State of Administrative Law Affairs – Part 2

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Urvi Shukla
August 26, 2024

This Supreme Court (the Court) has directed its ire at the administrative state’s authority in the federal government. In June 2024, this court decided Securities Exchange Commission v Jarkesy (Jarkesy), determining that the agency cannot seek civil penalties for securities fraud claims within its internal adjudications. Doing so limits agency enforcement of laws and creates a vacuum to be filled by overworked courts. Proponents of curbing agency authority of regulatory and enforcement actions applaud this move. Others focus on the departure from established governance practices embedded within agencies, rearranging the dynamics between the three coequal branches. As the Court continues to shift the sands that bolster administrative law jurisprudence and agency functions, public administration (PA) scholars and practitioners should pay close attention to potential agency actions.

Agency Actions

Federal agencies administer and enforce the laws based on what Congress writes in the legislation. In passing the Dodd-Frank and Consumer Protection Act of 2010 (DFA) after the Great Recession, Congress empowered the SEC to seek civil penalties for securities fraud claims through either federal court litigation or agency adjudications. Because the former is notoriously slow and expensive, the SEC pursued violations in Jarkesy with the latter more efficiently. This court, however, determined that the SEC’s fraud claims seeking monetary payments can only be tried in a federal court.

Experts suggest that this decision may not drastically alter the SEC’s implementation practices because it already litigates most violations in federal courts. Nevertheless, litigation absorbs resources and can cause the agency to pursue specific cases while neglecting less serious ones. For example, the agency may seek monetary penalties only for the cases it can win in court. Such selective practices can impose unclear standards the agency must consider when enforcing the law. By diverting these disputes back to federal courts, agencies lose the ability to implement the laws quickly and flexibly. 

With this decision, the Jarkesy court creates a precedent that could impact enforcement actions for agencies seeking monetary penalties solely through in-house proceedings. For other agencies, however, this decision can prove existential; given reduced congressional funding, some agencies depend on these civil penalties as revenue to function altogether.

Branch Dynamics

The recent slate of administrative law cases that the Supreme Court has decided certainly incorporates structural changes to federal agency functions. But they are also, as Justice Sotomayor writes, “a power grab,” jeopardizing long-standing practices between the three governing branches and their collective oversight of the administrative state.

The rising number of direct interactions with citizens influenced the cultivation of the “public rights doctrine.” In a dispute between the government and an individual, the former presents the “public rights” of a governing body “in its sovereign capacity.” Simply put, the government represents and defends the notion of public good in that dispute; thereby allowing Congress to create new federal “obligations [to the public],” “prescribe consequences,” and delegate adjudications and penalties to agencies.

For nearly two centuries, this understanding has bolstered and balanced the tripartite system of governance. The Jarkesy court, however, suggests limiting the policy areas in which Congress can delegate adjudication of legal violations within an agency. By outlining specific policy areas—i.e. immigration, public benefits—where agency adjudication per case does not require judicial input, the Court has indicated preferences that curtail Congress’s policymaking power. In other words, the Court may have restricted Congress and the agencies for which policy areas the latter can initiate internal proceedings.

Moreover, Justice Sotomayor highlights that Congress has passed approximately 200 laws since the 1980s, instructing agencies to seek monetary fines in adjudications as enforcement actions: sometimes outright prohibiting federal court litigation. The Jarkesy decision imposes functional uncertainty for these agencies as they wait for an even slower Congress to amend the statute.

The Executive branch responds to either, Congress or Judiciary on more ideological grounds. Although courts decide cases and remedies for specific situations, the other branches of the government can expand the applicability of the decision beyond the case in question. For example, the Court decided Lucia v. SEC in 2018, casting doubt on the agency’s adjudicators and categorizing them as Presidential appointees. To increase his direct influence, President Trump expanded the applicability of the categorization to all adjudicators in federal agencies through Executive Order 13843.

PA, Pay Attention!

Public administration scholars and practitioners must pay attention to the current majority in the Supreme Court. This Supreme Court signals further limits upon civil liberties and strives to curtail federal agency enforcement of the law. Using the Founding Era context and often ignoring subsequent centuries of legal and political developments, this Court casts immense doubt on federal agencies and their legitimacy, authority and expertise. Alterations in agency structures foment further uncertainty in the functionality of the administrative state towards the American governance scheme.

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Author: Urvi Shukla is a doctoral student at the School of Public Affairs and Administration at Rutgers University-Newark. Her research interests include the intersection of Law and Public Administration, focusing on administrative law and adjudication practices at the federal level.  Email: [email protected]

 

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