The parents leave a rule: milk with dinner. The babysitter enforces it — no problem. But when one kid hits the other, does the babysitter handle that too? She saw the whole thing, she knows the context, and she's been managing exactly these situations for years. But hitting was wrong before she ever showed up. In SEC v. Jarkesy, the Supreme Court drew that same line through agency enforcement. Gwen and Marc trace the public rights doctrine from Murray's Lessee in 1855 through Atlas Roofing in 1977 — the case agencies relied on for nearly fifty years — to explain why the Court decided that when the SEC pursues civil penalties for securities fraud, the Seventh Amendment requires a jury trial. The problem: the opinion never clearly explains why fraud causing financial loss is closer to the common law core than negligence causing death, which Atlas Roofing had called a public right. The result is a new boundary that no one can precisely locate, with every enforcement agency left wondering which of its cases can stay in-house and which now have to go to federal court — and a likely reduction in enforcement that protects innocent defendants and guilty ones alike.
00:00:14 --> 00:00:17 Hello, and welcome to Administrative Remedies,
00:00:17 --> 00:00:19 because you can't fix what you don't understand.
00:00:19 --> 00:00:21 Brought to you in part by the University of Tulsa
00:00:21 --> 00:00:24 College of Law. I'm Gwendolyn Savitz, an associate
00:00:24 --> 00:00:26 professor here at TU and the associate dean of
00:00:26 --> 00:00:28 research and intellectual life. And I'm Mark
00:00:28 --> 00:00:31 Rourke. I'm the dean of the College of Law. We'll
00:00:31 --> 00:00:33 be breaking down complex doctrines with real
00:00:33 --> 00:00:35 -life analogies and examples to demystify the
00:00:35 --> 00:00:37 world of administrative law for everyone trying
00:00:37 --> 00:00:39 to understand how government actually works.
00:00:40 --> 00:00:41 Agencies are the main way the federal government
00:00:41 --> 00:00:44 gets things done. It's not through Congress for
00:00:44 --> 00:00:46 reasons we'll be addressing over the course of
00:00:46 --> 00:00:53 this series. All right, Mark, we are going back
00:00:53 --> 00:00:55 to the babysitter. Let's say the parents leave
00:00:55 --> 00:00:57 a note that says the kids must have milk with
00:00:57 --> 00:01:01 dinner. OK, that's pretty specific, but all right.
00:01:01 --> 00:01:05 Milk's good for your bones. So this rule that
00:01:05 --> 00:01:07 you have to have milk with dinner, would you
00:01:07 --> 00:01:10 say that has existed since time immemorial? No,
00:01:10 --> 00:01:14 that is definitely very specific to individual
00:01:14 --> 00:01:17 households. I mean, some families will do juice,
00:01:17 --> 00:01:19 some do water, some do wine, some don't care.
00:01:20 --> 00:01:23 It's a rule because the parents said so. Okay,
00:01:23 --> 00:01:26 so this is a created rule. What about don't hit
00:01:26 --> 00:01:29 your sister? Okay, that's getting a little different.
00:01:29 --> 00:01:31 You shouldn't hit people. It's wrong whether
00:01:31 --> 00:01:35 the parents specifically said it or not. So that
00:01:35 --> 00:01:37 one, we don't necessarily need a household rule
00:01:37 --> 00:01:39 to know that you can't hit people. That obligation
00:01:39 --> 00:01:42 existed before the parents said anything. Sure.
00:01:42 --> 00:01:44 One rule is invented by the household. The other
00:01:44 --> 00:01:48 one is just, I don't know, common sense. All
00:01:48 --> 00:01:52 right. Let's say babysitter's there. It's 630
00:01:52 --> 00:01:54 on Tuesday. The kid is refusing to drink milk.
00:01:55 --> 00:01:57 Babysitter says, drink it. He says, no. She says,
00:01:57 --> 00:02:00 fine, no dessert. Handled. Yeah, clearly within
00:02:00 --> 00:02:03 her authority. The parents made the rule. She's
00:02:03 --> 00:02:07 enforcing it. So then an hour later, the kid
00:02:07 --> 00:02:10 hits his sister. So what is the babysitter going
00:02:10 --> 00:02:13 to do now? OK, she should handle it. Separate
00:02:13 --> 00:02:16 them, send him to his room. No screens for the
00:02:16 --> 00:02:18 rest of the night. You know, whatever the range
00:02:18 --> 00:02:20 of household consequences are. That makes sense.
00:02:20 --> 00:02:22 She saw it. She's right there. She knows you
00:02:22 --> 00:02:24 started it. She knows the context. She's been
00:02:24 --> 00:02:27 with them all evening. It would be absurd to
00:02:27 --> 00:02:30 say, sorry, hitting predates my authority as
00:02:30 --> 00:02:32 a babysitter. I need to call in an outside party
00:02:32 --> 00:02:34 to adjudicate this. Yeah, nobody would expect
00:02:34 --> 00:02:36 that. The babysitter should be able to handle
00:02:36 --> 00:02:39 both kinds of situations. Yes. Whether the kid
00:02:39 --> 00:02:41 broke a household rule or did something that's
00:02:41 --> 00:02:44 been wrong since the beginning of time, the babysitter
00:02:44 --> 00:02:46 is the right person to deal with it in that moment.
00:02:47 --> 00:02:50 OK, so that sounds like we're leading up to a
00:02:50 --> 00:02:53 problem in administrative law. Indeed, we are.
00:02:53 --> 00:02:55 For agencies, there is a line of Supreme Court
00:02:55 --> 00:02:58 cases that goes back almost 200 years that says
00:02:58 --> 00:03:01 it matters what kind of rule was broken, not
00:03:01 --> 00:03:03 for practical reasons, for constitutional reasons.
00:03:04 --> 00:03:07 When Congress creates a brand new obligation
00:03:07 --> 00:03:11 that didn't exist before this, like a regulatory
00:03:11 --> 00:03:14 requirement, licensing scheme, reporting mandate.
00:03:14 --> 00:03:16 There's no question Congress can assign that
00:03:16 --> 00:03:20 to an agency. No jury. These are public rights.
00:03:20 --> 00:03:23 Okay, the milk rule. Congress made it. The babysitter
00:03:23 --> 00:03:26 enforces it. Yeah, but if somebody violates an
00:03:26 --> 00:03:29 obligation that existed before any agency, like
00:03:29 --> 00:03:31 fraud or trespass, the equivalent of hitting
00:03:31 --> 00:03:34 your sister, these are private rights. And private
00:03:34 --> 00:03:36 rights have always carried protections, including
00:03:36 --> 00:03:38 the right to a jury trial under the Seventh Amendment.
00:03:39 --> 00:03:42 OK, so this is the hitting rule. It predated
00:03:42 --> 00:03:44 the babysitter. So it has to go through the full
00:03:44 --> 00:03:48 panoply of process. Right. It has to go to a
00:03:48 --> 00:03:50 court with a jury, even if the babysitter is
00:03:50 --> 00:03:52 right there, even if she saw the whole thing,
00:03:52 --> 00:03:55 even if she's been handling exactly these kinds
00:03:55 --> 00:03:58 of disputes for decades. Although that's I mean,
00:03:58 --> 00:03:59 we could have a babysitter who's been doing it
00:03:59 --> 00:04:02 for decades. A professional babysitter. Yes.
00:04:02 --> 00:04:04 Frankly, better at it than whoever else would
00:04:04 --> 00:04:07 be. So that feels like it creates this real tension,
00:04:07 --> 00:04:09 right? The constitutional principle says one
00:04:09 --> 00:04:11 thing and the practical reality says another.
00:04:12 --> 00:04:15 Yes, that is exactly the tension. And for most
00:04:15 --> 00:04:19 of administrative law, it's been pretty manageable.
00:04:19 --> 00:04:22 Most of what agencies do really are genuinely
00:04:22 --> 00:04:24 new obligations. Workplace safety standards,
00:04:25 --> 00:04:27 environmental regulations, licensing requirements.
00:04:28 --> 00:04:31 These are milk type rules. Congress created them.
00:04:31 --> 00:04:33 Agencies enforce them. No constitutional problem.
00:04:34 --> 00:04:36 But then some agencies do enforce things that
00:04:36 --> 00:04:39 look a lot more like the hitting rule. Yes. So
00:04:39 --> 00:04:43 in particular, a lot of agencies enforce variations
00:04:43 --> 00:04:46 of fraud. The SEC goes after fraud. The FTC goes
00:04:46 --> 00:04:49 after deception. These agencies have been handling
00:04:49 --> 00:04:51 these types of cases in -house for decades and
00:04:51 --> 00:04:54 doing it just fine. They're like the babysitter
00:04:54 --> 00:04:56 who saw the whole thing. But the Supreme Court
00:04:56 --> 00:04:59 said. that for certain kinds of cases, that doesn't
00:04:59 --> 00:05:01 matter. If the underlying wrong existed before
00:05:01 --> 00:05:04 the agency did, the Constitution requires a jury.
00:05:05 --> 00:05:07 Okay. So the question isn't whether the babysitter
00:05:07 --> 00:05:10 did a good job. It's whether they had the authority
00:05:10 --> 00:05:12 to act in the first place. Exactly. This is SEC
00:05:12 --> 00:05:15 v. Jarquez. And whether you think the court got
00:05:15 --> 00:05:17 it right depends on whether you think the constitutional
00:05:17 --> 00:05:20 categories should bend to practical reality or
00:05:20 --> 00:05:24 whether practical reality should bend to the
00:05:24 --> 00:05:29 Constitution. All right. Before we get to Darcusy,
00:05:29 --> 00:05:31 we have to talk about the framework the court
00:05:31 --> 00:05:34 was working with. This wasn't new. Like I said,
00:05:34 --> 00:05:36 this distinction between public rights and private
00:05:36 --> 00:05:39 rights had been part of constitutional law since
00:05:39 --> 00:05:42 the 1850s. If we go back all the way to the 1850s,
00:05:42 --> 00:05:46 we have Maresley C. This is an instance where
00:05:46 --> 00:05:48 the Treasury Department seizes property to recover
00:05:48 --> 00:05:50 money that a customs collector had embezzled.
00:05:50 --> 00:05:53 So the question is whether the government could
00:05:53 --> 00:05:55 do that through an administrative process with
00:05:55 --> 00:05:58 no court, no jury. or whether the property owner
00:05:58 --> 00:06:00 had a right to go before an Article III judge.
00:06:00 --> 00:06:03 Okay. And even then, the question was whether
00:06:03 --> 00:06:06 administrative processes could substitute for
00:06:06 --> 00:06:09 judicial process. Yes. And so the court drew
00:06:09 --> 00:06:11 a line that shaped administrative law ever since.
00:06:11 --> 00:06:14 Here's what it said. There are matters involving
00:06:14 --> 00:06:17 public rights which may be presented in such
00:06:17 --> 00:06:20 form that the judicial power is capable of acting
00:06:20 --> 00:06:22 on them and which are susceptible to judicial
00:06:22 --> 00:06:24 determination, but which Congress may or may
00:06:24 --> 00:06:27 not bring within the cognizance of the courts
00:06:27 --> 00:06:29 of the United States as it may deem proper. All
00:06:29 --> 00:06:32 right. So we have this category of disputes called
00:06:32 --> 00:06:34 public rights where Congress has discretion.
00:06:34 --> 00:06:37 It can send it to a court, but it can also set
00:06:37 --> 00:06:40 up its own system. But there is a boundary. Right.
00:06:40 --> 00:06:42 The court made clear that Congress's flexibility
00:06:42 --> 00:06:45 doesn't extend to the types of claims that law
00:06:45 --> 00:06:47 and equity courts had traditionally handled.
00:06:47 --> 00:06:51 Things like property disputes, fraud, contract
00:06:51 --> 00:06:53 actions. Those stayed with Article III courts.
00:06:53 --> 00:06:56 Yeah. And so even in 1855, there's a constitutional
00:06:56 --> 00:07:00 floor. Congress gets the flexibility on one side
00:07:00 --> 00:07:02 of the line, but not on the other. Right. But
00:07:02 --> 00:07:04 the modern version of this doctrine, the one
00:07:04 --> 00:07:07 Jarcusy had to deal with, came from a 1977 case
00:07:07 --> 00:07:11 called Atlas Roofing. or Atlas Roofing v. Occupational
00:07:11 --> 00:07:13 Safety and Health Review Commission. Atlas Roofing
00:07:13 --> 00:07:15 is essential to understanding jargony because
00:07:15 --> 00:07:19 it is the case that defined when agencies can
00:07:19 --> 00:07:21 impose civil penalties through their own proceedings
00:07:21 --> 00:07:24 without running afoul of the Seventh Amendment.
00:07:24 --> 00:07:27 OSHA cites Atlas Roofing for workplace safety
00:07:27 --> 00:07:29 violations, and they imposed civil penalties.
00:07:30 --> 00:07:33 And Atlas Roofing said, you can't fine us without
00:07:33 --> 00:07:34 a jury trial. That's what the Seventh Amendment
00:07:34 --> 00:07:37 says. And the court said? The court upheld OSHA's
00:07:37 --> 00:07:40 enforcement scheme. Here's the key passage. This
00:07:40 --> 00:07:42 is the language that agencies have relied on
00:07:42 --> 00:07:45 for almost 50 years. When Congress creates new
00:07:45 --> 00:07:48 statutory public rights, it may assign their
00:07:48 --> 00:07:51 adjudication to an administrative agency with
00:07:51 --> 00:07:54 which the jury trial would be incompatible without
00:07:54 --> 00:07:56 violating the Seventh Amendment's injunction
00:07:56 --> 00:07:59 that jury trial is to be preserved in suits of
00:07:59 --> 00:08:02 common law. Congress is not required by the Seventh
00:08:02 --> 00:08:04 Amendment to choke the already cried federal
00:08:04 --> 00:08:07 courts with new types of litigation or prevented
00:08:07 --> 00:08:09 from committing some new types of litigation
00:08:09 --> 00:08:12 to administrative agencies with special competence
00:08:12 --> 00:08:14 in the relevant field. That last part is really
00:08:14 --> 00:08:16 important where they're talking about new types
00:08:16 --> 00:08:19 of litigation. Atlas Roofing said when Congress
00:08:19 --> 00:08:22 creates brand new regulatory obligations and
00:08:22 --> 00:08:24 then creates enforcement mechanism for those.
00:08:24 --> 00:08:27 The whole package is a public right. Okay. Congress
00:08:27 --> 00:08:30 built the rule, and Congress gets to decide how
00:08:30 --> 00:08:33 it's enforced. Right. But there's another issue.
00:08:33 --> 00:08:37 What was OSHA actually penalizing? A company's
00:08:37 --> 00:08:39 negligence causing physical harm that has common
00:08:39 --> 00:08:42 law roots going back centuries. Couldn't Abulis
00:08:42 --> 00:08:45 Roof have just said, this is really just a negligent
00:08:45 --> 00:08:47 suit, and negligent suits always have had juries?
00:08:47 --> 00:08:50 Yes, absolutely. That's functionally what they're
00:08:50 --> 00:08:52 arguing. And that's what made Atlas Roofing so
00:08:52 --> 00:08:55 important. The court didn't look underneath the
00:08:55 --> 00:08:57 statute to find common law analogs. It looked
00:08:57 --> 00:08:59 at the whole statutory scheme that Congress had
00:08:59 --> 00:09:02 built. OSHA standards, OSHA inspections, OSHA
00:09:02 --> 00:09:05 penalties, and said this is a new regulatory
00:09:05 --> 00:09:07 program. And the fact that negligence existed
00:09:07 --> 00:09:10 at common law didn't matter. Right. It didn't
00:09:10 --> 00:09:12 matter because Congress had created this comprehensive
00:09:12 --> 00:09:15 enforcement system that was completely different
00:09:15 --> 00:09:19 in kind from a private tort suit. So Alice Roofing
00:09:19 --> 00:09:22 says when Congress builds the whole system, the
00:09:22 --> 00:09:24 system is the public right, even if pieces of
00:09:24 --> 00:09:27 it resemble things courts used to handle. Right.
00:09:27 --> 00:09:30 That's the logic. And here's the passage that
00:09:30 --> 00:09:33 explicitly talks about the boundary. In cases
00:09:33 --> 00:09:36 in which public rights are being litigated, e
00:09:36 --> 00:09:38 .g., cases which the government sues in its sovereign
00:09:38 --> 00:09:41 capacity to enforce public rights created by
00:09:41 --> 00:09:44 statutes within the power of Congress. To enact,
00:09:44 --> 00:09:47 the Seventh Amendment does not prevent Congress
00:09:47 --> 00:09:49 from assigning the fact finder's function and
00:09:49 --> 00:09:51 initial adjudication to an administrative forum
00:09:51 --> 00:09:55 with which the jury would be incompatible. When
00:09:55 --> 00:09:57 Congress creates the right, Congress controls
00:09:57 --> 00:10:00 the remedy, including whether you get a jury.
00:10:00 --> 00:10:03 And again, that held up for decades, which is
00:10:03 --> 00:10:06 why what happened next was so striking. Here
00:10:06 --> 00:10:09 is where the framework ran into trouble. Congress
00:10:09 --> 00:10:11 didn't just create regulatory schemes for genuinely
00:10:11 --> 00:10:14 new obligations. It also built enforcement systems
00:10:14 --> 00:10:18 that include conduct that certainly seems like
00:10:18 --> 00:10:21 or similar to other conduct with deep common
00:10:21 --> 00:10:24 law roots. Like the SEC. Yes. So Congress created
00:10:24 --> 00:10:27 the securities laws, the Securities Act of 1933,
00:10:28 --> 00:10:31 Securities Exchange Act of 1934. These statutes
00:10:31 --> 00:10:35 create new obligations. They required registration.
00:10:35 --> 00:10:37 They required disclosure. There were specific
00:10:37 --> 00:10:40 trading rules. Those were clearly statutory creations.
00:10:40 --> 00:10:43 Those are public rights. Okay. So far, so good.
00:10:43 --> 00:10:46 So what does the SEC actually prosecute most
00:10:46 --> 00:10:49 often, though? Fraud. Making false statements
00:10:49 --> 00:10:51 to investors. Misleading people to take their
00:10:51 --> 00:10:54 money. Okay. That seems to cut two ways, though.
00:10:54 --> 00:10:57 Section 10b and 10b -5 create specific obligations
00:10:57 --> 00:11:00 that didn't exist at common law. Insider trading
00:11:00 --> 00:11:03 prohibitions, the duty to disclose material information
00:11:03 --> 00:11:05 to the market, those are statutory creations.
00:11:06 --> 00:11:10 You couldn't bring a 10b -5 case in 1791 because,
00:11:10 --> 00:11:14 candidly, 10b -5 didn't exist. But at the same
00:11:14 --> 00:11:16 time, if you strip away the statutory framework,
00:11:16 --> 00:11:20 what's left underneath? Someone lied to get someone
00:11:20 --> 00:11:23 else's money. That's a common law fraud. Courts
00:11:23 --> 00:11:25 have been trying that with juries for centuries.
00:11:25 --> 00:11:28 Every modern statute builds at least to some
00:11:28 --> 00:11:31 extent on something that existed before. Employment
00:11:31 --> 00:11:33 discrimination builds on wrongful discharge.
00:11:33 --> 00:11:36 Environmental penalties build on nuisance. Antitrust
00:11:36 --> 00:11:38 builds on restraint of trade. And Atlas roofing
00:11:38 --> 00:11:42 itself, negligence that kills a worker, has deep
00:11:42 --> 00:11:44 common law roots and the court still called it
00:11:44 --> 00:11:47 a public right. Right. If you always dig underneath
00:11:47 --> 00:11:49 a statute and find a common law ancestor, the
00:11:49 --> 00:11:51 public rights doctrine collapses. And so which
00:11:51 --> 00:11:54 is it? Is securities fraud a new public right
00:11:54 --> 00:11:57 or is it an old private one? You can defend both
00:11:57 --> 00:12:00 characterizations, but you could have said exactly
00:12:00 --> 00:12:02 the same thing in Atlas Roofing. Negligence killed
00:12:02 --> 00:12:05 a worker that has centuries of common law history.
00:12:05 --> 00:12:07 The court didn't care. It looked at the statutory
00:12:07 --> 00:12:09 scheme Congress built and called it a public
00:12:09 --> 00:12:12 right. Which means the government had a very
00:12:12 --> 00:12:15 simple argument. This is the exact same case.
00:12:15 --> 00:12:18 Right. And in her argument, Justice Kagan made
00:12:18 --> 00:12:19 it for them. She told the government's lawyer
00:12:19 --> 00:12:22 that if you read Atlas Roofing and then look
00:12:22 --> 00:12:25 at the question presented, you wonder why this
00:12:25 --> 00:12:27 case is even here, since Atlas Roofing simply
00:12:27 --> 00:12:30 resolves it. That's a strong opening position
00:12:30 --> 00:12:33 from the bench. It is, with good reason. And
00:12:33 --> 00:12:36 she was no gentler with Darcusy's attorney. She
00:12:36 --> 00:12:38 said Atlas could not have been clearer that the
00:12:38 --> 00:12:40 Seventh Amendment was no bar. And she walked
00:12:40 --> 00:12:45 through the parallel herself. The OSH Act builds
00:12:45 --> 00:12:47 a prophylactic scheme on top of an existing common
00:12:47 --> 00:12:50 law remedy, and the securities laws do the exact
00:12:50 --> 00:12:53 same thing. Okay. Was he successful distinguishing
00:12:53 --> 00:12:57 it? No. He really wasn't. He eventually conceded
00:12:57 --> 00:13:01 that this was a settled point only because no
00:13:01 --> 00:13:03 one had challenged it since Atlas Roofing. Kagan
00:13:03 --> 00:13:06 agreed and added that that was because nobody
00:13:06 --> 00:13:09 had had the chutzpah to try. Everyone really
00:13:09 --> 00:13:11 did think these were settled questions. So. The
00:13:11 --> 00:13:14 majority had to get around all of that. Right.
00:13:14 --> 00:13:16 And so the answer in their opinion is just that
00:13:16 --> 00:13:19 fraud is different, that it's so close to the
00:13:19 --> 00:13:21 historic core of common law jury trials that
00:13:21 --> 00:13:25 Congress cannot reassign it. But the opinion
00:13:25 --> 00:13:28 never explains why negligence causing death is
00:13:28 --> 00:13:30 further from that core than fraud causing financial
00:13:30 --> 00:13:33 loss. It's really an assertion, not an argument.
00:13:34 --> 00:13:37 OK, so what then changed? If nobody had the chutzpah
00:13:37 --> 00:13:40 to challenge this for decades, why now? All right.
00:13:40 --> 00:13:43 So two things. One, this court has indicated
00:13:43 --> 00:13:46 a willingness to reconsider virtually every aspect
00:13:46 --> 00:13:50 of the administrative state. And then for this
00:13:50 --> 00:13:53 case specifically, there was Dodd -Frank. Before
00:13:53 --> 00:13:56 it was passed in 2010, the SEC could only seek
00:13:56 --> 00:13:58 civil penalties through in -house proceedings
00:13:58 --> 00:14:01 against regulated entities, broker -dealers,
00:14:02 --> 00:14:04 investment advisors, people who had registered
00:14:04 --> 00:14:06 with the SEC. If they wanted penalties against
00:14:06 --> 00:14:08 anyone else, they had to go to federal court.
00:14:09 --> 00:14:11 And Dodd -Frank removed that limitation. Exactly.
00:14:12 --> 00:14:14 Suddenly, the SEC can pursue civil penalties
00:14:14 --> 00:14:17 against anybody it wants through its own administrative
00:14:17 --> 00:14:20 proceedings. And so the SEC starts routing more
00:14:20 --> 00:14:22 and more enforcement actions through their own
00:14:22 --> 00:14:26 process in -house, which is where George Jarcusy
00:14:26 --> 00:14:29 shows up. He ran two hedge funds. The SEC accused
00:14:29 --> 00:14:31 him of misleading investors about the fund's
00:14:31 --> 00:14:33 size and performance and investment strategy.
00:14:34 --> 00:14:36 These were violations of the Securities Act.
00:14:36 --> 00:14:39 They brought the case in -house. Through their
00:14:39 --> 00:14:41 own enforcement division prosecuted it. An SEC
00:14:41 --> 00:14:44 administrative law judge presided, and there's
00:14:44 --> 00:14:46 no jury. And how long did that take? It dragged
00:14:46 --> 00:14:49 on for years. And we can also think about the
00:14:49 --> 00:14:51 asymmetry here. The SEC's enforcement division
00:14:51 --> 00:14:54 has the full machinery of a federal agency. And
00:14:54 --> 00:14:57 Jarkesee is just one defendant, hiring his own
00:14:57 --> 00:14:59 lawyers, fighting the agency on the agency's
00:14:59 --> 00:15:01 home court. Right. The rules of evidence were
00:15:01 --> 00:15:04 more relaxed than federal court, which also generally
00:15:04 --> 00:15:06 favored the agency presenting the case. What
00:15:06 --> 00:15:10 kind of penalties were... There were civil penalties
00:15:10 --> 00:15:13 of $300 and a lifetime bar from working
00:15:13 --> 00:15:15 in the industry. He could never work in securities
00:15:15 --> 00:15:17 again. Okay. They weren't just telling him to
00:15:17 --> 00:15:19 stop. They were punishing him. And his argument
00:15:19 --> 00:15:22 was straightforward. Here's, I guess, we probably
00:15:22 --> 00:15:24 should have done this earlier, but we might as
00:15:24 --> 00:15:26 well read the Seventh Amendment now. Okay. Seventh
00:15:26 --> 00:15:29 Amendment says, in suit to common law, where
00:15:29 --> 00:15:32 the value in controversy shall exceed $20, the
00:15:32 --> 00:15:34 right of trial by jury shall be preserved. So
00:15:34 --> 00:15:37 preserved. The Seventh Amendment doesn't create
00:15:37 --> 00:15:39 a new right. It preserves the right as it existed
00:15:39 --> 00:15:42 when the Constitution was ratified. So the question
00:15:42 --> 00:15:45 becomes, in 1791, would a case like this have
00:15:45 --> 00:15:48 gone to a jury? Someone accused of lying to investors
00:15:48 --> 00:15:51 to take their money, that potentially could be
00:15:51 --> 00:15:54 a common law fraud case. So that's Jarkese's
00:15:54 --> 00:15:57 argument. And the SEC's response is atlas roofing
00:15:57 --> 00:16:00 itself, that Congress created securities law.
00:16:00 --> 00:16:03 Congress created SEC enforcement. It created
00:16:03 --> 00:16:05 this comprehensive statutory scheme as a public
00:16:05 --> 00:16:08 right, just like OSHA's scheme was also a public
00:16:08 --> 00:16:11 right. OK, what did the court say? Let's read
00:16:11 --> 00:16:15 from Justice Roberts' opinion. The threshold
00:16:15 --> 00:16:18 issued is whether this action implicates the
00:16:18 --> 00:16:22 Seventh Amendment. It does. The SEC's anti -fraud
00:16:22 --> 00:16:24 provisions replicate common law fraud, and it
00:16:24 --> 00:16:26 is well established that the common law claims
00:16:26 --> 00:16:29 must be heard by a jury. The court here is saying
00:16:29 --> 00:16:32 this really isn't a new obligation that Congress
00:16:32 --> 00:16:35 just invented. It's fraud. Courts have been trying
00:16:35 --> 00:16:39 fraud with juries for centuries. And you can't
00:16:39 --> 00:16:40 escape the Seventh Amendment by calling common
00:16:40 --> 00:16:43 law fraud securities fraud and routing it through
00:16:43 --> 00:16:46 an agency. OK, but the label didn't control an
00:16:46 --> 00:16:49 atlas roofing either. And the agency won. OSHA's
00:16:49 --> 00:16:52 workplace safety violation label was covering
00:16:52 --> 00:16:55 what was functionally a negligence claim. The
00:16:55 --> 00:16:57 court said it was a public right because Congress
00:16:57 --> 00:17:00 built the statutory scheme. Roberts is reaching
00:17:00 --> 00:17:03 the opposite resort. All right. So the majority
00:17:03 --> 00:17:06 is claiming this is about proximity to the common
00:17:06 --> 00:17:09 law core and that fraud is closer to the heart
00:17:09 --> 00:17:12 of what juries did than it is. But the opinion
00:17:12 --> 00:17:14 doesn't give a clear test for measuring that
00:17:14 --> 00:17:17 distance. No, it doesn't, which is probably because
00:17:17 --> 00:17:19 they're the same distance. But it says securities
00:17:19 --> 00:17:22 fraud is in the nature of a common law action.
00:17:23 --> 00:17:25 And again, it doesn't explain why OSHA penalties
00:17:25 --> 00:17:27 for conduct that kills someone aren't equally
00:17:27 --> 00:17:30 in the nature of a common law action. Which means
00:17:30 --> 00:17:33 the next time an agency action gets challenged
00:17:33 --> 00:17:35 is going to have a very hard time predicting
00:17:35 --> 00:17:38 which side of the line it's on. Right. So that
00:17:38 --> 00:17:41 uncertainty is itself a consequence of this opinion.
00:17:42 --> 00:17:45 So here's the law after jargony. Atlas roofing
00:17:45 --> 00:17:47 was still good law for truly new obligations.
00:17:47 --> 00:17:49 Congress can still assign enforcement of genuinely
00:17:49 --> 00:17:52 novel regulatory requirements to agencies without
00:17:52 --> 00:17:55 having to use juries. But if the government is
00:17:55 --> 00:17:58 seeking civil penalties for conduct that is in
00:17:58 --> 00:18:01 the nature of a common law action, the Seventh
00:18:01 --> 00:18:04 Amendment will require a jury. OK, but the court
00:18:04 --> 00:18:06 never clearly explains what in the nature of
00:18:06 --> 00:18:10 means or how close is too close. Right. And there
00:18:10 --> 00:18:12 are a lot of agency enforcement actions that
00:18:12 --> 00:18:15 live in this gray zone. The space between Congress
00:18:15 --> 00:18:18 clearly invented this obligation and this is
00:18:18 --> 00:18:21 just a relabeled common law claim. So the False
00:18:21 --> 00:18:23 Claims Act, someone filed a fraudulent invoice
00:18:23 --> 00:18:25 with the federal government to get paid for work
00:18:25 --> 00:18:28 that they didn't do. That's fraud. But the injured
00:18:28 --> 00:18:30 party is the federal treasury. The obligation
00:18:30 --> 00:18:33 to bill accurately is entirely statutory. And
00:18:33 --> 00:18:36 the government is both the victim and the enforcer.
00:18:36 --> 00:18:38 So is that a public right because it's about
00:18:38 --> 00:18:40 protecting government funds or a private right
00:18:40 --> 00:18:43 because the mechanism is fraud? Right. You can
00:18:43 --> 00:18:45 characterize it either way. There's also tax
00:18:45 --> 00:18:48 fraud. The obligation to pay income tax is purely
00:18:48 --> 00:18:50 statutory. There's no common law analog at all
00:18:50 --> 00:18:54 there. But if you file a fraudulent return, the
00:18:54 --> 00:18:56 IRS isn't just saying you miscalculated. It's
00:18:56 --> 00:18:59 saying you lied. Right. And lying to obtain money
00:18:59 --> 00:19:02 is fraud at common law. So is the penalty about
00:19:02 --> 00:19:05 the tax obligation or about the fraud? Okay.
00:19:05 --> 00:19:07 What about the FDA misbranding cases? Okay. We
00:19:07 --> 00:19:10 can have a supplement company putting false claims
00:19:10 --> 00:19:12 on a label. And there are many supplement companies
00:19:12 --> 00:19:15 putting false claims on labels. The specific
00:19:15 --> 00:19:18 labeling requirements are modern regulatory creation,
00:19:18 --> 00:19:21 but selling someone a product by lying about
00:19:21 --> 00:19:23 what's in it, that's been actionable since before
00:19:23 --> 00:19:26 the Constitution was written. Environmental penalties?
00:19:26 --> 00:19:29 The EPA fines a company for dumping chemicals
00:19:29 --> 00:19:32 in a river. All right, so potentially safer for
00:19:32 --> 00:19:35 the agency, but nuisance is another cause of
00:19:35 --> 00:19:39 action. And same thing for the EPA pursuing a
00:19:39 --> 00:19:41 company for knowingly filing false compliance
00:19:41 --> 00:19:44 reports. OK, lying to the government, that starts
00:19:44 --> 00:19:47 to look a lot more like fraud, though. So the
00:19:47 --> 00:19:49 same agency could have some enforcement actions
00:19:49 --> 00:19:52 that require juries and others that don't, depending
00:19:52 --> 00:19:54 on what the underlying claim looks like. And
00:19:54 --> 00:19:57 when agencies and defendants disagree about the
00:19:57 --> 00:19:59 category, courts will then step in and decide.
00:19:59 --> 00:20:03 Yes, that is a significant shift. And the dissent
00:20:03 --> 00:20:05 makes a constitutional argument that goes beyond
00:20:05 --> 00:20:08 just counting affected statutes. Here, read this
00:20:08 --> 00:20:11 from the Sotomayor dissent. She said the constitutionality
00:20:11 --> 00:20:14 of hundreds of statutes may now be in peril and
00:20:14 --> 00:20:16 dozens of agencies could be stripped of their
00:20:16 --> 00:20:19 power to enforce laws enacted by Congress. Today's
00:20:19 --> 00:20:22 decision is a massive sea change. Litigants seeking
00:20:22 --> 00:20:25 further dismantling of the administrative state
00:20:25 --> 00:20:29 have reason to rejoice in their win today. But
00:20:29 --> 00:20:31 those of us who cherish the rule of law have
00:20:31 --> 00:20:34 nothing to celebrate. That's pretty strong language.
00:20:34 --> 00:20:37 It is. And there's a structural argument behind
00:20:37 --> 00:20:39 it. Her concern here is that when Congress creates
00:20:39 --> 00:20:42 a comprehensive regulatory scheme and assigns
00:20:42 --> 00:20:45 enforcement of that to an agency, the entire
00:20:45 --> 00:20:48 scheme is a public right. That's what Atlas Roofing
00:20:48 --> 00:20:50 said. You can't disassemble the machinery and
00:20:50 --> 00:20:53 say, this gear looks like it came from an older
00:20:53 --> 00:20:55 machine, so it needs a jury. Because Congress
00:20:55 --> 00:20:57 built the securities enforcement system as a
00:20:57 --> 00:21:00 unified whole. Right. So the fraud provisions,
00:21:00 --> 00:21:02 the disclosure requirements, the penalty structures,
00:21:02 --> 00:21:05 they all work together. Pulling out the fraud
00:21:05 --> 00:21:07 pieces and sending them to federal court while
00:21:07 --> 00:21:09 leaving the rest in -house doesn't just change
00:21:09 --> 00:21:12 procedure, it breaks the design. That's basically
00:21:12 --> 00:21:15 the Atlas Roofing argument applied consistently.
00:21:15 --> 00:21:17 Whether you think that's the right answer or
00:21:17 --> 00:21:19 not, it is a serious constitutional position
00:21:19 --> 00:21:22 that four decades of practice supported. The
00:21:22 --> 00:21:24 majority had to work around Atlas Roofing to
00:21:24 --> 00:21:26 get where it got. And whether you think they
00:21:26 --> 00:21:28 succeeded depends on whether fraud is different,
00:21:28 --> 00:21:31 is a constitutional principle, or just an intuition
00:21:31 --> 00:21:34 from a court that currently disfavors the administrative
00:21:34 --> 00:21:38 state. The SEC can still bring fraud cases, can't
00:21:38 --> 00:21:40 it? They just have to go through federal court,
00:21:40 --> 00:21:43 not their own internal processes. Yes, they can
00:21:43 --> 00:21:46 still bring these cases, but the forum changes
00:21:46 --> 00:21:49 things about how the enforcement works. When
00:21:49 --> 00:21:51 the SEC was bringing enforcement actions in -house
00:21:51 --> 00:21:55 between 2010 and 2015, they won over 90 % of
00:21:55 --> 00:21:59 the time. Wow, 90%. And in federal court at the
00:21:59 --> 00:22:01 same time, they were winning under 70 % of the
00:22:01 --> 00:22:05 time. Okay, that's a significant gap. There are
00:22:05 --> 00:22:08 legitimate structural reasons for the gap. Administrative
00:22:08 --> 00:22:10 proceedings are designed for these cases. The
00:22:10 --> 00:22:12 judges here are specialists. The process is streamlined.
00:22:12 --> 00:22:15 They may well have been routing stronger cases
00:22:15 --> 00:22:18 in -house. And that system caught a lot of real
00:22:18 --> 00:22:22 fraudsters. Yes. It captured Ponzi schemes, insider
00:22:22 --> 00:22:26 trading rings, market manipulation. This in -house
00:22:26 --> 00:22:29 enforcement process identified and punished genuine
00:22:29 --> 00:22:32 wrongdoing efficiently for years. But the ability
00:22:32 --> 00:22:34 to bring things in -house also gave the agency
00:22:34 --> 00:22:37 leverage to push settlements. Sure. If you're
00:22:37 --> 00:22:40 a defendant and you know the SEC wins 90 % of
00:22:40 --> 00:22:42 the cases in their own forum, you're probably
00:22:42 --> 00:22:44 going to settle, even if you think you're innocent.
00:22:45 --> 00:22:48 Why fight when the numbers are that tilted? Right.
00:22:48 --> 00:22:51 So it's also possible that people didn't contest
00:22:51 --> 00:22:53 things they might have if they thought it was
00:22:53 --> 00:22:55 going before a jury. The form choice doesn't
00:22:55 --> 00:22:58 just change the outcome at trial. It could affect
00:22:58 --> 00:23:00 whether there's a trial at all. And we'll never
00:23:00 --> 00:23:03 really know because settlements don't produce
00:23:03 --> 00:23:05 opinions. Those cases just disappear into consent
00:23:05 --> 00:23:09 orders. OK, so that's the case for Jarcosy. Bringing
00:23:09 --> 00:23:12 these cases back to federal court levels the
00:23:12 --> 00:23:14 playing field. But there's also a cost. Federal
00:23:14 --> 00:23:17 court litigation is expensive for the government.
00:23:17 --> 00:23:20 The SEC has a limited enforcement budget. If
00:23:20 --> 00:23:22 every fraud case has to go through full federal
00:23:22 --> 00:23:25 court litigation with a jury, that is more expensive.
00:23:26 --> 00:23:28 The SEC is going to be bringing fewer cases.
00:23:28 --> 00:23:30 So, jarcasy might actually reduce enforcement.
00:23:31 --> 00:23:34 It almost certainly will, which means that more
00:23:34 --> 00:23:36 fraud goes unpunished. The same structure that
00:23:36 --> 00:23:38 protects innocent defendants from the pressure
00:23:38 --> 00:23:41 of in -house proceedings. Also protects guilty
00:23:41 --> 00:23:43 ones. Yeah. It feels like there's a couple of
00:23:43 --> 00:23:45 things that are true here at the same time. Yes,
00:23:45 --> 00:23:49 it is. And, you know, different cases, different
00:23:49 --> 00:23:51 facts. But structurally, the shift is clear.
00:23:51 --> 00:23:54 Agency enforcement just got harder and more expensive.
00:23:55 --> 00:23:57 So is this an instance of the court crib strangling
00:23:57 --> 00:24:00 administrative agencies? One of the many. Yes.
00:24:00 --> 00:24:03 One of the many. This is the same year as Loper
00:24:03 --> 00:24:06 Bright, same year as Corner Post. And this was
00:24:06 --> 00:24:10 like the minor case that year. Oh, wow. OK. That
00:24:10 --> 00:24:12 was a bad year. That's when you're like, oh,
00:24:12 --> 00:24:14 the administration can't get any worse than this.
00:24:14 --> 00:24:16 Got it. All right. So let's be precise about
00:24:16 --> 00:24:18 what this case actually changes and what it doesn't.
00:24:18 --> 00:24:21 It says when the government seeks civil penalties,
00:24:22 --> 00:24:24 monetary punishment for conduct that resembles
00:24:24 --> 00:24:27 a common law cause of action like fraud, at least
00:24:27 --> 00:24:30 as it's used by the SEC, the defendant gets a
00:24:30 --> 00:24:33 jury trial. That limits the SEC and it will likely
00:24:33 --> 00:24:36 limit other agencies that pursue similar enforcement
00:24:36 --> 00:24:39 actions. OK, what doesn't it do? It doesn't end
00:24:39 --> 00:24:42 agency adjudication altogether. Social security
00:24:42 --> 00:24:44 hearings would continue. Immigration proceedings
00:24:44 --> 00:24:47 can continue. Benefit determinations, licensing
00:24:47 --> 00:24:49 decisions, permit disputes. These are all clearly
00:24:49 --> 00:24:52 public rights, all untouched. So this isn't a
00:24:52 --> 00:24:55 wrecking ball aimed at all agency adjudication.
00:24:55 --> 00:24:58 But for enforcement actions, particularly since
00:24:58 --> 00:25:00 no one knows where the line is, it is a really
00:25:00 --> 00:25:02 big deal. Entire enforcement programs were built
00:25:02 --> 00:25:06 around it. The SEC, the FTC, the CFTC. They all
00:25:06 --> 00:25:08 structured their operations on the assumption
00:25:08 --> 00:25:11 that their comprehensive statutory schemes were
00:25:11 --> 00:25:14 public rights, just like OSHA's. And let's just
00:25:14 --> 00:25:16 remind ourselves that Dodd -Frank was adopted
00:25:16 --> 00:25:19 by Congress specifically in the context of a
00:25:19 --> 00:25:23 public that had lost confidence in the way securities
00:25:23 --> 00:25:26 were being handled, both by the government and
00:25:26 --> 00:25:29 in the private sphere. And so Dodd -Frank put
00:25:29 --> 00:25:32 the guardrails around the securities practice
00:25:32 --> 00:25:35 in order to create that confidence back for the
00:25:35 --> 00:25:39 public. Yeah, this was important. They're obviously
00:25:39 --> 00:25:43 trying to increase enforcement by the SEC. This
00:25:43 --> 00:25:46 decision has the opposite effect. So every agency
00:25:46 --> 00:25:48 with enforcement power is going to have defendants
00:25:48 --> 00:25:51 arguing that jargony requires a jury for their
00:25:51 --> 00:25:54 case. Yes, and some will succeed. Some won't.
00:25:54 --> 00:25:56 The boundaries will take years to settle. They
00:25:56 --> 00:25:58 will also probably be different in different
00:25:58 --> 00:26:01 places because that's how circuit splits work.
00:26:01 --> 00:26:04 And while they settle, agencies will not know
00:26:04 --> 00:26:06 what they can do in -house. Right. We talked
00:26:06 --> 00:26:09 about how adjudication exists for efficiency,
00:26:09 --> 00:26:12 expertise, and volume. If you're moving cases
00:26:12 --> 00:26:14 to federal courts, you're losing all three of
00:26:14 --> 00:26:17 those. Federal courts are slower, federal juries
00:26:17 --> 00:26:19 are generalists, and the federal docket is already
00:26:19 --> 00:26:23 overloaded. So, the other thing, Jarcusy answered
00:26:23 --> 00:26:25 the Seventh Amendment question, but... It left
00:26:25 --> 00:26:27 that other question hanging. The ALJ independence
00:26:27 --> 00:26:31 question from Lucia. Right. If adjudicators are
00:26:31 --> 00:26:33 officers of the United States and if officers
00:26:33 --> 00:26:36 must be removable by the president, then the
00:26:36 --> 00:26:38 four cause protection that ALJs currently enjoy
00:26:38 --> 00:26:41 might be unconstitutional. The Fifth Circuit
00:26:41 --> 00:26:44 said that ALJ independence was unconstitutional
00:26:44 --> 00:26:46 and the Supreme Court didn't disagree. It just
00:26:46 --> 00:26:49 didn't need to decide it because it resolved
00:26:49 --> 00:26:51 the case on Seventh Amendment grounds. And so
00:26:51 --> 00:26:54 that's still out there. It is, and Jarcusy makes
00:26:54 --> 00:26:56 clear that the court is really skeptical of agency
00:26:56 --> 00:26:59 adjudication if any sort of punishment is involved.
00:27:00 --> 00:27:02 Even if ALJs potentially survive for benefits
00:27:02 --> 00:27:05 cases, which they might, their role in enforcement
00:27:05 --> 00:27:08 proceedings is probably also under a real cloud.
00:27:08 --> 00:27:10 Especially combined with what's happening on
00:27:10 --> 00:27:13 the removal power front that we covered in Season
00:27:13 --> 00:27:15 1. Right. It all connects. The same court that's
00:27:15 --> 00:27:18 skeptical of agency independence is also skeptical
00:27:18 --> 00:27:21 of agency adjudication, at least when the stakes
00:27:21 --> 00:27:23 look like punishment rather than benefits administration.
00:27:24 --> 00:27:27 Okay, so here's what I'm taking away. The public
00:27:27 --> 00:27:30 rights doctrine says Congress can assign truly
00:27:30 --> 00:27:32 new obligations to agencies for adjudication
00:27:32 --> 00:27:35 without juries. But when Congress gives agencies
00:27:35 --> 00:27:37 enforcement power over conduct that looks like
00:27:37 --> 00:27:40 common law claims, especially fraud, the Seventh
00:27:40 --> 00:27:43 Amendment still applies. At least that's what
00:27:43 --> 00:27:45 the law is right now. Yeah. So the hard part
00:27:45 --> 00:27:48 isn't the principle. This is reasonably intuitive.
00:27:48 --> 00:27:51 The hard part is that this is coming almost 50
00:27:51 --> 00:27:53 years after Atlas Roofing. The agencies were
00:27:53 --> 00:27:56 operating on the understanding that when Congress
00:27:56 --> 00:27:58 builds a comprehensive regulatory scheme, the
00:27:58 --> 00:28:01 whole scheme is a public right, even the parts
00:28:01 --> 00:28:04 that resemble common law claims. Jarkese says
00:28:04 --> 00:28:06 that understanding was wrong, at least for fraud,
00:28:06 --> 00:28:09 and a lot of enforcement infrastructure was built
00:28:09 --> 00:28:12 on the old understanding. Yeah, Atlas Roofing
00:28:12 --> 00:28:15 drew a line. Jarkesee then moved it. Yes, that's
00:28:15 --> 00:28:18 what I would say. But people could argue it just
00:28:18 --> 00:28:21 clarified where that line always was. OK, what's
00:28:21 --> 00:28:23 next then? We've been talking about constitutional
00:28:23 --> 00:28:26 limits on adjudication, who can decide which
00:28:26 --> 00:28:28 cases they can keep in -house. Next time, we
00:28:28 --> 00:28:31 are following one person, a Social Security disability
00:28:31 --> 00:28:34 claimant, from the moment they filed their application
00:28:34 --> 00:28:36 all the way through to a final decision. Every
00:28:36 --> 00:28:39 stage, every waiting period, every decision point.
00:28:39 --> 00:28:42 Okay, so the entire administrative journey. Exactly.
00:28:42 --> 00:28:45 So you can see it before we start diving deep
00:28:45 --> 00:28:48 into parts of it. So that does it for today's
00:28:48 --> 00:28:50 episode on administrative remedies. Thank you
00:28:50 --> 00:28:53 for joining us today. Please, if you enjoy this
00:28:53 --> 00:28:55 podcast and enjoy this episode, give us a like
00:28:55 --> 00:28:59 on Spotify, iTunes, or whatever platform you're
00:28:59 --> 00:29:01 listening on. And be sure to tune in next time
00:29:01 --> 00:29:03 where we'll continue to dive into the contours
00:29:03 --> 00:29:06 of administrative law, because remember, you
00:29:06 --> 00:29:07 can't fix what you don't understand.