Adjudication with a Stacked Deck, by Jennifer L. Mascott & Daniella Efrat
*This is the fifth post in a symposium on the decisional independence of administrative adjudicators. For other posts in the series, click here.
As Professor Michael Rappaport and other scholars have observed, agencies currently maintain an excessive degree of power and discretion to internally adjudicate agency enforcement actions. Professor Rappaport has proposed the creation of Article III administrative courts staffed with medical, scientific, or economic experts to handle the large supply of adjudication of agency enforcement matters. Whether or not Congress ever were to take up legislation to expand the Article III judicial system to create a separate and distinct category of federal, tenure-protected courts, there are several more incremental solutions that could also have significant impact.
Congress could start by more stringently regulating agency decisions to pursue enforcement charges in-house as opposed to through Article III courts. It could do so by requiring agencies to file more substantial matters in court or require agencies to develop more concrete standards governing when they will pursue in-house adjudication versus civil judicial process. Congress could also take a greater role in prescribing procedural rules that agencies use to adjudicate internal enforcement actions, such as requiring agencies to provide at least as much time to answer charges and file appeals as Article III litigants receive under the Federal Rules of Civil Procedure. Finally, Congress could provide clearer guidance, and more stringent standards, for when agency decisionmakers must recuse, given the agency’s dual-hatted role of sitting as a judge presiding over its own charges in contrast to Article III judges who begin from a more neutral position in their adjudication.
The stakes are significant—in part, as Professor Rappaport points out, because of the separation of powers concerns where agencies sit as the judge in their own case. But also, more concrete immediate problems arise with top-level agency adjudications, particularly in high-profile matters. For example, recently regulated parties in cases affecting some of the biggest actors in our economy have expressed doubt regarding the impartiality of the agency decisionmakers who will essentially have the power to oversee key aspects of their business decisions.
Just this past summer, Facebook petitioned Federal Trade Commission (“FTC”) Chair Lina Khan to recuse from decisions in FTC’s antitrust proceedings against it. Other interest groups have requested the FTC more generally to create formal recusal standards through the Administrative Procedure Act’s notice-and-comment rulemaking mechanism, which would provide prospectively knowable, publicly available rules of the road on recusal. If Congress instead required agencies to more frequently pursue enforcement of their regulations before an Article III court, then there would not be so much at stake in commission decisions to prompt these recusal requests.
A survey of the discretion held by several sizable agencies in the choice between internal adjudication and initiation of judicial proceedings provides a sense of the broad discretion held by agencies in pursuing internal enforcement. This in turn places pressure on internal agency dynamics such as impartiality and possible recusal.
For example, 12 U.S.C. §§ 5563(a)(1)-(2) and 5564 generally authorize the Consumer Financial Protection Bureau (“CFPB”) to conduct hearings to ensure compliance with laws it is authorized to enforce or to file a civil action to impose a civil penalty or seek legal and equitable relief. In either judicial or administrative actions, section 5565 authorizes the CFPB to award relief for violations of consumer financial law including contract rescission, restitution, disgorgement, or other relief including civil penalties of up to $1,000,000 a day for knowing violations (violations that are not “knowing” are subject to smaller penalties). The FTC is authorized to proceed internally on unfair method of competition charges rather than through filing a civil action in district court when “it shall appear to the Commission that a proceeding by it . . . would be to the interest of the public.” 15 U.S.C. § 45(b), (m). And the Securities and Exchange Commission similarly has broad discretion. In cease-and-desist proceedings, for example, section 929P of the Dodd-Frank Act authorizes it to proceed by filing suit in district court or commencing an administrative proceeding.
Historically, there is a longstanding prior practice of internal agency adjudication in certain subject areas. For example, starting in 1789 the Treasury Department conducted in-house adjudication of public accounts. Section 5 of the Act creating the Department assigned a presidentially appointed and Senate-confirmed Auditor to receive public accounts and certify their balance. Any person dissatisfied with the audit had six months to appeal to the presidentially appointed and Senate-confirmed Comptroller. But today there are exponentially more agencies, with significantly larger jurisdictional reach—often imposing potentially permanent consequences on parties like lifetime bans from professional practice in their livelihood and billions of dollars in fines. The very different character of agency enforcement today, in particular its more punitive and regulatory nature, calls for reassessment and closer supervision by Article III courts, the traditional forum for private rights disputes depriving people of significant liberty or financial resources.
Compounding the impact of this discretion in proceeding with enforcement in-house is a significant amount of agency flexibility in crafting the procedural rules that will govern a regulated party’s ability to defend itself. Some agencies with the most far-reaching enforcement power impose procedural rules in adjudication that give parties much less process than those parties would receive in federal courts. Setting aside the inherently partial nature of adjudicators hearing a dispute over their own agency’s enforcement actions, the time limits and evidentiary rules imposed on parties at times are quite agency-favorable in comparison to the Federal Rules of Civil Procedure applicable in federal district court.
For example, parties have 21 days to file an answer to a complaint under the Federal Rules of Civil Procedure, whereas they are provided 14 days to answer notices of charges brought by the CFPB and FTC. Additionally, parties have 30 days to file a notice of appeal from federal district court proceedings but only ten days to appeal within the CFPB. These favorable rules further increase the stacked deck in favor of the agency when it pursues internal enforcement.
Exacerbating the impact of agency authority to craft procedural rules and exercise recusal discretion as they adjudicate their own enforcement matters, agencies also under modern practice have significant power to reach settlement agreements with regulated parties. This might assist judicial economy when settlement is pursued in a matter that was initiated in, and supervised by, an Article III court. But when an agency instead proceeds in-house, it leads to significantly different incentives, as scholars like Georgetown Professor Urska Velikonja have pointed out, for example, in her work examining Securities and Exchange Commission settlements within the walls of the agency.
There are a number of mechanisms Congress could pursue that even taken one by one could have a tremendous impact in shoehorning agency adjudication of policymaking enforcement into a more accountable, standards-based framework. Congress could statutorily mandate that agencies extend procedural rights in internal administrative proceedings that are more akin to the procedural rules applied by federal courts, at least at a minimum. Congress could also mandate, at least in high-stakes cases, that agencies pursue settlement under the supervision of an Article III court. Additionally, Congress could subject agencies to more constrained standards governing when they pursue internal adjudication versus a lawsuit in Article III court in the first place. Alternatively, Congress could at least require that agencies publish through notice-and-comment rulemaking standards for how they choose their enforcement forum. Regulatory reform proposals should prioritize solutions focused on reining in and narrowing the extraordinary power that agencies wield in their own enforcement proceedings subject to significantly deferential judicial review.
Jennifer L. Mascott is an Assistant Professor of Law and Co-Executive Director of The C. Boyden Gray Center for the Study of the Administrative State at the Antonin Scalia Law School. Daniella Efrat is an incoming J.D. Candidate at Yale Law School.