June 22, 2018

Supreme Court gets it right but doesn’t go far enough

By Oliver J. Dunford Attorney

Yesterday, the Supreme Court issued its opinion in Lucia v. Securities and Exchange Commission and held that administrative-law judges (ALJs) in the SEC are “officers of the United States” under the Appointments Clause. The ruling isn’t all that surprising, as the Court simply applied its holding from a 1991 case, Freytag v. Commissioner. In Freytag, the Court held that special trial judges within the U.S. Tax Court were officers because those judges exercised “significant authority”–they took testimony, conducted trials, ruled on the admissibility of evidence, and had the power to enforce compliance with discovery orders. In Lucia, the SEC’s ALJ exercised similar powers in an administrative hearing brought by the SEC against Mr. Lucia. The ALJ in effect conducted a trial and ultimately ruled that Mr. Lucia violated the Investment Advisor Act. The ALJ imposed a civil penalty of $300,000 and banned Mr. Lucia for life from the investment industry. But because the ALJ had not been appointed through the Appointments Clause, the Supreme Court held that the hearing he oversaw was invalid. The case goes back to the SEC for a hearing in front of a different, properly appointed ALJ.

While this ruling is welcome–it increases the accountability of the ALJs and of those who appoint them–it seems like a missed opportunity. As we argued in our friend-of-the-court brief, the Court could have applied the original meaning of “Officer” as any employee who has “ongoing responsibility for a governmental duty.” Justice Thomas, in a concurring opinion joined by Justice Gorsuch, called for a return to the original meaning, which would require Congress to consider cautiously whether to create offices in the first place, and would further 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.

For more information, please see our case-page here; our earlier blog-posts here and here; and some additional thoughts from my colleague Jeff McCoy and me at SCOTUSblog.

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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 supports Mr. Lucia’s petition asking the Supreme Court to review his case, which implicates the fundamental constitutional issue of separation of powers.

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