In re Lucia, Exchange Act Release No. 75837 (Sept. 3, 2015): The Appointments Clause Debate Continues

As we have discussed on the Blog, the system of ALJs at the SEC has been under constitutional attack.  The focus has been on whether the designation of ALJs was done in violation of the Appointments Clause of the Constitution.  Under the Appointments Clause, Inferior Officers must be appointed by the President, the Courts of Law, or the Heads of Departments.  

The SEC has staked its defense on the argument that ALJs are not inferior officers.  The Commission has not asserted and indeed has disavowed that the ALJs were appointed by the Commission.  If the agency loses on the inferior officer issue, the system of ALJs is perforce unconstitutional.

The Commission issued its first decision in an administrative law context on the issue In re Lucia.  The outcome was the same.  ALJs are not inferior officers.  As the opinion stated: 

  • The great majority of government personnel are neither principal nor inferior officers, but rather “mere employees” whose appointments are not restricted by the Appointments Clause. It is undisputed that ALJ Elliot was not appointed by the President, the head of a department, or a court of law. Respondents therefore contend that his appointment violates the Appointments Clause because, in their view, he should be deemed an inferior officer. The Division counters that he is an employee and thus there was no violation of the Appointments Clause

The Commission concluded that ALJs are not inferior officers. 

  • we conclude that the mix of duties and powers of our ALJs is similar in all material respects to the duties and role of the FDIC's ALJs in Landry. Accordingly, we follow Landry, and we conclude that our ALJs are not “inferior officers” under the Appointments Clause

The analysis was repeated in In re Timbervest.  Next stop, the US Court of Appeals.  But the parties get to choose and its likely not to be the DC Circuit where Landry was decided.  See Section 25(a) of the Exchange Act (party may "obtain review of the order in the United States Court of Appeals for the circuit in which he resides or has his principal place of business, or for the District of Columbia Circuit").  The uncertainty as to the constitutionality of the system of ALJ appointments continues.  

J Robert Brown Jr.