Article II - Appointments Clause - Officers of the United States - Lucia V. SEC

Harvard Law Review, November 2018 | Go to article overview

Article II - Appointments Clause - Officers of the United States - Lucia V. SEC


Perhaps one of the most durable effects of the Trump Administration will be its heretofore successful attempt to remake the federal judiciary. In its first two years, the Administration has appointed more federal judges than any of its recent predecessors. (1) While most attention has been paid to the Administration's rapid appointment of Article III judges, equally significant are its efforts at gaining more control over Article I administrative law judges (ALJs). Last Term, in Lucia v. SEC, (2) the Supreme Court held that ALJs of the Securities and Exchange Commission (SEC) were "'Officers of the United States[]' subject to the Appointments Clause." (3) In response, the Trump Administration issued an executive order exempting all ALJs from competitive civil service hiring requirements and requiring them to be appointed by a head of department. (4) The executive order concludes that, under Lucia, "at least some--and perhaps all--ALJs are 'Officers of the United States.'" (5) This conclusion is defensible. But Lucia also includes language emphasizing the "adversarial" nature of the hearings overseen by SEC ALJs, which could provide a basis for limiting its holding in the future and protecting the decisionmaking process of ALJs from undue politicization.

Raymond Lucia came to the attention of the SEC when promoting "Buckets of Money," a retirement wealth-management strategy, on his daily radio show, at seminars, and in several books. (6) Alleging violations of the antifraud provisions of the Investment Advisers Act and the rule against misleading advertising, the SEC brought an administrative enforcement action against Lucia and his corporation. (7) An ALJ subsequently found Lucia liable for fraudulent and misleading marketing practices and imposed sanctions. (8)

On appeal to the SEC, Lucia argued that SEC ALJs are "Officers of the United States" that must be appointed in accordance with the Appointments Clause. (9) Under the Appointments Clause, the appointment of inferior "Officers of the United States" may be vested by Congress "in the President alone, in the Courts of Law, or in the Heads of Departments." (10) "Officers" are distinct from "mere employees" of the executive branch, whose appointments fall outside the strictures of the Constitution. (11) Individuals who "exercis[e] significant authority pursuant to the laws of the United States" are considered officers. (12) And although the SEC itself is a "Head[] of Department," the SEC had delegated the appointment of ALJs to SEC staff members. (13) Thus, Lucia contended, the administrative proceeding was invalid because the presiding ALJ was unconstitutionally appointed. (14) The SEC rejected this argument and found that SEC ALJs are employees, not officers. (15) It also rejected Lucia's challenges to the liability and sanctions determinations. (16)

Lucia petitioned for review in the D.C. Circuit. A panel denied Lucia's petition, unanimously agreeing that SEC ALJs are employees. (17) The court explained that SEC ALJs do not exercise "significant authority pursuant to the laws of the United States" (18) because they "neither have been delegated sovereign authority to act independently of the Commission nor ... do they have the power to bind third parties, or the government itself." (19) Undeterred, Lucia petitioned for rehearing en banc, which was granted. The ten-member en banc court divided evenly and issued a per curiam order denying Lucia's claim. (20) By leaving in place the panel's determination, the en banc order conflicted with Bandimere v. SEC, (21) a Tenth Circuit case holding that SEC ALJs are officers. (22) Lucia petitioned for certiorari to resolve the split between the circuits, (23) and the Supreme Court granted the petition. (24)

The Supreme Court reversed and remanded. Writing for the Court, Justice Kagan (25) declined to elaborate on Buckley v. Valeo's (26) "significant authority" test for differentiating between officers and employees. …

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