I. INTRODUCTION
The Supreme Court’s June 27 decision in Securities and Exchange Commission v. Jarkesy marks a pivotal shift in administrative law, potentially limiting administrative adjudication of agency enforcement across the federal regulatory state. In Jarkesy, the Supreme Court held that the Seventh Amendment entitles defendants to a jury trial when the SEC seeks civil penalties for securities fraud. The holding broadly suggests that only federal courts, not administrative agencies, have the ability to enforce a remedy, such as civil fines or sanctions, for violations arising “at common law.” This article provides an overview of Jarkesy, its implications, and its potential impacts on businesses and individuals operating in heavily regulated industries.

II. CASE OVERVIEW
In 2013, the SEC initiated an enforcement action for civil penalties against George Jarkesy and his firm for alleged securities fraud. The SEC had two options for bringing its enforcement action to obtain civil penalties: file a case in federal court to be tried by jury, or adjudicate the matter through its own in-house system before an administrative law judge (ALJ) (instead of a jury). The SEC chose the latter option. An in-house evidentiary hearing was held. In 2014, the SEC’s ALJ issued an order determining that Jarkesy had committed fraud and violated securities laws. Various remedies were ordered, including a $300,000 civil penalty levied against Jarkesy, and the disgorgement of $685,000 of illicit profits.

Jarkesy petitioned for review in the Fifth Circuit. The Fifth Circuit vacated the SEC order, holding that the SEC in-house proceeding was unconstitutional under the Seventh Amendment. The SEC filed a petition for a writ of certiorari, which was granted.

In a 6-3 decision, Chief Justice Roberts delivered the majority opinion, with Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joining. A concurring opinion was filed by Justice Gorsuch, in which Justice Thomas joined. Justice Sotomayor filed a dissenting opinion, in which Justices Kagan and Jackson joined.

III. HOLDING AND CASE ANALYSIS
The Court held: “When the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.” The central legal issue was whether a civil penalty action brought by the SEC implicates the Seventh Amendment. The Court concluded it does.

The Court’s decision was grounded in the historical context of the Seventh Amendment, which provides:

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.

U.S. CONST. amend. VII (emphasis added). Common law claims “must be heard” by a jury. The Court concluded that the SEC’s civil penalty actions are akin to common law fraud actions, and therefore implicate the Seventh Amendment. Common law claims include “statutory” claims that are legal in nature. Factors to consider in determining whether a statutory claim is legal in nature include:

• The cause of action resembles “common law” causes of action, which are presumptively private rights.
• The remedy is the type that was traditionally obtained in a court of law.

Between the two, the remedy is the “more important” factor. Noting the remedy was dispositive in Jarkesy’s case, the Court recited “Actions by the government to recover civil penalties under statutory provisions” historically have been a “type of action in debt requiring trial by jury.” Civil penalties that are designed to punish and deter, rather than to compensate, are a type of remedy at common law that can only be enforced in courts of law. After concluding the Seventh Amendment was implicated, the Court then analyzed the Public Rights exception.

A. Public Rights Exception

Under the Public Rights exception, “Congress may assign the matter for decision to an agency without a jury, consistent with the Seventh Amendment.” The Court determined that the exception did not apply here for two main reasons:

• Separation of powers. Based on separation of powers, for matters involving common law (i.e., private rights), Congress may not remove such matters from the Article III federal courts. Congress’s delegation of agency adjudicatory powers outside of the Article III courts violates the nondelegation doctrine.
• Historical context dictates adjudication outside of federal courts. Certain categories of adjudication, such as relations with Indian tribes, administration of public lands, pensions, patent rights, and immigration, fall within the public rights exception.

IV. IMPLICATIONS AND DISSENTING OPINION
Beyond the SEC, the holding in Jarkesy has broad implications for other federal agencies that utilize administrative law judges for civil penalties sought by federal agencies. Jarkesy has the potential to significantly curtail an agency’s ability to use its in-house adjudicative process for seeking civil penalties, and may alter agency enforcement. Initially, we can expect to see litigation arguing that an ALJ lacks the authority to preside over a dispute in any administrative proceeding involving the imposition of a penalty, with a case-by-case evaluation of whether an agency’s claim has roots in the common law. The ruling may increase federal court litigation by shifting certain agency civil penalty enforcement actions away from agency administrative adjudication.

According to the dissent, the decision in Jarkesy is a “massive sea change” in administrative adjudication. The dissent opined that the administrative adjudication process serves important public interests, such as “greater efficiency and expertise, transparency and reasoned decision making, as well as uniformity, predictability, and greater political accountability.”

A. Impact on Highly Regulated Industries

SEC v. Jarkesy could potentially impact civil penalty cases in administrative proceedings, including enforcement matters involving the Consumer Financial Protection Bureau and the Environmental Protection Agency. Although the specific impact of Jarkesy on highly regulated industries is unclear, the decision likely means increased litigation costs and longer resolution times for enforcement actions. Federal court proceedings are generally more expensive and time-consuming compared to administrative adjudications. Businesses and individuals who are accustomed to operating within regulatory frameworks, may have to prepare for more resource-intensive legal cases before federal courts.

Additionally, different courts and juries may interpret complex regulatory issues differently, leading to a lack of uniformity in enforcement. This inconsistency could create uncertainty for regulated industries that rely on predictable and consistent applications of the law.

Finally, Jarkesy reduces an agency’s ability to adjudicate penalty matters internally, which may diminish the role of expert agency judgment in resolving regulatory issues. Agencies may find it challenging to maintain the same level of specialized focus and understanding in federal court, which is typically more generalist in nature.

V. CONCLUSION
Jarkesy marks a pivotal shift in administrative law, emphasizing the importance of the Seventh Amendment’s jury trial right in the realm of civil penalties. Although it may pose challenges for regulatory agencies and increase litigation in federal courts, it also highlights the fundamental constitutional protections afforded to defendants in enforcement actions.