Supreme Court Grants Cert in Lucia Case – Will Decide Whether SEC Administrative Law Judges are Subject to Appointments Clause

Weiner Brodsky Kider PC

Weiner Brodsky Kider PC

The U.S. Supreme Court recently agreed to consider a case from the D.C. Circuit which may call into question the legitimacy of past rulings made by numerous administrative law judges (ALJ) across the federal government.  The question at the center of the case is whether the Securities and Exchange Commission’s (SEC) self-governed system for hiring its own administrative law judges violates the appointments clause of the Constitution.  Various government agencies—including HUD, FDIC, and CFPB—have instituted similar systems for appointing their own administrative law judges and, thus, would likely be affected by the outcome of this case.  If the Supreme Court decides that the SEC’s hiring system constitutes a violation of the appointments clause, the decision could throw into doubt many of the affected judges’ past decisions.

The case centers on an appeal from financial adviser Raymond Lucia, who was fined $300,000 and barred from working as an investment adviser after an SEC judge found that he misled prospective clients.  Lucia argues the SEC judges are “officers”—not mere employees—and that as such, the Constitution requires them to be appointed by the President, a department head, or a court.  On appeal, the SEC argued that Congress authorized the agency to “address statutory violations by instituting administrative proceedings before the agency,” under various Securities laws, and that hiring a “hearing officer” to conduct those proceedings was within the reasonable realm of the Commission’s rights.  The U.S. Court of Appeals for the D.C. Circuit ruled that the SEC judges do not qualify as officers, because their decisions do not become final until the Commission itself takes action, either by reviewing the ruling or by explicitly declining to intervene.

Although once supportive of the SEC’s ALJ hiring policies, the Trump administration informed the justices in November that it would no longer defend the agency’s system.  As such, a non-government lawyer will likely defend the lower court ruling.  The Court has extended an invitation to a former law clerk of Chief Justice Roberts to defend the matter.

The above-cited case is Raymond J. Lucia v. Securities and Exchange Commission.  The SEC’s brief is accessible here.  Lucia’s brief is accessible here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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