Legislation would restore the full power of the Seventh Amendment

Rep. Harriet Hageman (R-WY) has introduced a bill offering the first legislative step toward administrative law court (ALC) reform.

Known as the Seventh Amendment Restoration Act, the legislation would provide a critical avenue for people to bring their cases against federal agencies directly to federal courts.

Specifically, Hageman’s proposed Seventh Amendment Restoration Act would allow private litigants to avoid a costly and time-consuming process known as agency adjudication.

Agency adjudication refers to ALCs that are housed in over 40 federal agencies. ALCs enable their agencies to adjudicate disputes over regulatory matters in-house, often denying the regulated parties access to a real federal court.

In most administrative law cases, private parties must first go before one of the agency’s hand-picked administrative law judges (ALJs). Yet, the ALJ also works for the government that is party to the case, giving the perception of unfairness in a 2 vs. 1 ordeal.

The agency also sets the procedural rules for public hearings (formal adjudication) and the alternative processes for dispute resolution (informal adjudication). Most agencies possess a two-layered system, where the ALJ renders the initial decision, and the head or heads of the agency reserve the final decision on appeal.

Some agencies like the Department of Health and Human Services have several tiers of adjudicatory decision-making. These include a built-in appellate court (“Medicare/Medicaid council”) of ALJs and separate divisions under the umbrella of the Departmental Appeals Board. One can imagine minimal opportunities for legal success within such a bureaucratic behemoth.

Rep. Hageman’s bill offers relief by enabling the litigant to choose where to bring their suit.

“It is only the agency that gets to determine if they’re going to use an ALJ. How about we just level the playing field?” the congresswoman asked in a recent CEI Hill briefing. “I think that move alone would substantially limit the kind of enforcement actions that these agencies bring.”

Agencies shouldn’t be the only party to decide whether to resolve a case in-house or before a federal court. Given the many disadvantages of challenging the federal government, it makes perfect sense to allow private parties to select their venue for litigation. Below are some reasons for why Congress should adopt the Seventh Amendment Restoration Act.

Current pathways to relief are welcome, but limited

With the Supreme Court’s 2023 decision in Axon v. FTC, litigants were afforded the right to circumvent agency adjudication under three conditions. First, if the party raised a constitutional challenge to an agency’s adjudicatory structure. Second, if the party brought a “collateral” challenge that extends beyond the agency’s traditional enforcement actions. Third, challenges can be raised that fall beyond the agency’s bureaucratic expertise.

While these avenues give some litigants a choice to bring suits before Article III courts, they allow agencies to retain much of their adjudication in-house. Axon does not affect the many cases that fall within the realm of the agency’s expertise and traditional enforcement.

For instance, the Securities and Exchange Commission’s (SEC) ALC has focused mostly on the revocation of corporate securities in recent years, which falls entirely within the agency’s wheelhouse. The commissioners have also absorbed nearly 100 percent of their cases away from the ALJs, effectively managing them on their own. This makes it more difficult to outsource these matters to Article III courts via the Axon criteria.

Seventh Amendment right to a jury beyond monetary penalties

Private parties should reserve the right to outsource their administrative disputes to Article III courts involving other common law claims beyond securities fraud. Many other agencies beyond the SEC adjudicate disputes in which the underlying remedy is a monetary penalty. While the Supreme Court’s SEC v. Jarkesy decision spoke only to the SEC’s enforcement process, pending cases like Burgess v. Whangseek to apply this precedent to ALCs like the FDIC, for imposing similar penalties.

Additionally, courts have failed to properly distinguish a public vs. private right of action boundary in problematic cases like Atlas Roofing Company v. OSHA (1977). The dividing line has been fuzzy regarding whether some rights constitute as public or private. Sadly, the Supreme Court’s Jarkesy ruling fell short of overturning Atlas Roofing.

Rep. Hageman’s Seventh Amendment Restoration Act would restore the full power of the Seventh Amendment by enabling litigants to move all administrative cases to Article III courts it they choose. This would capture the many controversies that ALCs still enjoy a monopoly over, including wage garnishments, federal licensing, registration disputes, and disgorgements. Those that trigger common law disputes would rightfully receive a jury trial.

In a recent congressional hearing, Rep. Hageman asked witness Patrick Smith, CEO of Axon Enterprises, which won the 2023 Axon case, “Do you think that is something that would’ve helped you in pushing back and fighting back against the FTC in these horrific hearings?”

Smith replied, “I have to say that that proposal is beautiful in its simplicity. I think it actually would fit what we’ve all been talking about with the system of checks and balances functioning properly.”

“That in America, you should be able to say, ‘my goodness, if I have the government coming after me, may I please have an independent judge where I can plead my case and have a chance of prevailing.’”

Unfairness of Agency Adjudication warrants removal to the Judiciary

Lastly, the blatant unfairness of ALCs warrants removal to the Judiciary. Few people understand just how difficult it is to win a case before an agency’s in-house court. Until now, no one has actually researched agency success in the entire ALC system. My research breaks new ground in this space.

My recent blog post provides a brief glimpse into my ongoing manuscript, showcasing 20 agencies’ rates of success against private parties in adjudication. It thus far demonstrates that agencies collectively win 92 percent of their cases against individuals and businesses in their own courts, essentially stacking the deck against you time after time.

To put an end to this bureaucratic hegemony, Congress should start by passing Rep. Hageman’s Restoration Act, which amends the U.S. Code to allow for removal of cases to real Article III courts.

Congress should also adopt broader institutional reform by adopting CEI’s proposed Constitutional Restoration initiative. This would amend the Administrative Procedure Act by removing all ALCs from the executive branch to integrate them into the Judiciary. Only then will we be able to achieve a true separation of powers involving executive and judicial authority and lasting relief from ALC tyranny.

You can read more about CEI’s constitutional restoration proposal to Congress here.