Part I
This is the first of a two-part article discussing a defendant’s Seventh Amendment right to jury in an enforcement action by the Commodity Futures Trading Commission under the Commodity Exchange Act for civil monetary penalties. Civil penalties for violation of the CEA are now no less than $180,000 per violation and regularly assessed in the hundreds of millions dollars. Part I of this article analyzes existing Supreme Court cases regarding the scope of the right to jury in regulatory enforcement cases. It concludes that existing Supreme Court cases should be expanded to include a jury determination of the amount of civil penalty. It proposes that defendants in CEA enforcement actions make a jury demand notwithstanding existing case law and develops arguments in support of such a demand. Part II of the article will examine lower court cases where courts have determined the amounts of civil penalties for violations of the CEA. It concludes that the law is in disarray and the decisions are inconsistent. So that juries may be properly instructed, Part II proposes a new method for juries to determine civil penalties under the CEA that is organically related to the conduct regulated by the statute.
I. INTRODUCTION
The Commodity Futures Trading Commission (“CFTC”) is an independent administrative agency of the federal government charged with oversight of the commodity futures, options and swaps markets, regulation of market professionals, and protection of market participants. The CFTC is authorized to bring an administrative proceeding or an action in federal district court against persons who violate the Commodity Exchange Act, 7 U.S.C. § 1-26 [hereinafter “CEA”], and to seek various remedies including a civil monetary penalty. CEA § 13a-1(a)-(b). On February 11, 2019, the civil monetary penalty for attempted or actual manipulation of a commodity market was adjusted upward to a minimum of $1,191,842. For all other violations of the CEA, the minimum civil monetary penalty was adjusted upward to $182,031. CEA § 13a-1(d)(1)(A)-(B). See also 28 U.S.C. § 2461 and 7 C.F.R. § 143.8. The civil penalties can be staggering.[1]
The CFTC has not employed in-house administrative law judges for almost a decade, so its current practice is to file contested enforcement actions in federal court. In federal court, defendants enjoy many of the procedural due process rights that are lacking in administrative proceedings; such as, full discovery, robust motion practice and direct appellate review. But, whether there is a Seventh Amendment right to jury for all phases of court litigation is more nuanced.[2]
II. CONSTITUTIONAL BASIS FOR THE RIGHT TO JURY FOR CIVIL MONETARY PENALTIES
The Seventh Amendment to the U.S. Constitution provides the right to jury in all civil cases other than those in equity and admiralty. It states:
In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.
Because the Amendment says “In Suits at common law,” the right to jury is broader than just actions that existed before the Amendment was adopted. It extends to statutory causes of action later created by Congress.[3] As Professor Phillip Hamburger explains:
Although the US Constitution in 1789 guaranteed juries only in criminal cases, this prompted an outcry that juries also needed to be guaranteed in civil cases. The Seventh Amendment therefore secured the right to a jury in “Suits at common law.” If, instead, the amendment had provided for juries “in common-law actions,” it would have allowed the government to avoid juries in statutory actions. And if it had provided for juries “in existing common-law actions,” it would have allowed the government to avoid juries in newly created actions. But the phrase “Suits at common law” meant civil suits brought in the common-law system, as opposed to those brought in equity or admiralty. Thus, in addition to the debates leading up to the Bill of Rights, the Seventh Amendment’s very words make clear that the Amendment does not exclude statutory actions …. Instead, it secures juries in all civil cases other than those in equity and admiralty.[4]
In Tull v. United States, 481 U.S. 412 (1987), the U.S. Supreme Court addressed whether the defendant had a Seventh Amendment right to a jury for violating the Clean Water Act, which provides violators “shall be subject to a civil penalty not to exceed $10,000 per day” during the period of the violation.[5] The district court denied the defendant’s timely request for trial by jury on all issues. After a bench trial, the district court assessed a total civil penalty of $75,000 calculated with reference to the number of sites illegally polluted rather than on the number of days as stated in the statute.
The Supreme Court reversed because the defendant had a right to a jury determination of liability for a civil penalty. Under the Seventh Amendment, the right to jury depends on “the nature of the action and of the remedy sought.”[6] Historically, “a civil penalty was a type of remedy at common law that could only be enforced in courts of law” and tried to a jury.[7] Further, the legislative history shows Congress intended § 1319(d) of the Clean Water Act to be a penal remedy, as distinguished from equitable remedies that restore the status quo ante and do not require a jury; such as, restitution or disgorgement.[8] As to the amount of the civil penalty, however, the legislative history of the Clean Water Act shows Congress intended that a judge “perform the highly discretionary calculations necessary to award civil penalties after liability is found.”[9] The Supreme Court concluded that the Seventh Amendment does not forbid Congress from delegating to a judge the determination of the amount of the penalty even if liability constitutionally must be determined by a jury because the amount “is not one of the ‘most fundamental elements’” of the right to a jury.[10] Dissenting in part, for reasons discussed below, Justices Scalia and Stevens held the view that a defendant is entitled to a jury determination both as to liability and as to the amount of the civil monetary penalty.[11]
In contrast, eleven years later in Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998), the Supreme Court held the defendant had a right to a jury determination both as to liability and as to the amount of statutory damages for violations of the Copyright Act, which provides that a copyright owner may “recover, instead of actual damages and profits, an award of statutory damages …, in a sum of not less than $500 or more than $20,000 as the court considers just.[12] The district court denied the defendant’s timely request for a jury trial on damages.[13] After a bench trial, the district court assessed statutory damages of $8,800,000, finding that each airing of an episode on television (440) constituted a separate violation multiplied by $20,000.[14]
The Supreme Court reversed because the Seventh Amendment preserves the common law right to a jury trial for copyright violations even though there was nothing in the statute or its legislative history to suggest that Congress had intended to provide for a jury trial. The Supreme Court employed the Seventh Amendment analysis in Tull, concluding that the nature of a copyright action and the statutory damages remedy are legal not equitable. Historically, copyright suits were tried in courts of law to juries.[15] The remedy for infringement, either actual damages or statutory damages, is intended to punish infringers of copyrights.[16] However, unlike in Tull, the Supreme Court concluded that the “right to a jury trial includes the right to have a jury determine the amount of statutory damages ….”[17] Historically, juries determined damages where the amount was “uncertain.”[18] The Supreme Court distinguished Tull because in that case no evidence was presented “that juries historically had determined the amount of civil penalties to be paid to the Government.”[19] The Court also distinguished Tull because determining the amount of a civil penalty is “analogous to sentencing in a criminal proceeding.”[20]
In sum, the U.S. Supreme Court holds that the Seventh Amendment preserves the right to jury as to a determination of liability for violating a federal statute and for a determination of statutory damages, but not for a determination of the amount of a civil penalty.
III. THE SCOPE OF A RIGHT TO JURY FOR VIOLATIONS OF THE COMMODITY EXCHANGE ACT
There is no federal court decision expressly holding that a defendant in a civil enforcement action under the CEA filed in federal court has a Seventh Amendment right to jury on the issue of liability for violating the Act. Nevertheless, based on the Supreme Court’s holdings in Tull and Feltner, a defendant clearly has such a right. In § 13a-1(d)(1)(A)-(B), Congress expressly characterized the nature of the sanction as “a civil penalty” in contrast to § 13a-1(d)(3)(A)-(B) where it characterized the sanctions as “equitable remedies.”[21] Further, the CFTC would be hard-pressed to argue that there is no right to a jury on the issue of liability based on positions it has taken in other litigation. For example, in the MF Global bankruptcy, the CFTC conceded that penalties under § 13a-1(d)(1)(A) are “punitive.”[22] Similarly, in CFTC v. Aurifex Commodities Research Co.,[23] the CFTC “did not challenge” the defendant’s assertion that he was entitled to a jury trial as to liability for violations of the CEA. Thus, congressional intent, together with Tull and Feltner, support a right to jury as to a determination of liability for violating the CEA and the CFTC is not likely to oppose vigorously a demand for jury as to liability.
As to the amount of the civil monetary penalty for violating the CEA, however, two courts have held that there is no right to jury. The CFTC opposed the defendant’s demand for a jury “on all issues” in Aurifex and again in CFTC v. Capital Blu Management, LLC.[24] In both Auriflex and Capital Blu, the district courts denied the defendants’ jury requests as to the amount of the penalty on the basis that a sanction under § 13a-1(d)(1)(A) “does not involve statutory damages as in Feltner but instead a civil penalty as in Tull.”[25] Accordingly, a demand for a jury on all issues in a CFTC enforcement case is unlikely to be successful at the district court level as courts feel constrained by the Supreme Court’s decision in Tull. Nevertheless, defendants in CEA enforcement actions should make a jury demand as to the amount of civil penalty.[26]
Tull’s denial of a jury trial as to amount of the civil monetary penalty was wrongly decided and should be overruled by the Supreme Court. The concurring opinion of Justices Scalia and Stevens in Tull is persuasive that a jury should determine the amount of the civil monetary penalty in an action by the government for non-compliance with a federal statute. According to Justice Scalia, historically there is no precedent in civil litigation for a jury to decide liability but a judge to decide the amount of damages. When the government chooses not to prosecute a violation criminally, it elects to be bound by all aspects of civil adjudication. It should not have the benefit of a lower burden of proof on liability without also having private citizens determine the amount of civil penalty.
While purporting to base its determination (quite correctly) upon historical practice, the Court creates a form of civil adjudication I have never encountered. I can recall no precedent for judgment of civil liability by jury but assessment of amount by the court. Even punitive damages are assessed by the jury when liability is determined in that fashion. One is of course tempted to make an exception in a case like this, where the Government is imposing a noncompensatory remedy to enforce direct exercise of its regulatory authority, because there comes immediately to mind the role of the sentencing judge in a criminal proceeding. If criminal trials are to be the model, however, determination of liability by the jury should be on a standard of proof requiring guilt beyond a reasonable doubt. Having chosen to proceed in a civil fashion, with the advantages which that mode entails, it seems to me the Government must take the bitter with the sweet. Since, as the Court correctly reasons, the proper analogue to a civil-fine action is the common-law action for debt, the Government need only prove liability by a preponderance of the evidence; but must, as in any action for debt accept the amount of award determined not by its own officials but by 12 private citizens. If that tends to discourage the Government from proceeding in this fashion, I doubt that the Founding Fathers would be upset.[27]
This argument also undercuts the Court’s rationale denying a right to jury as to the amount of a civil penalty by comparing it to sentencing by a judge in a criminal proceeding.[28] When the CFTC elects not to refer a matter to the Department of Justice and to proceed civilly in federal court, the government should be bound to all procedural rules of civil litigation including a jury determination by private citizens of the amount of the civil penalty. Granting a right to jury for statutory damages but not for civil monetary penalties is a distinction without a difference. Both remedies are civil. Both are statutory. Where the amount of money to be awarded is uncertain, juries—not judges—historically have decided. Given the wide dollar range per violation in § 13a-1(d), the amount of a civil penalty is highly uncertain and should be determined by a jury.[29] For all these reasons, the Supreme Court should expand the right to a jury determination to include civil monetary penalties.
Before the district court, defendants should argue that Tull’s holding denying a jury as to the amount of civil penalty under the Clean Water Act should not be extended to actions under the CEA. The Supreme Court’s opinion in Tull was based in part on two facts unique to that case and the Clean Water Act: First, in Tull, no evidence was presented that civil penalties were historically determined by juries; whereas, subsequently in Feltner the Supreme Court acknowledged “[i]t has long been recognized that ‘by the law the jury are judges of the damages.”[30] Second, in Tull, the Court noted that there was a clear congressional intent to delegate to a judge the determination of the amount of the penalty for violations of the Clean Water Act.[31] In contrast, there is nothing in the legislative history[32] of CEA § 13a-1(d)(1)(A)-(B) that shows Congress intended a judge rather than a jury should determine the amount of the civil monetary penalty in actions in district court. Also, the language of § 13a-1(d)(1)(A) does not specify that a judge must determine the amount of a civil monetary penalty. It states, “the Commission may seek and the court shall have jurisdiction to impose … a civil penalty …..” Citing Lorillard v. Pons,[33] Justice Scalia notes that the word “[court] has a broader meaning, which includes both judge and jury.”[34] Further, another court addressing § 13a-1(d)(a) notes “[l]ikewise a statute that authorizes a district court to award damages but does not mention juries does not forbid jury trials ….”[35] Accordingly, neither the legislative history nor the language of the CEA show Congress intended that a judge determine the amount of a civil penalty, unlike with the Clean Water Act.
Further, defendants should argue that even based on the Court’s reasoning in Tull a defendant’s right to jury is broader than just a simple determination of whether the CEA was violated. In Tull, the Supreme Court recognized that a defendant is liable for a civil monetary penalty only if a jury finds he or she committed a violation of the statute. It follows that a defendant has a right to jury as to each fact constituting his or her liability for a civil penalty. The CEA § 13a-1(d)(1)(A) sets a dollar range of a civil penalty “for each violation;” therefore, a defendant has a right to a jury determination of how many violations he or she committed. Put another way, before a judge can impose a civil penalty on more than one violation of the CEA, a jury must determine that there was a second violation. Particularly in multi-defendant cases, each defendant has a right to a jury determination of the number of violations for which he or she is liable.[36] At nearly two hundred thousand dollars for each non-manipulation violation, and more than a million dollars for each manipulation violation, securing a jury determination of the number of violations by each defendant would significantly impact the total amount of the civil penalty that a judge might assess on any one defendant.
IV. CONCLUSION
Litigation of violations of the CEA in federal court instead of in an administrative proceeding has the advantage of giving defendants more of the due process rights guaranteed by the U.S. Constitution. The U.S. Supreme Court’s decisions holding that the Seventh Amendment does not preserve a right to a jury determination of the amount of a civil penalty for violating a federal statute should be overruled. The government should be held to accept all norms of civil procedure when it elects to proceed with enforcement of a federal statute in district court, including the determination of the amount of the civil penalty by a jury of private citizens. Defendants in CEA enforcement actions should make a jury demand not only as liability but also as to the amount of civil penalty because even under existing law there are arguments to support broadening a defendant’s right to jury for a civil monetary penalty.
[1] For example, in 2018, Commerzbank agreed to pay a $12 million civil monetary penalty for swap dealing violations and misleading statements. (https://cftc.gov/PressRoom/PressReleases/7837-18) The Bank of Nova Scotia agreed to a civil monetary penalty of $800,000 for spoofing in the precious metals market. (https://cftc.gov/PressRoom/PressReleases/7818-18) JPMorgan Chase Bank and BNP Paribas Securities Corporation settled separate actions for attempted manipulation and false reporting of U.S. Dollar ISDAFIX benchmark swap rates for civil monetary penalties of $65 million and $90 million, respectively. (https://cftc.gov/PressRoom/PressReleases/7742-18; https://cftc.gov/PressRoom/PressReleases/7776-18).
[2] The scope of this article does not include whether a respondent’s Seventh Amendment right to jury is abrogated when the CFTC elects to prosecute the defendant in an administrative forum. 7 U.S.C. § 13b. In Atlas Roofing Co. Inc. v. Occupational Safety & Health Review Comm’n, 430 U.S. 442 (1977), the Supreme Court held that Congress may create new “public rights” and provide for enforcement of those rights and imposition of civil monetary penalties in an administrative forum notwithstanding the Seventh Amendment. For a pre-Atlas Roofing history of the right to jury trial for imposition of administrative civil money penalties, see Note, Administrative Civil Money Penalties and the Right to Jury Trial, 33 Wash. & Lee L. Rev. 719 (1976). Notwithstanding current law and practice, Professor Duffy argues that historically there is precedent for jury review of administrative actions. John F. Duffy, Jury Review of Administrative Action, 22 Wm. & Mary Bill Rts. J. 281 (2013).
[3] See Curtis v. Loether, 415 U.S. 189, 193 (1974).
[4] P. Hamburger, The Administrative Threat at 33-34 (Encounter Books 2017).
[5] 33 U.S.C. § 1319(d).
[6] Tull, 481 U.S.at 417.
[7] Id. at 422.
[8] Id.
[9] Id. at 425.
[10] Id. at 426.
[11] Id. at 427-428.
[12] 17 U.S.C. § 504(c)(1).
[13] Feltner, 523 U.S. at 345.
[14] Id. at 344.
[15] Id. at 348.
[16] Id. at 352-53.
[17] Id. at 354.
[18] Id.
[19] Id. at 355.
[20] Id.
[21] Section 13a-1(d)(3)(A)-(B) was added to the CEA by Dodd-Frank in order to expand the CFTC’s equitable powers to make victims whole. Dodd-Frank, Pub. L. No. 111-203, § 744, 124 Stat. 1376, 1735.
[22] In re MF Global Holdings Ltd., No. 11-1509 (MG), Limited Opp. of the CFTC to the Amended Thirteenth Omnibus Objection of Plan Proponents Seeking to Reclassify Certain Claims, Docket No. 1395 at 4 (May 8, 2013).
[23] In re Auriflex Commodities Research Co., No. 06-CV-166, 2006 WL 3500620, at *1 (W.D. Mich. Dec. 4, 2006).
[24] CFTC v. Capital Blu Management, LLC, No. 09-CV-508-Orl-28DAB, 2010 WL 4942720, at *1 (M.D. Fla. Nov. 29, 2010).
[25] Id.
[26] In CFTC v. McDonnell, 332 F. Supp. 3d 641, 657 (E.D.N.Y. 2018), the court “recognize[d] that there is arguably a right to a jury trial in administrative proceedings for civil and criminal penalties.” But the court found that the defendant had waived any such jury right under Seventh Amendment by participating in a bench trial after it was clear that the CFTC was seeking all remedies allowed under the CEA.
[27] Tull, 481 U.S. at 428 (Scalia, J., concurring in part).
[28] Feltner, 523 U.S. at 355.
[29] See Feltner, 523 U.S. at 354.
[30] Id.at 354.
[31] Tull, 481 U.S. at 426.
[32] 1974 U.S.C.C.A.N. 5843, 1974 WL 11581 (Leg. Hist.). The Senate Report, No. 93-1131 (Aug. 29, 1974), comments on the addition of a new paragraph 13a-1(d) and certain procedures if the CFTC proceeds administratively, but there is nothing in the Senate Report with respect to procedural aspects of proceedings in the district court.
[33] 434 U.S. 575 (1978), holding that the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 626(b), could fairly be read to afford the right to jury trial on claims for back pay when it states “the court [may] … grant such legal or equitable relief as may be appropriate ….” (Emphasis added.)
[34] See Feltner, 523 U.S. at 355-356 (Scalia, J., concurring).
[35] CFTC v. Lake Shore Asset Management Ltd., 496 F.3d 769, 772 (7th Cir. 2007).
[36] This argument has been made with respect to civil penalties for violations of the securities laws:
A defendant is liable for a penalty only if he is found by a jury to have committed a violation. And a defendant is liable for a second penalty only if he is found to have committed a second violation. Thus, the jury must determine the number of violations each defendant committed before a judge may impose a penalty beyond the statutory penalty amount for a single violation. It would be incredible to suggest that, once the jury finds that a single violation occurred, the judge is allowed to decide on her own how many violations a defendant committed for purposes of deciding how many penalties to impose. T. Martens, J. Moyer, and D. Woodman, “The Scope of SEC Defendants’ Jury Trial Right: Part 2,” Law360 (Jul. 11, 2016) (https://www.law360.com/articles/815542/the-scope-of-sec-defendants-jury-trial-right-part-2).
