Duka v. SEC and the Constitutionality of Administrative Law Judges (Part 4)
The lack of direct Commission involvement in the ALJ selection process provided an opening for challenging the constitutionality of the appointment process.
In Hill v. SEC, plaintiff seeking to halt an impending AP argued that ALJs at the SEC were “not appointed by the President, the Courts, or the [SEC] Commissioners. Instead, they are hired by the SEC’s Office of Administrative Law Judges, with input from the Chief Administrative Law Judge, human resource functions, and the Office of Personnel Management”. In other words, the ALJs were not appointed by the SEC.
The Commission (through the DOJ lawyers handling the case) conceded this point. See DEFENDANT’S OPPOSITION TO PLAINTIFF’S EMERGENCY MOTION TO SUPPLEMENT BRIEF, No. 15-cv-1801, May 29, 2015, at 2 ("In light of Plaintiff’s intention to amend the Complaint to add an Appointments Clause claim, SEC now similarly acknowledges in this case that, consistent with SEC ALJ James E. Grimes’s status as an agency employee and not a constitutional officer, he was not appointed by the SEC Commissioners.").
The Commission contested the constitutional challenge mostly by asserting that ALJs were not inferior officers and therefore need not be appointed by the Head of a Department. The approach, however, left little room for a constitutional appointment process in the event that the court found that the ALJs were inferior officers. The district court in Hill made exactly that finding, concluding that the ALJs at the SEC were inferior officers. As a result, the court enjoined the SEC from pursuing the administrative proceeding against plaintiff. Nor would a stay pending appeal be granted.
- the Court finds that the SEC has not made a strong showing it is likely to succeed on the merits. As well, the Court notes that the SEC is only foreclosed from conducting an administrative proceeding in front of an ALJ who was not appointed by the SEC itself—the SEC Commissioners may conduct the hearing against Plaintiff at any time or appoint the SEC ALJ directly. They may also elect to bring their claims in district court. Thus, the Court does not find the SEC is irreparably injured or the public interest is affected as the SEC still has a channel to pursue Plaintiff—even through an administrative proceeding if it chooses. However, if the stay is lifted, Plaintiff would have to participate in a likely unconstitutional proceeding which would cause a substantial injury.
The same court made similar findings in Timbervest LLC v. SEC. Because, however, the challenge came after completion of the administrative proceeding, the court declined to enjoin the SEC. As the court reasoned:
- Plaintiffs waited until the ALJ had issued his initial decision and this case was before the SEC itself before filing this motion. Plaintiffs have already gone through the entirety of the administrative procedure before the ALJ—thus, no injunction will cure or prevent Plaintiffs’ prior obligation to defend itself before the ALJ. And any harm which Plaintiffs have already suffered by virtue of the initial decision being published has already been experienced; removing the ALJ’s initial decision from the website would not prevent a future harm.
The Georgia court, therefore, became the first to rule that the appointment process for ALJs at the SEC was unconstitutional. The SEC has appealed the decision in Hill. The isolated decision was not, however, to last.
For primary materials in Duka can be found at the DU Corporate Governance web site.