Securities Regulation Daily  Lucia reply brief argues that amicus's test for officer status is too narrow
Monday, April 16, 2018

 Lucia reply brief argues that amicus's test for officer status is too narrow

By Rodney F. Tonkovic, J.D.

In his case disputing the constitutionality of the SEC's administrative law judges, Raymond Lucia has submitted a reply brief asking the court to reverse the D.C. Circuit holding that the ALJ’s are employees beyond the reach of the Appointments Clause. Following a change of administration, the Solicitor General makes the same case, while emphasizing different arguments. The reply brief, then, addresses the court-appointed amicus curiae's defense of the judgment below: that the SEC's ALJs are employees, not officers, because they do not exercise significant authority with the power to bind the government or others in their own name (Lucia v. SEC, April 13, 2018).

Rewriting Buckley? The crux of the brief's argument is that the amicus proposes rewriting the Buckley standard requiring the exercise by an office holder of a portion of the federal government’s sovereign power. According to Lucia, the amicus proposes to rewrite the flexible Buckley standard into a "rigid" two-part test under which officers must have final decision-making authority and the power to exercise that authority under their own name. The amicus did not, however, make the case that Buckley was wrongly decided or that there was any justification for overturning or radically re-working a long-settled precedent.

Officers. The brief first argues that the ALJs are officers under the Buckley standard because they exercise "significant authority." The court has consistently applied the Buckley standard to find that adjudicators who preside over adversarial enforcement proceedings are officers. The brief points to Freytag, where special trial judges of the Tax Court were found to be officers because they exercise significant authority in presiding over hearings and shaping the record. It is "not seriously debatable," the brief asserts, that the SEC's ALJs possess authority that includes all of the functions that the court found to be significant in Freytag, and the amicus never meaningfully addresses these powers. It is also incorrect that the ALJs cannot enter binding decisions, because, for example, they have the power to enter immediately enforceable default decisions and initial decisions that are binding absent review.

Lucia then argues that the amicus attempts to rewrite the Buckley standard despite the fact that no court has ever adopted a similar approach. First, the amicus's two-part test conflicts with precedent because nothing in Buckley or its progeny suggests a narrower definition of "significant authority." The amicus's test also conflicts with the original meaning of the Appointments Clause in that the clause does not specify that officers have final decision-making authority; the requirement that officers must be able to act in their own name is similarly absent. Finally, the proposed test would eliminate the category of inferior officers, who are directed and supervised by principal officers. The brief maintains that the SEC ALJs would still be officers even under the amicus's test because they have discretionary authority to bind in their own name. ALJs can, for example, issue decisions that "become final" and can issue subpoenas under their own name.

Why not? The brief notes that the amicus never answers the simple question: Why would the Framers have exempted SEC ALJs from the Appointments Clause? Officials that preside over adversarial proceedings deciding the property rights and livelihoods of American citizens should be accountable, and the Commission must accept responsibility for its ALJs, the brief argues. Because nobody was accountable for the ALJ in this matter, the Constitution requires, at minimum, a new hearing before a new adjudicator.

Divided argument. Lucia's case is scheduled for argument on April 23, 2018. On April 13—the same day that Lucia's brief was filed—the court granted the SEC's motion for a divided argument. The parties have agreed to divide their time equally, with 15 minutes allotted for each. The motion notes that while the SEC and Lucia both ague that Commission ALJs are constitutional officers, Lucia argues that the appropriate remedy for the Appointments Clause error in this case would be the initiation of new proceedings before a different, properly-appointed ALJ. Lucia's brief also does not address the question of how ALJs can be removed from their positions. The motion states that the government has "a systemic interest in ensuring that the Court adopts principles for identifying constitutional officers that are neither unduly narrow nor unduly broad."

The case is No. 17-130.

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