The US Supreme Court’s ruling in Securities and Exchange Commission v. Jarkesy significantly shifts power from agencies to courts, altering the landscape of federal enforcement structures in the years to come.
For many regulatory programs, this change could imply the cessation of enforcement actions for statutes that do not authorize agencies to sue in court. The substitution of Article III judges for administrative adjudicators is seen by some as a win, given judges’ presumed lack of policy agendas. However, the decision incurs substantial costs. Court litigation is often longer and more expensive than administrative adjudication, inevitably leading to fewer enforcement cases, especially for agencies without explicit congressional authority to pursue court actions.
The SEC’s case against George Jarkesy for securities fraud illustrates the shifted dynamics. The SEC had options to either sue in court or use administrative adjudication — a process involving an adjudicator with a level of independence to hold hearings and determine facts. Critics argue that administrative adjudication is biased, given the limited procedural and evidence rules and the lack of insulation for agency heads deciding administrative appeals.
Despite these objections, Congress has long been believed to have the authority to sanction administrative adjudication. The Jarkesy ruling disrupts this notion.
Jarkesy’s Seventh Amendment demand for a jury trial is supported by four key cases. Notably, in 1987, Tull v. United States held that jury trials are warranted for government-imposed civil money penalties if they closely resemble traditional common-law claims.
Conversely, other precedents, including the 1977 case Atlas Roofing v. OSHRC, allowed Congress to establish administrative adjudication even when the Seventh Amendment would normally require a jury trial in court. The 1989 Granfinanciera v. Nordberg case further confirmed that private disputes often entail a jury trial right, even if administered in a non-Article III court.
The divergence lies in the idea of “public rights,” as elucidated in a 1932 case, Crowell v. Benson. This concept was further developed in Atlas Roofing, asserting that matters involving the government in a sovereign capacity qualify as “public rights” cases. The Jarkesy ruling, however, redefines this scope narrowly.
By asserting that SEC’s pursuit of civil penalties for securities fraud entitles the defendant to a jury trial, the Supreme Court concluded that the SEC must now approach an Article III court. This marks a significant departure from Atlas Roofing. The Court’s interpretation of “public rights” now specifies narrow exceptions for areas historically subject to administrative proceedings, such as immigration and tax.
This decision challenges the application of Article III requirements in numerous regulatory programs beyond the SEC. It raises questions about the nature of enforcement activities in legislation related to unfair trade practices, environmental pollution, market manipulation, and other areas where federal agencies have traditionally wielded considerable enforcement autonomy.
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