The majority of the 5th Circuit Court of Appeals last year denied the government's petition for en banc review of Jarkesy v. SEC, 34 F.4th 446, 449 (5th Cir. 2022). A divided panel held (2-1) that when the Securities and Exchange Commission, asserting fraud, brings a civil law enforcement action, the defendant is entitled to a trial by jury. The majority opinion by Jennifer Walker Elrod - the Harvard Federalist Society's 2018 alumni of the year - has now been allowed to stand.
Judge Elrod evoked Thomas Jefferson, and other the founders for whom "v)eneration of the jury as a safeguard of liberty" was an important element of the grievances against the Crown which led to independence. As she framed the issue "The Seventh Amendment guarantees Petitioners a jury trial because the SEC’s enforcement action is akin to traditional actions at law to which the jury trial right attaches."
The Solicitor General petitioned the United States Supreme Court for a writ of certiorari. In case # 22-589 the Department of Justice has addressed the Seventh Amendment and the so-called "non-delegation doctrine".
The government's petition for certiorari , which the court granted in June 2023, poses three questions:
1. Whether statutory provisions that empower the Securities and Exchange Commission (SEC) to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment.
2. 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 nondelegation doctrine.
3. Whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection.
The Seventh Amendment to the United States Constitution preserves the English common law right to jury trial in civil actions in controversies in excess of $20. The right of trial by jury, stunningly recognized by the Fifth Circuit in Jarkesy v. SEC is rooted not in Congressional intent - but rather by inference from the 7th Amendment which declares that the common law right of trial by jury "shall be preserved". No such thing as an administrative agency's civil enforcement action was known at common law. But adversaries of the SEC have asserted a close analogy to the historic action for debt - which was a "law court's" and therefore afforded a right to trial by jury.
In SEC v. Lipson, 278 F.3d 656, 662 (7th Cir. 2002) Richard Posner held that a defendant was entitled under Tull v. U.S., 481 U.S. 412, 414 (1987) to a jury trial as to liability when the SEC sought a civil money penalty
The modern state has developed a large cadre of Administrative Law Judges. They hear Social Security disability cases, labor disputes, and enforcement actions under the Securities Act of 1934. But even before the recent enunciation of the "major questions doctrine" the conservative majority of the Supreme Court - as voiced by John Roberts in City of Arlington v. FCC (2013) - has demonstrated deep hostility to the "administrative state". In the Roberts view consolidation of powers in an administrative agency threatens tyranny. The Chief Justice there deplored the Federal Communications Commission for “as a practical matter” exercising “legislative power by promulgating regulations”, “executive power by policing compliance.. and judicial power by adjudicating enforcement actions act imposing sanctions”. Such an “accumulation of all powers...may justly be pronounced the very definition of tyranny”, he wrote, citing the gospel according to James Madison in The Federalist No. 47. Nor is this an oddity according to Roberts as such “accumulation...is a central feature of modern American government.”
The drumbeat of hostility is plain. Judge Elrod, for the divided panel majority, rejected the ALJ system of agency enforcement of its own laws and regulations, saying:
Trial by jury therefore is a “fundamental” component of our legal system “and remains one of our most vital barriers to governmental arbitrariness.” Reid v. Covert, 354 U.S. 1, 9–10 (1957). “Indeed, ‘[t]he right to trial by jury was probably the only one universally secured by the first American state constitutions . . . .’” Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 341 (1979) (Rehnquist, J., dissenting) (quoting Leonard Levy, Legacy of Suppression: Freedom of Speech and Press in Early American History 281 (1960)).
As historian John Fabian Witt demonstrated in Patriots and Cosmopolitans, Republican trial lawyers trusted jurors but mistrusted Roosevelt's "alphabet agencies". Former Harvard Dean Roscoe Pound campaigned with San Francisco "King of Torts" Melvin Belli to preserve the civil jury system for private wrongs. But in the past three decades conservatives, spearheaded by then Speaker Newt Gingrich's Contract with America, disparaged civil litigation as little more than extortion to create "settlement value". In 1988 Antonin Scalia spurned judicial recognition of implied rights of action. In Thompson v. Thompson (1988) he demanded "“an actual congressional intent to create a private right of action.”
Dissent in the 5th Circuit
Although the panel decision can expect a warm reception by the Supreme Court's conservative super-majority, the impact will be severe on the civil justice system of recognizing a right of jury trial for what has been the bread and butter of the ALJ corps. The five dissenters to the Circuit's denial of a motion for en banc review embrace the dissent below, saying:
The Seventh Amendment “preserve[s]” the right to a jury trial in civil cases. U.S. CONST. amend. VII. But Congress may assign factfinding functions and initial adjudications to administrative forums without a jury if “the Government sues in its sovereign capacity to enforce public rights created by statutes within the power of Congress to enact.” Atlas Roofing Co. v. Occupational Safety & Health Rev. Comm’n, 430 U.S. 442, 450 (1977). A public right, at its core, is a matter “which arise[s] between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.” Crowell v. Benson, 285 U.S. 22, 50 (1932). (emph. added)
The panel majority below recognized the public rights exception to the jury trial right but reasoned that the SEC was enforcing wholly private rights. The dissenters are dismissive, saying:
Under Atlas Roofing and a fair reading of Granfinanciera [, S.A. v. Nordberg, 492 U.S. 33, 60 (1989)] there is no question that the SEC’s enforcement action against Petitioners in this matter for violations of the securities laws involves “public rights.”
The majority turned to Tull which explained that "a civil penalty was a type of remedy that could only be enforced in a court of law" where the jury trial was the norm. But the Granfinanciera court ruled that the court must consider whether affording a jury trial would "dismantle the statutory scheme (or) impede swift resolution" of the statutory claims. At this point the deep anti-regulatory hostility of Republican conservatives like the majority of the 5th Circuit is likely determinative. But the circuit split - so nose counting on the Supreme Court is the next step. Where we know that there is deep hostility to the "administrative state", a residual conservative discomfort with the legacy of Franklin Delano Roosevelt's New Deal.
The dissenters also address the panel's resort to the principle the Court has been calling the "non-delegation doctrine". The theory is that when Congress plans something earth shaking intent will have to be clearly shown, not inferred from circumstance. Of that "doctrine" I am deeply unsympathetic. But I'll leave that issue - powerfully rejected by the dissenters - to another day.
- GWC
first posted October 25, 2022
updated September 28, 2023
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