Jarkesy’s Potential Implications for EPA Administrative Proceedings

On June 27, 2024, the U.S. Supreme Court decided SEC v. Jarkesy,[1] holding that when the Securities and Exchange Commission (SEC) alleges a defendant has violated securities antifraud provisions and seeks civil penalties, the defendant is entitled to a jury trial in federal court under the Seventh Amendment. The ruling restricts the SEC’s use of its own in-house administrative tribunal with its own administrative law judges (ALJs), which the SEC has historically used to pursue antifraud claims. While the Court’s ruling focuses on the SEC, the principles underlying the decision may be applied more broadly to restrict the ability of other federal agencies, including the Environmental Protection Agency (EPA), to pursue civil penalties via their own administrative proceedings.

The Court’s holding. As Sidley discussed here, Jarkesy held that the SEC’s use of an administrative proceeding presided over by an SEC-appointed ALJ to impose liability for civil penalties for securities fraud violated the defendant’s Seventh Amendment right to a jury trial for “suits at common law.”[2] The Court found that the remedy imposed by the SEC — “monetary relief” that was “designed to punish or deter the wrongdoer” rather than “solely to restore the status quo” — was “all but dispositive” to proving the SEC proceedings were “legal in nature” and thus implicated the Seventh Amendment.[3] As such, the defendant was “entitled to a jury trial in an Article III court.”[4]

The Court’s discussion of administrative proceedings before other agencies. While the Court provided some insight into how its ruling might affect a range of proceedings before other agencies, Jarkesy did not answer that question, as the majority left open how Jarkesy might apply to the more than two dozen federal agencies cited by the dissent as potentially losing their statutory authority to bring administrative proceedings. The majority opinion did distinguish Jarkesy from cases involving true “public rights,” including tariffs, immigration, pensions and other government benefits, public lands, and patents, and declined to overrule its earlier decision in Atlas Roofing, in which the Court had permitted the Occupational Safety and Health Administration (OSHA) to impose administrative penalties for workplace safety violations.[5] However, at the same time, the Court raised a number of questions about Atlas Roofing,[6] strongly implying a willingness to rethink that ruling in a future case.

Issues to consider in EPA proceedings. Without a definitive ruling on a broader application of its reasoning, the decision leaves several issues to consider for EPA proceedings.

  • Would EPA’s claims fall within the Court’s reasoning? In the Jarkesy opinion, the Court based much of its Seventh Amendment analysis on Tull, a 1987 case in which the Court concluded that certain actions for civil penalties under the Clean Water Act required a jury to decide.[7] While each statute is different, many environmental statutes contain similar provisions and/or use similar structures to the Clean Water Act to achieve Congress’s goals. As such, it is possible that some courts may similarly apply the Seventh Amendment to other environmental statutes. A party wishing to extend Jarkesy to an EPA action would argue the violation for which EPA seeks penalties “resembles” a common-law claim that does not implicate a “public right.” As the majority explained: “If a suit is in the nature of an action at common law, then the matter presumptively concerns private rights, and adjudication by an Article III court is mandatory.”[8] For example, securities fraud — which “draw[s] upon common law fraud” — implicates the Seventh Amendment, but an OSHA claim, which Congress established to promote safe working conditions, “did not borrow its cause of action from the common law” and, therefore, does not implicate the Seventh Amendment.[9] Hence, if the EPA claim could be linked to a historical cause of action available at common law, a respondent might possibly be able to apply Jarkesy to an EPA proceeding. Of course, we would expect EPA to vigorously litigate this question. Additionally, there are some EPA claims that Jarkesy will not affect, including, for example, proceedings that do not involve enforcement, such as permit appeals to EPA’s Environmental Appeals Board.
  • Would the other holdings of the Fifth Circuit be applied to EPA proceedings? In the proceedings below, the U.S. Court of Appeals for the Fifth Circuit had held the SEC’s adjudication before an ALJ also violated (1) the nondelegation doctrine based on the SEC’s unfettered discretion to choose between an administrative proceeding or federal court and (2) the Take Care Clause of Article II of the Constitution based on statutory restrictions on the removal of SEC ALJs. The Supreme Court’s ruling did not reach these other two constitutional issues, leaving them open for future challenges to agency administrative proceedings, including EPA proceedings, on those grounds.
  • If EPA loses administrative authority, it could affect EPA’s entire ability to obtain civil penalties under certain laws. Importantly, some environmental statutes give the EPA only administrative enforcement authority with no recourse in the federal courts. For example, for the EPA to seek civil penalties under the Federal Insecticide, Fungicide, and Rodenticide Act, it must do so via administrative enforcement — that is, filing a complaint with an ALJ.[10] For these types of laws, if Jarkesy were applicable, it could mean EPA could not pursue civil penalty claims absent new authorization from Congress.
  • Waiving the Seventh Amendment. If extended to EPA proceedings, Jarkesy would allow a party to force EPA to proceed in federal court. But for some parties, an EPA administrative adjudication may be preferred to litigating in federal court. Agency proceedings can be a less costly alternative to federal district court litigation while still providing judicial review by a federal appellate court. Indeed, regulated parties have long resolved matters with the EPA directly in administrative consent agreements, which can offer more streamlined settlements than a consent decree that necessarily involves the Department of Justice and must be approved by federal district judge. If a party prefers to resolve a matter administratively, it may be able to waive any right to a jury trial that would otherwise be required by Jarkesy or other constitutional principles. Parties in both civil and criminal matters often waive their right to a jury.[11] It is, however, uncertain whether Jarkesy has limited the ability to proceed before an ALJ if a suit is in the nature of an action at common law, because the Court stated that “adjudicati by an Article III court is mandatory.”[12] Whether Jarkesy leaves EPA unable to proceed administratively or requires more specific waivers remains to be seen.
  • Will there be retroactive application to EPA administrative enforcement proceedings? Unlike in Loper Bright,[13] the Court in Jarkesy did not expressly address whether its holding applies retroactively. And while the retroactive effect of constitutional rulings generally is extended only to a small subset of criminal matters (e.g., “watershed rules of criminal procedure implicating the fundamental fairness and accuracy of the criminal proceeding”),[14] the overall direction of the Supreme Court in administrative law could make lower courts more receptive to the argument.
  • Will state administrative proceedings be affected? Finally, because many states enforce their own environmental regulations in their environmental agencies, parties may begin to question whether state administrative agencies have the authority to impose civil penalties. The Seventh Amendment right to a jury trial has not been applied to the states, but the Court’s seminal case on this issue is over a century old,[15] and the Court may be willing to revisit it. In addition, many state constitutions provide rights to a jury trial similar to the U.S. Constitution, and state courts often interpret their constitutional provisions coextensively with — or as to provide even more protections than — the federal provisions.[16]

* * *

For now, the holding in Jarkesy applies only to SEC fraud allegations. But the Court’s reasoning potentially may be extended to proceedings before other federal agencies, and the Court this term has expressed willingness to revisit principles of administrative law. Parties facing EPA administrative enforcement proceedings should consider the implications of Jarkesy in deciding the best course forward.

[1] Securities and Exchange Commission v. Jarkesy, No. 22-859 (June 27, 2024). The opinion is available here.

[2] Jarkesy, slip op. at 20.

[3] Id. at 9 (internal quotation marks omitted).

[4] Id. at 27.

[5] Atlas Roofing Co. v. Occupational Safety and Health Review Comm’n, 430 U.S. 442 (1977).

[6] Jarkesy, slip op. at 22–27.

[7] Tull v. United States, 481 U.S. 412 (1987).

[8] Jarkesy, slip op. at 14.

[9] Id. at 23.

[10] See 7 U.S.C. § 136l(a)(1).

[11] See Sec’y, U.S. Dep’t of Lab. v. Preston, 873 F.3d 877, 878 (11th Cir. 2017) (“It is hornbook law that rights of all kinds — even constitutional ones — can be waived”); Fed. R. Civ. P. 38(d) (“A party waives a jury trial unless its demand is properly served and filed. A proper demand may be withdrawn only if the parties consent”).

[12] Jarkesy, slip op. at 14.

[13] “[W]e do not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful — including the Clean Air Act holding of Chevron itself — are still subject to statutory stare decisis despite our change in interpretive methodology.” Loper Bright Enters. v. Raimondo, 603 U.S. ___, No. 22-451 (June 28, 2024).

[14] Schriro v. Summerlin, 542 U.S. 348, 351 (2004).

[15] See McDonald v. City of Chicago, Ill., 561 U.S. 742, 765 n.13, n.30 (2010) (citing Minneapolis & St. Louis R. Co. v. Bombolis, 241 U.S. 211 (1916)).

[16] See, e.g., Associated Inv. Co. P’ship v. Williams Assocs. IV, 645 A.2d 505, 514 n.2 (Conn. 1994) (“Although the seventh amendment constitutional guarantee of a right to a jury trial applies only in the federal courts[,] the similarity between the state and federal tests [is] recognized by this court”); Andersen v. Eighth Jud. Dist. Ct. in & for Cnty. of Clark, 448 P.3d 1120, 1123 (Nev. 2019) (noting that Nevada reads its constitution coextensively with the Sixth Amendment on the U.S. Constitution); State v. Miles, 160 A.3d 23, 29 (N.J. 2017) (“This Court has consistently interpreted the State Constitution’s double-jeopardy protection as coextensive with the guarantee of the federal Constitution”).

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.