The Supreme Court’s recent decision in SEC v. Jarkesy seems destined to upend much federal regulatory enforcement.  A further potential consequence may be coming for state enforcement.  Whether state regulatory programs are vulnerable to a Jarkesy limitation depends on whether Jarkesy depends solely on the Seventh Amendment, or is a collaboration between the Seventh Amendment and Article III.

Jarkesy dealt with an effort by the SEC to obtain civil money penalties based on allegations the respondent had committed securities fraud.  The Securities Exchange Act authorizes the SEC to seek such penalties through an action in court, or to impose them through administrative adjudication.  The respondent (Jarkesy) insisted he had a right to a jury, under the Seventh Amendment, and the Supreme Court agreed with him.

Seventh Amendment arguments have arisen over multiple decades in the federal courts, and in general the Seventh Amendment has traveled together with Article III.  By the 1930s, it had been clearly established that many types of dispute between government and citizens can legitimately be resolved in administrative tribunals.  Murray’s Lessee had held that Congress can authorize the Treasury Department to use administrative action to recover a debt (taxes not remitted) from a tax collector.  Because the collection of revenue was within the sphere of “public rights,” the Court explained, there was no constitutional mandate for an Article III court or a jury.  Oceanic Steam Navigation Co. v. Stranahan reached a similar conclusion about a penalty paid for violating immigration laws.  But the concept of “public rights” came to cover many private interests, because often one person will have a significant interest in how the government deals with another.  This dynamic came to its head in NLRB v. Jones & Laughlin Steel Co., in which the recently-established National Labor Relations Board ordered an employer to reinstate an employee who had been fired in retaliation for union activity—and the NLRB ordered the employer to pay back wages.  The Supreme Court found those orders consistent with Article III and the Seventh Amendment:  This remedy did not trigger a jury trial right, the Court explained, because the proceeding is “one unknown to the common law,” but is instead a “statutory proceeding.” 

In later cases, this holding from Jones & Laughlin developed into a potential separation between the Seventh Amendment and Article III.  The Supreme Court reframed Jones & Laughlin as holding, not that all statutory claims are excluded from those constitutional provisions, but rather that “the Seventh Amendment is generally inapplicable in administrative proceedings, where jury trials would be incompatible with the whole concept of administrative adjudication.” Then Atlas Roofing v. OSHRC, which was previously the leading modern case on penalties imposed in administrative adjudication, elaborated and expanded that line.  In that case, a respondent contesting OSHA enforcement through civil penalties demanded a jury, to which the Supreme Court held it was not entitled.  The Court stated that “the right to a jury trial turns not solely on the nature of the issue to be resolved but also on the forum in which it is to be resolved.”  The Court reiterated that “the Seventh Amendment is generally inapplicable in administrative proceedings, where jury trials would be incompatible with the whole concept of administrative adjudication.”  

Yet that reading is in tension with later decisions.  Granfinanciera, S.A. v. Nordberg held that a fraudulent conveyance claim, between two parties in the course of a bankruptcy proceeding, carries a jury-trial right.  In the course of its decision, the Court reiterated part of the Atlas holding, but stated it this way:   “[I]f Congress may assign the adjudication of a statutory cause of action to a non-Article III tribunal, then the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.”  The Court reiterated that formulation just six years ago (in Oil States Energy Servs., LLC v. Greene’s Energy Group, LLC), as the reason an inter partes reexamination of a patent (leading to possible invalidation) by the Patent and Trademark Office does not need a jury.

The difference between these theories is relatively unimportant in federal court.  Because Article III determines whether a matter can be delegated to an administrative tribunal, it has been sufficient that the Seventh Amendment can require a jury when a case is in court.  In other words, the difference between the Granfinancieria statement—that the Seventh Amendment is no “independent bar” “[i]f Congress may assign the adjudication . . . to a non-Article III tribunal”—and the Atlas Roofing version—the Seventh Amendment does not apply “where jury trials would be incompatible”—is effectively mooted, in the federal system, by Article III.  What happens when Article III cannot be the guide?  Atlas Roofing itself does not foreclose the question, because Atlas Roofing also held that the matter at issue (civil penalties for violations of the Occupational Health and Safety Act) was among those “public rights” that Article III permits to go to administrative adjudication.  Granfinanciera did include an observation that “Congress cannot eliminate a party’s Seventh Amendment right to a jury trial merely by . . . placing exclusive jurisdiction in an administrative agency,” a statement that is, of course, more consistent with the Granfinanciera formulation of the Seventh Amendment than with Atlas Roofing.  Nonetheless, Granfinanciera did not really settle the question, because Granfinanciera also held that the claim at issue was a “private right” that had to be adjudicated by an Article III court.  Oil States, similarly, resolved the Article III question first, and then the Seventh Amendment dispute as a follow-on.  Jarkesy, like Granfinanciera, decided that Article III mandates courts for the SEC civil penalties; yet again, the Seventh Amendment and Article III traveled together.

But these different framings, Granfinanciera or Atlas Roofing, could be very important for state regulatory enforcement.  Article III does not apply to the States, but the Seventh Amendment, it seems likely, someday will.  If and when that point arrives, imagine a state civil penalty for securities fraud.  There will be no federal constitutional requirement to adjudicate that penalty in court, given that the Constitution only mandates the existence of federal, not of state, courts.  So far as the Constitution is concerned, a state civil penalty could be adjudicated by an administrative agency.  In that case, does the Seventh Amendment require a jury anyway?  Granfinanciera said that “if Congress may assign the adjudication of a statutory cause of action to a non-Article III tribunal, then the Seventh Amendment poses no independent bar.”  What is the conclusion when that prerequisite question cannot even be asked?  Is the Seventh Amendment an “independent bar” in that situation?  

This question is hypothetical at present, because the Seventh Amendment does not currently apply to the States.  But it will likely become a real question, and perhaps soon.  The precedent holding the Seventh Amendment does not apply to the States dates from 1916, before the Supreme Court held that the Fourteenth Amendment incorporates many aspects of the Bill of Rights.  As the Court recognized in McDonald v. City of Chicago, it has overruled many of those cases over subsequent years.  The right to a civil jury is one of the last left unresolved, but the Court has not, in the modern era, endorsed its 1916 holding.  Meanwhile, Jarkesy recited a paean to civil juries—“the glory of the English law,” “prized by the American colonists,” and “of such importance and . . . so firm a place in our history and jurisprudence that any seeming curtailment of the right has always been . . . scrutinized with the utmost care.”  The standard for a right to be incorporated from the Bill of Rights into the Fourteenth Amendment is whether the right is “fundamental to our scheme of ordered liberty,” or is “deeply rooted in this Nation’s history and tradition.”  Given what Jarkesy had to say about civil juries, it seems easy to forecast what the Court would conclude if asked whether the Seventh Amendment meets that standard.  In short, if and when the Court is presented the question whether the Seventh Amendment applies to the states (and its 1916 precedent should be overruled), it seems likely the answer will be yes.

If, indeed, the Seventh Amendment eventually applies to the States, the question whether it independently requires a jury trial will arise fairly swiftly.  It has not come up often in past decades, but mainly because States typically have their own constitutional provisions guaranteeing civil juries.  The aftermath of Jarkesy is an unusual historical moment with a gap between the federal constitutional jury-trial right and how States have interpreted their own constitutional jury clauses.  Myriad state regulatory statutes implement enforcement by administrative adjudication.  Courts in multiple states have rejected jury demands in such matters, sometimes by use of the expansive description of “public rights” in Atlas Roofing, and sometimes based on the functional description of adjudication from Atlas Roofing.  As just a few examples, a Pennsylvania court held that a state environmental agency could impose a civil penalty without a jury because the “functional compatibility” of a jury trial “with proceedings held outside traditional courts of law may render it inapplicable to administrative proceedings.”  A New Mexico court relied on Atlas Roofing in approving a statute that mandated arbitration for certain employment disputes with school boards.  Maryland’s highest court has “held the jury trial guarantee inapplicable where the legislature has committed to an administrative agency the initial decision making function with respect to a particular class of disputes.”  There are many more such cases.  These courts are, of course, interpreting their state constitutional jury-trial guarantees, because the Seventh Amendment did not apply.  If and when the Seventh Amendment does apply to States, it will swiftly become contentious whether holdings like those of the Maryland courts are consistent with the current understanding of the federal jury-trial right.  

It seems quite plausible they are not.  The Court has, in Jarkesy, clearly expressed a preference between Atlas Roofing and Granfinanciera:  It treated Granfinanciera as “largely resolv[ing]” the question presented while Atlas Roofing, the Court said, “cannot support any broader rule” than that new claims “unknown to the common law” could be resolved by administrative adjudication.  The Atlas Roofing Court surely thought it was stating a broader rule, in which the Court rejected the argument that delegating a case to an administrative tribunal cannot avoid the Seventh Amendment right.  Not only was the OSHA penalty a matter of public right, Atlas Roofing said.  “More to the point,” the Court explained, “factfinding, which is the essential function of the jury in civil cases, . . . was never the exclusive province of the jury.”  “[T]he question whether a fact would be found by a jury turned to a considerable degree on the nature of the forum in which a litigant found himself.”  Nonetheless, that broad holding (as it appears to be) would have answered the Seventh Amendment question in Jarkesy, unless the Court determined that Article III mandated a judicial forum for the SEC’s civil penalty case.  Meanwhile, a different case had already held decades ago that for certain kinds of civil penalty cases that are litigated in federal court, the Seventh Amendment mandates a jury.  Thus, either way, if one takes the analysis in Atlas Roofing at face value, the Seventh Amendment claim in Jarkesy would seem to be fully dependent on Article III.  If so, then the right place for the Supreme Court to start would have been Article III.  Instead, it started with the Seventh Amendment and held that the SEC’s claim is a claim at law to which the jury-trial right attaches, and then inquired whether a “public rights” exception exempts the claim from the Seventh Amendment.^[1]  And the Court then said Atlas Roofing “cannot support any broader rule” than that the type of claim addressed in that earlier case was not governed by Article III.  Granted the Court did not expressly address the Atlas statement that the jury-trial right is available only in court.  But given the Court’s overruling by reinterpretation of other aspects of Atlas, this particular doctrine seems to be fairly tenuous.

It is likely only a matter of time before the Supreme Court is asked to overrule its 1916 precedent and determine that the Seventh Amendment does, indeed, apply to the States.  The immediate consequence of that may be that many state enforcement programs do, indeed, have to give the respondents the right to a jury.  That outcome could be as consequential for state regulatory enforcement as Jarkesy is likely to be for federal enforcement.  

Keith Bradley is the co-chair of the appellate and Supreme Court practice at Squire Patton Boggs and lead’s the firm’s government litigation practice.  

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^[1] Jarkesy also significantly revised the meaning of “public rights.”  Atlas, preceded by multiple other cases, had held that “public rights” includes, at a minimum, “cases in which the Government sues in its sovereign capacity to enforce public rights created by statutes,” 430 U.S. at 449; and Atlas expressly rejected the argument these matters are limited to special subjects such as tax and immigration, id. at 456.  Jarkesy, by contrast, said the “public rights” idea is a non-textual “exception” to Article III that covers “certain . . . historic categories of adjudications” such as tax, immigration, and “the granting of public benefits.”  Slip op. at 17.  This is the opposite of what Atlas Roofing said, and has wide-ranging consequences far beyond the scope of this essay.