The White Collar Appeal: Ninth Circuit Decision in Regulatory Crime Case Raises Thorny Constitutional Questions

• In a case involving dirt biking with a broken taillight, the Ninth Circuit waded into the muddy terrain of criminal enforcement of regulations issued by federal agencies.
• After the district court dismissed the charge pretrial, the Ninth Circuit reversed, reinstated the charge, and then declined to hear the case en banc.  That prompted two powerful dissents arguing that the Constitution requires stricter guardrails around permitting criminal prosecution of regulatory provisions.
• These dissents thus provide a roadmap for challenging any crime that depends on an agency regulation, including those from the SEC, CFTC, and other financial regulators.  They also may pique the interest of Supreme Court justices who are keen to continue reeling in the administrative state.

Background

Gregory Pheasant was riding a dirt bike without a working taillight on land owned by the Bureau of Land Management (BLM) outside Reno, Nevada.  Apparently the scourge of inadequately illuminated dirt bikes has been on the government’s radar screen, because by the time Pheasant went for his night cruise, the Secretary of the Interior already had promulgated 43 C.F.R. § 8341.1(f)(5), which prohibits operating an off-road vehicle on public lands “from a half-hour after sunset to a half-hour before sunrise without lighted headlights and taillights.” 

The authority for this regulation comes from Section 303(a) of the Federal Land Policy and Management Act of 1976 (FLPMA).  That section directs the Secretary of the Interior to “issue regulations necessary to implement the provisions of [the FLPMA] with respect to the management, use, and protection of the public lands, including the property located thereon.” Section 303(a) also provides that willful violations of the regulations can be punished with a fine up to $1,000 and 12 months’ imprisonment.  43 U.S.C. § 1733(a).

The district court dismissed the taillight charge on the ground that the statute violated the nondelegation doctrine.  In its view, the statute gave the Executive Branch “unfettered legislative authority” to make rules covering “almost all conduct on public lands” without “any guidance or restraint as to when the Secretary … shall promulgate rules.” 

Panel Opinion

A panel of the Ninth Circuit reversed.  The panel explained that congressional delegations of power to the Executive are constitutional so long as they abide by the Supreme Court’s longstanding “intelligible principle” test.  This “exceedingly modest limitation” on statutory delegations only requires Congress to “provide[] some standard constraining discretion—even one phrased in broad terms” to avoid running afoul of the nondelegation doctrine.  In the panel’s view, Section 303(a) provided a sufficiently intelligible principle to pass muster.

The panel also rejected Pheasant’s argument that the intelligible-principle test is inappropriate where the statute contemplates criminal prosecution of agency regulations and that courts must apply greater scrutiny.  Acknowledging that Supreme Court caselaw does not answer that question, the panel concluded that the intelligible-principle test applies equally in civil and criminal contexts.

Dissents from Denial of Rehearing

The full Ninth Circuit declined to hear the case en banc.  Judges Bumatay and VanDyke dissented from the denial in detailed opinions. 

For Judge Bumatay, the Founding-era history makes clear that “at a minimum, the non-delegation principle has always required that Congress specify the actus reus and the penalty within the text of the statute to meet constitutional muster.”  The Executive can “determine which precise objects”may be included within a “narrow range of conduct” defined as criminal by Congress, but Congress must establish the conduct proscribed as criminal.  By this standard, the FLPMA falls short because it delegates to the Executive the power to define the actus reus of a criminal prohibition.  To avoid criminal prosecution, Judge Bumatay suggests, the public would need to “plumb the depths of the Federal Register to know what’s off-limits.”  Thus, “in effect, Congress has said, ‘do as the minions of the Secretary of the Interior tell you—or go to jail.’”

Judge VanDyke drew on the Constitution’s numerous criminal-specific safeguards to suggest that “courts should scrutinize criminal delegations more closely than they review civil delegations” because criminal enforcement if an area of special importance in the Constitution. Judge VanDyke thus suggested a three-part test as an alternative to the intelligible-principle test for use in criminal cases.  Under that test, (1) Congress would have to draw a clear and generally applicable rule; (2) the rule would have to hinge on a factual determination by the Executive; and (3) the statute would have to provide criteria constraining the Executive in making its factual finding.  Under this standard, the FLPMA would fail because it does not require any factual finding on the part of the Executive nor does it constrain the Executive’s fact finding in any way. 

Key Takeaways

The intelligible-principle test authorizes potentially wide-ranging criminal delegations.  Both Pheasant and the broader nondelegation doctrine caselaw make clear that the intelligible-principle test sets a very low bar.  For example, it would appear to be consistent with that test for Congress to delegate to the Secretary of Homeland Security the power to “issue regulations necessary to implement the provisions of” the Immigration and Naturalization Act “with respect to the management, use, and protection of” ICE agents’ investigation and enforcement efforts, with criminal sanction for willful violations of those regulations.  The Department of Homeland Security then could promulgate rules outlawing tactics that immigration protestors have employed, using those regulations as a basis to arrest and prosecute protestors.  The same principle would apply to a law authorizing the FTC to issue regulations under the FTC Act “with respect to the management, use, and protection of” consumer data privacy, with criminal penalties for willful violations. The FTC then could issue all sorts of arcane requirements that Congress did not pass and the average person hardly can understand.  In a political environment where Congress has appeared to accommodate efforts to empower the Executive Branch, a forgiving nondelegation standard undermines the Judiciary’s power to protect the Legislative Branch’s constitutionally derived powers.

The panel’s adherence to the intelligible-principle test seems out of step with current attitudes toward the administrative state.  Over the last several years, the Supreme Court has issued a number of decisions that chip away at the power of federal agencies.  Decisions like Loper Bright v. Raimondo, 603 U.S. 369 (2024), SEC v. Jarkesy, 603 U.S. 109 (2024), and others seem to reflect the Supreme Court’s desire to reel in the regulatory state.  Although the facts of Pheasant are somewhat trivial, it may present the right vehicle for the Supreme Court to wade further into the constitutional design of the administrative state, particularly given the thorough historical background and originalist analysis in Judge Bumatay’s and Judge VanDyke’s dissents.

The dissents provide a roadmap for challenging prosecutions of all kinds of regulatory crimes.  Until the Supreme Court provides clarity regarding the discretion agencies will have to define conduct subject to criminal prosecution, defendants should preserve these nondelegation arguments.  One example would be the Commodities Exchange Act, which authorizes the CFTC to promulgate regulations to prohibit any “trading practice that is disruptive of fair and equitable trading,” and makes willful violations a those regulations a felony.  See 7 U.S.C. § 6c(a)(6); 7 U.S.C. § 13(a)(5).  That delegation of rulemaking authority would seem to be just as broad as the delegation at issue in Pheasant, as are countless other delegations.