A Small Win for Agency Adjudication

The Supreme Court upholds a high-stakes adjudication system, but important constitutional questions remain.

Of the several fronts on which conservatives have recently battled the administrative state, none may prove as important as administrative adjudication. Conservatives scored an important victory on that front two years ago when, in Securities and Exchange Commission v. Jarkesy, the U.S. Supreme Court held, for the first time, that a federal statute violated the U.S. Constitution by assigning authority to adjudicate a regulatory claim to an agency rather than a federal court. But even conservative judges have struggled to understand exactly what principle underlies Jarkesy.

Decided this past term, Federal Communications Commission v. AT&T might have given the Court an opportunity to answer that and related questions. But the Court followed the Trump Administration’s invitation to decide the case on narrow grounds in favor of the Federal Communications Commission (FCC), leaving the most important questions for another day. One notable scholar wonders why the Court decided the case at all.

The constitutionality of agency adjudication turns on a slippery distinction—between public- and private-rights claims—that confounds even the best lawyers. If a right is public, an agency can adjudicate it, subject to judicial review, under the so-called public rights exception. If private, the claim must be adjudicated by a federal court under Article III of the U.S. Constitution—which vests the “judicial power” in federal courts alone. And if the private claim is for civil penalties or certain other forms of monetary relief, the court must afford the defendant a jury-trial right under the Seventh Amendment.

Distinguishing between public and private rights has never been easy. Before Jarkesy, though, most regulatory cases fell comfortably within the Court’s broad, though ill-defined, understanding of public rights. That changed in Jarkesy, which decidedly constricted the category of public rights. But how and by how much is unclear, for the Court pointedly declined to define public rights. Most lower courts have sensibly read Jarkesy to require them to decide whether a claim closely resembles a claim available at common law when the Constitution was ratified. But that question does not always allow an easy answer. The answer depends on how a modern, complex regulatory claim should be characterized and how close a counterpart a court finds in the 18th century. Different judges can reasonably reach different conclusions.

In AT&T, the Court was able to avoid revisiting the public rights doctrine because of an unusual feature of the statute that the FCC was enforcing against two private cellular phone carriers. The Communications Act allows the FCC to enter a “forfeiture order”—an order to pay a penalty, often large—against a carrier found to have violated the Act. The FCC may do so in an informal proceeding involving written exchanges of information but no evidentiary hearing. As in most administrative cases, a carrier may seek judicial review of the order. But it may also do nothing and force the government to collect the penalty by filing suit in a federal court. The unusual feature of this enforcement scheme is that the federal court trial is de novo, which is to say that the government must prove its case without relying on its own adjudicatory findings. With most agency adjudications, by contrast, reviewing courts give deference to those findings.

During the Biden Administration, the FCC issued multi-million forfeiture orders against AT&T and Verizon, after finding that they mishandled customers’ cell phone data. AT&T and Verizon paid the penalties rather than forcing the government to bring suit to collect them, and then they sought judicial review—AT&T in the U.S. Court of Appeals for the Fifth Circuit and Verizon in the Second Circuit. Both carriers argued that the FCC’s adjudication violated their Seventh Amendment right to a federal court jury trial.

Ruling for AT&T, the Fifth Circuit devoted much of its opinion to considering whether, as the FCC then contended, the FCC’s claim fell within the public rights exception under Jarkesy. The court answered “no,” reasoning that the FCC’s claim was closely analogous to a common law claim for negligence. Then the Fifth Circuit turned to the government’s alternative argument: Even if the FCC’s was adjudicating private rights, AT&T was not deprived of its right to a jury trial. It could always have refused to comply with the FCC’s order and force the government to collect the penalty in a de novo federal court case. The Fifth Circuit rejected this argument on the ground that forfeiture orders have “real-world impacts,” including harming reputations. By contrast, the Second Circuit sidestepped the public rights question by adopting the government’s alternative argument.

When the case reached the Supreme Court, the Trump Administration pressed only the alternative argument. That allowed the Court to reach a near-unanimous decision in the FCC’s favor in a case that might have otherwise divided it. The Court assumed, although without saying so, that the FCC’s claim involved a private right and that, as a result, the Seventh Amendment entitled AT&T to a federal court jury trial before the FCC could collect a penalty. But the statutory scheme preserved that right, according to the Court: A carrier can always ignore the order. The government must then bring suit in federal court. Unless it proves a regulatory violation in court—without relying on the administrative findings underlying its decisions—an agency may not collect a penalty. A forfeiture order operates only as a preliminary decision. Yes, said the Court, the order may impose reputational harm, as the Fifth Circuit concluded, but that is true of many “preliminary” legal determinations made by agencies. Even Justice Clarence Thomas, the sole dissenter, agreed with the Court’s take on the statute. He dissented only on the limited ground that when the carriers paid the penalty, neither they nor the FCC, nor most lower courts, understood the Communications Act to provide for a de novo federal court trial. Applying the Court’s interpretation of the Act retroactively would be unfair.

Few regulatory statutes resemble the Communications Act. True, nearly every such statute provides for judicial review of an agency order in federal court—whether in a judicial proceeding brought by an agency to enforce its order or in a proceeding for review of the order brought by the losing party before the agency. But review of the agency’s factual findings is deferential, not de novo. A court will ask only whether those findings are supported by sufficient evidence—usually substantial evidence—not whether they are correct. Unlike in AT&T, the loser in the agency proceeding will not be entitled to a de novo federal court trial, let alone a jury trial, in which the government must prove its case without relying on its administrative findings. The Court’s recent decision in AT&T, then, is a win for agency adjudication, but it is only a small win.

If the Court is to achieve stability and predictability in this important area of regulatory law, it must soon fix the contours of the public rights exception with much more clarity than it did in Jarkesy. Thankfully, the opportunity to do so should come as soon as next term when the Court hears argument in a case addressing whether the U.S. Department of Labor may adjudicate its own claim for back wages and penalties against employers that underpay immigrant workers under a federal visa program. The Court’s decision to hear that case is a welcome development.