Fwd: FW: [EXTERNAL] Law360 Lucia v SEC
Dick Goodwin
Calibrating Structural And Decisional Independence For ALJs
By Harold Krent (April 25, 2018, 6:11 PM EDT)
|
|
|
Harold Krent |
When the solicitor general did an about-face in Lucia v. U.S.
Securities and Exchange Commission and agreed with petitioner Raymond Lucia's argument that the SEC itself must appoint administrative law judges to conform with the appointments clause, the result seemed foreseeable. The court’s precedents in Freytag
v. Commissioner[1] and Edmond v. United States[2] strongly suggest that SEC ALJs are inferior officers, for they exercise functions similar to those of the special trial judges in the former and appellate judges in the latter. But the oral argument on Monday,
April 23, in Lucia suggests that the justices may be more divided than one would expect.
At oral argument, the petitioner made a straightforward argument — the precedents above dictate that the court determine that ALJs as well as special trial judges are inferior officers. The petitioner argued that the ALJs’ powers to make evidentiary decisions,
fashion remedies for discovery violations, and shape the record reflect the types of discretionary authority that can only be exercised by inferior officers. Moreover, the fact that an ALJ decision, if unreviewed by the agency, becomes the decision of the
agency itself reinforces the importance of the ALJ, and 90 percent of ALJ determinations at the SEC are unreviewed.
In response to a question from Justice Anthony Kennedy, the petitioner limited his argument to ALJs overseeing enforcement proceedings,
suggesting that ALJs resolving claims against the government — such as at the Social Security Administration — might
be situated differently because only in an enforcement case “a private citizen is brought against his or her will before a government body to have his or her fate decided.” Justices Elena Kagan and Kennedy both inquired about how the petitioner would reconcile
the decisional independence that ALJs are to enjoy under the Administrative Procedure Act with his argument that ALJs should be less independent of agency control by virtue of the fact that, if inferior officers, the ALJs must be appointed directly by the
agency, affording the agency more control. The petitioner had no persuasive answer — stating that courts should “know that [ALJs] are not structurally independent, that they are structurally dependent even if they have statutory decisional independence.”
The deputy SG supported the petitioner’s argument about the force of Freytag and Edmond. He stressed the importance of the appointments clause in enhancing the president’s superintendence of the executive branch. Justice Stephen Breyer pressed the deputy SG
about the impact of this test on senior levels of the civil service. Counsel dodged, but responded that, at least as to matters of appointment, agencies enjoy the authority to appoint ALJs. With respect to the removal power, the deputy SG noted the tension
with decisional independence and reiterated the solution suggested in the government’s brief that ALJs should remain protected from at-will removal under the APA but that “for cause” removal be interpreted expansively to include any reason linked to ALJ performance.
Justice Kagan pushed back with “There are different ways to interfere with decisional independence. One is by docking somebody’s pay. One is by having a removal power that you hang over your head. And another is by being the person who gets to decide who gets
the job or not.” He responded, “What I want to do is I want to take the foundational compromise that is the APA and square it with the foundational compromise that is the appointments clause, which says, look, if you exercise important function on behalf of
the United States, you have to be appointed by the department head.” He conceded, however, that the court could rule on the appointments issue without reaching removal. And, in conclusion, counsel clashed with the petitioner’s position and argued that ratification
of the appointment in Lucia itself solved the constitutional problem.
The amicus appointed by the court to represent the SEC’s former position and the D.C. Circuit’s decision below argued that the factors addressed in Freytag were not talismanic. Indeed, he noted that most were exercised because of a delegation from the agency
as opposed to from Congress, and he raised the conundrum of permitting officer status to be determined on the basis of an internal delegation from the agency instead of from Congress. As an alternative, he posed a two-part test: first, whether the individual
has the power to bind parties in the name of the United States, and second, whether the power to bind was in the officer’s name or rather an overarching entity, such as a supervisor or, in this case, the commissioners themselves.
Justice Kagan suggested that the amicus’ test seemed plausible until one looked at the precedents. Counsel acknowledged that the test could not clearly be found in the court’s precedents, but he cited the 2007 Office of Legal Counsel memorandum on the appointments
clause and some older cases for support. Justice Samuel Alito asked how one could tell whether an assistant U.S. attorney was acting in his or her own name or on behalf of the U.S. attorney. Counsel responded that, even though assistant U.S. attorneys exercise
significant discretion, the U.S. attorney “is already 100 percent accountable for the discretion. It doesn’t matter who approved the assistant.” And, he added in response to Chief Justice John Roberts’ parry about ALJ discretion in SEC proceedings, “I think
the commission is going to be held 100 percent accountable for every single decision, whether it’s initially made by an ALJ or not.”
In rebuttal, Lucia’s counsel stressed that the ALJ’s decision, if not reviewed by the agency, was in fact final. He analogized to a court of appeals decision that was final unless the court granted certiorari. But, he could not as readily explain away the tension
between the accountability demanded by the appointments clause, the independence envisioned by the APA and, as Justice Breyer reminded the litigants at several points, the very independence of the civil service system.
But, the oral argument perhaps was even more important for what it did not explore thoroughly.
First, even though the case is only justiciable if the SEC’s ratification of the appointment failed to cure any defect, the court seemed uninterested in setting new law on remedies. The counsel for the petitioner in his rebuttal stressed that the ratification
by the SEC was insufficient in the case because “the acts of an unconstitutional officer are a nullity.” Moreover, he then cited the general review provisions in the APA that accord a reviewing court the remedial option to set aside any administrative action
deemed unconstitutional.[3] Justice Sonia Sotomayor then asked about completed cases and those pending in other agencies that might be affected by a ruling that ALJs are inferior officers. In response, counsel focused on the relatively few SEC cases pending
and disclaimed interest in the thousands that might be pending in other agencies. The remedial issues were not well-ventilated.
If, despite the petitioner and the SG’s views, the court finds that the ALJs are employees, then that's it, case over. Should the court determine, however, that the SEC ALJs are inferior officers, it must then consider the reach of its decision — which ALJs
outside the SEC are affected — and whether to apply its ruling to all nonfinal cases. If so, the question may arise whether litigants are entitled to a new hearing in front of a different ALJ. Some agencies have ratified the appointment of their ALJs, much
as the SEC ultimately did, but others have not. And, as noted above, it is not clear whether the court would signal that all ALJs would be covered or only those conducting enforcement proceedings. The lack of questioning suggests that the remedial issue did
not motivate the court to take the case, but rather the appointments clause issue itself. The court did not tip its hand as to its possible remedial course.
Second and of potential greater importance, scant attention was paid to the solicitor general’s potentially incendiary request to the court that it consider the propriety of the ALJs’ protection from plenary removal under the APA. To set the stage, Free Enterprise
Fund v. Public Company Accounting Oversight Board[4] held that inferior officers in independent agencies
could not be protected from at-will removal because two layers of insulation from the president’s power to remove officials would rob the president of needed accountability under Article II. Accordingly, under Free Enterprise Fund, the APA safeguards for ALJs
in independent (but not other) agencies from at-will removal would be in jeopardy, even though the court there dropped a footnote stating that its ruling did not of its own force cover ALJs.
A number of amicus briefs in this case, including one by the Association of Administrative Law Judges to which I was a signatory, argued that the Free Enterprise Fund concern does not apply to an adjudicative officer because independence in adjudication can
in fact enhance accountability in the chief executive. Ironically, the petitioner’s call for greater accountability in ALJs could result in evisceration of the protections in the APA, permitting independent agency heads to fire ALJs at will. Thus, a litigant
against the government would be presenting evidence before a judicial officer who could be fired for ruling against the government.
The SG brief noted the problem, but sought to do an end run by urging the court to read “good cause” in the APA narrowly so as to permit the agency to fire an ALJ for job-related reasons but not for reasons unrelated to the job, presumably such as for speech
or appearance. Many in the blogosphere worried that the SG’s mysterious push to persuade the court to consider an issue that neither party raised was an attempt to elicit the court’s help in defining good cause so loosely so that the administration, if the
situation arose, would have cover to fire Special Counsel Robert Mueller, whose tenure by regulation is protected by good cause. If so, the court appears unlikely to accept the gambit.
Overall, the argument highlighted that, as a matter of precedent, the petitioner had the far stronger argument. But, doubt remains because for the more liberal wing of the court, the accountability demanded by the appointments clause has to be reconciled with
the need to ensure that front-line adjudicators, not to mention the entire civil service, benefit from the separation and independence granted by Congress. Thus, some justices might re-evaluate the line between inferior officer and employee set in prior cases
to preserve the compromise forged by Congress in civil service legislation and in the APA. Ultimately, however, I predict that the clarion call of precedent will be too hard to withstand. To the court, agency appointment of ALJs likely can be harmonized with
decisional independence, but agency control over removals of ALJs would be a bridge too far.
Harold J. Krent is dean and professor of law at IIT Chicago-Kent
College of Law in Chicago. He is the author of "Presidential Powers."
Disclosure: Krent was a signatory to the Association of Administrative Law Judges' amicus brief in SEC v. Lucia.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for
general information purposes and is not intended to be and should not be taken as legal advice.
[1] Freytag v. Commissioner,
501 U.S. 868 (1991).
[2] Edmond v. United States, 520 U.S. 651 (1997).
[3] 5 U.S.C. 706.
[4] Free Enterprise Fund v. PCAOB, 521 U.S. 477 (2010).
--