SEC v. Jarkesy
603 U.S. 109 (2024)
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Rule of Law:
When the Securities and Exchange Commission (SEC) seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial because such an action is a suit at common law that does not fall within the narrow 'public rights' exception.
Facts:
- Between 2007 and 2010, George Jarkesy, Jr., launched two investment funds, managing them through his firm, Patriot28, LLC.
- Jarkesy and Patriot28 raised approximately $24 million from 120 investors.
- The SEC alleged that Jarkesy and Patriot28 misrepresented the investment strategies they employed for the funds.
- The SEC also alleged that Jarkesy and Patriot28 lied to investors about the identity of the funds' auditor and prime broker.
- Jarkesy and Patriot28 were further accused of inflating the value of the funds' assets in order to collect larger management fees.
Procedural Posture:
- The Securities and Exchange Commission (SEC) initiated an in-house administrative enforcement proceeding against George Jarkesy, Jr., and his firm, Patriot28, LLC.
- An SEC Administrative Law Judge (ALJ), presiding over the proceeding, issued an initial decision finding that Jarkesy and Patriot28 had committed securities fraud.
- The full SEC Commission granted review of the ALJ's decision and issued a final order affirming the violations and imposing a $300,000 civil penalty, among other remedies.
- Jarkesy and Patriot28 (petitioners) sought judicial review of the SEC's final order in the U.S. Court of Appeals for the Fifth Circuit.
- A divided panel of the Fifth Circuit granted the petition for review and vacated the SEC's order, holding that the agency proceeding violated the Seventh Amendment right to a jury trial.
- The SEC (petitioner) filed a petition for a writ of certiorari, which the U.S. Supreme Court granted.
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Issue:
Does the Seventh Amendment entitle a defendant to a jury trial when the Securities and Exchange Commission (SEC) brings an enforcement action seeking civil penalties for securities fraud?
Opinions:
Majority - Chief Justice Roberts
Yes, the Seventh Amendment entitles the defendant to a jury trial. The analysis involves two steps. First, an SEC action for civil penalties for fraud implicates the Seventh Amendment because it is a 'suit at common law.' This is determined by looking at the cause of action and the remedy. The remedy—civil penalties—is the more important factor and is legal, not equitable, in nature because it serves to punish and deter rather than merely restore the status quo. Furthermore, the cause of action, securities fraud, is deeply rooted in and analogous to common-law fraud. Second, the 'public rights' exception does not apply. That exception is narrow and historically covers matters that could be exclusively determined by the political branches, such as revenue collection, customs, or immigration. A securities fraud action is a matter of private right, quintessentially the 'stuff of the traditional actions at common law.' The Court's decision in Granfinanciera, which held that a statutory fraud claim required a jury trial, is controlling. Atlas Roofing is distinguishable because it involved a new statutory public right (OSHA) with no common-law analogue, whereas securities fraud is a statutory codification of a common-law claim.
Concurring - Justice Gorsuch
Yes, the Seventh Amendment requires a jury trial, and this conclusion is reinforced by Article III and the Fifth Amendment's Due Process Clause. The SEC's in-house adjudication system, which combines the functions of prosecutor and adjudicator while denying a jury, is constitutionally suspect and analogous to the juryless vice-admiralty courts used by the British in colonial America, a practice that spurred the Revolution. The Constitution's framers deliberately created a system with independent judges (Article III), jury trials (Seventh Amendment), and traditional procedures (Due Process Clause) to prevent such concentrations of power. The 'public rights' doctrine is a narrow, historically grounded exception and should not be expanded based on modern policy arguments or efficiency, as doing so erodes fundamental protections for individual liberty.
Dissenting - Justice Sotomayor
No, the Seventh Amendment does not entitle the defendant to a jury trial. The Seventh Amendment's jury requirement applies only in Article III courts, so the crucial question is whether Congress could validly assign this matter to an agency for adjudication. Under the 'public rights' doctrine, Congress can. This Court's precedents have long established that when the government sues in its sovereign capacity to enforce statutory obligations it created, the matter involves public rights that can be adjudicated in a non-Article III forum without a jury. Atlas Roofing is directly on point, as it upheld an agency's power to impose civil penalties for violations of a new statutory scheme. The majority improperly relies on Tull (which involved a suit in federal court) and Granfinanciera (which involved a dispute between private parties) while ignoring the dispositive fact that this case involves the government acting as a sovereign. This decision wrongly upends centuries of settled practice and precedent, threatening the constitutionality of hundreds of statutes and the enforcement authority of dozens of federal agencies.
Analysis:
This decision significantly curtails the power of administrative agencies to adjudicate certain enforcement actions in-house, particularly those analogous to common-law claims seeking punitive remedies like civil penalties. It strengthens the role of the Seventh Amendment as a structural check on executive power and signals the Court's increasing skepticism of the administrative state. The ruling will likely force the SEC and other agencies to bring more enforcement actions in federal court, which may increase litigation costs and timelines but affords defendants the protection of a jury trial. The decision narrows the applicability of the 'public rights' doctrine, tying it more closely to its historical origins and limiting Congress's ability to create juryless administrative tribunals for newly created statutory rights that mirror common-law actions.
