Lecturer in Law Matthew Wiener writes, “A Supreme Court decision seemingly limited to securities fraud could imperil regulatory adjudication broadly.”
At The Regulatory Review, Lecturer in Law Matthew Wiener explores the Supreme Court’s decision in SEC v. Jarkesy.
Jarkesy is “the first time the Court has ever struck down a federal law assigning adjudicatory authority to a federal agency,” writes Wiener. “I doubt it will be the last.”
Wiener’s commentary is part of The Regulatory Review’s annual series of essays reflecting on the Court’s major regulatory decisions from the preceding term. Throughout the series, leading lawyers and scholars with a diverse range of backgrounds analyze the legal issues surrounding the Court’s most prominent cases and provide insight into the recent term’s impact on law, regulation, and legal rights.
From The Regulatory Review:
No recent U.S. Supreme Court term has included as many consequential regulatory decisions as the one just concluded. Of these decisions, SEC v. Jarkesy may turn out to be the most consequential—maybe even more so than the Court’s headline-grabbing decision overturning the Chevrondoctrine. Undoubtedly, Jarkesy will render unconstitutional some agencies’ statutory authority to remedy regulatory violations by imposing civil penalties in administrative proceedings. Less obviously, but maybe more importantly, Jarkesy may render unconstitutional some agencies’ authority to remedy regulatory violations at all.
Jarkesy addressed whether the U.S. Constitution’s Seventh Amendment allows the Securities and Exchange Commission (SEC) to adjudicate administratively—or “in house” as SEC critics like to say—its claim for civil penalties against a person accused of securities fraud who insists on a jury trial in federal court. The Amendment provides: “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.”
Is an SEC proceeding to recover civil penalties a “suit at common law”? If so, the accused may insist on a federal court jury trial, thereby preventing the SEC from adjudicating in house.
Much as expected, the Court answered “yes.” It explained that the phrase “suit at common law” is not limited to “‘common law forms of action recognized’” when the Seventh Amendment was ratified in 1791. It encompasses any claim that is “legal in nature,” including any statutory claim, whenever established. What it excludes, most importantly, is any equitable claim.
An SEC civil penalties claim, the Court concluded, is legal rather than equitable. What makes it so is mainly the remedy sought. Remedies designed to punish and deter, such as civil penalties, could only be “enforced” at the time of Seventh Amendment’s ratification in courts of law, as distinguished from courts of equity. Our federal system, by the way, no longer distinguishesbetween courts of equity and law.
The nature of the cause of action, the Court added, “confirms” its characterization of the SEC’s claim as legal. A securities fraud claim and a common law fraud claim, although not “identical,” areclose enough for Seventh Amendment purposes. Both “target” conduct “misrepresenting and concealing” material facts.
But characterizing the SEC’s claim as legal did not alone resolve the case. The Court still had to decide a related but much more contested question: whether the claim falls within what has come to be known as the “public-rights exception.” That exception allows the U.S. Congress to assign a claim to an agency for adjudication—without a jury—as long as the agency’s resulting decision is reviewable in federal court. If the exception applies, the Seventh Amendment does not.
“Public right” is a slippery term… .
The Regulatory Review is a daily online publication that provides accessible coverage of regulatory policymaking and enforcement issues across a full range of regulatory topics and from a variety of perspectives.
Launched in 2009 and operating under the guidance of Cary Coglianese, Edward B. Shils Professor of Law and Professor of Political Science, The Review is edited by students at Penn Carey Law. It is part of the overarching teaching, research, and outreach mission of the Penn Program on Regulation (PPR), which draws together more than 60 faculty from across the University of Pennsylvania.