Notice & Comment

What SEC v. Jarkesy Means for the Future of Agency Adjudication

Today, in SEC v. Jarkesy, the Supreme Court held that under the Seventh Amendment a regulated entity is entitled to a civil jury trial when the SEC seeks to impose civil penalties. In other words, when it comes to these civil penalties, Congress, by statute, cannot force regulated entities to defend themselves before an in-house SEC adjudicator rather than before a jury in federal court. Chief Justice Roberts, writing for the 6-3 Court, concluded:

A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator. Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands. Jarkesy and Patriot28 are entitled to a jury trial in an Article III court. We do not reach the remaining constitutional issues and affirm the ruling of the Fifth Circuit on the Seventh Amendment ground alone.

Narrow Opinion: The Issues Not Addressed

As the last line of the quote suggests, in important ways this is the narrower decision that most court watchers and administrative law scholars expected after oral argument. After all, in the decision under review, the Fifth Circuit had held that certain aspects of agency adjudication at the SEC violate the Constitution in three independent ways:

  1. In-house SEC adjudication that imposes a civil penalty for fraud liability offends the Seventh Amendment right to a jury trial and should instead be brought in federal court.
  2. Congress violated the nondelegation doctrine by providing the SEC with no “intelligible principle” for deciding whether to pursue a civil-penalty action before an administrative law judge (ALJ) or in an Article III federal court.
  3. How the SEC is structured violates the constitutional rule from Free Enterprise Fund v. PCAOB that Congress cannot impose two levels of removal protection between ALJs and the President.

By only deciding the first question presented, the Court did not resurrect the nondelegation doctrine, which at least one legal scholar worried would “destroy[] the federal government’s administrative capacity—taking down its ability to protect Americans’ health and safety while unleashing fraud in the financial markets.”

Nor did the Court reach the third question, which could have affected the decisional independence and impartiality of more than 10,000 agency adjudicators across the federal government. On that third question, however, it’s only a matter of time until the Supreme Court must weigh in, as the issue is already pending in number of cases in the lower courts. When the constitutional issue does make it back up to the Court, I expect the Court to strike down the dual-layer removal protections for ALJs. Melissa Wasserman, Aaron, Nielson, and I explore this issue further in a forthcoming article, including how Congress and the Executive Branch could respond to mitigate the negative effects of such a ruling.

Not Narrow Opinion: Seemingly No Limiting Principle on Seventh Amendment Claim

While the Court’s decision is narrow because it avoids the two constitutional questions that, in my view, would have a much bigger impact on the administrative state, the decision is not as narrow as I had expected. I thought the Court would take great pains to limit its Seventh Amendment holding to the peculiarities of this particular SEC civil penalty statute, to avoid calling into doubt the dozens of other civil penalty regimes under federal law.

(I’m less interested in the actual doctrinal debate between the majority and dissent. But the basic idea is that the Seventh Amendment guarantees a civil jury right for “[s]uits at common law, where the value in controversy shall exceed twenty dollars.” The majority concludes that a civil penalty under securities law is essentially a common law fraud lawsuit, and Congress’s attempt to codify it just makes it “a common law suit in all but name.” The dissent disagrees as to the claim’s characterization, but also makes a broader argument about how Congress has the constitutional authority to create new statutory claims for civil penalties brought by the federal government in its sovereign capacity and assign them for adjudication outside of Article III federal courts.)

Of particular relevance, consider the majority’s treatment of its 1977 decision in Atlas Roofing Co. v. Occupational Safety and Health Review Commission. The Atlas Roofing Court had upheld as constitutional the agency’s ability to impose civil penalties through in-house agency adjudication in the context of workplace safety. Although the Chief Justice goes to great lengths to distinguish the civil penalty statutory scheme in Jarkesy from that in Atlas Roofing, he also seems to bury the precedent, especially in footnotes three and four.

The Concurrence: A Public Rights Theory Based on the Due Process Clause, Seventh Amendment, and Article III

In his concurrence, Justice Gorsuch, joined by Justice Thomas, buries Atlas Roofing even deeper:

The high-water mark of the movement toward agency adjudication may have come in 1977 in Atlas Roofing Co. v. Occupational Safety and Health Review Comm’n, 430 U.S. 442. Some have read that decision to suggest the category of public rights might encompass pretty much any case arising under any “‘new statutory obligations,’” Brief for Petitioner 22 (quoting Atlas Roofing, 430 U.S., at 450). It is a view the government essentially espouses in this case. But without reference to any constitutional text or history to guide what does or does not qualify as a public right, that view has (unsurprisingly) proven wholly unworkable.

It did not take long for this Court to realize as much. Just 12 years later, in Granfinanciera, S. A. v. Nordberg, 492 U.S. 33 (1989), this Court cabined Atlas Roofing so narrowly that the author of Atlas Roofing complained that the Court had “overrul[ed]” it. 492 U.S., at 71, n. 1 (White, J., dissenting); see ante, at 23, n.3. Far from endorsing the notion that any new statutory obligation could qualify for treatment as a public right, for example, the Court in Granfinancieria read Atlas Roofing as having “left the term ‘public rights’ undefined.” 492 U.S., at 51, n. 8. And since then this Court has, in one case after another, “adhere[d]” only to Atlas Roofing’s “general teaching” that Congress may constitutionally adopt “new statut[es]” assigning matters that indeed qualify as “public rights … to an administrative agency.” 492 U.S., at 51 (internal quotation marks omitted); see, e.g., Stern, 564 U.S., at 489–490; Oil States, 584 U.S., at 345.

Speaking of the concurrence, the main difference between the majority’s approach and the concurrence’s is that Chief Justice Roberts grounds the holding in the Seventh Amendment while only briefly mentioning the related Article III concerns. Justice Gorsuch, by contrast, weaves together the Seventh Amendment, Article III, and the Due Process Clause to formulate his vision for the public rights doctrine. That’s the first half of the concurrence. The second half focuses on responding to the dissent’s arguments, and the back and forth between the concurrence and dissent is a really engaging read.

The Dissent: “Today’s decision is a power grab.”

Speaking of the dissent, Justice Sotomayor, joined by Justices Kagan and Jackson, pens a really fun read. She largely adopts the Solicitor General’s approach to the public rights doctrine and the Seventh Amendment. But the more interesting stuff (at least to me) is Justice Sotomayor’s broad vision for Congress’s constitutional authority to structure regulatory schemes and how the majority’s contrary view actually violates the separation of powers.

It is not a bold prediction that we’re going to see the following paragraph reproduced in countless law review articles and judicial opinions in the years (and decades) to come:

Make no mistake: Today’s decision is a power grab. Once again, “the majority arrogates Congress’s policymaking role to itself.” Garland v. Cargill, 602 U. S. 406, 442 (2024) (SOTOMAYOR, J., dissenting). It prescribes artificial constraints on what modern-day adaptable governance must look like. In telling Congress that it cannot entrust certain public-rights matters to the Executive because it must bring them first into the Judiciary’s province, the majority oversteps its role and encroaches on Congress’s constitutional authority. Its decision offends the Framers’ constitutional design so critical to the preservation of individual liberty: the division of our Government into three coordinate branches to avoid the concentration of power in the same hands. The Federalist No. 51, p. 349 (J. Cooke ed. 1961) (J. Madison). Judicial aggrandizement is as pernicious to the separation of powers as any aggrandizing action from either of the political branches.

This must have been a really fun paragraph to write. And yet the cognitive dissonance feels strong here, as the dissent seems to be asserting that we would better preserve individual liberty by allowing agencies to impose civil penalties in house as opposed to requiring the government to prove the propriety of those penalties to a jury. But the larger point, of course, is that the Supreme Court is limiting the ability of Congress and the President — the political branches — to structure the regulatory state to address pressing problems facing the nation.

The Future of Agency Adjudication after Jarkesy

So what ultimately will be the impact of Jarkesy on agency adjudication? The Court only strikes down as unconstitutional the lack of a civil jury right for civil penalties under securities law. But, as Justice Sotomayor roadmaps in her dissent, there are at least two dozen agencies that can impose civil penalties in administrative proceedings today, including CFPB, CFTC, EPA, FCC, FDA, FMC, FMSHRC, FRA, DOJ, DOT, FERC, HHS, HUD, MSPB, OSHA, Treasury, USDA, and USPS.

It’s reasonable to expect many of these civil penalty statutory regimes to be challenged in the near future. It is difficult to read the Court’s decision in Jarkesy to meaningfully distinguish many from the SEC’s regime. On the other hand, by not overruling Atlas Roofing, the Court seems to leave in place agency adjudication with respect to all sorts of claims that do not have a clear analogue at common law. Moreover, perhaps further distinctions will emerge, and the Court could try to provide more guidance. I am not too hopeful on that front.

In the meantime, as David Zaring and I have argued elsewhere, the SEC could restore its in-house adjudication system today, by promulgating procedural rules that recognize a right to remove. The same is true for other agencies facing similar constitutional challenges in the future. A regulated party should have a right to remove an SEC enforcement action for civil penalties from an in-house agency adjudication to a federal court. This proposal, we argue, would resolve the Seventh Amendment problem from Jarkesy and result in better regulatory policy. Congress, of course, could also adopt it as a legislative fix. But the SEC need not wait for any legislative action.

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