In SEC v. Jarkesy, the Supreme Court considered whether the Seventh Amendment permits the SEC "to compel respondents to defend themselves before the agency rather than before a jury in federal court."1 The Court held that the SEC cannot adjudicate civil penalties "through its own in-house proceedings" because that adjudication triggers the Seventh Amendment's right to a jury trial in federal court.2
As we explain below, this holding should equally apply to FERC's statutory penalty assessment schemes under the Federal Power Act ("FPA"), the Natural Gas Act ("NGA"), and the Natural Gas Policy Act of 1978 ("NGPA").
BACKGROUND
The idea of adding civil penalties to the arsenal of administrative agencies is an old one, predating the 1946 enactment of the Administrative Procedure Act ("APA"). But constitutional concerns about that approach are just as old. In 1941, the Attorney General's Committee on Administrative Procedure recommended that Congress grant civil penalty authority to federal administrative agencies, but also stated that "in order to resolve any doubts about the constitutionality of the procedure, . . . the aggrieved person be permitted review de novo by a [f]ederal district court."3
Many statutory civil penalty schemes followed the de novo review structure. But there also were many variations. By 1979, Congress had created 348 different civil penalty schemes enforced by 27 different federal entities.4 On one end of the statutory spectrum, some civil penalty schemes call for the agency to assess penalties and then to litigate them in-house before an administrative law judge ("ALJ"), subject to judicial review by a federal court of appeals under the APA's arbitrary‑and‑capricious standard of review. On the other end of the statutory spectrum, some civil penalty schemes provide for adjudication in federal district court, with the agency acting solely as a prosecutor, without any prior agency hearing or assessment process. Between these two extremes are various schemes where the agency plays an initial role'often by "assessing" a specific penalty amount, and often subject to de novo federal district court review. In several reports to the Administrative Conference of the United States, academics have categorized these myriad statutory civil penalty schemes like zoologists.5
Reflecting this broad spectrum of statutory civil penalty structures, FERC itself has statutory duties under three different civil penalty schemes. Each scheme uses the same agency structure: FERC shall give notice and then can assess a civil penalty. But they each take different paths regarding whether another adjudication on the merits occurs before a FERC ALJ or in federal district court.6
The NGPA came first, in 1978. There, Congress used a classic "de novo review" structure. FERC first must give "notice of the proposed penalty" to the person who allegedly committed a violation.7 Next, absent settlement, FERC must issue an order "assessing" civil penalties.8 Then, FERC "shall" file a civil action in federal district court seeking "an order affirming the assessment of the civil penalty."9 The court is authorized "to review de novo the law and the facts involved."10
The FPA followed in 1986, when Congress added a civil penalty structure that is unusual by any measure. That statutory scheme later was amended in 2005. Under the FPA, absent a settlement, the person facing proposed civil penalties gets to choose between adjudicating the merits before (1) a FERC ALJ or (2) a federal district court exercising de novo review.11
Regardless of the chosen path, the FPA, like the NGPA, requires FERC to give notice to the target and to issue an order assessing civil penalties.12 In addition, the FPA requires FERC to give an "opportunity for public hearing" before it can issue an order assessing penalties.13 And the FPA requires FERC, when choosing what penalty amount to assess, to consider "the nature and seriousness of the violation," along with any efforts "to remedy" it.14
Finally, Congress amended the NGA in 2005 to add civil penalty authority for the first time.15 The NGA amendments essentially copy the FPA's mandatory initial steps, calling for FERC to assess civil penalties after notice and opportunity for hearing, considering the nature and seriousness of the violation and efforts to remedy it.16 Unlike the FPA and NGPA, however, the NGA says nothing about what happens next. There is no election for the subject to make between trying the case before an ALJ or in federal district court. Aside from FERC's penalty assessment process, there is nothing about how, when, and where civil penalties will be adjudicated. For over fifteen years, however, FERC has consistently held that, absent settlement, it must use in-house ALJs to adjudicate NGA civil penalties on the merits, subject to judicial review by a federal court of appeals applying a deferential standard of review.17
ANALYSIS
It might seem counterintuitive for the FPA, NGA, and NGPA all to run afoul of the Seventh Amendment right to a jury trial under Jarkesy. The constitutional defect in the NGA is particularly patent'there, Congress made no express provision for district court adjudication of civil penalties. In contrast, the other two statutes provide de novo review in federal district court, where a jury trial is available. Nevertheless, the three statutes all have the same fatal constitutional flaw. Each one mandates that FERC must give notice and then can assess a civil penalty. Congress therefore has required FERC to engage in its own adjudication. And that adjudication violates the Seventh Amendment.
This conclusion stands out in sharp relief when viewed against the backdrop of two recent court of appeals decisions addressing how the government-wide five‑year statute of limitations on civil penalties applies to FERC's FPA civil penalty scheme. These two cases, Powhatan and Vitol, explain that FERC's in-house penalty assessment process is itself an adjudication'one that is a necessary statutory predicate to any cause of action in federal district court.18
As the Fourth Circuit explained, "Congress plainly conditioned FERC's right to bring an action in federal district court on the occurrence of a number of statutorily mandated events," culminating in a Commission order assessing a penalty'and "[o]nly upon satisfaction of these requirements did Congress direct that FERC 'shall institute an action' in federal district court."19 The Ninth Circuit agreed, holding that FERC's cause of action in federal court "does not exist until FERC has assessed a civil penalty."20 The district court "review[s]" FERC's penalty assessment order.21
As the Fourth Circuit also explained, FERC's statutory civil penalty assessment process "contemplates extensive factfinding and the application of law to fact."22 To elaborate:
- FERC must decide whether it thinks there were violations of law, requiring it to evaluate and find facts as well as interpret the law.
- FERC must decide whether to allege fraud or other elements of bad intent. Compared to allegations that rules somehow were inadvertently violated, claims of fraud can be game-changers.
- FERC must evaluate any arguments made by the defense FERC's regulations state that the subject can face summary disposition'a loss on the...
