Seeking redress of our grievances is an important right, protected by the First Amendment. Can the federal government deprive you of due process as a condition of seeking redress? While not talked about in that way, that’s pretty much what the case SEC v. Jarkesy is all about. After assessing George Jarksey Jr. civil penalties for alleged violations of anti-fraud provisions, the SEC attempted to deny him his right to a trial by jury. Could this be a start of reforms of unconstitutional administrative law courts?

Securities and Exchange Commission
After the stock market crash of 1929, Congress passed several laws to regulate the trading of securities. This was not exactly constitutional, since Congress is only empowered to punish securities fraud under Article I, Section 8, Clause 6.

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;
U.S. Constitution, Article I, Section 8, Clause 6

Of course, the Constitution hasn’t stopped Congress from creating illegal agencies in the past, including the Securities and Exchange Commission, which in bringing an enforcement action can adjudicate the matter itself. Not only did Congress create the SEC and empower it to bring enforcement actions, but claimed that the agency can act like a court and adjudicate those actions itself. Does anyone else see a problem here? Congress creates the SEC, then makes it judge, jury, and enforcer?

In federal court, a jury finds the facts, an Article III judge presides, and the Federal Rules of Evidence and the ordinary rules of discovery govern the litigation. But when the SEC adjudicates the matter in-house, there are no juries. The Commission presides while its Division of Enforcement prosecutes the case. The Commission or its delegee—typically an Administrative Law Judge—also finds facts and decides discovery disputes, and the SEC’s Rules of Practice govern.
Securities and Exchange Commission v. Jarkesy et al.

Basically, if the SEC wants to, it can create a kangaroo court where everyone except you works for the SEC. This is not only a problem with the SEC, but with all Administrative Law Courts.

Originally, the SEC could only obtain civil penalties from unregistered investment advisers in federal court. Then, in 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act authorized the SEC to impose such penalties through its own in-house proceedings.
Securities And Exchange Commission v. Jarkesy et al.

Leave it to Congress to take a problem and make things worse. Originally, if the SEC thought you violated one of its rules, you were taken to federal court, where you received the due process required by the Fifth Amendment. The court had to make sure you were provided with the evidence against you and they had to follow the rules of evidence. When Congress claimed to “fix” the problems that led to the housing collapse of 2008, many of which Congress created, not only did it not fix the problem, it created a new one: The violation of due process and the Constitution of the United States.

George Jarkesy Jr.
Now, let me introduce you to the subject of this case, Mr. George Jarkesy Jr.

Shortly after passage of the Dodd-Frank Act, the SEC initiated an enforcement action for civil penalties against investment adviser George Jarkesy, Jr., and his firm, Patriot28, LLC for alleged violations of the “antifraud provisions” contained in the federal securities laws. The SEC opted to adjudicate the matter in-house. As relevant, the final order determined that Jarkesy and Patriot28 had committed securities violations and levied a civil penalty of $300,000. Jarkesy and Patriot28 petitioned for judicial review.
Securities and Exchange Commission v. Jarkesy et al.

After an in-house review, the SEC levied a penalty of $300,000. Mr. Jarkesy asked for a court to review his case.

The Fifth Circuit vacated the order on the ground that adjudicating the matter in-house violated the defendants’ Seventh Amendment right to a jury trial.
Securities and Exchange Commission v. Jarkesy et al.

The Fifth Circuit vacated the order because, in the court’s view, it violated the Seventh Amendment. The Seventh Amendment is one of the “Due Process Amendments.” What does the Seventh Amendment say?

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.
U.S Constitution, Amendment VII

Put another way, the SEC claims that Congress created an exception to the Seventh Amendment by allowing it to handle cases in-house.

Gorsuch Concurrence
Justice Gorsuch wrote a concurring opinion, which Justice Thomas joined. Justice Gorsuch brought up a very important point.

I write separately to highlight that other constitutional provisions reinforce the correctness of the Court’s course. The Seventh Amendment’s jury-trial right does not work alone. It operates together with Article III and the Due Process Clause of the Fifth Amendment to limit how the government may go about depriving an individual of life, liberty, or property. The Seventh Amendment guarantees the right to trial by jury. Article III entitles individuals to an independent judge who will preside over that trial. And due process promises any trial will be held in accord with time-honored principles. Taken together, all three provisions vindicate the Constitution’s promise of a “fair trial in a fair tribunal.”
Securities and Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

Justice Gorsuch points to a triad of protections of our rights. As the court noted, the Seventh Amendment protects our right to a jury trial, while the Fifth Amendment protects our right to due process. Article III protects our right to an independent judge to oversee your trial.

In 2010, however, all that changed. With the passage of the Dodd Frank Act, Congress gave the SEC an alternative to court proceedings. Now, the agency could funnel cases like Mr. Jarkesy’s through its own “adjudicatory” system.
Securities and Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

With the passage of the Dodd Frank Act, the SEC can now deal with issues like Mr. Jarkesy in-house. Why would that be a problem?

There is little mystery why. The new law gave the SEC’s Commissioners—the same officials who authorized the suit against Mr. Jarkesy—the power to preside over his case themselves and issue judgment. To be sure, the Commissioners opted, as they often do, to send Mr. Jarkesy’s case in the first instance to an “administrative law judge” (ALJ). … But the title “judge” in this context is not quite what it might seem. Yes, ALJs enjoy some measure of independence as a matter of regulation, but they remain servants of the same master—the very agency tasked with prosecuting individuals like Mr. Jarkesy. This close relationship, as others have long recognized, can make it “extremely difficult, if not impossible, for th[e ALJ] to convey the image of being an impartial fact finder.”
Securities And Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

I think Justice Gorsuch’s point is not only right, but extremely critical. With administrative law judges, controversies are handled by the executive branch agency. Sounds like a good deal for the agency.

Going in, then, the odds were stacked against Mr. Jarkesy. The numbers confirm as much: According to one report, during the period under study the SEC won about 90% of its contested in-house proceedings compared to 69% of its cases in court. … Reportedly, too, one of the SEC’s handful of ALJs even warned individuals during settlement discussions that he had found defendants liable in every contested case and never once “‘ruled against the agency’s enforcement division.’”
Securities and Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

That’s the problem with administrative law judges: They are biased. Everyone in the court, even your counsel, works for the agency. There is no impartial judge or jury, which explains why so many ALC cases are won by the agency; the home team has the advantage.

The rules of evidence do not apply with the same rigor they do in court. Live testimony often gives way to a “sworn statement” taken outside the presence of the defendant or his counsel.

How did all this play out in Mr. Jarkesy’s case? Accompanying its charges, the SEC disclosed 700 gigabytes of data—equivalent to between 15 and 25 million pages of information—it had collected during its investigation. … Over Mr. Jarkesy’s protest that it would take “two lawyers or paralegals working twelve-hour days over four decades to review,” … the ALJ gave Mr. Jarkesy 10 months to prepare for his hearing, … Then, after conducting that hearing, the ALJ turned around and obtained from the Commission “an extension of six months to file [her] initial decision.” … The reason? The “‘size and complexity of the proceeding.’” … When that decision eventually arrived seven months after the hearing, the ALJ agreed with the SEC on every charge.
Securities and Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

Does that sound like a fair trial with an impartial judge? There was not enough time to deal with a data dump but, of course, the judge gets an extension to make her decision. Sure, the decision didn’t go Mr. Jarkesy’s way, but he can always appeal, right?

Mr. Jarkesy had the right to appeal to the Commission, but appeals to that body (again, the same body that approved the charges) tend to go about as one might expect. . . . Mr. Jarkesy filed an appeal anyway. The Commission agreed to review the ALJ’s decision. It then afforded itself the better part of six years to issue an opinion. And, after all that, it largely agreed with the ALJ.
Securities and Exchange Commission v. Jarkesy et al. – Gorsuch Concurrence

Years of appeals in a biased court doesn’t sound like a fair trial system, and it most definitely doesn’t sound like due process.

Dissent
It seems the same three justices have dissented in most of the cases I’ve reviewed lately. This time, Justice Sotomayor wrote the dissent and justices Kagan and Jackson joined.

Throughout our Nation’s history, Congress has authorized agency adjudicators to find violations of statutory obligations and award civil penalties to the Government as an injured sovereign. The Constitution, this Court has said, does not require these civil-penalty claims belonging to the Government to be tried before a jury in federal district court. Congress can instead assign them to an agency for initial adjudication, subject to judicial review. This Court has blessed that practice repeatedly, declaring it “the ‘settled judicial construction’” . . . Unsurprisingly, Congress has taken this Court’s word at face value. It has enacted more than 200 statutes authorizing dozens of agencies to impose civil penalties for violations of statutory obligations.
Securities and Exchange Commission v. Jarkesy et al. – Dissent

Keeping to pattern, the dissent focuses on tradition rather than the law. Yes, Congress has authorized agencies to award civil penalties. And no, the Constitution doesn’t require jury trials, but it does require that right to be preserved. It’s the right of the accused to request a jury trial, and the government is to comply. The fact that the court has blessed something doesn’t mean that it’s constitutional. The Constitution is the supreme law of the land, not the courts.

Today, for the very first time, this Court holds that Congress violated the Constitution by authorizing a federal agency to adjudicate a statutory right that inheres in the Government in its sovereign capacity.
Securities and Exchange Commission v. Jarkesy et al. – Dissent

The dissent points out that the court has found that Congress screwed up, but that is nothing new. The dissent also claims that the government is the sovereign. It would be nice if they actually looked up that word in a legal dictionary.

A chief ruler with supreme power; In the United States the sovereignty resides in the body of the people.
SOVEREIGN: A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.

The dissent thinks the government has the power to grant itself a right by law because it’s “sovereign.” Yet it’s we the people who are sovereign.

A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator. Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands. Jarkesy and Patriot28 are entitled to a jury trial in an Article III court.
Securities and Exchange Commission v. Jarkesy et al.

Thankfully, Chief Justice Robert’s opinion won the day.

Conclusion
I’ve noticed a pattern in several of the opinions lately. The same three justices seem to be more interested in history than in the law. If you keep doing the same things, you never have the opportunity to correct your mistakes. That has been the pattern of the Supreme Court for decades.

People like Mr. Jarkesy may be unpopular. Perhaps even rightly so: The acts he allegedly committed may warrant serious sanctions. But that should not obscure what is at stake in his case or others like it. While incursions on old rights may begin in cases against the unpopular, they rarely end there. The authority the government seeks (and the dissent would award) in this case—to penalize citizens without a jury, without an independent judge.
Securities and Exchange Commission v. Jarkesy et al.

The beauty of our system, especially the due process protections, is that everyone gets them. Rich or poor, popular or not, the Constitution protects all of our rights.

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Photo, top, courtesy of Sora Shimazaki / Pexels