Will the Supreme Court blow up the executive branch when it decides SEC v. Jarkesy? Based on the oral argument today, I doubt it — but it might make things messy for a long time.

In Jarkesy, the Court has to decide whether SEC can adjudicate claims of securities fraud, since the common law in 1791 recognized analogous fraud claims and the Seventh Amendment guarantees a jury trial for “Suits at common Law.”

Three Ways of Looking at a Fraud Claim

Based on questioning today, the justices seemed to identify three ways of resolving the issue:

(1) The Seventh Amendment only protects against Congress moving traditional actions at common law brought by one private party against another out of the Article III courts and into an administrative proceeding, like in Granfinanciera v. Nordberg. Justices Jackson, Kagan, and Sotomayor seemed convinced of this approach.

(2) The Seventh Amendment prohibits agencies from hearing any claims with any precedent at common law in which the remedy sought is monetary penalties (and possibly equitable remedies involving repayment like disgorgement). Perhaps only Justice Thomas would go this far, or nearly so.

(3) The Seventh Amendment prohibits agencies from hearing cases where (a) the claim is closely analogous (not identical) to a claim at common law, and (b) the government seeks a remedy of civil penalties akin to damages. Justices Gorsuch, Alito, and Kavanaugh appeared to be seeking to slice the question narrowly along these lines.

Swing Votes

Of course, that leaves Chief Justice Roberts and Justice Barrett, both of whom seemed to be weighing the two sides of the argument.

Ultimately, the scope of the Court’s decision will depend on how far Roberts and Barrett lean toward Seventh Amendment protection. Most likely one of them feels inclined to recognize some limits on agency power where the claim involves most (though, as Justice Sotomayor and Jackson pointed out, not all) of the same elements as a traditional common law claim.

But Roberts and Barrett seemed to acknowledge that the Court’s precedent in Atlas Roofing v. OSHRC seems to allay Seventh Amendment concerns in claims involving actions by a government against a private party as part of a statutory scheme meant to supplement existing common law claims.

Assembling a Majority (and a Majority Opinion)

In order to convince Roberts or Barrett to sign on, the decision will probably have to announce careful limits on (1) the types of cases by governments against private individuals that will be considered sufficiently analogous to suits at common law to warrant Seventh Amendment protection; (2) the types of remedies that fit reasonably within that analogy; and (3) the types of traditional agency adjudication that the Court’s opinion is not meant to disturb, like tax, immigration, or customs enforcement actions and Social Security benefits determinations.

Justice Sotomayor openly doubted whether the Court can, in dictum, announce a rule that will sufficiently narrow the issue to avoid agency-by-agency litigation. Justice Gorsuch brushed aside such concerns, and Jarkesy’s counsel insisted the rule they sought would affect only a small sliver of agency adjudications.

If Roberts or Barrett agrees to get on board, a decision providing for Seventh Amendment right to a jury trial in a case brought by the government against a private party as part of a statutory scheme would inevitably open the door wider than anyone conceived in the 60 years since Atlas Roofing — or anyone without loads of “chutzpah,” as Justice Kagan put it.

Whether the majority can narrow the crack in the door enough to prevent the cow from getting out of the barn remains to be seen. But attempting to do so would be consistent with other cases of the Roberts Court that recognized constitutional claims against administrative agencies while crafting remedies that blunted their impact, like in U.S. v. Arthrex and Seila Law v. Consumer Financial Protection Bureau.

ALJ Independence Appears to be safe

By the way, the Court spent exactly zero time exploring Jarkesy’s other major (possibly more) disrupting claim: that discipline and removal of Administrative Law Judges only through the Merit Systems Protection Board violated the president’s removal power.

The government noted quickly in rebuttal that the SEC’s plenary power to review ALJs’ decisions relieved any concerns about having two layers of for-cause authority like in Free Enterprise Inc. v. Public Company Accounting Oversight Board.

The justices didn’t give it a murmur. So it seems very likely that they will not disturb the MSPB system that gives adjudicators some insulation from political pressure.