A recent decision from the United States Supreme Court may have just put the Nevada
State Contractors Board (NSCB) Investigation, Citation and Enforcement process on ice. In the
very recent case of Securities and Exchange Commission v. Jarkesy, et al., US Sup Ct. Slip Op
22-859 (June 27, 2024) may have dealt these state administrative agency cases a potentially
fatal blow. The US Supreme Court ruled that administrative law proceedings that enforce
regulatory prohibitions based on common law causes of action, and seek to impose penalties
rather than purely restitution, are subject to the U.S. Constitution’s 7th Amendment Right to Trial
by Jury. Such penalties cannot be adjudicated by an administrative law judge through
administrative agencies only. Since the 7 th Amendment Right to Trial by Jury is applicable to the
States under the 14 th Amendment, State administrative agencies such as the NSCB may not be
able to impose similar penalties without affording the accused a right to trial by independent
judge and jury.
Most Nevada licensed contractors are aware of the regulatory power of the NSCB, and
its ability to issue administrative citations and administrative penalties for conduct that is found
to be a “cause of discipline” under NRS 624.300, et seq. These decisions are made through a
NSCB internal investigative process, resulting in an administrative citation being issued to the
licensee under NRS 624.341. The licensee may either accept the citation and penalty, or may
contest the citation
These disciplinary actions are found in NRS 624.300(1) and include: (a) suspension or
revocation of existing licenses, (b) refusal to renew licenses, (c) imposing limits on the category,
scope and monetary limit of a license, (d) imposition of monetary fines, (e) order repayment of
the NSCB’s fund to assist impacted home owners; (f) order the performance of corrective work,
retaining another contractor to perform repairs at the licensee’s expense or to pay restitution to
the impacted construction project owner, and (g) to issue public reprimand or take other
measures. All of these remedies are punitive in nature, with the exception of those punishments
in section f, which is more geared towards compensating the injured for their losses. At common
law, such penalties are restitution but penal, and must be adjudicated by courts of law. This is
technical language but basically means handled by a court with the opportunity for a jury upon
demand by the person being prosecuted.
The statutorily imposed remedies arise when a licensee is found guilty of one or more
“causes for discipline”, which include among other things: Failure to comply with the terms of a
construction contractor written warranty in any material respect without legal excuse (NRS
624.301(5)); Diversion of money received for a specific construction project to another project or
purpose (NRS 624.3011(1)), and Any fraudulent or deceitful act committed in the capacity of a
contractor, including without limitation, misrepresentation or the omission of a material fact (NRS
624.3016(1)). While these are statutorily mandated claims, they are basically the same causes
of action known at common law as “Breach of Contract”, “Theft” and “Fraud”. Outside of the
context of the NSCB investigation, these activities could lead an individual to be incarcerated or
fined under penal statutes and would entitle the accused to a trial before a impartial judge and a
jury.
But when levied by the NSCB, there is no right to an impartial state judge and jury.
Under the procedures found generally in NRS 624.320 through 624.36, a complaint may be
levied against a licensee for any cause for discipline with the NSCB. The NSCB’s investigative team will begin an investigation and the licensee is obligated to comply with various demands
for documentation and other evidence. Once the investigation is complete, the NSCB will issue
a citation, which the licensee can accept or challenge. If challenged, the NSCB will file a formal
administrative complaint against the licensee before an Administrative Law Judge (ALJ). ALJs,
while under some assurances of independence, are nevertheless employed by the NSCB for
their duties. The prosecution is provided limited discovery rights and evidentiary rules are
relaxed. Many of these regulations and processes mirror those which were used by the SEC
against Jarkesy. While after an ALJ renders a decision on the NSCB’s citation and complaint a
licensee may seek judicial review in the Nevada District Courts, those reviews are of limited
appellate jurisdiction and limited. Again, regulations very similar to those promulgated and used
to prosecute Jarkesy by the SEC.
In such cases, the US Supreme Court indicated that the punitive nature of the remedies
– seeking to punish for the prohibited conduct that was prohibited by a statute espousing a
common law recognized criminal activity or other conduct resolved by a court at law, mandated
a right to a jury. Such laws necessarily implicate the State’s power to remove protections of life,
liberty and property of the licensee, and so fall within the requirements of the 7 th Amendment
and Due Process. Individual states cannot deprive licensees of such rights protected by the US
Constitution, under the 14 th Amendment thereto. While each allegation and the remedy sought
by the NSCB would need to be analyzed for applicability, practitioners defending licensees from
NSCB administrative citations would do well to consider whether the right to a jury is being
infringed by the NSCB process.