Circuit Split Resolved – SEC ALJs Are "Officers of the United States"

3 min

In a long-awaited decision in Raymond J. Lucia v. SEC, the U.S. Supreme Court addressed the question of whether the SEC's administrative law judges (ALJs) are "Officers of the United States" and thus subject to the Appointments Clause. Holding that SEC ALJs are indeed such "officers," the Court resolved a circuit split that had been ripe for Supreme Court review. Most notable, however, was the narrow approach the Court adopted and the numerous questions it left unanswered.

Justice Kagan, writing for the majority and joined by the Court's five conservative justices, relied on precedent, rather than undertaking an analysis of the various definitions of the term "officer" or finding the need to further refine the "significant authority" test set out in Buckley v. Valeo. Specifically, the Court looked only to its 1991 holding in Freytag v. Commissioner, in which it held that the U.S. Tax Court's special trial judges (STJs) are "officers, not mere employees." The Court applied the Freytag framework and concluded that SEC ALJs must also be "officers" because, like STJs, the ALJs (1) "hold a continuing office established by law"; (2) exercise "significant discretion" when carrying out "important functions"; and (3) "have equivalent duties and powers as STJs in conducting adversarial inquiries," including the responsibility of "issuing decisions." As such, SEC ALJs must be appointed by "the President, a court of law, or a head of department." Siding with Mr. Lucia, the Court reversed the D.C. Circuit and remanded for a new hearing; however, this time it would need to be before a new ALJ – one with a constitutionally valid appointment – or to the SEC itself.

As discussed in prior articles, the case had been closely watched not only for how it would impact SEC administrative proceedings, but because of broader implications of constitutionality and fairness that would likely bear on the future of the administrative forums, including, most notably, the CFPB's administrative forum. Indeed, it seems likely that the Bureau will pay careful attention to this decision in its future decisions regarding the appointment of ALJs in its administrative forum.

The Supreme Court, it would seem, made a concerted effort to sidestep these broader questions. Notably, despite the Solicitor General's urging, the Supreme Court explicitly declined to address a second question as to "whether the statutory restrictions on removing the Commission's ALJs are constitutional." The Court left open the possibility of addressing such questions in the future, but only after the lower courts have adequately addressed them. Until that uncertain date arrives, administrative agencies and the reviewing courts will be forced to grapple with questions of how to cure and the legitimacy of prior decisions handed down by unconstitutionally appointed ALJs.

Indeed, shortly after the Lucia decision was announced, the SEC ordered the stay of all pending administrative proceedings before an ALJ, "including any such proceeding currently pending before the Commission." The impact of the June 21 Supreme Court decision is already being felt, even if the broader implications are still being untangled.