The Crisis of the Administrative State, Part 1

When I teach legal and constitutional history, one of the first things you ponder is the common law maxim, “Nemo judex in parte sua”— “No man shall be a judge in his own case.” The common sense logic of this hardly needs explaining—except to modern American liberals.

The Wall Street Journal has an important story on the front page today that shows how far we’ve gotten from sound legal philosophy, and it bears on the issue of our administrative state that ought to be at the top of the list of things Republican presidential campaigns should be talking about, but generally won’t—at least not in sufficient specificity:

SEC Wins With In-House Judges

Joel Shapiro faced an uphill battle when he fought the Securities and Exchange Commission in an Atlanta court last year.

The investment-firm chief executive came before an SEC administrative law judge who has never fully cleared a defendant. In August, the judge found Mr. Shapiro had violated securities law, showing “reckless disregard” for his duty to investors.

The odds are once more against Mr. Shapiro as he challenges this ruling. His appeal will be decided by the SEC’s five commissioners, the same body that decided the case against him should go forward in the first place.

Mr. Shapiro, who denies any wrongdoing, called the process “the most unfair, the worst thing I’ve ever gone through.” The SEC declined to comment on his case.

An analysis by The Wall Street Journal of hundreds of decisions shows how much of a home-court advantage the SEC enjoys when it sends cases to its own judges rather than federal courts. That is a practice the agency increasingly follows, the Journal has found.

The SEC won against 90% of defendants before its own judges in contested cases from October 2010 through March of this year, according to the Journal analysis. That was markedly higher than the 69% success the agency obtained against defendants in federal court over the same period, based on SEC data.

Mr. Shapiro can now appeal his SEC verdict—but not to an independent Article III federal judge. He has to go before the SEC’s commissioners first. Guess how that’s going to go:

The Journal analysis also reveals the SEC’s high success rate in appeals of its administrative law judges’ rulings—the appeals its own commissioners hear. . . “In an administrative law proceeding” at the SEC, said Bradley Bondi, a former counsel to two former SEC commissioners, “the commission is akin to the prosecutor and then, in an appeal, the judge in the same case.” (Emphasis added.)

This style of combined lawmaking, execution, and adjudication—what Madison called the very definition of tyranny when put in the same hands—is not unique to the SEC. I know I’ve quoted it here before, but Boston University Law School professor Gary Lawson’s one-paragraph description of the same problem at the Federal Trade Commission gets to the heart of the matter elegantly in his 1994 Harvard Law Review article “The Rise and Rise of the Administrative State”:

The [Federal Trade] Commission promulgates substantive rules of conduct. The Commission then considers whether to authorize investigations into whether the Commission’s rules have been violated. If the Commission authorizes an investigation, the investigation is conducted by the Commission, which reports its findings to the Commission. If the Commission thinks that the Commission’s findings warrant an enforcement action, the Commission issues a complaint. The Commission’s complaint that a Commission rule has been violated is then prosecuted by the Commission and adjudicated by the Commission. This Commission adjudication can either take place before the full Commission or before a semi-autonomous Commission administrative law judge. If the Commission chooses to adjudicate before an administrative law judge rather than before the Commission and the decision is adverse to the Commission, the Commission can appeal to the Commission. If the Commission ultimately finds a violation, then, and only then, the affected private party can appeal to an Article III court. But the agency decision, even before the bona fide Article III tribunal, possesses a very strong presumption of correctness on matters both of fact and of law.

Over to you, Phil Hamburger.

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