Fifth Circuit Vindicates IJ’s Fight for the Right to an Impartial Jury
Earlier this week, a team of lawyers at the Institute for Justice finished up a brief in a case challenging the U.S. Department of Labor’s use of its own administrative judges to decide cases seeking to impose monetary penalties on employers. We filed the brief, pushed away our keyboards, took a breath—and then realized a federal appellate court halfway across the country had just issued a landmark decision agreeing with practically everything we’d just written in our brief.
The Fifth Circuit’s opinion, in Jarkesy v. SEC, has been described on Twitter as possibly the “[b]iggest admin. Law case since Humphrey’s Executor in 1935.”It has also been attacked from some quarters as a “nightmare,” “wild,” and “astonishing,” among other things. Commentator Ian Millhiser—a frequent critic of IJ’s work—called the decision “the judicial equivalent of tossing a Molotov cocktail into the federal government.”
Here at IJ, we have a different word for the Fifth Circuit’s decision: vindication. The decision agrees with what we have been saying about administrative judges, and it will provide important protection for individuals who are targeted by federal bureaucrats for money penalties.
The Issue: Trials Before In-House Agency Judges
As you probably recall from introductory civics, the U.S. Constitution creates a three-branch structure for the federal government. The legislature makes the laws, the executive branch enforces them, and the judicial branch adjudicates disputes about them. The Constitution takes pains to ensure an independent judiciary, including by vesting judges with life tenure. Alexander Hamilton wrote, in Federalist No. 78, that the independent judiciary is designed to serve as one of “the bulwarks of a limited Constitution.”
Historically, cases brought by the government seeking to impose monetary penalties were heard in the federal courts—where the Seventh Amendment also guaranteed the right to trial by jury. As the Supreme Court has explained, “[a] civil penalty was a type of remedy at common law that could only be enforced in courts of law.”
As late as the 1970s, if the government wanted to impose a monetary penalty it nearly always had to go to the federal courts. A law professor named Harvey J. Goldschmid surveyed the federal bureaucracy in 1972 and concluded that “[t]he vast majority of agencies must be successful in de novo adjudication in federal district court . . . before a civil money penalty may be imposed.”
But that changed in the 1970s, in part because of Goldschmid’s report. Writing for a federal agency, the Administrative Conference of the United States, Goldschmid recommended doing away with that judicial check, writing that the ability to go to federal court gave defendants “undue leverage” to resist government demands. Goldschmid also argued that there were “no significant constitutional impediments” to the use of agency judges in cases to impose money penalties, “even though agencies will, at times, be delegated functions traditionally exercised by … the courts.”
Over the ensuing decades, agencies began to impose penalties in proceedings held in agency “courts,” presided over by agency “judges”—officials employed by the very same administrative agency seeking to impose the penalties. Today, an alphabet soup of federal agencies—including the DOL, SEC, and EPA—impose significant monetary penalties in proceedings held before in-house agency judges.
IJ’s Client: Sun Valley Orchards
The use of agency courts to impose monetary penalties is vividly illustrated by the situation of IJ’s client, Sun Valley Orchards. Sun Valley is run by two brothers, Joe and Russell Marino, who are fourth-generation family farmers in Southern New Jersey. The farm grows vegetables, including peaches, peppers, squash, eggplant, cucumbers and asparagus.
During the 2015 harvest season, the Marinos decided for the first time to participate in the Department of Labor’s H-2A visa program, which allows farms to bring migrant immigrant labor into the United States to fill agricultural jobs that can’t be filled by the domestic labor pool. Up until 2015, they had avoided bringing in foreign workers because they had heard horror stories about other farms’ regulatory tie-ups with the Department of Labor. But in 2015 the Marinos were finding it increasingly hard to hire enough domestic workers to work the fields.
The Marinos’ first year in the H-2A program ended with an over-$550,000 penalty, affirmed by the DOL’s own in-house agency judges following a “trial” held in the DOL’s own in-house agency court. Over half of that penalty relates to a mistake that the Marinos’ contractor made when filling out their paperwork to participate in the program. The Marinos offer their employees an entirely-legal meal plan (at a cost of approximately $3.50 per meal), but the Marinos did not mention the meal plan on their government paperwork. Most of the remainder of the penalty was based on beverage sales to the workers, as well as the alleged early termination of 19 workers (who the Marinos claim actually quit). Less than 2% of the penalty pertains to alleged issues with the working and living conditions at the farm, which the Marinos also dispute.
DOL’s in-house agency judge did not exercise independent judgment to decide whether it was appropriate to impose hundreds of thousands of dollars of liability on a family farm for a paperwork violation. Instead, DOL’s judge upheld the agency’s penalty on the ground that agency prosecutors had acted “rationally” and “reasonably”—essentially deferring to the penalty decision of the agency’s enforcement personnel.
The Fifth Circuit’s Decision Is Correct
The same day that IJ submitted a brief in Sun Valley’s case, challenging DOL’s use of agency judges, the Fifth Circuit issued its opinion in Jarkesy—holding that the SEC violated the Seventh Amendment right to a jury trial by imposing, among other measures, a $300,000 monetary penalty in a proceeding before an agency judge.
The Fifth Circuit explained that the right to a trial by jury, in an independent court, has “long served as a critical check on government power.” The Fifth Circuit explained that question of whether a case has to be heard in the federal judiciary—rather than an agency court—is “inherently historical.” And the Fifth Circuit held that history is dispositive here, explaining that, “from early in our nation’s history,” actions to impose monetary penalties were heard in the courts.
Even setting aside the history, the Fifth Circuit is absolutely right about the importance of an independent judiciary. A landmark study found that 61% of administrative law judges across all agencies reported that agency interference was a problem, with 26% reporting that it was a frequent problem, and more recent studies have found that agencies enjoy a considerably higher “win” rate before their in-house judges. In fact, because agency judges are agency employees, it is generally understood that it is an agency judge’s “duty to decide all cases in accordance with agency policy.”
When the government seeks to impose monetary penalties, it should have to make its case before an independent judge, in a real court—where the right to trial-by-jury will be upheld. (Indeed, that is part of what the whole idea of judicial engagement is about.) Government should not be allowed to impose crushing monetary liability on individuals, small businesses, and others in proceedings before “judges” who are employed by the same agency seeking to impose the fine.
The Sky Is Not Going to Fall
The Fifth Circuit’s decision provides important protection for people targeted by federal bureaucrats for monetary penalties. At the same time, however, much of the criticism of the decision is overblown—and vastly overstates the decision’s effects.
While there are over 1,900 agency judges currently employed by the federal government, most of those judges decide issues involving the award of federal benefits, including Social Security and Medicare. Over 1,600 of those agency judges are employed by the Social Security Administration, where they hear cases by individuals who claim they have been wrongly denied benefits. The Fifth Circuit’s decision does not affect the work of these agency judges. After all, while there is a long tradition of federal courts deciding cases involving the imposition of money penalties, there is no similar tradition of federal courts deciding whether to award welfare benefits.
Ultimately, the Fifth Circuit’s opinion stands for a narrow—but important—principle: If the government accuses you of doing something wrong, and tries to punish you with a fine, then you are entitled to a trial in a real court, before a real judge, with a real jury. That fundamental principle is not “the judicial equivalent of tossing a Molotov cocktail into the federal government.” It is how our government is supposed to work.
Rob Johnson is a senior attorney at the Institute for Justice.