Duka v. SEC and the Constitutionality of Administrative Law Judges (Part 7)

So where does that leave the Commission?

Hill is on appeal.  In Duka, the government "is actively considering whether to appeal the preliminary injunction". Letter to Judge Berman from SEC, August 12, 2015.  The issue is apparently before the Commission as part of an appeal of an AP.  See DEFENDANT’S OPPOSITION TO PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION, Timbervest v. SEC, No. 15-cv-2106, ND Ga., June 29, 2015), at 2 (“The Commission has heard oral argument in the appeals from the SEC ALJ’s initial decision, including argument on Plaintiffs’ Appointments Clause challenge.”).  To the extent that the Commission does not find the appointment process unconstitutional, the matter will presumably be appealed, most likely to the DC Circuit.

Resolution, therefore, may not occur until the appellate courts have spoken.  Moreover, they may not all say the same thing, requiring the matter to go to the Supreme Court.  Until resolution, any party wanting to take their chances in district court rather than in an AP have a ready made argument.

Perhaps some courts will come out on the side of the Commission by finding that ALJs are not inferior officers. Moreover, at least one ALJ may be insulated from these challenges.  Commission involvement in the designation of Judge Murray as the Chief provides an argument that in fact the appointment process meets constitutional requirements.  Whether designation as chief is the same as appointment to the position of ALJ remains to be determined.  

Nonetheless, mysteries remain.  It is unclear why the SEC has not tried harder to develop a fall back in the event that the courts find that ALJs are inferior officers.  While its clear that the Commission has not approved the ALJs at the SEC (Chief Judge Murray a possible exception), it is possible, for example, that Judge Elliot was properly appointed as an ALJ while at Social Security.  If true, this appointment may be sufficient for constitutional purposes.  

More directly, however, there would presumably be available an argument that those appointing ALJs at the SEC (whether HR or the Chief Judge) are doing so pursuant to delegated authority from the Commission and, as a result, meet constitutional requirements.  

Section 4A of the Exchange Act specifies the requirements for delegations.  As the provision provides:   

  • In addition to its existing authority, the Securities and Exchange Commission shall have the authority to delegate, by published order or rule, any of its functions to a division of the Commission, an individual Commissioner, an administrative law judge, or an employee or employee board, including functions with respect to hearing, determining, ordering, certifying, reporting, or otherwise acting as to any work, business, or matter.  

15 U.S.C. § 78d-1(a). To the extent applicable, the SEC must delegate through order or rule, which was not done here.  Of course, it is open whether the Commission can delegate hiring authority without an order or rule or can delegate in a manner that is inconsistent with the statute but sufficient to meet constitutional standards. Moreover, delegation presumably can be implicit.  The whole concept of Chevron deference is built around implicit delegation by Congress to agencies.  The same should be true of delegation within an agency. One wonders whether there is an argument that the Commission has the authority as a Department Head and has delegated the authority to the Chief Judge.

The other possible "fall back" is to have the Commission go ahead and appoint the existing ALJs.  Presumably this is the "cure" that the court in Duka anticipated. Commissoin appointment would at least cut off arguments on a going forward basis. There is no explanation as to why this step has not been taken.

Perhaps there is a Commission that is divided on the issue.  Perhaps the Commission is concerned that approval would somehow constitute an admission that the system was unconstitutional. To the extent the latter, the approval could be phrased in a manner that approved the appointment but specified that the Commission did so out of an abundance of caution and should not, therefore, be characterized as some type of admission. Moreover, having the Commission approve commissioners as a matter of bureaucratic practice is probably a good idea.

For primary materials in the Duka case, go to the DU Corporate Governance web site

J Robert Brown Jr.