SUPREME COURT WILL REVIEW APPOINTMENT REQUIREMENTS FOR SEC’S IN-HOUSE FORUM

The U.S. Supreme Court granted certiorari in Raymond J. Lucia Companies, Inc. v. SEC, No. 17-130, agreeing to review the D.C. Circuit’s 2016 decision that the SEC’s administrative forum’s use of Administrative Law Judges (“ALJs”)—who are not directly appointed by the President or the SEC commissioners—does not violate the Constitution’s Appointments Clause. In doing so, the Court will resolve a circuit split between the D.C. Circuit and the Tenth Circuit, which ruled in Bandimere v. SEC, 844 F.3d 1168 (10th Cir. 2016), that the ALJs are subject to the Appointments Clause. The case will turn on whether the SEC’s ALJs qualify as “inferior Officers” and thus must be appointed by the President, a head of department, or a court, or if the ALJs are merely employees who may be appointed like any other governmental agency employee. In determining that the ALJs were employees, the D.C. Circuit relied heavily on the fact that an ALJ’s initial decision only becomes a final decision when the SEC issues a finality order, and that the SEC must issue a finality order (either through issuing a new decision after a de novo review of the ALJ’s initial decision or by issuing an order advising that it has declined to grant review) in every case.

In November, the Justice Department filed a brief with the U.S. Supreme Court in which it reversed course and argued that the ALJs are subject to the Appointments Clause and that it would not be defending the D.C. Circuit’s decision. The U.S. Supreme Court has invited an outside lawyer to serve as amicus curiae and defend the D.C. Circuit’s decision. In response to the Justice Department’s new position on the matter, the SEC issued an order saying that the Commission, through the commissioners, ratified the prior appointment of the ALJs. While that action may remedy the problem for new cases moving forward, it is unclear what impact it may have on prior decisions. The date for oral argument has not yet been set.