Damages and Arbitration Provisions in Proposed Amendments to the Fair Housing Act
C ertain proposed am endm ents to the Fair Housing Act would provide that parties may voluntar ily subm it their dispute to an arbitrator empowered to im pose compensatory and punitive dam ages (as opposed to equitable relief or restitution). These amendments would be permis sible under the Seventh Amendment because they amount to a waiver o f a right, that would otherw ise obtain, to a jury trial on com pensatory and punitive damages. The amendments also com port with the strictures of A rticle III. The Supreme Court has held that Article III strictures cannot be waived, but the Court also has found that purely voluntary procedures severely m inim ize any Article III concerns.
O ther aspects o f the proposed am endm ents to the Fair Housing Act, which authorize mandatory proceedings before an arbitrator o r adm inistrative law judge with the power to award compen satory and punitive damages, w ould likely not survive scrutiny under the Seventh Amend m ent and A rticle III. The cause o f action created by the Fair Housing Act appears to be derived from a com m on law action that is historically within the exclusive preserve of Article III courts operating with a jury. Furtherm ore, the right at issue is private in nature, in that it is intended to determ ine the liability o f one individual to another. In addition, the housing m arket is not a specialized area o f adm inistrative regulation by the Federal Government. Finally, the Fair Housing Act setting does not seem to involve an imperative necessity for Congress to choose an administrative remedy, as demonstrated by the fact that judicial proceedings would remain available to plaintiffs and there w ould be only minimal differences in the relief available in the adm inistrative and judicial forum s. Under the Supreme C ourt’s adm ittedly confusing and inconsistent precedents, these factors suggest that the proposed m andatory adm inistrative proceedings would not comport with Article III or the Seventh A m endm ent.
June 8, 1987
M e m o r a n d u m O pin io n f o r t h e A s s is t a n t A t t o r n e y G e n e r a l , C iv i l R ig h t s D iv isio n
This responds to your request for our opinion on the Seventh Amendment issues raised by the use of civil penalties and punitive damages in proposed amendments to the Fair Housing Act, 42 U.S.C. §§ 3602-3631. The Civil Rights Division has drafted a bill entitled “Fair Housing Amendments Act of 1987” (draft bill), while the Senate is considering S. 558. The draft bill and S. 558 raise three questions. First, may an arbitrator award anything other than equitable relief in a voluntary arbitration proceeding? Second, is the defendant in a civil action entitled to a jury trial on the issue of liability for civil penalties? Third, may an arbitrator or an administrative law judge award compensatory damages, punitive damages, or civil penalties in an administrative proceeding? 50 I. Analysis
A. Punitive Damages in Voluntary Arbitration
The first question is whether an arbitrator may award damages in a voluntary proceeding under § 812 of the draft bill. The bill would permit the parties to agree to voluntary arbitration that would be binding on the parties. § 812(a)(2).1 There is certainly no impediment to the arbitrator in such a voluntary proceed ing imposing the equitable relief now outlined in the draft bill: a permanent or temporary injunction and restitution. Nor do we believe that the Seventh Amendment precludes the parties from agreeing voluntarily to submit their dispute to an arbitrator who could impose punitive damages. In these circum stances, both parties will have waived any Seventh Amendment rights that would otherwise obtain. The question whether this proceeding is consistent with Article III of the Constitution is somewhat more problematic. The voluntary participation of private litigants in a proceeding outside the confines of the federal judiciary does not ipso facto insulate it from Article III attack. Commodities Futures Trading Comm’n v. Schor, 478 U.S. 833, 851-54 (1986). The Court in Schor emphasized that the strictures of Article III (unlike the protection of Seventh Amendment) cannot be waived by the consent of the parties. Id. For the reasons discussed more fully below, however, we believe that the arbitration proceed ing contemplated in § 812 of the draft bill would survive Article III scrutiny because a very similar administrative scheme was upheld in Schor primarily because of its voluntary nature. Id. at 856-57.
B. Jury Trial in a Civil Action
On the issue of liability for punitive damages, we believe that the Seventh Amendment entitles the defendant to a jury trial in a civil action under either § 814(c) of the draft bill or § 813 of S. 558. The Supreme Court has held that suits by the Government to recover civil penalties are analogous to a common law action in debt, an action covered by the Seventh Amendment’s requirement of a jury trial. Tull v. United States, 481 U.S. 412, 420-23 (1987). Therefore, the defendant in an action to recover a civil penalty under the Clean Water Act, 33 U.S.C. § 1319(d), is entitled to a jury trial. The Court distinguished between actions at law, which are covered by the Seventh Amendment, and actions in equity, which are not.2 Tull, 481 U.S. at 416. Noting that civil penalties were punitive in nature, and were intended to do more than make the offender disgorge unlawful profits, the Court in Tull observed: 1 Section 812(a)(4), although incom plete, supports o ur assum ption that the hearing w ill be conducted according to rules that provide for presentation o f witnesses and evidence so as to satisfy any due process concerns. 2 A ctions at equity include tem porary and perm anent injunctions and orders, such as reparations, that restore the status quo.
51 A civil penalty was a type of remedy at common law that could only be enforced in courts of law. Remedies intended to punish culpable individuals, as opposed to those intended simply to extract compensation or restore the status quo, were issued by courts of law, not courts of equity.
Id. at 422. The Court analyzed the legislative history of the Clean Water Act’s penalty provision and determined that it was intended to punish offenders and therefore reflected “more than a concern to provide equitable relief.” Id. “Congress wanted the district court to consider the need for retribution and deterrence, in addition to restitution, when it imposed civil penalties.” Id. Tull therefore stands for the proposition that civil penalties that are designed to punish are actions at law that must be tried to a jury under the Seventh Amendment. See also Curtis v. Loether, 415 U.S. 189, 194 (1974). The determination in a civil action of liability for “punitive damages” thus requires a trial by jury. Punitive damages are designed to punish and were, not surpris ingly, identified by the Court as another kind of action at law that requires a jury trial. Tull, 481 U.S. at 422 n.7. Therefore, a defendant in an action brought under § 814(c) of the draft bill or § 813 of S. 558 would be entitled to a jury trial. Moreover, even if civil penalties or punitive damages were not available, a jury trial would still be required so long as a private litigant could recover actual, compensatory damages. The Court in Curtis, noting that “[a] damages action sounds basically in tort,” held that a suit by an aggrieved person to collect damages under § 812 of the Fair Housing Act required a trial by jury. 415 U.S. at 194-95.
C. Seventh Amendment and Article III: Permissibility o f Mandatory Arbitration
Having concluded that an action for compensatory or punitive damages would require a jury trial in an Article III court, we turn to the most difficult question posed by the draft bill and S. 558: whether providing precisely the same cause of action in an administrative tribunal where no jury is available can survive constitutional scrutiny under the Seventh Amendment and Article III.
1. Case Law
The Supreme Court has held that the Seventh Amendment does not prohibit Congress from assigning adjudication of certain statutory rights to an adminis trative forum, even if a jury would have been required under the Seventh Amendment had Congress assigned adjudication of the same rights to a federal court: A tlas Roofing Co. v. Occupational Safety & Health Comm’n, 430 U.S. 442,450(1977): 52 At least in cases in which “public rights” are being litigated — e.g., cases in which the Government sues in its sovereign capac ity to enforce public rights created by statutes within the power of Congress to enact — the Seventh Amendment does not prohibit Congress from assigning the factfinding function and initial adjudication to an administrative forum with which the jury would be incompatible. See also Tull, 481 U.S. at 418 n.4; NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937); Block v. Hirsh, 256 U.S. 135 (1921). The Court made clear, however, that actions involving “private rights” as distinguished from “public rights” could not be transferred to administrative proceedings: Our prior cases support administrative factfinding in only those situations involving “public rights,” e.g., where the Government is involved in its sovereign capacity under an otherwise valid statute creating enforceable public rights. Wholly private tort, contract, and property cases, as well as a vast range of other cases are not at all implicated. Atlas Roofing, 430 U.S. at 458.3 The problem is that the Court has never stated with any clarity what distin guishes a public right from a private right.4 “The distinction between public rights and private rights has not been definitively explained in [the Court’s] precedents.” Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50,69 (1982) (plurality opinion). But while the Court’s application of the public rights doctrine has not been particularly consistent or coherent, the conceptual underpinnings of this theory are reasonably discernible. Essentially, the public rights doctrine reflects the Court’s recognition that the nature and historical backdrop of the federal right at issue are quite significant in determining whether congressional substitution of alternative tribunals for Article III courts impermissibly encroaches on the independence and authority of the federal judiciary. At one end of the spectrum, the Court has sought to prevent Congress from usurping the constitutional prerogatives of courts and, in some circumstances, juries, by removing from Article III tribu
3 Tull does not diverge from this line o f cases. In a footnote, the majority stated: The Court has also considered the practical lim itations o f a ju ry trial and its functional com pat ibility with proceedings outside o f traditional courts o f law in holding that the Seventh Amend ment is not applicable to adm inistrative proceedings. But the C ourt has not used these consider ations as an independent basis for extending the right to a ju ry trial under the Seventh Amendment. 481 U.S. at 418 n.4 (citing Atlas Roofing and Pem ell v. Southall Realty , 416 U .S. 363 (1974)). We are not certain what these tw o sentences m ean. At a m inim um , how ever, they indicate that Tull is not m eant to signal a reexam ination o f the principles underlying Atlas Roofing. 4 We believe the public rights d octrine is prim arily based on A rticle III principles and thus w ill discuss this issue principally in those terms. The conclusion that a right is “ public” for A rticle III purposes would seem to subsume any Seventh Amendm ent objections on this basis. Cf. Atlas Roofing , 430 U.S. a t 456; Northern Pipeline , 458 U.S. at 67 n.18. In any event, in analyzing the public rights doctrine, the C ourt has treated the constraints o f the Seventh Amendm ent and A rticle III as virtually coextensive, discussing and citing S eventh A mendment and A rticle III cases interchangeably.
53 nals matters which the Constitution’s text, structure and history suggest are theirs to resolve. At the other end of the spectrum, the Court has perceived no plausible threat to an independent judiciary or trial by jury from non-Article III resolution of matters that are committed by the Constitution or historical consensus to political branches, and which thus “could have been determined exclusively” by the executive and legislative branches absent any judicial review save that required by the Due Process Clause.5 Northern Pipeline, 458 U.S. at 68 (plurality opinion) (citing Crowell v. Benson, 285 U.S. 22 (1932)). In short, the dividing line that has emerged from the Court’s precedent is that cases which are “inherently . .. judicial,” Ex parte Bakelite Corp., 279 U.S. 438, 458 (1929), because they involve traditional rights governing “the liability of one individual to another,” Crowell, 285 U.S. at 51, may not be removed from adjudication in the federal courts absent extraordinary circumstances, while those involving disputes “between the government and others” may permissibly be committed to agency adjudication. Ex parte Bakelite Corp., 279 5 T his and sim ilar phrases, often repeated but rarely explained by the Court, apparently refer to those m atters that the political branches co u ld have disposed o f in a sum m ary fashion before the evolution o f m odern substantive and procedural d ue process theories. T h is would include those areas where the text of the C onstitution grants plenary authority to one o f the political branches — such as immigration or taxation — and d isputes concerning the removal o f “privileges” such as G overnm ent financial assistance, rather than “rig h ts” as traditionally understood. “ The understanding o f these cases is that the Framers expected that C ongress w ould be free to commit such m atters com pletely to non>judicial executive determ ination, and that as a result there can be no constitutional objection to C ongress' em ploying the less drastic expedient of com m itting th eir determ ination to a legislative court o r an adm inistrative agency.” Northern Pipeline , 458 U .S. at 68 (plurality opinion). See also Crowell v. Benson , 285 U.S. at 50, Thomas v. Union Carbide Agric. Prod. Co., 473 U .S. 568, 596-97 n .l (1985) (Brennan, J., concurring). M oreover, “ [t]his doctnne may be explained in part by reference to the traditional principle o f sovereign immunity, w hich recognizes that the G overnm ent may attach conditions to its consent to be sued ” Northern Pipeline, 458 U.S. at 67. See also M urray's Lessee v. Hoboken Land & Improvement Co., 59 U.S. (18 How.) 272, 283-85 (1856); Ex parte Bakelite Corp., 279 U.S. 4 3 8 ,4 5 2 (1929). In other words, the original A rticle III cases seem to be premised on concepts akin to the “bitter with th e sw eet” theory o f procedural due process and the “right/privilege” distinction. See Arnett v. Kennedy, 4 1 6 U.S. 134 (1974); Bailey v. Richardson, 182 F.2d 46 (1950), a f f d, 341 U .S. 918 (1951). That is, the G overnm ent could condition suit against itself on the p la in tiffs w aiver of any rig h t to choose a forum or a jury trial, and in connection with exercising plenary grants o f authority or lim iting financial benefits, the political branches were fully free to dispose o f governm ent-created entitle m ents w ithout providing any means o f contesting such sum m ary action. O f course, as a d ue process matter, subsequent case law has underm ined these conceptual underpinnings. It is now clear that there is a property interest in G overnm ent entitlem ents, a substantive due process right a g ain st arbitrary o r capricious governm ent practices, and a prohibition against conditioning the extension of G overnm ent benefits on the waiver o f constitutional rights. See, e.g., Goldberg v. Kelly, 397 U.S. 254 (1970); Cleveland Bd . o f Educ. v. Loudermill, 470 U .S. 532 (1985); Speiser v. Randall, 357 U.S. 513 (1958). N evertheless, fo r A rticle III purposes, w e believe these concepts help to describe w hat is meant by matters w hich “could be conclusively determ ined” by the executive and legislative branches. The notion is that traditional, private state law claims antedating the newly created federal statutory rights are the type that should rem ain w ithin the province o f A rticle III courts. T hese rights do not exist solely by virtue o f the federal statu to ry schem e, do not involve disputes betw een a private individual and the G overnm ent qua G overnment, and d o not co ncern alleged deprivations caused by the G overnm ent's adm inistration o f its own regulatory or financial assistance schem es. A ccordingly, even under a “consent to suit” or “bitter with the sweet” theory, such m atters w ould not be subject to sum m ary disposition by the political branches because they involve traditional d isputes solely between private individuals and w ould thus fall outside the rationale supporting the e arlie r Article III cases. Again, the ris e o f m odem due process theory should not affect the A rticle III analysis. T hat recent due process cases create checks against the G overnm ent's pow er to engage in summary disposition o f certain m atters does not provide a rationale supporting the non-A rticle III adjudication of m atters not previously subject to sum m ary disposition.
54 U.S. at 451. Although the Court has not comprehensively or even consistently defined this concededly abstract line of demarcation, it has identified the factors that tend to differentiate public from private rights. Probably the most important factor in defining the nature of the federal right presented is the historical underpinnings of the right. If the claim at issue is analogous to “the stuff of the traditional actions at common law tried by the courts at Westminster in 1789,” there is at least a strong presumption that it must be resolved by an Article III court. Northern Pipeline , 458 U.S. at 90 (Rehnquist, J., concurring). Although the Northern Pipeline plurality and some earlier cases seem to hold that 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, Northern Pipeline, 458 U.S. at 67 (plurality opinion) (quoting M urray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. (18 How.) 272, 284 (1856)), the Court’s recent decisions seem ingly conclude that the traditional common law attributes of a claim do not, standing alone, prohibit such a withdrawal. Nevertheless, even these recent decisions have emphasized that such traditional legal and equitable causes of action are at the “protected core” of Article III judicial powers. Thomas v. Union Carbide Agric. Prod. Co., 473 U.S. 568,587 (1985). See also Schor, 478 U.S. at 853. As the Court put it in Schor, “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.” Id. at 854.6 Accordingly, if Congress creates a statutory cause of action, the roots of which can fairly be traced to a traditional legal or equitable claim, there is a heavy, albeit rebuttable, presumption that the claim may not be delegated to administrative adjudication.7 Conversely, “matters arising ‘between the Government and persons subject to its authority in connection with the performance of the constitutional func tions of the executive or legislative departments,’ [and] matters that histori cally could have been determined exclusively by those departments” are clearly
6 The Court has em phasized that the historical antecedents o f a particular right, not an objective evaluation o f w hether it is o f the sort that should be resolved by the judiciary, are param ount in public rights analysis. As the plurality noted in Northern Pipeline : Doubtless it could be argued that the need for independent ju dicial determ ination is greatest in cases arising betw een the G overnm ent and an individual. But the rationale for the public-rights line o f cases lies not in political theory, but rather in C ongress' and this C o u rt's understanding o f what pow er w as reserved to the Judiciary by the C onstitution as a m atter o f historical fact. 458 U.S. at 68 n.20, cited in Schor, 478 U.S. at 854. 7The public rights analysis obtains with respect to “new " rights created by congressional statutes, as well as to non-A rticle III adjudication o f common law claims not em bodied in a congressional statute. See Curtis v. Loether , 415 U.S. 189, 193 (1974) (“We have considered the applicability o f the constitutional right to jury trial in actions enforcing statutory rights ‘as a m atter too obvious to be doubted.’” ). See also Tull, 481 U.S at 420; Pemell v. Southall Realty, 416 U.S. 363, 375 (1974). Indeed, a contrary conclusion would make nonsense o f the C o u rt's em phasis on the historical lineage o f the right and would essentially eviscerate the protection of A rticle III and the Seventh A m endment, because C ongress always m akes law by em bodying “new " rights in a statute.
55 public rights. Northern Pipeline, 458 U.S. at 67-68 (plurality opinion) (quoting Crowell, 285 U.S. at 50). See also Schor, 478 U.S. at 853-54 (“when Congress selects a quasi-judicial method of resolving matters that ‘could be conclusively determined by the Executive and Legislative Branches,’ the danger of en croaching 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 589; Ex parte Bakelite Corp., 279 U.S. at 458; Oceanic Steam Navigation Co. v. Stranahan, 214 U.S. 320, 339 (1909). The Court has thus concluded that disputes involving newly created rights unknown to the common law or matters that, as an historical matter, “could be conclusively determined by the Executive and Legislative Branches,” may be adjudicated by non-Article III forums. Thomas, 473 U.S. at 589 (quoting Northern Pipeline, 458 U.S. at 68 (plurality opinion)). In such circumstances, the dispute is not over the scope of the federal statutory duty X owes to Y, but the scope of the Government’s authority in administering its own programs; it is thus a dispute between the Government and others. Accord ingly, the Court has looked to whether the rights asserted are derived from a comprehensive regulatory scheme concerning a specialized area, such as fed eral broadcast licenses and “entitlements” to federal welfare benefits. See, e.g., Schor, 478 U.S. at 854-56; Thomas, 473 U.S. at 600-01 (Brennan, J., concurring). It is more difficult to discern whether public rights are created by virtue of the Government’s participation in matters not committed to its exclusive and all-encompassing regulatory discretion. Specifically, it is unclear what signifi cance should be attached to the mere fact of Government participation in a representative or prosecutorial capacity, rather than in its capacity as adminis trator of its own regulatory programs. The Court has recently established that neither the presence nor the absence of the Government as a party of record is dispositive in resolving whether a particular right is public or private.8 Rather, one must “loo[k] beyond form to the substance of what [the statutory scheme] accomplishes” with due regard for “the origin of the right at issue [and] the concerns guiding the selection by Congress of a particular method for resolving disputes.” Id. at 587,589. For this reason, as we previously stated with respect to another proposed amendment to the Fair Housing Act, the Government’s participation is of little significance if it “simply has stepped into the individual’s shoes in [the] administrative proceeding, and is suing in a representative capacity.”9 In this
8 In Northern Pipeline , the plurality stated: “It is thus clear that the presence o f the U nited States as a proper party to the proceeding is a necessary b u t not sufficient m eans o f distinguishing "private rights* from ‘public rig h ts.’ ” 4 5 8 U .S. at 69 n.23. Only a fe w years later, how ever, a m ajority o f the C ourt rejected this “bright- line test" as exalting form over substance, holding that the U nited States’ party status was neither necessary nor su fficien t in resolving the public rig h ts question for purposes o f A rticle III. Thomas, 473 U.S. at 586. In Thomas, the C ourt rejected both the v iew that “the right to an A rticle III forum is absolute unless the federal governm ent is a party o f record" and th e contrary view th a t44A rticle III has no force sim ply because a dispute is betw een the G overnm ent and an in dividual.” Id. 9 “Seventh A m endm ent Implications o f Providing for the A dm inistrative A djudication o f C laim s Under Title V III o f the C ivil R ights Act of 1968,” 9 Op. O .L.C . 32 (1985).
56 context, the Government simply acts as a prosecutor to vindicate the rights of one private individual against another, not to resolve a dispute between an individual and the Government qua Government; it is thus difficult to discern why the presence of the United States should convert such private disputes into “public” rights. Giving such talismanic effect to the Government’s mere initia tion of an administrative complaint would be inconsistent with Thomas' admo nition that public rights analysis should not be a formalistic endeavor that focuses on the “identity of the parties alone” without “regard to the origin of the right at issue.” Id. at 587. As one commentator has noted, any such understanding of the Court’s Article III precedent does indeed result in “[f|orm . . . replacing] substance: Congress could avoid conferring jurisdiction upon an Article III court simply by altering the party structure in its new action, by replacing the private plaintiff with a government prosecutor.” L. Tribe, Am eri can Constitutional Law 43 (1978).10 Nevertheless, there are cases in which administrative schemes have provided incidental relief to private parties in the course of enforcing public policy. See Schor, supra’, NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937); Block v. Hirsh, 256 U.S. 135 (1921). The relief available in Jones & Laughlin, however, was essentially equitable in nature (reinstatement and backpay), and only the NLRB could seek court enforcement of the order." Moreover, al though the Court often cites Block v. Hirsh, 256 U.S. 135 (1921), for the proposition that what would usually be viewed as a private right — a landlord/ tenant dispute — can be a “public right,” 12 it does so without noting what the Block court itself recognized. The case arose during an extraordinary housing shortage in the District of Columbia caused by World War I, which had transformed housing from its normal status as a matter of private sector concern into a matter of grave public concern: “circumstances have clothed the letting of buildings in the District of Columbia with a public interest so great as to justify regulation by law.” Id. at 155. Thus, Block did not involve a purely private right: “The [rent] commission did not . . . afford all-purpose relief to complaining private parties.” 2 Op. O.L.C. 16, 19 (1978). As we have previ ously observed, “[i]t cannot be concluded, based on these rather limited prece dents, that administrative proceedings initiated by a public agency but provid ing the full panoply of judicial relief to private parties are necessarily permitted under the Seventh Amendment.” Id. Further, the Court, principally in the Schor opinion, has considered two other factors in determining whether judicial resolution of particular disputes is
10 As we stated w ith regard to a 1978 proposal that w ould have authorized the D epartm ent o f H ousing and U rban D evelopm ent to file adm inistrative complaints: It could be argued that Congress should not be able, under the vague rubric “public rig h t/' to circum vent the Seventh A m endm eat com pletely by creating a chain o f adm inistrative courts capable o f giving traditional com m on-law remedies to private litigants seeking re lie f from w rongs (such as dignitary torts) traditionally regarded as private in character. “Fair H ousing — C ivil R ights A ct,” 2 Op. O .L.C. 1 6 ,2 0 (1978). 112 Op. O.L.C. at 19 (citing Amalgamated Utility Workers v. Consolidated Edison Co., 309 U.S. 261 (1940)). 12See, e.g., Thomas, 473 U .S. at 589.
57 constitutionally required. Although the Court’s language admits of differing interpretations, we do not view these factors as interpretive aids in defining the public right but rather as exceptions to the public right doctrine. In other words, these factors identify the narrow circumstances in which non-Article III adjudi cation of arguably private rights may be permissible. First, Schor establishes that the Court will attach great, if not dispositive, significance to whether the party asserting a constitutional deprivation has participated in the non-Article III proceeding on a purely voluntary basis and thus has effectively waived any right to complain. The complaining party in Schor had opted for the CFTC’s administrative forum rather than state or federal courts with full knowledge that the regulatory scheme allowed the CFTC to exercise jurisdiction over all counterclaims, including those involving matters of state law; indeed, the complaining party then “expressly demanded that [the opposing party] proceed on its [state law] counterclaim in the [admin istrative] proceeding rather than before the District Court.” 478 U.S. at 849. Although the Schor Court determined that Article III separation of powers limitations, unlike Seventh Amendment rights, cannot be “waived” by a private litigant, it nonetheless made clear that the purely voluntary nature of the proceedings severely minimized any Article III concerns that might otherwise have obtained: “just as Congress may encourage parties to settle a dispute out of court or resort to arbitration without impermissible incursions on the separa tion of powers, Congress may make available a quasi-judicial mechanism through which willing parties may, at their option, elect to resolve their differences.” Id. at 855. See also id. at 849 (noting that “the absence of consent to an initial adjudication” was “a significant factor” in Northern Pipeline's condemnation of Article I bankruptcy courts).13 Second, the Schor Court also seemed to permit administrative adjudication of private rights, at least where participation in the administrative process is voluntary, if those private claims are wholly ancillary to the public rights created by the federal regulatory scheme and if their resolution in the adminis trative process is necessary to enable resolution of the statutory public rights in that forum. The issue in Schor concerned a CFTC administrative process established to provide reparations to “disgruntled customers of professional commodity brokers seek[ing] redress for the brokers’ violations of the Act or CFTC regulations.” Id. at 836. When Mr. Schor invoked this procedure, his broker counterclaimed, on state law grounds, for a debit balance which Mr. Schor alleged had resulted from the broker’s violations of the Commodity Exchange Act that were at issue in the administrative proceeding. If resolution of such private state law counterclaims was not permitted in the administrative forum, administrative resolution of the public rights created by the CEA would never occur, as a practical matter, “for when the broker files suit to recover the debit balance, the customer will normally be compelled either by compulsory 13 T he C ourt in Thomas described the chem ical com panies as “ voluntary participants in the program ,” 473 U .S. at 589, although the only element o f choice seem s to have been w hether to engage in the m anufacture o f chem icals.
58 counterclaim rules or by the expense and inconvenience of litigating the same issues in two fora to forgo his reparations remedy and to litigate his claim in court.” Id. at 843-44. Accordingly, Schor created an exception to the public rights doctrine, which permits resolution of private claims in otherwise valid administrative schemes where resolution of those private rights “is limited to that which is necessary to make the [scheme] workable” by resolving the public rights created by the regulatory scheme. Id. at 856. As the Court put it, “absent the CFTC’s exercise of that authority [over state law counterclaims], the purposes of the [adminis trative] reparations procedure would have been confounded.” Id. at 856. In context, then, Schor’s departure from the public rights line of cases is clearly premised on the voluntary and necessary aspects of the administrative tribunal’s resolution of private rights. Finally, and most generally, the Court has looked to the “concerns motivat ing the legislature” in choosing a non-Article III forum. Thomas, 473 U.S. at 590. In this regard, the Court has attached significance to a showing that there is an “imperative necessity” for administrative procedures because of the specialized, complex nature of the subject matter and a demonstrated need for expedited adjudication. M urray's Lessee, 59 U.S. (18 How.) at 282. See also Schor, 478 U.S. at 852; Thomas, 473 U.S. at 590. Cf. Palmore v. United States, 411 U.S. 389, 407-08 (1973). The rationale here is that strong “evidence of valid and specific legislative necessities,” Schor, 478 U.S. at 855, can be accommodated without unduly disrupting separation of powers concerns be cause such exceptions are limited in scope and reveal that Congress’ sole motivation was to solve a pressing emergency, not to avoid Article III adjudi cation for its own sake. See id. at 855-57; Thomas, 473 U.S. 590-593.
2. Analysis
Application of these principles to the draft bill leads us to conclude that it is of doubtful constitutional validity. Although S. 558, unlike the draft bill, provides that the Department of Housing and Urban Development (HUD) will act as the moving party in an administrative proceeding, we do not believe that this difference alone should substantially affect the constitutional inquiry.14 We will analyze each of the proposed bills in turn.
14W e do not believe that the use o f adm inistrative law ju d g es to determ ine punitive dam ages may be upheld on the theory that the adm inistrative proceeding is merely an adjunct to the district court. T he Supreme C ourt has upheld against A rticle III challenges the use o f adm inistrative agencies as factfinders in cases involving private rights “only as an adjunct to an Art. Ill court, analogizing the agency to a jury or a special m aster.” Atlas Roofing ,4 3 0 U.S. at 4S0 n 7. However, we do not believe that these cases uphold the use of adjuncts in cases involving private rights that are also actions at com m on law. As originated in Crowell, the adjunct theory did not include private n g h ts o f action found at common law. Crowell involved a case arising in admiralty and the C ourt distinguished this from common law actions* “ In cases of equity and adm iralty, it is historic practice to call to the assistance o f courts" non-judicial factfinders. 285 U.S. at 51. However, “ on the common law side o f the Federal courts, the aid o f ju ries is not only deem ed appropriate but is required by the C onstitution itself.” Id. Thus, the C ourt recognized that juries — not non-judicial factfinders — Continued
59 Perhaps the most important consideration in assessing the draft bill’s pro posed administrative proceeding is that the right adjudicated is derived from a common law action that is historically within the exclusive preserve of Article III courts. In Curtis v. Loether, 415 U.S. 189 (1974), the Court concluded: We think it is clear that a damages action under 812 [of the Fair Housing Act] is an action to enforce “legal rights” within the meaning of our Seventh Amendment decisions. A damages action under the statute sounds basically in tort — the statute merely defines a new legal duty, and authorizes the courts to compensate a plaintiff for the injury caused by the defendant’s wrongful breach. As the Court of Appeals noted, this cause of action is analogous to a number of tort actions recognized at common law. More important, the relief sought here — actual and punitive damages — is the traditional form of relief offered in the courts of law. . Id. at 195-96 (citations omitted). Thus, the statutory right to be adjudicated in the draft bill’s administrative proceeding is directly analogous to a cause of action that was subject to judicial resolution at the time the Constitution came into being, thus creating a strong presumption that it must be tried in an Article III court pursuant to normal procedures. Moreover, the Civil Rights Division draft bill provides that actual and punitive damages may be awarded in the arbitration hearing. § 813. As indicated earlier, these are classic “legal” rem edies of the type that could be awarded only by a court of law with a jury, not by a court of equity. See Tull, 481 U.S. at 423 n.7. Cf. Atlas Roofing, 442 U.S. at 459,460 (The Seventh Amendment is intended to “preserve” the right to a jury trial in common law suits, not to require them where none was previously required.). Further, wholly apart from its historical roots, the right at issue here is private in nature, in that it is intended to determine the liability of one indi vidual to another. Crowell, 285 U.S. at 51. Under the Civil Rights Division draft bill, virtually the only role played by the Government is to provide a
14 ( . . . continued) w ere required in cases involving common law questions. Crowell's language certainly supports an argument that the Seventh A m endm ent prevents C ongress from placing actions that are both private and based on com m on law actions beyond the reach o f a ju ry trial. Crowell reads the Seventh Amendm ent as requiring a ju ry in cases a risin g under the common law , while perm itting agencies to act as de facto juries for private rights arising in equity o r admiralty. Id. a t 51. See also Northern Pipeline , 458 U.S. at 81-82 (plurality opinio n ) (“ Crowell does not support the further proposition necessary to appellants' argum ent — that C ongress possesses the sam e degree o f discretion in assigning traditionally judicial pow er to adjuncts engaged in the adjudication o f nghts not created by C ongress.” ) (em phasis in original); United States v. Raddatz , 447 U .S. 667 (1980). We are especially reluctant to adopt this adjunct theory in the Seventh A m endm ent context w hen to d o so would perm it Congress to take from the courts a factfinding function that courts d o not have in com m on law actions under the Seventh Am endm ent. See Tull, supra. U nlike the action at issue in Raddatz , the rig h t being resolved under the draft bill is not one a court couid decide if it wished; the rig h t to punitive dam ages has to be resolved by a ju ry . The a djunct theory, if applied to private rights based on com m on law actio n s w ould render the Seventh A m endm ent’s protection hollow , dependent entirely upon the w him o f a congressional majority.
60 federal rule of decision that defines the liability between private actors. Under the proposed bill, only private litigants may initiate the administrative proceed ing and they may themselves seek review or enforcement of the arbitrator’s order in court. § 813(a)(1), (c). Although HUD may prevent formal arbitration by not issuing a “reasonable cause” determination and may intervene in the hearing, the entire matter may well proceed to final judgment without Govern ment participation, and, in any event, HUD’s intervenor role would clearly be limited to vindicating the rights of the private litigant. In this regard, we note as well that civil rights statutes generally are intended to create personal rights, guaranteed to the individual. See generally Connecticut v. Teal, 457 U.S. 446 (1982); Regents o f the Univ. o f Cal. v. Bakke, 438 U.S. 265, 299 (1978) (opinion of Powell, J.); Los Angeles D ep’t o f Water & Power v. Manhart, 435 U.S. 702, 708, 709 (1978); Shelly v. Kraemer, 334 U.S. 1, 22 (1948). In short, because the statutorily created right here derives from a dignitary tort and is enforceable primarily by private individuals for their own benefit pursuant to common law remedies, the Court’s precedents strongly indicate that these administrative hearings will be viewed as “wholly private to rt. . . cases [that] are not at all implicated” by the public right exception described in Atlas Roofing. Atlas Roofing, 430 U.S. at 458. Moreover, none of the other factors on which the Court has focused militate in favor of the draft bill’s validity. It is clear that a defendant would be an involuntary participant in the arbitration proceedings, and it seems quite doubt ful that the private housing market in the United States would generally be considered a “specialized area” for administrative regulation by the federal government. Further, the exception created in Schor for ancillary and necessary private claims is inapplicable since adjudication of common law claims is clearly not “incidental to, and completely dependent upon, adjudication o f . . . claims created by federal law.” Schor, 478 U.S. at 856.15 13 W e note that the C ivil Rights D ivision's draft bill, as w ell as S. 558, provides for court enforcem ent o f the adm inistrator's aw ard. D raft bill, § 813(d), (g); S. 558, § 812(h), (i). W e confess that w e are uncertain w hether this is an argum ent in favor o f or against the proposed b ill's constitutional validity, because the C ourt’s precedents point in opposite directions. U nder the adjunct theory o f Article III, assignm ent o f some lim ited functions to a non*Article III tribunal is som etim es perm issible, so long as “ ‘the essential attributes' o f judicial pow er are retained in the Art. Ill court.” Northern Pipeline, 458 U.S. at 81 (plurality opinion). See also Crowell, 285 U.S. at 51. Thus, under the adjunct theory as traditionally understood, it w as quite c le a r that the constitutional perm issibility o f the statutory scheme w as enhanced if the non-A rticle III forum was given only quite lim ited “ju d icial" pow ers, such as the right to enforce its own orders. Quite naturally, therefore, Northern Pipeline, in contrasting Crowell, said that a m ajor defect in the bankruptcy courts scheme w as that those non-A rticle III tribunals could enforce their own orders w ithout “seek[ing] enforcem ent in the district court ” Northern Pipeline , 458 U.S. at 85 (plurality opinion). See also id. at 91 (R ehnquist, J., concurring); Crowell, 285 U.S. a t 51. In Thomas, however, the Court stated that the A rticle III validity o f the arbitration scheme was enhanced because it “relie[d] tangentially, if at all, on the Judicial Branch fo r enforcem ent" o f the arbitrators’ orders, Thomas, 473 U.S. at 591, a conclusion that seems directly at odds with Crowell, Northern Pipeline, and the entire rationale o f the adjunct theory as previously understood. See Crowell, 285 U.S. at 3 3 -3 8 . Fortunately, we need not engage in the task o f reconciling these cases, because w e have previously concluded that the adjunct theory is probably inapposite here because the statutory right to be enforced is derived directly from a private, com m on law claim . We note, parenthetically, that the pow ers assigned to the arb itrato r under the draft bill and S. 558 are considerably greater than the pow er (i.e., assessm ent o f value) assigned to the adjunct in Crowell, but less than the plenary pow ers given to the bankruptcy courts in Northern Pipeline. See 9 Op. O.L.C. at 40.
61 We further note that the Fair Housing Act certainly does not seem to involve the imperative necessity that the Court recognized in Thomas as a legitimate motivating factor for Congress’ consideration in choosing an arguably prompter administrative remedy. 473 U.S. at 590. Indeed, the Curtis Court rejected similar arguments advocating the need for expedited judicial review of Title VIII actions without a jury trial. Noting the availability of preliminary injunc tions and non-jury trials in cases seeking only equitable relief, the Court stated “[m]ore fundamentally, however, these considerations are insufficient to over come the clear command of the Seventh Amendment.” 415 U.S. at 198. It is nonetheless conceivable that a strong legislative record demonstrating that administrative trials are for some reason necessary meaningfully to resolve Fair Housing cases would tend to support the validity of the congressional purpose in opting for these proceedings. Of course, any such claim is substan tially undermined by the fact that judicial proceedings remain available to plaintiffs so inclined, thus undercutting any notion that administrative proceed ings are “necessary.” Indeed, in the circumstances presented here, the congressional purpose underlying the establishment of administrative proceedings may well be viewed as a substantial deficiency, because the draft bill’s structure and background suggest that the sole purpose o f the administrative alternative is simply to supplement or displace adjudication by Article III courts and juries. In this regard, it is significant that “there are only minimal differences between the relief available in the administrative forum (in which a civil penalty for the Government replaces punitive damages for the individual) and the judicial forum.” 9 Op. O.L.C. at 37. By providing for punitive damages in either the administrative or judicial forum, moreover, the draft bill leaves it entirely up to a plaintiff in an individual case to choose between the Article III and Article I fora, without sacrificing any weapon in his arsenal of remedies. Thus, the clear effect of the Act is to create parallel, virtually identical Article III and Article I processes — a dualism that serves no apparent purpose other than enhancing plaintiffs options and his ability to avoid bringing his case before a jury or an Article III judge. We do not mean to suggest that providing plaintiffs with a choice between such parallel schemes by itself raises independent due process problems, even where, as here, it renders the defendant’s right to a jury trial utterly dependent on the plaintiffs choice of fora. However, the dual structure may well directly signal “the concerns guiding the selection by Congress of a particular method for resolving disputes.” Thomas, 473 U.S. at 587. In this regard, it is also noteworthy that “the Department would enter the fray, not at the outset, but nearly [19] years after the creation of a private cause of action in the district court which provides for identical remedies, and nearly [13] years after the Supreme Court expressly ruled that under such circumstances trial by jury must be available on demand.” 2 Op. O.L.C. at 20. Against this backdrop, a reviewing court may fairly conclude that, in con trast to Schor, Congress’ “primary focus was [not] on making effective a 62 specific and limited federal regulatory scheme, [but] on allocating jurisdiction among federal tribunals.” Schor, 478 U.S. at 855. In other words, the back ground and parallel structure of the Act might well strongly suggest that the “concerns that drove Congress to depart from the requirements of Article III,” id. at 851, were merely Congress’ desire to depart from the requirements of Article III because of the cost and delay that attend a jury trial in a federal court. Although the speed and efficiency of Article I tribunals are virtues, we believe that speed and efficiency alone cannot be viewed as sufficient reason for establishing Article I adjudication absent “imperative necessity.” Indeed, acceptance of such a justification would lead to the somewhat circular rule that Congress may avoid the constraints of Article III and eliminate the Seventh Amendment rights ringingly endorsed in Tull solely on the ground that it believes that Article III adjudication is more cumbersome than alternative dispute resolution without judges and juries. We turn next to consideration of S. 558, which is identical to the draft bill in all material respects save one: it provides that HUD may institute administra tive proceedings “on behalf of the aggrieved person filing the complaint” of housing discrimination, rather than the aggrieved person himself. S. 558, § 810(g)(2)(A). Significantly, the private complainant has a right to file a complaint or to intervene as a full party in an administrative proceeding initiated by HUD, and he apparently may obtain both judicial enforcement and review of an adverse decision even if HUD does not go forward. Id., §§ 810(a), 812(h)(2). Although, for the reasons noted above, the issue is hardly free from doubt, we think that the better view is that HUD’s participation in initiating the complaint is not alone sufficient to obviate the constitutional difficulties previ ously described. As we have suggested, HUD’s participation as a party in these circumstances says very little about the “public” nature of the right involved, but simply describes the parties that are authorized to enforce that right. For this reason, the better understanding of the Court’s precedent is that the Government’s party status should not be given dispositive weight, particularly where, as here, the Government does not possess exclusive enforcement authority. . We are fortified in our conclusion by the fact that this Office has previously determined, albeit not without equivocation or difficulty, that a proposed 1978 amendment to the Fair Housing Act, virtually indistinguishable from S. 558, was probably unconstitutional. We so concluded because, as with S. 558, HUD “would not be the sole enforcer of the statutorily created” government policy and would not be acting in a regulatory capacity with regard to a public right.16 An opinion that we rendered in 1985 points to a similar conclusion. There we concluded, albeit tentatively, that a proposed amendment would probably survive constitutional scrutiny, but we did so in large part because the adminis trative process failed to “provide the aggrieved individual the punitive dam- 16 2 Op. O.L.C. at 20. A lthough acknow ledging the difficulty o f the issue, we concluded: “w ere we to opine one way o r the other, o ur conclusion would probably favor a finding that [the proposal] is u n c onstitutional/’ Id.
63 ages typically available at common law.” 9 Op. O.L.C. at 38. As noted, S. 558, like the draft bill, does provide this traditional legal remedy, thus substantially reinforcing the private, common law nature of the cause of action and render ing the administrative hearing virtually identical to a judicial proceeding. It should be noted, however, that Thomas and Schor, two subsequent deci sions of the Supreme Court have evinced less sympathy for constitutional challenges to administrative proceedings and upheld statutes that share some, though clearly not all, of the defects described above. Nevertheless, for the reasons that we have previously indicated, a review of the Thomas and Schor opinions persuades us that they contain nothing that requires an analysis or conclusion different from those expressed in our prior memoranda. First, with respect to the specific question of the Government’s party status, Thomas reinforces the correctness of our previous determination that such party status means little unless it affects the “substance of what [the statute] accomplishes.” Thomas, 473 U.S. at 589. Second, Schor’s arguable departure from prior cases is not of controlling importance here because the proposed bills contemplate the involuntary participation of the defendant in administrative hearings and do not adjudicate private rights in order to preserve the agency’s practical ability to adjudicate public rights. Finally, we discern nothing in Thomas that either signals any sort of whole sale retreat from the Court’s Article III jurisprudence or lends meaningful support to the proposed bills. Thomas simply upheld the administrative imple mentation of a comprehensive federal regulatory scheme in an opinion joined by every member of the Northern Pipeline plurality that reached the merits of the case. See Thomas, 473 U.S. at 595 (Brennan, J., concurring). At issue in Thomas was administrative resolution of a very mechanical and straightfor ward dispute over the amount o f compensation owed for access to privileged data, a dispute that nonetheless needed to be resolved expeditiously if the administrative scheme was to accomplish its purpose. As the Court noted, “Congress, without implicating Article III, could have authorized EPA to charge follow-on registrants fe e s ” and that such “rate-making is an essentially legislative function.” Id. at 590 (emphasis added). Thus, the charging of such fees was a matter that “could be conclusively determined by the Executive and Legislative Branches.” Id. at 589 (quoting Northern Pipeline, 458 U.S. at 68). Conversely, the Court placed heavy reliance on the fact that the statute at issue did not “displac[e] a traditional cause of action [or] affec[t] a pre-existing relationship based on a common-law [claim]” because the statutory right to compensation “does not depend on or replace a right to such compensation under state law.” Id. at 584, 587. In short, Thomas broke no new Article III ground because “at its heart the dispute involve[d] the exercise of authority by a federal government arbitrator in the course of administration of [the statute’s] comprehensive regulatory scheme. As such it partakes of the characteristics of a standard agency adjudication.” Id. at 600 (Brennan, J., concurring). Having said all that, we emphasize that, due to the meandering and confus ing course of the Court’s precedent, it is both impossible to offer any determi 64 native opinion in this area and possible to construct a defense of the proposed bills that may prevail in some courts. A line of defense that might be accepted by a sympathetic court would proceed along the following lines. First, elimina tion of racial and ethnic discrimination in housing is a paramount public purpose. Further, Congress has great discretion in choosing the manner in which to resolve disputes, so long as the subject matter of the dispute concerns an area over which Congress permissibly exercises authority, including any area it may reach pursuant to the Commerce Clause. See Atlas Roofing, 430 U.S. at 456—457; Northern Pipeline, 458 U.S. at 105-113 (White, J., dissent ing) (collecting authorities). Moreover, under a highly formalistic approach, a court could conclude that the common law antecedents of § 812 of the Fair Housing Act are unimportant because Congress created a “new” statutory duty when it outlawed housing discrimination, and that the presence of the United States, at least as the moving party under S. 558, is of great significance. The court could further determine that housing discrimination is a “specialized area” requiring administrative expertise and that it should defer to Congress’ determination that there is a tangible need for expedited review. More gener ally, a court could fairly note that differentiating between public and private rights or the regulatory and prosecutorial role of the government is a highly abstract endeavor that has not received, and is not susceptible to, principled or consistent resolution. We acknowledge that there is language in some of the Court’s cases that can be interpreted to support such a line of analysis. This sort of analysis would place virtually no limits on congressional authority to remove the resolution of disputes entirely from Article III courts. Congress always creates “new” rights by enacting statutes; these statutes must always be directed at an area which Congress has the power to regulate, and administrative tribunals are always more expeditious and convenient than juries and judges. Indeed, such an analysis comes perilously close to subordinating Article Ill’s reservation of the “judicial Power” and the express guarantees of the Seventh Amendment to the Necessary and Proper Clause.17 Accordingly, we believe the draft bill and S. 558 in their current form are and would likely be declared unconstitutional on Article III and Seventh Amendment grounds.
II. Conclusion
Although the policy implications of any modification to the draft bill are obviously for you to resolve, we recommend certain changes in order to enhance the constitutional viability of the draft bill. All concerns under the Seventh Amendment and Article III would be alleviated, of course, by deletion of the provisions establishing an administrative hearing process. Short of this, the best solution from a constitutional perspective would be to limit the relief available in an administrative proceeding to equitable remedies such as injunc 17 N or do we understand why the grave im portance o f a public policy is an argum ent supporting removal of that controversy from an im partial judiciary insulated from political influence.
65 tions and restitution, thus avoiding any conflict with the Seventh Amendment’s preservation of jury trials in “suits at Common Law.” At a minimum, serious consideration should be given to eliminating at least punitive damages for private litigants in the arbitration proceedings. The retention of compensatory damages alone might be upheld under reasoning similar to that the reasoning that we outlined in 1985. See 9 Op. O.L.C. 32.
C h a r l e s J. C o o p e r Assistant Attorney General Office o f Legal Counsel