View source for SEC v. Jarkesy

{{Short description|Case before the Supreme Court of the United States}}
{{Infobox US Supreme Court case
| Litigants = SEC v. Jarkesy
| ArgueDate = November 29
| ArgueYear = 2023
| DecideDate = June 27
| DecideYear = 2024
| FullName = Securities and Exchange Commission, Petitioner v. George R. Jarkesy, Jr., et al.
| Docket = 22-859
| OralArgument = https://www.oyez.org/cases/2023/22-859
| QuestionsPresented = # Whether statutory provisions that empower the Securities and Exchange Commission to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment;
# Whether statutory provisions that authorize the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the non-delegation doctrine;
# Whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection.
| Holding = When the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.
| Majority = Roberts
| JoinMajority = Thomas, Alito, Gorsuch, Kavanaugh, Barrett
| Concurrence = Gorsuch
| JoinConcurrence = Thomas
| Dissent = Sotomayor
| JoinDissent = Kagan, Jackson
|LawsApplied=[[Seventh Amendment to the United States Constitution|U.S. Const. amend. VII]]; [[Securities Act of 1933]]; [[Securities Exchange Act of 1934]]; [[Investment Advisers Act of 1940]]
}}'''''Securities and Exchange Commission v. Jarkesy''''' (Docket No. 22-859)<ref name=":0">[https://www.ca5.uscourts.gov/opinions/pub/20/20-61007-CV0.pdf] ''Jarkesy v. SEC'', No. 20-61007, 2022 U.S. App. LEXIS 13460 | __ F.4th __ | 2022 WL 1563613, 2022 BL 172464 (5th Cir. May 18, 2022).</ref> was a case before the [[Supreme Court of the United States]]. In May 2022, the [[United States Court of Appeals for the Fifth Circuit|Court of Appeals for the Fifth Circuit]] held, under certain statutory provisions, the [[U.S. Securities and Exchange Commission|Securities and Exchange Commission]]'s administrative adjudication of fraud claims without jury trials in their administrative proceedings with their own [[administrative law judge]]s (ALJs) rather than [[Article III judge]]s violated three provisions of the Constitution. The justices ruled that the Securities and Exchange Commission violated the [[Seventh Amendment to the United States Constitution|Seventh Amendment]].{{cn|date=June 2024}}<ref>{{Cite web |title=SEC v. Jarkesy: A Groundbreaking Supreme Court Decision with Significant Implications for Securities Enforcement {{!}} Insights {{!}} Greenberg Traurig LLP |url=https://www.gtlaw.com/en/insights/2024/6/sec-v-jarkesy-a-groundbreaking-supreme-court-decision-with-significant-implications-for-securities-enforcement |access-date=2024-11-12 |website=www.gtlaw.com |language=en}}</ref><ref name="scotusblog decision"/>
First, the enforcement of [[Dodd–Frank Wall Street Reform and Consumer Protection Act|Dodd Frank]]'s civil penalties for securities fraud in the SEC's administrative proceedings violated the [[Seventh Amendment to the United States Constitution|Seventh Amendment]]'s guarantee of a jury trial because (a) the case involved traditional common law claims (fraud), (b) [[Civil penalty|civil penalties]] are a [[legal remedy]] to which the Seventh Amendment attaches, thus (c) the claims are not a matter of [[public rights]] that can be adjudicated in [[administrative proceeding]]s on the mere basis the government is the plaintiff;<ref>{{Cite news |last=McGill |first=Kevin |date=May 20, 2022 |title=Ruling in securities case could mean limits on regulators |newspaper=Washington Post |url=https://www.washingtonpost.com/politics/ruling-in-securities-case-could-mean-limits-on-regulators/2022/05/20/abf68af6-d879-11ec-be17-286164974c54_story.html}}</ref><ref name=":2">{{Cite news |last=Hill |first=Jon |date=May 18, 2022 |title=5th Circ. Says SEC's In-House Court Is Unconstitutional |work=Law360 |url=https://www.law360.com/pulse/articles/1494745}}</ref> 	Second, under the first clause of [[Article One of the United States Constitution|Article I]], where "All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives," Dodd Frank's broad grant of unfettered discretion to the SEC to choose between enforcing identical claims in either [[United States district court|federal district court]] or its own administrative tribunal violated the [[nondelegation doctrine]] because (a) the assignment of claims to a non-[[Article Three of the United States Constitution|Article III]] tribunal is an [[Article One of the United States Constitution|Article I]] power, and (b) Congress provided—as the SEC conceded<ref name=":7">Oral Argument at 27:20, ''Jarkesy v. SEC'', No. 20-61007 (5th Cir. argued October 10, 2021), https://www.youtube.com/watch?v=-ZpW81630Ms&t=1627s.</ref><ref name=":2" />—no intelligible principle to the SEC. Third, the two layers of for-cause removal protections of ALJs violated [[Article Two of the United States Constitution|Article II's]] [[Take Care Clause]].<ref name=":1"/><ref>{{cite news |date=May 22, 2022 |title=Constitutional Thunder Out of the Fifth Circuit |publisher=Wall Street Journal |url=https://www.wsj.com/articles/constitutional-fifth-circuit-court-appeals-securities-and-exchange-commission-sec-jarkesy-administrative-state-supreme-court-constitutional-11653236377 |access-date=May 24, 2022}}</ref><ref name=":2" />
The United States Supreme Court issued its decision in June 2024, and in a 6-3 opinion, ruled that those charged with civil penalties by the SEC have the right to a jury trial, under the Seventh Amendment, but did not consider the other questions raised.
==Background==
Prior<ref name="Harvard Law Review">{{cite journal |title=RECENT LEGISLATION: ADMINISTRATIVE LAW — AGENCY DESIGN — DODD-FRANK ACT CREATES THE CONSUMER FINANCIAL PROTECTION BU- REAU — Dodd-Frank Act |journal=Harvard Law Review |date=2011 |volume=124:2123 |page=2125 |url=http://cdn.harvardlawreview.org/wp-content/uploads/pdfs/vol12408_recentlegislation.pdf}}</ref> to the Dodd-Frank Wall Street Reform and Consumer Protection Act,<ref>[https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf Pub. Law No. 111-203, § 929P, 124 Stat. 1376, 1862–64 (2010) (codified at 15 U.S.C. §§ 77h-1(g), 78u-2(a)(2), 80a-9(d), and 80b-3(i))]</ref> only registered entities such as broker-dealers or licensed investment advisers were subject to the [[Investment Advisers Act of 1940|Investment Advisers Act]]'s administrative enforcement provisions. In response to the [[Great Recession]],<ref>{{cite journal |last1=Atkins |first1=Paul S. |date=2008 |title=Evaluating the Mission: A Critical Review of the History and Evolution of the SEC Enforcement Program |url=https://ir.lawnet.fordham.edu/jcfl/vol13/iss3/1 |journal=Fordham J. Corp. & Fin. L. |volume=13 |page=367}}</ref> Congress purported to empower<ref name=":3" /> the SEC to impose harsh civil penalties<ref>Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. Law No. 111-203, § 929P(a)</ref> against ''any''<ref name="Harvard Law Review" /> private citizen through its own administrative adjudications with only limited, after-the-fact review by a federal court of appeals.<ref>{{cite journal |last1=Platt |first1=Alexander I. |date=2015 |title=SEC Administrative Proceedings: Backlash and Reform |url=https://ccl.yale.edu/sites/default/files/files/Platt%20-%20SEC%20Administrative%20Proceedings(1).pdf |journal=The Business Lawyer |volume=71 |issue=Winter 2015–2016}}</ref> Dodd-Frank effectively bestowed<ref>''Compare'' [[Dodd–Frank Wall Street Reform and Consumer Protection Act|Dodd-Frank Act]], Pub. L. No. 111-203, § 929P(a), 124 Stat. 1376, 1862 (2010) (amending 15 U.S.C. § 77h-1 to allow SEC to seek <u>monetary penalties</u> in cease and desist actions filed in administrative proceedings); ''with'' 15 U.S.C.§§78u-2(a), (b)(1) (2012) (allowing SEC to pursue civil monetary penalties in administrative hearings arising from violations of [[Securities Exchange Act of 1934|1934 Act]]); ''and'' 15 U.S.C. § 77h-1(a) (2006) (allowing for cease and desist orders to be issued by SEC without going to court against <u>any person</u> that is "violating, has violated, or is about to violate" [[Securities Act of 1933]] "after notice and opportunity for hearing" in administrative proceeding).</ref> to the SEC "coextensive" authority with federal court to impose civil penalties.<ref>Congress wanted to “mak[e] the SEC’s authority in administrative penalty proceedings coextensive with its authority to seek penalties in Federal court.” H. Rep. No. 111-687, at 78 (2009) (House Report by Rep. Barney Frank for the Committee on Financial Services, discussing “The Investor Protection Act of 2009,” H.R. Res. 3817).</ref><ref name="Harvard Law Review" /><ref name=":3" />
In 2007 and 2009, [[George Jarkesy]] created two small hedge funds totaling {{USD|24 million|long=no}} that invested in bridge loans to start-up companies, equity investments principally in microcap companies, and life settlement policies. Jarkesy brought in Patriot28 LLC as an investment advisor to these funds.<ref name="nytimes"/> In part due the Great Recession, the funds lost value, and Jarkesy and Patriot28 were alleged by the SEC to have overestimated the value of the hedge fund assets and made other false claims.<ref name="wsj"/> Under Dodd-Frank's new provisions, after an investigation, the SEC opted to use internal proceedings rather than a jury trial to evaluate its claims against Jarkesy and Patriot28.<ref name="wsj"/> The SEC initiated the enforcement action on March 22, 2013, with its ALJ.<ref name="nytimes">{{cite web | url = https://www.nytimes.com/live/2022/05/18/business/economy-news-stocks-inflation#sec-jury-trial-judge | title =  A federal appeals court says the S.E.C.'s use of an in-house judge violates defendants' rights. | first = Matthew | last = Goldstein | date = May 18, 2022 | accessdate = May 19, 2022 | work = [[The New York Times]] }}</ref><ref>''John Thomas Capital Mgmt. Grp. LLC, d/b/a Patriot28 LLC'', Exchange Act Release No. 70989, 2013 SEC LEXIS 3862 (Dec. 5, 2013). https://www.sec.gov/alj/aljdec/2014/id693cff.pdf</ref> The SEC's enforcement mechanism does not provide a jury trial or access to an Article III judge, only an in-house administrative law judge at the SEC.<ref>{{Cite web |last=Ruger |first=Todd |date=2023-11-29 |title=Supreme Court casts doubt on agency enforcement actions without juries |url=https://rollcall.com/2023/11/29/supreme-court-casts-doubt-on-agency-enforcement-actions-without-juries/ |access-date=2024-01-05 |website=Roll Call |language=en-US}}</ref>
In 2014, Jarkesy and Patriot28 filed a collateral challenge to the administrative enforcement action in district court to stay the administrative proceedings, alleging that the proceedings violated his Seventh Amendment<ref name=":5">{{Cite journal |last=Howard |first=Joanna |date=2017 |title=Reforming SEC ALJ Proceedings |journal=University of Michigan Journal of Law Reform |volume=50 |issue=3 |pages=797–815|doi=10.36646/mjlr.50.3.reforming |s2cid=54870787 |doi-access=free }}</ref> and equal protection rights,<ref name=":4">{{Cite journal |last=Dvorak |first=Michael |date=2015 |title=Note, SEC Administrative Proceedings and Equal Protection "Class of One" Challenges: Evaluating Concerns About SEC Forum Choices |url=https://ssrn.com/abstract=2591416 |journal=Columbia Business Law Review |volume=2015 |pages=1203 |via=SSRN}}</ref> that Dodd-Frank violated the Non-delegation Doctrine,<ref name=":5" /> and that the ALJs violate the Appointments Clause.<ref name=":5" /> On appeal, the [[United States Court of Appeals for the D.C. Circuit]] in 2015 applied ''Thunder Basin Coal Co. v. Reich'''s<ref>510 U.S. 200 (1994), available at https://supreme.justia.com/cases/federal/us/510/200/</ref> implied jurisdictional preclusion of collateral lawsuits to the SEC's statutory structure, holding<ref>''Jarkesy v. Sec. & Exch. Comm'n'', 803 F.3d 9 (D.C. Cir. 2015), available at https://casetext.com/case/jarkesy-v-sec-amp-exch-commn</ref> that federal courts do not have subject matter jurisdiction to hear even structural constitutional claims until after the adjudicative process and final order of the Commission.<ref name="blooomberg" /> The D.C. Circuit did not address the merits of the constitutional objections<ref name=":6">{{Cite news |last=Feldman |first=Noah |date=2015-10-02 |title=SEC's New Court Powers Aren't Going Away |language=en |work=Bloomberg.com |url=https://www.bloomberg.com/opinion/articles/2015-10-02/sec-s-new-court-powers-aren-t-going-away |access-date=2022-05-25}}</ref> but held that Jarkesy was required to raise and exhaust his constitutional objections—about the ALJs and the SEC—''to'' the ALJ and the SEC before judicial review of final agency action would be available.<ref>{{cite journal |last1=Glassman |first1=Thomas |title=Constitutional Challenges to SEC Administrative Proceedings |journal=Constitutional Challenges to SEC Administrative Proceedings, 16 J. Bus. & Sec. L. 47 (2015) |date=2015 |volume=16 |page=47}}</ref><ref name=":4" /><ref name=":5" /><ref name=":6" />
Five years after the SEC initiated the enforcement action against Jarkesy, the [[Supreme Court of the United States]] held in ''[[Lucia v. Securities and Exchange Commission]]'' in 2018 that the SEC's ALJs are inferior officers of the Executive Branch subject to the [[Appointments Clause]] of [[Article II of the United States Constitution]] and must be appointed by the President or a delegated officer. The Supreme Court's decision allowed any defendant in pending SEC administrative proceedings before unconstitutionally appointed ALJs to request a new ALJ and hearing. Jarkesy and Patriot28 waived the ''[[Lucia v. Securities and Exchange Commission|Lucia]]'' error remedy to avoid prolonging the adjudicative process.
In 2020, seven years after initiating the enforcement action, the Commission concluded that based on existing evidence from the ALJ's proceedings, Jarkesy and Patriot28 were liable, and the Commission imposed $300,000 in civil penalties and $685,000 in disgorgement. Jarkesy was also barred from any future investments-related activities.<ref name="blooomberg" /> As did the ALJ, the commission also rejected each of Jarkesy's constitutional challenges. Jarkesy appealed to the Fifth Circuit.<ref>{{Cite news |last=Editorial Board |date=May 22, 2022 |title=Constitutional Thunder Out of the Fifth Circuit |work=The Wall Street Journal |url=https://www.wsj.com/articles/constitutional-fifth-circuit-court-appeals-securities-and-exchange-commission-sec-jarkesy-administrative-state-supreme-court-constitutional-11653236377 |access-date=May 24, 2022}}</ref><ref name="wsj">{{cite news |last1=Loyola |first1=Maria |title=A Judicial Ruling Challenges the SEC's Illegal Power |url=https://www.wsj.com/articles/judicial-ruling-challenges-sec-jarkesy-security-and-exchange-commission-illegal-seventh-amendment-fifth-circuit-constitution-executive-power-11653247133 |access-date=May 24, 2022 |publisher=Wall Street Journal |date=May 22, 2022}}</ref>
Five months after oral argument, the SEC issued a statement revealing a control deficiency where SEC staff misappropriated internal documents relating to ''Jarkesy'' along with ''[[SEC v. Cochran|Cochran v. SEC]]''<ref>{{Cite journal |date=May 6, 2022 |title=Cochran v. SEC: Fifth Circuit Creates Circuit Split by Allowing Prefinal Judicial Review of SEC Enforcement Proceeding |url=https://harvardlawreview.org/2022/05/cochran-v-sec/ |journal=Harvard Law Review |volume=135 |pages=1963}}</ref> which also raised constitutional challenges before the ALJ. Dating back to 2017, adjudication staff submitted memos to the commission, and because internal databases were improperly configured, personnel from the enforcement division had access to these adjudication memos. Under 5 U.S.C. § 554(d) of the [[Administrative Procedure Act (United States)|Administrative Procedure Act]] (APA), these memoranda are supposed to be kept confidential within divisions to keep adjudicative, investigative and prosecutorial staff separated. The SEC claimed that while ten reports were affected, they did not find any evidence that the improper disclosures impacted its findings.<ref name="thomsonreuters">{{Cite news |last=Ho |first=Soyoung |date=April 7, 2022 |title=Critics Press for Reform as SEC Fails to Separate Enforcement and Adjudicatory Functions |work=Thomson Reuters |url=https://tax.thomsonreuters.com/news/critics-press-for-reform-as-sec-fails-to-separate-enforcement-and-adjudicatory-functions/}}</ref><ref>{{Cite web |orig-date=April 5, 2022 |title=Commission Statement Relating to Certain Administrative Adjudications |url=https://www.sec.gov/news/statement/commission-statement-relating-certain-administrative-adjudications |website=sec.gov}}</ref> This led to additional criticism of the SEC's enforcement practices from groups such as the [[U.S. Chamber of Commerce]] and called for reform of the SEC.<ref name="thomsonreuters" />
==Fifth Circuit==
The Fifth Circuit ruled on May 18, 2022, 2–1 in favor of Jarkesy. Judge [[Jennifer Walker Elrod]], writing for the majority, found the SEC's administrative enforcement against Jarkesy to be unconstitutional in three ways:<ref name="blooomberg"/>
* The enforcement of civil penalties for fraud before ALJs denies <ref name="Wall Street Journal">{{cite news |title=Constitutional Thunder Out of the Fifth Circuit |url=https://www.wsj.com/articles/constitutional-fifth-circuit-court-appeals-securities-and-exchange-commission-sec-jarkesy-administrative-state-supreme-court-constitutional-11653236377 |access-date=May 24, 2022 |publisher=Wall Street Journal |date=May 22, 2022}}</ref> the accused the right to a jury trial <ref>{{cite news |last1=Editorial Board |title=Constitutional Thunder Out of the Fifth Circuit |url=https://www.wsj.com/articles/constitutional-fifth-circuit-court-appeals-securities-and-exchange-commission-sec-jarkesy-administrative-state-supreme-court-constitutional-11653236377 |access-date=May 24, 2022 |date=May 22, 2022}}</ref> guaranteed by the [[Seventh Amendment of the United States Constitution]]. Generally, Congress can create public rights<ref>{{cite journal |last1=Baude |first1=William |title=Adjudication Outside Article III |journal=Harvard Law Review |date=2020 |volume=133 |page=1511}}</ref> if Congress properly<ref>{{cite journal |last1=Harrison |first1=John |date=2019 |title=Public Rights, Private Privileges, and Article III |url=https://www.georgialawreview.org/article/11740-public-rights-private-privileges-and-article-iii |journal=Ga. L. Rev. |volume=54 |page=143}}</ref> assigns to administrative adjudication claims that are foreign to common law if jury trials would "go far to dismantle the statutory scheme" or "impede swift resolution" of the claims created by statute.<ref>''Granfinanciera, S.A. v. Nordberg'', 492 U.S. 33 (1989), available at https://supreme.justia.com/cases/federal/us/492/33/</ref> However, civil penalties for fraud were known<ref>Tull v. United States, 481 U.S. 412, 422 (1987) (“A civil penalty was a type of remedy at common law that could only be enforced in courts of law.”).</ref> to the common law,<ref>{{Cite news |last=Bishop |first=Keith Paul |date=May 20, 2022 |title=The Fifth Circuit Sides With Justinian and Blackstone |work=The National Law Review |url=https://www.natlawreview.com/article/fifth-circuit-sides-justinian-and-blackstone}}</ref><ref>3 William Blackstone, [[Commentaries on the Laws of England]] *42 (explaining the common-law courts’ jurisdiction over “actions on the case which allege any falsity or fraud; all of which savour of a criminal nature, although the action is brought for a civil remedy; and make the defendant liable in strictness to pay a fine to the king, as well as damages to the injured party”).</ref> and Congress assigned the same claims to district court where the SEC routinely seeks civil penalties with jury trials.<ref name="Wall Street Journal"/><ref>''See, e.g.'', ''SEC v. Fowler'', 6 F.4th 255, 258–60 (2d Cir. 2021); ''SEC v. Johnston'', 986 F.3d 63, 71 (1st Cir. 2021); ''SEC v. Life Partners Holdings, Inc.'', 854 F.3d 765, 772 (5th Cir. 2017); ''SEC v. Quan'', 817 F.3d 583, 587 (8th Cir. 2016); ''SEC v. Miller'', 808 F.3d 623, 626 (2d Cir. 2015); ''SEC v. Jasper'', 678 F.3d 1116, 1119, 1121–22 (9th Cir. 2012); ''SEC v. Seghers'', 298 F. App’x 319, 321 (5th Cir. 2008).</ref> Though The Supreme Court explained in ''[[Granfinanciera, S.A. v. Nordberg]]''<ref>492 U.S. 33 (1989).</ref> that "Congress ''cannot eliminate'' a party’s Seventh Amendment right to a jury trial ''merely by relabeling'' ''the cause of action'' to which it attaches and placing exclusive jurisdiction in an administrative agency or a specialized court of equity." Thus, the Fifth Circuit held that the claims were not properly assigned to an administrative tribunal, and the SEC's decade-long administrative enforcement action against Mr. Jarkesy violated his Seventh Amendment right to a jury trial.<ref name="Wall Street Journal"/>
* Congress' delegation to the SEC of absolute discretion<ref name=":2" /> to select, ''carte blanche'', either an in-house adjudication—in front of the SEC's own ALJs<ref>{{cite journal |last1=Jones |first1=Ryan |title=The Fight Over Home Court: An Analysis of the SEC's Increased Use of Administrative Proceedings |journal=SMU L. Rev. |date=2015 |volume=68 |page=507}}</ref> and no Seventh Amendment right—or in federal district court—where defendants have a right to demand a jury trial—for the same claims violates the [[nondelegation doctrine]] because Congress provided no intelligible principle. The SEC contended that the agency's broad discretion under Dodd Frank to choose between administrative and district court did not have nor need an intelligible principle because, it contended, the choice of forum is prosecutorial discretion under ''[[Heckler v. Chaney]]'', though there is no precedent<ref name=":3">{{Cite journal |last=Zaring |first=David |date=May 2016 |title=Enforcement Discretion at the SEC |url=https://texaslawreview.org/wp-content/uploads/2016/05/Zaring.FinalPDF.pdf |journal=Texas Law Review |volume=94 |pages=1155 |via=}}</ref> that applies unreviewable ''Heckler'' discretion to an agency's purported ''carte blanche'' choice of enforcing the same cases in either in-house administrative proceedings or in district court. Judge Elrod explained that Congress uniquely possesses the [[Article One of the United States Constitution|power to assign]] claims to non-Article III tribunals and determine procedural rights for enforcement actions, and that power cannot be wholesale delegated to a federal agency with no intelligible principle to guide the agency's decision as to which claims and cases to assign to administrative proceedings.<ref name="Wall Street Journal"/><ref name=":2" /><ref name=":3" />
* Finally, [[Lucia v. Securities and Exchange Commission|ALJs are considered inferior officers]] under [[Article Two of the United States Constitution|Article II]] but had at least two layers of for-cause protection from removal, which interfered with the President's ability to [[Take Care Clause|Take Care that the laws be faithfully executed]].<ref name="Wall Street Journal"/>
Judge [[Andy Oldham]] joined Judge Elrod in the majority. Senior Judge [[W. Eugene Davis]] dissented.<ref name="blooomberg">{{cite web | url = https://news.bloomberglaw.com/banking-law/sec-in-house-hearing-violates-jury-trial-right-fifth-cir-says | title = SEC In-House Hearing Violates Right to Jury, Fifth Cir. Says | first = Jennifer | last = Bennett | date = May 18, 2022 | accessdate = May 19, 2022 | work = [[Bloomberg Law]] }}</ref>
The attorney for Jarkesy is S. Michael McColloch, while Daniel J. Aguilar of the Civil Division of the Department of Justice argued for the SEC.<ref>{{Cite news |last=Godoy |first=Jody |date=May 20, 2022 |title=SEC in-house judges violate right to jury trial, appeals court rules |work=Reuters |url=https://www.reuters.com/legal/government/sec-in-house-judges-violate-right-jury-trial-appeals-court-rules-2022-05-18/}}</ref><ref name=":7" />
==Supreme Court==
The Supreme Court had already granted ''[[certiorari]]'' to ''[[Axon Enterprise, Inc. v. Federal Trade Commission]]'' and ''SEC v. Cochran'' for the 2022–23 term, which address whether defendants in administrative proceedings can challenge in district court the constitutionality of ALJs within the [[Federal Trade Commission]] and the SEC before final agency action. The Supreme Court granted the petition for [[certiorari]] in ''Cochran'' two days prior to the Fifth Circuit's decision.<ref name=":1">{{Cite news |last1=Godoy |first1=Jody |date=2022-05-18 |title=SEC in-house judges violate right to jury trial, appeals court rules |language=en |work=Reuters |url=https://www.reuters.com/legal/government/sec-in-house-judges-violate-right-jury-trial-appeals-court-rules-2022-05-18/ |access-date=2022-05-19}}</ref><ref>{{cite web | url = https://www.scotusblog.com/2022/05/justices-grant-review-in-two-cases-that-test-jurisdiction-of-district-courts/ | title  = Justices grant review in two cases that test jurisdiction of district courts | first = Amy | last = Howe | date = May 16, 2022 | accessdate = May 24, 2022 | work = [[SCOTUSBlog]] }}</ref>
The U.S. Supreme Court ruled in favor of Jarkesy on June 27, 2024, in a 6–3 decision.<ref name="20240627NYTSavageLiptak">{{cite news |author1=Charlie Savage and Adam Liptak |title=Again Curbing Regulatory Agencies, Supreme Court Rejects S.E.C.’s Tribunals |url=https://www.nytimes.com/2024/06/27/us/politics/supreme-court-sec-tribunal.html |access-date=July 12, 2024 |work=The New York Times |publisher=The New York Times |archive-url=https://web.archive.org/web/20240709010354/https://www.nytimes.com/2024/06/27/us/politics/supreme-court-sec-tribunal.html |archive-date=July 9, 2024|date=June 27, 2024}}</ref> The majority opinion, written by Chief Justice [[John Roberts]] and joined by Justices [[Samuel Alito]], [[Clarence Thomas]], [[Neil Gorsuch]], [[Brett Kavanaugh]], and [[Amy Coney Barrett]], found that the current use of agency tribunals for those charged with civil violations by the SEC violated the rights recognized by the Seventh Amendment. Roberts contended that the actions taken by the SEC to seek monetary fines from those charged with violations of civil law, with intent to punish rather than to compensate victims, were based on [[common law]], such that the right to a jury trial is assured by the Seventh Amendment. The decision did not consider the merits of the two other questions presented related to the non-delegation doctrine or the legality of ALJs.<ref name="scotusblog decision"/>
Justice [[Sonia Sotomayor]] wrote the dissent joined by Justices [[Elena Kagan]] and [[Ketanji Brown Jackson]]. Sotomayor called the majority decision "a devastating blow to the manner in which our government functions", as the majority did not apply the long-standing public rights doctrine of ''[[Atlas Roofing Co. v. Occupational Safety and Health Review Commission|Atlas Roofing Co. v. OSHRC]]'' (1977). When Congress creates a public right enforced by the federal government, it can "assign the matter for decision to an agency without a jury, consistent with the Seventh Amendment." The majority's ruling, Sotomayor argued, would create confusion around how public and private rights should be handled.<ref name="scotusblog decision">{{cite web | url = https://www.scotusblog.com/2024/06/justices-limit-major-sec-tool-to-penalize-fraud/ | title = Justices limit major SEC tool to penalize fraud | first = Ronald | last = Mann | date = June 27, 2024 | accessdate = June 28, 2024 | work = [[SCOTUSBlog]]|archive-url=https://web.archive.org/web/20240712172321/https://www.scotusblog.com/2024/06/justices-limit-major-sec-tool-to-penalize-fraud/|archive-date=July 12, 2024 }}</ref>
==Impact==
At the end of March 2022, the SEC only had seven pending administrative enforcement actions in front of its three ALJs.<ref>{{Cite news |last=Godoy |first=Jody |date=May 20, 2022 |title=Ruling on SEC judges could have broad impact |url=https://www.reuters.com/legal/government/ruling-sec-judges-could-have-broad-impact-2022-05-20/}}</ref> Legal experts believe ''Jarkesy'' is the first case that has held an administrative enforcement action brought to its ALJ must be tried by a jury.<ref name=":1" /> Since ''Jarkesy'', at least three lawsuits have been filed claiming that the [[United States Department of Labor]]'s administrative proceedings for enforcing anti-discrimination requirements for federal contractors are unconstitutional.<ref>{{cite news |last1=Wiessner |first1=Daniel |title=US Labor Department's in-house anti-bias cases unconstitutional, lawsuit claims |url=https://www.reuters.com/legal/government/us-labor-departments-in-house-anti-bias-cases-unconstitutional-lawsuit-claims-2024-09-10/ |agency=Reuters |date=September 10, 2024}}</ref>
== References ==
{{reflist}}
== External links ==
* [https://www.ca5.uscourts.gov/opinions/pub/20/20-61007-CV0.pdf Fifth Circuit decision] ''Jarkesy v. SEC'', No. 20-61007, 2022 U.S. App. LEXIS 13460 | __ F.4th __ | 2022 WL 1563613, 2022 BL 172464 (5th Cir. May 18, 2022)
* [https://www.c-span.org/video/?531891-1/securities-exchange-commission-v-jarkesy-oral-argument SCOTUS oral arguments audio]
* [https://www.supremecourt.gov/oral_arguments/argument_transcripts/2023/22-859_n758.pdf SCOTUS oral arguments transcript]
* [https://www.supremecourt.gov/opinions/23pdf/22-859_1924.pdf SCOTUS opinion]
{{US7thAmendment}}
[[Category:United States Seventh Amendment case law]]
[[Category:United States Constitution Article One case law]]
[[Category:Civil liberties in the United States]]
[[Category:United States administrative case law]]
[[Category:Appointments Clause case law]]
[[Category:United States separation of powers case law]]
[[Category:United States jury case law]]