Supreme Court protects the right to a jury trial – and the public from lawless agency fines

Today the Supreme Court issued a decision in SEC v. Jarkesy, one of the most significant civil rights cases in decades. This case is about whether people have the right to a jury trial when the SEC seeks judgment against them—more precisely when the SEC tries to fine others through administrative enforcement. The government had argued that anytime it brought suit, that action was in the realm of a “public right,” and therefore exempt from the jury requirement of the Seventh Amendment. To explain why the government’s argument was so outrageous, I provide a brief history lesson below.

The Seventh Amendment was created in response to British oppression around the time of the American Revolution. Americans were unhappy with the Navigation Acts, which required all goods sent to or from American colonies to be bought from or sold to British merchants, even when prices were lower elsewhere. The Acts also required that 75% of the crew be British; failure to obey the Acts’ terms could result in the forfeit of the ship and cargo.

Many Americans resorted to smuggling to avoid the requirements of the Navigation Acts. When the British government attempted to prosecute such people for smuggling, the juries would often refuse to convict. The Massachusetts Colonial Governor, appointed by the British government, said: “a trial by jury here is only trying one illicit trader by his fellows, or at least by his well-wishers.”

The British government responded by enacting the Vice Admiralty Court Act of 1768, which transferred jurisdiction of all customs and trade violations to the Vice-Admiralty Courts. Those courts had no jury.

The abuses of these juryless courts became notorious: so much so that the Stamp Act Congress declared that “Trial by jury is the inherent and invaluable Right of every British Subject, in these Colonies” and that “by extending the Jurisdiction of the Courts of Admiralty, beyond its Ancient limits, have a Manifest tendency to Subvert the Rights, and liberties of the Colonists.”

When the British continued to use the jury-free civil court system of the Vice-Admiralty Courts to strip American colonists of their property, the Declaration of Independence listed as one of the causes of the American Revolution as “depriving us, in many cases, of the benefits of trial by jury.” These were all civil jury trials they were being deprived of, not criminal ones.

The Founders designed the Seventh Amendment to stop these trials without juries. But by its terms, the Amendment only applied in “suits at common law.” It did not apply in cases of equity (actions that are supposed to restore people to their rightful place rather than to punish anyone), or admiralty (actions governed by the law on the high seas, where a local jury doesn’t exist). Furthermore, the Supreme Court decided early on that the Seventh Amendment did not apply to a variety of areas where no punishment occurred, such as the collection of taxes, immigration, relations with Native Americans, the administration of public lands, and the granting of public benefits.

Nonetheless, the Amendment stood as a bulwark for the right to a jury for nearly 150 years. Then things changed suddenly in the late 1930s. New agencies created by FDR’s New Deal asserted the ability to prosecute people without jury trials in administrative forums.

At this time, every Supreme Court justice had been appointed by FDR, and lower courts did not stop this new assertion of power without juries. For the most part, the Supreme Court tried to avoid addressing the issue of the right to a jury trial directly, and lower courts deferred to the government. However, the Court eventually had the issue put directly before them in Atlas Roofing Company v. Occupational Safety and Health Review Commission (1977).

Atlas Roofing dealt with enforcing OSHA fines through an administrative proceeding without a jury. Atlas Roofing upheld these OSHA prosecutions under the theory that they were similar to “public rights” cases, like those involving taxes, immigration, and the granting of public benefits. This was utterly contrary to the basis of the Seventh Amendment’s existence.

Soon afterward, the Supreme Court, in Tull v. United States (1987) and Granfinanciera, S. A. v. Nordberg (1989), rejected the core argument of Atlas Roofing without formally overruling the case. So much so that the author of Atlas Roofing wrote: “Perhaps… Atlas Roofing is no longer good law after today’s decision.”

In Jarkesy, which the Supreme Court has now decided, the government argued that the case at hand was just like Atlas Roofing. The government argued that the case rests on the actions of an agency, the SEC, that brings a statutory claim of securities fraud—a claim which was not available in common law. Therefore, just as in Atlas Roofing, the case is best viewed as a matter of public rights that doesn’t require a jury. Indeed, the government argued that whenever the government is a party, the case becomes a matter of “public rights” that doesn’t require a jury.

In Jarkesy, CEI filed an amicus brief asking the Court to overrule Atlas Roofing. The Court did not do so, but it might as well have. The Court ruled today that, just as in Tull and Granfinanciera, this case concerns private rights that require a jury trial. The Supreme Court defines private rights as those other than the traditional areas of taxes, immigration, relations with Native Americans, the administration of public lands, and the granting of public benefits—areas to which the Seventh Amendment never applied.

Now that the Court has newly defined private rights in this narrow manner, it looks as if it has overruled every relevant aspect of Atlas Roofing without explicitly saying it has done so. The dissent even paints the majority as “leav[ing] open the possibility that Granfinanciera might have overruled Atlas Roofing”—a claim the majority doesn’t dispute. Indeed, the majority merely says it need not decide if Atlas Roofing is good law in this case, as it can rely upon Granfinanciera to reject the SEC’s argument. Despite asking the Court to explicitly overturn Atlas Roofing, many of the areas that the Court now describes as “public rights” cases are areas where we at CEI don’t even believe the Seventh Amendment applies because they are not suits at common law—such as the granting of public benefits.

Atlas Roofing is now almost dead. This is reminiscent of the way that the Court treated Lemon v. Kurtzman (1971), where the Court kept casting doubt upon the holding but never expressly overturned it. In Kennedy v. Bremerton School District (2012), the Court announced that it had “long ago abandoned Lemon and its endorsement test offshoot.” This was the first time Lemon was formally noted to be overturned.

This is great news for the American public. Now we no longer have to worry about government agencies seeking to financially ruin defendants without a jury trial. Freedom is preserved by ensuring that the government must shoulder the burden of convincing twelve ordinary Americans that a defendant did something wrong. The change to a jury of one’s peers from a gaggle of bureaucrats is a healthy development.