Notice & Comment

The Appearance of Impartiality in Lucia v. SEC , by Kent Barnett

In a narrow decision, the Supreme Court held in Lucia v. SEC that the Securities and Exchange Commission’s administrative law judges are “officers of the United States.” Because they are officers, the Constitution’s Appointments Clause required the Commissioners themselves, not others within the agency, to appoint the ALJs.

Upon resolving the appointments question, Lucia teed up all-but-certain challenges over ALJs’ multi-tiered protection from at-will removal. An earlier decision, Free Enterprise Fund v. PCAOB, held that tiered protections from the President’s at-will removal for certain policymaking inferior officers unconstitutionally impinged his supervisory authority over the Executive Branch. The Free Enterprise Fund Court, however, expressly reserved the question of whether ALJs could have similarly tiered protections. The forthcoming challenges will require courts to decide if presidential accountability prohibits ALJs’ tiered protections (one that protects the SEC and another that protects the ALJs’ themselves), or if accountability must accommodate adjudicatory impartiality. A decision that the protections are unconstitutional could permit agencies to remove ALJs—many of whom preside over cases in which the agency is a party—at will or essentially so. Which outcome will it be?

The Court’s surprising remedy in Lucia may provide a clue.

As I’ve documented elsewhere, the Court nearly always waxes eloquently with soaring rhetoric about the significance of structural constitutional provisions, such as the Appointments Clause, but then provides minimal remedies. After other successful challenges, the Court has severed offending provisions and returned parties to the agency, granted the agency de facto prospective powers, and bestowed de facto validity on past actions.

The Lucia Court’s remedy, in contrast, was novel in its relative robustness. In light of the challenger’s timely and consistent appointments challenge, the Court remanded the case for a new hearing, as it had done in Ryder v. United States in 1995. But the Court “add[ed] . . . one more thing.” The SEC ALJ who heard the initial matter could not preside over the hearing on remand. Because that ALJ had heard the case and issued an initial decision on the merits, he could not “be expected to consider the matter as though he had not adjudicated it before.” The Court explained in a footnote that it required a new adjudicator at the hearing (whether another properly appointed ALJ or the SEC itself) to incentivize appointments challenges. The initial adjudicator would likely reaffirm his initial decision because he would have no reason, based on an appointments challenge, to think that his merits rulings were wrong. This more muscular remedy helps the Court’s remedies match its rhetoric.

Nevertheless, as Aaron Nielson has queried, what was the basis of the Court’s remedy? The Court did not say. Here are some tentative thoughts.

I am skeptical that the Court was relying on its supervisory or common law powers. The Administrative Procedure Act requires courts to “hold unlawful and set aside agency action . . . found to be . . . contrary to constitutional right, power, privilege, or immunity.” Under the Vermont Yankee doctrine, courts cannot require agencies to provide more procedure than a relevant statute requires on remand. The Lucia Court cited no statutory requirement for a new adjudicator (despite Justice Breyer’s argument that the appointment violated statutory law), and thus the Court does not appear to have had a statutory basis for using its supervisory power over agencies.

Administrative common law, despite the difficulty in defining it, does not seem like a good candidate either. Administrative common law tends to arise from doctrines that existed before the APA (such as the Skidmore doctrine) or that indirectly ground themselves in the APA’s text (such as Chevron deference or “hard look” review). The Court’s new remedy did not predate the APA; the Court had not required it as late as 1995 in Ryder. It’s also not obvious what the APA hook would be. But that said, I can’t completely rule out that the Court was relying, as it has a wont to do (as Gillian Metzger has discussed), on some nebulous form of federal administrative common law.

Vermont Yankee, however, does provide an exception that permits additional process when the Constitution requires it.

Maybe the Appointments Clause requires the remedy, in the Court’s words, to incentivize challenges. If prevailing parties received only rubber-stamped hearings on remand, they would stop bringing the Appointments Clause challenges. The Court’s remedy may do more than incentivize challenges. Although the Court did not embrace a deterrence rationale, its remedy in Lucia should deter agencies from overlooking the Appointments Clause’s requirements because the SEC now has to redo earlier proceedings and reassign perhaps numerous other pending cases. The presence of a new adjudicator, too, limits the “taint” of the earlier hearing that the improper appointment infected. By furthering these remedial values (preventing future harm from the defective appointment, incentivizing regulated parties to seek redress, and deterring structural violations), the Appointments Clause could be a suitable place to anchor the Court’s remedy.

There is another possible constitutional hook—the Due Process Clause, the constitutional provision that the Court expressly mentioned in Vermont Yankee as permitting judicially imposed process. Due process requires an impartial adjudicator in agency hearings. Although actual bias is prohibited, it rarely comes up because of the difficulty in establishing an adjudicator’s subjective motivation. Instead, impartiality usually focuses on risks of bias.

The Court’s remedial discussion in Lucia fits well with impartiality jurisprudence. No evidence indicated that the original ALJ harbored actual bias against the challenging party. So why remand to a new adjudicator? The answer sounds in risk of bias: the initial ALJ could not “be expected to consider the matter as though he had not adjudicated it before.” Notably, the Court suggested that it might not send a case back for a new adjudicator when no one else could review the claim (because, say, no other ALJs or no other possible agency members could hear it); necessity would require the original adjudicator to rehear the claim. This necessity exception is, as it turns out, one that due process has long applied to impartiality challenges.

The Court’s remedy may not be only a muscular vindication of Article II’s Appointment Clause. It may also be a meaningful way of presaging that due process’s impartiality values also have a significant place in fashioning agency adjudicators. In past cases, the Court has dealt with risk of bias by looking at matters that are relevant to agency adjudicators: a party’s participation in appointing adjudicators, relationships, and monetary incentives. Congress has addressed these same matters in protecting ALJs in the APA.

An impartiality rationale for the remand remedy is not without its problems. If remanding to an initial decision maker is problematic, then does remand to a trial judge reversed on appeal violate the same principle? Necessity would rarely appear to provide an exception. Moreover, the Court had a host of decisions that it could have cited in support, such as Caperton v. A.T. Massey Coal Co., or Schweiker v. McClure, but did not.

Regardless, intentionally or not, Lucia let impartiality make a cameo appearance. It may also have provided an invitation for impartiality’s return in a leading role.

Kent Barnett is an Associate Professor at the University of Georgia School of Law.

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