Supreme Court takes on the administrative state and power-hungry bureaucrats

Justice Clarence Thomas sent a warning shot across the bow of the expansive administrative state in a recent opinion suggesting it was time the court upend the litany of agencies that act as quasi-judges and slap fines or other penalties on people with only an abbreviated chance for regular judges to get involved.

The Securities and Exchange Commission and the Federal Trade Commission both claim such powers, and Justice Thomas said the two agencies go well beyond what the founders of the country envisioned.

“I have grave doubts about the constitutional propriety of Congress vesting administrative agencies with primary authority to adjudicate core private rights with only deferential judicial review on the back end,” Justice Thomas wrote. 

His opinion came as part of a ruling on a technical jurisdiction issue involving the SEC and FTC, in a case known as Axon Enterprise Inc. v. Federal Trade Commission.

In an unanimous decision, the justices said that plaintiffs can go directly to the regular courts if they want to challenge the way the agencies are set up under the Constitution.

The agencies had argued that any challenge must first go through their own administrative process. But Justice Elena Kagan, delivering the court’s opinion, said the administration process is for arguing over technical matters within an agency’s area of expertise, such as stocks for the SEC or consumer protection actions in the case of the FTC.

But questions about constitutionality can always go directly to the regular courts, she said.

“The question presented is whether the district courts have jurisdiction to hear those suits — and so to resolve the parties’ constitutional challenges to the Commissions’ structure. The answer is yes,” she wrote.

She sent the SEC and FTC cases back to lower courts for more action.

Justice Thomas concurred, but he said the court must soon answer the big questions the cases teed up.

He said agencies have aggrandized too much power to themselves when they seek to be both prosecutor and judge, through what’s known as administrative law judges. ALJs issue binding rulings on cases that come before the agencies.

Under current practice, the regular courts, also known as Article III courts because of their place in the Constitution, defer too much power to ALJs, said Justice Thomas. For example, Article III judges defer to fact-gathering and evidence done in the course of the administrative law proceeding when cases emerge from the agencies.

He said that has helped the FTC go undefeated in administrative cases over 25 years.

But he said Americans’ rights are being trampled by short-circuiting the usual Article III court review process. He said the court should eagerly accept an “appropriate” case where those big questions can be answered.

“The rights at issue in these cases appear to be core private rights that must be adjudicated by Article III courts,” he said.

Legal experts viewed Justice Thomas’ opinion as part of a broader attempt by some conservative scholars to rein in administrative agencies’ power.

“Justice Thomas’ concurrence does not bode well for the regulatory state. If he can gain a majority of justices to his viewpoint, you could see administrative courts topple one by one,” said Jack Yoskowitz, a partner at Seward & Kissel LLP.

Indeed, the court has one test already pending in a case challenging the Consumer Financial Protection Bureau, a creation of President Obama and congressional Democrats in the wake of the 2008 Wall Street chaos.

That case challenges the structure of the CFPB, which was given the ability to set its budget independently of Congress. The goal was to shield it from the political branches.

Mr. Yoskowitz said the court’s decisions this month suggest the CFPB could be in trouble.

“The unanimous decision shows the continued and unbridled hostility of the Court against administrative proceedings and perhaps the regulatory state in general,” he said. “The CFPB is certainly not going to receive any deference and if Justice Thomas can sway a majority to see his viewpoint, I think the CFPB could lose its appeal and Congress would be sent back to the drawing board on the funding issue.”

The CFPB also has its own administrative law system, and the agency took steps last year to shore up its ability to prevail in those cases.

Dustin Nofziger, a lawyer with Pryor Cashman LLP, said that could indicate the agency is getting ready to use the administrative process more often. 

But he said they should keep an eye on where the high court is headed.

“But now the situation after this Axon case is if the CFPB brought an administrative proceeding against you, you would immediately go into court and seek relief on the basis that the agency is unconstitutionally funded,” he said. “You have a really good chance at stopping the administrative proceeding in its tracks.”

Correction: A previous version of this story incorrectly reported Justice Elena Kagan’s first name.