The Securities and Exchange Commission (the "Commission") ratified the appointment of several administrative law judges ("ALJs") in order to "resolve concerns that administrative proceedings presided over by its ALJs violate the Appointments Clause."
In Raymond J. Lucia and Raymond J. Lucia Companies Inc. v. Securities and Exchange Commission, U.S. Solicitor General Noel Francisco submitted a brief asserting that ALJs are officers of the United States rather than employees. As such, the Solicitor General took the position that ALJs should be subject to selection and removal consistent with the Appointments Clause. This would require ALJs to be appointed "by the president, the head of a department, or a court of law." The Commission claimed that it ratified the judges in its capacity as head of a department, thus "put[ting] to rest" claims that their status violated the Appointments Clause.
The Commission also directed ALJs to review their actions in pending proceedings and proceedings in which an initial decision has been issued. For these matters, the SEC directed ALJS to (i) consider all substantive and procedural actions taken by an ALJ, (ii) issue an order granting parties until January 5, 2018 to submit new evidence they deem relevant to the ALJ's reexamination, (iii) determine whether to ratify or revise any aspect of prior actions taken by an ALJ in the proceeding, and (iv) issue an order by February 16, 2018, stating that the ALJ has completed the reconsideration and setting forth a ratification determination.
Chief ALJ Brenda Murray and ALJs Carol Fox Foelak, Cameron Elliot, James E. Grimes and Jason S. Patil are the judges whose appointments were ratified by the Commission.
Commentary / Kyle DeYoung
The Commission's decision to ratify its ALJs is a stark reversal of course and a significant step towards resolving the uncertainty surrounding its administrative proceedings. The decision addresses what has been plaintiffs' most successful challenge to the SEC's use of administrative proceedings to date: that the SEC's selection process for its ALJs violates the Appointments Clause. However, it remains to be seen whether the actions ordered by the Commission to address currently pending and past matters will be sufficient to address likely claims by respondents that previous decisions made by ALJs in these matters are invalid. The SEC will also continue to face challenges to the constitutionality of its use of administrative proceedings based on other arguments, including claims that administrative proceedings are invalid because they violate the equal protection clause, the due process clause, the right to a jury trial under the 7th Amendment, and separation of powers. While plaintiffs have not had much success based on these arguments to date, it is likely they will continue to push them going forward.
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