The dissent that questioned certain jury trials

In Dissent is a recurring series by Anastasia Boden on Supreme Court dissents that have shaped (or reshaped) our country.

By the time George Jarkesy reached a real court, nearly a decade had passed since he had first been pulled into an administrative tribunal – and that quasi-court had already found him guilty.

Jarkesy’s saga began in 2011, when the Securities and Exchange Commission opened an investigation into the hedge fund manager for allegedly misleading investors. Two years later, the SEC made a choice that would shape everything that followed: it declined to bring its case in federal court before a jury and instead routed the prosecution to one of its own in-house administrative law judges.

What ensued was no ordinary trial. There was no jury, the rules of evidence were looser, and the judge was embedded within the very agency prosecuting the case. And far from being speedy, the proceedings took seven years. It would take another four years before the Supreme Court affirmed that Jarkesy had been entitled to a jury trial all along. The majority worried that Congress was expanding the administrative state at the expense of the Seventh Amendment. The dissenters warned that requiring a jury trial would knee-cap efficient regulation.

But the year and a half since has shown that the sky has not fallen.

A right born of experience

Most people think of the right to a jury trial in the context of the Sixth Amendment and criminal cases. But the Seventh Amendment extends that right to some civil cases, too. It requires a jury in “suits at common law” with at least $20 at stake (roughly $800 today, though the figure has never been increased), and limits the ability of judges to overturn a jury’s findings of fact.

The Seventh Amendment was born out of the Founder’s experience with vice-admiralty courts – tribunals set up by the British to adjudicate maritime disputes. Because juries had served as an effective buffer between ordinary citizens and imperial authority, in the late 1700s Britain shifted adjudication of most trade violations to vice-admiralty courts, which lacked juries and were thus better suited to securing convictions. The deprivation of trial by jury, a right John Adams called “the heart and lungs of liberty,” was one of the chief complaints of the Declaration of Independence. And it was so important to the Founders that the Constitution likely would not have been ratified had there not been an assurance that an Amendment protecting that right would follow.

Because fraud is one of the oldest common law claims, it is exactly the kind of civil case that would seem to fall under the Seventh Amendment. But after the 2008 financial crisis, Congress passed the Dodd-Frank Act and greatly expanded the SEC’s enforcement authority – allowing it to choose between seeking civil penalties in federal court or its own in-house tribunals. At the same time, the SEC’s enforcement policy was shifting from remedial to punitive: Congress expanded the available remedies from injunctions and disgorgement to large financial penalties (even if no investor ever suffered any financial loss) and exclusion from the industry. With Dodd-Frank, the SEC could choose to pursue those harsh penalties in-house rather than in court.

SEC tribunals are very different from a jury trial. First, there’s no jury. Second, cases are heard by an in-house administrative law judge or one of the Commissioners (the very people who authorize SEC prosecutions in the first place). Appeals, too, are routed to SEC Commissioners, and only then to a federal judge, whose review is deferential. Third, the rules of evidence are looser. For instance, hearsay is admissible.

This scheme gave the SEC a distinctively “home court” advantage that was borne out by statistics: one study found that the SEC won about 90% of in-house proceedings, compared to just 69% of its prosecutions in court. The Wall Street Journal reported that in fiscal year 2014, the SEC prevailed in 100% of its administrative proceedings, while prevailing in only 61% of cases in federal court. Anecdotal evidence suggests, perhaps unsurprisingly, that ALJs feel pressure to rule for their agency-employer.

Defenders of the system, however, labeled it more “efficient,” given the streamlined discovery and other processes, and the fact that ALJs are alleged experts. (This is despite Jarkesy’s own case dragging on for over a decade.)

Litigation ensues

SEC enforcement staff had investigated Jarkesy for two years before they gave a privileged, closed-door presentation to the Commissioners, who authorized an administrative enforcement action against him. The SEC issued a press release touting the merits of its case that same day. Years later, after an ALJ found him guilty and the Commission affirmed this on appeal, Jarkesy was finally able to appeal to federal court and argue, among other things, that the proceedings violated his Seventh Amendment right to a jury trial.

The SEC responded that this case fell within the realm of “public rights” – a category of disputes that Congress may assign to agency adjudication without a jury. The (rather convoluted) theory behind the public rights doctrine is that some disputes are inherently governmental determinations that are not judicial in nature. The Supreme Court had created various balancing tests over the years to determine whether a case was subject to the public rights exception, including asking whether the dispute was one that typically arose between private parties and was heard in common law courts or whether instead the government was acting in its sovereign capacity under a Congressionally-created statutory scheme to vindicate the public interest. Classic examples of public rights cases are revenue collections, customs enforcement, immigration determinations, and computations of public benefits. But in the SEC’s telling, the fact that the government was doing the suing in the name of the public was enough.

The U.S. Court of Appeals for the 5th Circuit disagreed. It not only ruled that the SEC’s ALJ-scheme violated the Seventh Amendment, but also that Congress had violated the separation of powers by delegating too much power to the SEC and by limiting the president’s ability to remove ALJs. If the court had accepted the SEC’s public rights theory, the 5th Circuit said, it would mean that “[w]hen the federal government sues, no jury is required. This is perhaps a runner-up in the competition for the ‘Nine Most Terrifying Words in the English Language.’”

Three long opinions on efficiency

The Supreme Court affirmed the 5th Circuit in a 6-3 opinion written by Chief Justice John Roberts. The majority opinion didn’t dismantle the administrative state or call into question every agency adjudication, and it didn’t reach the 5th Circuit’s decisions on non-delegation or removal. It ruled only that when the government seeks to impose a quintessentially common law cause of action and remedy (here, fraud and a financial penalty), it must respect the jury trial right that attaches. In short, these were judicial questions that historically had been litigated via jury trial. What matters is the substance of the suit and its historical pedigree, not where it is brought, who brings it, or how it is labeled.

As the majority saw it, the SEC’s arguments about efficiency were not enough. “Otherwise, evading the Seventh Amendment would become nothing more than a game, where the government need only identify some slight advantage to the public from agency adjudication to strip its target of the protections of the Seventh Amendment.”

Justice Neil Gorsuch, joined by Justice Clarence Thomas concurred, writing separately to emphasize that the Seventh Amendment does not operate alone and instead works together with Article III and the due process clause to limit how the government may deprive an individual of life, liberty, or property. Though the dissenters claimed to focus on precedent, he accused them of behaving like “a picky child at the dinner table,” “select[ing] only a small handful [of cases] while leaving much else untouched.” He asked why, if Congress could evade the Seventh Amendment by simply turning over enforcement of a statute to the government, the Founders would have bothered with a right to a jury trial at all. And he observed that, while the dissenters had shown considerably more concern for procedural safeguards in the criminal context, there was no reason why the government couldn’t use the same broad public rights theory to evade the Sixth Amendment right to a jury trial in criminal cases as well.

Gorsuch concluded by observing that even without the power of in-house adjudication, the SEC was hardly without power. It could still bring the same charges. It just had to do so in front of a jury.

In dissent, Justice Sonia Sotomayor, joined by Justices Elena Kagan and Ketanji Brown Jackson, warned of “chaos” and accused the majority of taking “a wrecking ball to… settled law and stable government practice.” The practice of routing civil penalties to in-house adjudication, she argued, had “been so settled that it bec[ame] an undisputable reality of how ‘our Government has actually worked.’” But the majority had thrown that all out.

On that same theme, Sotomayor characterized the majority’s decision as “a seismic shift in this Court’s jurisprudence” and “a devastating blow to the manner in which our government functions.” The dissent then catalogued the supposed damage, listing dozens of agencies that had the option of in-house adjudication and noting that there were more than 200 statutes authorizing them to impose penalties. “For those and countless other agencies, all the majority can say is tough luck.” While “litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today,” she said that “those of us who cherish the rule of law have nothing to celebrate.”

She concluded with what was lost. Requiring a trial by jury would undercut “important benefits” that in-house adjudication provides, “such as greater efficiency and expertise, transparency and reasoned decisionmaking, as well as uniformity, predictability, and greater political accountability.” But even if not, in her view, this was a policy debate. Some might think jury trials better or worse in speed, or at “check[ing] government overreach.” By mandating them, the majority had “prescribe[d] artificial constraints on what modern-day adaptable governance must look like.”

The aftermath

The Jarkesy dissent was passionate and sweeping. But despite its claims, since the decision the sky has not fallen. The SEC had always been largely precluded from seeking penalties in-house prior to Dodd-Frank, so in many ways Jarkesy was actually a return to the status quo. Agencies have reportedly pulled back from seeking large civil penalties, but this arguably means the system is working as intended. If they do pursue them, they must do so in front or a jury trial or by consent in-house, or not at all.

As for Jarkesy himself, there’s no public record of the SEC retrying him in court.

All constitutional rights limit enforcement tools to some extent. The right to a trial by ordinary citizens drawn from the community was intended to stand between the individual and the state, efficient or not, and whether the defendant has clean or dirty hands. Jarkesy was accused of something bad. And as Gorsuch wrote in his concurrence, “[p]eople like Mr. Jarkesy may be unpopular.” But “that should not obscure what is at stake in his case or others like it. While incursions on old rights may begin in cases against the unpopular, they rarely end there.”