The Messenger: How Federal Agencies Stack the Deck With In-House Tribunals

July 09, 2023 | By ADI DYNAR

Some federal regulator or another thinks you’ve broken the law. What happens next? You might think that they file charges in a federal court and the judicial system takes over to determine whether you’re guilty. That would be a reasonable assumption, since Article III of the Constitution vests judicial power in the judicial branch. But that’s not always how it goes. If you’re unfortunate enough to be in the crosshairs of one of the dozens of federal agencies that have in-house tribunals, it could be a decade or more — and enormous litigation costs — before you ever see the inside of a real courtroom.

This process is called “agency adjudication” and it pervades the administrative state.

Consider the story of Cornelius Campbell Burgess. For 13 years, he was the CEO of Herring Bank. In 2010, the Federal Deposit Insurance Corporation (FDIC) — which oversees the nation’s multitrillion-dollar financial system — received a “false tip” that Burgess was using bank funds to renovate his house. A four-year investigation ensued — a fishing expedition that one FDIC official described as a “witch hunt.”

In November 2014, after that years-long investigation, FDIC formally hauled Burgess into its in-house tribunal. The verdict? The hearing officer — an FDIC employee — predictably concluded that Burgess was guilty, fined him $200,000, and banned him for life from working in the banking industry.

Burgess is not alone. Many individuals and companies are dragged before in-house tribunals each year. The system is fundamentally unjust. Imagine if police officers were not only allowed to arrest you but also act as prosecutor, judge and jury and you begin to understand the inherent unfairness of being forced to litigate before the agency that is prosecuting you.

That’s essentially what happens when an agency prosecutes cases internally. The officers who oversee the hearings are administrative law judges. But the similarity they bear to judges in real courts ends with the name. These officers are usually employees of the very agencies alleging wrongdoing. Their potential for bias toward the charges their bosses brought is obvious.

Even in cases in which the judge isn’t in the direct chain of command of the agency, they still work for some other federal bureaucracy and lack the independence of federal judges, who receive lifetime appointments and cannot be removed unless impeached.

Also unlike real courts, these in-house tribunals don’t have to follow any set rules of procedure or evidence. The agency establishes its own rules, which generally favor the agency over the accused. But even these rules aren’t fixed, because the hearing officer often has free rein to change them at will. The rules of our justice system aren’t just procedural niceties; they’re essential protections for the rights of the accused that have been built up over centuries.

What’s more, in-house tribunals are missing one of the most important parts of our judicial process: the jury. For centuries, juries have kept judges and prosecutors accountable to the people. This much is neither in dispute nor a partisan issue. Sen. Sheldon Whitehouse (D-R.I.) provides extensive support for the unremarkable proposition that the civil jury serves as a check exercised by the people over the judicial branch.

If an agency brings the case in a real Article III court, they have to convince a jury of your peers that you have broken the law. When the agency chooses instead to bring the case in-house, they deny litigants the right to jury trial that the Seventh Amendment guarantees.

Finally, when the judge in the in-house tribunal has ruled against you — as they almost always do — then you have the right to appeal, right? Well, yes; you can appeal the ruling to the agency heads themselves. But the heads of the agency who accused you in the first place can hardly be considered impartial. Case in point, when the target of the agency beats the odds and prevails in the initial tribunal, the agency heads often overrule the administrative law judge.

Only then, after years of litigation at great expense, can you appeal your case to a real Article III court. Except that the court may be bound to defer to the agency tribunal’s findings on important questions.

Ultimately, agency adjudication forecloses the possibility of a fair trial at every turn.

Thankfully, there is a ready-made solution to this problem: federal courts.

At minimum, the accused ought to have the right to remove their case to federal court, where they are assured an unbiased judge, rules that protect their rights, a jury of their peers, and a right of appeal unburdened by deference to the agency’s in-house process.

That is why my colleagues and I at Pacific Legal Foundation are working to support Americans like Mr. Burgess and our client Jamie Leach, who are challenging in-house adjudication in court.

Dozens of federal agencies employ in-house tribunals. And they all share at least some of these same flaws. The Constitution guarantees the right to a fair trial and agency adjudication flies in the face of that guarantee. It’s high time the courts rein in this abusive practice.

This op-ed was originally published at The Messenger on July 9, 2023.