The Supreme Court ruled Thursday that the way the Securities and Exchange Commission hired its administrative law judges is unconstitutional, a decision that will have an effect on hundreds of similar judges throughout the Trump administration.
In particular, the National Labor Relations Board, the federal government’s main labor law enforcement agency, could face numerous challenges to cases it is pursuing as a result of the 7-2 decision in Lucia v. Securities and Exchange Commission. The board uses administrative law judges who perform similar functions to the ones at the SEC.
At issue in the case was whether the administrative law judges were “officers” under the Constitution and therefore must be political appointees and not civil servants who are merely hired by the agency. In addition to the SEC and NLRB, other agencies such as the Occupational Health and Safety Administration use the judges to carry out many of their enforcement activities. Defenders of the practice argue the judges are merely carry out duties delegated to them by their agencies, which had the the necessary authority.
Liberal Justice Elena Kagan, who wrote the opinion, joined with the court’s conservative wing to say that the judges are officers and had to be appointed. Justice Steven Breyer filed a separate opinion partially concurring but arguing that constitutional issue remained unresolved. Liberal justices Ruth Bader Ginsburg and Sonia Sotomayor dissented.
“A judge who will, in the end, issue an opinion complete with factual findings, legal conclusions, and sanctions has substantial informal power to ensure the parties stay in line … each of those items is necessary for someone conducting adversarial hearings to count as an officer,” the opinion stated.
“It is not going to wipe out a whole bunch of prior NLRB decisions,” because the decision isn’t retroactive, Scott Witlin, a labor lawyer for the management-side firm Barnes and Thornburg, told the Washington Examiner. “It could impact the agency to the extent that people are raising the issue in current cases.” And knowing that Supreme Court was looking at the issue, many people in litigation may have done that.
A further complication, Witlin said, is that is not clear if the NLRB’s administrative law judges will need congressional appointment now because the board is an independent agency and not a department. The board members must be Senate appointees but otherwise act on their own and may thus be able to appoint judges on their own. It is not clear how far the board members can delegate their authority, though.
In Thursday’s ruling, the majority said the plaintiff deserved a “new hearing with a properly appointed official,” adding that it could not be the same official even if the judge receives a proper appointment in interim. That was significant because in the fall the SEC announced that it was retroactively appointing its administrative law judges and ratifying their previous decisions. The justices in effect told the SEC that it cannot circumvent the ruling in that manner.
“If the SEC’s constitutional violations could be swept aside because it could simply ratify unconstitutional acts by its improperly appointed ALJs, then there would be very little incentive to comply with the Appointments Clause in the future. By requiring a new ALJ to hold a new hearing, today’s ruling ensures that the Appointments Clause will not be rendered a dead letter,” said Cory Andrews, senior litigation counsel for the Washington Legal Foundation, a nonprofit free-market group.
The case had some odd complications. The Trump administration has weighed in, in support of the plaintiffs and against the SEC. That’s because a ruling against the SEC would require more federal officials to be presidential appointees, giving the executive branch more control over the bureaucracy. The SEC didn’t officially weigh in the case, so the justices were obligated to appoint an outside lawyer to argue the case on the agency’s behalf.
“The SEC is reviewing the opinion,” said SEC spokesman Chris Carofine.
A representative for NLRB could not be reached for comment.
