The Volokh Conspiracy
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The Seventh Amendment, Private Rights, and Administrative Penalties
a few comments on the oral arguments in SEC v. Jarkesy
The federal government finances and helps to build the interstate highway system. It has to decide where those highways will go. If Congress or the Department of Transportation decides to have a hearing about competing highway locations, it does not need to have a judge adjudicate that hearing, and it does not have to involve a jury.
On the other hand, imagine that after building the highways, the federal government wants to regulate traffic accidents on them and also set up a federal tribunal to apply these regulations between private parties. It is pretty clear that this tribunal would need to be an Article III court, and that these trials would involve a jury. (I am borrowing this second example from Chief Justice Roberts at the oral argument in SEC v. Jarkesy this week.)
But what about the possibilities in between these two? For instance, in Jarkesy the Securities and Exchange Commission, a branch of the federal government, wishes to exact penalties from somebody who traded in violation of the securities laws. It does so in front of an administrative officer who is part of the SEC, not a court or a jury. Is that more like locating highways, or more like adjudicating a highway accident?
The question presented to the Court is specifically whether this adjudication violates the Seventh Amendment, which says: "In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved. . . ." But in Jarkesy the government argued that the Amendment is basically irrelevant. Because it only applies "In Suits at common law," it only applies in courts. If it is legal to assign these penalty cases to administrative officers instead of courts, then the Seventh Amendment falls away. Instead, said the government, any limitations on where these cases can be assigned come from Article III and the Due Process Clause.
This seems basically right to me, and it is what the Court has said in prior cases and what I have written in Adjudication Outside Article III. "[W]hen Congress properly assigns a matter to adjudication in a non–Article III tribunal, 'the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.'" But some of the Justices naturally then wanted to ask the next question, which seems fairly antecedent or included in the question presented: are these SEC penalty proceedings properly assigned to a non-Article III tribunal?
I am not so sure. As I have argued, and more importantly Caleb Nelson before me, a judge is generally required before the government can deprive a private person of their life, liberty, or property. The reason that agency officials can make various kinds of determinations like where to put the interstate highways is that those rights are public rights, not private rights of life, liberty, or property. Fining somebody deprives them of their property, so it requires due process, and so under a more classical view it should require judicial process. (I am putting aside the question of how many 20th century precedents are inconsistent with this view, since there is a debate about how to read several of those precedents and in any event the Court seemed to be considering whether to reconsider or modify some of those precedents.)
The government's response is that from the government's point of view, this is a public right. The government is the plaintiff, and it is enforcing sovereign interests in enforcement of the law that belong to the public. But as Justice Thomas noted at argument, from the defendant's point of view, what is at stake is his private right to property. As Caleb Nelson puts it in criticizing Atlas Roofing:
Historically, only "judicial" power could authoritatively determine individualized adjudicative facts in a way that bound core private rights; if core private rights were at stake on one side of a dispute, the mere fact that public rights were at stake on the other side did not open the door to nonjudicial adjudication. Indeed, that is precisely the structure of the standard criminal case--the paradigmatic example of a dispute that requires fully "judicial" determination.
Is there anything left to defend administrative penalty proceedings? It seems to me the best defense of the practice would be to argue something like this: Congress has the power to completely ban the interstate trade in securities. Therefore, Congress has the power to completely ban the interstate trade except for those who have obtained a license from the federal government. And perhaps this license could be seen as a public right, and perhaps one could condition this license on willingness to accept various kinds of administrative penalties, just as one could presumably condition it on willingness to post a large bond for misbehavior. Something like this argument can be found in John Harrison's article on Public Rights and Public Privileges.
In other words, even if administrative penalties deprive people of private property without judicial process, perhaps they are permissible as a condition on the public privilege to be a securities trader. While this argument is logical, and might be correct, it would also blow a large hole in due process protections against federal legislation and the government did not seem interested in pressing it in Jarkesy. But without this argument, taking somebody's property because of their violations of federal law would seem to require judicial process just as taking their liberty does.
