Adjudication

• Pages: 21-60
• Author: Richard J. Pierce, Jr.

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Chapter 3

ADJUDICATION

A. Introductory Overview

In its 2024 decision in SEC v. Jarkesy, the Supreme Court held

that the Seventh Amendment precludes the SEC from adjudicating

disputes in which it attempts to impose civil penalties against

individuals who commit security fraud. As discussed in detail in

chapter 2, the reasoning in that opinion co uld be applied in other

cases in a way that would eliminate the power of regulatory agencies

to adjudicate most of the tens of thousands of disputes that they now

adjudicate every year.

There are three potential sources of proce dures an agency must

use in conducting an adjudication—the Due Process Clause of the

Constitution, statutes, and the agency’s own rule s. Until 1978, some

courts believed that they also had the power to require an agency to

use additional procedures that are not required by the Constitution,

statutes, or agency rules on the basis of a judicial determination that

the additional procedures wo uld improve the accuracy of the agency

decision-making process or assist the court in its efforts to review the

agency action. In 1978, however, the Supreme Court held

unanimously that courts can only require an agency to use those

procedures that are required by the Constitution, statutes, or agency

rules.

1

The Court’s decision arose in the context of a rulemaking, but

the Court has since confirmed that its holding applies as well to

agency adjudications.

2

A lawyer who undertakes the task of determining the procedures

an agency is required to use always should begin by reading the

agency’s own rules. The Supreme Court has held that an agency is

required to comply with its own rules of procedure to the extent that

those rules are intended to confer important rights on parties even if

the rules go beyond the requirements of statutes and the

Constitution,

3

and agencies often adopt rules of procedure that go

1

Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 546 –48

(1978).

2

Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (1990).

3

United States v. Nixon, 418 U.S. 683, 694–96 (1974); United States ex r el.

Accardi v. Shaughnessy, 347 U.S. 260 (1954). An agency is not required to comply with

a procedural rule that merely provides a means for the agency to conduct its business

in an orderly manner, however. American Farm Lines v. Black Ball Freight Service,

397 U.S. 532 (1970).

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ADJUDICATION

Ch. 3

beyond those requirements. The next logical step is to read the

applicable statutes.

There are always two statutes that can be the source of

procedural require ments applicable to an agency adjudication —the

Administrative Procedure Act (APA) and the statute that authorizes

the agency to take the particular adjudicatory action it is taking,

often called the organic Act. Sections 554 through 558 of the APA

describe elaborate procedures an agency must follow when it

conducts an adjudication. As discussed in detail in section B, the

procedures described in those sections of the APA resemble closely

the procedures a court uses to adjudicate a dispute. Those procedures

are often called formal adjudication.

APA section 554(a) makes the procedures described in sections

554 and 556–558 applicable only to adjudications conducted by an

agency that is required by statute to conduct an adjudication “on the

record after opportunity for agency hearing .” Many statutes do not

contain that language or equivalent indications that the agency is

required to use formal adjudication. Many agency organic Acts

require an age ncy only to conduct a “hearing” in an adjudication

other than an enforcement proceeding. Most statutes require an

agency to use formal adjudication in enforcement proceedings in

which the agency has the power to impose a significant penalty.

Until 1972, many age ncies and courts believ ed that a statutory

requirement that an agency conduct a “hearing” had legal effects

identical to the requirement that an agency act “on the record after

opportunity for an agency hearing.” Thus, courts often concluded that

an agency that is required to conduct a hearing must use the formal

trial-like procedures that courts use and that are described in APA

sections 554 and 556–558. In two opinions handed down in 1972 and

1973, however, the Supreme Court held that “hearing” is am biguous

and that an agency often can satisfy the statutory requirement to

conduct a hearing by using procedures that are much less formal

than those used by a court or those described in APA sections 554,

556–558.

4

Thus, for instance, the Court held that agencies had

complied with the statuto ry requirement to co nduct a hearing when

they allowed interested parties to submit data and views in writing

but did not allow the parties to present oral evidence or to cross-

examine opposing evidence. Those cases were decided in the context

4

United States v. Florida East Coast Ry. Co., 410 U.S. 224 (1973); United

States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742 (1972).

Sec. B

FORMAL ADJUDICATION

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of agency rulemakings, but circuit courts have since applied the

holdings to adjudications.

5

When the applicable agency organic Act does not contain the “on

the record” requirement or other language that explicitly requires an

oral evidentiary hearing, an agency is not required to use formal

adjudication. It is instead free to engage in wh at is often called

informal adjudication. As discussed in detail in section C, an agency

has a great deal of flexibility with respect to its choice of decision-

making procedures when it engages in informal adjudication. The

Supreme Court has held that only APA section 555 applies to an

agency when it engages in informal adjudication.

6

That section is

accurately labeled “Ancillary Matters.” It does not confer any

important rights on participants in informal adjudications.

The organic Act that authorizes the agency to conduct the

adjudication can be the source of procedural requirements in two

ways. First, by including or ex cluding the words “on the record after

opportunity for agency hearing” or other language that explicitly

requires an oral evidentiary hearing, the organic Act determines

whether the agency must use formal adjudication or can instead use

informal adjudication. Second, the organic Act may itself impose

various procedural requirements inde pendent of the proce dures

described in the APA.

In some important classes of agency adjudications, the Due

Process Clause requires an agency to provide some procedural

safeguards. The applicability and effects of the Due Process Clause

are described in detail in section D. In addition, agencies often

require by rule use of procedu res that go well beyond those required

by Due Process or by statutes because agencies themselves place a

high value on both pro cedural fairness and maximizing accuracy in

agency adjudicatory decision-making.

B. Formal Adjudication

When the statute the agency is implementing includes a

provision that requires the agency to conduct adjudications “on the

record after opportunity for agency hearing,”

7

APA sections 554

through 558 apply to the adjudications. Those sections require an

agency to use procedures virtually identical to those used by a trial

court, including (1) notice of legal authority and matters of fact and

law asserted;

8

(2) an oral evidentiary hearing presided ove r by the

5

E.g., Dominion Energy Brayton Point v. Johnson, 443 F.3d 12 (1st Cir. 2006);

Chemical Waste Management v. EPA, 873 F.2d 1477 (D.C. Cir. 1989).

6

Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633 (1990).

7

5 U.S.C. § 554(a).

8

5 U.S.C. § 554(b).