Left: George Jarkesy (image via FOX Business/YouTube screengrab.) Right: Associate Justice of the Supreme Court Neil Gorsuch (Erin Schaff-Pool/Getty Images).
The Supreme Court of the United States heard over two hours of oral arguments Wednesday in a case that threatens a massive unraveling of federal administrative agencies. In SEC v. Jarkesy, a man who was found to have committed securities fraud found champions among conservative forces — most notably, Justice Neil Gorsuch — who have long been looking for a reason to curtail the power of executive branch agencies.
Jarkesy’s “little picture”
The ultra-conservative U.S. Court of Appeals for the 5th Circuit had ruled in favor right-wing talk show host, Republican donor, and hedge fund promoter and accused securities fraudster George Jarkesy and against the federal Securities and Exchange Commission (SEC) on three separate issues.
Jarkesy, a hedge fund founder, was prosecuted for securities fraud by the SEC through its in-house enforcement proceedings in 2013. He was found liable and ordered to pay $1 million in fines and restitution. On appeal, Jarkesy raised three questions, all of which the Fifth Circuit decided in his favor.
- Is the SEC authorized by Congress to hold non-jury proceedings that impose monetary penalties?
- Is the SEC authorized by Congress to decide whether an enforcement case operates as an administrative proceeding versus in a federal district court?
- Congress passed the Administrative Procedure Act (APA) in 1946. It said that administrative law judges (including the SEC’s judges) can only be removed for good cause. Was Congress authorized under the Constitution to protect administrative judges so much?
Despite the ultra-complex legal analysis required by a case with three significant — and largely unrelated — legal questions, the justices confined the majority of their questioning Wednesday to the jury requirement issue.
Jarkesy’s “big picture”
The case has major implications for federal administrative agencies via the Seventh Amendment. Should the justices rule that the SEC was not authorized to hold non-jury proceedings in cases like Jarkesy’s, it would mean that in future cases, all such proceedings must be held in courts.
The Seventh Amendment guarantees the following:
In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.
In the relatively recent past and over the fierce objection of conservatives, Congress has expanded the powers of administrative agencies generally and the SEC in particular such that agencies can seek penalties against individuals in administrative (non-court, non-jury) proceedings. When the Fifth Circuit ruled for Jarkesy, it said that the SEC’s system violated the Seventh Amendment, which guarantees the right to a jury trial.
Conservatives argue that if the justices uphold that aspect of the ruling, countless Americans would regain access to a foundational constitutional protection. Gorsuch spared no opportunity to proclaim the fundamental importance of the Seventh Amendment during Wednesday’s marathon arguments.
“A very important foundational freedom”
Justice Neil Gorsuch has long been a vocal foe of federal administrative agencies generally. Gorsuch has taken opportunity after opportunity to rail against all things “administrative state” and he came in strong Wednesday, seizing immediate control of the colloquy with the Department of Justice’s lawyer, Deputy Solicitor General Brian Fletcher.
Gorsuch pressed Fletcher at length about individuals’ right to a trial by jury in cases with hefty consequences — a theme that reemerged many times over the marathon oral arguments.
“We’d agree that the right to trial by jury — whether its criminal or civil — is a very important foundational freedom in American society and a check on all branches of government,” Gorsuch led an agreeing Fletcher.
Gorsuch continued like a lawyer on cross, as Fletcher continued to concede that cases like Jarkesy’s, which involve hefty penalties, would require a jury if tried as a criminal case.
Gorsuch then posed a hypothetical: what if the government revived the Sedition Act and enforced criminal penalties for defaming the government?
“Jury trial? No jury trial?” demanded Gorsuch, almost rhetorically.
The question seemed all the more pointed stemming from one of the justices appointed by former president Donald Trump who long boasted about “opening libel laws” in just such a context.
Fletcher, a frequent litigator before the Supreme Court, deftly attempted to sidestep the question by noting that such a revival would offend the First Amendment.
“Forget about the First Amendment,” joked a laughing Gorsuch. “Too easy.”
Gorsuch refused to drop the line of questioning, ultimately summing up Fletcher’s position: “No. Jury. Trial right.”
“I think that has to be the implication of your argument,” summarized Gorsuch.
The justice continued to grill Fletcher at length about various hypothetical lawsuits that could have been brought by the government, and asked whether Fletcher would agree that each case would not necessitate a jury trial.
Although Gorsuch was clearly fishing for answers that conceded that various types of lawsuits were just the sort that would raise a Seventh Amendment right to jury trial, several of his colleagues were not so convinced. Throughout the lengthy arguments, Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson raised multiple grounds upon which administrative proceedings differ from the kinds of cases that require juries.
A few minutes later, Gorsuch championed the Seventh Amendment from another angle, this time a historical and definitional one. An obviously unconvinced Gorsuch commented on Fletcher’s argument that Congress has authority to move certain proceedings into administrative agencies which then do not meet the definition of a “suit” under the Seventh Amendment.
Gorsuch raised the concern that Noah Webster — the 18th century American lexicographer for whom Merriam-Webster dictionaries are still named — described “suit” as “any action or process for the recovery of a right or claim before any tribunal.”
“That would seem to be a problem,” said Gorsuch, referencing the inconsistency between Webster’s definition and Fletcher’s argument.
Gorsuch went on to raise the 1989 Supreme Court ruling in Granfinanciera, S. A. v. Nordberg, and said it “pretty squarely” addressed Fletcher’s argument. Gorsuch characterized the ruling as one that prohibited Congress from merely “relabeling” a cause of action and replacing it in administrative proceeding, thus circumventing the jury requirement.
Fletcher pushed back on Gorsuch’s interpretation of the case law.
Then, the justice changed gears to frame the issue at hand as one about the ever-enlarging scope of administrative agencies — a favorite talking point of Gorsuch.
“This is not your grandfather’s SEC, right?” Gorsuch said to Fletcher.
“Penalties were part of Jim Landis’ original design against private persons, much less against all private persons,” noted the justice, referencing the former chairman of the Securities and Exchange Commission from 1935 to 1937. Gorsuch continued, providing a brief history of securities law, then commented about proceedings like those at issue in the Jarkesy case, “So it’s a relatively new thing, right?”
“For the SEC, yes,” answered Fletcher, then qualifying, “but not for agencies writ large.”
When attorney Michael McColloch took the podium on behalf of Jarkesy, Gorsuch was noticeably less talkative.
Sotomayor took the opportunity to shed her usual pragmatic light on what McCulloch’s position would mean in a practical sense. The justice noted that many other administrative agencies, such as the EPA, the IRS, and the postal service, have “very big responsibilities,” and under McCulloch’s logic, “all of those agencies will have to go to court.”
McColloch downplayed the significance of his position, though, and insisted that only “a tiny percentage” of cases would be affected by a ruling in his client’s favor.
Kagan and Jackson continued to aggressively question McColloch on the validity of his argument.
Kagan noted that Jarkesy’s case was the first to challenge the SEC’s authority in decades.
“Nobody has had the chutzpah — to quote my people — to bring it up since Atlas Roofing,” said the justice, referring to a 1977 case.
Though the courtroom chuckled at Kagan’s remark, the conservative justices continued to be conspicuously taciturn during McCulloch’s arguments.
Online, however, The Nation’s Elie Mystal remarked that their quietness was not necessarily due to McCulloch’s persuasive skills: “Their silence doesn’t mean they’re being convinced, I think it means they’ve already made their ruling.”
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