In SEC v. Jarkesy, the Supreme Court held that the Seventh Amendment requires the U.S. Securities and Exchange Commission (“SEC” or “the Commission”) to litigate in federal district court when seeking civil monetary penalties for alleged violations of the antifraud provisions of the federal securities laws.1 In other words, the Supreme Court held that the SEC’s practice, as reflected in the Jarkesy case, of seeking civil monetary penalties through litigated enforcement actions before the Commission’s Administrative Law Judges (“ALJs”) violated the constitutional right to trial by jury.2
Although the Jarkesy dissent predicts that the decision will effect a “massive sea change”3 and legal commentators are heralding the decision’s significance, in reality, Jarkesy will have little practical effect at the SEC. Frankly, the SEC practice held unconstitutional in Jarkesy was a thing of the past long before the Supreme Court, or even the Fifth Circuit, considered George Jarkesy’s petition for review. The SEC’s Division of Enforcement sharply curtailed its use of the administrative forum for litigated enforcement actions in response to earlier constitutional attacks on the Agency’s use of ALJs.4 As a result, much of the Commission’s litigated enforcement docket has shifted to federal court already. So, practically speaking, Jarkesy prohibits the SEC from resuming a practice it largely abandoned years ago.
To be sure, Jarkesy is a significant decision. But its impact likely will be greater outside of the SEC—on other agencies that seek civil monetary penalties in litigated administrative proceedings. The Seventh Amendment analysis employed by the Supreme Court in Jarkesy is not specific to the SEC or limited to the facts of Jarkesy.5 Therefore, respondents facing civil monetary penalties in administrative proceedings before other agencies likely will use Jarkesy as a roadmap for litigation challenges.
The success of those litigation challenges is not a forgone conclusion, however. Under Jarkesy, only certain administrative proceedings seeking civil monetary penalties implicate the Seventh Amendment’s right to a jury trial and are not subject to the “public rights” exception.6 Therefore, Jarkesy is by no means the end of ALJs or litigated administrative proceedings at any agency and certainly not at the SEC.
1SEC v. Jarkesy, No. 22-859, 2024 WL 3187811 (U.S. June 27, 2024).
2Id., at *17 (“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator . . . [We] affirm the ruling of the Fifth Circuit on the Seventh Amendment ground alone.”).
3Id., at *45 (Sotomayor, J., dissenting) (“[T]he constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress. . . . Litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today, but those of us who cherish the rule of law have nothing to celebrate.”).
4See, e.g., Axon Enter., Inc. v. FTC, 598 U.S. 175 (2023) (holding that federal district court had subject matter jurisdiction to hear constitutional challenge to U.S. Securities and Exchange Commission (“SEC”) administrative proceedings); Lucia v. SEC, 585 U.S. 237 (2018) (holding that the SEC’s Administrative Law Judges were unconstitutionally appointed, entitling respondents in administrative proceedings to new hearings in front of officials appointed pursuant to the strictures of the Appointments Clause).
5See Jarkesy, No. 22-859, 2024 WL 3187811, at *8-10 (evaluating application of Seventh Amendment and “public rights” exception by analyzing (1) whether the case was a suit “at common law” and “not of equity or admiralty jurisdiction” and (2) whether Congress “assign[ed] the matter for decision to an agency without a jury, consistent with the Seventh Amendment”).
6See id., at 9, 14 (“[T]he civil penalties in this case are designed to punish and deter, not to compensate. They are therefore a type of remedy at common law that could only be enforced in courts of law . . .” and “they target the same basic conduct as common law fraud, employ the same terms of art, and operate pursuant to similar legal principles.” (internal citations, quotations, and alterations omitted)).
[View source.]
