Wednesday, August 10, 2016

D.C. Circuit Rejects Appointments-Clause Challenge to SEC ALJs

The D.C. Circuit yesterday rejected a constitutional challenge to Security and Exchange Commission Administrative Law Judges, ruling that SEC ALJs are not "officers" or "inferior officers" whose appointments need to meet the requirements of the Appointments Clause.

The court also rejected a broadside attack against the way the D.C. Circuit analyzes whether any ALJ (SEC or not) is subject to the Appointments Clause.

The petitioner's challenge was novel and sweeping. A ruling in its favor could have been quite significant, potentially threatening the authority of SEC ALJs, certain ALJs in other agencies, and possibly even ALJs across the board (at least insofar as their appointments don't satisfy the Appointments Clause). But the petitioner's novel claims ran up against circuit law. The ruling is thus a decisive win, if not a totally unpredictable one, for the government.

The case turned on whether SEC ALJs are "officers" (who, under Article II, require presidential nomination and advice and consent of the Senate), "inferior officers" (who, under Article II, may be appointed by the President alone, the courts, or the head of a department, depending on what Congress says), or just employees (who are not covered by the Appointments Clause). Under circuit law, the line between "inferior officers" and employees, in turn, depends on (1) the significance of the matters resolved by the officials, (2) the discretion they exercise, and (3) the finality of their decisions.

The court said that decisions of SEC ALJs are not final under the third prong, and therefore SEC ALJs are employees, not subject to the Appointments Clause. That's because under the law the SEC itself makes the final decision, even if only by passively adopting an ALJ's decision. The court explained:

Until the Commission determines not to order review, within the time allowed by its rules, there is no final decision that can "be deemed the action of the Commission." As the Commission has emphasized, the initial decision becomes final when, and only when, the Commission issues the finality order, and not before then. Thus, the Commission must affirmatively act--by issuing the order--in every case. The Commission's final action is either in the form of a new decision after de novo review, or, by declining to grant or order review, its embrace of the ALJ's initial decision as its own. In either event, the Commission has retained full decision-making powers, and the mere passage of time is not enough to establish finality. And even when there is not full review by the Commission, it is the act of issuing the finality order that makes the initial decision the action of the Commission within the meaning of the delegation statute. . . .

Put otherwise, the Commission's ALJs neither have been delegated sovereign authority to act independently of the Commission nor, by other means established by Congress, do they have the power to bind third parties, or the government itself, for the public benefit.

The court went on to uphold the Commission's finding of liability and sanctions against the petitioner on other grounds.

https://lawprofessors.typepad.com/conlaw/2016/08/dc-circuit-rejects-appointments-clause-challenge-to-sec-aljs.html

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