Contributions

Fitting Administrative Law Judges into Appointments Clause Jurisprudence (and Determining the Proper Forum to Do So)

By Jor­dan Gary 1

Admin­is­tra­tive enforce­ment of the secu­ri­ties laws can offer a faster, more effi­cient path to jus­tice that is presided over by offi­cials pos­sess­ing far more sub­ject mat­ter exper­tise than most Arti­cle III judges. How­ev­er, by the same token, there is a dense body of both admin­is­tra­tive and con­sti­tu­tion­al law that must be nav­i­gat­ed in order to ensure the pro­pri­ety of admin­is­tra­tive pro­ceed­ings. As agen­cies like the Secu­ri­ties and Exchange Com­mis­sion (SEC) have grown in size and pow­er, there has been increased scruti­ny of those to whom the agency del­e­gates its vast author­i­ty. 2 At the front line of most agency enforce­ment in the SEC and oth­er agen­cies are admin­is­tra­tive law judges (ALJs), who per­form many of the same func­tions as an Arti­cle III judge with two chief excep­tions: they are bound by dif­fer­ent pro­ce­dur­al and evi­den­tiary rules (those of the agency, as opposed to the fed­er­al judi­cia­ry) and are employ­ees of the pros­e­cut­ing agency (as opposed to being part of an inde­pen­dent judi­cia­ry). Their deci­sion in a giv­en pro­ceed­ing then goes to the Com­mis­sion itself, which can adopt it, reject it, or hold new pro­ceed­ings. The key chal­lenge lev­eled against these ALJs is whether or not they are infe­ri­or offi­cers of the Unit­ed States under the Appoint­ments Clause of the Con­sti­tu­tion. If so, their cur­rent method of appoint­ment is con­sti­tu­tion­al­ly deficient.

Com­pound­ing this already dif­fi­cult legal issue is cru­cial thresh­old ques­tion: where does a respon­dent in an admin­is­tra­tive pro­ceed­ing go about mak­ing this argu­ment in the first place? To many, the instinc­tu­al response is to go to a dis­trict court for injunc­tive relief: if the SEC pro­ceed­ing is in vio­la­tion of the con­sti­tu­tion and dis­trict courts have juris­dic­tion over con­sti­tu­tion­al issues, 3 then the issue seems cut-and-dry. How­ev­er, just as Con­gress can grant juris­dic­tion to the courts, it can take it away, and in craft­ing the admin­is­tra­tive scheme of which SEC admin­is­tra­tive law judges are a part, Con­gress strong­ly indi­cat­ed a desire for ini­tial admin­is­tra­tive review of all issues, with even­tu­al judi­cial review before a court of appeals.

This arti­cle will argue first that a par­ty seek­ing to chal­lenge the con­sti­tu­tion­al­i­ty of the SEC’s use of admin­is­tra­tive law judges must go through the admin­is­tra­tive process before mak­ing this con­sti­tu­tion­al argu­ment to an Arti­cle III court. Sec­ond, the con­sti­tu­tion­al issue itself—whether SEC admin­is­tra­tive law judges are infe­ri­or officers—should be answered in the negative.

*****

The fed­er­al courts of the Unit­ed States pos­sess lim­it­ed sub­ject mat­ter juris­dic­tion, such that “Con­gress decides, with­in con­sti­tu­tion­al bounds, whether fed­er­al courts can hear cas­es at all.” 4 While Con­gress has giv­en dis­trict courts a wide grant of juris­dic­tion in the form of fed­er­al ques­tion and diver­si­ty juris­dic­tion, 5 there are com­pelling rea­sons to lim­it this juris­dic­tion in oth­er areas. For exam­ple, when Con­gress has del­e­gat­ed enforce­ment of a statu­to­ry scheme to a par­tic­u­lar agency, such as the SEC, courts are gen­er­al­ly reluc­tant to let respon­dents avoid this scheme by going to a dis­trict court. 6 This pol­i­cy allows the nor­mal admin­is­tra­tive process to run its course with­out unnec­es­sary inter­rup­tion. Any par­ty still aggriev­ed by the final deter­mi­na­tion of the agency can, of course, get review before a cir­cuit court as pro­vid­ed in the Admin­is­tra­tive Pro­ce­dure Act or, in the case of the SEC, in the Secu­ri­ties Exchange Act. 7

Nor­mal­ly, the juris­dic­tion­al deter­mi­na­tion is rel­a­tive­ly sim­ple: either the statu­to­ry review scheme will specif­i­cal­ly men­tion the degree of dis­trict court involve­ment or the issue will very evi­dent­ly be one that the agency was meant to deter­mine in the first instance. 8 When nei­ther of these are present, as in the case of a con­sti­tu­tion­al chal­lenge to SEC admin­is­tra­tive law judges, courts use the test estab­lished by the Supreme Court in Thun­der Basin Coal Co. v. Reich. 9 This test first asks the thresh­old ques­tion of whether the statute estab­lish­es a “fair­ly dis­cernible intent” to pre­clude dis­trict court review. The Court has not made this a par­tic­u­lar­ly rig­or­ous inquiry and has very recent­ly stat­ed that “[g]enerally, when Con­gress cre­ates pro­ce­dures designed to per­mit agency exper­tise to be brought to bear on par­tic­u­lar prob­lems, those pro­ce­dures are to be exclu­sive.” 10 Next, the Thun­der Basin test asks, “[1] if a find­ing of preclu­sion could fore­close all mean­ing­ful judi­cial review; [2] if the suit is whol­ly col­lat­er­al to a statute’s review pro­vi­sions; and [3] if the claims are out­side the agen­cy’s exper­tise.” 11

Not sur­pris­ing­ly, the “mean­ing­ful review” inquiry is typ­i­cal­ly regard­ed by courts as the most impor­tant fac­tor in the test. 12 Afford­ing a com­plain­ing par­ty the fastest pos­si­ble relief has nev­er been a con­sti­tu­tion­al require­ment, 13 and the Court has often observed that “the expense and annoy­ance of lit­i­ga­tion is part of the social bur­den of liv­ing under gov­ern­ment.” 14 Some mean­ing­ful review, of course, is an essen­tial man­date of due process and one that is pro­vid­ed for in the Secu­ri­ties Exchange Act by allow­ing any­one aggriev­ed by the final deci­sion of the Com­mis­sion to obtain review before a cir­cuit court of appeals. 15

The sec­ond prong of the Thun­der Basin test asks whether the con­sti­tu­tion­al issue is “whol­ly col­lat­er­al” to the admin­is­tra­tive pro­ceed­ing. At first, this would seem to be the case where a plain­tiff is chal­leng­ing the qual­i­fi­ca­tions of the one pre­sid­ing over the pro­ceed­ing itself—i.e., the ALJ. How­ev­er, the Court indi­cat­ed that it had some­thing else in mind in Elgin v. Depart­ment of Trea­sury, 16 when it held that the petitioner’s con­sti­tu­tion­al claims were not whol­ly col­lat­er­al to the agency pro­ceed­ing because they were “the vehi­cle by which [the peti­tion­ers] seek to reverse the [agency deter­mi­na­tion].” 17 Accord­ing to the D.C. Cir­cuit, claims are not whol­ly col­lat­er­al when they are mere­ly serv­ing as a means “to short-cir­cuit the admin­is­tra­tive process through the vehi­cle of a dis­trict court com­plaint.” 18 This sets a high bar for plain­tiffs seek­ing to cir­cum­vent the SEC admin­is­tra­tive process. Any con­sti­tu­tion­al claim must be more than a vehi­cle for an admin­is­tra­tive respon­dent to escape liability—it must be an end in itself. A good exam­ple of a ‘non-vehi­cle’ claim is Free Enter­prise Fund, where the par­ty bring­ing a con­sti­tu­tion­al claim against the SEC. 19 had not been accused of any wrong­do­ing by the agency—in oth­er words, the plain­tiffs were out­side of the admin­is­tra­tive scheme.

The Thun­der Basin Court itself regard­ed the final factor—agency expertise—as some­thing of an after­thought, not­ing that “[e]ven if” the agency did not have exper­tise with regard to these chal­lenges, “peti­tion­er’s statu­to­ry and con­sti­tu­tion­al claims here can be mean­ing­ful­ly addressed in the Court of Appeals.” 20 Even when scru­ti­niz­ing this fac­tor, the Court has been extreme­ly gen­er­ous in find­ing that agency’s exper­tise can be brought to bear even on con­sti­tu­tion­al chal­lenges in which an agency lacks author­i­ty or even com­pe­tence to decide the issue. For exam­ple, in Elgin, the Court found that there were “many thresh­old ques­tions” to the con­sti­tu­tion­al claims that the agency could address, includ­ing deter­mi­na­tions that may “obvi­ate the need to address the con­sti­tu­tion­al chal­lenge.” 21 Thus, the SEC, through its exper­tise in oth­er areas, may ren­der the plaintiff’s claim moot. This would have the salu­tary effect of sav­ing the courts the time and ener­gy of adju­di­cat­ing the plaintiff’s claim in the first place. For this rea­son the Court has embraced moot­ness as “one of the prin­ci­pal rea­sons to await the ter­mi­na­tion of agency pro­ceed­ings” and one that “war­rants the require­ment that [the respon­dent] pur­sue adju­di­ca­tion, not short­cut it.” 22

There are thus very few, if any, con­sti­tu­tion­al chal­lenges to an agency that can fall into one of the Thun­der Basin excep­tions. It would seem that a dis­trict court would only have sub­ject-mat­ter juris­dic­tion over such a claim if (1) the statu­to­ry scheme lacks any kind of Arti­cle III review, (2) the plain­tiff is not cur­rent­ly in an agency pro­ceed­ing, or (3) the issue is so nar­row that the agency can­not moot the con­sti­tu­tion­al claim on anoth­er basis.

*****

Once in court—and as the above sec­tion indi­cates, it will like­ly be a cir­cuit court—the plain­tiff will argue that SEC admin­is­tra­tive law judges are infe­ri­or offi­cers of the Unit­ed States. This lan­guage comes from Arti­cle II, Sec­tion 2, of the Con­sti­tu­tion, which pro­vides, “the Con­gress may by Law vest the Appoint­ment of such infe­ri­or Offi­cers, as they think prop­er, in the Pres­i­dent alone, in the Courts of Law, or in the Heads of Depart­ments.” 23 A find­ing that ALJs are infe­ri­or offi­cers would be fatal, since they are select­ed by the Office of Per­son­nel Man­age­ment (OPM) in a process that does not direct­ly involve the Pres­i­dent, the Courts, or the head of a depart­ment. In this they are not alone, for “[t]he great major­i­ty of gov­ern­ment per­son­nel” are not cat­e­go­rized as infe­ri­or offi­cers, but as “mere employ­ees” of the Gov­ern­ment. 24

The ques­tion of who qual­i­fies as an infe­ri­or offi­cer was raised far more often in the nine­teenth cen­tu­ry than it is today. Courts have his­tor­i­cal­ly con­sid­ered and reject­ed a vast num­ber of fac­tors to take into con­sid­er­a­tion when clas­si­fy­ing per­ma­nent employ­ees like ALJs. Per­haps the only con­sid­er­a­tion that has remained con­stant and unyield­ing is whether the posi­tion in ques­tion “is invest­ed by legal author­i­ty with a por­tion of the sov­er­eign pow­ers of the fed­er­al Gov­ern­ment.” 25 This has been an endur­ing con­cep­tu­al­iza­tion of gov­ern­ment office. As Attor­ney Gen­er­al John Grig­gs opined over a hun­dred years ago, “[t]he legal def­i­n­i­tions of a pub­lic office have been many and var­i­ous… [t]he idea seems to pre­vail that it is an employ­ment to exer­cise some del­e­gat­ed part of the sov­er­eign pow­er.” 26 This under­stand­ing was alive and well in Buck­ley v. Valeo, when the Court iden­ti­fied “the per­for­mance of a sig­nif­i­cant gov­ern­men­tal duty exer­cised pur­suant to a pub­lic law,” as an essen­tial cri­te­ri­on. 27 More recent­ly, the Court observed, “[t]he exer­cise of sig­nif­i­cant author­i­ty pur­suant to the laws of the Unit­ed States marks … the line between offi­cer and nonof­fi­cer.” 28

In the case of SEC admin­is­tra­tive law judges, is it essen­tial to sep­a­rate the con­sid­er­able sov­er­eign pow­er wield­ed by the SEC from the role of the ALJs, who have no real share of this author­i­ty. Con­gress has not vest­ed ALJs with any of the pow­ers of the Commission—the rel­e­vant statutes do not even require use of ALJs and SEC reg­u­la­tions do not spec­i­fy that ALJs must hear any claims. 29 All deci­sions that ALJs do reach are “ini­tial deci­sions” that are reviewed de novo by the Com­mis­sion, which “may affirm, reverse, mod­i­fy, set aside or remand for fur­ther pro­ceed­ings, in whole or in part, an ini­tial deci­sion by a hear­ing offi­cer and may make any find­ings or con­clu­sions that in its judg­ment are prop­er and on the basis of the record.” While the Com­mis­sion does give ALJs “def­er­ence in the con­text of demeanor-based cred­i­bil­i­ty deter­mi­na­tions,” this is no dif­fer­ent than giv­ing cre­dence to one who actu­al­ly wit­nessed an event first­hand. 30 More­over, the Com­mis­sion has shown itself to be more than will­ing to “dis­re­gard explic­it deter­mi­na­tions of cred­i­bil­i­ty.” 31

An ALJ’s deter­mi­na­tion is thus a mere input in the Commission’s ulti­mate deter­mi­na­tion of whether or not a respon­dent has vio­lat­ed the law. It is true that if the Com­mis­sion declines a request for review or decides not to review an ini­tial deci­sion sua sponte, then the ini­tial deci­sion is deemed the action of the Com­mis­sion. 32 How­ev­er, all that is need­ed to bring a case up for review is the vote of a sin­gle com­mis­sion­er. ALJ deter­mi­na­tions also lack the pow­er to even break a tie on the Com­mis­sion: “In the event a major­i­ty of par­tic­i­pat­ing Com­mis­sion­ers do not agree to a dis­po­si­tion on the mer­its, the ini­tial deci­sion shall be of no effect.” 33 With­out any final­i­ty or even def­er­ence, there can be no author­i­ty, much less sig­nif­i­cant authority.

*****

 In the end, the ques­tion of whether SEC admin­is­tra­tive law judges are infe­ri­or offi­cers has rel­a­tive­ly low stakes. As pro­vid­ed in the Con­sti­tu­tion, the Pres­i­dent, the courts, or the head of a depart­ment can appoint infe­ri­or offi­cers. It so hap­pens that the SEC com­mis­sion­ers are the heads of a depart­ment. Accord­ing­ly, this entire issue could be resolved if Con­gress required that they them­selves appoint ALJs. Alter­na­tive­ly, the D.C. Cir­cuit could appoint ALJs, giv­ing them a more neu­tral dis­po­si­tion, like mag­is­trate judges that are experts in the secu­ri­ties laws.

The juris­dic­tion­al issue, how­ev­er, has real stakes. While it is impor­tant to give every­one their day in court, the courts can eas­i­ly become a means to delay jus­tice and the effec­tive work­ings of gov­ern­ment. Courts should be hes­i­tant to enjoin admin­is­tra­tive pro­ceed­ings when the respon­dent will have her oppor­tu­ni­ty to make that con­sti­tu­tion­al argu­ment before a court of appeals. This is espe­cial­ly prop­er where the con­sti­tu­tion­al argu­ment was trans­par­ent­ly made to halt the pro­ceed­ings. Those who are con­cerned with per­ceived delays in the admin­is­tra­tive process should take aim at resolv­ing that issue more direct­ly. All that will be accom­plished by expand­ing dis­trict courts’ sub­ject mat­ter juris­dic­tion is increas­ing the bur­den on the fed­er­al court system.

Notes:

  1. Jor­dan Gary is a 3L at New York Uni­ver­si­ty School of Law. This Con­tri­bu­tion is a com­men­tary on a por­tion of the 2016 Prob­lem at the Kauf­man Moot Court Com­pe­ti­tion at Ford­ham Law School in New York, NY. The prob­lem cen­tered around both pri­vate enforce­ment and agency enforce­ment of a mate­r­i­al mis­rep­re­sen­ta­tion made to share­hold­ers by the CEO of a large tech com­pa­ny. This por­tion of the prob­lem focused on the con­sti­tu­tion­al­i­ty of the SEC’s pro­ce­dures under the Appoint­ments Clause, as well as the thresh­old ques­tion of whether a dis­trict court could hear the mat­ter. The views expressed in this arti­cle do not nec­es­sar­ily rep­re­sent the views of the author on this point of law. Rather, this arti­cle is a dis­til­la­tion of one side of an argu­ment assigned to the team the author rep­re­sented at the com­pe­ti­tion.
  2. As will become appar­ent, even the thresh­old ques­tion of what counts as a del­e­ga­tion of author­i­ty is a key point of con­tention.
  3. See 28 U.S.C. § 1331 (“The dis­trict courts shall have orig­i­nal juris­dic­tion of all civ­il actions aris­ing under the Con­sti­tu­tion, laws, or treaties of the Unit­ed States.”).
  4. Bowles v. Rus­sell, 551 U.S. 205, 205 (2007).
  5. Cod­i­fied at 28 U.S.C. §§ 1331 and 1332, respec­tive­ly.
  6. See, e.g., Bebo v. S.E.C., 799 F.3d 765, 775 (7th Cir. 2015) (“It is only in the excep­tion­al cas­es… where courts allow plain­tiffs to avoid the statu­to­ry review schemes pre­scribed by Con­gress.”).
  7. See 15 U.S.C. § 78y (“A per­son aggriev­ed by a final order of the Com­mis­sion entered pur­suant to this chap­ter may obtain review of the order in the Unit­ed States Court of Appeals for the cir­cuit in which he resides or has his prin­ci­pal place of busi­ness, or for the Dis­trict of Colum­bia Cir­cuit, by fil­ing in such court, with­in six­ty days after the entry of the order, a writ­ten peti­tion request­ing that the order be mod­i­fied or set aside in whole or in part.”).
  8. For exam­ple, “did respon­dent vio­late Rule 10b‑5?” would present an easy case.
  9. 510 U.S. 200 (1994).
  10. Free Enter­prise Fund v. Pub­lic Com­pa­ny Account­ing Over­sight Board, 561 U.S. 477 (2010).
  11. Id. at 489 (quot­ing Thun­der Basin, 510 U.S. at 207, 212).
  12. See, e.g.Bebo, 799 F.3d at 774 (refer­ring to mean­ing­ful judi­cial review as “the most crit­i­cal thread in the case law” and the only con­trol­ling fac­tor in the test).
  13. Any­one famil­iar with habeas peti­tions knows this all too well.
  14. F.T.C. v. Stan­dard Oil Co. of Cal­i­for­nia, 449 U.S. 232, 244 (1980).
  15. See 15 U.S.C. § 78y.
  16. 132 S. Ct. 2126 (2012).
  17. Id. at 2139.
  18. Jarkesy v. S.E.C., 803 F.3d 9, 24 (D.C. Cir. 2015).
  19. More pre­cise­ly, the plain­tiffs were chal­leng­ing statu­to­ry restraints on the President’s abil­i­ty to dis­miss mem­bers of the Pub­lic Com­pa­ny Account­ing Over­sight Board (PCAOB).
  20. 510 U.S. at 215.
  21. 132 S. Ct. at 2140.
  22. Stan­dard Oil, 449 U.S. at 244 n.11.
  23. U.S. Con­st. art. II, § 2, cl. 2
  24. In re Tim­ber­vest, LLC, S.E.C. Release No. 4197, 2015 WL 5472520, at *23 (Sept. 17, 2015).
  25. DOJ Office of Legal Coun­sel, Offi­cers of the Unit­ed States for Pur­pos­es of the Appoint­ments Clause, 2007 OLC LEXIS 3, at *1.
  26. Office-Comp., 22 U.S. Op. Atty. Gen. 184, 187 (1898).
  27. 424 U.S. 1, 141 (1976).
  28. Edmond v. Unit­ed States, 520 U.S. 651, 662 (1997).
  29. See 17 C.F.R. § 201.411.
  30. Tim­ber­vest, 2015 WL 5472520, at *24 n.150.
  31. Id.
  32. See 15 U.S.C. § 78d‑1.
  33. Id.