Securities and Exchange Commission v. Jarkesy: A Narrow Holding with a Potentially Broad Impact

On June 27, 2024, the Supreme Court held in a 6-3 decision that when the Securities and Exchange Commission (“SEC”) seeks civil penalties for securities fraud, the defendant is entitled to a jury trial. While the decision addresses the narrow topic of securities fraud litigation by the SEC, Securities and Exchange Commission v. Jarkesy (“Jarkesy”) has the potential to impact the manner in which a wide-range of administrative agencies impose civil penalties for statutory violations.

In Jarkesy, the Supreme Court held that the Seventh Amendment right to a jury trial prohibited the SEC from imposing certain civil penalties through administrative proceedings. The Court held that securities fraud was akin to a “suit at common law” and therefore the defendant was entitled to a jury trial. Specifically, the Court reasoned that the history of fraud claims and monetary relief was rooted in common law, therefore making adjudication of such claims by an Article III court “mandatory.” The Court rejected the SEC’s position that such civil penalties were subject to the “public rights exception,” which allows Congress to create a public right enforced by administrative agencies in front of an Administrative Law Judge instead of in traditional courts. Post-Jarkesy, it is clear that defendants in fraud cases have the right to a jury trial.

Although the specific scope of Jarkesy is narrow, the potential impact of this decision is broad. For instance, it is unclear what will happen to the SEC’s ability to enforce other types of civil penalties in an administrative court. The dissent focuses on how the majority’s reasoning is not necessarily limited to the SEC and could impact a wide number of administrative agencies who adjudicate statutory violations in administrative proceedings. Agencies such as the Occupational Safety and Health Administration (“OSHA”) or the Environmental Protection Agency (“EPA”) often rely upon administrative enforcement. Depending on how future courts apply the decision and language in Jarkesy, agencies like OSHA may be prevented from using administrative proceedings to enforce statues and regulations.

Additionally, what was left unaddressed by the Court may be even more important. The Court declined to review whether the SEC’s use of administrative law judges violated the non-delegation doctrine. Although the Supreme Court has not struck down a law for violation of the doctrine since 1937, the current trajectory of the Court seems posed to readdress the issue. By reaching the decision without addressing the non-delegation issue, the Court has left the future of the doctrine in limbo.

It is currently unclear how wide of an impact Jarkesy will have, especially for employers. The Court, in holding that the right to a jury trial applies to any “statutory claim if the claim is ‘legal in nature,’” has left the door open for other courts to expand this precedent. Other agencies who usually enforce laws through administrative proceedings may instead be forced to the forum of the courts. Accordingly, both employers and administrative agencies may be faced with the additional costs of litigating in courts as opposed to administrative proceedings.

Sarah M. Huyck
Connor J. Oldenburg, Summer Associate