In June 2024, the United States Supreme Court issued a decision in SEC v. Jarkesy, which hobbles the power of agencies like the Securities and Exchange Commission to bring cases against defendants in front of an administrative court rather than a jury trial in a traditional federal court.
The Supreme Court ruled that the SEC’s use of administrative law courts (ALCs) to assess civil penalties violated the defendant’s Seventh Amendment right to a jury trial.
Now, U.S. Rep. Derek Schmidt (R-Kansas) has joined as a co-sponsor on legislation to apply that ruling to all federal administrative agencies by allowing defendants to remove their cases from the agencies’ own ALCs to a federal district court.
H.R. 432, the Seventh Amendment Restoration Act, originally introduced by Congresswoman Harriet Hageman (R-Wyoming), would reaffirm Americans’ right to a jury trial in cases involving federal agencies.
“For years, federal agency bureaucrats have used their own internal court system to bulldoze Americans,” Schmidt said in a release. “As attorney general, I fought against big government’s intrusion into Kansans’ lives. This legislation reaffirms one of the core principles of our republic: the right to a jury trial. I’m proud to join my colleagues to take this important step to preserve Americans’ constitutional rights.”
The background
In 1946, Congress passed the Administrative Procedure Act, creating ALCs within federal agencies to adjudicate disputes arising from alleged violations of agency-created law. However, ALCs do not adhere to the same due process rules as Article III courts and agencies overwhelmingly prevail against Americans when adjudicating disputes before judges the agency hires and pays.
George Jarkesy ran two hedge funds the SEC claimed were frauds and brought an action against him in their own administrative court, fining him $300,000 and ordering him to return $685,000 in illicit profits.
Notably, this was not a criminal proceeding but a lawsuit seeking monetary damages in which Jarkesy was sued in a court controlled by the agency suing him.
Jarkesy appealed, and both the 5th Circuit and SCOTUS agreed that he was entitled to a jury trial.
Similar courts set up by multiple executive agencies, such as the EPA, OSHA, and the Department of the Interior, are at issue.
Former federal Judge Elliot Kaplan, who presided over an administrative court, lauded the decision.
Kaplan noted there are two types of administrative courts: those authorized specifically by Congress, such as immigration courts, and those set up as administrative procedures by the agencies themselves.
According to Kaplan, the issue with those “courts” is that the judges are employees of the agency in question.
“They don’t meet the independence that a court requires in order to dispense justice fairly,” Kaplan said. “They’re representing an executive, right? And that’s the fundamental problem with all of this.”
Chief Justice John Roberts seems to agree, writing that the 5th Circuit identified two Constitutional issues with the case:
- “First, it determined that Congress had violated the nondelegation doctrine by authorizing the SEC, without adequate guidance, to choose whether to litigate this action in an Article III court (judicial branch court) or to adjudicate the matter itself.
- “The panel also found that the insulation of the SEC ALJs (Administrative Law Judges) from executive supervision with two layers of for-cause removal protections violated the separation of powers.”
Indeed, Roberts noted that the English pushing colonists into juryless trials before admiralty and other courts was one of the grievances listed in the Declaration of Independence and, quoting Alexander Hamilton in The Federalist Papers, “there is no liberty if the power of judging be not separated from the legislative and executive powers.”
Roberts concluded by affirming the right to a jury trial.
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” he wrote. “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.”
