The post-Jarkesy litigation landscape is developing as anticipated. Litigants are increasingly invoking the Supreme Court’s decision in SEC v. Jarkesy (No. 22-859) to challenge the constitutionality of state administrative enforcement proceedings, particularly where agencies seek punitive monetary penalties through in-house tribunals without a jury trial rather than courts.
Two notable examples are now pending before the Delaware and Arizona Supreme Courts. In both matters, the parties argue that state agencies cannot constitutionally pursue fraud-based or securities-related penalty actions through internal administrative proceedings without affording defendants a jury trial.
The Delaware case, Swan Energy, Inc. v. Investor Protection Unit (No. N24C-03-071 MAA), involves an administrative securities fraud action seeking substantial civil penalties. Swan argues that, under Jarkesy, claims seeking monetary penalties and analogous to common-law fraud must be tried before a jury rather than adjudicated internally by the same agency prosecuting the case. The Arizona case, EFG America v. Arizona Corporation Commission (No. CV-25-0134-PR), presents a similar challenge involving the Arizona Corporation Commission’s ability to impose civil penalties through administrative proceedings without a jury.
None of this is surprising. In Jarkesy, the Supreme Court held that when the SEC seeks civil penalties for claims “legal in nature,” the Seventh Amendment entitles defendants to a jury trial. The Court reasoned that securities fraud claims seeking punitive monetary relief closely resemble traditional common-law fraud actions historically decided by juries.
But there remains a critical limitation: unless and until the Supreme Court incorporates the Seventh Amendment against the states through the Fourteenth Amendment, Jarkesy remains persuasive, not binding, authority in state proceedings.
That distinction matters. The Seventh Amendment has never been extended to the states. Accordingly, unless and until the U.S. Supreme Court recognizes that,[1] parties challenging state administrative proceedings must rely on analogous protections under state constitutions, state jury-trial provisions, due-process principles, or separation-of-powers doctrines.
And that is precisely why the success of these challenges will continue to vary state by state. The outcome will depend on each state’s constitutional framework, how closely it parallels federal protections, the nature of the claims and remedies at issue, and how persuasive state courts find Jarkesy’s reasoning as applied to their own constitutional jurisprudence.
Still, the broader trend is now clear: Jarkesy is increasingly becoming part of the standard playbook for challenging administrative enforcement authority — not just federally, but at the state level as well. This added layer of complexity will have implications for D&O underwriting and coverage, which should be carefully considered.
[1] Such as through incorporation via the Fourteenth Amendment’s Due process clause.
