The Two Holdings of Securities and Exchange Commission v. Jarkesy and What They Mean for the Future of Administrative Adjudication

Public commentary on the Supreme Court’s decision in SEC v. Jarkesy is an unusually stark litmus test of political and legal perspectives of the commentariat. Progressives sound a drumbeat of conspiracy, destruction, mayhem and even ruin against a lively background of originalists, libertarians, and conservatives shooting off fireworks and cannons or popping champagne to celebrate.  Doomsaying may have reached its fullest expression from Noah Rosenblum predicting the destruction of our government on a ”fringe” legal theory for which “a lawyer would be laughed out of court.”  The case for celebration was convincingly sparked when John Berlau published his essay about the Fifth Circuit opinion from which SEC unsuccessfully appealed, A Declaration of Independence from the Administrative State. The recent Supreme Court decision in Jarkesy is indeed revolutionary—because it keeps the promises made in 1789 and 1791 for which a revolution had been fought. That it also declares independence from the administrative state—well, that just follows as the night the day when the Supreme Court kept the promises made as part of the hard-won right to self-governance under a Constitution and its Bill of Rights.

What the Court Held

Any discussion of Jarkesy must start with understanding there are two holdings in the case.  Jarkesy is usually described by the press and in legal commentary as the case that restored jury trial rights to persons charged with fraud by the Securities and Exchange Commission seeking monetary damages.  And that is true.  But those jury trial rights follow from a more fundamental holding that is often ignored in the public discussion.

Jarkesy has two separate and distinct holdings.  First, the Court held that “the judicial Power of the United States cannot be shared with the other branches,” because “Article III could neither serve its purpose in the system of checks and balances nor preserve the integrity of judicial decisionmaking if the other branches of the Federal Government could confer the Government’s ‘judicial Power’ on entities outside Article III.” And second, the Court concluded that “Congress cannot conjure away the Seventh Amendment by mandating that traditional legal claims be…taken to an administrative tribunal.”

These two holdings of Jarkesy were explicit: 1) “matters concerning private rights may not be removed from Article III courts” and “must be tried before a neutral adjudicator” (which an agency administrative law judge (ALJ) cannot possibly be) because “the Constitution prohibits Congress from withdraw[ing] from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law;” and 2) “Once such a suit ‘is brought within the bounds of federal jurisdiction,’ an Article III court must decide it, with a jury if the Seventh Amendment applies.” Even the dissenting Justices recognized that the principal issue in the case is the scope of Article III. “Although this case involves a Seventh Amendment challenge, the principal question at issue is one rooted in Article III and the separation of powers.” Justice Gorsuch’s concurrence agrees: “[T]he Constitution has never countenanced the dissent’s notion that the Executive is free to reassign virtually any civil case in which it is a party to its own tribunals where its own employees decide cases and inconvenient juries and traditional trial procedures go by the boards.”).

New Civil Liberties Alliance (NCLA), where I work, is justly appreciative of this holding that the “judicial power” is vested only in “courts” and may not be reassigned by Congress to an executive agency in-house tribunal. NCLA has uniquely framed this argument in its amicus briefs filed throughout the Jarkesy lower and high court proceedings but also in other cases involving jury rights. Not only does the separation of legislative, executive and judicial powers in the Constitution clearly require the Jarkesy court to rule as it did, Congress lacks any judicial power at all and thus cannot “delegate” a power it lacks to any other branch.  Much less an executive agency that is also prosecuting Mr. Jarkesy—in the same proceeding!  That the government could operate in this fashion for eighty years is nothing less than shocking.

Yet, progressive commentators that correctly see that Jarkesy means the likely end of administrative adjudication, posit that as a catastrophe.  Why? What is so threatening about due process and impartial adjudication?  Why are originalists, libertarians, even law-and-order conservatives as well as groups like the NCLA celebrating this escape by Mr. Jarkesy from the clutches of administrative power?

From Whence was Mr. Jarkesy Freed?

I (and others) have written elsewhere about the conditions in which Mr. Jarkesy—and others like NCLA clients Ray Lucia, Michelle Cochran and Christopher Gibson  found themselves under the regime first constructed in the 1930s as later expanded by the Dodd-Frank Act.  I call it The SEC’s Bleak House of Cards.  To name just a few of its well-known pathologies:

• It hales Americans into an agency administrative tribunal that not only legislates rules in those proceedings, but then prosecutes, finds the facts, adjudicates them and imposes the penalties. This is precisely what the Founders feared: the combination of legislative, prosecution, adjudication, and penalization in one agency, the very definition of tyranny.
• Those proceedings drag out for years, sometimes over a decade as Mr. Jarkesy’s were, where his first right of appeal was to the agency prosecuting him, which appeal SEC took five years to decide! Justice Gorsuch wrote a concurrence in Axon/Cochran that detailed the breaking wheel of torture that Michelle Cochran endured in the SEC’s never-ending cycle of renewed proceedings.
• They deny respondents the protection of discovery, the Federal Rules of Procedure and Evidence, the right to confront witnesses, and cruelly curtail respondents’ time and ability to defend while allowing the agency unlimited time and opportunity to prosecute. Respondents are trapped in the administrative maw for as long as it takes to force a settlement in which SEC imposes a mandatory gag prohibiting respondents from ever questioning the agency’s case against them.
• Another, little-discussed violation of due process is that incredibly, in 2013, the SEC held a pretrial of Mr. Jarkesy in absentia where the conclusions of this extraordinary ex parte proceeding were published by SEC on its website in an order “finding” him culpable. Not allegations, but “findings,” without any opportunity for Mr. Jarkesy to appear and defend himself.

These and other depredations of liberty have been well-documented for years.  Indeed as long ago as 1947, many of them were specifically and devastatingly laid out by Justice Robert Jackson in SEC v. Chenery II, prompting him to ask: “Has the SEC become a law unto itself?”

One can only wonder why progressives would not only endorse but defend at all costs a system so tyrannic.  What bothers progressives so much about a fair trial, and impartial judge with facts found by a jury?  A true understanding of these principles, informed by eight decades of grim experience, compels the conclusions reached in Jarkesy: the judicial power must be returned to real courts with neutral judges, that preserve the principles and civil liberties promised in 1789 and 1791.

A Final Perspective: The Bureaucrat’s workshop

This essay seeks not only to clarify the holding in Jarkesy, but also to examine a few of the many and varied perspectives on the decision.  The historical case why we must keep the promise made in the Seventh Amendment is eloquently laid out by Judge Elrod in her Fifth Circuit opinion. After all, the Declaration of Independence explicitly listed “depriving us in many cases, of the benefit of Trial by Jury” as a reason for a revolution.  Reaching back further, the Oresteia, a three- play cycle from ancient Greece by Aeschylus, ends with a gathering of ordinary citizens that hear the trial of Orestes, thus ending the curse of blood feuds that plagued the house of Atreus over generations. These plays, that end with the summoning of an ordinary jury to dispense justice, tell a key origin story placing juries at the heart of civilized justice.

In search of thinking about why jury trials are so important, I came across these reflections by G.K Chesterton written after long observation of juries. His reflections eloquently and in a unique manner explain why jury trials are essential to our civilization’s administration of justice. They also answer the question why we must not entrust the task to jaded officials, bureaucrats, or even judges on the theory that they are “experts” in this solemn duty:

The horrible thing about all legal officials, even the best, about all judges, magistrates, barristers, detectives, and policemen, is not that they are wicked (some of them are good), not that they are stupid (several of them are quite intelligent), it is simply that they have got used to it. Strictly they do not see the prisoner in the dock; all they see is the usual man in the usual place. They do not see the awful court of judgment; they only see their own workshop. …

Our civilization has decided, and very justly decided, that determining guilt or innocence of men is a thing too important to be trusted to trained men. [When] [i]t wishes for light upon that awful matter, it asks men who know no more law than I know, but who can feel the thing I felt in that jury box. When it wants a library cataloged, or the solar system discovered, or any trifle of that kind, it uses up its specialists. But when it wishes anything done which is really serious, it collects twelve of the ordinary men standing round.

January 17, 2025