After last week’s Supreme Court decision in Lucia v. Securities and Exchange Commission, it’s clear that administrative law judges of the US Securities and Exchange Commission are not mere federal employees but qualify as “Officers of the United States” under the Appointments Clause of the US Constitution. That means they need be appointed by the president, courts of law, or heads of departments, in this case the SEC Commissioners.
It’s also clear that Mr. Lucia’s victory is hollow. The remedy in the decision was that Mr. Lucia was entitled to a new hearing by new administrative law judge who had been properly appointed. In December the SEC Commissioners ratified the appointment of the ALJs. That was done in anticipation of this decision. I assume that is enough to meet the requirements of the Appointments Clause. I expect that may also be challenged by Mr. Lucia if he case starts over.
There is still lots of uncertainty after the Lucia decision. Enough uncertainty that the SEC has halted all administrative proceedings for 30 days.
The Lucia decision required that the case be heard before a new ALJ. At a minimum, the SEC is going to do a lot of shuffling of cases from ALJ to another for any case started before December. It may also decide to shift the cases over to federal courts. According to one estimate there are 100+ cases involved.
One big unanswered question is whether the SEC ALJ proceedings are the proper venue. Dodd-Frank expanded the use of administrative proceedings. Under Chair White, the SEC increased its use of administrative proceedings instead of federal court. Under Chair Clayton, the SEC seems to be increasing using federal courts instead of the administrative proceedings. This was one of the points raised in Justice Breyer’s concurring opinion in Lucia.
I expect we will hear some news from the SEC during this 30-day halt on how they are going to proceed with ALJs.
Sources:
- In re: Pending Administrative Proceedings imposing a temporary halt to administrative proceedings
- SEC Order (33-10440, 34-82178, IA-4816, IC-32929) revising the ALJ process
- The SEC’s Administrative Law Judges are “Officers of the United States”
- Lucia: The Beginning of the End of SEC ALJs? by T. Gorman in SEC Actions
- The Morning Risk Report: Ruling on SEC Judges Creates Uncertainty by Ben DiPietro
- Supreme Court Tells SEC to Appoint ALJs (Even Though SEC Already Did) by Gregory Morvillo
- Supreme Court Provides One Answer about SEC Administrative Law Judges, but Leaves Many Questions
- Supreme Court Holds SEC’s Past Hiring of Administrative Judges Unconstitutional