Jarkesy Decision Doesn’t Have to Mark End of Agency Adjudication

The US Supreme Court’s decision in SEC v. Jarkesy need not be the death knell of administrative proceedings, either before the Securities and Exchange Commission or any other agency.

In Jarkesy, the court ruled that an individual or business facing the prospect of civil monetary penalties under federal securities law has a constitutional right to have a jury decide whether those penalties are appropriate. The SEC can’t force the regulated party to defend itself before an in-house SEC adjudicator rather than a jury in federal court.

The Supreme Court seemed to provide no limiting principle on how this ruling would affect other federal agencies that have the power to impose civil fines on regulated parties. Some have already declared this to be a serious blow to the administrative state, especially in terms of agency enforcement and adjudication.

But that isn’t necessarily so. The agency by regulation—or Congress by statute—could save administrative proceedings for civil monetary penalties by letting regulated parties choose whether to proceed in federal court or before the agency.

Regulated parties would answer the following question: Would you like to be sued in federal court or through administrative proceedings at the agency? You could call this, as we have done in a law review article, the right to remove in agency adjudication.

Some regulated parties will want their day in court, and the Supreme Court has ensured they can. But many will prefer administrative proceedings for several reasons.

First, there’s the time and expense. Agency proceedings by regulation must be concluded within 10 months—or in some cases, less. That’s faster than our federal courts work. Some defendants will have a taste for the quick answers that the SEC’s “rocket docket” can offer. Faster proceedings are also cheaper proceedings.

Second, there’s the expertise factor. Relatively expert administrative judges oversee agency proceedings—they hear securities disputes every day. Federal judges, by contrast, are generalists and hear all kinds of disputes, ranging from immigration to criminal law to high-stakes constitutional litigation. That can lead to unpredictable outcomes.

Third, there are the optics and relationship considerations. Some individuals and small businesses might prefer to try their claims publicly before a jury. For other companies, a jury might not find their claims sympathetic, and the public nature of the trial might damage goodwill. Also, many regulated entities are repeat players before the agency and will want to maintain a good working relationship—trusting the agency to base fines on facts and law instead of a jury’s potentially emotional responses.

Finally, letting regulated parties waive their right to a jury trial can benefit both federal courts and agencies. It helps courts unclog overloaded dockets. And for agencies (and regulated entities), it creates market competition to improve agency adjudication in terms of expertise, expediency, and efficiency to encourage regulated parties not to remove their enforcement actions to federal courts.

Giving regulated parties the right to remove isn’t unprecedented. Parties waive their civil jury right all the time and even consent to adjudication by magistrate judges as opposed to federal judges. Congress already has recognized a right to remove in agency adjudication itself, including in the Fair Housing Act, Federal Power Act, and Energy Policy and Conservation Act. It wouldn’t be breaking ground if Congress chose to amend the securities laws in the same way.

But the SEC need not wait for Congress. The agency could fix this on its own today, promulgating a procedural rule that recognizes a right to remove. The same is true for the numerous other agencies that similarly have the power to impose civil fines and could be limited by the Supreme Court’s ruling in Jarkesy.

Jarkesy is a safety valve for regulated parties in disputes with agencies who want to make their case before a jury. But it doesn’t have to mark the end of administrative proceedings, or even the beginning of the end.

The case is SEC v. Jarkesy, U.S., No. 22-859, 6/27/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

David Zaring is professor at the University of Pennsylvania Wharton School’s department of legal studies and business ethics.

Christopher J. Walker is professor of law at the University of Michigan.

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