DC Circuit Upholds Constitutionality of SEC’s Use of Administrative Law Judges in First Appellate Ruling
In the first appellate ruling of its kind, the District of Columbia Circuit upheld the SEC’s use of administrative law judges in administrative proceedings as constitutional. The court in Raymond J. Lucia Cos. v. SEC denied Mr. Lucia’s petition for review in which he claimed that the SEC’s use of administrative law judges was unconstitutional.
Lucia argued that administrative law judges are “Officers of the United States” within the meaning of the Appointments Clause in Article II of the Constitution. Lucia urged the court to rule that the SEC’s use of administrative law judges was unconstitutional because those judges have not been appointed by the President, as the Constitution requires. The three-judge panel disagreed and concluded that the SEC’s administrative law judges are inferior officers/employees who are not governed by the clause. In making this determination, the panel considered the significance of the matters resolved by the administrative law judges, the discretion the administrative law judges exercise in reaching their decisions, and the finality of the administrative law judges’ decisions. The court found the last factor dispositive because the Commission ultimately must act to approve an administrative law judge’s decision. “As the Commission has emphasized, the initial decision becomes final when, and only when, the Commission issues the finality order, and not before then . . . . Thus, the Commission must affirmatively act—by issuing the order—in every case. The Commission’s final action is either in the form of a new decision after de novo review or, by declining to grant or order review, its embrace of the ALJ’s initial decision as its own.” Op. at 13. In that sense, the court concluded, administrative law judges have not been “delegated sovereign authority” such that they would come within the purview of the Appointments Clause.
The DC Circuit’s decision deals a significant blow to litigants bringing similar challenges in other federal courts. As other cases become ripe for substantive consideration after jurisdictional hurdles are cleared, this decision provides the SEC’s with strong ammunition to oppose similar constitutional challenges. While the Second and Eleventh Circuits recently addressed issues relating to the SEC’s use of ALJs, the opinions focused on the district court’s lack of jurisdiction to hear the cases because the plaintiffs had not raised their challenges in the SEC’s in-house court first, not the merits of the issues. Unless and until another circuit court rules the SEC’s use of ALJs unconstitutional, creating a split, the issue will likely not reach the Supreme Court.