The U.S. Supreme Court will consider a challenge to the Securities and Exchange Commission (the "Commission") practice of hiring administrative law judges ("ALJs"). The D.C. Court of Appeals previously ruled against petitioner Raymond J. Lucia, who argued that ALJs are officers of the U.S. government and thus subject to provisions of the Appointments Clause. The Appointments Clause mandates such officers to be appointed "by the president, the head of a department, or a court of law." (In a proceeding before an ALJ, Mr. Lucia and his firm had been subjected to sanctions including a $300,000 fine and a lifetime securities industry ban.)
In November 2017, U.S. Solicitor General Noel Francisco submitted a brief in support of petitioners' request for certiorari. The Solicitor General expressed the opinion that the SEC's ALJs are officers of the U.S. government and, therefore, their selection and removal process should be consistent with the Appointments Clause. At the same time, the Commission ratified the appointments of its ALJs. These ratifications, the Commission said, should "put to rest" arguments that the ALJ selection process was inconsistent with the Appointments Clause. The Commission further directed its ALJs to consider substantive and procedural actions in both pending and active proceedings.
Mr. Lucia's attorneys argued that there is no redress available for persons who were previously subjected to "trial before an unconstitutional tribunal." The petition claims that Mr. Lucia "remains subject to draconian sanctions . . . resulting from the tainted proceedings." In accordance with this argument, the attorneys represented that Mr. Lucia should have his proceedings dismissed or be granted a new hearing in front of a "properly appointed" ALJ.
The Supreme Court's decision is expected to resolve a split between the D.C. Circuit, which ruled in Lucia that ALJs are not government officers, and the Tenth and Fifth Circuits, which ruled in separate cases that ALJs are government officers.
Commentary / Kyle DeYoung
The Supreme Court's decision to grant certiorari is noteworthy for at least two reasons. First, it is an indicator that the SEC is not out of the woods regarding challenges to its administrative proceedings. The SEC's recent ratification of its ALJs and its directive to review actions in pending proceedings may not be sufficient to resolve claims by respondents that previous decisions made by the ALJ are invalid. Second, this case, along with the Fifth Circuit's decision in Burgess v. FDIC, concluding that the FDIC's ALJs are likely government officers, is an important reminder that the Court's decision may have a significant impact well beyond the SEC. A number of other federal agencies use ALJs in a manner similar to the SEC – including the FDIC, FERC, and the CFPB. A Supreme Court determination that the SEC's ALJs are officers of the U.S. government would likely lead respondents to challenge the validity of these other agencies' current and past administrative proceedings as well.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
