Administrative Penalties Under Scrutiny: Jarkesy’s Potential Impact on EPA and Massachusetts Enforcement

The United States Environmental Protection Agency (“EPA”) often uses civil penalties to punish environmental violators. The EPA can either pursue a penalty through its internal administrative process or have the Justice Department file suit to have a court impose a penalty.[1] Congress has authorized the EPA to pursue this type of civil enforcement in almost all the environmental statutes that the EPA administers.[2] For example, the EPA can impose civil penalties of up to $66,712 per day for violations of the Clean Water Act.[3]

The Seventh Amendment to the United States Constitution guarantees the right to a jury trial in all actions at common law in excess of $20.[4] Thus, in 1987 the Supreme Court held that when the EPA seeks to establish a violator’s liability for civil penalties in the courts, the defendant is entitled to a jury trial on the question of liability.[5] However, as noted above, the EPA can penalize a violator without going to court. No jury is involved when the EPA seeks a penalty through its internal administrative process. In its 1977 Atlas Roofing v. Occupational Health and Safety Commission decision, the Supreme Court sanctioned this procedure when it ruled that the Seventh Amendment right to jury trial does not apply to administrative tribunals such as those used by OSHA and other agencies when enforcing “public rights.” [6]

Last summer, in Securities and Exchange Commission v. Jarkesy, the Supreme Court appeared to have significantly rewritten the rules regarding how and in what forum a federal agency may impose civil penalties.[7] The conservative majority refused to sanction the Congressional grant of authority, allowing the SEC to impose civil penalties in administrative proceedings where the underlying fraud claims were akin to common law claims historically tried in courts of law. While the majority distinguished its decision from the “public rights” doctrine underlying Atlas Roofing, the result was nevertheless that it broke from the precedent of Atlas Roofing by holding that the Seventh Amendment right to jury trial applied to the SEC’s administrative penalty action.

Jarkesy casts doubt on the propriety of the EPA and other federal agencies imposing civil penalties through administrative processes. It is possible that when presented with an EPA civil penalty case like Jarkesy, the court will find the defendant entitled to a jury trial, not simply an adjudicatory hearing at the EPA.

As with the EPA, the Massachusetts Department of Environmental Protection can seek penalties through internal administrative proceedings or in the courts.[8] This raises the question of whether Jarkesy applies to Massachusetts and other state administrative agencies, making them less likely or able to pursue penalties administratively. Does the difference between the Massachusetts and federal right to a jury trial justify a different outcome?

No Massachusetts court has directly addressed whether a defendant in an administrative penalty action is entitled to a jury trial. Because Article 15 of the Massachusetts Declaration of Rights broadly preserves the right to a jury trial in civil proceedings, [9] the issue remains ripe for consideration, especially after Jarkesy. Article 15 is similar, but not identical to, the Seventh Amendment to the U.S. Constitution underlying the Jarkesy decision. “Although the Seventh Amendment does not apply to State civil proceedings, its jurisprudence is instructive as [the Massachusetts courts] have granted a similar interpretation to art. 15 [of the Massachusetts Declaration of Rights].”[10] Indeed, the SJC has cited with favor pre-Jarkesy SCOTUS-related authority that “the Seventh Amendment is generally inapplicable in administrative proceedings, where jury trials would be incompatible with the whole concept of administrative adjudication and would substantially interfere with the [agency’s] role in the statutory scheme.” [11] Moreover,—albeit without expressly using the term—the SJC has essentially adopted the pre-Jarkesy “public rights” exception to a jury trial when finding that the Article 15 right to a jury trial did not apply to a Massachusetts Commission Against Discrimination (“MCAD”) administrative proceeding in which the MCAD awarded damages to the complainant. [12]

Unlike my prediction that the differences between the underlying federal and Massachusetts laws will limit the impact of Loper Bright on Massachusetts courts’ deference to state agency legal interpretations^[13], for the foregoing reasons, leaving politics aside, it appears that Jarkesy could potentially have an impact (albeit indirect) on Massachusetts courts’ interpretation of state agency authority to impose civil penalties administratively without affording a jury trial. This is because Jarkesy rested upon the majority’s finding that the SEC’s civil penalty for violation of the anti-fraud provisions of the securities laws was akin to a common law claim that would have been tried before a jury in the courts of law when the Seventh Amendment was enacted, a test remarkably similar to (or perhaps identical) to the law v. equity courts test under Article 15 of the Massachusetts Declaration of Rights. On the other hand, it may be that the Massachusetts courts will find Jarkesy inapplicable simply because Article 15 of the Declaration of Rights is not identical to the Seventh Amendment right to jury trial under the Bill of Rights. Ultimately, given Massachusetts’ generally more liberal judiciary and its prior precedent embracing the public rights exception to jury trial, I predict that it will not emulate the Jarkesy majority’s hostility to the administrative state by adopting a philosophically influenced re-interpretation of the framers’ intended scope of the right to jury trial.