Legal Docket: Trial by jury

MARY REICHARD, HOST: It’s Monday morning, December 11th, and you’re listening to The World and Everything in It from listener-supported WORLD Radio. Good morning! I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher.

If you skipped the beginning, I do want to repeat here before we get going: we’re in our December Giving Drive, and we do know how it is in the holiday season, time flies! Holidays seem to sneak up on us. So many things to do to prepare and the time can get away in a hurry.

And this is a critical month for WORLD, too. This is when most of our revenue comes in … the resources we need to provide the programming you depend on.

So a generous WORLD Mover thought it’d be a great idea to provide an incentive to move early, offering a dollar-for-dollar match for all end-of-year gifts. Meaning that whatever gift makes sense for you is doubled.

REICHARD: But you have to give by Friday night, before midnight eastern time, to activate the WORLD Mover Match.

So the incentive is to qualify for the 2-X match by giving early. But, for me, you know I’m a box-checker. I like to cross things off. That makes it a double incentive: give early, double your impact, and shorten the old holiday to-do list.

EICHER: And, Mary, for everyone else, the listener who’s more in the mold of procrastinator Nick, or if you just like to hit the snooze button, we’ll remind you a few more times before the deadline.

Well, it’s time for Legal Docket. Today, we’ll cover one case, but it’s a big one. It hits on one of the great features of our system of government, what makes the checks-and-balances work: and that’s the separation of powers—specifically concerning federal agencies and their power to regulate.

Legal correspondent Jenny Rough is here to talk with us about it. Jenny, thanks for joining us.

JENNY ROUGH: Good to be back.

[Sips coffee]

Excuse me. Just taking a sip of coffee here. You understand. You’re both morning coffee drinkers, too, right?

REICHARD: Yes, mushroom coffee with collagen protein. Throw in a hard boiled egg on the side, I’m good.

EICHER: One cup, thank you very much, early, early, pre-commute. Hot tea the rest of the day, zero caffeine.

ROUGH: You know, tea, eggs, coffee beans, mushrooms, that’s all regulated by the Food and Drug Administration!

And that office commute? If you drove, your car most certainly had safety features regulated by the National Highway Transportation Safety Administration.

In fact, since I’m on a roll here, I’ll add that if you swung by the post office on your way to work to, ah, mail in your WORLD Mover donation, maybe your Christmas cards, maybe all of it. Well, those services are overseen by the Postal Regulatory Commission!

EICHER: Aha, that big pot of alphabet soup simmering with federal initialisms and acronyms: the PRC, the FDA, NHTSA. We call it the administrative state, the sprawling body of government institutions that affects our day-to-day lives.

ROUGH: Yup.

REICHARD: Well, one agency we may not notice is one that our friend David Bahnsen does notice, I suspect, every single day: the agency that regulates the stock market, the Securities and Exchange Commission, the SEC. And our case today involves that agency: SEC v. Jarkesy.

ROUGH: Right, and even though the ruling in this case will be either for or against the SEC, the precedent it might create will potentially affect many agencies.

So, before we delve into today’s case, let’s review where these federal agencies fit within our system of government. By necessity, some of this is kinda basic, but important.

First: The Constitution divides our federal government into three branches.

REICHARD: Maybe we could say separates the government into three branches to separate the powers.

EICHER: Article I, legislative powers to make the law. Article II, executive powers to enforce the law. Article III, judicial powers to judge disputes about the law.

REICHARD: And if you hear the phrase Article III courts, that’s what it’s referring to. The federal judicial branch.

Think of Article III courts as a triangle, with district courts at the bottom, very broad, where the jury trials happen. Then the middle of the triangle, circuit courts. That’s the first level of appeal. Then we narrow all the way to the top, the Supreme Court, just one. The final level of appeal.

ROUGH: That’s a good way to picture it.

And Congress—we’re going back to Article I now—Congress has delegated some of its legislative power by creating federal agencies. Like the SEC.

So what does the SEC do? Well, the SEC makes rules and regulations that govern the stock market. Those rules have the force of the law. And the SEC can and does enforce them, along with other securities laws. The SEC also has its own administrative law judges who resolve disputes about them.

EICHER: In the administrative-law system, there is no federal judge or jury trial. If you have a dispute with the SEC, you get an SEC expert to decide your case.

If that sounds unconstitutional to you, you’ll resonate with the man whose name is on our case today, George Jarkesy. He sued.

REICHARD: Here are the facts. Jarkesy managed two hedge funds. The SEC went after him for fraud. First, it accused him of false advertising, said he led his investors to believe a big accounting firm served as the auditor and that a prominent investment bank served as broker.

ROUGH: That’s a problem. Because if a potential client thinks Jarkesy is working with a top-notch accounting firm or a reputable broker, the potential client might say, “Okay, I’ll give this guy my money.”

The SEC also said he misrepresented his strategies. Told his clients he was going to invest one way, but then invested another. And that he inflated the value of the funds’ assets.

EICHER: Now, when the SEC brought the claim against him for breaking the rules, it had a choice. It could have assigned the claim to the federal court system for a jury trial. Remember that bottom level of the triangle? The other choice was for the SEC to handle the matter in-house. “Handle it in-house” is how the SEC went.

At the end of the day, an administrative law judge found the SEC was right that Jarkesy committed fraud, and the SEC fined him almost $1 million.

Jarkesy eventually got his appeal to the Fifth Circuit.

REICHARD: So to keep this straight, he didn’t get a jury trial, but he was allowed to appeal to an Article III court. He entered the judicial system in the middle of the triangle, so to speak.

ROUGH: Exactly.

And piggy-backing off of that, the issue in this Supreme Court case isn’t whether Jarksey committed the fraud. The issue is who gets to decide if he committed fraud. He argues he’s entitled to a jury trial, a jury of his peers would decide. He says Congress can’t take away that right. So that’s what the Supreme Court will look at here.

REICHARD: It’s the Seventh Amendment of the Constitution that establishes the right to a jury trial.

But at oral argument, the government said it can take away a Seventh Amendment right to a jury trial in circumstances like these.

At the Supreme Court, Brian Fletcher represented the SEC. He started off by pointing out that the administrative state has operated this way for a long time.

BRIAN FLETCHER: Throughout our nation’s history, Congress has authorized the agencies charged with enforcing federal statutes to conduct adjudications, find facts, and impose civil penalties and other consequences prescribed by law.

EICHER: True, there’s a lot of history on the side of the SEC.

But it’s just as true that the Seventh Amendment has a long history. Here’s Justice Neil Gorsuch.

JUSTICE NEIL GORSUCH: Well, we'd agree that the right to trial by jury, whether it's criminal or civil, is a very important foundational freedom in American society and a check on all branches of government, wouldn't we?

FLETCHER: We do.

ROUGH: Part of the analysis here depends on whether the dispute between the SEC and Jarkesy centers on a public right.

REICHARD: Public rights as opposed to private rights.

ROUGH: Yes. So think of private rights as lawsuits between two individuals, like a car crash.

Or even lawsuits between the government and an individual, where the government is going after your money or property.

Say, for breach of contract.

REICHARD: Contrast that with a public right. That usually involves some kind of public benefit. Like Social Security. If an individual wants a benefit from the government, an administrative law judge in the Social Security Administration would resolve the dispute.

Historically, Congress has assigned public-rights disputes to agencies.

EICHER: Here, the SEC argues it has a strong interest in protecting the public from securities fraud to secure for the public the right to fair and honest markets. So if that’s the analysis, that makes Jarkesy’s case appropriate for an agency.

But it isn’t that simple. Especially in cases like this where the government’s trying to take away an individual’s property, and money is considered property.

Justice Clarence Thomas said property rights are usually private. So he asked SEC lawyer Fletcher to clarify things.

JUSTICE CLARENCE THOMAS: And how would you define public rights?

FLETCHER: So I acknowledge, that the public rights concept is contested. The Court has never fully plumbed its outer perimeters

ROUGH: The Supreme Court hasn’t fully explained the difference between public rights and private ones.

Chief Justice John Roberts brought up all sorts of examples to show how this distinction gets easily tangled. Take the car crash between two individuals. We said earlier that’s a private-rights dispute. But maybe it’s not.

CHIEF JUSTICE JOHN ROBERTS: The federal government, in association with the states, built the interstate highway system, an enormous benefit to members of the public. Could the government decide that accidents interfere with what they were trying to accomplish in the highway system and create an agency to hear and adjudicate who's liable, responsible, and how much for accidents on the highway system? No court, no jury?

REICHARD: Lawyer Michael McColloch argued for Jarkesy. He said the SEC’s “trial” wasn’t fair. I’m using air quotes around the word trial here. The administrative law system doesn’t use the same processes and procedures as a traditional courtroom.

MICHAEL MCCOLLOCH: The discovery rights are almost zero. The division of enforcement gets a one- or two- or three-year head start on you. The rules of evidence don’t apply. The hearsay rule doesn’t apply except when it does.

McColloch’s biggest hurdle was to convince the court that a 1977 case called Atlas Roofing didn’t apply. There, the federal agency known as OSHA, Occupational Health and Safety Administration, claimed a roofing company violated its regulations.

ROUGH: The agency held the hearing. Eventually, the Supreme Court held that was okay, a jury trial wasn’t required. Regulating safety and health is a public right.

McColloch tried to distinguish this case from the Court’s precedent. But Justice Elena Kagan thought Atlas Roofing did apply. She said the court hasn’t even bothered with cases like it since.

JUSTICE ELENA KAGAN: And the reason that we’ve not had those in 50 or 60 years is because those have been thought the easy cases. We’ve never suggested in a case where Congress has given an agency the power to enforce something, and the agency is bringing the charge, if you will, that, you know—that’s just settled!

McCOLLOCH: Well, it’s settled only to the extent no one’s brought it up, forced this issue, since Altas Roofing.

KAGAN: I agree! Nobody has had the chutzpah, to quote my people, to bring it up sinceAtlas Roofing.

REICHARD: Two more snarls are in this case, too. One asks whether Congress has given the SEC too much power by allowing it to choose either an agency hearing or a federal court. Another focuses on how SEC administrative law judges are removed. But the court didn’t ask about those.

ROUGH: Also, even if the Supreme Court decides this dispute does belong in Article III court, it doesn’t automatically mean a jury trial. There’s more analysis to be done.

I’ll end with this quote from the Chief Justice:

JUSTICE ROBERTS: The extent of impact of government agencies on daily life today is enormously more significant than it was 50 years ago. I mean, the government is much more likely to affect you and proceed against you before one of its own agencies than in court. And that concern and that threat is far greater today than when Atlas Roofing was set up.

ROUGH: I understand his concern. The government intrudes into more places every day. But shouldn’t the application of the law be the same, regardless of the size of the administrative state? Articles I, II, III, the Seventh Amendment. Either the Constitution allows this setup, or it doesn’t.

That’s this week’s Legal Docket. I’m Jenny Rough.

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