Just lit a match and tossed it

The Supreme Court just lit a match and tossed it into dozens of federal agencies

SEC v. Jarkesy could render much of the federal government unable to function.

by Ian Millhiser

On Thursday, the Court handed down a 6-3 decision, on a party-line vote, that could render a simply astonishing array of federal laws unenforceable. As Justice Sonia Sotomayor writes in dissent, “the 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.”

The dispute in Securities and Exchange Commission v. Jarkesy turns on whether a hedge fund manager accused of defrauding investors is entitled to a jury trial to determine whether he violated federal securities law, or whether the government acted properly when it tried him before an official known as an “administrative law judge” (ALJ).

The charges against this hedge fund manager, George Jarkesy, are civil and not criminal, which matters because the Constitution treats civil trials very differently from criminal proceedings. While the Sixth Amendment provides that “in all criminal prosecutions” the defendant is entitled to a jury trial, the Seventh Amendment provides a more limited jury trial right, requiring them “in suits at common law” (more on what that means later).

If the question of whether Jarkesy is entitled to a jury trial arose in the absence of any precedent, then he’d have a reasonably strong case that he should prevail. But, as Sotomayor lays out in her dissent, nearly 170 years of precedent cut against Jarkesy’s position.

Congress, moreover, has enacted a wide range of laws on the presumption that many enforcement proceedings may be brought before administrative law judges and not juries. According to one somewhat dated review of federal law cited by Sotomayor, “by 1986, there were over 200” federal statutes calling for trials before ALJs.

Some of these laws, including the one allowing the SEC to bring enforcement actions against people like Jarkesy, give the government a choice. That is, they allow federal agencies to bring a proceeding either before an ALJ or before a federal district court that may conduct a jury trial. So the SEC, at least, has the option of retrying Jarkesy in a district court.

But, as Sotomayor warns, many federal agencies — including the “Occupational Safety and Health Review Commission, the Federal Energy Regulatory Commission, the Federal Mine Safety and Health Review Commission, the Department of Agriculture, and many others” — may only seek civil penalties in administrative proceedings. That means that a wide array of laws guaranteeing workplace safety and advancing other important federal goals could cease to function after Jarkesy.

The Jarkesy case, in other words, is an example of the Roberts Court at its most arrogant. Were the Court tasked with resolving the dispute on a blank slate, then there are entirely plausible arguments that Mr. Jarkesy should be entitled to a jury trial. But that ship sailed many years ago, and the federal government has operated for an exceedingly long time on the assumption that many disputes can be adjudicated by ALJs.

By upending this longstanding assumption, the Court may have just thrown huge swaths of the federal government — particularly enforcement by those agencies Sotomayor listed — into chaos.

So when does a civil defendant have a right to a jury trial?

The Seventh Amendment provides that civil litigants generally have a right to a jury trial “in suits at common law,” but what does that mean?

Broadly speaking, the common law refers to the body of judge-made law developed by English courts, much of which was imported into American law and which still governs many American lawsuits involving matters such as contracts and torts. Common law courts typically had the power to award money damages to a victorious plaintiff, which distinguishes them from courts of “equity” that had the power to issue injunctions and other non-monetary relief.

Chief Justice John Roberts’s majority opinion in Jarkesy leans heavily into the kind of remedy available to the SEC if it prevails in a suit before an ALJ. Like a suit before a common law court, the SEC sought monetary damages from Jarkesy, and thus this case resembles a suit at common law in that way. As Roberts writes, “money damages are the prototypical common law remedy.”

Additionally, Roberts notes that common law courts also historically had the power to hear suits alleging fraud. Thus, the suit against Jarkesy resembles a common law suit in that way as well.

Most of this part of Roberts’s opinion is uncontroversial. His disagreement with Sotomayor turns on a longstanding exception to the jury trial right known as the “public rights” doctrine.

The term “common law” refers to judge-created law developed over the course of many centuries, as distinct from law created by acts of a state legislature or Congress. The somewhat unhelpfully named public rights doctrine provides that many lawsuits that arise under federal statutes are not subject to the Seventh Amendment, and thus the government is free to try these cases in an administrative proceeding without a jury.

The earliest Supreme Court case applying this public rights doctrine was handed down in 1856, so it isn’t exactly an idea invented by 20th-century Progressive Era reformers who wanted to eliminate barriers to law enforcement. As the Court explained in Atlas Roofing v. OSHA (1977), the doctrine applies when Congress passes a law authorizing suits by the federal government that are “unknown to the common law.”

In “cases in which the Government sues in its sovereign capacity to enforce public rights created by statutes within the power of Congress to enact,” Atlas Roofing held, “the Seventh Amendment does not prohibit Congress from assigning the factfinding function and initial adjudication to an administrative forum with which the jury would be incompatible.”

Thus, this public rights doctrine does have limits. It applies only to suits brought by the federal government, and only when the government sues to enforce a federal statute authorizing a kind of suit that did not already exist under the common law. But, in those circumstances, trial before an ALJ is permitted.

Though Roberts’s opinion denies that it overrules Atlas Roofing and similar cases, he speaks of that decision in disparaging terms. And his opinion places such an extraordinary amount of weight on the fact that the SEC sought money damages against Mr. Jarkesy that it is unclear how much, if any, of the public rights doctrine remains.

Were this the first time that such an issue came up, that might not be that big of a deal. Had Congress known a century ago that the Supreme Court would someday eliminate its ability to assign certain cases to ALJs, it could have written hundreds of statutes differently so that they would be enforced in jury trials. It also could have appropriated sufficient money to federal agencies to allow them to hire trial counsel who could bring proceedings in federal district courts.

But Congress has instead operated for many decades under the assumption that cases like Atlas Roofing are good law. And now the Supreme Court has pulled the rug out from under a multitude of federal statutes.

This Court doesn’t typically care this much about the Seventh Amendment

In light of the Court’s newfound appreciation for civil jury trials, it’s worth noting that the Court’s Republican appointees have historically read the Seventh Amendment very narrowly in cases that do not involve hedge fund managers.

The Court has long held that companies may force their workers and consumers to sign away their right to sue that company in a real court — one that can conduct a jury trial — and instead have the case heard by a private arbitrator. The Court has, at times, claimed that forced arbitration is lawful because workers and consumers nominally consent to arbitration when they decide to do business with the company. But many of the Court’s arbitration decisions raise very serious questions about whether the justices understand what the word “consent” means.

In Epic Systems v. Lewis (2018), for example, the Court held that an employer can simply order their employees to give up their right to a jury trial, under pain of termination.

So the Court’s approach to the Seventh Amendment is incoherent, and after Jarkesy, it could lead to dozens or even hundreds of federal laws arbitrarily ceasing to function.