Notice & Comment

New Government Position on the SEC’s ALJs: They Are Article II “Officers”

This afternoon the Government filed its long-awaited brief in Lucia v. SEC. (Well, at least long-awaited by those of us who geek out on the Appointments Clause.)

As readers of this blog likely will remember, over the past 16 months a circuit split developed, disappeared, and then reappeared as the Tenth Circuit and D.C. Circuit considered whether administrative law judges (ALJs) in the Securities and Exchange Commission are “Officers of the United States” subject to Article II Appointments Clause requirements. A panel of the D.C. Circuit had applied circuit precedent, concluding in August 2016 that the ALJs are not “officers” because they do not reach final decisions on behalf of the SEC. The Tenth Circuit disagreed in December 2016. In February 2017 the D.C. Circuit vacated its panel opinion, agreeing to an en banc rehearing of the Lucia case. In June 2017, the D.C. Circuit reached a split 5-5 decision (Judge Garland did not participate) on whether the ALJs are “officers,” issuing a judgment that reaffirmed the earlier panel determination.

Throughout the twist and turns of the lower-court litigation the SEC argued the ALJs are mere employees. In fact, the SEC declined to take the less confrontational path taken by at least one other agency, the FTC—whose commissioners ratified the agency’s earlier selection of judges in case courts eventually concluded that ALJs are “officers.”

If the Court agrees with the Government and Mr. Lucia that the SEC ALJs are “officers,” the appointments fix—at least moving forward—is relatively straightforward. Article II permits inferior officers* to be appointed by the President with Senate advice and consent, the President alone, “Heads of Departments,” or “Courts of Law.” The Securities and Exchange Commissioners apparently constitute a department head under Supreme Court precedent. And the Commissioners already have statutory authority to appoint their ALJs. They just have delegated that task to the SEC’s Chief ALJ. To comply with the Appointments Clause moving forward, the Commissioners simply would have to utilize their pre-existing statutory authority and approve the selection of their ALJs. There are still complicated questions about what would happen to all of the pending cases that would have been heard by unconstitutionally appointed actors if the Court rules for Mr. Lucia. But the prospective Appointments Clause fix is clear.

That said, one of the issues lurking in the background is what to do about the current removal protections for ALJs. As longtime Appointments Clause scholar Kent Barnett has pointed out, ALJs are subject to at least two or three layers of removal protections. At an independent agency like the SEC, (i) the Commissioners are apparently subject to for-cause removal protection, (ii) the ALJs can be removed just for cause, and (iii) the for-cause protected members of the Merit Systems Protection Board must approve any firing of an ALJ. Under the Supreme Court’s holding in Free Enterprise Fund v. PCAOB, any more than one layer of tenure protections unconstitutionally interferes with the President’s executive power. If that rule applies to ALJs, some of their removal protections would have to go.

There may be ways for the Supreme Court to work around the Free Enterprise Fund precedent and find it does not apply to ALJs. (In fact, footnote 10 in that opinion suggested that executive adjudicators might be subject to different rules.)

But in one of the most fascinating portions of the Government’s filing today, the Government contends that the Court should go ahead and hold the ALJs’ tenure protections are unconstitutional—as well as their appointments. On page 20 of its brief, the Government argues: “[u]nder Free Enterprise Fund and other decisions, the status of the Commission’s ALJs as constitutional “Officers” . . . has implications for whether the statutory restrictions on their removal are consistent with separation-of-powers principles.”

Even though Mr. Lucia has not directly challenged the tenure protections for the SEC’s ALJs, the Government notes that a litigant in another pending D.C. Circuit case has brought such a challenge. Therefore, the Government contends, even if properly appointed ALJs hear SEC cases, “the removal question would continue to cloud the ALJ[s’] authority.”  Addressing the removal issue now “will avoid needlessly prolonging the period of uncertainty and turmoil caused by litigation of these issues.”

As Professor Barnett has observed, executive appointment and removal of ALJs may raise questions about the impartiality and independence many assume that ALJs must have in imposing civil fines and other penalties on private citizens. Consequently, Professor Barnett suggests the best answer might be for the Court to assign ALJ appointments to an Article III court.

But that approach likely would unconstitutionally interfere with the President’s executive power. If executive appointment and removal of ALJs seems inappropriate, perhaps it’s time to think more broadly about whether the Court has struck the proper line with the cases it classifies as public rights issues permissible for executive adjudication versus private rights deprivations suitable only for Article III consideration.


* Prof. Steven Calabresi has recently argued that the ALJs are principal officers rather than inferior officers because ALJs lack meaningfully supervision within the executive branch.  If he is correct, ALJs would have to be appointed by the President with Senate advice and consent.  This position has not been taken by any of the parties in the SEC litigation, however.

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