Notice and Comment Online Symposium on Lucia v. SEC, Contribution by Richard J. Pierce, Jr.

by Guest Blogger — Thursday, Apr. 5, 2018

Four colleagues and I drafted an amicus brief on behalf of neither party that we filed on behalf of 29 administrative law scholars in Lucia v. SEC. The brief took no position on whether Administrative Law Judges (ALJs) are employees or inferior officers. It urged the Court to issue an opinion that respects the decision that Congress made unanimously in 1946 to enact numerous statutory safeguards that assure that ALJs have decisional independence from the agencies where they work while assuring that agencies retain control over the policy content and legal basis for any decision made in an adjudication in which an ALJ presides.

The brief described the fifteen years of study and deliberation that led to the unanimous decision of Congress to enact the Administrative Procedure Act (APA) in 1946. It described the particular attention that Congress devoted to the critical task of providing ALJs with the combination of statutory safeguards that minimize the risk that they will favor the agencies for whom they adjudicate cases while assuring that the agencies retain control of the policy content of any decision made in such an adjudication. The most important of those provisions limits the ability of an agency to remove or to otherwise discipline an ALJ without establishing to the satisfaction of the Merit Systems Protection Board that the agency has cause to remove or to otherwise punish the ALJ.

The brief then described the series of opinions the Supreme Court issued during the 1950s in which the Justices unanimously praised the provisions of the APA that assure that ALJs conduct adjudicatory hearings in an unbiased manner, explained the importance of those statutory provisions in protecting the values reflected in the Due Process Clause, and urged Congress to make those safeguards applicable to all agency adjudications. Our amicus brief concluded by urging the Court to issue an opinion that respects the decision that Congress made in 1946 to insulate ALJs from potential sources of pro-agency bias by including in the APA a combination of provisions that confer decisional independence on ALJs.

The brief was the joint product of the five authors, and we sent a final version to the other 24 scholars who agreed to participate in the brief. Thus, it is fair to attribute the views reflected in the brief to all 29 of the participants. The rest of the views expressed in this contribution to the symposium are mine alone.

Resolution of the Appointments Clause Issue Is Not Important

The Court granted certiorari on only one question in Lucia: Are SEC ALJs employees or inferior officers for appointment clause purposes? A narrowly-written opinion that answers only that question would have trivial consequences. If the Court agrees with the D.C. Circuit panel and holds that ALJs are employees, nothing will change. If the Court agrees with the Tenth Circuit and holds that ALJs are inferior officers, agencies will respond the way that the SEC responded to the Solicitor General’s surprising announcement that he would not defend the government’s position that ALJs are employees but would instead support the petitioner’s position that ALJs are inferior officers who can be appointed only by the Head of a Department.

The SEC had delegated decisions to appoint ALJs to the SEC’s Chief ALJ. When the SG announced that he would not defend the constitutional validity of that method of appointment, the SEC withdrew its delegation of decisions to appoint ALJs to the Chief ALJ and announced that it would make all such appointment decisions itself. It then appointed all of its existing ALJs as ALJs. Thus, in a single order, the SEC created an appointments process that is consistent with the SG’s position that ALJs are inferior officers and used that process to make appointments that insulate all future actions taken by SEC ALJs from any attack based on alleged failure to comply with the appointments clause.

There is no reason to believe that actions of the type the SEC took will have any real effect on any decision of any agency to appoint any individual as an ALJ. Every ALJ still must be determined by the Office of Personnel Management to be qualified to be an ALJ. 5 U.S.C. §5372 requires such a determination as a statutory prerequisite to consideration to be appointed as an ALJ. A narrowly-crafted opinion holding that ALJs are inferior officers who must be appointed by the head of a department would leave that statutory prerequisite to consideration for appointment as an ALJ intact.

Many statutes include limits on the characteristics of the pool of applicants from which an agency in the case of an inferior officer, or the President in the case of a principal officer, can choose appointees. The most common and best known is the limit to no more than a bare majority the number of members of a multi-member agency that are members of the same political party. The Court has never held unconstitutional any statutory limit on the pool of individuals that can be appointed to be an officer or inferior officer.

SEC’s traditional procedure for appointing ALJs was typical of the procedure used by other agencies. SEC delegated the appointment decision to its Chief ALJ. The Chief ALJ then chose either an appointee from the large (1655 at present) number of ALJs who were already working as ALJs at the Social Security Administration at the time they were appointed to be SEC ALJs or from the smaller population of people who had been determined by OPM to be qualified to be ALJs and who had not yet been appointed by any agency.

The SEC’s reasons for delegating the appointment decision to the Chief ALJ are obvious. That agency official is in the best position to evaluate candidates for the position of ALJ. If the Court holds that the SEC can no longer delegate the appointment decision to its Chief ALJ, there is every reason to believe that the SEC will continue to assign the Chief ALJ responsibility for evaluating applicants and for recommending for appointment by the SEC the candidate that the Chief ALJ considers to be most qualified to be an SEC ALJ. The SEC almost certainly will then defer to the views expressed by the Chief ALJ and choose the applicant the Chief ALJ has found to be the most qualified applicant.

Thus, there is no reason to believe that any decision to appoint any ALJ will change as a result of a holding that ALJs are inferior officers. The basic process for choosing applicants to appoint as ALJs will remain the same, and the identities and characteristics of the population of ALJs at SEC and at every other regulatory agency are unlikely to change.

Even in the unlikely event that the process of selecting ALJs changes in some subtle way, any such change would be unlikely to have any effect on agency decisions in cases adjudicated by ALJs because of section 557(d) of the APA: “On appeal from or review of the initial decision [of an ALJ], the agency has all the powers it would have in making the initial decision.” Like virtually every other regulatory agency, SEC has a process through which any party who is dissatisfied with the initial decision of an ALJ can obtain agency review of that decision. Parties who are dissatisfied with the ALJ’s initial decision invariably seek review of the initial decision by the agency itself. Thus, the final agency decision in an adjudication in which an ALJ presided always reflects the views of the agency rather than the views of the ALJ.

Why Are Petitioners Arguing that ALJs are Inferior Officers?

If a narrow holding that ALJs are inferior officers will have no real-world consequences in terms of the people who will be appointed as ALJs or the outcome of cases adjudicated by ALJs, it is fair to ask why parties that lose in SEC cases that were adjudicated by ALJs routinely argue that ALJs are inferior officers who must be appointed by agency heads?

The answer is attributable to the quite different ways in which scholars and practitioners think about the consequences of decisions in cases. To many scholars the decision whether ALJs are employees or inferior officers is of no consequence because it will have no effect on anything that happens at any agency in the future.

Practitioners who represent parties who lose in SEC cases that were adjudicated before ALJs cannot afford the luxury of considering the broad future consequences of any action they take on behalf of their clients. Their sole duty is to represent their clients. From that perspective, a judicial decision that the ALJ who presided in the case was an unconstitutionally appointed inferior officer has the potential to yield enormous benefits to the client.

The client can then make the plausible arguments that the illegitimacy of the presiding officer tainted the proceeding and that the court must vacate the agency’s decision against the client. There are many ways in which such an order might produce a decision more favorable to the party, e.g. an SEC headed by different Commissioners might see the case differently. Thus, lawyers who represent parties who have lost in SEC cases in which ALJs presided are appropriately furthering their clients’ interests even if a change in the status of ALJs has no real-world effect on any future agency action.

Why Did We File a Brief in Lucia?

If resolution of the only issue on which the Court granted certiorari will have no actual consequences, it also fair to ask why 29 scholars agreed to file an amicus brief in Lucia. The answer is that, while a narrowly written opinion holding that ALJs are inferior officers would have no real world effect, a broadly worded opinion in support of such a holding could have major effects.

When Congress enacted the APA in 1946, it included six provisions that are designed to insulate ALJs (then called hearing examiners) from control by the agencies where they work. Those provisions are intended to eliminate the incompetence and pro-agency bias that characterized the actions of many ALJs before Congress enacted the APA. While each of those provisions is important, the most important is 5 U.S.C. 7521. That provision prohibits the agency from imposing any penalty on an ALJ, including removal from office, except “for good cause established and determined by the Merit Systems Protection Board on the record after opportunity for hearing before the Board.”

The scholars who participated in the brief believe that the statutory safeguards of the decisional independence of ALJs in the APA are important to minimize the risk that ALJs will make decisions in their capacities as presiding officers that reflect pro-agency bias. We also believe that a broadly worded opinion in Lucia could include either language that places those safeguards at imminent risk or language that has the effect of insulating those safeguards from the risk of future judicial nullification.

Our concern about the risk that the Court might issue an opinion in Lucia that placed the ALJ safeguards at risk was based primarily on the Court’s 2010 opinion in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477. In that opinion the Court held that the vesting clause in Article II of the Constitution precludes Congress from conferring on the members of the Board two or more layers of good cause insulation from the President’s power to remove even an inferior officer. Even though the Court included a footnote in which it stated that its opinion did not necessarily apply to ALJs, many people have interpreted the opinion to apply to any inferior officer. If the Court applies the Free Enterprise Fund holding to all officers, including ALJs, the statutory restriction on agency removal of ALJs without cause in the APA is unconstitutional. Depending on the agency for whom the ALJ works, an ALJ is insulated from removal by at least two and sometimes more than two layers of good cause protection.

We had reason for concern that the Court might address and resolve the removal issue in its opinion in Lucia. Some people, including the SG, believe that the appointment issue and the removal issue are so intertwined that the Court must address both at the same time.

The SG’s brief in support of Lucia’s petition for writ of certiorari included two surprises. First, the SG announced that it would not support the SEC’s position that ALJs are employees; it would instead support Lucia’s position that ALJs are inferior officers. Second, it urged the Court to grant certiorari on both the appointments issue and the removal issue. The SG noted that, while Lucia had not raised the removal issue, many similarly situated parties had raised it in other cases; the D.C. Circuit was holding one such case in abeyance pending issuance of the Supreme Court’s decision in Lucia; and the SEC and other regulatory agencies were uncertain about the validity of their usual methods of adjudicating cases because of uncertainty about both the appointment issue and the removal issue.

The Court refused to include the removal issue in the scope of it grant of certiorari, but the SG persisted with its argument that the two issues are so intertwined that they must be decided at the same time. The SG devoted 17 pages of its brief on the merits to the removal issue. The SG argued that (1) the Court should address removal at the same time that it addresses appointment; and (2) the Court should apply the Free Enterprise Fund reasoning to ALJs. The SG also argued that the Court should either interpret the “for cause” limit on the removal power narrowly so that an agency can remove an ALJ for virtually any stated cause or hold that the for cause limit is unconstitutional because it violates the vesting clause.

The SG’s position that the Court should resolve the removal issue in Lucia increases the likelihood that the Court will write a broadly worded opinion in Lucia that addresses the removal issue in some way. If so, those of us who participated in the amicus brief hope that the opinion is one that acknowledges and reaffirms the Court’s support for the APA provisions that Congress enacted to insure that agency ALJs preside in a manner that is both competent and unbiased.

What is the SG’s Agenda?

The briefs the SG has filed in Lucia suggest strongly that he wants to create a legal regime in which every federal employee who has any significant responsibilities is an officer or inferior officer. He also wants to create a legal regime in which each such officer is subject to plenary control either directly by the President or indirectly by the President acting through the agency heads that he appoints and can remove at any time. If that is his agenda, he is making two serious mistakes by starting his attempt to implement his agenda in Lucia.

First, he is making a tactical mistake by urging the Court to address the removal issue in the context in which the case for conferring plenary removal power on agency heads is weakest and the need for some degree of insulation of employees from control by agency heads is most obvious. The argument in support of restrictions on the removal power is strongest when an individual has only the responsibility to adjudicate cases involving the rights of individuals. That is the sole role of an ALJ. Conversely, the argument that restrictions on removal interfere with the President’s implementation of the power vested in him by Article II of the Constitution is strongest when the restrictions have the potential to interfere with the President’s discretion to make policy decisions.

The SG should have deferred his initial effort to persuade the Court to adopt a broad interpretation of the Free Enterprise Fund holding until the Court considers a case like PHH Corp. v. CFPB, 839 F. 3d 1 (2016), rev’d en banc 881 F. 3d 75 (D.C. Cir. 2018). In that case, a D.C. Circuit panel held that the statutory limit on the President’s power to remove the head of the Consumer Financial Protection Board violates the vesting clause. The en banc D.C. Circuit divided in the process of overturning the panel decision, but Judge Kavanagh made a powerful argument in his dissenting opinion that the head of the CFPB has far too much policy making power to be insulated from the removal power of the President.

By contrast, ALJs have no power to make any policy decision. Congress included section 557(d) in the APA to insure that agencies retain complete power over the policy and legal content of any decision issued in an adjudication in which an ALJ has presided.

The SG’s second mistake was political. Congress included the limitation on an agency’s power to remove an ALJ in the APA in response to the widespread complaints of regulated firms that the hearing examiners (now ALJs) who were subject to potential removal by the agencies for which they worked were biased in favor of the agency and illustrated that bias by systematically making procedural and evidentiary rulings in favor of agencies in the cases in which they presided. Several studies had confirmed the existence of that pro-agency bias.

The APA was enacted unanimously by both Houses of Congress because the groups that had been debating this issue for fifteen years finally agreed on a method of minimizing the risk that ALJs would behave in ways that reflected pro-agency bias. Regulated firms are unlikely to be pleased when they learn that the SG is now attempting to eliminate the statutory safeguards against pro-agency bias that Congress created at their behest. Regulated firms will be much less likely to support the Trump Administration and the Republican Party when they learn that the Administration is doing its best to restore the bias against regulated firms that infected the agency process of adjudication before Congress enacted the APA.

Richard J. Pierce, Jr. is Lyle T. Alverson Professor of Law at George Washington University. 

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

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

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One thought on “Notice and Comment Online Symposium on Lucia v. SEC, Contribution by Richard J. Pierce, Jr.

  1. Andrew S. Pearlstein

    I agree with every word of Professor Pierce’s post. My only quibble is that why should we have to worry whether the Supreme Court’s opinion will be so narrowly written — if it finds that ALJs are inferior officers — that it will foreclose further attempts to eliminate the removal and other APA safeguards of ALJ impartiality? Those attempted challenges are already coming, including of course in the SG’s brief. The only way those arguments can be completely prevented from continuing to bubble up is if the Supreme Court rules that SEC ALJs are employees, as the Government previously maintained for the past 70 years, and as intended by Congress in the APA. If the SG wants to start dismantling the “administrative state” and to eviscerate the APA, the appropriate vehicle is through Congressional legislation, not this case.

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