Yale Notice & Comment: No, Jarkesy will not flood the courts

Elon Musk is fighting the National Labor Relations Board’s (NLRB) power grab. Jamie Leach is fighting to save her company from the whims of the Consumer Product Safety Commission (CPSC). Frank Black is fighting against the Securities and Exchange Commission (SEC) so he can keep working in the industry he’s loved for 40 years. And Jeffrey Moats is fighting the National Credit Union Administration (NCUA) for unjustly firing him as CEO of the credit union he took to the heights of success through hard work.

In addition to being targets of the federal government, Musk, Leach, Black, and Moats also face the unenviable prospect of defending themselves before agency-led tribunals. In these cases, the federal agency that is prosecuting these individuals is also judging the cases in its home tribunals, not in impartial and independent courts. Congress now needs to step in and ensure their right to a fair trial in a fair tribunal. As explained below, contrary to the critics’ view, transferring cases like these to actual courts will not flood the courts. When one of the dozens of federal agencies that use in-house tribunals launches a suit against you, you have no choice but to spend thousands of dollars and years before you ever see a real courtroom where an independent judge and jury would decide your fate. This system is a travesty of due process and fairness. And Congress can put a stop to it.

Some background on the four cases mentioned above provides helpful context. Elon Musk is well known as the billionaire owner of X and SpaceX. Less well-known is NLRB’s never-ending vendetta against him. NLRB hales Musk into its homebrew courts to extract monetary fines from him, often for petty or drummed-up reasons such as he sounded angry in a tweet or two he posted on X.

This is not an isolated incident at one agency. Agencies go after individuals and companies with markedly fewer resources than Musk’s.

Leachco is a family-owned business targeted by CPSC. Despite following all relevant safety regulations, Leachco was sued by CPSC to recall one of its products. CPSC’s in-house judge (they are called administrative law judges or ALJs) actually sided with Leachco, but the business’s troubles didn’t end there. The agency opted to appeal the decision back to itself, raising the very real possibility that the ALJ’s decision will be reversed.

Frank Black underwent a full decade of in-house adjudication on allegations of securities fraud. His crime? One of his 100+ employees deleted 16 non-business-related emails (such as a personal email from the employee’s wife); securities brokers and dealers are required to save only business-related emails. For this alleged ineffective supervision and inspection, the agency levied a quarter-million fine on him and banned him for life from the securities industry.

Jeffrey Moats didn’t fare any better. NCUA fired him as CEO of the credit union he built with little more than the clothes on his back. When he demanded his personal effects and the contracted-for severance pay be paid to him, NCUA haled him into their administrative tribunal charging him with fraud and seeking $4 million in fines and a lifetime bar from the industry.

The Supreme Court recently took the sledgehammer to such in-house adjudications in a case called Securities and Exchange Commission v. Jarkesy. That decision promises to change the game. Jarkesy concluded that individuals and entities subject to certain enforcement actions by the federal government have the right to a jury trial. When agencies bring claims seeking monetary penalties of more than $20, the U.S. Constitution’s Seventh Amendment requires that the suit be brought to an actual court before an independent federal judge and jury. That is, in practice, if an agency wants to punish somebody through a fine, that suit cannot be decided by an agency official.

Going forward, courts will have to apply the Jarkesy decision in the government’s actions against Musk, Leach, Black, and Moats. But Congress can—and should—act, too. Congress should supply an option to private parties to remove to federal court cases brought against them by agencies in their in-house tribunals.

Perhaps Congress’s reticence can be explained by the urban legend that has spawned respecting the volume of agency adjudications. Critics argue that Jarkesy could overwhelm the federal courts. But the data tells us a different story. Pacific Legal Foundation’s research revealed that there were close to 1,000 enforcement cases per year across 15 agencies that do not belong there. Of these only about 650 cases per year are ones where the agency seeks punitive fines. These 650 cases would likely be eligible for jury trial according to Jarkesy. A vast majority of these 650 cases are settled out of court and that is not likely to change due to Jarkesy. Parties will continue to settle cases for all manner of reasons unrelated to Jarkesy. Only about 29 of these cases per year lead to full-blown administrative hearings. That is, only about 29 of the 1,000 agency cases ever go to trial each year.

Comparing the 1,000-per-year caseload to the close to 350,000 cases filed in federal courts each year shows that even if all of these 1,000 agency cases are filed in federal courts, it would by no means overwhelm the federal court system. Bear in mind, the 350,000 number represents a drop of about 7% in the federal courts’ caseload since before the pandemic. That is, federal courts are hearing roughly 25,000 fewer cases now than in the pre-pandemic times. Again, an increase of 1,000 cases does not represent a sea change. And it’s likely that the 1,000 number is the very high end of the estimate, since some individuals might want to remain out of court or settle the government’s suit against them.

Regardless, giving those brought into agency proceedings the option to remove the case to an actual court would secure their constitutional rights while not overwhelming federal courts. The time has come for Congress to implement the bare minimum that the Constitution requires, as recognized by Jarkesy. Those whom the government thinks should be penalized for violating the law by depriving them of their liberty or property have the right to remove those cases to federal court.

Congress should enact such a law to ensure an even playing field for all litigants and secure the due process of law, including the right to a jury trial for all Americans. Doing so will in no way flood the courts.

This op-ed originally appeared in Yale’s Notice & Comment on September 18, 2024.