that still requires the right to trial by jury." He said Atlas doesn't need to be overruled because it was modified by subsequent decisions and points to Jarkesy's being entitled to a jury.

Kagan said a lot of securities legislation history followed economic crises, with Congress seeing fraud and harm not being addressed sufficiently by common law litigation, so it handed the SEC more responsibility and power. She asked McColloch whether Congress' judgment was wrong. He said Congress acted appropriately except when it allowed the SEC to sue people "outside the regulatory universe, people that were regulated and registered."

Gorsuch asked McColloch why "it matters" that the court does as the respondents ask and order that an individual has a right to federal court rather than in-house tribunal. "We could change precedent, but if it doesn't have any impact other than housekeeping of where you file your briefs ... that's a lot to ask us," the justice said. McColloch said beyond the right to trial by jury, there are numerous prejudgment issues embedded in the agency adjudication process, such as discovery rights that are "almost zero" and a seemingly inconsistent hearsay rule.