Symposium: Lucia v. SEC – more questions than answers
on Jun 22, 2018 at 8:57 am
Alan Morrison is the Lerner Family Associate Dean for Public Interest & Public Service Law at George Washington Law School. He was co-counsel for 29 law professors who filed an amicus brief in Lucia v. Securities and Exchange Commission in support of neither side.
Yesterday’s decision in Lucia v. SEC answered what, in the long run, is a small question, but opened up for future litigation two much larger questions.
In her majority opinion, Justice Elena Kagan held that administrative law judges are officers of the United States, not employees, and so they have to be appointed under the Constitution’s appointments clause. In this case, because everyone agreed that the ALJs are inferior officers, they could be appointed by the full SEC for which they worked, but not by staff, which was how they were appointed. As Kagan and the five justices who joined her concluded, ALJs are no different from the special trial judges whom the court in 1991 held to be officers in Freytag v. Commissioner.
Going forward, that conclusion will have no impact on how ALJs are generally appointed, but Kagan’s remedy will cause considerable difficulties. Because the ALJ in this case was improperly appointed, and even though the SEC after full review largely affirmed his decision, the court ruled that Raymond Lucia is entitled to a new trial (the last one took nine days), before a new ALJ. That ruling applies only if a proper objection was timely made, but at least recently, those objections were surely made, which will complicate life a lot at the SEC. Most of the federal ALJs sit on Social Security Administration cases (over 1,650 out of 1,926), for which it is much less likely that appointments clause objections were preserved, but given the number of cases they have, even a relative few will be bad news for the agency. The relation of their decisions to their reviewing authorities is different from those of the SEC’s ALJs, but perhaps not enough to change the outcome.
The first of the two open questions is how far down in the federal hierarchy the constitutional requirement for an officer appointment extends. The first group likely to be targeted are administrative judges, who are subject to different rules on selection and removal than ALJs. Many of them are immigration judges, and so the incentives by individuals who may be removed from the U.S. to make appointments clause objections are considerable (assuming they have counsel who are aware of this decision). The relation of these judges to their agencies in terms of their decisional authority will have to be explored. Assuming that their agencies (and the SSA) have the statutory authority to appoint both ALJs and AJs, those agencies should do that as quickly as possible to stem the flow of objections and appeals. And if there is any doubt as to their authority, they should ask Congress to make clear immediately that the agencies can appoint anyone who looks in any way like a judge – and then do it.
If the majority opinion only left open the officer status of federal administrative judges, that would be a tolerable problem to solve. But the opinion is not at all clear on who else is swept in. Kagan said that the court did not need to decide what constitutes “significant authority” for which a person must be appointed as an officer because an earlier Supreme Court case, Freytag v. Commissioner, so clearly applied. It no longer appears essential that the person have final decisional authority (The dissent of Justice Sonia Sotomayor, joined by Justice Ruth Bader Ginsburg, would have drawn that line and upheld the SEC here.), which opens up a whole range of possibilities of jobs for which there is no law that would comply with the appointments clause options for inferior officers. So, for example, would the national security adviser, who surely has vast powers and a large staff, be an officer, even though he can be overruled by the president on everything he does? Issues of standing aside, Congress could start to insist that many officers be subject to advice and consent, which is required for all officers, unless there is a statutory exception. Indeed, if the concurring views of Justices Clarence Thomas and Neil Gorsuch prevailed, everyone would be an officer “even if they performed only ministerial duties—including recordkeeping, clerks and tidewaiters (individuals who watched goods land at a customhouse).” Perhaps the janitor would be spared (or more likely contracted out as is being done with so much of the federal government these days), but regardless of the eventual outcome, the gauntlet has been thrown down and the battle will begin.
That gets us to the second and more significant question that this decision has produced: Can the extensive statutory protections against ALJ removal except for good cause, which must be determined by the independent Merit System Protection Board, survive, or will the court follow through on what it started in 2010 in Free Enterprise Fund v. Public Company Accounting Oversight Board and strike down these limits on removal? The court expressly declined to take up that question, even though pressed by the solicitor general to do so. Oddly, Justice Stephen Breyer in his partial concurrence and partial dissent insisted that the court should have decided the removal issue before deciding the appointments issue, but no one joined him on that position, or in his view that the case could also be decide in favor of Lucia on statutory grounds because the appointment of the ALJs did not comply with the law governing the SEC in these matters. Breyer, who had dissented in Free Enterprise over the removal issue and the expansive way that the court decided it there, suggested some ways that the protections against agency control over ALJs could be maintained, but it is far from certain that he will prevail.
One additional possibility exists to avoid the removal problem, despite Free Enterprise. If the president ordered the removal of an ALJ, the issue would be properly presented and no one would suggest that an ALJ did not have standing to object to the removal. But because the power of removal is intended to protect the president and enable him to carry out his duties, it is questionable whether the party who lost before an ALJ (and the agency) has standing to object that the president might not have been able to fire the ALJ if he had been so inclined. To be sure, Free Enterprise allowed a regulated party to make the removal objection (although in that case it was part of an appointment objection on which there could be no standing issue). But if the court were to follow its strict approach to standing (see most recently Gill v. Whitford), that might be a way to postpone, if not avoid entirely, facing the removal question. And for those like me and the 28 law professors whom I joined as amici in this case, the protections against at-will removal applicable to ALJs are vital safeguards for regulated parties – including the petitioners in this case.