At first glance, it sounds like something out of the old Soviet Union, or China today: You are dragged into court by the government, only to have your case decided by a judge who works for the prosecution.
But that is how federal agencies have worked since the New Deal. Congress grants them the authority to write and enforce complex regulations governing everything from aircraft safety to toilet design. Break those rules and you will find yourself in front of a somewhat deceptively named administrative law judge (ALJ), who is employed by the very same agency that decided you violated a regulation. If you lose before the ALJ, you can appeal first to the agency and then to a traditional court— assuming you haven’t gone broke in the meantime.
Here Come the Judges
A recent decision by the Fifth Circuit Court of Appeals in New Orleans may have thrown this entire order into chaos. In Jarkesy v. Securities and Exchange Commission, the court ruled that hedge-fund operator George R. Jarkesy had a constitutional right to a jury trial over claims that he defrauded investors of $24 million. An ALJ employed by the Securities and Exchange Commission (SEC) found that he had committed fraud, and lower courts ruled that he had to exhaust all his administrative remedies, a process that had already consumed seven years, before getting a shot at a jury trial.
In a decision that has raised wails of discontent among legal scholars wedded to the idea of the modern administrative state, the Fifth Circuit overruled those decisions, finding that the Seventh Amendment guarantee of trial by jury applies to serious allegations like fraud. The court also found that the very structure of the SEC was unconstitutional because Congress delegated too much power to the agency without a “guiding intelligible principle” to govern how it acts. Finally, the court ruled that ALJs, with two layers of protection from being fired, were unconstitutionally insulated from removal by the executive branch.
It was a clean sweep for critics of the administrative state, including the New Civil Liberties Alliance (NCLA), a group founded by Columbia Law School Professor Philip Hamburger, who says: “Administrative power is the most important civil rights issue of the 21st century.”
“Our position is, any ALJ who is employed by the agency is going to have systematic, built-in bias,” says Peggy Little, an NCLA attorney who won another critical decision at the Fifth Circuit, speeding up the appeal process for people caught in the bureaucratic enforcement machine.
For decades, the prevailing view in legal academia was that the Constitution changed during the Roosevelt administration to accommodate the administrative state, because elected representatives simply couldn’t write laws to address constantly changing technology and business practices. Judges were only too glad to shift their workload to agencies.
That is starting to change, however. There are still thousands of ALJs deciding routine questions like whether someone can get Social Security benefits, and that’s not likely to change. But when the government hauls you into court seeking all your assets or an order barring you from practicing your trade, groups like the NCLA are getting involved.
Billionaire Mark Cuban also fought the SEC and won in 2013, refusing to settle an insider-trading case and eventually convincing a jury he was innocent. However, he spent more on legal fees than the $2 million in fines the government was seeking. Others crumple in the face of years of bureaucratic procedures and overwhelming legal bills before they can even take their case to court.
“If you’re not ultra-wealthy like Mark Cuban, you can’t get out of those administrative hearings,” Little says.