Supreme Court Imposes Substantial Limits on Federal Government’s Enforcement Powers

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In a series of four opinions issued last week, the Supreme Court of the United States has severely limited: (1) the Department of Justice’s ability to prosecute certain offenses; (2) the Securities and Exchange Commission’s (“SEC”) ability to administratively impose civil penalties; and (3) federal agencies’ ability to interpret federal statutes. Together, these four cases dramatically alter the status quo for the federal government and rein in the government’s broad powers in prosecutions and enforcement actions. The exact impact of these rulings remains to be seen as federal courts (“Article III courts”) apply these precedents, but there will certainly be an increase in challenges to governmental overreach and attempts to curtail the government’s efforts to expand its powers beyond what the Constitution and statutory text allow.

In perhaps the most notable case decided this term, Loper Bright Enterprises v. Raimondo, the Supreme Court overturned the so-called “Chevron deference” – a legal principle under which courts were required to defer to the statutory interpretation of a federal agency, assuming that interpretation was reasonable and Congress had not definitely spoken otherwise. The Supreme Court held that the deference afforded by Chevron was “fundamentally misguided” and that it is the duty of Article III courts, not agencies, to interpret federal law and resolve statutory ambiguities. This deference arguably gave the federal government an advantage in prosecutions, enforcement actions, and False Claims Act cases while challengers faced an uphill battle against years of agency rule-making. This decision is sure to have an impact in the highly-regulated healthcare arena to be felt by healthcare agencies like the United States Department of Health and Human Services (“HHS”) and Medicare Administrative Contractors (“MACs”), which will now face increased scrutiny by courts with respect to those agencies’ longstanding (and in many instances, arguably questionable) interpretations of complex federal healthcare laws. This will likely lead to more challenges of administrative rules and guidance and should provide additional avenues of defense for companies and individuals who find themselves litigating against the federal government.

Also last week, in Securities and Exchange Commission v. Jarkesy et al., the Supreme Court held that a civil fraud claim brought by the SEC in front of SEC administrative law judges was akin to a traditional legal action found in common law and that those actions must brought before a jury in an Article III court. Under the Dodd-Frank Act of 2010, the SEC was granted expanded authority to issue civil penalties through administrative proceedings before an administrative law judge who decides both the facts and the law. However, the Supreme Court held that such a proceeding implicates an accused’s Seventh Amendment right to a jury trial “in suits at common law” because the antifraud provision being enforced replicated common law fraud, which would require a jury trial. The Supreme Court also examined whether the “public rights” exception applied, which would allow Congress to grant agencies the power to adjudicate certain issues without a jury trial. The Court held the exception does not apply in this case because the action brought was akin to common law fraud and, therefore, involves matters of private, and not public rights. The Opinion emphasized that civil penalties, being punitive in nature and replicative of common law actions, must be decided by a jury, thus upholding the Seventh Amendment rights of the accused.

Moreover, in two other criminal appeals, the Supreme Court severely limited circumstances in which the government may bring bribery and obstruction of justice charges. First, in Snyder v. United States, the Supreme Court held that criminal charges for obstruction of justice brought pursuant to 18 U.S.C. § 1512(c)(2) only applies to defendants who intended to or actually tampered with physical documents or records used in an official proceeding. The case was one of the hundreds of criminal cases brought by the federal government stemming from the events of January 6, 2021, where the government alleged that some defendants obstructed the official proceeding of certifying election results. However, the Supreme Court narrowed the scope of conduct that would violate the law and limited the statue’s “catchall provision” to more closely track the intent of Congress, which was to avoid another Enron-type scandal. Thus, prosecutors must now show that those charged under the statute at least had a motivation to tamper with documents or records related to an official proceeding.

Finally, in James E. Snyder v. United States, the Supreme Court resolved a circuit split as to whether 18 U.S.C. § 666, which criminalizes the act of bribery by state and local officials, also criminalizes state and local officials accepting gratuities. The Court held that a state or local official does not violate § 666 if the official has taken the official act before any reward is promised or given. Among several reasons articulated by the Supreme Court, the opinion relies heavily on the statutory text, which makes it a crime for state and local officials to “corruptly” accept a payment “intending to be influenced or rewarded” for an official act. The Court also reasoned that the government’s prior approach does not identify clear lines separating innocent and criminal gratuity, which would create traps for unwary state and local officials.

Taken together, these cases show that the current Supreme Court is not afraid to rein in government overreach. The full impact of these cases remains to be seen, but federal courts around the country are likely to set new and interesting precedent that is sure to place appropriate checks and balances on government power.