Federal Courts and Nominations

Trump’s War on ‘Deep State’ Judges

The administration wants the Supreme Court to make it easier for politically appointed agency heads to fire in-house jurists.

For years, Ray Lucia was a nationally syndicated radio host and financial adviser who crisscrossed the U.S. touting his Buckets of Money retirement plan. Using data that regulators later argued were fake, he wowed audiences with presentations showing how his investment strategy would have protected nest eggs in the booms and busts of the 1960s and ’70s. In 2015, endorsing an administrative law judge’s finding that Lucia misled retirees, the Securities and Exchange Commission kicked him out of the financial advice business.

On April 23, Lucia’s appeal will be heard in the U.S. Supreme Court, with Lucia arguing that the judge who first ruled against him wasn’t appointed properly. Siding with him—and against the SEC’s long-standing position—will be the Trump administration. The move amounts to a broadside aimed at the 1,900 administrative law judges (ALJs) who help federal agencies enforce laws and are a key part of the administrative “deep state” that Trump has vowed to dismantle.

The case hinges on whether these judges are “officers,” a constitutional designation that could make them easier for politically appointed agency chiefs to fire. White-collar defense lawyers, right-wing think tanks, and the Chamber of Commerce argue that they are officers. A November brief by Solicitor General Noel Francisco, the administration’s top Supreme Court lawyer, marked the first time the White House agreed.

If successful, the challenge could erode the independence of judges at federal agencies. In a Supreme Court docket full of big cases, Lucia “may be the sleeper,” says Brianne Gorod, chief counsel for the Constitutional Accountability Center, a liberal think tank in Washington. In a separate case in May, Judge Carlos Lucero of the 10th Circuit Court of Appeals wrote that the effort to attach the officer designation “threatens to unravel much of our modern regulatory framework” and “places the legitimacy of our administrative agencies in serious doubt.”

Trump has made no secret of his antipathy toward Washington bureaucracy. Administrative law judges are integral to how the federal government operates. They hold hearings and make initial rulings on anything from SEC violations to black lung benefits. They’re also judicial workhorses, handling five times as many cases—more than 1.5 million a year, according to the administrative judiciary’s estimate—as are filed in federal district court.

Traditionally they haven’t been considered officers, a designation that requires appointment by the president, the president’s appointees, or a court. Until Trump, the federal position was that ALJs are employees without enough authority to fit that designation. Solicitor General Francisco reversed that, arguing on behalf of the SEC that its original position was wrong. The court then had to appoint a private attorney to defend the SEC’s prior stance.

The critique of ALJs is that they’re both too independent and not independent enough. They’re hired on a merit basis through the Office of Personnel Management and can be fired only for cause by the Merit Systems Protection Board. Congress sets their pay. They aren’t eligible for agency bonuses or subject to agency performance reviews.

That independence was on display the same day Francisco filed his Lucia brief. William Moran, the ALJ who reviews mine safety enforcement actions from the Department of Labor, sent back a proposal from Labor Secretary Alexander Acosta that reduced safety fines for a mining company by 82 percent. “As with virtually all of his settlement motions,” Moran wrote of the secretary, the proposal was “fact free.”

The opposite complaint—that ALJs aren’t independent enough—is leveled most often at the SEC, where, according to a Chamber brief in the Lucia case, “increased use of in-house administrative proceedings” in lieu of litigation in federal court has had “one indisputable result: The Commission prevails much more frequently.” The claim stems from an oft-cited 2015 Wall Street Journal article that said the SEC has a lopsided win rate in cases that begin before ALJs. Academics have since debunked that finding.

To Lucia, the bias is obvious. With an ALJ, “the Division of Enforcement brings a case and pretty much knows they’re going to win,” he says. Lucia argues that the SEC held his Buckets of Money presentation to a legal standard that didn’t exist and found no victims: “A federal judge would have thrown this out. They would have said, ‘Wait a minute, where’s the proof that this person has misled someone?’ ”

Lucia’s promotional presentation tracked what would have happened to four fictional families had they retired with $1 million in 1966 or 1973 and invested in different ways. The family using Lucia’s strategy, which included real estate investment trusts, quadrupled their money. The others earned less or went broke. The presentation used inaccurate historical data that made REITs unrealistically attractive, the SEC said. Lucia’s firm was paid by REIT issuers and also earned commissions through affiliated brokers, according to the SEC.

Should the court conclude that ALJs are officers, the ramifications could take a while to become clear. Lucia wants the case dismissed, but the SEC is unlikely to agree. The Supreme Court might let lower courts sort out what it means for pending cases. The bigger impact could be long-term, if and when the high court decides to let agency heads fire those who don’t adhere to administration priorities, such as mine safety judge Moran.

That would make the ALJs more politically vulnerable and, as Francisco wrote, “safeguard the president’s power to control and supervise the executive branch.” A ruling for Lucia “could destabilize the modern federal government,” says Gorod of the Constitutional Accountability Center. “It’s not surprising that conservative opponents of the administrative state might welcome that outcome,” she says. “But it’s quite stunning to see the federal government itself push for this result.”

BOTTOM LINE – The Lucia case could redefine the role of administrative law judges and be the sleeper decision in a blockbuster term for the Supreme Court.

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