Do the Supreme Court Decisions Overturning Chevron and Prohibiting Agency Adjudication of Certain Issues Significantly Limit the “Administrative State”?

Do the Supreme Court Decisions Overturning Chevron and Prohibiting Agency Adjudication of Certain Issues Significantly Limit the “Administrative State”?

The “administrative state” has been the focus of political and judicial concern.  E.g. Charles J. Cooper, Confronting the Administrative State.[1]  It has long been  argued that legions of unelected bureaucrats have wielded inordinate power over all aspects of American life, for better, or for worse. See id. Two recent Supreme Court decisions have dialed back some of that power.

On June 27, 2024. The Court held in SEC v. Jarkesy, 2024 WL3187811 (June 27, 2024), that the SEC’s in-house proceedings resulting in a civil fine imposed under the Dodd-Frank Act[2]  violated the defendant’s right to a jury trial under the Seventh Amendment. Id. at *7.  The next day, in Loper Bright Enterprises v. Raimondo, ___ U.S. ___, 2024 WL 3208360 at *22 (June 28, 2024), the Court held that courts are not required to give any deference to an agency’s interpretation of a federal statute, reversing 40 years of precedent under its decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (“Chevron”). Critics of the administrative state have applauded those decisions, contending that they will greatly reduce the power of federal agencies.  Whether those decisions will have much impact as a practical matter remains to be seen.

Jarkesy – The Seventh Amendment Precludes Agency Trials Of Claims Subject To A Jury Trial At Common Law

In Jarkesy, the Court held that the SEC’s use of in-house hearings to try a defendant before an agency tribunal in order to seek civil penalties violates the Seventh Amendment’s right to a jury trial. 2024 WL 3187811 at *17.  The Court first explained that the Seventh Amendment has been interpreted to provide for a right to trial by jury in civil cases “if the claim is ‘legal in nature,’” which is determined primarily by the remedy sought.  2024 WL 3187811 at *8. The Court explained, “civil penal[ties are] a type of remedy at common law that could only be enforced in courts of law.” Id. Civil remedies, like the fine imposed by the SEC, which are designed to “punish and deter, not to compensate,” are “a type of remedy at common law that could only be enforced in courts of law.” Id. at *9.

The Court rejected the Government’s argument that a jury trial was not required under the “public rights” exception.  Id. at *10.  The Court had “recognized a class of cases concerning . . . ‘public rights,’” in which the government could rely on summary proceedings. Id. at  *11.  Examples were enforcement of the Government’s power to collect revenue, or a fine to prevent violations of a statute prohibiting immigration of aliens with “loathsome or dangerous contagious diseases.” Id.  Along the same lines, the Court had allowed the imposition of tariffs by the President on goods imported by “unfair methods of competition,” on relations with Indian tribes, administration of public lands, public benefits such as payments to veterans, pensions, and patent rights.  Id. at *12.  Similarly the Court upheld the right of the agency charged with enforcement of the Occupational Safety and Health Act of 1970 to issue civil penalties for violations. Id. at *15.  In the “public rights” cases, the Court had previously authorized administrative proceedings because the statutes in question involved “a new cause of action . . . unknown to the common law.” Id. A more recent example of the “public rights” exception is Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. 325 (2018), where the Court held that the United States Patent Office could hold inter partes review proceedings under the America Invents Act to re-assess whether claims of an issued patent should have been granted by the Office in the first place, and that doing so did not violate the patentee’s right to a jury trial. Id. at 344-45.

In short, Jarkesy can be explained as holding that where the remedy to be applied by an agency is legal in nature, triable to a jury at common law, and not subject to a “public right,” the defendant is entitled to a jury trial.

It is likely that Jarkesy will spawn an uptick in cases challenging the right of an agency to internally adjudicate rights of respondents in matters within the scope of the agency’s enabling statute. Whether those challenges will prevail will depend largely on the remedy sought by the proceeding. Where the remedy is equitable in nature, the right of an agency tribunal will likely withstand a challenge under the Seventh Amendment.  For example, the U.S. International Trade Commission holds hearings before an administrative law judge to determine whether a respondent has engaged in “unfair methods of competition” in the importation of accused products. The remedies that can be imposed by the Commission include exclusion of the accused products from importation, and “cease and desist” orders against the respondent.  Because those remedies are equitable in nature, Jarkesy should not require a jury trial.  Under Jarkesy, however, respondents may challenge whether fines assessed by the Commission[3] for certain violations should be subject to a jury trial under the Seventh Amendment.

The Loper Decision: Chevron Is Dead—Will It Make Any Difference?

The decision in Loper focused on the deference, if any, which courts should give to an agency’s interpretation of a statute that the agency is charged with enforcing.  In our system of government, Congress makes the laws that govern this country through the legislative process.  The Executive branch of government implements those laws, often through federal agencies that have been created as the result of Congressional legislation.  And, “final ‘interpretation of the laws’ is ‘the proper and peculiar province of the courts.’” Loper, 2024 WL 3208360 at *9.

In 1946, Congress set a framework for courts to resolve disputes over agency actions when it adopted the Administrative Procedure Act (“APA”) “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation.” Id. at *12. Under the APA, a court can set aside an agency’s regulation only if it is “[1]arbitrary, capricious, an abuse of discretion, or [2] otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).  As to the “arbitrary[, or] capricious” standard, courts review agency action for abuse of the agency’s discretion. Id. at *10.

Whether an agency’s action is contrary to law has been reviewed since 1984 under the framework provided in the Chevron decision, cited above. In Chevron, the Court held that to determine whether an agency’s interpretation of a statute is “not in accordance with law,” the courts must first determine whether “whether Congress ha[d] directly spoken to the precise question at issue” and, if not, the court was required to defer to the agency’s interpretation if it was “a permissible construction of the statute,” even if the court disagreed with the agency’s interpretation.  Loper at *6, quoting Chevron, 467 U.S. at 842-43 (1984).

Forty years later, in Loper,  the Supreme Court reversed Chevron,  holding that “[t]he deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.” 2024 WL 3208360 at *14, *22.  Justice Roberts, writing for the majority, pointed out that a number of decisions post-Chevron had essentially eviscerated the Chevron doctrine: “we have spent the better part of four decades imposing one limitation on Chevron after another,” creating a “byzantine set of preconditions and exceptions,” which caused some courts to simply “bypass[] Chevron, saying it makes no difference for one reason or another.” Id. at *18.  Justice Roberts also observed that the Supreme Court “has not deferred to an agency interpretation under Chevron since 2016.” Id. at *19.

So, what does the Loper decision portend for the future?  Perhaps, not much.  There will probably be an increase in the challenges to agency action, focusing on the agency’s interpretation of the federal statute under which it operates.  To avoid such challenges, agencies may become a little more circumspect in promulgating regulations that require an overly aggressive interpretation of a statute.

Will Loper significantly change the outcome of challenges to an agency’s statutory interpretation?  Perhaps not.  As Justice Roberts observed, Chevron had been limited by a plethora of exceptions.  Id. at * 18. And he implied that many courts avoided applying Chevron altogether.  Id. at *21.   What Loper will change is that courts and parties will not need to deal with the two-part Chevron test; instead, they can focus solely on the statutory construction itself, which will aid in the efficiency of judicial review.

[1] https://www.nationalaffairs.com/publications/issues/number-25-fall-2015.

[2] (Pub. L., 111-203, July 21, 2010)

[3] See DBN Holding, Inc. v. International Trade Commission, 26 F.4^th 1363, 1366 (Fed. Cir. 2022) (fine of $6,242,500 assessed for violation of consent order).

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

The author thanks Rimon partner Buz Barclay for his insightful suggestions and edits.

Eric C. Cohen handles disputes involving intellectual property matters in federal trial courts, federal courts of appeal, and the U.S. International Trade Commission. Eric has represented plaintiffs and defendants in patent infringement litigation, trade secret litigation, copyright litigation, and trademark litigation.  He has handled contested proceedings in the U.S. Patent & Trademark Office, including inter partes review and covered business method review proceedings before the Patent Trial & Appeal Board, as well as ex parte reexaminations, and trademark oppositions.  He has also prepared and prosecuted patent applications. Read more here.