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Supreme Court Holds SEC ALJs Must Be Appointed by Agency Heads

Author: Arthur G. Sapper (Washington DC)

Published Date: June 21, 2018

On June 21, 2018, the Supreme Court of the United States held in Lucia v. Securities and Exchange Commission that the former practice of the Securities and Exchange Commission (SEC) of having its staff employees appoint administrative law judges (ALJs) violated the Appointments Clause of the U.S. Constitution.

The Constitution’s Appointments Clause requires that an “inferior Officer” be appointed by the president or, if permitted by statute, by the “Head” of a department. (The complete text of the clause is set out below.)

The Court held that, because the SEC ALJs held “continuing and permanent positions” and “exercise[ed] significant authority pursuant to the laws of the United States,” they were “officers” rather than mere employees. The Court pointed to the authority of the judges of the Tax Court, whom it held in a previous case (Freytag v. Commissioner, 501 U. S. 868 (1991)) were “officers.” It found that the duties and powers of the SEC ALJs were “point for point . . . equivalent,” if not greater.

The Court therefore remanded for a new hearing before a properly appointed ALJ. It also held that the ALJ who had previously presided and ruled against Lucia may not be assigned to preside over the case again, even though the SEC heads had, in the interim, apparently ratified his appointment. “He cannot be expected to consider the matter as though he had not adjudicated it before.”

Ramifications for Other Agencies?

As this writer observed in a previous blog post on this case, the Court’s decision is not likely to help employers challenge judges assigned to hear cases involving citations issued by the Occupational Safety and Health Administration (OSHA) or Mine Safety and Health Administration (MSHA). The key fact in Lucia v. SEC was that SEC staff members, not a “Head” of the SEC, appointed the SEC ALJs.  By contrast, ALJs of the independent Occupational Safety and Health Review Commission (OSHRC) are appointed by the OSHRC’s chairman, who is a “Head” and thus satisfies the requirement of the Appointments Clause.

Similarly, ALJs of the independent Federal Mine Safety and Health Review Commission (FMSHRC) are collectively appointed by what the Supreme Court has held is an agency head—the “Commission” (rather than the chairman alone) acting collectively.  In that case, Free Enter. Fund v. Public Company Account. Oversight Board, 561 U.S. 477, 512-13 (2010), the Supreme Court also held that free-standing agencies such as the SEC (and presumably the OSHRC, the FMSHRC and the National Labor Relations Board) constitute a “Department” within the meaning of the Appointments Clause.

Ramifications for the Future?

The Court declined a request by the government to decide a related question—whether the statutory restrictions on removal of SEC ALJs are constitutional. The Administrative Procedure Act appears to impose two levels of protection on their removal: It (1) restricts removal to “good cause” found by the independent Merit Systems Protection Board, the members of which may be removed by the president (2) only for “inefficiency, neglect of duty, or malfeasance in office.”  The Court in the Free Enterprise Fund case cited above, held that such a double layer of protection was an unconstitutional restriction on the president’s removal power of “officers” who comprised the Public Company Accounting Oversight Board.

The question therefore might arise whether such double protections for SEC ALJs are unconstitutional restrictions on their removal by agency heads. If so, then allowing SEC ALJs to be more freely removed might undermine the very independence that helps ensure their impartiality. The ramifications of this question are discussed by Justice Breyer in his separate opinion, one that will be well worth reading if and when the question should arise.

Here is the text of the Appointments Clause (U.S. Const. art. II, § 2, cl. 2):

[The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

Arthur G. Sapper  (Washington DC)

Arthur G. Sapper
Arthur G. Sapper is Senior Counsel in the Washington, D.C. office of Ogletree Deakins, where he practices both appellate litigation and administrative law. Art’s practice includes all areas of occupational safety and health (OSHA) law and mine safety and health (MSHA) law, including inspections, discrimination investigations, litigation, rulemaking, counseling and lobbying.Art litigates regularly before the federal appellate courts, the Occupational Safety and Health Review Commission, the...

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