From Matthew Wiener:

On November 29, 2023, the Supreme Court will hear argument in Securities and Exchange Commission v.  Jarkesy. Perhaps the most important of the three questions presented is whether “the statutory provisions that empower the Securities and Exchange Commission to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment.” A divided panel of the Fifth Circuit answered “yes” in the decision before the Court. 

In the history of the modern regulatory state, surprisingly few challenges to Congress’s assignment of adjudicatory authority to administrative agencies have reached the Court. The Court has turned away each such challenge (most recently in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (2018)), albeit without adopting a single or satisfactory doctrinal approach.

What of litigation in the lower courts? Jonathan Wiersema, a third-year student at Penn Law School, recently compiled this spreadsheet reflecting all federal-court decisions since the beginning of the New Deal addressing an Article III or Seventh Amendment challenge to agency adjudication. After providing some background on the issue, his post below explains his research and the findings on the spreadsheet.

Jonathan Wiersema:

Agency adjudication has proliferated in the last century. At the same time, critics of the administrative state have called into question authority of administrative agencies to adjudicate claims in light of Article III’s command that “[t]he judicial power of the United States shall be vested” in courts. This so-called “Article III puzzle” poses the question of “how do we square adjudication on a mass scale by administrative agencies with the text of Article III?”^[1] An adjacent piece to the puzzle is the question of how agency adjudication fits with the Seventh Amendment’s jury trial right.

Yet for a long time this “puzzle” has been largely reserved to academic debates.^[2] Indeed, case law addressing challenges to agency adjudication on Article III or Seventh Amendment grounds has been sparse.^[3] Until recently. Last year, the Fifth Circuit decision in Jarkesy v. SEC invalidated key parts of the SEC’s in-house enforcement adjudication scheme for “violat[ing] Petitioners’ Seventh Amendment rights,”^[4] and at least one Justice has expressed a willingness to revisit settled case law on agency adjudication authority.^[5] In light of the Supreme Court’s recent grant of certiorari in Jarkesy, this post provides a brief up-to-date account of the law and an analysis of a compiled database of judicial decisions addressing challenges to agency adjudication on Article III and Seventh Amendment grounds.

State of Play: Agency Authority to Adjudicate – Private vs. Public Rights

Case law addressing administrative agencies’ authority to adjudicate has been described as “troubled, arcane, confused and confusing as could be imagined.”^[6] An agency’s authority to adjudicate faces two main Constitutional limits: the Seventh Amendment and Article III. The Seventh Amendment provides for “the right of trial by jury” in “[s]uits at common law.” Meanwhile, Article III vests the “judicial [p]ower” in the federal courts, “limit[ing] the authority of Congress to authorize an agency to adjudicate disputes involving the exercise of the judicial power.”^[7] If a claim is “properly assign[ed]” to an agency for adjudication, “‘the Seventh Amendment poses no independent bar to the adjudication of that action.’”^[8]

The Article III question generally turns on whether the claim involves a public or private right.^[9] Public rights cases can be removed from Article III courts and be adjudicated instead by administrative agencies subject, in some instances, to federal-court appellate review. While the Supreme Court has offered “varied formulations” for a public right, the most commonly used one is whether the right is “integrally related to particular Federal Government action.”^[10] This occurs when “the claim at issue derives from a federal regulatory scheme” or “resolution of the claim by an expert Government agency is deemed essential to a limited regulatory objective within the agency’s authority.”^[11] Notably, a public rights claim does not require the government to be a formal party in the proceeding. For example, in Oil States, the court found that an adjudication of patentability between private parties by the Patent Trial and Appeal Board (PTAB) involved a public right, properly adjudicated by the agency.^[12] Meanwhile, private rights, as a general matter, cannot be adjudicated by agencies.

In several instances, however, the Court has upheld agency adjudication of seemingly private rights. For example, in Thomas v. Union Carbide, the Supreme Court found that Congress could create a private right “that is so closely integrated into a public regulatory scheme as to be a matter appropriate for agency resolution with limited involvement by the Article III judiciary.”^[13] Similarly, in CFTC v. Schor, the Court upheld the power of the CFTC to adjudicate common law counterclaims––a private right––that can arise in enforcement disputes before the agency.^[14] These cases have confused legal scholars and commentators as their result and reasoning are hard to square with the public rights doctrine. Indeed, in Thomas the Court underscored that “[p]ractical attention to substance, rather than doctrinaire reliance on formal categories, should inform application of Article III,”^[15] while in Schor the Court weighed several non-dispositive factors in reaching its conclusion.^[16]

Yet in the Court’s last pronouncement on the subject in Stern v. Marshall, the Court seems to have subsumed the private rights claims in Thomas and Schor into the category of public claims, reaffirming the dispositive nature of the public-private divide.^[17] The contours of the public rights category, however, remain unclear. Most notably, the Fifth Circuit in Jarkesy has attempted to reel in the scope of the public rights doctrine. There the Court determined that the SEC in-house enforcement scheme for securities fraud violated the Seventh Amendment, since it involved the adjudication of private right claims equivalent to common law fraud actions. Although the decision has attracted criticism,^[18] at least one Supreme Court Justice appears ready to pick up the reasoning and limit the authority of agencies adjudicating enforcement proceedings with civil penalties.^[19]

Methodology

Given the recent rumblings surrounding agency adjudication authority, I have prepared a database that reflects case law addressing the authority of agencies to adjudicate. The research was limited to challenges of administrative agencies’ authority to adjudicate either on Article III or Seventh Amendment grounds. Cases dealing with similar, yet distinct, questions of territorial courts, courts-martial, or Article I legislative courts like bankruptcy courts were excluded from the database, reflected in the accompanying table. The search criteria were further limited to cases decided on or after 1932, the year of the Supreme Court’s seminal decision in Crowell v. Benson.

Identifying cases involved surveying academic articles discussing agency adjudication authority and conducting extensive searches in Westlaw. Westlaw searches reviewed federal court decisions citing the leading Supreme Court cases dealing with agency authority to adjudicate: Crowell, Oil States, Thomas, Atlas Roofing, and Schor. Search results were narrowed with Boolean terms and connectors. Filtering results to include at least five mentions of “adjudication” helped exclude unrelated cases from the results. When searches with the “at least” function rendered no results, I instead relied on Westlaw’s depth meter to determine which cases to review. Similar searches were conducted for citation references of trial and appellate court documents, which revealed several recent or on-going cases dealing with questions of agency adjudication authority.

Analysis

Research into relevant case law reveals few cases. Since Crowell, there have been 28 decisions, exclusive of pending cases,^[20] that I have been able to identify using the above-noted research methodology that address either an Article III or Seventh Amendment challenge to an agency’s authority to adjudicate. Most cases deal with regulatory enforcement proceedings against a private party in which an agency seeks a coercive remedy such as a fine or specific relief. Meanwhile, many other types of agency adjudications––for example, determination of benefits or immigration status––squarely fall within the definition of public rights and have not been challenged. 

With very few exceptions, the Supreme Court and lower courts have applied the public rights doctrine when upholding agencies’ authority to adjudicate various claims. However, following the Fifth Circuit’s decision in Jarkesy v. SEC now pending before the Court, the door has been opened to reexamine how exactly to draw the public-private rights distinction.

In Jarkesy, the Fifth Circuit held that the SEC’s adjudication of enforcement proceedings for securities fraud involve private rights that federal courts must decide. This decision largely focused on “whether the form of the action . . . is historically judicial, or if it reflects the sorts of issues which courts of law did not traditionally decide.”^[21] And according to the majority, SEC enforcement actions mirrored fraud claims that “are ‘traditional legal claims’” historically arising at common law.^[22] Judge W. Eugene Davis disagreed. Dissenting, he determined that the Court’s decision in Atlas Roofing v. OSHA was dispositive of the Seventh Amendment question since the SEC’s in-house securities fraud enforcement involved claims “in which the Government sues in its sovereign capacity to enforce public rights created by statutes.”^[23] Subsequently, the Fifth Circuit declined to hear the case en banc over the objection of five judges.

While the Supreme Court recently granted cert in Jarkesy, the decision has already rippled down and divided two lower courts within the Fifth Circuit. In Frank’s Nursery, LLC v. Walsh, the district court refused to extend Jarkesy’s reasoning to the Department of Labor’s authority to adjudicate enforcement of its H-2A visa program in “assess[ing] civil monetary penalties” for failures in providing “sanitary housing or adequate pay statements” to covered workers.^[24] Finding that the Department of Labor’s adjudication “implicate[d] public rights relating to immigration and labor law,” the Court concluded that “[t]he concerns raised in Jarkesy [were] not implicated.”^[25] In contrast, the district court in Burgess v. FDIC relied on Jarkesy to find that an FDIC enforcement proceeding assessing civil monetary penalties and removal of plaintiff from his banking position violated the Seventh Amendment.^[26]

The Fifth Circuit is not alone in addressing new agency adjudication challenges. Three district courts outside the Fifth Circuit recently rejected Article III and Seventh Amendment challenges to two separate Department of Health and Human Services dispute resolution mechanisms^[27] as well as the Department of Labor’s enforcement of H-2A program violations.^[28]

Moreover, the recent increase in litigation on agency adjudication authority has led to further litigation brought by the Institute for Justice –– a law firm self-described as “leading the fight against overreach by the administrative state and abusive fines and fees.”^[29] In C.S. Lawn & Landscape, Inc. v. United States Dep’t of Labor, the Institute argues that liability from the Department of Labor’s H-2B program stemmed from a “breach-of-contract theory” and thus involves a private right that Article III courts must adjudicate.^[30]

In light of the challenges in Frank’s Nursery, Burgess, and Sun Valley Orchards as well as pending litigation in C.S. Lawn & Landscape, it appears that the main agency adjudications at risk are enforcement proceedings involving civil penalties. These include adjudications conducted by agencies similarly situated to the SEC, like the FTC and CFPB. Some commentators, however, have raised concerns that were the Court to follow the Jarkesy reasoning, the administrative state would be drastically curtailed.^[31] And indeed, Justices like Thomas have offered an expansive definition of private rights encompassing “life, liberty, and property” that could sweep in many agency adjudications.^[32] Whether other Justices sign on remains an open question, particularly given prior decisions broadly characterizing public rights. 

Conclusion

Recent developments in lower courts have brought the issue of agency adjudication authority to the fore. The analysis in this post tracks existing judicial decisions that address Article III and Seventh Amendment challenges to agency adjudication and demonstrates that while caselaw is limited, a potential shift in the law from Jarkesy has prompted an uptick in litigation. Given the recent grant for writ of certiorari in the Jarkesy case, the Supreme Court has the opportunity to provide clarity (or inject further chaos) into this area of law.

Matthew Lee Wiener is the former Acting Chair, Vice Chair, and Executive Director of the Administrative Conference of the United States, and a Lecturer in Law at the University of Pennsylvania Law School. Jonathan Wiersema is a third-year student at the University of Pennsylvania Law School and the Symposium Editor of the University of Pennsylvania Law Review. 

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^[1] Thomas Merrill, Article III, Agency Adjudication, and the Origins of the Appellate Review Model of Administrative Law, 111 Colum. L. Rev. 939, 943 (2011). 

^[2] See id.

^[3] See infra Methodology.

^[4] Jarkesy v. SEC, 34 F.4th 446, 459 (5th Cir. 2022), cert. granted sub nom. SEC v. Jarkesy, No. 22-859, 2023 WL 4278448 (U.S. June 30, 2023)

^[5] Axon Enter. v. FTC, 143 S. Ct. 890, 906 (2023) (Thomas, J. concurring) (expressing “grave doubts about the constitutional propriety of Congress vesting administrative agencies with primary authority to adjudicate core private rights with only deferential judicial review on the back end”).

^[6] Paul M. Bator, The Constitution as Architecture: Legislative and Administrative Courts Under Article III, 65 Ind. L. J. 233, 239-40 (1989).

^[7] Richard Pierce, Constitutional Foundations, in A Guide to Federal Agency Adjudication 20-33, 21. (3d ed.) (forthcoming).

^[8] Oil States Energy Servs., LLC v. Greene’s Energy Grp., 138 S. Ct. 1365, 1379 (2018) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53-54 (1989)).

^[9] An alternative, albeit seldom cited basis for agency adjudication authority is the adjunct theory established in Crowell v. Benson. 285 U.S. 22 (1932). There the Court upheld an agency’s authority to make key factual determinations in workers’ compensation claims on the basis that the agency’s decision-making authority was limited to factual questions and thus acted as an “adjunct” to the reviewing Article III court. Conventionally, the case is understood to involve adjudication of private rights because it concerned the liability of a private employer to an employee. Some Justices emphasize the limited fact-finding function of the agency in a particularized area of law, while other Justices view the decision as “demonstrat[ing] the constitutional basis for the current authority of administrative agencies to adjudicate private disputes.” Stern v. Marshall, 564 U.S. 462, 506 (2011) (Breyer, J., dissenting). While the scope of Crowell’s holding has been a matter of dispute, recent decisions addressing agency’s adjudication authority have largely relied on the public rights doctrine instead of the adjunct theory.   

^[10] Stern, 564 U.S. at 493.

^[11] Id. at 490. 

^[12] Oil States, 138 S. Ct. at 1379.

^[13] Thomas v. Union Carbide Agr. Prods. Co., 473 U.S. 568, 594 (1985).

^[14] CFTC v. Schor, 478 U.S. 833 (1986).

^[15] Thomas, 473 U.S. at 587. 

^[16] Schor, 478 U.S. at 851-55.

^[17] Stern, 564 U.S. at 491-92.

^[18] See, e.g., Jonathan H. Adler, The Good, the Bad, and the Ugly of Jarkesy v. SEC, Reason (Aug. 17, 2022 6:10 PM), https://reason.com/volokh/2022/08/17/the-good-the-bad-and-the-ugly-of-jarkesy-v-sec/ (“Th[e] ‘bad’ part of the opinion, in my view, is the court’s holding that the SEC’s decision to adjudicate the case before an agency ALJ violated Jarkesy’s Seventh Amendment right to a jury trial.”)

^[19] Axon Enter., 143 S. Ct. at 906 (Thomas, J. concurring) 

^[20] See infra C.S. Lawn & Landscape, Inc. v. U.S. Dep’t Labor No. 1:23-cv-01533 (D.D.C. May 30, 2023).

^[21] Jarkesy, 34 F.4th at 458.

^[22] Id.

^[23] Id. at 467 (Davis, J., dissenting) (quoting Atlas Roofing v. OSHA, 430 U.S. 442, 445 (1977))

^[24] Frank’s Nursery LLC v. Walsh, No. H-21-3485, 2022 WL 2757373, at *3 (S.D. Tex. July 14, 2022)

^[25] Id. at *8.

^[26] Burgess v. FDIC, No. 7:22-cv-00100, 2022 WL 17173893, at * (N.D. Tex. Nov. 6, 2022).

^[27] See Sanofi-Aventis U.S., LLC v. U.S. DHS, 570 F. Supp. 3d 129 (D.N.J. 2021) (rejecting Article III challenges to DHS’s adjudication scheme for its 340B program); Haller v. U.S. DHS, No. 21-cv-7208 (E.D.N.Y Aug. 10, 2022) (holding that DHS’s independent dispute resolution process “does not violate the plaintiffs’ rights under the Seventh Amendment”)

^[28] Sun Valley Orchards, LLC v. U.S. Dep’t of Lab., No. 1:21-CV-16625, 2023 WL 4784204, at *6 (D.N.J. July 27, 2023) (“The public-rights doctrine applies to the DOL’s case against Sun Valley for its H-2A violations because the H-2A involves immigration, which is a matter that falls within the doctrine.”)

^[29] Institute for Justice, C.S. Lawn Administrative Appeal, https://ij.org/case/c-s-lawn-administrative-appeal/.

^[30] Complaint, C.S. Lawn & Landscape, Inc. v. U.S. Dep’t Labor, No. 1:23-cv-01533 (D.D.C. May 30, 2023)

^[31] See, e.g., Blake Emerson, The 5th Circuit’s Ambush Against the SEC is Unprecedented and Shocking, Slate (May 20, 2022 11:13 AM), https://slate.com/news-and-politics/2022/05/5th-circuit-sec-securities-fraud-civil-service.html; Ian Millhiser, A Wild New Court Decision Would Blow Up Much of the Government’s Ability to Operate, Vox (May 19, 2022 4:10 PM), https://www.vox.com/2022/5/19/23130569/jarkesy-fifth-circuit-sec.

^[32] Axon Enter., 143 S. Ct. at 907 (Thomas, J. concurring).