Less than two years after the Supreme Court banned the Securities and Exchange Commission from using its own bought-and-paid-for administrative judges to apply civil penalties and stopped privileging federal agencies' interpretations of ambiguous laws, the high court is considering further restrictions on the administrative state.

Conservative, libertarian and business groups, from the U.S. Chamber of Commerce to more than a dozen "vaping industry stakeholders," filed friend-of-the-court briefs last week supporting a constitutional challenge to a pillar of President Franklin Roosevelt's New Deal. SCOTUS accepted the case last month and will hear oral arguments April 21.

The Federal Communications Commission is defending its prerogative to "assess monetary forfeiture penalties for certain violations" of the 92-year-old Communications Act and its regulations, giving regulated entities a choice: dare the government to sue for payment in a jury trial, or pay the penalty and guarantee review by an appeals court but no jury.

The 5th U.S. Circuit Court of Appeals struck down the FCC's $57 million fine via its own in-house court against AT&T for allegedly mishandling customer data, citing the 2024 SCOTUS precedent against the Securities and Exchange Commission's in-house courts, which itself upheld the 5th Circuit's ruling for hedge fund manager George Jarkesy.

The 2nd Circuit upheld the FCC's $47 million penalty against Verizon a month after the D.C. Circuit upheld its $80 million and $12 million penalties against pre-merger T-Mobile and Sprint, respectively, for the same alleged violations, with both appellate courts accepting the FCC's theory that its collection scheme does not violate the 7th Amendment.

Verizon's petition for review, which SCOTUS accepted and consolidated with AT&T's, faulted the two appellate courts for circumventing the right to a jury trial through a "distinct statutory quirk" in the Communications Act, which conditions a jury trial on the Justice Department actually suing regulated entities for nonpayment within five years.

Branded a 'repeat offender' just to have a day in court

"Lower courts have wrongly held that SEC enforcement targets are not entitled to jury trials in penalty-collection cases," the New Civil Liberties Alliance wrote in a press release denouncing "trial by bureaucrat." It filed a brief with the National Association of Wholesaler-Distributors and National Federation of Independent Business Small Business Legal Center.

NCLA senior litigation counsel Russ Ryan cited a "huge disconnect between FCC’s assurance that these companies would eventually get a jury trial if the agency tried to collect its penalties in court and SEC’s insistence for decades that no jury trial is required when it collects administrative penalties in court."

The feds are "using a 'loophole' to delay justice and damage reputations," giving the FCC years to sue "while the agency publicly brands the company a lawbreaker and treats them as a 'repeat offender' in all future dealing," said the Liberty Justice Center, which also filed a brief. 

The right to jury trial "is too sacred to be treated as a 'maybe' that only happens years after the government has already tarnished your name and declared you guilty" via a "pay-to-play" understanding of the 7th Amendment, LJC said.

The brief by "vaping industry stakeholders" says the stakes go beyond one federal agency, since the Food and Drug Administration enforces its core statute and a youth restriction statute on them through civil penalties in an administrative tribunal.

They "represent the baseline collective experience of many regulated parties across the administrative ecosphere" and "have witnessed from the luxury boxes the decimating market impacts of FDA punishing violations" of questions reserved for federal courts, under the Constitution's Article III, in other forums.

"Size does not discriminate when it comes to the reach and impact of agency monetary penalty schemes," which "target an eye-popping number of regulated parties," the vaping brief says. "An agency cannot un-ring the bell after a non-Article III tribunal makes factual findings, legal conclusions, adjudges guilt, and levies punishment."

The stakeholders urged the high court to confirm its "public rights" exception to Article III courts "does not apply to ordinary enforcement actions rooted in negligence (AT&T and Verizon) or the marketing of adulterated or misbranded vaping products (Wulferic)," the latter a federal judge's ruling against the FDA's civil penalties as a 7th Amendment violation under Jarkesy.

Small businesses can't afford 'two rounds of penalty proceedings'

"The Seventh Amendment arose out of the crown’s expansion of juryless admiralty courts" to hear "a range of cases traditionally tried in common law courts," a perfect analog to the FCC's in-house courts usurping real courts that would hear negligence torts such as mishandling customer data, the Chamber and Business Roundtable said in a joint brief.

Not only did these juryless courts play a major role in the colonists' break from the British Empire, but the U.S. Constitution struggled for ratification without "civil jury protections" championed by the Anti-Federalists, culminating in the 7th Amendment, they said. 

Contrary to the 2nd Circuit's finding, the FCC's "back-end judicial review scheme" does not change the fact that the Communications Act "could not be clearer" that its liability findings constitute a "binding legal determination," the brief says. 

The forfeiture orders to AT&T and Verizon unambiguously order payment "in bold, capital letters," and the law "gives the carrier no right to judicial review (or a jury) before the imposition of any penalty," just the right to "petition for juryless review" after paying, they said.

"Many regulated entities cannot afford two rounds of penalty proceedings," and the FCC's reading "would provide a roadmap to circumvent" the Jarkesy precedent, the small business-focused Institute for Justice brief says, 

"Agencies could 'reform' their procedures to place the right to judge and jury at the end of years (and potentially multiple rounds) of agency proceedings," which would have forced Jarkesy "to navigate over six years of agency proceedings—all overseen by biased agency judges – so long as there was a theoretical jury at the end of the procedural rainbow," IJ said.

The government is giving "short shrift" to federal courts under Article III by basing its argument on the 7th Amendment, IJ also said.

While juries only hear part of a case, "Article III judges typically make legal rulings at the threshold of litigation—including legal rulings that weed out insufficient allegations – and oversee pre-hearing procedures to ensure fairness to all sides" as well as "the entire case."

T-Mobile's brief said the "government’s waiver theory rests on a faulty premise: that any collection action … secures de novo review of all legal and factual findings in an FCC forfeiture order," which courts including the 5th Circuit have explicitly denied, while others "restrict challenges to penalty amounts" or haven't heard the issue.

Even if a fresh review of legal and factual findings were available, the Justice Department "controls the forum" and "has every incentive to select a forum that restricts such challenges," the carrier said.

AT&T, Verizon, T-Mobile and Sprint each decided to pay "tens of millions of dollars in penalties" to secure appellate review because the FCC's forfeiture orders "imposed immediate, real-world harms, and a hypothetical, government-initiated ... collection action of uncertain scope in an unknown venue at an unknown time was not a viable alternative," it said.

"Petitioners [Verizon and AT&T] did not intentionally relinquish their constitutional rights by invoking the only statutory mechanism that secured them," the brief says.