The judicial branch is presumably an independent branch of government, alongside the legislative and executive branches. But many regulatory agencies have their own in-house court systems, called administrative law courts (ALCs). In ALCs, agencies choose their own judges, pay their salaries, and set the rules of procedure. Agencies rarely lose in their own courts. And their abuses to established constitutional norms have garnered the attention of federal courts in recent years especially in antitrust and securities law matters. Since 2018, there have been four federal suits challenging the constitutionality of the SEC’s and FTC’s adjudicatory structure, two of which are currently pending review before the Supreme Court.
An example of this abuse can be seen in the case of Lucia v. SEC (2018), where an administrative law judge ruled to uphold the SEC’s anti-fraud violations made against Raymond Lucia and his company. The SEC’s Commissioners upheld the ALJ’s initial ruling and imposed the sanctions. This, despite the issue that the ALJ had not been Constitutionally appointed by the President, a Court of law, or a head of an executive branch Department, thus lacking the authority to oversee such administrative proceedings.
Using this argument, Lucia appealed his case to the D.C. Circuit court, calling for the ALJ’s ruling to be vacated on the grounds that the judge was recognized as a Constitutional officer who was not appointed through the process outlined in Article II’s Appointments Clause. Following the Circuit court’s rejection of this argument, Lucia had his case heard before the U.S. Supreme Court which issued a 7-2 decision to uphold his appeal, deciding that SEC judges are federal officers that must be selected in accordance with the Constitution’s Appointments Clause. As such, Lucia’s case, and all other similarly examined ALC cases, were remanded to be heard by properly appointed officials.
Where did these ALCs come from? How can we limit their constitutional abuses of power?
There are two common arguments for having ALCs in the first place. One, many cases involving agency regulations are highly technical. Regular court judges typically lack the expertise to give a fair hearing in such cases. Where most judges are legal generalists who know a little about a lot, administrative law judges (ALJs) are bureaucratic specialists who know a lot about a little. Two, the standard Article III court system is overburdened. ALCs can help to lighten that load.
Administrative courts in their modern form go back to 1946 when Congress passed the Administrative Procedure Act (APA). The APA is to administrative law what the U.S. Constitution is to constitutional law. And the APA governs administrative law courts like Article III of the Constitution does for the federal court system.
Congress intended the APA to provide uniform standards for agency decision-making and clear standards for their administrative law courts to follow.
Administrative law courts differ from Article III courts in important ways. One is that there is no jury requirement for adjudication, as opposed to a Constitutional guarantee for juries to be provided in Article III courts, if requested. However the lack of a jury in ALC’s resembles a growing trend in civil and criminal cases at the trial court level, which are resorting to juries less and less as many litigants opt to either settle or plead guilty. ALC’s exclude public opinion in an adjudicatory process managed entirely by the agency pursuing charges.
ALCs have limited jurisdiction. They can only hear matters about their federal agency. After a hearing, an administrative law judge issues an “initial order,” a decision that is not legally binding and instead serves as an authoritative recommendation to be considered by the agency’s Commission or body of chief officials.
At every stage of the process, the ALC’s agency tips the scales in its favor. Federal agencies nearly always win their cases when handled exclusively in-house since they serve as both prosecutor and judge over their own matters. Between FY 2011-2014, data revealed that the SEC had won an average of 90% of its cases when handled in-house.
ALCs are part of a larger trend of federal agencies taking on legislative, executive, and judicial powers.  This is a troubling development in a country founded on a separation of powers.
For example, some agencies, such as the Federal Trade Commission, reserve the right to overrule their administrative judges in rare occasions when the agency actually loses in ALCs. The Securities and Exchange Commission can force litigants who appeal an ALC decision to have their case heard exclusively by an agency-appointed judge.
Since there are relatively few such judges, ALCs can cause the sort of case backlogs they were intended to prevent. In 2022, the SEC had 13 cases compiled in its backlog from previous years, with the average pending case being more than six years old. Backlog can be problematic because the longer a case is held in limbo the more expensive it becomes to a non-governmental litigant paying out of pocket legal fees to sustain their position. [What are the consequences of a backlog?]
ALCs have recently run into constitutional trouble. In Jarkesy v.SEC (2022), the Fifth Circuit Court decided that Congress granted an unconstitutional delegation of legislative power to the SEC by giving it full discretion over choosing whether to pursue cases in an Article III court or before an ALJ.
Congress must have an “intelligible principle” to justify the use of such power, and the Court ruled it did not. This decision presented a major challenge to the constitutionality of the administrative law process.
ALCs denial of the right to a jury trial in civil cases also runs afoul of the Seventh Amendment’s guarantee to juries. This was also a factor in Jarkesy. As an exclamation point on the decision, the Fifth Circuit also denied the SEC the full-court rehearing of the case that it requested.
ALCs are just part of the administrative state’s seemingly unchecked growth in recent decades. Administrative law courts can deny citizens the right to a jury trial and the right to present or appeal a case before an Article III court. Nor are ALCs impartial. Agencies with ALCs appear to reign by their bureaucratic authority alone, operating beyond the separation of power constraints of the Constitution..
Neither of the two main arguments justifying the existence of ALCs—expert knowledge and overburdened Article III courts—holds ground. Expert witnesses are routine in many court cases and help juries and judges understand technicalities.
There is no reason that expert witnesses cannot be used in cases concerning agency regulations. And they could do this without suffering ALCs’ pro-agency bias. Prosecutors and defendants could each offer their own slate of experts and provide both sides with a fair hearing.
The solution to overburdened Article III courts is to appoint more judges and expand the court system if necessary. As the population grows, it is reasonable for a court system to grow in tandem ready to meet the nation’s developing legal needs. Another consideration would be to adopt a system similar to Germany, where administrative disputes between bureaucrats and citizens are adjudicated by a court independent of the agency involved.
Fortunately, upcoming cases could build on Jarkesy’s victory, such as Axon Enterprise, Inc. v. Federal Trade Commission and Cochran v. SEC. Depending on their outcomes, there is hope that ALCs’ worst abuses may be ending soon.