Federal Circuit Rules that Expedited Veterans Affairs Removal Procedures Create an Appointments Clause Violation

by Jennifer Mascott — Monday, May 15, 2017@jennmascott

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This past week the Federal Circuit issued a significant decision* interpreting the Appointments Clause in Article II, Section 2 of the Constitution. In Helman v. Department of Veterans Affairs, the court held unconstitutional part of Congress’s new statutory scheme for expedited removal of senior executives in the Veterans Affairs Department (DVA). In the court’s view, the expedited removal structure enacted in 2014 made administrative judges (AJs) so powerful they would have been exercising a level of significant authority permissible only for “Officers of the United States” subject to Article II. The government conceded the AJs are not selected in compliance with Article II; therefore, the expedited removal structure was unconstitutional.

The court first explained:

Prior to the enactment of the Veterans Access Act, senior executives at the DVA could only be removed according to the removal scheme established by the Civil Service Reform Act of 1978, 5 U.S.C. § 1101 et seq. See id. §§ 7541–43. . . .

As part of the Veterans Access Act, Congress created a new executive removal scheme, codified at 38 U.S.C. § 713, to make it easier for the DVA to remove or demote its senior executives. . . .

The key new procedures in the 2014 legislation for purposes of the Federal Circuit’s decision relate to the process for VA senior executives to appeal their demotions or terminations to the Merit Systems Protection Board (MSPB). The court detailed:

[W]ith respect to the MSPB appeal process, § 713 creates an accelerated timeline for appeals to the MSPB and shortens the MSPB appeals themselves. . . . Section 713 also requires the MSPB, pursuant to 5 U.S.C. § 7701(b)(1), to refer all appeals to an administrative judge . . . . 38 U.S.C. § 713(e)(1). . . . In contrast to Title 5, administrative judges’ decisions under § 713 are final and Board or judicial review is prohibited. Id. § 713(e)(2). . . .

The court concluded that

by prohibiting Board review under § 713(e)(2), Congress vests significant authority in an administrative judge in violation of the Appointments Clause. We also conclude that § 713(e)(2) and two related portions of § 713(e) are severable and, thus, the proper remedy for the constitutional flaw in § 713 is to sever those portions of the statute and leave the remainder of the statute intact.

Several aspects of this Appointments Clause determination are noteworthy. To start with, the Tenth Circuit and the D.C. Circuit currently are split on whether even certain administrative law judges (ALJs) are Article II officers. ALJs traditionally have been viewed as more significant and senior officials than AJs within executive adjudicatory schemes. For example, the Administrative Procedure Act (APA) authorizes only ALJs, not AJs, to preside over formal adjudicatory hearings. And it is ALJs, not AJs, who are subject to the APA’s statutory impartiality safeguards such as the wall limiting communication between ALJs and agency prosecutors and investigators.

Nonetheless, under Helman, without the severance of the limitations on MSPB review, at least one brand of AJ would have fallen subject to the transparency and democratic accountability protections of mandatory Article II appointment—while within the D.C. Circuit, ALJs remain outside of those safeguards. (Perhaps the D.C. Circuit will address this apparent discrepancy when it sits en banc later this month to reconsider its ALJ precedents.)

The actual Appointments Clause-related holding of the Federal Circuit is consistent with the D.C. Circuit’s narrow definition of “officer”: A D.C. Circuit panel concluded in August 2016 that ALJs in the Securities and Exchange Commission (SEC) are non-officers because they lack authority to issue final decisions for the SEC. Similarly, the Federal Circuit concluded the MSPB’s AJs were acting as officers under the 2014 scheme, because Congress had in fact authorized them to issue final agency determinations—in contrast to the SEC’s ALJs.

Despite this consistency in outcomes, however, some of the descriptive language in Helman echoes the interpretation of Supreme Court precedent underlying opinions at odds with the D.C. Circuit. The very issue splitting the Tenth Circuit and the D.C. Circuit on the SEC ALJs’ status is the D.C. Circuit’s view that the Supreme Court in Freytag v. Commissioner made final decision-making authority a mandatory prerequisite for Article II “officer” status. The Tenth Circuit, in contrast, viewed final decision-making authority just as an alternative basis for the conclusion in Freytag that Tax Court special trial judges are “officers.” The Tenth Circuit and Judge Randolph, who wrote separately in the D.C. Circuit’s original ALJ opinion in 2000, believe Freytag said additional factors like the amount of one’s discretion and the importance of one’s functions independently can warrant Article II “officer” designation. See here at 12-13 and here.

The Federal Circuit’s opinion similarly describes the authority to issue determinative decisions as an “alternative” basis for “officer” status under Freytag. See here at 13. If the Federal Circuit’s description in Helman and the Tenth Circuit are correct, the D.C. Circuit sitting en banc should reverse its earlier panel decision and conclude the SEC ALJs are “officers.” The ALJs “exercise significant discretion while performing ‘important functions’” and lack only, perhaps, final decision-making authority. See here at 11-15.

Finally, the Federal Circuit suggests that less widely cited language regarding subordination in the seminal Appointments Clause case, Buckley v. Valeo, is an important part of the standard for evaluating “officer” status. Whereas many judicial opinions have focused on Buckley’s “significant authority” standard or Freytag’s references to discretion and the importance of one’s responsibilities, the Federal Circuit cites the Buckley statement that non-officers must be “‘lesser functionaries subordinate to officers of the United States.’” Because AJs’ senior executive appeals decisions were free from internal agency review, the Federal Circuit concluded AJs were not subordinate to any “officer” when issuing the § 713(e) decisions. Thus, the AJs were acting unlike mere employees.

But this portion of the Federal Circuit’s analysis seems not quite right under Supreme Court case law. In Free Enterprise Fund v. PCAOB, the Court indicated an official’s subordinate status hinges not just on whether the official’s work is directed by a superior officer, but also on whether the lower-level official is subject to removal by a higher-level officer. See here at 21, 29-30. Administrative judges are not immune from removal. See here at 1661. Surely the acts for which they theoretically could be removed would have included their job performance in adjudicating employee termination appeals. So, in that sense, the MSPB AJs were subordinate to higher-level officers in their obligation to properly carry out their § 713 adjudication duties—despite the MSPB’s inability to reverse each specific § 713(e) ruling.

An official’s subordinate status is a necessary—but insufficient—qualification for remaining outside the scope of Article II appointments strictures. So, even though the MSPB AJs remained subordinate officials despite their newly acquired final decision-making power, that extra power nonetheless ensured the AJs’ “officer” status under the more frequently cited Freytag factors and Buckley’s “significant authority” test.

What is the upshot of the Federal Circuit’s Appointments Clause determination in Helman?

For starters, the Federal Circuit’s decision severed some of the appeals limitations from Congress’s DVA termination statutory scheme. Under the Federal Circuit’s opinion, the MSPB regains the ability to hear DVA senior executive appeals. On remand in this specific case, the Federal Circuit has indicated that Ms. Helman may ask the MSPB to determine whether its AJs are “officers” in need of proper appointments, even with their termination rulings now subject to agency review.

Perhaps Congress should save the MSPB the time, and enact legislation clearly providing for Article II departmental head appointment of the AJs. See here at 12 n.3 (noting the AJs’ selection by the MSPB’s Director of Financial and Administrative Management). Even without § 713(e)(2) authority, the AJs still will take the initial cut at reaching determinations in important VA executive termination cases. The MSPB very well could determine on remand that the AJs in fact are “officers.” Moreover, proper Article II appointment of AJs would remove the Federal Circuit’s ground for finding Congress’s chosen statutory removal scheme to be unconstitutional. Properly appointing MSPB AJs under Article II is the right thing to do as a constitutional matter; it also would improve the likelihood that congressional enactment of streamlined DVA removal procedures withstands judicial scrutiny.

Jennifer Mascott is an Olin/Searle Fellow in Law affiliated with the Georgetown University Law Center and the George Washington University Law School. Previously she taught Administrative Law as a Professorial Lecturer in Law at the GW Law School and served as a law clerk to Justice Clarence Thomas and D.C. Circuit Judge Brett Kavanaugh. She is the author of Who are “Officers of the United States”?, which analyzes the original public meaning of the Appointments Clause and will be published in the Stanford Law Review in 2018.

* Hat tip to Dmitry Karshtedt for drawing my attention to this opinion and its Appointments Clause significance.

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About Jennifer Mascott

Jennifer Mascott will serve as Assistant Professor of Law at George Mason's Antonin Scalia Law School starting in August 2017. Currently she is an Olin/Searle Fellow in Law affiliated with the Georgetown University Law Center and the George Washington University Law School. Previously she served as a law clerk to Justice Clarence Thomas and to D.C. Circuit Judge Brett Kavanaugh. Her scholarship has been cited by the Supreme Court and has been published or is forthcoming in the Stanford Law Review, the George Washington Law Review, the BYU Law Review, and the Loyola Journal of Regulatory Compliance. http://ssrn.com/author=2653151 Follow her on Twitter @jennmascott.

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