Liberal justices say Supreme Court 'fails to act neutral' in SEC ruling

The liberal justices joined in a dissent that accused the Supreme Court of not acting neutrally in its ruling requiring jury trials for civil penalties.

Until the ruling in the case SEC v. Jarkesy, when the Securities Exchange Commission discovers securities fraud, the agency had the option of taking the offender to trial, or adjudicating the matter itself. Until 2010, though, if the SEC wanted to issue a civil penalty against an offender, it would have to go to federal court.

The Dodd-Frank Wall Street Reform and Consumer Protect Act was passed in 2010, following the housing market crash in 2008. The new law allowed the SEC to issue penalties on its own.

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The Supreme Court ruled 6-3 along ideological lines that this element of Dodd-Frank violated the Seventh Amendment, the right to a jury trial. The Court said that since the Seventh Amendment blocks Congress from the ability to “withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law,” and securities fraud is a matter of common law, it applies.

Justice Sonia Sotomayor wrote the dissent and was joined by the other two liberal justices, Elena Kagan and Ketanji Brown Jackson. She argued that federal agencies have always had the ability to order civil penalties to those who violate the law without a jury trial. Sotomayor argued that agencies previously had the right to make the decisions, and though the adjudications were subject to review by the courts, it wasn’t required.

Both sides cite the 1977 case Atlas Roofing Co. v. Occupational Safety and Health Review Commission, which said that the Seventh Amendment did not apply to federal agencies adjudicating violations of public rights statutes. The conservatives argued that Atlas Roofing didn’t apply as the public rights exception was not “‘in the nature’ of a common law suit.”

The liberals disagreed, and argued that the ruling flew in the face of Atlas Roofing.

“Today, for the very first time, this Court holds that Congress violated the Constitution by authorizing a federal agency to adjudicate a statutory right that inheres in the Government in its sovereign capacity, also known as a public right,” Sotomayor wrote. “That is plainly wrong. This Court has held, without exception, that Congress has broad latitude to create statutory obligations that entitle the Government to civil penalties, and then to assign their enforcement outside the regular courts of law where there are no juries.”

Sotomayor’s dissent then accused the conservative majority of threatening the separation of powers the U.S. government is built on.

“Here, that threat comes from the Court’s mistaken conclusion that Congress cannot assign a certain public-rights matter for initial adjudication to the Executive because it must come only to the Judiciary,” she wrote.

“The majority today upends longstanding precedent and the established practice of its coequal partners in our tripartite system of Government. Because the Court fails to act as a neutral umpire when it rewrites established rules in the manner it does today, I respectfully dissent.”