‘Tough luck’: The Supreme Court just took a new bite out of Biden’s agencies’ powers

The Supreme Court's ruling "could threaten EPA's enforcement program as we know it" said Kevin Minoli, a former acting general counsel at the agency.

The Supreme Court’s newest rebuke of the Securities and Exchange Commission is threatening to unleash chaos throughout the federal government, creating uncertainty about the limits on agencies’ power to punish law-breakers.

The 6-3 ruling held that the Constitution's 7th Amendment guarantee to a trial by jury applies when the SEC seeks civil penalties for securities fraud. But legal experts said it raises questions about a wide range of agencies’ ability to impose fines for violations of a host of laws and rules, including those protecting consumers, workers and the environment.

Agencies that suddenly face new potential challenges to their decades-old enforcement powers include the Environmental Protection Agency, the Consumer Financial Protection Bureau, the Labor Department and the National Labor Relations Board, lawyers and former agency officials told POLITICO.

The decision “could threaten EPA's enforcement program as we know it,” said Kevin Minoli, a former acting general counsel at the agency. He said it raises questions about whether “everyone facing a government penalty has the right to request a jury trial” — and how many defendants will choose to invoke that right.

Most EPA enforcement actions are handled through an administrative process, not litigation, Minoli noted in an email. The agency does not have the resources to take every environmental violation to court, and neither does the Justice Department, said Minoli, now an attorney at Alston & Bird.

EPA Administrator Michael Regan told reporters on Thursday that he was still digesting the news and that agencies across the federal government would have to figure out its impact.

“We believe that our agency is designed with a specific mission to protect individuals, provide transparency, allow opportunities for people to appeal and have their day and say, and so we want to retain our authorities to do that in the best way we can to protect every community across the country,” Regan said.

For the SEC, the subject of Thursday’s decision in SEC v. Jarkesy, the court’s ruling is unlikely to spur a major upheaval. The Wall Street regulator has already significantly pulled back on the use of its own in-house courts. Still, SEC Enforcement Director Gurbir Grewal said in a statement that the agency was reviewing the decision.

“The SEC will continue to protect investors and enforce the federal securities laws, including by filing actions in federal court,” Grewal said.

But other watchdogs have been put on notice, lawyers say. For financial regulators pursuing fraud charges, for instance, “it’s going to be awfully hard” to avoid Jarkesy, said Andrew Pincus, a partner at Mayer Brown.

“It’s really a sea change in how regulators have thought about this area of administrative adjudication,” Pincus said.

The National Labor Relations Board and Department of Labor also make extensive use of their so-called administrative law judges and are facing ongoing litigation of their own, though some legal experts said the pair may not be as affected by Thursday’s ruling as other federal agencies.

In the NLRB’s case it doesn’t have the authority to impose fines for labor law infractions, setting it apart from the SEC in Jarkesy. The Labor Department’s enforcement of the Occupational Safety and Health Act was upheld by the Supreme Court in Atlas Roofing, a 1977 decision that the court drew contrasts to throughout Thursday’s opinions.

“This should have no impact on our major labor and employment law enforcement schemes,” Sharon Block, a Harvard Law School professor who’s worked at both agencies, told POLITICO.

Thursday’s decision split along ideological lines, with Chief Justice John Roberts writing that “a defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator.”

Roberts argued his ruling is relatively narrow — but in her dissent, Justice Sonia Sotomayor said the results will be “earthshattering” and “a massive sea change.”

“The constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress,” she wrote.

Some agencies, including EPA, at least have the ability to pursue civil penalties in federal court, Sotomayor noted. But others such as the Federal Energy Regulatory Commission and the Federal Mine Safety and Health Review Commission operate under laws that require that civil penalties be pursued in agency enforcement proceedings.

"For those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress," she wrote.

Enforcement experts quickly pointed to a litany of questions created by the Supreme Court’s ruling.

“The Jarkesy opinion creates a great deal of uncertainty for EPA’s administrative enforcement docket,” Susan Bodine, EPA’s enforcement chief during the Trump administration, wrote in an email.

The Supreme Court already ruled in 1987’s Tull v. United States that the Clean Water Act’s penalty structure is similar to the type of “common law” for which the Constitution promises a trial by jury. The Clean Air Act and the Safe Drinking Water Act have similar structures.

“The agency and ultimately courts will have to decide if the regulatory regime being enforced is more akin to common law or whether it is wholly new” and thus not the kind of law for which the Constitution guarantees a jury trial, like the OSH Act, Bodine said.

Bodine said the ruling creates several more open questions.

One is whether a defendant could choose to undergo administrative enforcement proceedings instead of a judicial case. She also wondered whether it matters if the appeal of an EPA administrative decision is made to a district court, where the defendant could have a trial by jury, or to an appellate court, where that is not an option. While the majority opinion did not make those points clear, Bodine said a concurring opinion from Justice Neil Gorsuch indicates the answer to both questions is no.

Jarkesy could also mean big changes at the Federal Mine Safety and Health Review Commission, a five-member body that oversees administrative law judges who hear disputes over mine safety enforcement actions.

The mine commission’s judges could probably still reinstate miners who were terminated for whistleblower activities or order companies to issue back pay because those are different from the sort of enforcement identified in the Supreme Court's opinion, former Chair Arthur Traynor told POLITICO.

But the bulk of the commissions docket consists of fights over assessed penalties for safety violations, which often involve highly technical issues. The ruling may mean the judges there will have to empanel juries instead of settling cases themselves, argued Traynor, who left the commission in 2022 and is now an attorney at Mooney Green.

"This will obviously greatly increase the time and expense involved with adjudication of contested citations," he wrote in an email.

The mine commission and its current chair, Mary Lu Jordan, did not reply to questions about the Supreme Court ruling’s impact on its operations.

The decision could also shake up proceedings at FERC, though legal experts are still weighing how it will affect the agency’s ability to assess civil penalties under the Federal Power Act and the Natural Gas Act.

FERC Chair Willie Phillips said he had not yet seen the ruling as of Thursday morning, given it was released during the agency’s monthly open meeting.

“I know for a fact that the lawyers that we have here at the commission — the best regulatory lawyers in government — are taking a careful look at it,” Phillips told reporters following the meeting.

Ari Peskoe, a FERC expert and director of Harvard’s Electricity Law Initiative, said in an email the most likely immediate effect will be to shift market manipulation cases under the Natural Gas Act to federal district courts, while FERC administrative law judges will still be able to hear utility and pipeline rate cases.

The Justice Department’s Environment and Natural Resources Division declined to comment on the enforcement effects of the Supreme Court’s ruling.

James Bikales, Declan Harty , Catherine Morehouse and Nick Niedzwiadek contributed to this report.