Supreme Court Decides When Administrative Law Judges Must Have Constitutional Appointments

Recently, in Lucia v. Securities and Exchange Comm’n, 138 S. Ct. 2044 (2018), the Supreme Court decided when administrative law judges must be appointed under the terms of the Constitution. This ruling may affect the authority of similar judges in a wide variety of federal agencies.

In Lucia, the Securities and Exchange Commission (SEC) charged an investment company with violating securities laws and assigned an administrative law judge (ALJ) to decide the case. The ALJ found against the company and it appealed to the full SEC arguing that the ruling was invalid because ALJ had not been properly appointed under the Appointments Clause of Article II of the United States Constitution.

The Appointments Clause requires “Officers of the United States” to be appointed only by the President, “Courts of Law,” or “Heads of Departments.” But the ALJ in Lucia had been selected by SEC staff members, rather than the SEC itself. The SEC and an evenly-divided Court of Appeals for the D.C. Circuit rejected the company’s argument, reasoning that ALJs are “mere employees”—not “Officers of the United States” under Appointments Clause.

The Supreme Court reversed, holding that SEC ALJs are in fact “Officers of the United States,” subject to the Appointments Clause. The Court explained the basic framework for distinguishing between officers and employees: employees are “occasional or temporary,” whereas officers are “continuing and permanent,” and officers “exercise” significant authority under the laws of the United States.” This inquiry turns on whether an individual (1) holds a career appointment created by statute and (2) exercises significant judicial discretion similar to that of a federal trial judge. The Court held that the SEC’s ALJs both hold a continuing office and exercise significant authority, including taking testimony, conducting trials, ruling on the admissibility of evidence, and enforcing compliance with discovery rules. In reaching this conclusion, the Court also relied on an earlier decision in which it held that similar administrative judges working for the Internal Revenue Service were also covered by the Appointments Clause.

Because the ALJ did not have proper authority to decide the case, the Court reversed the decision against the investment company and returned the case to the SEC with directions that the case be decided by another ALJ who had been properly appointed or by the full SEC itself.

The Open Question: How Does Lucia Affect Other Federal Agencies?

The Lucia decision may reach well beyond just the SEC’s ALJs. The same fundamental principles that guided the Court in Lucia—whether ALJs’ positions are “continuing and permanent” as created by statute and whether they exercise “significant authority” akin to a federal trial judge—may be applied equally to a variety of other federal agencies. In the wake of Lucia, the authority of other federal ALJs will likely be reexamined to determine if they too are “Officers of the United States” under the Appointments Clause.

• E. King Poor: (312) 715-5143 / king.poor@quarles.com