The Supreme Court’s decision in SEC v. Jarkesy essentially means that administrative agencies cannot directly assess civil monetary penalties through administrative process. The majority writes that the nature of the remedy is “all but dispositive,” and that a monetary, civil penalty designed to punish a regulatee—rather than restore any particular party—is a legal penalty of the sort requiring jury trial protection. Agency process of any variety—whether ALJ, Commission-level voting, staff-level assessment, or otherwise—that is not brought before an Article III court upon initiation just cannot result in a monetary civil penalty in most cases.
You may not like it. You may wish it were not so. You may currently be hard at work distinguishing your particular agency’s practices from the clear implication of the decision, under the public rights exception or otherwise. You may argue that your agency’s statute is so arcane that not only does it have no analog at common law, but a mere Article III court cannot possibly limn its structure. Surely the Jarkesy decision left your agency’s civil enforcement process untouched.
No, it didn’t. Or, if it did: that is in no way obvious from the opinion. The nature of the remedy is “all but dispositive,” and the conceptual analog of a statute to common law serves a merely confirmatory role. Granted, this language is somewhat underspecified—enough for good lawyers to make a meal therefrom. The public rights exception seems to have been preserved, although it is nowise clear how it applies. In the years to come, the principality of Jarkesy will be determined by a thousand challenges.
But what probably isn’t available to putatively responsible stewards of the public’s trust in administrative agencies is to act as though, when the Supreme Court released the Jarkesy decision, nothing happened. Don’t take my word for it. From Justice Sotomayor’s dissent, writing also for Justices Kagan and Brown Jackson:
Less uncertain, however, are the momentous consequences that flow from the majority’s insistence that the Government’s rights to civil penalties must now be tried before a jury in federal court. The majority’s decision, which strikes down the SEC’s in-house adjudication of civil-penalty claims on the ground that such claims are legal in nature and entitle respondents to a federal jury, effects a seismic shift in this Court’s jurisprudence. [. . .]
Some agencies, like the Consumer Financial Protection Bureau, the Environmental Protection Agency, and the SEC, can pursue civil penalties in both administrative proceedings and federal court. [. . .] Others do not have that choice. [. . .] For those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress.
(Emphasis added, citations omitted.)
Yup. That’s about the size of it.
Commissioner Simington at the Federal Communications Commission recently agreed with Justice Sotomayor’s characterization of the majority’s opinion publicly, and his hope is that his colleagues agree and, like him, call for a Notice of Inquiry to determine what the Commission’s enforcement authority might be in a post-Jarkesy world. Maybe that, indeed, means “tough luck” for the Commission.
There are already reasons to believe this kind of process will not happen under current Commission leadership. Footnoted in the forfeiture order to which Commissioner Simington dissented is the Commission’s frequently-marshaled argument that a regulatee’s Section 504 right to a de novo trial upon referral to the Department of Justice on an already-issued forfeiture satisfies due process and the Seventh Amendment right to a jury trial. Indeed, it may! It’s not impossible that a court could conclude just that (and pre-Jarkesy decisions have found similarly).
I, for one, am skeptical, because pre-Jarkesy decisions share an important confound: they are pre-Jarkesy. It seems unlikely that the majority in Jarkesy intended that initial determination and assessment of a civil, monetary penalty before a regulatory tribunal’s extra-judicial administrative process—even where a regulatee receiving such a penalty retains the “right” optionally to be sued by the DOJ for recovery after refusal to pay the Treasury on demand from the regulatory body holding power over its licenses—is the sort of “right to a jury trial” the Seventh Amendment preserves for claims at common law.
Indeed, to access its constitutional right to a jury trial for a civil forfeiture assessed by the Commission, a regulatee must first undergo an a lengthy investigation; a process of determining the size of the liability it faces from its alleged violation(s) (which can have the practical effect of inducing settlement through fear of an eye-watering suggested forfeiture); a formal notice of apparent liability; a banker’s box of briefing and argument; and then, finally, the issuance of a forfeiture order.
Well, not finally. For the regulatee to find itself before a jury for a de novo trial, the FCC must then refer the forfeiture for collection to the DOJ. Yet as the language of its own Enforcement Overview indicates, the Commission itself views referral to the DOJ as permissive: “If the target fails to pay or contest the forfeiture, the FCC may refer the case to the U.S. Department of Justice (DOJ) for enforcement.” (Emphasis added.)
Is that mere inelegant drafting? Maybe. Maybe not. But rights are compulsory sorts of things, like cheese on a pizza. They aren’t discretionary sorts of things, like anchovies on a pizza. (And they certainly aren’t repugnant sorts of things, like pineapples on a pizza.) If the Commission means that it must refer an unpaid forfeiture to the DOJ, it could have, and certainly should have, said so. No rights are optional.
But would that cut it? Does mere referral from the Commission mean that a regulatee’s “right” to a jury trial surely will be triggered by the DOJ’s immediate action to prosecute the regulatee for its unpaid forfeiture? Well, no. The DOJ doesn’t have to sue. The DOJ frequently does not sue. Indeed, the DOJ doesn’t even have to accept the Commission’s referral! The forfeiture must meet a variety of strictures to be eligible for referral (including surpassing a minimum threshold amount), and indeed all federal agencies are admonished to undergo, among other things, their own aggressive debt collection practices before referral. (That’s super Seventh Amendment, by the way: you know how judges overseeing common law trials before juries usually cajole defendants to pay before the trial kicks off?)
This all seems like a lot of administrative process before constitutional process is due (nevermind accessible). And it also seems like the sort of jumped-up, pseudo-judicial administrative procedure the majority had in mind when drafting the Jarkesy decision in the first place:
The Constitution prohibits Congress from “withdraw[ing] from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law.” [. . .] Once such a suit “is brought within the bounds of federal jurisdiction,” an Article III court must decide it, with a jury if the Seventh Amendment applies.
(Citations omitted, emphasis added.) “Once such a suit is brought within the bounds of federal jurisdiction, an Article III court must decide it” reads a little differently than the process the Commission claims rehabilitates its forfeiture process: sometime after a suit is brought within the bounds of federal jurisdiction, an Article III court may be afforded an opportunity to decide it (if the DOJ gets around to it).
What seems clear, if anything, after Jarkesy is this: the Commission may take official notice thereof, and boldly lead to preserve the Constitution (and, for that matter, institutional prestige) by raising its hand and volunteering to take the Supreme Court seriously. Whether it is a Notice of Inquiry or some other mechanism, what the Commission should do is open up an official “attack surface” that permits its enforcement authority to be probed. Responsible officials from other agencies whose enforcement methodology Jarkesy clearly calls into question should follow suit and make their views known publicly.
Of course this will be an uncomfortable experience, and of course the Commission (and other agencies), so to speak, likes its authority and wishes to keep it. (Yet, as with another federal action sold under a similar slogan, it is not obvious that it can.) Sure, the Commission should retain its enforcement authority. That is: all of the authority delegated from Congress by statute that is constitutionally permitted, but no more. And if that means the Commission has to go to Congress for enforcement reform, so be it. No agency may arrogate to itself authority outside of the law and Constitution (that’s, like, a bad idea, anyway, if you hadn’t already noticed).
Let’s be clear: while Jarkesy has transformed the whole of the administrative state by winnowing agency authority to assess civil penalties, the Commission needs eyes on its enforcement for manifold reasons. From selective enforcement, to creative interpretation of violation counting and violation length, to the odd (and yet passively accepted) practice of asking regulatees to agree to toll statutes of limitations applicable to their alleged violations, the Commission’s enforcement practices have needed regularization for quite some time. It is unclear that a great many commonplace and longstanding enforcement practices at the Commission would survive a Loper Bright challenge, even if they were practices still available to it under Jarkesy. For how many other agencies is this true?
Jarkesy and Loper Bright are big, spinning, red klaxons blaring for administrative agencies to sit up and take notice. If the Supreme Court takes up the emerging circuit split on the constitutionality of the Universal Service Fund, that will be a third. That would be a three alarm fire. In a real three alarm fire, firefighters respond from three fire stations. To borrow a phrase from the Commission’s regulatees: for its own three alarm fire, will the Commission even roll a single truck?
If you're interested in this topic, please register for and watch tomorrow's webinar on FCC Enforcement Bureau Reform.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].