Jarkesy’s impact on health care penalties

In SEC v. Jarkesy, the Securities and Exchange Commission brought legal action against George Jarkesy, seeking $300,000 in civil penalties for securities fraud. In June of 2024, the U.S. Supreme Court ruled that when the SEC seeks civil penalties for securities fraud, the defendant has the right to a trial by jury pursuant to the Seventh Amendment of U.S. Constitution.

In reaching its decision, the Supreme Court first examined whether the SEC’s enforcement action fell under the Seventh Amendment. The court explained that SEC’s fraud claims are similar to common law fraud claims, which were traditionally decided by juries, concluding that the Seventh Amendment applied to the SEC’s civil charge of securities fraud.

Secondly, the court analyzed the relief sought. The court explained that the key factor in determining the applicability of the Seventh Amendment in these types of claims is the remedy sought.

It concluded that when a civil penalty serves retributive, punitive or deterrent purposes rather than equitable ones, it is considered a punishment that can only be imposed through a jury trial, thereby triggering the Seventh Amendment right to a trial by jury.

Future implications

The Jarkesy analysis strongly suggests that any enforcement action by a federal agency designed to punish and deter an individual or entity violates the Seventh Amendment if it proceeds through agency tribunals and not federal courts absent an applicable exception. Many believe that the Jarkesy decision is consistent with and expands the Supreme Court’s intention to limit administrative authority, especially following the overturning of the Chevron precedent.

Following the Supreme Court’s decision in Jarkesy, most, but not all, administrative agencies have sided with parties using Jarkesy-based defenses to contest civil monetary penalties. Since the ruling, the SEC has dismissed seven pending administrative proceedings; four of these sought civil penalties, implicating Jarkesy.

The other SEC dismissals involved cases that only required remedial relief, demonstrating a broad application of Jarkesy.

Additionally, the Federal Energy Regulatory Commission paused its administrative proceedings, allowing for negotiations in a case involving monetary penalties against an energy company for violating the Natural Gas Act. This settlement was influenced by the Supreme Court’s decision in Jarkesy, which supported the energy company’s argument against FERC’s use of administrative law judges in enforcement actions.

However, the Department of Health and Human Services Appeals Board recently rejected the application of Jarkesy in a case challenging the imposition of a civil penalty. The board stated that the case in Jarkesy was related to an enforcement action by the SEC, while the current case involved an “entirely separate statutory and regulatory scheme” administered by HHS.

Although HHS maintains that Jarkesy should not be applied broadly, the case presents an example of new challenges imposed on health care agencies following the Jarkesy decision, and only time will tell how the courts will deal with health care penalties.

For example, the Centers for Medicare & Medicaid Services can impose penalties for violations of the No Surprises Act; the Office of Inspector General can impose penalties for submitting a false or fraudulent claim to federal health care programs;, and the Office of Civil Rights can impose penalties for violations of the Health Insurance Portability and Accountability Act of 1996.

Barry F. Rosen heads Gordon Feinblatt’s health care practice group and can be reached at 410-576-4224 or [email protected]. Tamia J. Morris is an associate in the firm’s health care and real estate practice groups and can be reached at 410-576-4021 or [email protected].