Rule of Law

Lucia v. Securities and Exchange Commission

In Lucia v. Securities and Exchange Commission, the Supreme Court considered whether the Securities and Exchange Commission’s administrative law judges are Officers of the United States within the meaning of the Constitution’s Appointments Clause.

Case Summary

The Securities and Exchange Commission (SEC) is an independent agency tasked by Congress with regulating the nation’s securities markets.  To assist the five-member Commission with its myriad responsibilities, Congress has permitted the Commission to delegate some of its functions to administrative law judges (ALJs).  ALJs are civil servants who are hired through a competitive process.  In 2012, an ALJ issued an initial decision finding that the Petitioner, Raymond J. Lucia Companies, Inc., violated anti-fraud provisions of the Investment Advisors Act.  Lucia appealed to the Commission, arguing among other things that the administrative proceeding before the ALJ was unconstitutional because the ALJ was a constitutional Officer who had not been appointed in conformity with the Constitution’s Appointments Clause. The Commission rejected this argument, and the Court of Appeals for the D.C. Circuit upheld its ruling. Lucia asked the Supreme Court to review the lower court’s decision, and the Court agreed to do so.

CAC filed a friend-of-the-court brief on behalf of constitutional and administrative law scholars explaining that ALJs are not “Officers of the United States” under the Constitution’s Appointments Clause, and that they therefore do not need to be appointed by the President, a Court of Law, or the Head of a Department.  In our brief, we first explained that Congress enjoys broad authority to shape the structure of the federal government, including flexibility to determine how to appoint federal employees serving as agents of, or subordinate to, Officers.  Second, we described our nation’s long history of Congress granting significant responsibilities to non-Officers, so long as they act as agents of, or subordinate to, Officers.  Consistent with this longstanding tradition, we argued that ALJs are not Officers.  Although SEC ALJs have important responsibilities and exercise day-to-day discretion, their initial decisions do not independently bind the government or third parties without the express order of the Commission, and the Commission reviews ALJ decisions de novo.  For those reasons, ALJs are agents of, and subordinate to, the Commission, and are not Officers in their own right.  Finally, we explained that Petitioners’ reading of the Appointments Clause could cause significant disruption to the operations of the federal government by bringing into question the hiring of thousands of civil servants who exercise significant day-to-day responsibility but act as agents of, or subordinate to, Officers.

The Court ruled that SEC ALJs are “Officers of the United States” under the Appointments Clause. In dissent, Justice Sotomayor, joined by Justice Ginsburg, stated that she “would [have held] that Commission ALJs are not officers because they lack final decisionmaking authority,” i.e., they “can issue only ‘initial’ decisions” and the Commission “can review any initial decision upon petition or on its own initiative.”

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