The U.S. Supreme Court’s June 2024 decision in SEC v. Jarkesy continues to generate follow-on litigation, as regulated entities increasingly challenge the constitutionality of administrative enforcement proceedings. As D&O Diary readers will recall, Jarkesy held that when the SEC seeks civil penalties for securities fraud, claims the Court characterized as “legal in nature,” defendants are entitled to a jury trial under the Seventh Amendment. That ruling is now fueling a growing wave of challenges to state administrative regimes, including a pending appeal in Delaware and a closely watched case before the Arizona Supreme Court.

These emerging cases raise the question of whether state regulators, like their federal counterparts, can continue to pursue monetary penalties through in-house proceedings, or whether such claims must instead be brought in courts of law before juries. The following discusses the cases pending before the Delaware and Arizona Supreme Courts and D&O implications.

Delaware

On April 22, 2026, the Delaware Supreme Court heard oral argument in Swan Energy, Inc. v. Investor Protection Unit, which squarely presented the question of whether Jarkesy’s reasoning applies to state-level administrative enforcement actions.

In that case, originally filed on December 1, 2023, Swan Energy and its executives (collectively “Swan”), filed suit in Delaware Chancery Court seeking declaratory and injunctive relief against the Delaware Department of Justice’s Investor Protection Unit (IPU). The underlying administrative action, commenced in 2020, alleges that the company engaged in securities fraud and sold unregistered securities, and seeks civil penalties that could reach approximately $710,000.

The presiding officer in the IPU administrative case issued an order directing Swan to raise its jury trial argument in state court. Swan initially sought an injunction in the Delaware Chancery Court, after the parties agreed to stay the administrative proceeding, mooting the injunction request, the case was transferred to the Delaware Superior Court, which denied Swan Energy’s request for a jury trial.

On appeal, Swan challenges the proceeding on constitutional grounds, arguing that the IPU’s in-house adjudication, where the agency both prosecutes the action and adjudicates it, violates its rights to a jury trial and due process. Swan’s appeal relies heavily on Jarkesy, arguing that securities fraud claims seeking monetary penalties are analogous to common-law fraud and therefore must be tried before a jury. The brief emphasizes that the IPU is seeking fines and other monetary relief, remedies historically associated with actions at law and contends these claims fall squarely within the scope of the constitutional jury trial right.

The state, in its response, argues that Jarkesy is not controlling. Its answering brief emphasizes that Delaware’s constitutional framework differs from the federal Seventh Amendment analysis and instead turns on whether a cause of action existed at common law. The state further contends that securities enforcement actions are modern statutory creations, not direct analogs to common-law claims, and therefore do not trigger a jury trial right under the Delaware Constitution.

Arizona

A related challenge is pending before the Arizona Supreme Court, where litigants are pressing similar arguments grounded in state constitutional law.

The case raises the question of whether the Arizona Corporation Commission may impose civil penalties through internal administrative proceedings without affording defendants a jury trial. The challengers argue that the Arizona Constitution’s protection of the right to a jury trial, described as “inviolate,” is at least as strong as the Seventh Amendment right at issue in Jarkesy. Relying on the U.S. Supreme Court’s reasoning, they contend that when the government seeks monetary penalties for conduct analogous to common-law claims, those claims must be adjudicated in a court of law before a jury.

The Arizona Corporation Commission argues that its constitutionally established role permits specialized, non-jury adjudication, and that its enforcement actions are part of a broader regulatory framework rather than traditional common-law litigation.

D&O Implications and Discussion

The Swan appeal and Arizona Supreme Court proceeding underscore how Jarkesy may extend beyond the SEC and potentially reshape the procedural framework for a wide range of enforcement actions.

The Supreme Court in Jarkesy reaffirmed that administrative agencies may adjudicate matters involving “public rights,” even where monetary penalties are involved, on the theory that such matters arise within a regulatory scheme between the government and regulated entities. Where the government seeks punitive monetary relief for conduct closely analogous to common-law fraud, the Court signaled that such actions are “legal in nature” and therefore fall within the traditional domain of Article III courts and juries.

Even so, state regulators may continue to argue that their enforcement actions fall within the permissible scope of administrative authority, particularly where the governing statutory framework is comprehensive and specialized. The Arizona case illustrates this tension, as the state’s Corporation Commission contends that its constitutionally grounded authority permits in-house adjudication notwithstanding the jury trial concerns raised by challengers.

For D&O underwriters and claims professionals, the potential shift away from administrative forums toward judicial proceedings could have meaningful consequences. Administrative enforcement actions are often more streamlined and predictable, with limited discovery and specialized adjudicators. If those actions are instead brought in court, the result could be longer timelines, broader discovery, and increased defense costs. From a D&O coverage perspective, this may accelerate the erosion of policy limits, particularly in complex, multi-forum disputes.

The shift to judicial forums may introduce additional exposure. Jury trials inherently carry greater unpredictability than administrative proceedings, particularly in cases involving allegations of fraud or investor harm. The availability of a jury may also influence settlement dynamics, potentially increasing settlement values in cases where reputational considerations or litigation risk loom large. These factors, in turn, could affect how insurers assess severity risk in underwriting and reserving.

Another consideration is the increased likelihood of parallel proceedings. As illustrated by Swan, defendants may pursue constitutional challenges in court while simultaneously defending against underlying administrative actions. This dual-track approach can create significant inefficiencies and costs, as well as complex questions regarding coverage allocation, timing of notice, and the coordination of defense strategies. In some instances, insureds may face overlapping investigations, enforcement actions, and constitutional litigation arising out of the same core set of facts.

In addition, procedural shifts following Jarkesy may have implications for the types of claims that trigger D&O coverage in the first instance. To the extent enforcement actions are recharacterized or refiled as civil actions in court, questions may arise as to whether those proceedings more clearly fall within policy definitions of a “Claim,” particularly where policies distinguish between administrative proceedings and civil litigation.

In sum, the post-Jarkesy environment introduces increased uncertainty into the enforcement landscape. While defendants may benefit from enhanced procedural protections, those protections may come at the cost of more complex and protracted litigation. For D&O insurers and policyholders, the key will be to monitor how courts, including state high courts, resolve these issues and adjust risk assessments accordingly.