Administrative Agencies Cut Down to Size
Clients who regularly do business with administrative agencies should be aware that the regulatory landscape is changing. The Supreme Court has ruled, in two different cases, that the powers of the federal administrative agencies are more limited than had previously been assumed. On June 28th, 2024, the Court decided Loper Bright Enterprises v. Raimondo, and in doing so overruled the longstanding Chevron deferral standard, which had required courts to defer to an agency’s interpretation of a statute if the agency decided that the statute in question was ambiguous. One day earlier, the Court held in Securities and Exchange Commission v. Jarkesy that penalties imposed by the Securities and Exchange Commission’s administrative courts violated the Constitution’s right to trial by jury. Together, these cases indicate that the current Court will limit the previously broad powers of executive-branch administrative agencies.
For over 40 years, the federal courts have deferred to the agencies’ interpretation of statutes, giving the agencies almost complete discretion over the interpretation and enforcement of statutes. The practical effect of the Chevron deferral doctrine was the power of the agencies to interpret the law, and in many cases even make new law, has been largely unconstrained. The Court’s Raimondo decision takes away this presumption in favor of the agencies and stands for the proposition that if a statute is ambiguous, the courts are the proper venue to decide how and why the statute should be enforced.
The Jarkesy case may be practically even more important for our clients. In the modern age, federal agencies act simultaneously as interpretative, investigative, prosecuting and judicial bodies. In other words, the agencies interpret the law, investigate possible violations of that law, prosecute those whom it finds violate the law, and employ the judges who hear those prosecutions. In some cases, the agency even acts as the “appellate court” for deciding appeals from the administrative judges’ decisions. Many legal scholars have pointed out the rather obvious problems with this setup, where an agency can act as “judge, jury and executioner.” In Jarkesy, the SEC had imposed a $300,000 fine on an investment advisor after he was found guilty by an administrative law judge. The Court held that the fine, which was based on the SEC’s definition of “fraud,” implicated a constitutional right to a jury trial. In other words, the SEC’s administrative law courts did not meet the constitution’s requirement of due process.
Clients who deal with regulated areas of law, or routinely deal with state or federal agencies, should be aware that the current environment is favoring individuals as against the legal authority of the agencies. Although it’s too early to say what the impact of these cases will be, it is clear the regulatory state’s authority is being curtailed.
Alec J. Beck practices in the areas of Labor and Employment Law, Litigation and Campaign Finance Law. He has decades of experience appearing before many federal, state and local agencies.
If you have any dealings with administrative agencies, including compliance or enforcement issues, Parker Daniels Kibort can help. Give us a call at 612-355-4100.
