There’s yet more strangeness afoot in the world of financial regulation. No, it’s not the CFPB this time. It’s the generally more staid Securities and Exchange Commission (SEC). Earlier this week, the Department of Justice weighed in on Lucia v. SEC, a case challenging the constitutionality of the SEC’s in-house judges, known as Administrative Law Judges (ALJs). What is strange is that the DOJ sided with Raymond Lucia and against the SEC. Seemingly in response, the SEC took action and ratified the appointment of its ALJs, a move it had been resisting for some time.
The case is currently with the Supreme Court where the Court is considering whether it will hear and decide the matter. The question is whether ALJs are “mere employees” or are instead “inferior officers.” If the latter, their appointment is subject to the appointments clause in the Constitution, which permits Congress to “vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.” Since the process for appointing ALJs has (until recently) not been done by any of these, if they are indeed inferior officers, their appointment would be unconstitutional.
Cato has filed an amicus brief in support of Lucia. Given the great discretion that ALJs wield – hearing and ruling on both the admissibility and credibility of evidence, presiding over hearings, and issuing opinions – it is strange to say they are not inferior officers. Resting on the finality of the decisions alone seems insufficient. And indeed in another case arguing the same issue, whether SEC ALJs are inferior officers, a federal appeals court in Colorado ruled that they are. Since there is now a circuit split, with appeals courts in two circuits issuing opposite rulings, it seems likely the Supreme Court will hear the case to decide the issue.
The appeal to the Supreme Court is of a decision by the federal court of appeals in D.C., which ruled that, because ALJs’ opinions are not final and can be reviewed by the SEC commissioners, the ALJs are not in fact inferior officers.
The problem for the D.C. Circuit Court of Appeals is that it already ruled on this question. In Landry v. FDIC, the D.C. Circuit found that ALJs at the FDIC are not inferior officers because their opinions are not final. This is the case on which the D.C. Circuit relied in Lucia. Landry was also appealed to the Supreme Court, but the Court did not take it up.
Speaking of Landry. When Landry was pending before the Supreme Court, just as Lucia is now, the Department of Justice weighed in on that case, just as it did recently in Lucia. But that time, the DOJ sided with the FDIC, arguing that the lack of finality in ALJ decisions makes them mere employees and not inferior officers. Exactly the opposite of what DOJ is now arguing in Lucia.