Holding Court: Right to a Jury Trial in Administrative Proceedings

Holding Court is a series by retired Rye City Court Judge Joe Latwin. Latwin retired from the court in December 2022 after thirteen years of service to the City.

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By Joe Latwin

The Supreme Court reinforced the underpinnings of our Constitutional form of government in a trio of cases this term.

The Seventh Amendment says that “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . .”

After the Wall Street Crash of 1929, Congress passed a suite of laws designed to combat securities fraud and increase market transparency. To enforce these laws, Congress created the Securities and Exchange Commission. The SEC may bring an enforcement action in either a federal court, or it can adjudicate the matter itself. In federal court, a jury finds the facts, a federal judge presides. Before the SEC, the SEC adjudicates the matter in-house, there are no juries. The Commission presides while its Division of Enforcement prosecutes the case. The Commission or its delegee—typically an Administrative Law Judge—also finds facts. One remedy for securities violations is civil penalties.

The SEC brought a proceeding before itself and after proceedings, imposed a $300,000 fine on the target. The target filed suit to challenge the fine claiming that the in-house SEC proceedings violated its Seventh Amendment right to a jury trial.

When, before the Revolution, the British attempted to evade American juries by siphoning adjudications to juryless admiralty, vice admiralty, and chancery courts, we Americans protested and eventually cited the British practice as a justification for declaring Independence. To fix that flaw, the Framers of the Constitution promptly adopted the Seventh Amendment.

The Supreme Court found that the SEC’s action implicates the Seventh Amendment because the SEC’s antifraud provisions replicate common law fraud actions. When the SEC sought civil penalties, a form of monetary relief designed to punish or deter the wrongdoer rather than seeking to maintain the status quo, the proceeding was a civil case.

The Supreme Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.

This decision vindicates the Constitution scheme of divided government.  The Constitution mandates that the judicial power is vested in the courts; the Legislative power is vested in Congress; and the Executive power resides with the President. Neither of the branches can usurp the powers vested in the others. While Congress may create an administrative agency to administer the laws it enacts, it may neither usurp the courts province to interpret the law, nor abrogate rights granted in the Constitution. This is a victory for our Constitution and for the rights thereunder.

Administrative agencies can no longer be prosecutor, judge and jury, and make up its own rules depriving citizens of their rights, including the right to a jury trial.