In Lucia v. Securities and Exchange Commission (Supreme Court of the United States No. 17-130, decided June 21, 2018), the question before the court was whether an Administrative Law Judge (ALJ) of the Securities and Exchange Commission (SEC) had been properly appointed in accordance with the Constitution’s “Appointments Clause.” Under that provision, an officer of the United States could be appointed only by the President, “Courts of Law,” or “Heads of Departments.”
Here is how the case came about.
The SEC charged Raymond Lucia with securities laws violations. ALJ Elliot, one of five SEC ALJs, drew the case, held a hearing and concluded that Mr. Lucia was guilty as charged and imposed sanctions against him.
Lucia appealed to the SEC and timely argued the ALJ’s decision was invalid since ALJ Elliot had not been appointed to his position in a constitutional manner. He argued that an ALJ is an “Officer of the United States,” and, therefore his appointment had to follow the constitution’s mandate. Mere underlings in the SEC had hired ALJ Elliot, thus his appointment was not within constitutional requirements.
The SEC apparently viewed this argument as nonsense, holding that its ALJs are not “Officers of the United States,” but rather are “mere employees.” The Court of Appeals for the D.C. Circuit agreed with the SEC and rejected Lucia’s challenge to ALJ Elliot’s authority.
Undaunted, Mr. Lucia took his case to the U.S. Supreme Court and has now won a decision that will cause every agency that appoints ALJs to take another hard look at their process for doing so. Writing for the majority, Justice Kagan held that “The Commission’s ALJs are ‘Officers of the United States,’ subject to the Appointments Clause.”
ALJ Elliot’s appointment did not pass constitutional muster. Therefore, ALJ Elliot’s decision in Mr. Lucia’s case is invalid, and the matter is bounced back to the SEC for handling by an ALJ who has been constitutionally appointed.