November 06, 2018

Panel explores issues in wake of Lucia v. SEC decision

The U.S. Supreme Court recently resolved a circuit split regarding the constitutionality of administrative law judge (ALJ) appointments, holding that the U.S. Securities and Exchange Commission (SEC) can no longer consider ALJs “employees” exempt from the U.S. Constitution’s Appointments Clause.

In Lucia v. SEC, the Court held that ALJs exercise “significant” authority, “comparable to that of a federal district court judge conducting a bench trial,” and thus are “Officers of the United States” who, under Article II, Section 2, Clause 2 of the Constitution, must be appointed by the President, “Courts of Law,” or “Heads of Departments” rather than SEC staff. The decision overturned a ruling by the U.S. Court of Appeals for the D.C. Circuit concluding that SEC ALJs were employees rather than officers.

Following the June 2018 decision, President Donald J. Trump issued an executive order excepting administrative law judges from the competitive service. The order announced that each agency should be empowered to assess “critical qualities” in ALJ candidates, such as work ethic, judgment, and ability to meet the particular needs of the agency, which will help “promote confidence in, and the durability of, agency adjudications.”

In short, the SEC judges were deemed powerful enough that they should be chosen by agency leaders, the president or a court, rather than being hired as traditional employees through the selection process the SEC had long used.

The impact of Lucia has already spread to all federal agencies, affecting thousands of ALJs by potentially requiring compliance with the Appointments Clause across the board.

A panel at the 2018 American Bar Association Section of Administrative Law and Regulatory Practice Fall Conference discussed the ramifications of Lucia. Moderated by John Vittone, former chief judge of the U.S. Department of Labor’s Office of Administrative Law Judges, panelists included:

  • Linda D. Jellum, professor of tax law at Mercer University School of Law
  • Jennifer Mascott, assistant professor of law at Antonin Scalia Law School at George Mason University
  • Mark Perry, partner at Gibson, Dunn & Crutcher LLP
  • Richard J. Pierce, professor of law at the George Washington University Law School

Lucia and the Executive Order addresses ALJ appointments, but leaves questions about ALJ removal up in the air. Currently, ALJ removal under existing SEC internal procedures requires a good cause determination by the Merit Systems Protection Board, which provides job protections and due process for federal employees.

Mascott predicts more cases coming before the Court, as it needs to define what firing “for good cause” means, for example. Recently the Department of Labor announced it would have a hiring system within their department that woud be very similar to the Office of Personnel Management system, using objective standards to make hiring decisions.

Pierce opened with 15 questions he says remain unanswered from the Lucia decision, mostly related to operational issues. For example, will all 11,000-plus non-adjudicatory personnel be classified as inferior officers? It may take years for questions like these to be resolved, he said.

Jellum agreed that one issue of concern is who exactly does Lucia apply to? The Supreme Court previously has held that very minor individuals such as district court clerks are inferior officers. Then there are several removal issues, which may be the most difficult to sort out as they involve varying levels of protections.

Perry said defenders of the status quo want to cast Lucia as insignificant, but he in his view the agencies of the federal government should not operate as an independent, unaccountable fourth branch of government.