Atlas Roofing Shrugged

Another Burger Court precedent is about to be “abandoned” or “overruled” like Roe, Lemon, Chevron, Abood, and Bakke.

I've finally had a chance to finish Jarkesy v. SEC. There is no reason for that opinion to have been nearly 100 pages. The Justices need to grant more cases, reduce the time of oral argument, and spend less time writing encyclopedias. I could read Atlas Shrugged three times, and it would still take less time than reading through all the Court's decisions from this term. Some of the majority opinions are longer than the John Galt speech. Speaking of Rand…

From the 1930s through 2010, the Securities and Exchange Commission (SEC) would seek civil penalties in federal court. But that practice changed with the Dodd Frank Act, which gave the SEC the choice to bring suit in federal court, or through "in-house" adjudications before an ALJ. Unsurprisingly, the SEC prefers Door #2. The government is more likely to win before an administrative law judge. Moreover, the rules favor the government, as the Federal Rules of Civil Procedure and Evidence do not apply to these internal proceedings. And if the defendant appeals the agency's ruling to federal court, the ALJ's findings are nearly dispositive. Justice Gorsuch's concurrence well explains how this process is stacked against the accused.

The crux of Chief Justice Roberts's majority opinion is that the SEC must bring suit for civil penalties in a federal court, where a jury trial is available under the Seventh Amendment. To be frank, I'm not sure that Jarkesy really cares about having a jury. Rather, he would prefer to be in a federal court with a neutral Article III judges, and all of the protections of the Federal Rules of Civil Procedure and Evidence. I question how many SEC suits brought in federal court wind up before a jury trial. The Seventh Amendment is a means to an end.

Jarksey split 6-3. Justice Sotomayor wrote a vigorous dissent. In her view, Jarkesy was controlled by Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n (1977). This case upheld the use of in-house adjudication for the Occupational Safety and Health Administration. Chief Justice Roberts did not mention Atlas Roofing until a footnote on page 18 of his majority opinion. And he buries his analysis of that precedent at the tail-end of his decision.

Justice Sotomayor charges:

It should be obvious by now how this case should have been resolved under a faithful and straightforward application of Atlas Roofing and a long line of this Court's precedents. The constitutional question is indistinguishable. The majority instead wishes away Atlas Roofing by burying it at the end of its opinion and minimizing the unbroken line of cases on which Atlas Roofing relied.

The Court distinguishes Atlas Roofing, and finds it "does not extend to these civil penalty suits for fraud" by the SEC so "that case does not control." Justice Sotomayor finds this distinction is non-existent. I won't get into that debate here. Rather, it is far more important that Atlas Roofing is being set up to be overruled. Here, Atlas Roofing may join other Burger Court chestnuts that have roasted over an open fire, including Roe, Abood, Chevron, and Bakke.

Roberts explains that the reasoning of Atlas Roofing does not withstand scrutiny, and is inconsistent with later decisions--all factors that cut against stare decisis:

The reasoning of Atlas Roofing cannot support any broader rule. The dissent chants "Atlas Roofing" like a mantra, but no matter how many times it repeats those words, it cannot give Atlas Roofing substance that it lacks

Roberts, who usually scoffs at law professors, cites his preferred stable of scholars to show that Atlas Roofing is an outlier:

Reading the dissent, one might also think that Atlas Roofing is among this Court's most celebrated cases. As the concurrence shows, Atlas Roofing represents a departure from our legal traditions. See post, at 12–20 (opinion of GORSUCH, J.). This view is also reflected in the scholarship. Commentators writing comprehensively on Article III and agency adjudication have often simply ignored the case. See, e.g., R. Fallon, Of Legislative Courts, Administrative Agencies, and Article III, 101 Harv. L. Rev. 915 (1988) (no citation to Atlas Roofing); J. Harrison, Public Rights, Private Privileges, and Article III, 54 Ga. L. Rev. 143 (2019) (same); W. Baude, Adjudication Outside Article III, 133 Harv. L. Rev. 1511 (2020) (same).

The Court stops short of overruling Atlas Roofing. The Court did "not reach" Jarkesy's argument that Granfinanciera, S. A. v. Nordberg (1989) "overruled Atlas Roofing." Though Chief Justice Roberts does leave open the possibility that Atlas Roofing was already "abandoned" like Lemon:

The dissent chides us for "leav[ing] open the possibility that Granfinanciera might have overruled Atlas Roofing." Post, at 25, n. 8 (opinion of SOTOMAYOR, J.). But the author of Atlas Roofing certainly thought that Granfinanciera may have done so. See Granfinanciera, 492 U. S., at 79 (White, J., dissenting) ("Perhaps . . . Atlas Roofing is no longer good law after today's decision."); see also id., at 71, n. 1 (Granfinanciera "can be read as overruling or severely limiting" Atlas Roofing).

Justice Gorsuch's concurrence goes further, and explains that Atlas Roofing cannot be squared with original meaning:

The high-water mark of the movement toward agency adjudication may have come in 1977 in Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n. Some have read that decision to suggest the category of public rights might encompass pretty much any case arising under any "'new statutory obligations,'" Brief for Petitioner 22 (quoting Atlas Roofing). It is a view the government essentially espouses in this case. But without reference to any constitutional text or history to guide what does or does not qualify as a public right, that view has (unsurprisingly) proven wholly unworkable.

Michael Showalter explains how the Court tried to reconcile Atlas Roofing, as precedent, and original meaning. But this decision is merely a temporary way-station on the road to overruling. One last chance, as Richard Re might call it.

Justice Sotomayor sees the writing on the wall. If Jarkesy is extended beyond the SEC, many other agency adjudications would have to be brought in federal court. Indeed, some agencies do not even have the authority to seek civil penalties in federal court, so Congress would have to grant that power:

Some agencies, like the Consumer Financial ProtectionBureau, the Environmental Protection Agency, and the SEC, can pursue civil penalties in both administrative proceedings and federal court. Others do not have that choice. As the above-cited statutes confirm, the Occupational Safety and Health Review Commission, the Federal Energy Regulatory Commission, the Federal Mine Safety and Health Review Commission, the Department of Agriculture, and many others, can pursue civil penalties only in agency enforcement proceedings. For those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress.

I think it unlikely that a divided Congress would ever enact such a statute, so these agencies would be severely weakened. Justice Sotomayor describes this change as a "seismic shift" that would unleash "chaos."

I think Atlas Roofing is on borrowed time. And there is a vehicle on the horizon that presents this issue. 

The SpaceX case against the NLRB pending in the Fifth Circuit has expressly preserved the issue of whether Atlas Roofing should be shrugged: 

The NLRB may argue that the Supreme Court has already upheld its proceedings against a Seventh Amendment challenge. See NLRB v. Jones & Laughlin Steel Corp. (1937); Atlas Roofing Co. v. OSHRC (1977). SpaceX expressly preserves its argument that both these cases should be overruled as they were wrongly decided. Notably both these cases are missing from the Supreme Court's litany of historic public rights cases in Jarkesy at 2131-34. And the Court leaves open that Atlas Roofing has been overruled in footnotes 3 and 4. Moreover, the Court notes Atlas Roofing adopts a problematic "circular" definition of public rights. Id. at 2138-39. And the dissent expressly recognizes that "it is unclear how OSHA, or the National Labor Relations Act at issue in Jones & Laughlin, would fit the majority's view of the public-rights doctrine." Id. at 2165 (Sotomayor, J., dissenting).

The Fifth Circuit reinvigorated the Seventh Amendment in Jarksey. And it was affirmed. The SpaceX case could continue that trend.

At a recent conference, I was asked if I could overrule any one Supreme Court precedent, what would it be? My answer, without hesitation, was NLRB v. Jones & Laughlin Steel. People often point to Wickard v. Filburn as the focal point of the Supreme Court's expansion of federal power. But really that explosion began with Jones & Laughlin Steel. That case adopted the "substantial effects" test, which eliminated the distinction between what is local and what is national. Jones & Laughlin Steel, in addition to obliterating limits on Congress's commerce powers, also wiped out protections of the Seventh Amendment. As a result, the National Labor Relations Authority can bring suits in-house, and not before federal courts. Atlas Roofing may be on the chopping block, so let's see if the Roberts Court would reach back to the New Deal.