HOUSTON (CN) — A new lawsuit filed in federal court in Texas on Thursday challenges the National Labor Relations Board's use of in-house administrative hearings to adjudicate labor disputes — a major part of its enforcement power.
The suit comes on the same day that the Supreme Court ruled in a similar case regarding the Securities and Exchange Commission’s enforcement arm. In that case, the Supreme Court found the SEC had violated a hedge fund manager's rights when it adjudicated fraud claims against him at an in-house SEC hearing, striking a major blow against the SEC's ability to enforce securities laws.
Alongside its Texas subsidiary La Grange Acquisition LP, Delaware-based Energy Transfer LP sued the NLRB and several of its top officials.
The companies are seeking to stop an NLRB administrative hearing set for late July involving them and a former employee. The companies also challenged the constitutionality of the NLRB’s administrative court system and the authority of its administrative law judges.
First, the companies argue that the agency’s administrative law judges are too insulated from removal under the Appointments Clause in Article II of the Constitution.
Under the National Labor Relations Act, “any member of the Board may be removed by the President, upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” The two companies object to that last clause, arguing that it places an unconstitutional limit on presidential power by insulating the judges from removal for other reasons, such as inefficiency.
Any attempt to remove those judges must also go through the Merit Systems Protection Board — further adding to their unconstitutional job protections, the companies argued. That board’s members are also protected from removal except for “insufficiency, neglect of duty, or malfeasance in office.”
The companies also argued that hearings before administrative judges like those in the NLRB violate their Seventh Amendment right to a trial by jury.
Here, they heavily cite the Supreme Court’s same-day 6-3 ruling in SEC v. Jarkesy, in which Chief Justice Roberts, a George W. Bush appointee who wrote the majority opinion, held that agency administrative proceedings fall under the term “suits at common law” within the Seventh Amendment.
“This case poses a straightforward question": namely, "whether the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties against him for securities fraud," Roberts wrote. Finding that such a defendant is indeed entitled to a jury trial, he added that "the SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury.”
This lawsuit applies that same analysis to the National Labor Relations Act. Here, the companies argue that because the Board’s proceedings can impose civil penalties, the case against them falls within the purview of the Seventh Amendment.
“In other words,” they argue, “La Grange is entitled to a jury trial if its adversary seeks legal relief against it.”
The underlying case concerns a labor dispute at a La Grange facility in Houston. After "insubordination and disruptions," the company says it transferred an employee, who then brought an NLRB complaint.
Thursday's suit leans heavily on the new Supreme Court ruling, with the companies arguing they are likely to succeed on their constitutional claims based on the new precedent. In total, they cited the Supreme Court ruling three times in their lawsuit. They also cited a related Fifth Circuit Court of Appeals ruling four times.
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