Jury Trials and the Administrative State: SEC v. Jarkesy

Last week, the High Court issued several blockbuster decisions. In this post, I will focus on SEC v. Jarkesy, which deals with the right to a jury trial in proceedings brought by federal agencies. Some background is necessary to appreciate this ruling.

Article III of the Constitution guarantees the right to a jury trial in criminal cases. It is silent on jury trials in civil cases. This silence gave Anti-Federalists an opportunity to attack. For example, the Federal Farmer described jury trials in civil cases as “one of our fundamental rights” that would be put in jeopardy because of the decision to omit it from the Constitution. The Federal Farmer continued that ratification of the Constitution without a protection for civil jury trials would indicate that the people relinquished the right or simply did not care about it. Patrick Henry was blunter in the Virginia ratifying convention: “How does your trial by jury stand? In civil cases gone.”

In the face of objections and multiple demands to constitutionally protect civil jury trials, the first Congress submitted the Seventh Amendment to the states: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.”

What does the phrase “common law” mean in the Seventh Amendment? According to Justice Story in United States v. Wonson (1812), “the common law here alluded to is not the common law of any individual state, . . . but is the common law of England, the grand reservoir of all our jurisprudence.” Consequently, the Supreme Court has interpreted the Seventh Amendment as securing jury trial rights as they existed when the amendment was ratified in 1791. As Professor Ann M. Scarlett has noted: “In other words, a right of trial by jury exists for the legal claims historically pursued in the common law courts, but not for the equitable claims historically pursued in the chancery courts.”

The administrative state poses a challenge to the Seventh Amendment’s right to a jury trial. Litigation is commonplace between citizens and federal agencies. The proceedings look very much like the typical trial except that the presiding officer is an Administrative Law Judge (ALJ), and there is no jury to determine factual disputes. ALJs decide myriad cases dealing with the enforcement of regulations, claims for benefits, licensing requirements, and the government’s breach of its contracts. The ALJ decides all issues of law and fact. While there is an appellate process, no jury will ever be involved. As noted by Southwestern Law School’s Richard Lorren Jolly, “Congress (with the judiciary’s blessing) has developed an extensive system of tribunals that bypass the jury as a constitutional actor.”

In Granfinanciera, S.A. v. Nordberg (1989), the Supreme Court asserted that when Congress creates a non-Article III tribunal to decide a matter, “the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.” The Court has adhered to this position and stated in Atlas Roofing Co. v. OSHA (1977) that “[t]his is the case even if the Seventh Amendment would have required a jury where the adjudication of those rights is assigned instead to a federal court of law instead of an administrative agency.”

Based on these decisions, George Jarkesy faced an uphill battle, arguing that he was entitled to a jury trial in an SEC proceeding where the agency sought civil penalties for securities fraud. The majority, however, observed that “[t]he SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury.” The Court accepted the “public rights” exception to the Seventh Amendment, which allows Congress to assign some matters to agencies for adjudication where no jury will be empaneled.

A public right is a matter that historically would have been determined by the executive or legislative branches. In construing the exception, the Court held that Jarkesy was entitled to a jury trial. The SEC sought a monetary remedy from Jarkesy to punish and deter him. In Anglo-American legal history, only law courts have had the power to order such penalties. The Court distinguished Granfinanciera and Atlas Roofing by reading them not to extend to traditional legal claims. “In short,” the majority concluded, “‘Atlas Roofing does not conflict with our conclusion. When a matter from its nature, is the subject of a suit at the common law,’ Congress may not ‘withdraw [it] from judicial cognizance.’”

Hence, Jarkesy was entitled to a jury trial.

The dissent would have broadly construed the public rights exception to any action Congress by statute assigns to an administrative agency. The dissent also protested that dozens of agencies impose civil penalties in administrative proceedings and Jarkesy will undermine their work.

So, how might Congress get around this decision? Claims sounding in equity do not require a jury. Rather than civil penalties, an agency could seek disgorgement, which is an equitable remedy. Hence, the SEC could demand that Jarkesy give up all illegal profits that unjustly enriched him. While not a perfect fit, workarounds are available to defeat the majority’s opinion.

Despite possible workarounds, Jarkesy is a significant blow to the administrative state. Agencies are used to exercising quasi-legislative, quasi-executive, and quasi-judicial powers all under one roof. For actions implicating the Seventh Amendment, the agencies now must resort to the federal courts and a jury of the defendant’s peers. Congress is limited in removing cases from the federal judiciary. Jarkesy is a win for the Constitution and citizens in the crosshairs of administrative agencies.