Supreme Court Decides Administrative Law Judges are Political Appointees

The Securities and Exchange Commission (SEC) utilizes Administrative Law Judges (ALJs) to settle disputes regarding decisions made by the Commission. The SEC isn’t the only executive agency to utilize these judges; others include the Social Security Administration, the Department of Health and Human Services, and the Department of Transportation also employ numerous ALJs. Wherever they may work, ALJs serve an important function by adjudicating disputes between citizens and the organizations which employ them. ALJs are known as “Article I Judges” under the Constitution and do not exercise full judicial power. Typically, proceedings before ALJs are quasi-judicial and loosely follow courtroom procedures governing evidence, filing of briefs, filing of motions, and the issuance of subpoenas. ALJs also enjoy absolute immunity from liability for their judicial acts.

Historically, these ALJs were considered staff members of the organizations for which they work. At the SEC, these individuals were selected by a “chief judge” and approved by the SEC personnel office.

That is, until this June when the Supreme Court ruled that ALJs, including the ALJs working for the SEC, are “Officers of the United States” under the Constitution. The case in question is Lucia v. SEC, and was decided with a mix of justices, with Justice Kagan delivering the opinion of the court.

Raymond Lucia is the owner of an investment company which marketed a retirement savings strategy known as “Buckets of Money.” He wrote two books promoting the investment strategy which Lucia said would enable readers to retire in “comfort and safety.” The SEC found that Lucia used a “misleading slideshow” in a presentation of the strategy to deceive prospective clients. The SEC charged Lucia under the Investment Advisers Act and assigned an ALJ to hear the case. The ALJ determined that Lucia had violated the ACT and imposed sanctions, which included a $300,000.00 fine and a lifetime ban from the investment industry.

On appeal, Lucia argued that the administrative proceeding which imposed sanctions was invalid because the ALJ had not been Constitutionally appointed. The SEC rejected the argument, after which Lucia appealed to the DC Circuit. The DC Circuit, sitting en banc after initially affirming the decision of the Commission, split even. Lucia applied for Certiorari, which the Supreme Court Accepted.

Justice Kagan wrote that ALJs qualify as “officers” (or “inferior officers”) rather than employees under the Appointment Clause of the Constitution. The decision was based on the fact that ALJs have “significant authority” to preside over hearings, issue opinions, and impose sanctions on individuals like Lucia. Under the Appointments Clause, Congress may grant the “Heads of Departments,” like the SEC, with the authority to appoint “inferior officers.” Because they are inferior officers, appointment of ALJs does not require advice and consent of the Senate.

Because the ALJ in Lucia’s case was appointed by staff instead of the head of the SEC, his appointment was unconstitutional, making his decision in Lucia’s case invalid.

The ruling has implications for ALJs throughout the federal government. Instead of being mere employees of various agencies, they are now in effect political appointees. This raises significant questions regarding their independence, and further expands presidential power in the realm of administrative law.

For questions about this case or any other matter, please contact Grant Bacon (gbacon@fisheldowney.com) by email or phone (614) 221-1216.