Understanding What the Loper Bright and Jarkesy Regulatory Earthquake Means for Gun Owners

As Dan posted yesterday, the Supreme Court has decided Loper Bright v. Raimondo, and in so doing has officially overruled and destroyed the doctrine of Chevron deference. Under Chevron, federal courts were severely handcuffed when evaluating federal agencies’ interpretations of federal law. Loper Bright followed the Court’s decision the day before in SEC v. Jarkesy, which similarly nuked the Securities Exchange Commission’s power to serve as enforcer, prosecutor, judge, jury, and executioner in administrative proceedings for violating the securities laws. The Court found that the defendants are entitled to a jury trial before an Article III judge.

To non-lawyers, this may seem like very dry legal mumbo-jumbo. But the reality is that these two decision are a huge legal earthquake that will rock D.C. and could likely turn it inside out. 

The nature of the modern American administrative state, in which much of the economy and our daily lives are governed by federal regulations created and enforced by unelected and often unaccountable bureaucrats, exists largely because Chevron deference required courts to defer to the bureaucrats’ interpretations of the laws. The agencies were also allowed to operate their own legal fiefdoms to adjudicate alleged violations of the regulations they created.  

Drunk with such essentially unchecked power, the federal bureaucracy has continually and progressively extended its reach into virtually every corner of Americans’ lives, particularly in areas such as education and environmental regulations where activists have taken up residency in the agencies in order to further their agendas.

In 2014, noted legal scholar and Columbia Law School Professor Phillip Hamburger published Is Administrative Law Unlawful, a hugely influential book in which he persuasively argued that the modern American administrative state simply could not be justified under the Constitution or democratic mores. 

As he later wrote . . .

We thus live in a strange republic. It is a republic in which most law is bureaucratically commanded from above rather than made by our elected representatives, and in which the judges brazenly refuse to say what the law is.

Unfortunately, it gets worse, as administrative power is not a stationary object. On the contrary, it is an evolving threat. Administrative power is best understood as a cascade of evasions. It begins by evading the Constitution’s avenues for legislative and judicial power; then it evades relatively formal administrative processes; then it circumvents even the less formal ones. Like water, it flows down ever lower channels until it reaches the gutter.

What do I mean by this? The cutting edge of administrative power nowadays is not administrative rulemaking. (That is so . . . 20th century.) Rather, the cutting edge of administrative power is sub-administrative pressure and inducement, which is used to secure illicit regulation. When government can’t regulate by statute because of political obstacles, it adopts administrative rules, and when it can’t get administrative rules because of constitutional concerns, it turns to sub-administrative mechanisms to impose what it otherwise could not.

The sub-administrative tools include the threat of regulatory hassle (such as repeated inspections), the threat of denying a license (even on political grounds), and third-party boycotts (most notoriously, Operation Choke Point, which pressured banks to deny financial services to payday lenders and other lawful but disfavored businesses). In addition to such administrative extortion, sub-administrative power includes less obviously coercive mechanisms — unlawful deals, for example, and informal conditions on funding. By such means, there is little that agencies cannot demand.

The administrative state has thereby become much worse than it was in the late 20th century. We once had the rule of law; then the administrative state gave us a pale substitute in the rule of rules; and now we have sub-administrative power, which descends to raw power. Most disturbingly, this is how government imposes censorship.

Just as seminal articles of Don Kates and Sanford Levinson triggered an avalanche of Second Amendment legal scholarship in the 1990’s that ultimately led to the Heller, MacDonald, and finally Bruen decisions, Hamburger’s work led many on the bench, in the bar, and legal academia to begin reexamining very fundamental questions about the modern American administrative state. More importantly, Hamburger also founded the New Civil Liberties Alliance, a think tank which developed and implemented a long-term game plan for attacking the foundations of the modern American administrative state through targeted test cases. The NCLA was also heavily involved in Cargill v. Garland, which successfully overturned the ATF’s ban on bump stocks.

After years of very hard work, the Supreme Court’s decisions this week in Jarkesy and Loper Bright have knocked out two key pillars of the vast administrative state.

In Jarkesy, the SEC tried to punish George Jarkesy and his company for engaging in what the SEC considered to be securities fraud. While the SEC could have referred the matter to the Department of Justice for a criminal indictment and prosecution or filed a civil lawsuit against them, instead the agency opted to proceed under its own administrative law process.   

Unlike a civil or criminal action in a federal court where Jarkesy would have been entitled to a jury and an impartial Article III judge, the SEC’s administrative proceeding involve SEC employees as prosecutors, adjudicators, and appellate reviewers.  They also aren’t bound by things like the federal rules of evidence and can instead rely on evidence that wouldn’t be admissible in court.  

SCOTUS just overturned Chevron deference, GUTTING the three-letter agencies. This is going to affect every area of our lives 🚨https://t.co/q3EJEXmu06

— Not the Bee (@Not_the_Bee) June 28, 2024

Judicial review is available only after the entire administrative process has run its course, and even then the reviewing court is obliged to defer to the agency’s findings of fact if there’s support for them in the record. Not surprisingly, the SEC prevails in virtually all of these administrative proceedings.

After the SEC imposed a $300,000 fine and other penalties, Jarkesy and his company sought judicial review, arguing that they were entitled under the Seventh Amendment to a trial by jury before an Article III judge. Jarkesy was supported in his efforts by the NCLA.)  

Finding for Jarkesy, the United States Court of Appeals for the Fifth Circuit held that because the SEC’s claims were akin to a traditional civil action, the Seventh Amendment applied. Because Jarkesy wasn’t given his Seventh Amendment rights, the sanctions against him were vacated.

The SEC then appealed the case to the Supreme Court. In this week’s 6-3 decision written by Chief Justice Roberts, the Court held that an action to impose a fine for securities fraud was sufficiently close to common law tort claims, and thus the Seventh Amendment should have applied . . . 

In sum, the civil penalties in this case are designed to punish and deter, not to compensate. They are therefore “a type of remedy at common law that could only be enforced in courts of law.” That conclusion effectively decides that this suit implicates the Seventh Amendment right, and that a defendant would be entitled to a jury on these claims.

Concurring, Justices Gorsuch and Thomas also noted that the Due Process clause of the Fifth Amendment and the requirements of Article III (which sets the requirements of federal judges) also applied and rendered the SEC’s internal procedures inadequate.

In her dissent, Justice Sotomayor (joined by Justices Kagen and Jackson) erupted in a primal scream in defense of the bureaucracy, essentially arguing that because the use of internal administrative procedures has become so widespread, it simply can’t be discontinued . . .

Against this backdrop, our coequal branches will be surprised to learn that the rule they thought long settled, and which remained unchallenged for half a century, is one that, according to the majority and the concurrence, my dissent just announced today. 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.

(My response to Justice Sotomayor’s last sentence: Good!)

In Loper Bright, federal law (specifically, the Magnuson-Stevens Fishery Conservation and Management Act) created various fishery management practices which are administered by the National Marine Fisheries Service.   At issue was a regulation imposed by the Service that required fishing vessels in certain fisheries to pay for a government-approved at-sea observer on their boat — at a cost of up to $710 per day — to ensure compliance with regulations. 

The plaintiffs, backed by the NCLA, challenged the regulation as not being authorized by the MSA. The lower courts concluded that Chevron required them to defer to the agency’s interpretation of the MSA, and thus ruled against the plaintiffs. This set up a test case whereby the Supreme Court could, if is wanted, reconsider Chevron, as Justices Thomas and Kavanaugh have long indicated was necessary.

The specific issue was whether Chervon should be overruled. Yesterday’s opinion makes for pretty dry reading, even for attorneys, but suffice it to say that a six-justice majority flatly overruled Chevron as being inconsistent with the constitutional requirements of Article III courts and the requirements under the Administrative Procedures Act that courts review agency rules de novo.  

Justice Kagan dissented, joined by Justices Sotomayor and Jackson. Kagan largely reprised Justice Sotomayor’s primal scream in Jarkesy, lamenting the demise of Chevron and the fact that “expert” bureaucrats, rather than legislators or judges, will no longer determine what the law is.  

What will all this mean for the firearms community? It means ATF won’t be able to create stricter limits on gun rights through rulemaking that would never get through Congress.

For starters, courts will no longer be handcuffed in evaluating the propriety of ATF’s ever-shifting regulations and interpretations of the law on things like pistol braces or “frame or receiver” definitions. Such regulations will now have to be reviewed de novo…without worrying about how ATF or courts have ruled in the past. And as ATF’s recent track record proves, the agency’s elastic and often contradictory interpretations of the law are unlikely to engender much support.  

Similarly, I can see challenges to things like the Biden administration’s recent ban on the importation of UTM siminutions for sale to non-military or law enforcement customers as being based on nothing more than animus toward the civilian firearms community…especially if such challenges are brought in venues where judges aren’t particularly sympathetic to the ATF’s regulatory record.  

And, of course, there’s ATF’s practice of seeking to fine FFL’s through its own internal administrative proceedings for alleged violations of ATF rules would now seem to be barred under Jarkesy. ATF will be required to file a civil lawsuit or a criminal indictment…which I suspect it will be far less likely to do.  

What of ATF’s current jihad against FFLs, in which it seeks to terminate federal licenses based on even the slightest technical mistakes? That could be a tougher call, as the issuance of licenses may fall under the “public rights” aspect of the law that doesn’t implicate the Seventh Amendment. We’ll have to see how the post-Jarkesy case law shakes out.

In a post-Jarkesy communication with Prof. Hamburger, he told me that he expects the feds will try to take a very narrow view of the Court’s opinions, and more fights will undoubtedly be needed. Fortunately, the NCLA has already set up a “Relentless Working Group” which is tasked with monitoring and identifying agencies that are resisting the Supreme Court’s holdings, and they’ll bring test cases where appropriate. The administrative state is down, but it’s by no means out.

In the meantime, let’s all raise a glass to Professor Hamburger, who has severely wounded the regulatory Leviathan. And maybe we should celebrate June 28 going forward as “Phillip Hamburger Day.”