A win against bureaucratic encroachment

In NH Securities Bureau enforcement case, judge reaffirms right to a jury trial

Writing in the early 20th century, Franz Kafka, in “The Trial,” imagines that a bank clerk wakes up one morning to the pounding of bureaucrats at his door. Three men enter his small room, arrest him, tell him he has been charged with a crime, don’t tell him what the crime is, and then try him before a fellow bureaucrat in an adjoining apartment.

When they leave, they tell him to await further instructions and nothing more. The protagonist spends the rest of his nightmare-marred, short life, searching for ways to understand how this all had come to pass and what, if anything, he could do to save himself.

Not so in the courtroom of Hon. Richard McNamara, the long-standing presiding justice of the NH Business and Commercial Review Docket within our Superior Court. In a sweeping decision issued Dec. 19, 2017, Judge McNamara granted an investment advisor’s petition for an injunction against the NH Bureau of Securities Regulations, invalidating the bureau’s administrative enforcement scheme on constitutional grounds.

The judge refused to allow the bureau to continue serve as the judge, jury and executioner against an individual facing an enforcement action before it.

Heart of the case

The case, Ridlon v. State of New Hampshire, Bureau of Securities Regulation, is available on the judicial branch’s website, courts.state.nh.us.

There you will read that the bureau alleged that a registered investment advisor defrauded many of his clients of millions of dollars. The bureau sought to prosecute the advisor in an administrative proceeding prosecuted by, and presided over by, the same bureau. The very same administrative proceeding sought fines, restitution and disgorgement totaling close to $7 million.

As of 2009, our laws permitted no avenue by which the judiciary could take a fresh view of the outcome of such a case. The investment advisor would not stand for this type of process and filed a lawsuit seeking a halt to it, arguing that he had a right to a jury trial under the state constitution.

At the heart of this case is a question regarding just how far, in the name of public welfare, we will allow our principles to drift from the core separation of powers values we claim secure our liberties as a free people toward Kafka’s nightmare. Judge McNamara’s answer is: not a wink.

Wide implications

Where the government seeks to fine a private individual or business in the securities field, he ruled, it must do so in a different branch of government and before a constitutionally recognized arm of that government: the civil jury.

His decision is self-consciously rooted in the history of the jury trial right, calling on observations about our judicial system by historians who studied its architects.

The decision has wide implications for the entire field of administrative enforcement. From regulation of public health and the environment, to consumer protection matters and tax enforcement, individuals and businesses now may point to this well-reasoned court order as a means of protecting themselves from the arbitrary exercise of executive authority.

They may now use this order to demand a transparent airing of disputes with the executive branch before a separate branch of the government on an equal playing field, where the overriding governing norm of the decision-maker is neutrality and rational, fact-based, decision-making.

The decision will almost certainly face review by the NH Supreme Court, a tribunal which has given short shrift to the liberty interests of private actors facing enforcement action by the state in the recent past. (See State v. Actavis Pharma Inc., July 2017.)

It is nevertheless a victory for the separation of powers in the short-term and should serve as reminder to businesses and individuals of the great value and integrity of our courts.

Michael S. Lewis is an attorney at Concord-based Rath, Young and Pignatelli.

Categories: Opinion