EDITORIAL NOTE: This article is the fourth installment of an 8-part series exploring the constitutionality of the PTAB under the public rights doctrine. To begin reading from the beginning please see: Patent Review in an Article I Tribunal is Unconstitutional.
Modern public rights jurisprudence of the United States Supreme Court begins with Atlas Roofing, which says that only Article III courts can adjudicate core constitutional rights, preserving only a narrow class of OSHA matters to an administrative agency outside the purview of Article III courts.
The early development of what we know today public rights jurisprudence as it stands today from Stern also initially traces through Raddatz, Northern Pipeline, and Granfinanciera. The key concern being that the public right exception is carefully limited to rights allocated by Congress that derive from government sovereignty or a public purpose, not from private rights designed to be adjudicated in common law in Article III courts. These cases were all discussed previously in The Modern Public Rights Doctrine.
What follows is really best considers part 2 of the Modern Public Right Doctrine, and will bring us up to Stern, a critical case since the make-up of the Court hearing Oil States will be virtually identical. We first begin by consideration of Thomas and Schor.
Thomas (1985) and Schor (1986)
The Court in Thomas ruled that Congress has the power to create a public right to protect public health when it passed FIFRA to empower the FDA to collect data concerning public health and the environment. While FIFRA has aspects of a public right, once again the Court held that participants in the program require consent, that the EPA must apply procedures of due process and that Article III courts must be able to review agency findings.
“Several aspects of FIFRA establish that the arbitration scheme adopted by Congress does not contravene Article III. The right created by FIFRA as to use of a registrant’s data to support a “follow-on” registration is not a purely “private” right, but bears many of the characteristics of a “public” right. Congress has the power, under Article I, to authorize an agency administering a complex regulatory scheme to allocate costs and benefits among voluntary participants in the program without providing an Article III adjudication. The arbitration scheme is necessary as a pragmatic solution to the difficult problem of spreading the costs of generating adequate information regarding the safety, health, and environmental impact of a potentially dangerous product. Additionally, the scheme contains its own sanctions and subjects no unwilling defendant to judicial enforcement power. Given the nature of the right at issue and the concerns motivating Congress, the arbitration system does not threaten the independent role of the judiciary in the constitutional scheme. In the circumstances, the limited Article III review of the arbitration proceeding preserves the appropriate exercise of the judicial function.” (473 U.S. 589 (1985))
The Court refined the analysis of public rights outlined in Northern Pipeline in showing the public rights exceptions.
“Alternatively, appellees contend that FIFRA confers a “private right” to compensation, requiring either Article III adjudication or review by an Article III court sufficient to retain “the essential attributes of the judicial power.” Northern Pipeline Construction Co., supra, at 458 U. S. 77, 458 U. S. 85-86 (plurality opinion). This “private right” argument rests on the distinction between public and private rights drawn by the plurality in Northern Pipeline. The Northern Pipeline plurality construed the Court’s prior opinions to permit only three clearly defined exceptions to the rule of Article III adjudication: military tribunals, territorial courts, and decisions involving “public,” as opposed to “private,” rights. Drawing upon language in Crowell v. Benson, supra, at 285 U. S. 50, the plurality defined “public rights” as ‘matters arising between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.’ 458 U.S. at 458 U. S. 67-68. It identified “private rights” as ‘the liability of one individual to another under the law as defined.'” Id. at 458 U. S. 69-70, quoting Crowell v. Benson, 285 U.S. at 285 U. S. 51. This theory that the public rights/private rights dichotomy of Crowell and Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272 (1856), provides a bright-line test for determining the requirements of Article III did not command a majority of the Court in Northern Pipeline. Insofar as appellees interpret that case and Crowell as establishing that the right to an Article III forum is absolute unless the Federal Government is a party of record, we cannot agree. Cf. Northern Pipeline Construction Co.” (Thomas, 473 U.S. 585-586)
The Thomas Court argues that aspects of FIFRA involve a public right because “[U]se of a registrants’ data . . . serves a public purpose as an integral part of a program safeguarding the public health.” (473 U.S. 589) Consequently, Congress may “authorize an agency administering a complex regulatory scheme to allocate costs and benefits among voluntary participants in the program without providing an Article III adjudication.” (473 U.S. 589)
Following Thomas, Schor delineated the boundaries of executive agency authority to adjudicate a matter between private parties. The Commodity Futures Trading Commission (CFTC) may review claims and counterclaims so long as there is consent or waiver and so long as the agency’s rulings are subject to de novo review in Article III courts. In the sense that consent is required, the executive agency tribunal adjudication is similar to arbitration proceedings. The Schor Court lays out a set of factors that are required in order for an executive agency to maintain legitimacy in adjudicating a matter between private parties under the public rights doctrine.
There are five Schor factors. First, there must be a single dispute. Second, the dispute must lie within a particular area of law. Third, a narrow regulatory scheme is focused on an agency area of expertise. Fourth, the adjudication is held in a tribunal in which the parties freely consent. Finally, Article III courts must enforce the outcome of the ruling.
According to the Roberts majority opinion in Stern, the Schor Court observed five factors enabling the legitimacy of the public rights exception to allow a tribunal to adjudicate a matter:
“(1) the claim and the counterclaim concerned a ‘single dispute’—the same account balance; (2) the CFTC’s assertion of authority involved only ‘a narrow class of common law claims’ in a ‘”particularized area of law”’; (3) the area of law in question was governed by ‘a specific and limited federal regulatory scheme’ as to which the agency had ‘obvious expertise’; (4) the parties had freely elected to resolve their differences before the CFTC; and (5) CFTC orders were ‘enforceable only by order of the district court.’ Id., at 844, 852–855 (quoting Northern Pipeline, 458 U. S., at 85); see 478 U. S., at 843–844; 849–857.” (Stern v. Marshall (564 U.S. 488) (Roberts Opinion))
Regarding the consent component of the analysis, Article III’s “independent federal adjudication is subject to waiver” (Schor 478 U.S. 848) by the parties. Expounding on this issue of consent, the Schor Court stated that “[i]n the instant cases, Schor indisputably waived any right he may have possessed to the full trial of Conti’s counterclaim before an Article III court. Schor expressly demanded that Conti proceed on its counterclaim in the reparations proceeding, rather than before the District Court, see App. 13, 19, and was content to have the entire dispute settled in the forum he had selected until the ALJ ruled against him on all counts . . .” (478 U.S. 849) The Court further observed that “Congress may make available a quasi-judicial mechanism through which willing parties may, at their option, elect to resolve their differences. This is not to say, of course, that if Congress created a phalanx of non-Article III tribunals equipped to handle the entire business of the Article III courts without any Article III supervision . . . the fact that the parties has the election to proceed in their forum of choice would necessarily save the scheme from constitutional attack.” (478 U.S. 855) Referring to a long line of public rights cases, the Schor Court articulated the public rights and private rights distinction.
“We have explained that ‘the public rights doctrine reflects simply a pragmatic understanding that, when Congress selects a quasi-judicial method of resolving matters that “could be conclusively determined by the Executive and Legislative Branches,” the danger of encroaching on the judicial powers’ is less than when private rights, which are normally within the purview of the judiciary, are relegated as an initial matter to administrative adjudication. Thomas, 473 U.S. at 473 U. S. 589 (quoting Northern Pipeline, supra, at 458 U. S. 68). Similarly, the state law character of a claim is significant for purposes of determining the effect that an initial adjudication of those claims by a non-Article III tribunal will have on the separation of powers, for the simple reason that private common law rights were historically the types of matters subject to resolution by Article III courts. See Northern Pipeline, 458 U.S. at 68, n. 458 U. S. 20, 458 U. S. 84; id. at 458 U. S. 90 (REHNQUIST, J., concurring in judgment). The risk that Congress may improperly have encroached on the federal judiciary is obviously magnified when Congress ‘withdraw[s] from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty,’ and which therefore has traditionally been tried in Article III courts, and allocates the decision of those matters to a non-Article III forum of its own creation. Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 59 U. S. 284 (1856). Accordingly, where private, common law rights are at stake, our examination of the congressional attempt to control the manner in which those rights are adjudicated has been searching.” (478 U.S. 853-854)
Both Thomas and Schor, authored by Justice O’Connor, provided more authority to executive agencies or tribunals to adjudicate matters under the public rights doctrine, including matters that involve private rights, but within the parameters of consent, due process and Article III court (de novo) review.
Stern v. Marshall is one of those rare antagonistic melodramatic cases that both ends up in the Supreme Court and which elicits a split within members of the Court on issues involving the separation of powers. Like Northern Pipeline and Granfinanciera, Stern involves a dispute in the bankruptcy courts. The majority opinion, authored by Chief Justice Roberts, held that, following Granfinanciera, the sanctity of independent Article III courts require that private rights are not adjudicated in a legislative tribunal. Common law disputes between private parties, following the line of public rights cases from Murray’s Lessee to the present, must be adjudicated in Article III courts. The public rights exception is not satisfied in disputes involving private rights between private parties.
The Stern Court clarified the critical need for an independent judiciary.
“Article III protects liberty not only through its role in implementing the separation of powers, but also by specifying the defining characteristics of Article III judges. The colonists had been subjected to judicial abuses at the hand of the Crown, and the Framers knew the main reasons why: because the King of Great Britain ‘made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.’ The Declaration of Independence ¶11. The Framers undertook in Article III to protect citizens subject to the judicial power of the new Federal Government from a repeat of those abuses. By appointing judges to serve without term limits, and restricting the ability of the other branches to remove judges or diminish their salaries, the Framers sought to ensure that each judicial decision would be rendered, not with an eye toward currying favor with Congress or the Executive, but rather with the ‘[c]lear heads … and honest hearts’ deemed ‘essential to good judges.’” (564 U.S. 462, 479 (2011))
This sanctity of an independent judiciary is united with the private matters that are adjudicated between private parties in the judicial forum. The judiciary has historically been the essential forum for adjudication of private disputes.
“Article III could neither serve its purpose in the system of checks and balances nor preserve the integrity of judicial decisionmaking if the other branches of the Federal Government could confer the Government’s ‘judicial Power’ on entities outside Article III. That is why we have long recognized that, in general, Congress may not ‘withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.’ Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 284 (1856). When a suit is made of ‘the stuff of the traditional actions at common law tried by the courts at Westminster in 1789,’ Northern Pipeline, 458 U. S., at 90 (Rehnquist, J., concurring in judgment), and is brought within the bounds of federal jurisdiction, the responsibility for deciding that suit rests with Article III judges in Article III courts. The Constitution assigns that job—resolution of ‘the mundane as well as the glamorous, matters of common law and statute as well as constitutional law, issues of fact as well as issues of law’—to the Judiciary.” (564 U.S. 480)
The Stern court analyzed the public rights exception jurisprudence to consider cases “arising ‘between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments’” (564 U.S. ) in contrast to matters involving private rights (citing Crowell and Atlas Roofing). The distinction between the public rights and the private rights jurisprudence is further clarified.
“Shortly after Northern Pipeline, the Court rejected the limitation of the public rights exception to actions involving the Government as a party. The Court has continued, however, to limit the exception to cases in which the claim at issue derives from a federal regulatory scheme, or in which resolution of the claim by an expert government agency is deemed essential to a limited regulatory objective within the agency’s authority. In other words, it is still the case that what makes a right ‘public’ rather than private is that the right is integrally related to particular federal government action.” (564 U.S. 486)
Citing Granfinanciera, the Stern Court reiterates that “if a statutory right is not closely intertwined with a federal regulatory program Congress has power to enact, and if that right neither belongs to nor exists against the Federal Government, then it must be adjudicated by an Article III court.” (564 U.S. 488, citing Granfinanciera, 492 U.S. 54-55) Analyzing the dispute between the parties in Stern as clearly a private dispute between two private parties, the Stern Court showed that a “’right to relief does not flow from a federal statutory scheme’ (as in Thomas . . . or Atlas Roofing) . . . nor does it involve a ‘claim created by federal law’ (as in Schor)”. The Court concludes:
“What is plain here is that this case involves the most prototypical exercise of judicial power: the entry of a final, binding judgment by a court with broad substantive jurisdiction, on a common law cause of action, when the action neither derives from nor depends upon any agency regulatory regime. If such an exercise of judicial power may nonetheless be taken from the Article III Judiciary simply by deeming it part of some amorphous “public right,” then Article III would be transformed from the guardian of individual liberty and separation of powers we have long recognized into mere wishful thinking.” (564 U.S. 491)
Whereas the majority opinion in the five to four decision preserved the priority of independent Article III courts, the minority opinion referred back to Thomas and Schor for a liberal reading of the public rights doctrine. The minority would have allowed a public rights exception to enable the bankruptcy court to render a ruling based on its fact-finding capabilities. Nevertheless, the minority would allow a public rights deference of Article I tribunals only within the constraints of Schor, which established a requirement of consent of the parties, due process of the proceedings and reviewability of the ruling in an Article III court.
Accordingly, the minority view outlines the Schor factors:
“In doing so, the Court expressly ‘declined to adopt formalistic and unbending rules.’ Schor, 478 U. S., at 851. Rather, it ‘weighed a number of factors, none of which has been deemed determinative, with an eye to the practical effect that the congressional action will have on the constitutionally assigned role of the federal judiciary.’ Ibid. Those relevant factors include (1) ‘the origins and importance of the right to be adjudicated’; (2) ‘the extent to which the non-Article III forum exercises the range of jurisdiction and powers normally vested only in Article III courts’; (3) the extent to which the delegation nonetheless reserves judicial power for exercise by Article III courts; (4) the presence or ‘absence of consent to an initial adjudication before a non-Article III tribunal’; and (5) ‘the concerns that drove Congress to depart from’ adjudication in an Article III court. Id., at 849, 851.” (564 U.S. 462, 510) (Breyer opinion)
[Note the difference of interpretation between Breyer’s view of the Schor factors from Roberts’ majority opinion interpretation at 564 U.S. 488.]
The dissent then delineates the adherence of the matter to the Schor factors, placing considerable weight to consent of the parties and the role of Article III courts to be involved in the outcome of a matter. Since it follows Thomas and Schor, the dissent’s view has set a minimum bar for satisfaction of the public rights exception test, which includes consent and a role for Article III courts, particularly in matters that involve private rights and disputes between private parties.
Despite the dissent’s strict adherence to Schor standards, there appears to be a consistent pattern of public rights cases from Murray’s Lessee to Stern. Congress may establish a public right, separate from actions that affect the federal government, that involves an action related to protection of the public, such as health or welfare, and may establish an executive tribunal in which to adjudicate these rights. An Article I tribunal may adjudicate these public rights, primarily by advancing a fact-finding role, but within the constraints of consent, due process and review by an Article III court. On the other hand, private rights or rights involving matters between private parties that have been adjudicated in common law in Article III courts will continue to be resolved only in the federal courts. A right to a jury to hear facts in federal courts will be maintained in those disputes between private rights involving private parties.
TO BE CONTINUED… Up next is discussion of the Supreme Court’s decision in McCormick and the separation of powers constraint on patent invalidation.
Other series articles:
- Patent Review in an Article I Tribunal Under the Public Rights Doctrine (Tues. 10/3)
- The Classical Public Rights Doctrine: Growth of the Administrative State (Thurs. 10/5)
- The Modern Public Rights Doctrine (Tues. 10/10)
- Separation of Powers Constraints on Patent Invalidation (Tues. 10/17)
- PTAB Procedures for IPR Fail to Satisfy the Tests for Due Process (Thurs. 10/19)
- IPRs Unduly Harm Patent Holders and Benefit Big Tech Infringers (Tues. 10/24)
- AIA and PTAB Unconstitutional Under the Public Rights Doctrine (Thurs. 10/26)