On November 29, 2023, the U.S. Supreme Court will hear oral argument in SEC v. Jarkesy. The following three questions are presented – (1) Whether statutory provisions that empower the Securities and Exchange Commission (SEC) to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment; (2) Whether statutory provisions that authorize the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine; (3) Whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection.
Please join us as Margaret A. Little, Counsel of Record on an amicus brief filed by New Civil Liberties Alliance, discusses the case and its developments after oral argument.
Margaret A. Little, Senior Litigation Counsel, New Civil Liberties Alliance
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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
Sam Fendler: Hello, everyone, and welcome to this Federalist Society virtual event. My name is Sam Fendler, and I'm an Assistant Director of Practice Groups with The Federalist Society.
Today we're excited to host a "Courthouse Steps Oral Argument" webinar on SEC v. Jarkesy, which was argued earlier today.
We're joined by Peggy Little. Peggy is Senior Counsel at New Civil Liberties Alliance and serves as an executive committee member of The Federalist Society's Litigation Practice Group. If you'd like to learn more about Peggy, her full bio can be viewed on our website, fedsoc.org.
After Peggy delivers her opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we'll do our best to answer as many questions as we can.
Finally, I'll note that, as always, all expressions of opinion today are those of our guest speaker and not The Federalist Society.
With that, Peggy, thank you very much for joining us today. I understand that you were at the oral argument this morning, so we're very happy to have you here. Very happy to hear from you. And the floor is yours.
Margaret Little: Thank you so much, Sam.
So I will start with just a little background—very short—because Jarkesy is a notable case. But for those who don't know, there were three questions certified by the Supreme Court in Jarkesy.
The first question certified was a jury trial question. I could rephrase it as, "Essentially, can Congress take away constitutionally protected jury trial rights by expanding the jurisdiction of the SEC's in-house tribunals to encompass civil fraud prosecutions for penalties?"
Then there was a nondelegation claim in the case that the Supreme Court certified. And that focuses on the fact that the SEC has the choice whether to prosecute defendants in federal court or—by the way, they have the full range of constitutional protections, including jury trial or trying defendants—before its own administrative law judges where a host of constitutional and procedural protections are unavailable especially jury trial.
Mr. Jarkesy had argued in the Fifth Circuit, and the Fifth Circuit Court of Appeals agreed that by leaving this choice in the prosecuting agency's discretion, that was an unconstitutional delegation by Congress and that Congress must decide for itself when and whether SEC defendants get jury trial rights and Article III court access. Or it must, at the very least, provide the agency with an intelligible principle on which to make that decision, which the statute does not do.
And finally, in the case, there was the issue that the SEC administrative law judges enjoy too many layers of tenure protection in the case as the SEC ALJs. It's somewhere between two or three layers of tenure protection, depending on whether you think the commissioners themselves have tenure protection. But in any event, it's undebatable that there is at least two and that the Free Enterprise Fund decision of 2010 had held that more than one layer of tenure protection violates the Constitution.
A little factual background: George Jarkesy was charged with fraud in 2013. He went through an agonizing process going through the administrative law proceeding that I will spare all of you. But when he finally got to the promised judicial review, the Fifth Circuit Court of Appeals vacated the SEC's ALJ, as affirmed by the commission's decision against him assessing a $300,000 penalty and barring him from the securities industry. And the Fifth Circuit had held, in what was widely regarded as a landmark decision, that his jury trial rights had been violated, that further of the decision—leaving the decision of whether to prosecute him in a court as opposed to an administrative proceeding—was an unconstitutional delegation of legislative power to the enforcement staff of the SEC. And finally, the Fifth Circuit Court of Appeals held that the removal protections that are enjoyed by the SEC ALJ violated the Take Care Clause.
At oral arguments, the jury trial question occupied virtually every aspect of the argument. In a moment, I will mention how the nondelegation issue ties into that. But the questioning and the argument whether it was of the Solicitor General or of who was -- and the case was argued by Mr. Fletcher or of the respondent. The case is -- the questions really focused on the jury trial question. So it is really hard from that argument to reach any sense of how the Court would handle two out of the three certified questions since jury trial occupied the Court's time.
The atmosphere in the room, I thought, was very -- it was a genuine attempt by the Court to tackle this important jury trial question. I don't think any of the judges were treating it lightly or as a frivolous question. And they were really struggling with some of the line drawing. Sometimes the justices were trying to focus on the question of public and private rights, which proved to be difficult. In fact, Justice Thomas opened asking for a definition of private rights and that. And we know from his decision in the Axon case that he felt strongly that where people are charged and their private rights are at stake, they should be in an Article III court. And I don't think that he would back down from that position. I think that was -- it was very clear from the argument that would be consistently his view of things.
Other justices were trying to focus on how and if a claim for fraud brought by the SEC against an individual maps onto what was common law fraud in 1791 and bringing claims for damages. And there was a lot of back and forth on that.
The Solicitor General focused a lot on forum. And he came very close, I thought, to making argument that I think was unwise, which was, essentially, if Congress assigns the claim to another forum—presumably an administrative tribunal—that decides the question. And I don't think the justices—even the ones who might not be inclined to affirm this Fifth Circuit Court of Appeals—were satisfied with that rather circular, simplistic, and self-serving definition of when you do and do not get a jury trial right.
Justice Jackson was very active from the beginning. And she correctly, in my view, focused on the facts that the question is not the forum in which Congress assigns it because it would be all too easy for Congress to simply take common law rights where a jury trial protections are expected to be afforded and then just assign them to a different forum and then extinguish that right. I think she understood that problem. And so, she was focusing on what the nature of the cause of action was, which I think is the correct inquiry to make. I think she -- I think she's likely to, perhaps, come out on the other side of the question. But at least she's framing the issue looking at the type of action that is being brought by the administrative agency as the correct thing to analyze as to whether there is a jury trial right.
The arguments went on for some time. Each side got approximately an hour and 15 minutes. I don't think anyone felt shortchanged in the argument. And there was lively questioning right up front. Justice Gorsuch and Mr. Fletcher tangled on a few occasions, and that was kind of fun to see in terms of drawing distinctions.
I think one thing that came out that I think qualifies my earlier statement that the argument focused pretty much completely on jury trial issues is that Justice Barrett, in particular, but also Justice Kavanaugh in a somewhat different way, were very concerned with the ability of the SEC enforcement staff to essentially decide what quality and brand of justice you got. And I do think that Mr. Jarkesy's counsel was effective in talking about the very well-known deficiencies of the administrative process in terms of hearsay and rules of evidence. He actually related the fact that in Mr. Jarkesy's own case, the SEC was successfully able to get hearsay admitted against Mr. Jarkesy. And then, when they tried to admit hearsay, they were told that the administrative proceedings do not allow that sort of evidence, even though they were relying on it themselves.
And that's one of the troubling problems. Everything's asymmetrical. In the administrative proceedings, you are rushed into an early trial when the SEC has had years to investigate and build a record against you. You're given a document dump that's almost unmanageable and then expected to prepare your defense in mere weeks. And then you wait forever and ever for a decision from the agency. And I think the disparities of justice there were well set out, and I think a concern to at least some of the justices.
And so, when I say that the jury trial issue occupied virtually all of the argument, the nondelegation issue, which comes into play when the question is, "Well, can the prosecutor and enforcement staff make the unilateral decision of what brand of justice do you get?" I think that was genuinely troubling several of the justices. And there were also some ardent defenses of the jury trial right and how important it was.
The respondents did not ask for Atlas Roofing to be overturned. And that got raised at several points. For example, Justice Kagan seemed to feel that Atlas—or at least in her questioning of respondent's counsel—pretty much decides the case. And I don't think that's true. The problem with that is that's a government on one side of the V and a company on the other side of the V question. And the post-Atlas cases, which did constrain that ruling -- the cases being Tull and Granfinanciera and all that were one private party versus another private party where the question of denying them jury trial rights is a hard one. And the government certainly was arguing. When the government's on one side of the V, well, that defines the issue.
And I think that's a troubling argument for them to make, and I don't think the justices were necessarily buying that wholesale. And respondent's counsel was able to cite to an early case in 1790 called King v. -- well, I'm forgetting the name of the person prosecuted for fraud, but it was the government bringing a fraud claim against an individual who had defrauded people. And is that a private right or at least a claim for fraud—common law fraud—where a jury trial right was recognized in 1790? And I think that is an effective rebuttal to the argument that was holding some force for at least part of the argument that, "Well, the post-Atlas Roofing case law really only applies between private parties, and when the government is on the other side of the V, it is by definition a public right."
I think the public-private right issue was exposed in this argument as a deeply unsatisfactory way to resolve these questions. Justice Thomas asked the Solicitor General for a definition and got some pretty simplistic responses from the government. And I think the government was making arguments that were circular, and I think not helpful to its case if you're really taking these questions seriously. So I think one loser in the argument was this public-private rights distinction insofar as it bears on the jury trial question in how unsatisfactory that has been over the years.
I suppose one question that might follow from that is, "Is it possible the Court would overrule Atlas Roofing?" I think that's unlikely because the respondent did not ask for it. And that came up a couple of times in the oral argument. And the Court is certainly not going to be inclined to overrule a precedent of that long-standing when that hasn't even been requested as part of the relief there.
On the other hand, I think anything is possible. And there might be some justices who are flirting with that possibility. They might wait for a later case that presents that issue more cleanly to the Court, but it is -- anything is possible. Certainly, I would say the Court, as a whole, was wrestling very sincerely with the jury trial question. And I think they were concerned with the erosion of jury trial rights.
Now, a contrary view did come up, and that was that "Well, the world's gotten bigger and more complicated, and Congress has so many things on its mind. And it has -- after one financial crisis or another or one other public emergency or another, the courts -- Congress may decide that it needs to set up remedies for these situations that do not overburden the courts." And that did come up as a consideration that there are so many things that Congress needs to remedy that we have to be careful we're not throwing too many claims into Article III courts and jury trials. I don't think that was an overriding concern of a majority of the justices, but it certainly was a subtext that had considerable play.
I guess I would call that the beginning of what I would call the floodgates issue. How is this going to play across many agencies? Are we opening up a real flood of problems here where Congress will have to go back and look at agency adjudication schemes that it has set up in which jury trial rights are not permitted? And do they have to amend the statutes and all of that?
And I think that was a hard and perhaps not even fair question to pose at argument because, of course, that hasn't been briefed. And we know that these schemes differ from one agency to another. Some agencies actually allow people to elect to move their case back into court, which would certainly be a satisfactory solution, and that was mentioned at argument. But it's very difficult for any of the parties to effectively respond to that concern when that was not properly briefed. There was some mention of supplemental briefing in the discussion at argument that got a dutiful response from the respondent. I doubt that will take place, but it does suggest that the Court might decide to rule in a fairly narrow fashion so as not to implicate those concerns.
I can't give you a nose count other than really from a very rough assessment. I think it is possible that the Fifth Circuit would be affirmed on one or more of the questions that were certified. I certainly don't think I came away from the argument feeling that the Fifth Circuit would be reversed, but it was not an overwhelming sense that the Fifth Circuit would be affirmed and certainly not affirmed on all three questions.
The question that got the least time was the removal questions. Now, that could be for a variety of reasons. It would be easy to say, after attending argument today, that the Court will only decide the jury question because that's really all that was discussed at argument. And I think that's a fallacious conclusion to reach, and here's why.
The Court knows how to certify just one question if it wants to. And it certified all three. And it required briefing on all three. And it could equally be true that on the -- for example, the removal question, which many people, whom I've spoken with and who have reviewed the briefing or submitted amicus brief -- many people think that the removal question is the easiest one. And so, it is entirely possible that the Court has already polled itself and that they feel that Free Enterprise Fund decides that question. Certainly, Justice Kagan felt that Free Enterprise Fund had decided the jurisdictional question in the Axon Cochran case. And, as somebody who had briefed the Cochran case, I can tell you I had argued throughout those proceedings that Free Enterprise Fund not only decided the jurisdictional question but the merits of whether more than one layer of tenure protection violates the Constitution. So it is entirely possible the Court has already reached a straw vote on that, and so there was no point in addressing that question at oral argument.
As to the nondelegation argument, as I say, it arises and meshes with the jury trial argument because of the difficulty that several of the judges seem to have about when you do and do not have access to an Article III court, whether or not it gives you a jury trial. And I think that was troubling several of the justices. So I would not rule out the Court reaching the nondelegation question, but it did not get a lot of distinctive argument on its own merits at the proceedings. The Court seemed most concerned with dealing with Atlas Roofing, the Granfinanciera and Tull decisions, and whether they did or did not effectively overrule Atlas Roofing.
I think the line drawing—as I said earlier, but I will repeat—was kind of all over the place. Do you draw the line at the public-private distinction? Do you only award jury trial rights when there's a "suit" at common law? And I believe it was Justice Gorsuch pointed out that, of course, the dictionary definition of "suit," at the time the Seventh Amendment was adopted, included a proceeding in any tribunal. And so, I think that the "suit" distinction is an unsatisfactory one. It was certainly advanced by the Solicitor General, but I don't think it was a particularly persuasive distinction in which to decide the jury trial question.
I said earlier that the idea that, well, if Congress simply puts you in a certain form, then you lose your jury trial rights. That didn't seem to carry a lot of persuasive weight. And I think the decision is probably going to turn on the right of action, which is, I think, the correct focus of the Seventh Amendment jury trial question and whether or not this was something that was analogous enough to a common law right of action recognized in 1791 for which penalties could be sought.
And there were some interesting hypotheticals offered by Justice Roberts. Up front, he said, "Well, you have an interstate highway system. Could Congress say that, at least on our roads, we want to put all tort claims into a non-Article III court without juries? Same thing with healthcare. We regulate that heavily. Could we take medical malpractice claims, for example, and do the same thing? We want to move them into non-Article III courts with no juries and bring our expertise into deciding these tough questions of medical malpractice. And we have an interest as the government in reducing healthcare costs, for example."
And so, those were some very interesting hypotheticals that suggested to me that the chief was thinking carefully about the fact that this public rights-private rights distinction can be taken quite far. And pretty much everything becomes a public right if the government has any intersection with the issue at hand, and we could just extinguish all claims that are supposed to be heard in courts and are supposed to be decided by juries.
One thing I found disappointing was the provision in the Seventh Amendment, which focuses on the fact that jurors are supposed to be factfinders, didn't get a lot of play. So I think that's something that I wish had a little bit more development because I think that when you have fact-finding done by an administrative law judge who is employed by the very agency that is prosecuting you and then you have eventual judicial review that defers to that fact-finding, that's just such a troubling built-in structural bias that I wish that had gotten a little more developmental oral argument, and it did not. But perhaps that's something the Court understands so thoroughly that it didn't need a lot of questioning on that.
I think that's a pretty complete description of the general things that were addressed at oral argument.
The general atmosphere in the courtroom, I think, was one of sincere engagement. You could see colloquies going back between the justices. Very often, one justice would take up another justice's line of questioning. Justice Sotomayor actually asked the Solicitor General to please answer the Chief's question. And they were back and forth with the -- you could see between Justice Barrett and Justice Jackson on some of these very tough line-drawing questions.
So I think in terms of a more general concern about whether the Court has retreated into factions, I think what you saw today was a very sincere engagement with some very hard questions as to which the justices—all of them—care deeply.
Sam Fendler: Thank you. Thank you so much for offering us a really comprehensive view of the case background and the oral arguments today.
We will now turn to audience questions, and we have plenty of time for it.
Peggy, I want to begin by asking you a question about the general framing of this case, not only for maybe lay people who are trying to pay attention but attorneys who may practice in other areas of the law.
This case, it implicates both congressional authority and executive authority and, of course, judicial authority. But there are people who are wary of this case on the political left who are saying that there is an opportunity here for the Supreme Court to erode both executive and congressional authority. And for my first pass of the case, it seems to be a matter of executive authority, but a lot of people are hammering home that, no, in fact, the erosion of congressional authority is on the table here as well.
And I'm wondering if you could talk about how you view that. Do you think this is a fair criticism? And what is actually at stake between what Congress has done here and what the executive branch is doing in these ALJ proceedings?
Margaret Little: Well, I would put it this way: I don't think there's an erosion of anything except judicial authority, and I will get into that in a moment. And that goes to my view of the nondelegation question, which is idiosyncratic. And we at NCLA had submitted an amicus on that.
But in terms -- I would call it a correction of executive authority, not an erosion. But that whether it be the removal protections—which since 2010 the Supreme Court has held that multiple layers are impermissible—I think that's a needed correction for the Court to follow that 2010, precedent and hold that these ALJs do possess too many protections from executive power or from presidential power under the Take Care Clause. And that's a correction that needs to be made.
Now, as far as Congress is concerned, I think the SEC has had to prosecute people in federal courts for these kinds of fraud claims for decades. And not only have they done so, but even recently, we know that that's pretty much what they're doing today. They're not bringing new administrative proceedings. And they're not bringing new administrative proceedings for a variety of reasons. I think partly because once the Axon Cochran case came down, anyone involved in administrative proceeding could go to federal court and say, "No. You can't do that." And so, the SEC engaged in a mass dismissal of all 42 of its open cases. And it has not brought a new administrative proceeding in a long while. And that came up at oral argument. Counsel for the respondent noted that, essentially, the SEC itself corrected on that because it is concerned about having these court challenges.
But the situation where you get tried in one of these administrative proceedings has only been in place for, at most, 14 years, probably less since they stopped doing it a while ago. And that's not that long a period of time. And it's not that hard to go back and do it the way you've been doing it for decades, where people get their full range of procedural and constitutional protection. So the idea that this is some incredible earth-shattering thing that's going to overburden the courts is, I think, a very false impression. It's one encouraged by the left.
It amused me greatly to hear at oral argument -- I think one of the justices said whether -- I think it was the Chief who said, "There are five administrative law judges, correct?" And he said, "Well, we're down to three." Well, those of us who are doing this stuff on a day-to-day basis felt that even those three are twiddling their thumbs because they don't bring new administrative proceedings, and they dismissed all of the open ones. So I don't know what those administrative law judges are doing.
And the issue also came up—which I think was very interesting—at argument in terms of, "Well, what will this mean in terms of other agency adjudications?" And I think the distinction did come out that the judges, the ALJs doing this work, don't amount to anything near the thousands and thousands of ALJs that people are concerned about. It's actually a small fraction.
And you had asked me about the erosion of congressional power. Again, I think it's more of a correction. The nature of a constitutional right, like the Seventh Amendment, means that Congress can't take it away. That's not an erosion of congressional power. It's just an enforcement of a constitutional right. And if Congress gets sloppy and starts putting common law or other claims that, as to which, you have a constitutionally protected right to a jury trial and starts deciding those into administrative proceedings, it's no erosion of congressional power to say, "No. You can do that." It's simply the enforcement of a constitutional right. So I think the left very much wants to paint this as some earth-shaking administrative power-defeating decision.
In fact, there was an article in The Atlantic. I don't know if you read it, Sam. But it was beyond absurd in its hyperbole. It is "administrative power correcting" is how I would put it. And I don't think it really does anything to Congress more than it should do under the Constitution.
Sam Fendler: So, Peggy, you're talking about a correction of powers. And you mentioned the nondelegation doctrine. You also mentioned that Atlantic article. And there was another article recently published by the Center for American Progress. And in the Center for American Progress article, they described the -- they're, essentially, the same line of thought. And they described the nondelegation doctrine as "a long-discredited legal theory." So it's building off of the question that I asked you and the great answer you gave.
I'm wondering if you could talk about the nondelegation doctrine, how this case interplays with the nondelegation doctrine, and if you think it is long discredited.
Margaret Little: It's long-abandoned, I think might be the -- or long left out of use.
And let me first say—and I think this is important for me to convey because we have a different view of the nondelegation doctrine here at NCLA. And we briefed that to the Court, and we'd like to see the Court adopt it. And here's that view. It's not the conventional view.
Delegation is not necessarily a very satisfactory way, I think, of looking at the problem here because when you delegate a power, you usually can take it back. But the way this works with Congress -- Congress can only take back that power if it can override a supermajority or a presidential veto. So it's not really delegation.
And so, the way we like to look at the issue -- and some of this did come up in the Gundy case, which was the last case to flirt with nondelegation. We look at it as a vesting issue. Congress vests powers in certain branches of government. It vests the judicial power in the courts, executive power in the president, and the legislative power in the legislature and the legislature alone.
One of the criticisms of the Jarkesy nondelegation claim is that the decision to charge someone when one form or another is something that some scholars look at as a classic prosecutorial discretion question. How we like to look at it—and I think it's a view that will gain traction in time—is that Congress has no judicial power whatsoever to delegate at all in the first place. So it can't set up these mini-administrative courts because it has no legislative power at all in the first place. So it can't set up this alternate system of justice in which the executive reigns supreme and hires the judges, and all of the problems we've been discussing. And I hope I at least eliminated a little here.
It can't do that at all. If you have a matter that needs to be addressed of a federal nature or the government wants to come after you on a claim, it must do so in a separate branch of government. That's exactly why they separated the powers.
Now, there is some talk -- and it did come up in some of the articles and some of the briefing about mingling, and the powers are not perfectly separated. But as to this power, it's very, very clear that Congress doesn't have judicial power. And so, it has no business delegating it to anyone, whether it be itself or to the executive, which is particularly frightening because, of course, they're the prosecutor.
So if you look at it in that way, that this is a vesting problem and that the Congress, by setting up these courts, has vested it in a branch of government that has no business exercising judicial power at all in the first place, you don't have to get into all of public rights-private rights, all of these tortured doctrines, which came out -- they were really exposed today as wholly unsatisfactory ex post facto excuses to let Congress off on what looks like a pretty bad idea.
And if you go back to first principles and say, "What would you ask a school child who had just studied the Constitution?" And if you ask that child, "Okay, and now the government wants to prosecute you, where would that happen?" They would say, "In a court of law," in a federal district court. And the answer is really that simple. It would clean up this problem rather readily.
And when you look at the number of administrative law judges who handle those kinds of claims, where your life, liberty, or property is at stake, it's somewhere between 150, 200, maybe 250 judges, depending on how you define it. All you need to do is appoint another couple hundred federal district court judges, and problem is solved. And then you are entitled to a proceeding in a real court where you have all the procedural protections and jury trial rights.
And one of the big lies -- and it didn't get much development at our argument today. But it did come out in the litigation in Axon and Cochran. One of the big lies that is told about administrative adjudication is both that it brings expertise, and it's much more expedient, much quicker. Both are not true. If you look at the backgrounds of the SEC administrative law judges, I think four out of five were hired from Social Security. The other was hired from the Federal Communications Commission. They have absolutely no background whatsoever in securities law. And that's a problem because then they become dependent upon their employers for learning about securities law, which they will only learn about from an enforcement perspective. They bring no expertise to the job at all whatsoever.
And the second—and this is particularly poignant in Mr. Jarkesy's case—he was prosecuted -- he was charged in 2013. He did not get a commission decision until 2022. You cannot possibly make a case that that is somehow an expedient proceeding. In fact, the commission sat on his administrative law judge's final decision for five years. I do think the judges at least -- it didn't come out at oral argument today, but I think there is an increased awareness that if you go into district court, the average time to resolution is somewhere between two and two and a half years. And you've got your full panoply of procedural rights. So the whole idea that this was expeditious or there was expertise is a giant defection that needs to be exposed as such.
We'll all be much better if we go back to the original design of prosecuting people in real courts before real judges, where they have all of the constitutional due process and Bill of Right protections, which they should expect under the Constitution.
Sam Fendler: So, Peggy, I want to put a very fine point on something that you just mentioned, which is the alleged parade of horribles comes from getting rid of over 2,000 or so ALJs that deal with whatever the matter is. So now we won't have senior citizens getting their Social Security benefits and so on. But what you're saying is, as a matter of fact, that number -- that north of 2,000 number is actually something like 150, 200; is that right?
Margaret Little: Right. And that's because you got to look at what's going on. In a benefits case, whether it be Social Security or veteran's benefits, what is happening -- the government isn't coming after you to take your property or your ability to practice in the securities markets away from you. You are going to them saying, "I think I qualify for Social Security benefits or veteran's benefits." And they're making an administrative decision as to whether you fit the criteria to receive those benefits. It's a completely different kind of proceeding. If you take those kinds of proceedings out of there, you really are talking about a very small group of judges.
Sam Fendler: Thank you. We have more than one audience member asking about the difference in this case between deciding it as an Article III issue and deciding it as a Seventh Amendment issue.
So we have one viewer who writes, "The case implicates core private rights, and, aside from certain exceptions, deprivations of these rights traditionally require judicial adjudication rather than executive adjudication. Under this view, the Seventh Amendment serves as confirmation that this type of case must be brought before a judge and jury. So the question being, 'Should this case have been framed as an Article III issue rather than as a Seventh Amendment issue'"?
Margaret Little: Well, that's an excellent question, and the truth is those questions got very -- they just intersected, as I guess the way I would put it in oral argument. The Article III question was discussed at some length. I think the Court did not dismiss that issue. But it's true that the Article III question was not framed in the questions that were accepted by the Court.
Now, one of the funny things that happened at oral argument is that Mr. Jarkesy's counsel pointed out they had four or five other issues, including due process and core issues. They just didn't get decided by the Fifth Circuit. I think the Fifth Circuit felt it had taken on enough by taking up the three -- these three big ones. And he pointed out to the Court that even if the Court were to rule against them all—all three of these—he's coming right back with the rest of them, which include these core issues. And let's say that engendered a nervous laugh in the room.
So the framing wasn't so much an issue of whether Mr. Jarkesy raised them. It's just how the case proceeded through the lower courts. And, yes, those issues are very much alive, and they came up several times during the oral argument. And there was a blind, really, of the Seventh Amendment right and the Article III issues. So I don't know that the Court will reach the Article III question, but it's very much part and parcel, I think, of the problem of administrative adjudication. And I think it's there in -- not just in the back of the Court's mind, but in the front of the Court's mind because it got so much play today.
Sam Fendler: Another question from our audience for you: "In your experience, given the option, has the SEC ever opted to allow a case to go to federal court, and is there a similar issue with other agencies?"
Margaret Little: Have they ever opted to allow a case to --
Sam Fendler: "Given the option, has the SEC ever opted to allow a case to go to federal court?"
Margaret Little: Well, it always has that right and has had that right. So what Dodd-Frank did in 2010 was just add an option allowing them to proceed in a case administratively. And so, it's always had that option.
I think that makes the SEC a little unique, I think, and some of these other agency situations is an all-or-none proposition. Congress has said, "All of the cases go into administrative proceedings." I think I mentioned that there is an agency that lets the respondents opt into a federal court, and that would not be a terrible solution to this problem for Congress to consider if somebody wants to go into court. It's kind of like your removal rights in federal court in other proceedings because there might be some people who are perfectly happy, maybe a very minor violation, and they're happy to just settle out the administrative case. Then that would be a practical approach. But, for me, that would be extremely unsatisfactory because I don't think that Congress should be setting up these courts in the first place.
And just to finish that thought, that's what happens in real federal courts when you go to a magistrate. Okay? You can opt in to have a magistrate decide your question. And if it's not that big a matter, you get it resolved quickly, and everybody goes home and they're happy. And I think that's a much more satisfactory and constitutionally permissible way to reach the same effective result.
Sam Fendler: So a nice follow-up question here, also from an audience member: "What do you think of the plaintiff attorney's argument that the SEC could "fix" this issue by letting defendants choose which forum they want their case heard in, either a regular court or before an ALJ?"
Margaret Little: Right. That's what I had alluded to. Apparently, there's some agencies that allow you to do that.
Again, it's a great practical solution. I find it unsatisfactory because it really -- I don't think these administrative proceedings should be there in the first place and that the magistrate path is already sitting there waiting in federal courts. And I think we just need to put a few ALJs out of business and appoint a few additional federal courts and clean up the principles that underly how we dispense justice in this country.
Sam Fendler: Another question from the audience is: "Do you know why Jarkesy did not seek to overturn Atlas Roofing in the alternative?"
Margaret Little: I don't. I wasn't consulted by them. Although, I know the counsel, and I participated in some mooting, and we filed an amicus brief.
I suspect it's the usual that people are told—especially when they represent private parties—to argue for the narrowest possible ask from the Court in which you win. And asking the Court to overturn one of its precedents is daunting. It has a lower likelihood of success. And if you look at any appellate manual, they will tell you to try to narrow your issues and win on the narrowest possible grounds because it's perceived that you will improve your chances.
Here, Atlas is a very troubling precedent, and I think has created problems since it came down. And an exception might be made here, but I don't fault them for following what is the usual advice of how to present your case to a court if you hope to win.
Sam Fendler: In hindsight, considering the oral argument today sort of some back and forth on the precise meaning of the Seventh Amendment, do you think that maybe we should be framing this as a Sixth Amendment jury trial right in arguing that these are actually criminal cases rather than suits at common law?
Margaret Little: Well, that would get at least, I think, one vote from Justice Gorsuch, who says that these penalties are very much like the criminal penalties in criminal proceedings. Whether it would get more than that, I don't know.
You can always argue a case in the alternative. And I think, again, if you line up what really happens to a person in one of these administrative proceedings in terms of how their life, their livelihood, their resources, the human cost, sometimes it's worse than a simple criminal proceeding. It might get some traction. I think that's a harder win. But, as I say, you can always argue a case in the alternative. And Justice Gorsuch has been quite eloquent on the fact that these penalties are often much harsher and wreak more damage in human lives on these civil proceedings than criminal proceedings do.
The other thing that I think doesn't get discussed much is that an SEC prosecution, in particular, is essentially an occupational death sentence because even once you're charged, you try to get a job as a schoolteacher, they won't hire you because you've got this SEC charge against you. And even if it gets resolved or settled, it's out there. And when you settle, they impose silence on you. You cannot contest the charges. So what we are talking about even putting aside the cost of defense and time and distraction and taking people away from their families, their personal lives, pursuing matters of consequence in their lives, it is an occupational death sentence. And that's something, I think, the courts need to wrestle with and face and acknowledge.
Sam Fendler: Peggy, I have one more audience question before I ask you your final thoughts.
We have a viewer who's asking about potential ramifications at the state level. So he writes that "both in 303 Creative and Masterpiece Cakeshop, the Colorado Human Rights Commission prosecuted individuals. So, in your opinion, if the Supreme Court says that the Seventh Amendment applies to SEC administrative penalty proceedings, will it create a jury trial right before state administrative bodies, such as the Human Rights Commission?"
Margaret Little: Well, I think there you would have to look at the state constitution. My understanding is that every single state has a jury trial provision. They do differ. Some, for example, have juries of six. Some states require unanimous jury verdicts, and others do not. You just need a majority of the jury. And so, that's really a state law question.
But I think that you could import a lot of the arguments in terms of how essential the jury trial right is to mediating government power between citizens. And it's especially the case in government cases.
One of the things that disturbed me about today's argument was a lot of time was wasted, I think, on "Well, the cases that eroded Atlas Roofing were private parties versus private parties. And we don't erode their Seventh Amendment rights." Well, it's all—in my view—even more important to put a jury between government power and individual citizens. The government has all the cards. Any of you -- I've practiced law for 40 years, and even in a real court with a real, unbiased judge who's not employed by the SEC, the government still has a leg up. And I think any honest attorney will tell you when you go into court, the prosecutor gets the benefit of the doubt.
And a jury is exactly what stands between that unfortunate presumption that the government is doing good and in the public interest. But it's not always being fair or balanced or making good judgments about what claims to pursue. And I think restoring the jury trial rights is most important in government prosecutions, whether they be state or federal.
Sam Fendler: Peggy, our hour has flown by, as it usually does. But before we sign off, I wanted to ask if you had any final thoughts for the audience.
Margaret Little: No. I'm just—I guess I would say—I'm really curious to see if the Court will reach all three questions. When I walked out of the court today, I was like, "Well, that was really just about jury trial." But when I thought through it further and how there were justices very concerned about the unilateral ability of the SEC enforcement staff to decide what brand of justice you get and then the acknowledgment that Free Enterprise Fund had already decided the removal question, it's not impossible that they might decide all three. You can't predict that at all, but I am super curious to see what will happen.
Sam Fendler: Absolutely. And we'll continue to pay attention.
But, Peggy, on behalf of The Federalist Society, I want to thank you very much for the benefit of your time and your expertise today. It's always a pleasure to have you on. So, sincerely, thank you so much.
I also want to thank our audience for joining us. We greatly appreciate your participation. Please check out our website, fedsoc.org, where you can follow us on all major social media platforms @fedsoc to stay up to date with announcements and upcoming webinars.
Thank you all once more for tuning in. And we are adjourned.