The Supreme Court appears unlikely to follow the Fifth Circuit’s far-reaching decision that could have crippled the SEC and weakened the federal government’s ability to function.
Last year, the United States Court of Appeals for the Fifth Circuit delivered a decision that could have had dire consequences for the Securities and Exchange Commission (SEC) and the federal government as a whole. However, the Supreme Court’s recent hearing of SEC v. Jarkesy suggests that it is unlikely to adopt the Fifth Circuit’s extreme stance. While the Court’s decision may weaken the SEC’s power to protect investors and limit the government’s ability to try complex cases, it is not expected to lead to catastrophic outcomes.
Understanding the Jarkesy Case
The Jarkesy case revolves around George Jarkesy, a Republican activist and hedge fund manager accused by the SEC of misleading investors and violating federal securities law. An administrative law judge ordered Jarkesy to pay a civil penalty and disgorge illicit gains. Jarkesy’s Supreme Court case challenges the SEC’s decision to bring the case before an administrative law judge instead of a federal district court.
Administrative Law Judges vs. Article III Judges
The key distinction between administrative law judges and Article III judges lies in their appointment and expertise. Administrative law judges are civil servants appointed through a merit selection process, specializing in specific areas of the law. In contrast, Article III judges are political appointees nominated by the president and confirmed by the Senate, serving for life and handling a wide range of cases. Additionally, administrative law judges do not typically use juries, while Article III courts allow litigants to demand a trial by jury.
The Focus on the Seventh Amendment
Oral arguments in Jarkesy centered on whether the SEC’s use of an administrative forum violated the defendants’ right to a jury trial as guaranteed by the Seventh Amendment. The Supreme Court’s previous decision in Atlas Roofing v. OSHA established that the Seventh Amendment does not apply to cases in which the government sues in its sovereign capacity to enforce public rights created by statutes within Congress’s power to enact. Since Jarkesy was accused of violating an act of Congress, the Seventh Amendment does not prohibit the SEC from using an administrative forum.
Uncomfortable Questions for the Republican-Appointed Majority
During the argument, Justice Neil Gorsuch emphasized the importance of the right to a jury trial. However, Gorsuch’s previous opinion in Epic Systems v. Lewis undermined the right to a jury trial by allowing employers to force employees into private arbitration, bypassing courts that protect this right. The Republican-appointed majority’s concern for the right to a jury trial in Jarkesy may stem from their desire to centralize power within Article III courts and limit federal agencies’ authority.
Limiting the Impact on the Federal System
While the Court’s Republican majority expressed discomfort with the Atlas Roofing decision, they also sought to avoid completely undermining the government’s ability to resolve cases in administrative forums. Proposals were made to draw a line between cases involving penalties and cases concerning federal benefits, allowing most SEC enforcement actions to be heard by an Article III court while preserving administrative forums for other matters. This approach would protect hedge fund managers’ rights but not workers’.
Conclusion:
The Supreme Court’s hearing of SEC v. Jarkesy suggests that it is unlikely to adopt the Fifth Circuit’s far-reaching decision. While the Court’s decision may weaken the SEC’s power and limit the government’s ability to try certain cases in specialized forums, it is not expected to result in catastrophic consequences. The focus on the right to a jury trial and the potential centralization of power within Article III courts highlights the ideological considerations at play. Ultimately, Jarkesy’s case is likely to be sent to an Article III court, ensuring his right to a jury trial.
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