'Nightmare' court decision upholds the right to be heard before a real court

It’s a federal appeals court decision that has been called “astonishing,” a “nightmare” and “the judicial equivalent of tossing a Molotov cocktail into the federal government.” And the Supreme Court will decide whether to take the case for its fall term later this month.

But for small business owners Chuck Saine and Joe Marino, the U.S. Fifth Circuit Court of Appeal’s decision in Jarkesy v. SEC is the opposite of a nightmare. It is a lifeline that has been thrown their way after years spent fighting the federal administrative state.  

Both Saine and Marino are small business owners. Saine runs a lawncare business in Annapolis, Md., and Joe ran a vegetable farm in rural Southern New Jersey. Both were targeted by the federal Department of Labor (DOL) for huge fines and penalties, and both were forced to defend themselves in the DOL’s in-house courts, where both the prosecutor and the “judge” are employed by the agency targeting them.

Chuck and Joe, represented by our nonprofit law firm, the Institute for Justice, filed federal lawsuits challenging the power of these agency courts to impose fines and penalties. Joe’s case is pending in federal court in New Jersey. And just last month, Chuck filed his case in federal court in D.C.

In both cases, DOL’s in-house judges imposed huge penalties for technical violations. The DOL judge in Joe’s case fined the farm over $500,000, most of it because paperwork that the farm submitted to the agency did not accurately describe the kind of kitchen access workers would have.

In Chuck’s case, the agency judge imposed nearly $55,000 in liability, most of it because Chuck rented workers an apartment in a neighborhood that was not zoned residential. Why a federal agency has any interest in enforcing county zoning ordinances was never explained.

That is precisely the kind of thing that is bound to happen when employees of a single administrative agency serve as prosecutor, judge and jury. Independent judges and juries are supposed to stand between private citizens and the government. Agency bureaucrats are no substitute.

Recognizing as much, the Fifth Circuit’s opinion in Jarkesy held that the imposition of significant monetary fines by agency “judges” violates the Seventh Amendment — the constitutional provision that guarantees the right to trial by jury.

The federal government is trying to cut these challenges off at the knees. In its request for the Supreme Court to hear Jarkesy, the government argues that requiring federal agencies to seek penalties from people like Chuck and Joe in real courts, with real juries, would have “massive practical consequences” and thus should not be allowed.

The government is right in one respect: The decision in Jarkesy has massive — and important — consequences for Joe and Chuck. If other courts follow Jarkesy, it will secure their right to a hearing in a real court.

On the other hand, the “practical consequences” of that rule are not nearly as sweeping as the government suggests. The right to a real court kicks in when the government tries to impose fines or other penalties. That is only a narrow slice of what agency judges currently do.

According to the Office of Personnel Management, 90% of administrative law judges employed by the federal government decide cases involving Social Security and Medicare benefits. There is no constitutional problem with agency judges deciding such cases. Most of what the remaining agency judges do is similarly unproblematic.

But when the government tries to take your money because it claims you did something wrong, then you are entitled to make your defense in a real court.

For Joe, the cost and pain of defending his business led to the sale of what had been the largest family-owned farm in New Jersey.

When the Supreme Court decides what to do with Jarkesy, it should keep Joe, Chuck and small business owners across the country in mind. For them, the court’s decision will (in the Solicitor General’s words) have “massive practical consequences” indeed. 

Robert Johnson is senior attorney for Institute for Justice.