OFCCP Week in Review: May 2022 #4 | Direct Employers Association

Friday, May 20, 2022: Ruling in Fifth Circuit case overturns entire U.S. Securities and Exchange Commission administrative law court system

The decision also foreshadows the death of the Office of OFCCP Administrative Judges and all OFCCP Administrative Tribunal lawsuits.

The case is: Jarkesy, Jr.; Patriot28, LLC v U.S. Securities and Exchange CommissionNo.20-61007 (May 18, 2022) United States Court of Appeals for the Fifth Circuit (New Orleans).

The legal question: Seventh Amendment to the United States Constitution Right to a Jury Trial: While the SCOTUS has previously upheld the creation of Congress and the resulting wild growth of federal administrative tribunals within many federal departments, it has previously declined to approve lawsuits in federal administrative courts established by Congress to challenge “non-public” rights. Instead, SCOTUS only approved suits in administrative tribunals devoid of jury trials that disposed of the rights that the federal agency asserted on behalf of the public (i.e., claims of ” public rights”). “[W]When Congress properly assigns a case to arbitration by a non-Article III tribunal, the Seventh Amendment poses no independent bar to the arbitration of that action by a lay inquest. Atlas Roofing Co. v. Occupational Safety & Health Rev. Common, 430 US 442, 455 (1977). So now the question morphs into the question of when does Congress “properly assign a case to arbitration by a non-Article III tribunal”? [An “Article III tribunal”, by the way, is a federal court that operates pursuant to the Rules of Article III of the U.S. Constitution which established the federal courts. Federal agency administrative courts are established pursuant to Congressional statutes.]

In the Jarkesy and Patriot28 case, the United States Securities and Exchange Commission (“SEC”) sought to bring a lawsuit within the agency for “securities fraud against George R. Jarkesy (a “hedge fund” manager) and Patriot28 (a firm that served as investment adviser to Mr. Jarkesy’s two hedge funds). An SEC Administrative Law Judge (“ALJ”) conducted a bench trial (without a jury), found Mr. Jarkesy and Patriot28 liable, and ordered various remedies. An appeals court within the SEC later upheld the ALJ order and rejected several constitutional arguments that Mr. Jarkesy and Patriot28 had advanced to oppose the order.

Mr. Jarkesy and Patriot28 then appealed to the Fifth Circuit Court of Appeals and raised the same constitutional arguments in court. This time, Mr. Jarkesy won. The Fifth Circuit held the SEC Administrative Proceeding before an SEC ALJ suffering from three independent constitutional defects:

“(1) the SEC’s internal judgment in the petitioners’ case violated their Seventh Amendment right to a jury trial;

(2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I conferring “all” legislative power on Congress; and

(3) the SEC’s ALJ statutory deletion restrictions violate the precautionary clause of Article II. »

Because the agency’s proceeding below was unconstitutional, we GRANT the motion for review, REVEAL the SEC’s decision, and RECOMMEND for further proceedings consistent with this notice.

Here is what the Seventh Amendment says:

“In common law trials, where the value in dispute shall exceed twenty dollars, the right to trial by jury shall be preserved, and no fact adjudged by a jury shall otherwise be reconsidered in a court of the United States, except as the rules of common law.

The Line Drawing Exercise of Constitutional Law “Public Rights”/“Non-Public Rights”:

Here’s how the Fifth Circuit explained it in the Jarkesy case:

“Whether Congress can properly attribute a claim to administrative arbitration depends on whether the proceeding centers on “public rights.” Atlas Roofing, 430 US at 450.”[I]n cases in which “public rights” are challenged[,] for example, cases in which the government is suing in its sovereign capacity to enforce public rights created by laws within the power of Congress to enact[,] the Seventh Amendment does not prohibit Congress from assigning the function of fact-finding and initial judgment to an administrative forum with which the jury would be incompatible. Identifier. Describing appropriate powers, the Supreme Court identified situations “where the government is implicated in its sovereign capacity under an otherwise valid statute creating enforceable public rights. Fully private tort, contract and property matters, [and] a vast array of other cases are not involved at all. Identifier. at 458.

The Supreme Court refined the concept of public law with respect to the Seventh Amendment in Granfinanciera, SA v. Nordberg, 492 US 33 (1989). There, the Court clarified that Congress cannot circumvent the Seventh Amendment right to a jury trial simply by passing a law that assigns “traditional legal claims” to an administrative tribunal. Identifier. at 52. Public rights, the Court explained, arise when Congress passes legislation under its constitutional authority that creates a law so tightly integrated with a comprehensive regulatory scheme that the law is appropriate for agency resolution. Identifier. at 54 years old.

The analysis therefore proceeds in two stages. First, a court must determine whether an action’s claims arise “at common law” under the Seventh Amendment. See Tull, 481 U.S. at 417. Second, if the action involves common law claims, a court must determine whether the Supreme Court’s public rights cases nevertheless permit Congress to sue it for arbitration of the agency without a jury trial. See Granfinanciera, 492 US at 54; Atlas Roofing, 430 US at 455. Relevant considerations here include (1) whether “Congress ‘creat[ed] a new cause of action, and related remedies, unknown to the common law, ‘because the traditional rights and remedies were insufficient to deal with a manifest public problem’; and (2) whether jury trials “would do much to dismantle the statutory scheme” or “prevent a speedy settlement” of claims created by statute. Granfinanciera, 492 US at 60–63 (citing Atlas Roofing, 430 US at 454 n.11, 461 (first and second citations)). [Slip Op at pp. 8-9]

Applying this legal standard, the Fifth Circuit in the Jarkesy case ruled that “…the agency’s proceeding below (in the SEC administrative tribunals) violated the petitioners’ Seventh Amendment rights, and the SEC decision should be reversed.” [Slip Op at p. 18]. The Court based its decision on these two subsidiary interests:

  1. “The rights that the SEC has sought to assert in its enforcement action here arise ‘at common law’ under the Seventh Amendment.” {Slip Op. at p.9]; and
  2. Second, the action brought by the SEC against the plaintiffs is not the kind that can properly be attributed to agency arbitration under the public rights doctrine. Securities fraud actions are not new actions unknown to the common law. [Slip Op. at p. 11]

What about the OFCCP administrative enforcement program before the USDOL Office of Administrative Judges (OALJ)?

the Roofing Atlas, Granfunanciera and Jarkesy case decisions would seem to quickly condemn the OFCCP’s OALJ enforcement program since the OFCCP:

  1. only prosecutes breach of contract cases (i.e., the federal contractor allegedly violated the obligations contained in its federal contract) and the common law began and focused its work on contract enforcement;
  2. The OFCCP prosecutes contractors NOT for the public good or to enforce “public rights”, but rather to simply ensure compliance with federal contract requirements. Indeed, members of the public have no private right of action under ANY of the three statutes The OFCCP is responsible for prosecuting and the OFCCP does not prosecute on behalf of members of the public (who are not “victims” of unlawful discrimination, Title VII), but are instead merely “third party beneficiaries” of the federal government contract that the OFCCP enforces); and
  3. federal courts have extensive experience in contract enforcement actions and jury trials of discrimination claims (with far greater expertise than is available in either branch of law in the courts of the United States). OALJ).

To note: so far, no OFCCP litigant has raised the legal invalidity of the OFCCP’s reliance on the OALJ enforcement process to dismiss an OFCCP administrative complaint. It will end soon, however.

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