What Does SEC v. Jarkesy and Corner Post Inc. v. Board of Governors of the Federal Reserve System Mean?
By Brian Hendrix
Administrative law might rival Ambien as a sedative for all but a small handful of people of the sort who practice in the area or find it interesting. As that “sort” of person, I am inflicting a second column in a row on administrative law onto you.
Apologies in advance. I wouldn’t commit this act (several times) without good reason. To wit, the Supreme Court recently issued three decisions that address – and limit – the authority of the administrative estate. Last month I covered the Court’s decision in in Loper Bright to overrule Chevron. This month, I’ll cover the other two, SEC v. Jarkesy and Corner Post Inc. v. Board of Governors of the Federal Reserve System. Next month, I’ll give you my take on what the three decisions may mean for the mining industry.
Corner Post
We’ll start with Corner Post, which addressed the statute of limitations for judicial review of federal agency rulemaking under the Administrative Procedure Act. When an agency promulgates a new rule, those affected by the rule have six years to challenge it. That’s the statute of limitations, but when does the six year period begin? Is it the date on which the agency publishes the rule or the effective date of the rule? Or, is it when the party is actually affected by the rule, i.e., when the party is “adversely affected or aggrieved by the rule”?
As you might imagine, the government argued that, “if a party is affected or is injured by a rule within six years of the rule’s promulgation,” it may challenge the rule. After six years, a party is out of luck, “no matter how serious the injury or how illegal the rule.” To hold otherwise, according to the dissent, would “devastate the functioning of the Federal Government.”
The Court held otherwise. It held that the clock on the APA’s statute of limitations starts when the party is injured by final agency action. It described the dissent’s dire warning as “baffling –indeed, bizarre” and explained that “the opportunity to challenge agency action does not mean that new plaintiffs will always win or that courts and agencies will need to expend significant resources to address each new suit. Given that major regulations are typically challenged immediately, courts entertaining later challenges often will be able to rely on binding Supreme Court or circuit precedent.”
As a practical matter, this makes good sense. In “Over Ruled: The Human Toll of Too Much Law,” Neil Gorsuch and Janie Nitze describe how the “law in our country has simply exploded.” It is estimated (conservatively) that federal agencies promulgate a few thousand rules every year, including roughly a dozen “economically significant” rules per month.
In fact, according to the GW Regulatory Studies Center, federal agencies set a new record in April “by publishing 66 significant final rules . . . nearly five times the average of the preceding 38 months.” For scale, a rule qualifies as “economically significant” if its estimated cost to the economy is $200 million-plus a year.
Sir William Blackstone first explained that ignorance of the law is no excuse, more than 200 years before the birth of the modern administrative state and the explosion of complex, dense new rules. Today, it is fair to wonder if ignorance of the law (or at least some of it) is a feature, not a bug.
What does Corner Post mean for miners and mine operators? First, the industry (and labor) challenge most new MSHA rules shortly after MSHA publishes them. Second, as the majority noted, “[r]egulated parties ‘may always assail a regulation as exceeding the agency’s statutory authority in enforcement proceedings against them’ or ‘petition an agency to reconsider a longstanding rule and then appeal the denial of that petition.’” Thus, while it’s certainly a welcome development, I doubt that Corner Post will have significant impact on the industry.
That may not be true of SEC v. Jarkesy. George Jarkesy managed hedge funds. The SEC initiated an enforcement action against him and a business partner, alleging that two had committed securities fraud by misrepresenting the risks and the performance of the funds to their investors.
As Justice Gorsuch put it, “charges were serious; the agency accused him of defrauding investors. The relief the agency sought was serious, too: millions of dollars in civil penalties.” Until 2010, the SEC was required “to go to federal court to secure that kind of relief against someone like Mr. Jarkesy,” guaranteeing him “a jury, an independent judge, and traditional procedures designed to ensure that anyone caught up in our judicial system receives due process.”
That year Congress authorized the SEC to “funnel cases like Mr. Jarkesy’s through its own ‘adjudicatory’ system.” The SEC won most – 90% – of the cases tried before its ALJs. “The new law gave the SEC’s Commissioners – the same officials who authorized the suit against Mr. Jarkesy – the power to preside over his case themselves and issue judgment. … This close relationship, as others have long recognized, can make it ‘extremely difficult, if not impossible, for th[e ALJ] to convey the image of being an impartial fact finder.’”
Jarkesy challenged the SEC’s enforcement action, arguing (in part) that the SEC’s in-house adjudicatory process deprived him of the right to a jury trial under the Seventh Amendment. A majority of the Court agreed with Jarkesy that “a defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator.”
If you have any experience with MSHA enforcement actions before the Federal Mine Safety and Health Review Commission, you may be thinking that the SEC’s adjudicatory process looks familiar. I think so too, and next month I’ll explain what Jarkesy may mean for certain types of cases under the Federal Mine Safety and Health Act. And, I promise that that will be my last column on administrative law, at least for a little while.
Conclusion
MSHA makes and enforces the rules, and MSHA (represented by attorneys in the solicitor’s office) prosecutes mine operators (and, occasionally, their agents) for alleged violations of MSHA’s rules. The commission (and the judges it employs) serves as the adjudicator of those alleged violations.
The commission’s “independence” is independence from MSHA. MSHA makes the rules and enforces them, but the commission serves as a vital arbiter of and check on MSHA’s actions. Although the commission is independent from MSHA, it is not apolitical.
The five members of the commission are presidential appointees, nominated by the president and confirmed by the Senate to serve staggered six-year terms. However, the commissioners aren’t or shouldn’t be nakedly partisan, e.g., commissioners nominated by Democrats will not necessarily or always favor MSHA.
Brian Hendrix is a partner at Husch Blackwell LLP. As a member of the Energy & Natural Resources group, he advises clients on environmental, health and safety law, with a focus on litigation, incident investigations, enforcement defense and regulatory compliance counseling. He can be reached at
[email protected].