Some of the cases—such as presidential immunity or the overruling of Chevron deference—grabbed headlines. But in addition to the decisions you may have read about in the papers, there were many other cases that could have significant impact in the years to come. One of those cases, Sec. and Exchange Comm’n v. Jarkesy, could affect the way the FAA pursues alleged violators of its rules.
In Jarkesy, the SEC brought an enforcement proceeding alleging that the defendants had engaged in fraud. The SEC sought civil monetary penalties in an administrative proceeding where the SEC’s in-house administrative law judges would determine whether the SEC’s enforcement lawyers had proven their case. That’s right—judges employed by the SEC would be deciding a case argued by lawyers employed by the SEC. In other words, the SEC would be judging its own case. Perhaps not surprisingly, the SEC found in its own favor and, amongst other relief, assessed a civil penalty of $300,000 against the defendants, i.e., gave itself $300,000 of the defendants’ money.
The defendants sought review in the federal courts and argued the SEC’s adjudicatory system was unconstitutional in several ways. Most notably, the defendants argued that the Seventh Amendment of the Constitution required that the SEC’s claims be judged by a jury and that a life-tenured federal judge had to preside. The United States Supreme Court, in a 6-3 decision written by Chief Justice John Roberts, agreed with the defendants.
The Supreme Court’s opinion in Jarkesy applied a two-part analysis to determine whether an agency action must be adjudicated by a jury. First, the courts must look to whether the statutory claim asserted by the agency replicates a type of legal claim that historically required a jury. In Jarkesy, the Supreme Court cited earlier cases that had held that actions by the government to recover civil penalties under statutory provisions had historically been viewed as actions in debt that required a jury.
The second step in the Jarkesy analysis asked whether the claim was nevertheless one involving “public rights.” The public rights exception is one the Court admitted had not been defined in “precise terms.” It acknowledged that it had never “definitively explained the distinction between public and private rights” in its prior cases and did little to clarify the distinction in Jarkesy. While the Court highlighted a few examples of prior public rights cases—such as those involving tariffs, relations with Indian tribes; the administration of public lands; and the granting of benefits such as veterans’ payments, pensions, and patent rights—the Court offered no unifying theory as to when a matter involves a “public right” such that it is outside the protection of the Seventh Amendment’s jury requirement. Although the Court did not chart the border between public rights and private rights, the Court held that the SEC’s fraud claim against did not fall within the public rights exception to the Seventh Amendment’s jury requirement.
In concluding its two-part analysis, the Court determined that the SEC’s allegations of fraud against the defendants had to be adjudged by a jury. The allegations were in essence a common law fraud claim to punish the defendants. And the allegations did not implicate the narrow categories of “public rights” the Court recounted. The Court concluded that the Seventh Amendment violation required that the SEC’s final order be vacated.
We will have to wait and see how broadly lower federal courts and agencies read Jarkesy going forward. Jarkesy likely does not require a jury to adjudicate the suspension or revocation of an airman certificate. A federal court of appeals held over 30 years ago that a jury was not required in an action to suspend an airman’s certificate and the analysis in Jarkesy does not seem to undermine that conclusion.
But Jarkesy likely requires that at least some civil penalty cases that the FAA would have adjudicated in-house will now have to be resolved by a jury. Practically, this may not be earth-shattering. Before Jarkesy, proposed penalties more than $50,000 assessed against individuals or small business concerns already had to be brought in federal court; penalties less than $50,000 were permitted to be adjudicated administratively within the FAA. The 2024 Reauthorization Bill increased this threshold to $100,000. In any case, Jarkesy likely means that at least some of these smaller penalties must be brought in federal court. Given the time and expense of proceeding in federal court, the FAA may simply forego assessing smaller penalties that would require jury trials. Instead, the FAA may look to alternative means of securing compliance.
