Mystery and Audacity in Lucia, by Marty Lederman

by Guest Blogger — Monday, Apr. 16, 2018

How to explain Lucia v. SEC? The question presented—whether the Constitution requires the Securities and Exchange Commission itself to appoint its ALJs, rather than delegating that appointment authority to its Human Resources Department—is as a practical matter obsolete, because the agency has now adopted the view, rightly or wrongly, that the Commissioners themselves must do the appointing, and has conformed its practice to that understanding. Yet nevertheless the Court granted cert., many amici have filed briefs, and now slews of academics are opining on the case, including a couple of dozen in this terrific symposium alone.

The mysteries do not end there. For example, as the petitioners and countless of their amici see it, the case is an opportunity to rein in a set of adjudicators who have become beholden to their agency’s regulators and unduly biased against the regulated industries. As my colleague Urska Velikonja, has explained, this characterization of SEC ALJs is certainly open to doubt. Irrespective of the merits of the accusation, however, the industry’s apparent legal strategy is inscruable, because the constitutional claim they are making is that the Commission has not exercised sufficient control over its ALJs at the time of appointment, and the remedy they’re seeking will, if it has any effect at all beyond requiring a handful of rehearings in cases such as Lucia’s, simply make agency “capture” and control of the ALJs more, not less, likely.

On the merits, petitioners and some of their amici suggest the Court should adopt a test for “officer” status that would conform to certain Founding-era dictionaries (see Pet. Br. 16), such as anyone employed by the public, anyone authorized to perform any public duty, or anyone with ongoing responsibility for such duties—without explaining why such “tests” would not render centuries of practice unconstitutional, cover huge swaths of the current federal workforce, and require tens or hundreds of thousands of federal workers to be appointed by the President by and with the advice and consent of the Senate (at least until such time as Congress authorizes Department Heads to appoint those numerous employees).

The most mysterious and troubling aspect of the case, however, is the briefs filed by the Commission itself, signed by the Solicitor General. (As I note at the end of this post, although the Commissioners apparently signed off on the SG’s position, no SEC attorneys agreed to sign his merits brief.) In a post back in January, I took sharp issue with the government’s brief at the certiorari stage, explaining why several aspects of that brief were extraordinary and troubling, a sharp deviation from the practices and traditions of the Office of the Solicitor General. The problems, and anomalies, continue apace in the government’s merits brief, half a dozen of which I will describe here.

The Appointments Clause Question

1. The SG’s Failure to Address Why the Court Should Not Remand Without Reaching the Merits

In Lucia, the Commission abandons the government’s longstanding understanding of the Appointments Clause—that ALJs are not “officers” covered by the Clause—that had been reflected in decades-long practices of the SEC, other agencies, and Congress. The government’s new view is that the SEC’s ALJs are inferior officers who must be appointed in one of the manners described in the Appointments Clause—i.e., by the President (with or without the advice and consent of the Senate), by a court of law, or by the Head of a Department, such as by the Commissioners themselves.

Fortunately, in the case of the SEC the relevant statute accommodates this constitutional view: it authorizes the “agency,” which in this case is a department “Head,” to appoint ALJs to conduct certain proceedings. And so, that is what the SEC has now done: In December, the Commission “ratified” the appointment of its five ALJs. (The Department of Labor followed suit shortly thereafter with respect to its ALJs.) The Commission further ordered that all pending cases, including those that had already been appealed from an ALJ to the Commission, must be reconsidered before a properly appointed ALJ, with an opportunity for the parties to submit new evidence.

In its merits brief, the agency and the SG finally acknowledge—albeit only in passing in a footnote (p.3 n.2)—the crucially important fact of the SEC’s new practice. They do not, however, offer any reason why that new development does not preclude the need for, or wisdom of, a Court decision on the merits.

To be sure, the SG points out that the Commission has not taken any steps to reopen cases, such as Lucia, that were already under judicial review at the time of the SEC’s new ALJ appointment ratifications; citing 15 U.S.C. 78y(a)(3), which provides that a court of appeals’ jurisdiction over a case arising from the Commission becomes “exclusive on the filing of the record,” he implies that the Commission is powerless to reopen such cases while they are within the federal courts’ purview. I’m not sure (because I haven’t researched the question) whether section 78y(a)(3) does, in fact, preclude the SEC from ordering a rehearing of Lucia’s case before a now-Commission-appointed ALJ. If that is the case, however, why doesn’t the agency simply request a voluntary remand, as the Trump Administration has done in several other pending federal court cases involving Obama-era regulations? The brief does not address why such a resolution would not be proper here.

There doesn’t appear to be a very compelling reason for the Court to resolve the merits of an agency practice that no longer exists and that the agency and the Solicitor General have concluded cannot be revived. Therefore, even without an SEC request for a remand, the Court ought to simply vacate the judgment below, and remand the case to the court of appeals, with an order for that court to remand the case to the agency for reconsideration before a newly appointed ALJ (or some other lawful disposition).

2. The SG’s Ahistorical Merits Argument

As for the merits of the Appointments Clause question, the SG fails to offer a compelling reason why the government is now switching its longstanding legal position. The SG’s argument appears to be predicated almost entirely on a reading of Justice Blackmun’s brief Appointments Clause analysis for the Court in Freytag v. CIR (1991)—in particular, on the passage of the opinion in which Blackmun describes the authority of Tax Court “special trial judges” to “take testimony, conduct trials, rule on the admissibility of evidence, and . . . enforce compliance with discovery orders,” all with “significant discretion.” The SG reads this passage as indicating that such adjudicatory functions are sufficient, even standing alone, to create “officer” status for purposes of the Appointments Clause.

That reading of the Freytag passage is not unreasonable; indeed, it may be the more natural reading of the passage. As Court-appointed amicus Anton Metlitsky explains, however, that reading would create significant historical anomalies; would call into question the constitutionality of more than a century’s worth of investigative commissions that have included participants who have not been appointed pursuant to the Appointments Clause, including members of Congress, whose involvement would also violate Art. I, sec. 6, cl. 2 (“no Person holding any Office under the United States, shall be a Member of either House during his Continuance in Office”); would be difficult to administer; and would, on the flip side, do virtually nothing to materially advance the purpose of the Appointments Clause. Metlitsky therefore urges the Court to read the passage to establish “officer” status only for adjudicators who, at most, may enforce compliance with their own discovery orders, and to do so in their own name—something the ALJs at the SEC cannot do.

The SG does not explain how his proposed broader reading could be reconciled with the long, apparently contrary, history of practice by the political branches, nor with the Department of Justice’s longstanding understandings (such as in this OLC opinion, which explains why the powers to issue subpoenas and to take testimony from sworn witnesses do not an “officer” make). Perhaps he will do more on this score in his reply brief, to be filed later today. For now, however, what is striking—and very uncharacteristic—about the SG’s merits brief is just how little attention it gives (i.e., virtually none) to historical precedents and understandings. (Compare, for example, the very detailed historical account in this recent OLC opinion on the scope of “officer,” virtually all of which the SG ignores in his brief.)*

3. The SG’s Failure to Address the Practical Implications of Its Argument

As Neil Kinkopf describes in far greater detail, the SG’s brief also alarmingly (and again, uncharacteristically) fails to inform the Court what the practical impacts of its proposed holding would be on the operation of countless current and historical Executive branch actors.

To take but one obvious example: It is common ground that the authority to arrest individuals—to deprive them of their liberty—is a “sovereign power” of the federal government that can establish “officer” status if someone in a continuing position in the government is authorized to exercise it (see, e.g., the 2007 OLC Opinion at 88). Yet countless agents in the FBI, the DEA, the BOP, the ATF, the Marshal’s Service, etc., have that authority. It would therefore appear, at least on the SG’s view, that they would all have to be appointed by the President, by and with the advice and consent of the Senate, or, at a minimum, and if Congress so provides, by the heads of their Departments (i.e., in the case of FBI, DEA and BOP employees, by the Attorney General). Can that really be what the Constitution requires? Not according to Amicus Metlitsky, because such agents do not effect arrests in the name of their own “office.” The SG’s argument, however, would appear to lead to such a radical and counterintuitive result—or at least he has not (yet) explained why that wouldn’t be the case. To similar effect, see page 30 of the Constitutional and Administrative Scholars’ amicus brief,, suggesting that the government’s position might require presidential/senatorial appointment of many of the more than 3600 career officials in the Senior Executive Service—and to cast a constitutional shadow over the legality of all of their conduct unless and until that happens.

And to what end? The SG does not explain what possible constitutional principle, or value, would be served if the Court were to adopt his broad view of “officer” status. After all, when it comes to the ALJs, in particular, a constitutional holding that they are “officers” would simply result in exactly what the SEC has already done here—namely, what appears to be a pro forma ratification of the appointments. That does not result n any material increase in accountability on behalf of the Commission, let alone the President, in cases where an ALJ is perceived to have erred—particularly at the SEC, where the Commission will be held responsible for the ALJs’ actual, final decisions, which only the Commissioners themselves can enter. To the contrary, such a practice of (apparent) rubber-stamping will, if anything, only dilute the value and imprimatur of a Department’s appointments overall.

The Removal “Question”

Yet even for all of that, the SG’s views on (and failures to address important aspects of) the Appointments Clause question presented are not the most audacious thing about the government’s brief. That prize goes to the 15+ pages of the brief addressing, and calling into question, the constitutionality of the federal statute prescribing the manner in which ALJs may be removed.

At the cert. stage, the SG asked the Court to expand the Question Presented to include an additional constitutional challenge to the removal statute, which provides that only the Commission itself can remove ALJs from office, and then “only for good cause established and determined by the Merit Systems Protection Board.” 5 U.S.C. 7521(a). The SG’s argument was predicated on the fact that this creates a form of “double-for-cause” removal protection, because the President can only remove the members of the MSPB and (probably) Commissioners on the SEC itself for “good cause,” e.g. (as to the MSPB), “only for inefficiency, neglect of duty, or malfeasance in office.” 5 U.S.C. 1202(d).

The SG’s request for the Court to consider this additional question about the constitutionality of a longstanding federal statute was remarkable and, as I wrote in my earlier post, not in keeping with the usual standards of the Office of the Solicitor General. Not only is there not a circuit split on the question, but no federal court has ever held that the ALJ removal protections are unconstitutional, and no court of appeals has even opined on the question, one way or the other. This is hardly surprising, because it’s far from obvious that actors in the regulated community would be keen to invite, let alone urge, a Supreme Court holding that the SEC must be able to remove ALJs at will. Accordingly, the petitioners themselves have not raised the question in their case, let alone in their petition; indeed, they specifically asked the Court not to address it.

Most importantly, perhaps, Lucia also asked the Court to specifically add an additional Question Presented if the Court wanted the parties to brief the question. Yet the Court, not surprisingly, chose not to add the SG’s additional question about removal.

Which ought to have been the end of the matter. Yet the SG spends a good portion of his merits brief not only addressing the question, but actually arguing that the “good cause” protection, read in its usual manner, would be unconstitutional, and also arguing that the Court therefore should construe “good cause” very capaciously, to include removals on grounds that Congress obviously did not intend and that would threaten to radically affect the independence not only of ALJs, but also many other federal officials, including the members of the Board of Federal Reserve and Special Counsel Robert Mueller.

4. The SG’s Argument for Why the Removal Question is Before the Court

The SG tries to justify his discussion of the removal question by contending (p. 39-40 n.7) that it is fairly encompassed within the actual Question Presented, because in his view Congress’s authority to impose removal restrictions turns in part on whether the relevant appointee is an officer under the Appointments Clause. That’s incorrect. Whether or not ALJs are “officers” for purposes of the Appointments Clause is a question entirely distinct from whether Congress’s prescribed method for removing ALJs “impermissibly burdens the President’s power to control or supervise” such actors “in the[ir] execution of . . . duties under the Act” and thereby “interfere[s] impermissibly with his constitutional obligation to ensure the faithful execution of the laws.” Morrison v. Olson, 487 U.S. at 692-93. To be sure, evaluation of the ALJ’s particular functions, and of the SEC’s supervisory authority over such ALJs, is relevant to both questions, and it’s difficult to imagine any “employee,” not covered by the Appointments Clause, for whom Congress may not provide “for cause” removal protection; nevertheless, the answer to the “officer or employee?” question for Appointments Clause purposes does not resolve, or even affect, the question of whether particular removal restrictions are constitutional.

Accordingly, the removal question is not fairly encompassed within the Question Presented, which is yet another reason the Court should not, and almost surely will not, reach it.

5. The SG’s Extraordinary Position on the Constitutionality of the Removal Provisions

The government argues (p.53)—as far as I know for the first time ever—that if the Court does not adopt the SG’s proposed limiting constructions (discussed below), then the statutory “good cause” removal standard for ALJs would actually be unconstitutional. In so doing, the SG does not even discuss the Court’s traditional deference to congressional efforts to protect the independence of adjudicatory officials, see Wiener v. United States, 357 U.S. 349 (1958), nor the fact that Chief Justice Roberts, in FEF v. PCAOB, cited that tradition as a reason that perhaps “double for-cause” removal authority is not constitutionally fatal as to such actors. Nor does the SG take account of the many ways in which the SEC exercises control over the conduct of ALJs. For example, the Commission is not required to delegate authority to its ALJs at all; it can withdraw such authority if it is unhappy with the way the ALJs are exercising it; it can—as it has done—refuse to authorize ALJs to issue binding, final decisions; and, most importantly, the Commission can refuse to enforce any and all ALJ decisions with which it disagrees. The agency, in other words, has the power to review and countermand all aspects of ALJ decision-making (whereas, for example, the Commission did not have plenary power to review the PCAOB’s decision to initiate an investigation in FEF v. PCAOB). The SG does not explain why, in light of all these methods of control, the ALJs’ “good cause” removal protection prevents the President from exercising his obligation to ensure that the law is faithfully executed.

6. The SG’s Even More Alarming Construction of the “Good Cause” Removal Standard

Perhaps the most extraordinary thing about the SG’s brief is his argument that, in order to avoid allegedly serious constitutional concerns, the Court should construe the “good cause” removal criterion very broadly. Because the SG uses several different formulations to describe what he thinks the standard ought to be, it’s difficult to determine precisely what he has in mind. (This is one of the dangers of construing a removal standard in the abstract, without regard to any actual cases of removal.) Some of the SG’s proposed permissible grounds for removal are probably unobjectionable in the context of ALJs—indeed, they reflect current practice, such as allowing removal of an ALJ who “ignor[es] binding agency interpretations of law” or who makes a “large proportion” of “significant” adjudicatory errors. The SG goes much further, however, referring also to an ALJ’s “failure to perform his duties adequately”; “deficient job performance”; and, most broadly of all, suggesting that “good cause” removal can be based upon “any ground which is put forward by authorities in good faith and which is not arbitrary, irrational, unreasonable or irrelevant to the duties with which such authorities are charged.” The brief even argues that the removing official may consider a particular adjudication by an ALJ, after its rendition, “as a reason for removing the officer, on the ground that the discretion regularly entrusted to that officer by statute has not been on the whole intelligently or wisely exercised.”

These notions of “good cause” almost surely do not reflect the independence that Congress has intended to ensure for ALJs.

Moreover, if the Court were to adopt the SG’s constructions of what constitutes “good cause” for removal, it might have an even more consequential impact on other officials who are similarly protected by “good cause” or “for cause” removal provisions. Think, most obviously, of the DOJ Special Counsel for the Russia investigation. Can an Acting Attorney General remove Robert Mueller merely for “failure to perform his duties adequately,” or for any non-arbitrary reason? And what about members of the Federal Reserve Board? The SG repeatedly argues that a failure to follow “agency policies” would be “good cause” for removal. Whereas that requirement might not be so problematic when it comes to ALJs, it would wreak havoc with the traditional role of the Fed, which has long been understood to have an independent authority to set interest rates and to establish make national monetary policy without being constrained by the President’s preferred policy choices. The SG does not offer even a hint of the possible breadth of his “good cause” constructions, let alone defend their possible, dramatic ramifications.

* * * *

These many audacious aspects of the SEC’s brief no doubt explain why no attorneys from the Commission itself signed the brief—which is, as far as I can tell, a singular deviation from the historic practice. (A quick Westlaw search reveals that in at least 18 cases between 1940 and last March’s Kokesh brief, SEC lawyers have signed every merits brief filed on behalf of the Commission . . . until Lucia.)

* The SG also places weight on the fact that Congress has authorized the SEC to give ALJs the power to issue decisions that would be “deemed the action of the Commission.”  15 U.S.C. 78d-1(c).  As Amicus Metlitsky points out, however, the SEC has not in fact afforded ALJs the authority to issue such final decisions—their adjudications do not have legal effect unless or until the Commission itself adopts them.  Moreover, even if the SEC did so, those decisions would—by the very terms of the statute—be deemed not the decisions of the ALJs, but of the Commission itself, and therefore the Commissioners themselves, who have been appointed in conformity with the Appointments Clause, would be fully responsible and accountable for those decisions, which is as it should be.  The SG’s apparent argument—that the ALJs are Appointments Clause “officers” merely because Congress has authorized the agency to give them the power to issue final decisions—would prove far too much.  After all, that statute, like countless delegation statutes in the federal code, affords the head of the department the authority to delegate important functions not only to ALJs but to any department “employee,right down to the cooks in the kitchen and the telephone operators.  Surely, the fact that the Commission has the power to delegate such authority to those employees does not render them “officers” for purposes of the Appointments Clause, for if it did, the President and the Senate would have to appoint each and every one of them (unless Congress later provided for their appointment by Department heads, which would be almost as absurd).

This post is part of a symposium on Lucia v. SEC.  All of the posts can be read here.

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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