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Supreme Court casts doubt on agency enforcement actions without juries

Conservative justices, in a securities fraud enforcement case, sound skeptical that defendants shouldn’t have a right to be judged by peers

Visitors walk across the U.S. Supreme Court plaza to enter the building in October.
Visitors walk across the U.S. Supreme Court plaza to enter the building in October. (Bill Clark/CQ Roll Call)

The Supreme Court appeared ready Wednesday to disrupt the process that federal agencies use to police federal law violations, in a case that challenges enforcement actions at the Securities and Exchange Commission.

Conservative justices expressed skepticism during oral arguments about the constitutionality of the current process at the SEC, where administrative law judges adjudicate violations and the defendants can’t get a trial by jury. But several members of the court questioned how they could agree on a new set of rules for systems that Congress created decades ago, which cover agencies across the federal government that enforce laws such as securities fraud, environmental pollution and immigration.

Justice Amy Coney Barrett and other Republican appointees, who hold a 6-3 majority, pushed the Biden administration to defend the distinction in federal law that allows agencies to bring enforcement actions either in internal agency proceedings or federal courts when defendants only have the right to a trial by jury in the latter.

“So it seems to me if you have an entitlement to a jury if you’re in federal court, I don’t understand then how you not have that right, how it can go to an agency,” Barrett said.

Brian H. Fletcher, arguing for the Biden administration, said the SEC process did not violate the Constitution because it dealt with a public interest, policing fraud in the securities markets, rather than a private right the jury trial was meant to protect.

Fletcher argued that the court decided decades ago that Congress could create “public rights” such as a fraud-free securities market or safe workplaces, and then set up administrative courts to defend those rights without the requirement of a jury trial.

“Securities laws serve different purposes from common law of fraud,” Fletcher said.

Justice Neil M. Gorsuch questioned whether the current process violated the Constitution by slapping a different name on a fraud or other violation to dodge defendants’ right to a jury trial.

“We don’t usually say the government can avoid a constitutional mandate merely by relabeling or moving things around,” Gorsuch said.

The back-and-forth over the jury trial right formed much of the oral arguments that stretched more than two hours. A decision, expected by the conclusion of the term at the end of June, could determine the future of federal civil law enforcement in numerous agencies, including the Environmental Protection Agency, Consumer Financial Protection Bureau and U.S. Postal Service, the Biden administration said in court papers.

The case comes from a challenge to an SEC administrative prosecution of George Jarkesy for securities fraud, which would have resulted in $300,000 in fines and $685,000 in disgorgement. Jarkesy challenged the constitutionality of the agency’s administrative judge process, and a panel of the U.S. Court of Appeals for the 5th Circuit agreed in a decision issued last year.

Judge Jennifer Walker Elrod wrote for the 5th Circuit panel that the SEC’s process deprived Jarkesy of his right to a jury trial and that Congress violated the Constitution by delegating enforcement decisions and placing too many protections on the removal of administrative judges.

Fletcher told the justices Wednesday that upholding the 5th Circuit decision would take a “blunderbuss” to federal agencies’ enforcement options and cause disruption across numerous federal agencies. He said the law currently does not allow numerous agencies to bring their administrative cases in federal court, and “it would be a huge imposition on the courts just in terms of the numbers” of cases brought.

S. Michael McColloch, arguing for Jarkesy, said the court should hold that when the government brings a case with the “same essential function” as a traditional lawsuit for claims such as fraud, it should have to bring the case in federal court, where a jury trial right would apply.

Justice Sonia Sotomayor and other Democratic appointees to the court challenged McColloch’s position, calling it a “dramatic change” to decades of Supreme Court precedent. Justice Elena Kagan said that “nobody has had the, you know, chutzpah, to quote my people,” to challenge Congress’ ability to set up agency adjudication for decades.

Barrett pushed McColloch to provide a specific test for which cases would “count” for a jury trial right and which would not. Barrett pointed out that the court has in the past upheld workplace safety rules that “served the same kind of function” as negligence suits.

McColloch tried to distinguish those by saying that some aspects of administrative law are “prophylactic” and could still be adjudicated within an agency, such as requiring certain precautions in workplaces or requiring participants in securities markets to register with the SEC.

McCulloch argued that the ruling should not extend to cases adjudicating government benefits or debts, which he said would mean agencies could still use administrative judges for Social Security benefits as well as taxes, customs and duties. He also pointed to more than a century of cases upholding the use of administrative judges for immigration cases.

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