Somewhat overshadowed by Chevron’s spectacular crash and burn last week was the Supreme Court’s decision the day before in SEC v. Jarkesy, No. 22-859 (U.S. June 27, 2024), holding that the SEC’s assessment of civil penalties in an administrative proceeding is unconstitutional because it deprives the party assessed of its Seventh Amendment right to trial by jury. This result has particular significance for those regulated by the U.S. Department of Agriculture (USDA) under the Animal Welfare Act (AWA).
Jarkesy arose out of penalties assessed in an administrative proceeding before the SEC that were based on the antifraud provisions of the federal securities laws. The majority, in an opinion by Chief Justice Roberts, held that a civil penalty, being a claim for money designed to punish the party assessed, is a type of remedy that, at common law, was legal in nature, could only be enforced in a court of law, and therefore the defendant is entitled to a jury trial under the Seventh Amendment. [Majority Opp. at 11.] At the same time, this type of claim is not excluded from the Seventh Amendment by the “public rights” doctrine because, even though the claim rests on the alleged violation of a statute passed by Congress, the civil penalty action targets the same basic conduct as common law fraud and, thus, is a matter of private rather than public right. [Id. at 21.]
Where it gets interesting for USDA and those it regulates is the dissenting opinion by Justice Sotomayor, which characterized the result of the majority’s opinion as taking “a wrecking ball to … settled law” with “momentous consequences” and a “seismic shift in this Court’s jurisprudence.” [Dissenting Opp. at 17, 33.] The dissent pointed to more than 200 federal statutes that authorize the imposition of civil penalties in administrative proceedings. The dissent also noted that some agencies – like USDA – “can pursue civil penalties only in agency enforcement proceedings.” [Id. at 35 (emphasis added).] As the dissent observed further, “[f]or those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress.” [Id. (emphasis added).]
“Tough luck” indeed. Under the civil penalty provision of the AWA – 20 U.S.C. § 2149(b) – civil penalties can be assessed against a “dealer, exhibitor, research facility, intermediate handler, carrier, or operator of an auction sale” for a violation of the Act or a regulation thereunder. But the statute only speaks to penalties assessed by the Secretary in an administrative proceeding with a subsequent appeal to a federal court of appeals. Section 2149(b) does not provide for penality assessment in an action in federal district court. Because it doesn’t, and because the administrative proceeding authorized by section 2149(b) does not provide (and cannot provide) for a jury trial, the Jarkesy holding clearly seems to eliminate USDA’s power to assess civil penalties under the current language of the AWA. Absent an Act of Congress, USDA cannot assess AWA civil penalties at all.
Moreover, even if Congress fixed this for USDA with a statute that authorized the agency to sue to assess penalties in federal court, Jarkesy works a significant change in the law. A federal administrative agency’s power to impose civil penalties in an administrative case presided over by an ALJ, whose paycheck comes from the same agency that is prosecuting the case, and with only a limited right of judicial review under the Administrative Procedure Act, creates huge enforcement leverage over the regulated. As the majority opinion in Jarkesy noted, a system that “concentrates the roles of prosecutor, judge and jury in the hands of the Executive Branch” is “the very opposite of the separation of powers that the Constitution demands.” [Majority Opp. at 27 (emphasis added).] There is a big difference between that one-sided scenario and a case in federal district court where the agency has to prove its case to a jury in a trial governed by the Federal Rules of Evidence and presided over by an Article III judge who – since Chevron is now history – no longer has to defer to the agency’s overreaching but “permissible” interpretations of the statute it seeks to enforce. This change is indeed “momentous.”