From ALJs to Article III: Post-Jarkesy Litigation Over the Scope of the Jury-Trial Right

Last summer, the Supreme Court issued its pivotal decision in SEC v. Jarkesy, holding that when the U.S. Securities and Exchange Commission (SEC) seeks civil penalties for securities fraud, the Seventh Amendment entitles the defendant to a jury trial. Because those penalties are legal, rather than equitable, remedies that mirror common-law fraud, the Court held that an Administrative Law Judge lacks the power to impose them. The Court recognized that its conclusion might differ in certain agency proceedings involving “public rights,” but the public-rights doctrine didn’t save the SEC’s position. Instead, the Court held that the SEC must seek penalties for fraud in Article III courts. And in the months since, the SEC has taken action accordingly. But what Jarkesy means for other agencies and their enforcement powers is an open question that has sparked significant litigation over the past year.

So far this year, three courts of appeals — the Second, Fifth, and D.C. Circuits — have addressed Jarkesy’s application to the Federal Communications Commission’s (FCC) enforcement proceedings. In April, the Fifth Circuit vacated a $57 million forfeiture against AT&T, holding that the FCC’s in-house adjudication of punitive fines violated the Seventh Amendment. Just a few months later, the D.C. Circuit and Second Circuit reached differing conclusions in similar cases involving Sprint/T-Mobile and Verizon. The D.C. Circuit and Second Circuit emphasized that, although the wireless carriers had not been given a jury trial before the agency’s imposition of a fine, the Communications Act ultimately allowed for a jury trial if a carrier refuses to pay, triggering a de novo district court proceeding under 47 U.S.C. § 504(a). They held that this “hybrid” scheme passes constitutional muster, and that by paying the fine, the carriers had forgone their right to a jury trial. The FCC has sought Supreme Court review of the Fifth Circuit’s ruling.

The other pending post-Jarkesy petition is CashCall’s certiorari petition challenging Ninth Circuit precedent that, contrary to other circuits’ holdings, “legal restitution” does not trigger the Seventh Amendment right to a jury trial. While the petition identifies disagreement among circuits about whether legal restitution is an equitable remedy for jury trial purposes, the Ninth Circuit sidestepped the issue in this case, instead affirming the district court’s decision on the grounds that the party had waived its right to a jury trial. The petition also raises the question of whether a litigant can waive a constitutional right when binding circuit precedent clearly forecloses the exercise of the right.

Elsewhere, litigants are testing the boundaries of the public-rights doctrine. In July, the Third Circuit rejected a Jarkesy-based challenge to a $1,900 Federal Aviation Administration civil penalty in Axalta Coating Systems v. FAA, framing hazardous-materials packaging regulations as “technical prescriptions” that fall within the public-rights exception and upholding an administrative adjudication without a jury. The opinion underscores that how a court characterizes the underlying right (public versus private) can be outcome-determinative. Similarly, in Silver Moss Properties v. Commissioner, the Tax Court rejected a Jarkesy challenge, holding that the imposition and collection of a statutory civil tax fraud penalty falls within the public-rights exception.

Now all eyes are on the Sixth Circuit after a lively argument last month in Smith v. SEC, which asked whether the Financial Industry Regulatory Authority’s disciplinary regime — whereby sanctions are later sustained by the SEC — runs afoul of Jarkesy. The petitioner, Eric Smith, was barred from the industry and ordered to pay about $130,000 in restitution after a FINRA hearing. The SEC later affirmed Smith’s penalty. On appeal, Smith argued that Jarkesy forbids agencies from imposing fraud-based monetary penalties through non-jury, non-Article III proceedings — and that even though FINRA is not a government entity, the SEC’s affirmance makes the enforcement effectively governmental. The government and FINRA counter that an industry bar and restitution are equitable and otherwise outside Jarkesy’s core holding. At oral argument, the Sixth Circuit panel pressed a threshold question — whether Smith preserved his Jarkesy arguments before the SEC — raising the prospect of a narrow, waiver-based decision rather than a sweeping merits ruling.

IRS penalties are becoming a major post-Jarkesy battleground, raising the question of whether the availability of a post-assessment de novo jury trial satisfies the requirements of the Seventh Amendment. In September, the Northern District of Texas dismissed the government’s suit to collect foreign bank and financial accounts penalties in United States v. Sagoo, reasoning that the Internal Revenue Service (IRS) had already acted as “prosecutor, jury, and judge” at the assessment stage in violation of the Seventh Amendment under Jarkesy. A few days later, in HDH Group v. United States, the Western District of Pennsylvania declined to extend Jarkesy to certain IRS penalties, concluding that the availability of a de novo post-assessment jury trial in an Article III court sufficed. Together, these decisions reveal a growing division among courts about whether the availability of a jury trial after the agency has already imposed a penalty can cure what otherwise would be a Jarkesy problem.

Meanwhile, agencies are proactively adjusting their enforcement practices in an attempt to avoid litigation. Following Jarkesy, the SEC has been routing matters it once tried administratively into federal court. The Federal Energy Regulatory Commission terminated its ongoing administrative proceedings in September 2024, marking a major shift in the agency’s enforcement strategy to move cases into federal court. Other agencies are recalibrating charging decisions and remedies to avoid “legal” (punitive) monetary relief in their administrative tribunals, or seeking to rely on hybrid pathways that promise a jury later. Thus far, agency reactions to Jarkesy have primarily played out in courtroom strategy and case routing as opposed to rulemaking overhaul.

What’s next? While Jarkesy did not end agency adjudication, it did restrict agency enforcement proceedings imposing monetary penalties. We’re closely watching post-Jarkesy litigation. We expect to see continued disputes, especially over (1) the scope of the public-rights boundary for remedies that do not resemble civil monetary fines, and (2) the relevance of timing of any jury-trial right (i.e., whether front-end jury access is strictly required, as opposed to a right to invoke a jury at some later point). Meanwhile, the preservation of jury-trial arguments will be central to strategy for litigants facing administrative proceedings.

Bonnie Devany contributed to this Blog post. Ms. Devany is admitted only in Texas; practicing law in the Washington, D.C.  during the pendency of her application for admission to the D.C. Bar and under the supervision of lawyers of the firm who are members in good standing of the D.C. Bar.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.