In Lucia v. SEC, (2018)1 the U.S. Supreme Court found that Securities and Exchange Commission (SEC) administrative law judges (ALJs) are inferior officers who are required by the Appointments Clause under Article II of U.S. Constitution to be appointed by either the president, the courts of law, or the heads of departments. For decades, federal ALJs had been selected by an agency from a register of qualified applicants who had significant legal experience and received a qualifying high score after a complex competitive examination process. Although the Court in Lucia did not question this qualification and examination process, within a month of the Lucia decision, the president issued an Executive Order that eliminated the competitive examination and the requirement that an applicant have at least seven years of legal experience before being considered for an ALJ position.2
As Lucia3 and similar cases move forward in the courts, the removal protections for ALJs are also being challenged. Pursuant to the federal Administrative Procedure Act (APA), ALJs may only be removed by an agency for “good cause” after a hearing on the record conducted by an ALJ under regulations promulgated by the Merit Systems Protection Board (MSPB). The “good cause” standard has been developed through case law, but it is not satisfied merely because an agency may disagree with an ALJ’s decision.
It is unclear what impact increased executive control will have on the independence of ALJs; however, a number of professional organizations, including the American Bar Association, have expressed concerns.
The executive branch of the U.S. government employs almost 2,000 ALJs who decide well over a million cases each year, five times as many as are decided by federal district courts. ALJs are fact finders for regulatory agencies, ensuring due process for those seeking benefits or defending against federal agency enforcement actions.
ALJs were originally called examiners or hearing examiners. Examiners existed as early as 1906, when the Interstate Commerce Act authorized the appointment of examiners to receive evidence. In 1914, Congress established the Federal Trade Commission and provided it the power to appoint examiners; other agency authorizations followed with similar provisions. Over time, concern developed about combining the powers of investigation, prosecution, and adjudication in the same agency and the fairness of administrative decision making. These examiners presided over hearings and received evidence before making a recommendation on the disposition of cases, but the examiners’ tenure, status, compensation, and promotions were dependent upon agency ratings. The Supreme Court in Ramspeck later explained: “Many complaints were voiced against the actions of hearing examiners, it being charged that they were mere tools of the agency concerned and subservient to the agency heads in making their proposed findings of fact and recommendations.”4
In 1941, a report of an Attorney General’s Commission to Study Administrative Procedure recommended that examiners be made partially independent from the agencies. In 1946, Congress expressly enacted the APA “to improve the administration of justice by prescribing fair administrative procedure.”5 Regarding adjudications, the APA requires notice and the opportunity to be heard by an independent adjudicator. Control of these adjudicators’ compensation, promotion, and tenure was vested in the Civil Service Commission to protect adjudicators’ independence from their employing agencies. The Civil Service Commission functions were later divided between other agencies, with the Office of Personnel Management (OPM) taking over hiring functions while the MSPB became responsible for questions of tenure and removal. The decisional independence of ALJs created by the APA continues to be supported through OPM’s implementing regulations, which provide that ALJs are not subject to evaluations by the agency and cannot receive bonuses or awards from an agency.6
The Supreme Court has stated that “administrative proceedings bear a remarkably strong resemblance to civil litigation in federal courts.”7 Once appointed, ALJs have statutory protections and independence from political pressure or influence by their employing agency. The APA provides that ALJs “shall make the recommended decision or initial decision required” and “may not (1) consult a person or party on a fact in issue, unless on notice and opportunity for all parties to participate, or (2) be responsible to or subject to the supervision or direction of an employee or agent engaged in the performance of investigative or prosecuting functions for an agency,” and an “employee or agent engaged in the performance of investigative or prosecuting functions for an agency in a case may not, in that or a factually related case, participate or advise in the decision, recommended decision, or agency review . . . except as witness or counsel in public proceedings.”8 These proscriptions, however, do not apply “to the agency or a member or members of the body comprising the agency.”9 Consequently, the head of an agency still establishes agency policy, while also overseeing investigations and enforcement actions.
OPM developed the competitive examination process that was used for decades after conducting an occupational analysis, which has been updated from time to time, to identify key competencies necessary to serve as an ALJ. The most recent examination tested for the following competencies: (1) decision making, (2) interpersonal skills, (3) judicial analysis, (4) judicial decisiveness, (5) judicial management, (6) judicial temperament, (7) litigation and courtroom competence, (8) oral communication, (9) problem solving, (10) professionalism, (11) reasoning, (12) self-management, and (13) writing.10 The most recent examination included an online component that had a timed situational judgment test, a timed writing sample, and an untimed experience assessment. The in-person components included a four-hour written examination, structured interview, and a logic-based measurement test. Based on the scores on the examination, OPM compiled a register of qualified applicants from which agencies selected ALJs. Agencies also could hire experienced ALJs who were employed by another agency and had previously been through the competitive examination process.
Lucia v. SEC
At the SEC, the chief ALJ selected and hired new ALJs (qualified through the OPM process), who were then appointed to their position by someone who was not the head of the department. This selection process led to the Lucia case challenge under the Appointments Clause. In Lucia v. SEC, the Court ultimately found these appointments failed to satisfy constitutional requirements. In reaching this conclusion, the Court found that the SEC has statutory authority to enforce securities laws. One way it may do so is by instituting an administrative proceeding against an alleged wrongdoer. By law, the Commission itself may preside over such a proceeding. However, the Commission typically delegates that task to an ALJ. An ALJ assigned to hear an SEC enforcement action has extensive powers—the authority to do all things necessary and appropriate to discharge his or her duties and ensure a fair and orderly adversarial proceeding. Those powers include, but are not limited to, supervising discovery; issuing, revoking, or modifying subpoenas; deciding motions; ruling on the admissibility of evidence; administering oaths; hearing and examining witnesses; generally regulating the course of the proceeding and the conduct of the parties and their counsel; and imposing sanctions for contemptuous conduct or violations of procedural requirements. The Court considered these duties to be comparable to that of a federal district court judge conducting a bench trial.11
After hearing oral argument in April 2018, and considering more than 20 amicus briefs, the Supreme Court held that ALJs appointed under the APA are “officers of the United States” and therefore subject to the requirements of the Appointments Clause of the U.S. Constitution.12 In reaching this ruling, the Court followed the analysis that was applied to special trial judges (STJs) of the U.S. Tax Court as decided by the Court in the early 1990s in Freytag v. Commissioner of Internal Revenue.13 Freytag held that the STJs of the U.S. Tax Court held a continuing office established by law and that they exercised significant discretion when carrying out important functions and therefore were inferior officers and, as a result, were “officers of the United States” subject to the Appointments Clause. The Court concluded that SEC ALJs “have equivalent duties and powers as STJs in conducting adversarial inquiries” and that “[b]oth sets of officials have all the authority needed to ensure fair and orderly adversarial hearings—indeed, nearly all the tools of federal trial judges.”14
The Federal Administrative Law Judges Conference (FALJC) was one of the many amici that submitted a brief for consideration by the Supreme Court in Lucia. FALJC is a voluntary professional association that represents and serves ALJs employed throughout the executive branch. FALJC membership includes ALJs from nearly every federal agency or department that appoints ALJs. A primary FALJC mission is to promote due process and impartiality in administrative procedure through maintenance of ALJ adjudicatory independence under the APA.
Aftermath of Lucia v. SEC
Impact on ALJs at Other Federal Agencies
While the Lucia decision only specifically addressed the appointment process for ALJs at the SEC, it seemingly applies to all federal agencies that employ ALJs. Following guidance from the Department of Justice, the SEC and other federal agencies have had the head of the Department reappoint sitting ALJs and ratify their previous appointments so that the appointment is made in compliance with the Appointments Clause.
Potential Impact on Thousands of Administrative Judges
Because the Lucia decision focused on the specific duties of the SEC ALJs, some commentators have argued that the decision may apply to the over 10,000 federal administrative judges (AJs), including those hearing immigration, veteran affairs, and patent cases.15 These AJs often have similar powers and authority to ALJs, but they were not hired through the competitive examination process and their judicial independence is not protected by the APA. Oftentimes, AJs are subject to performance appraisal by the agency they work with and other agency actions, the precise issues that caused concerns for the independence of “hearing examiners” in the early twentieth century.
Elimination of Minimum Qualifications and Competitive Examination
Within a month of the Lucia decision, the president issued Executive Order 13843. The Executive Order eliminated the competitive examination process previously managed by OPM, retained current ALJs in the competitive service, and directed that future ALJ appointments be to the excepted service.16 The Executive Order contains only one qualification for an applicant to an ALJ position: a valid license to practice law. While the Executive Order states this was necessary to address the concerns raised by the Supreme Court in Lucia, elimination of the minimum qualifications and competitive examination process was not mandated by or discussed in Lucia.
In light of the power and authority of ALJs, it is critically important to ensure applicants for the ALJ position possess the appropriate qualifications in order to ensure due process in proceedings before administrative agencies. Given the lack of any such qualifications articulated in the Executive Order, some agencies that employ ALJs have established their own minimum qualifications for new ALJ appointments, although these requirements can be changed at will by agencies.
Challenges to ALJ Removal Protections
Pursuant to the APA, federal ALJs can only be removed after a finding of “good cause.” There are multiple ways that ALJ removal protections may be diminished. First, there is a direct constitutional attack. In finding the appointment of SEC ALJs unconstitutional, the Supreme Court remanded the case back to the SEC for further action. In remanding, the Court explained that the SEC could continue with its proceedings, but not with the same ALJ. After the SEC ratified and reappointed their ALJs, the SEC subsequently continued its enforcement action against Petitioner Lucia and has assigned the matter to a different SEC ALJ. In December 2018, Petitioner Lucia filed a lawsuit in the Southern District of California seeking an injunction and contending that proceedings before an SEC ALJ are still unconstitutional based on the argument that the multiple layers of tenure protection for ALJs at the SEC (and MSPB) violate the requirements of Article II of the U.S. Constitution.17
In his Lucia opinion, concurring in part and dissenting in part, Justice Stephen Breyer discussed this issue of two-level for-cause removal protections. This issue was raised in Free Enterprise Fund v. Public Company Accounting Oversight Board,18 where the Court was concerned with a system where the members of the Board could only be removed upon an order of the SEC. Some commentators argue that the protections at issue in Free Enterprise Fund are distinguishable from the protections that the APA provides for ALJs. There is a substantial list of cases regarding removal of ALJs for disciplinary matters, for absence for extended periods, for declining to set hearing dates, or for having a high rate of significant adjudicatory errors.19 Moreover, the concerns articulated in Free Enterprise Fund are not generally applicable to APA litigation before ALJs. ALJ initial decisions are not final agency action unless the head of the agency leaves the decision in place or the matter is not appealed.20 It is not unreasonable to require a “good cause” standard for removal of inferior officers.21
Second, there is an effort to redefine “good cause” to allow for “removal of an ALJ who fails to perform adequately or to follow agency policies, procedures, or instructions.”22 This would allow much greater control by the executive branch and agency heads. Eliminating or weakening the “good cause” protections for ALJs would have the effect of transforming them into at-will employees, diminishing their independence in direct contradiction to the language and intent of the APA.23 The heads of the departments and agencies are principal officers and are directly responsible to the president. Because those principal officers may reverse ALJ decisions and are accountable to the president, ALJ removal protections do not violate the Appointments Clause.
While the petitioner in Lucia has initiated a new action seeking an injunction against the SEC, it may take a considerable amount of time for the issue of removal protections to be addressed in the federal court system. However, the issue presents a serious question of what will remain of the judicial independence protections of the APA if ALJs are both appointed by and removable at will by the agency head. Failure to retain the “good cause” removal protection of the APA could result in a return to the previous characterization of hearing examiners as “mere tools” of the agency.
Congress enacted the APA to provide a measure of independence for the finders of fact in matters before an agency for the benefit of the public seeking fair due process. Because the head of the agency as a principal officer is subject to direct responsibility to the president for policy matters and decisions, the “good cause” protections, which the APA provides to ensure that ALJs are independent fact finders, should be maintained.
The authors appreciate the input provided by FALJC members Judge Richard Goodwin, Judge Thomas McCarthy, Judge James Gilbert, and Judge Doug Rawald.
The analysis and discussion presented in this article are solely the position of the authors in their private capacity and members of FALJC.
1. 138 S. Ct. 2044 (2018).
2. Exec. Order 13843, issued July 10, 2018, 83 Fed. Reg. 32755 (July 13, 2018).
3. After holding the Appointments Clause applied to ALJs, the U.S. Supreme Court reversed the decision of the Court of Appeals and remanded the case for further proceedings consistent with its opinion. 138 S. Ct. at 2056.
4. Ramspeck v. Fed. Trial Examiners Conference, 345 U.S. 128, 131 (1953) (emphasis added).
5. Administrative Procedure Act, Pub. L. No. 79-404, 60 Stat. 237 (1946). The APA is codified at 5 U.S.C. §§ 551–59.
6. See 5 C.F.R. § 930.206.
7. Fed. Mar. Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 757 (2002); see also Butz v. Economou, 438 U.S. 478 (1978).
8. 5 U.S.C. § 554(d).
9. Id. § 554(d)(2)(C).
10. Erin Wirth, Becoming a United States Administrative Law Judge, in Careers in Administrative Law and Regulatory Practice (James T. O’Reilly ed., 2017).
11. Lucia v. SEC, 138 S. Ct. 2044 (2018); see also Butz v. Economou, 438 U.S. 478, 513 (1978).
12. The Appointments Clause provides:
[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. U.S. Const. art. II, § 2, cl. 2.
13. 501 U.S. 868 (1991).
14. Lucia, 138 S. Ct. at 2053.
15. Kent Barnett et al., Admin. Conference of the U.S., Non-ALJ Adjudicators in Federal Agencies: Status, Selection, Oversight, and Removal 17, 60–62 (2018).
16. Exec. Order 13843, Excepting Administrative Law Judges from the Competitive Service, 83 Fed. Reg. 32755 (July 13, 2018).
17. Lucia v. SEC, No. 18-cv-02692 (S.D. Cal. Nov. 28, 2018).
18. 561 U.S. 477 (2010).
19. See Kent H. Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797 (2013); Shapiro v. Soc. Sec. Admin., 800 F.3d 1332 (Fed. Cir. 2015).
20. For example, an ALJ’s initial decision suspending or revoking a mariner’s credentials is not a final agency action if appealed by either party under 33 C.F.R Part 20, Subpart J. 49 C.F.R. § 1503.657 (appeal from initial decision). Additionally, the Commandant may direct a review of a decision under 46 C.F.R. Part 5, Subpart K. Likewise, under Transportation Security Administration (TSA) regulations, an ALJ’s Initial Decision is subject to review by the TSA Decision Maker under the regulations. 49 U.S.C. § 46110.
21. Cf. Morrison v. Olson, 487 U.S. 654 (1988); Edmond v. United States, 520 U.S. 651 (1997).
22. Guidance on Administrative Law Judges After Lucia v. SEC, 132 Harv. L. Rev. 1120, 1123 (2019).
23. See Jerome Nelson, Administrative Law Judges’ Removal “Only for Cause”: Is That Administrative Procedure Act Protection Now Unconstitutional?, 63 Admin. L. Rev. 401 (2011) (asserting such action is not required by the holding in Free Enterprise Fund).