Notice & Comment

The Consequences of Missing Appointments, by Kent Barnett

If the Supreme Court decides in Lucia v. SEC that the SEC’s administrative law judges are officers, what are the implications on other cases at the SEC (or similarly situated agencies)?

The effect will likely differ depending on whether other cases have become final or are still pending before the agency or a court. Here, I consider the most likely arguments. (For an excellent discussion of many of these issues, see this 2015 article from Bloomberg BNA by attorneys at Post & Schell PC.)

Cases That Have Become Final

Cases that have become final and no longer eligible for judicial review will likely be res judicata, notwithstanding any Appointments Clause violation. Courts treat cases with structural defects as res judicata once they become final. For instance, cases that have become final are res judicata and not subject to collateral challenges even when a court that issued judgment lacked subject-matter or personal jurisdiction. See, e.g., Durfee v. Duke, 375 U.S. 106, 111–12 (1963). Like a judge without jurisdiction, an ALJ with an invalid appointment had no authority to act as he or she did. Collateral attacks based on formal defects are not likely to attract judicial sympathy.

Pending Cases

Lucia will, however, impact cases that are pending.

First, waiver probably does not prevent parties from asserting Appointment Clause claims even if they failed to present those claims earlier in the litigation. In two decisions concerning constitutional and statutory challenges to adjudicator appointments, the Supreme Court did not apply waiver to claims that the challenging party asserted initially in the Supreme Court. See Freytag v. C.I.R., 501 U.S. 868, 878–80 (1991) (concerning Appointments Clause challenge) Nguyen v. United States, 539 U.S. 69, 78 (2003) (concerning statutory challenge to territorial judge’s appointment to a Ninth Circuit panel). That said, three current justices (Justices Kennedy, Ginsburg, and Breyer) would have held that these parties waived their appointment-based challenges in one of these cases. Might two more current Justices agree with them?

The harmless-error doctrine will likely not preclude a remedy. The Supreme Court expressly left open the question of whether harmless error applied to Appointments Clause challenges. See Ryder v. United States, 515 U.S. 177, 186 (1995). But the D.C. Circuit has refused to apply the doctrine to appointment challenges to ALJs, and it noted that the Supreme Court held that in an earlier decision concerning statutory challenges to ALJ appointments that a “defect in [an ALJ’s] appointment was an irregularity which would invalidate a resulting order.” See Landry v. FDIC, 204 F.3d 1125, 1132 (D.C. Cir. 2000) (quoting United States v. L.A. Tucker Truck Lines, 344 U.S. 33, 69 (1952)). Similarly, the D.C. Circuit in a decision joined by then-Judge Ginsburg has refused to engage in counterfactuals as to who would be appointed or how the appointment affects proceedings. See Andrade v. Lauer, 729 F.2d 1475, 1495 (D.C. Cir. 1984). If courts did consider counterfactuals, the Appointments Clause (especially as to inferior officers) would be largely a dead letter, and the Supreme Court has gone out its way to treat the Clause with reverence, not as mere “etiquette or protocol.” See Buckley v. Valeo, 424 U.S. 1, 125 (1976) (per curiam).

Likewise, neither the de facto officer doctrine—which treats improperly appointed officials as properly appointed ones—or the ill-defined “de facto doctrine” (different from the de facto officer doctrine) would apply. Although applicable to otherwise successful statutory challenges, the de facto officer doctrine does not apply to constitutional challenges because its use would create a disincentive to assert Appointment Clause claims. See Ryder, 515 U.S. at 182–83. The related, but distinct, “de facto validity” doctrine, which the Court used to validate earlier action of improperly appointed Federal Election Commissioners in Buckley v. Valeo, would also likely not apply. The Ryder Court, when considering a challenge to an adjudicator’s invalid appointment, limited the doctrine in Buckley to election matters or challenges to the entire agency commission or board. See Ryder, 515 U.S. at 183–84.

All that said, the SEC’s ratification of ALJ appointments could significantly mitigate the effect of Lucia. Indeed, the SEC has already done so and directed the ALJs to reconsider open matters. If the parties have had their cases considered by a properly appointed inferior officer, it is difficult to discern any potential harm to the regulated parties (except the dignitary harms and litigation costs, which are almost never considered). Moreover, when the Secretary of Transportation reappointed certain coast-guard judges after improper initial appointments, the Court referred to the reappointments without suggesting that they did not cure the earlier defect. See Edmond v. United States, 520 U.S. 651, 654 (1997). Because of ratification’s significant effect on open matters, other agencies would be well-advised to follow the SEC’s lead. Indeed, the Department of Labor recently did so.

Lucia’s Hail Mary

As a final matter, one should note the boldness of Lucia’s requested remedy: to have the entire matter dismissed, largely as a punitive measure against the recalcitrant SEC Commissioners for failing to appoint ALJs themselves. As my adamant followers who have read all of my work (both of them) well know, I am delighted to see such a request because it forces the Court’s hand. Lucia’s requested significant remedy would match the Court’s repeated paens to the importance of structural rights. In other words, it requires the Court to put its remedy where its pen is. In my view, it would be better for the Court to be honest: either admit that it finds structural matters to be relatively inconsequential and provide a minor remedy, or hold to its soaring rhetoric about the importance of the separation of powers and provide a strong remedy. But, based on the Court’s nearly unbroken practice, the Court will wax eloquently about the centrality of the separation of powers while providing a minimal, mismatched remedy.

What does that mean for Lucia? Likely a remand to the SEC for a new hearing (perhaps even a truncated one before the same, now properly appointed ALJ). The Court is unlikely to dismiss the entire action because it doesn’t do so in other, perhaps more consequential litigation. For instance, a criminal defendant who was denied her right of self-representation does not get the indictment tossed; she gets a new trial in which she can represent herself. In Buckley v. Valeo, the Court held that every one of the Federal Election Committee’s six commissioners were appointed in a blatantly unconstitutional fashion. The FEC was the most blatantly unconstitutionally structured agency that Congress has ever created. But what was the Court’s remedy? To validate all of the FEC’s past actions and to give them 30 days to continue regulating. Lucia should not expect anything more.

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

This post is part of a symposium on Lucia v. SEC. All of the posts can be read here.

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