The SEC case is really about Congress's power to let agencies address today's problems
Justice Sam Alito, compromise-maker?
The stakes of Wednesday’s oral arguments at the U.S. Supreme Court are high.
In nearly two-and-a-half hours of arguments, featuring significant questioning from all of the justices, the Seventh Amendment right to a jury trial was front and center.
At its most broad points, the arguments could upend the ability of agencies to bring administrative enforcement actions whenever “private rights” are impacted — from immigration to Social Security to the Environmental Protection Agency — or for Congress even to permit such actions. At the least, it could bar administrative enforcement actions deemed similar to the types of lawsuits that could be brought in court when the Seventh Amendment was adopted in 1791. (Yes, it was one of those days at the court.)
At its most narrow, the case is about whether it is constitutional for the Securities and Exchange Commission to bring an administrative enforcement action against George Jarkesy based on an alleged violation of federal securities fraud law.
And though Michael McColloch, the Dallas solo practitioner who argued on behalf of Jarkesy, insisted repeatedly that they are not seeking any “big change” in the law, the questions presented in the case, the questions asked by some justices at arguments, and the concerns raised by the government’s lawyer all suggest there are some who would like to see big changes.
First, there are, technically, three issues on which the court agreed to hear the Justice Department’s appeal of a decision in Jarkesy’s favor out of the U.S. Court of Appeals for the Fifth Circuit. There is a nondelegation question, which never directly came up in arguments aside from Principal Deputy Solicitor General Brian Fletcher’s opening, as well as a question about whether the for-cause removal protections given to the SEC’s administrative law judges (ALJs) are unconstitutional. That did come up briefly, in response to a question from Justice Brett Kavanaugh, but the vast majority of the arguments were focused on the Seventh Amendment question.
Much of that argument circles around a 1977 case, Atlas Roofing Co. v. Occupational Safety and Health Review Commission. While there were cases and practices before Atlas Roofing and cases — which did become significant to the arguments — after, the 1977 case is central to understanding Wednesday’s arguments.
In that decision, then-Justice Byron White wrote that “when Congress creates new statutory ‘public rights,’ it may assign their adjudication to an administrative agency with which a jury trial would be incompatible, without violating the Seventh Amendment's injunction that jury trial is to be ‘preserved’ in ‘suits at common law.’”
Put most simply, when Congress wants to address a problem that it believes ordinary lawsuits — specifically, those that could have been brought in England at the Seventh Amendment’s passage — aren’t solving, it can attempt to address the problem by putting an agency in charge of dealing with it through administrative enforcement. No jury trial is needed.
As Justice Elena Kagan put it: “[I]f you look at the question presented and then you read Atlas Roofing, you wonder why this case is here, in other words, that Atlas Roofing simply resolves the issue.”
And that is pretty undeniably true. If Atlas Roofing still means what it says it means, the Fifth Circuit’s decision is wrong and Jarkesy loses. (Notably, Justice Ketanji Brown Jackson was working throughout the arguments to put forward a slightly different vision of Atlas Roofing even from the other Democratic appointees, and I’d expect to see an interesting opinion from her when we get a decision in the case.)
In Fletcher’s rebuttal — which was extremely strong after having faced a very aggressive bench during his main argument — he concluded that only three real options were available to the court.
But, we have this court, so it could just ignore that.
While McColloch insisted Jarkesy isn’t formally asking the Supreme Court to overrule Atlas Roofing, that was so, at least in part, because he argued the Fifth Circuit’s decision can be affirmed under Atlas Roofing … “as modified” by later cases.
In other words, McColloch argued that a handful of cases since Atlas Roofing have chipped away at it enough to make the SEC’s actions here violative of the Seventh Amendment. Specifically, 1987 and 1989 cases were cited for the idea that the court has already limited Atlas Roofing — in the second case concluding that a “purely taxonomic change” creating an administrative process to replace a common-law suit isn’t sufficient to remove the Seventh Amendment jury right.
For McColloch, then, the aim was to convince the court that securities fraud enforcement actions under 10b-5 are basically the same as common-law fraud claims. But, at points, that got away from him, including in an extensive back and forth with Justice Sonia Sotomayor that included this moment:
McColloch went on to try to exclude some of the key areas that would be impacted — like immigration law — by saying that areas that have been “traditionally litigated or — or adjudicated or assessed outside of the court process even back at the time of the founding” could be excluded from his rule.
To which Sotomayor responded, “That’s a very amorphous line.”
But, an underlying conservative point was that the federal government has gotten so big. “[T]he extent of impact of government agencies on daily life today is enormously more significant than it was 50 years ago,” Chief Justice John Roberts noted to Fletcher at one point. “[S]hould that be a concern for us or a consideration when we're trying to consider what power the government has to take away the jury trial right or, as an antecedent to that, to take away the right to go into court?”
Fletcher responded, in part: “I don't think that changes the relevant constitutional principles. I think the one thing that it does highlight is the extent to which Congress has relied on Atlas Roofing.”
Toward the end of McColloch’s argument, Justice Sam Alito offered up what counts as a compromise these days: “Could we decide this case on the narrow ground that the statutory securities fraud claims are sufficiently close to a common law fraud action because the elements of the statutory claim are a logical subset of the latter?”
Although Fletcher tried to push back in his rebuttal, arguing that those earlier cases — even after Atlas Roofing — don’t allow for such a restriction on Congress’s powers, it did appear that the conservatives will be doing something to restrict agency enforcement powers in SEC v. Jarkesy.
If there is an upside for the Justice Department coming out of Wednesday’s arguments, it’s that the most extreme possible results did seem to be pushed to the side. Roberts suggested avoiding the debate over the “public rights” doctrine altogether because the court has had “a great deal of trouble” traversing questions about it.
Additionally, and importantly, McColloch made clear that he wasn’t ready to answer broad questions that would need to be answered if Atlas Roofing were to be overruled. As Fletcher smartly included in his rebuttal:
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