Jarkesy decision also cuts federal agency power. It’s a great decision … if you like litigation

In the continued spirit of knocking down administrative agency power, the U.S. Supreme Court has done it again, and it could make a big difference for providers. 

The land’s highest court recently allowed room for argument that administrative tribunals, like the federal U.S. Department of Health and Human Services Departmental Appeals Board (DAB) for Centers for Medicare & Medicaid Services nursing home federal certification surveys that issue civil monetary penalties, may not allow for the proper adjudication of claims for nursing homes. 

Last month, I reported on the Loper Bright court decision, which eliminated 40 years of substantial deference paid to administrative agency decisions. But now another case has the potential to blow up the entire CMS DAB process for nursing home hearings before the DAB.

On June 27, the day before Loper Bright decision, the Supreme Court, in another 6–3 split in Securities and Exchange Commission v. Jarkesy, held that when the Securities and Exchange Commission alleges a defendant has violated an antifraud provision of the federal securities laws and seeks civil penalties in an administrative proceeding, that the Seventh Amendment of the U.S. Constitution entitles the defendant to a jury trial, and that a proceeding before an administrative tribunal or administrative law judge would essentially violate the Seventh Amendment right to a jury trial.

According to the court, a proceeding that imposes a CMP is akin to a common law remedy that can only be enforced by a court of law, not an administrative tribunal. The court in Jarkesy stated that the imposition of a CMP in that SEC case lacked four fundamental elements required by the Seventh Amendment: (1) the proceeding must be presided over by an independent Article III judge; (2) the jury must find facts; (3) the litigation must be subject to the Federal Rules of Evidence; and (4) discovery must be available by right. 

For CMS DAB cases, the argument would be similar: that the use of an ALJ and DAB procedures administrative proceedings lacks each of the four above elements.

In her dissenting opinion, Justice Sonia Sotomayor stated her dismay with the majority as follows:

“According to the majority, the Constitution requires the Government to seek civil penalties for federal securities fraud before a jury in federal court. The nature of the remedy is, in the majority’s view, virtually dispositive. That is plainly wrong. This Court has held, without exception, that Congress has broad latitude to create statutory obligations that entitle the Government to civil penalties, and then to assign their enforcement outside the regular courts of law where there are no juries.”

Already a handful of cases are pending before the DAB and its ALJ’s, with nursing home providers urging the ALJ’s to dismiss certain certification survey findings and CMPs, and to direct that the proceedings be heard in a federal district court in line with the ruling in Jarkesy.  According to the latest, those cases are stayed pending a decision by the ALJs with regard to the Jarkesy challenges.

Wide-ranging effects

The issue here is a broad one, because Jarkesy could apply not only to SEC securities actions, and not only potentially to CMS surveys as mentioned, but to all administrative actions and similar CMPs imposed by federal administrative agencies across the country.  Thus Jarkesy, like Loper Bright, has the potential to completely disrupt and overturn decades of administrative agency practices at a variety of federal agencies nationwide. Justice Sotomayor expressed her concern about this “seismic shift” in her dissent:

“Less uncertain, however, are the momentous consequences that flow from the majority’s insistence that the Government’s rights to civil penalties must now be tried before a jury in federal court. The majority’s decision, which strikes down the SEC’s in-house adjudication of civil-penalty claims on the ground that such claims are legal in nature and entitle respondents to a federal jury, effects a seismic shift in this Court’s jurisprudence.

Similarly, there are, at the very least, more than two dozen agencies that can impose civil penalties in administrative proceedings.”

Indeed, Justice Sotomayor expresses the true “sea change” that could take place due to the Jarkesy decision by the U.S. Supreme Court majority:

“Unfortunately, that mistaken view means that the constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress. Rather than acknowledge the earthshattering nature of its holding, the majority has tried to disguise it. The majority claims that its ruling is limited to ‘civil penalty suits for fraud’ pursuant to a statute that is ‘barely over a decade old,’ ante, at 18, n. 2, 22, an assurance that is in significant tension with other parts of its reasoning. That incredible assertion should fool no one. Today’s decision is a massive sea change. Litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today, but those of us who cherish the rule of law have nothing to celebrate.”

In other words, be careful what you wish for.  If successful, the current DAB nursing home appeal proceedings under Jarkesy would violate the Seventh Amendment, and then such proceedings would be completely upended, having to take place in federal courts, with discovery and a resulting jury trial instead. 

That can be expensive and take a long time compared to the current fast-paced and extremely streamlined proceedings (as flawed as some may consider them to be) for handling nursing home CMS certification surveys and resulting CMP appeals by nursing homes.  

After all, conducting discovery would include a more concerted litigation approach, complete with depositions (including depositions of surveyors), and the consideration of factual evidence by a jury. That process could take years, not to mention considerable more expense in legal fees and resources of nursing home providers. But also remember that the expense is not only for nursing home providers involved in the litigation, but also the government — CMS and its attorneys. So, the expense and time delay argument goes both ways.

We’ll have to stay tuned to what happens next with the currently pending actions, a decision for which could be expected shortly, possibly within the next few months. Once a DAB ALJ makes a decision, it could have effects on all pending CMS/DAB cases against nursing homes. 

‘Disconcerting trend’

But again, if the decision by the ALJ equates Jarkesy to apply to nursing home certification cases, then nursing homes would presumably have to take their cases to federal District Courts.  And in that case, as one author noted, say goodbye to your friendly Administrative Law Judges, and as they say, it was nice knowing you.  

If the decision by the ALJs in the CMS DAB cases says that the current system of DAB procedures for nursing home certification cases does NOT violate the Seventh Amendment, then proceedings will continue as normal . . . subject to possible appeals by the nursing homes involved.  

In all, both the Loper Bright and Jarkesy decisions show healthcare providers across the country that there is now a seismic change in the world of administrative agency laws thanks to these monumental decisions by the Supreme Court.  Justice Sotomayor perhaps put it best in her dissent:

“Today’s ruling is part of a disconcerting trend: When it comes to the separation of powers, this Court tells the American public and its coordinate branches that it knows best.

Make no mistake: Today’s decision is a power grab.”

And in her most cutting remarks, Justice Sotomayor didn’t mince words explaining Jarkesy and the court’s decision:

“By giving respondents a jury trial, even one that the Constitution does not require, the majority may think that it is protecting liberty. That belief, too, is deeply misguided. The American People should not mistake judicial hubris with the protection of individual rights.”

Neville M. Bilimoria is the Managing Partner of the Chicago Office, Partner in the Health Law Practice Group and member of the Post-Acute Care And Senior Services Subgroup at Duane Morris LLP.

The opinions expressed in McKnight’s Long-Term Care News guest submissions are the author’s and are not necessarily those of McKnight’s Long-Term Care News or its editors.

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