March 8, 2018

Make government accountable again

By Oliver J. Dunford Attorney

How can “We the People” hold government officials accountable? That’s one of the big questions that the Supreme Court will consider when it addresses a rather technical constitutional question—whether administrative law judges (ALJs) are “Officers of the United States” under the Constitution’s Appointments Clause. The Framers adopted the Appointments Clause to prevent the abuses of George III, who let loose on Colonial America “swarms of Officers to harrass our people, and eat out their substance.” Traditionally, the Supreme Court considered most government employees to be officers, and they could not assume their offices until after the Appointments Clause was followed. This restriction not only made it difficult to greatly expand the government workforce, but it also—by keeping the lines of responsibility “stark and clear”—held Congress and the president accountable for the “officers” they appointed. But more recently, the Supreme Court has narrowed the definition of “Officers” to mean only those employees who exercise “significant power.” Now, therefore, thousands and thousands of “mere” federal employees, along with Congress and the president, escape the accountability that the Appointments Clause was designed to bring about—even as they collectively “wield[] vast power” that “touches almost every aspect of daily life.”

PLF has filed a friend-of-the-court brief and asks the Supreme Court to return to its traditional definition of “Officer” as any employee who has “ongoing responsibility for a governmental duty.” This definition would require Congress to cautiously consider whether to create offices in the first place, and would require both Congress and the President to deliberate more carefully before deciding to appoint individuals to carry out government functions. These developments would faithfully enforce the Constitution’s demand for accountability and its structural concern against dispensing government power too freely.

The case pending before the Supreme Court shows the dangers that the Framers sought to avoid.

In 2012, the Securities and Exchange Commission accused Raymond Lucia and his company of violating securities laws and regulations. Instead of suing Lucia in federal court—in front of a judge (who himself must go through the Appointments Clause) and a jury—the SEC brought an “administrative enforcement action.” In this action, the SEC’s Enforcement Division—employees of the SEC—argued the case against Mr. Lucia in front of an SEC ALJ—another employee of the SEC. At the end of the hearing, the SEC’s ALJ (surprise!) agreed with his employer that Mr. Lucia had violated securities laws and regulations. The ALJ permanently barred Mr. Lucia from working as an investment adviser, revoked his company’s registration, and ordered $300,000 in “civil” penalties.

Mr. Lucia challenged the decision on the ground that the ALJ who presided over the enforcement action was an “Officer of the United States” who had not been appointed through the Appointments Clause. The ALJ himself admitted, “if in fact I am an officer, then I would not hold my position lawfully.” (See p. 15 of Mr. Lucia’s brief [pdf]). The ALJ and the SEC maintain that ALJs are not officers. If they succeed, then the reign of unaccountable government employees will continue. They will likely lose, however.

Under current Supreme Court precedent, a federal employee who exercises “significant authority” is an Officer of the United States. In Freytag v. Commissioner, the Supreme Court concluded that the office of “special trial judge” within the U.S. Tax Court had been established by law and that these special trial judges exercised significant discretion in carrying out their “important functions,” which included taking testimony, conducting trials, ruling on admissibility of evidence, and having power to enforce compliance with discovery orders. Therefore, the Court ruled, these special trial judges were officers of the United States.

In Mr. Lucia’s case, the ALJ heard testimony, ruled on the admissibility of evidence, made factual findings, reached legal conclusions, and as noted above, permanently barred Mr. Lucia from working as an investment advisor, revoked his (former) company’s registration, and imposed civil penalties in the amount of $300,000. Under current Supreme Court precedent, the SEC’s ALJ clearly exercised “significant authority,” and Mr. Lucia appears headed to victory.

But in our friend-of-the-court brief, we argue that the Supreme Court should take this opportunity to return to its traditional understanding of officer as any employee who has “ongoing responsibility for a governmental duty.” Mr. Lucia had the means to slog through the administrative and legal processes and bring his claim all the way to the United States Supreme Court. But the vast majority of individuals and small businesses in this country lack the same ability—but they are no less subject to the onerous rule of unaccountable bureaucrats whose power continues to grow. To protect the interests of these citizens, the Court should clarify the definition of “Officer” and allow the people to hold government more accountable for its actions.

You can read the full argument in our brief. Also, please check out our case page and our previous blog-post on this case.

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Lucia v. Securities and Exchange Commission

In 2012, the Securities and Exchange Commission charged Raymond Lucia and his former investment company with violating federal securities laws and regulations. He was prosecuted in an administrative enforcement action overseen by an Administrative Law Judge employed by the SEC. The ALJ permanently barred Mr. Lucia from working as an investment adviser, revoked his company’s registration, and ordered $300,000 in “civil” penalties. PLF supported Mr. Lucia’s petition asking the Supreme Court to review his case, which implicates the fundamental constitutional issue of separation of powers. On June 21, 2018, the Supreme Court ruled 6-3 that the ALJ had not been appointed through the Appointments Clause and therefore Mr. Lucia’s hearing was invalid. His case goes back to the SEC for a hearing in front of a different, properly appointed ALJ.

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