SEC About-Face, About Time, on ALJs

On November 29, the SEC did an about-face and admitted its ALJs are "inferior officers" (not merely employees) subject to the Constitution's Article II appointment provisions. The Solicitor General's brief on behalf of the Commission sided with the argument of its opponent, Raymond Lucia; DOJ urged the Supreme Court to resolve a circuit split by ruling against the SEC's litigation position below and overturning the prior decision by the Court of Appeals for the DC Circuit.

The next day, the Commission took formal action ratifying the appointment of its ALJs, thus complying with the Article II requirement, that the President "shall nominate, and by and with the Advice and Consent of the Senate, shall appoint … all other Officers of the United States, …: but the Congress may by Law vest the Appointment of such inferior Officers as they think proper, … in the Heads of Departments" [here, the Commission]. That Order also directed reconsideration of the record by the newly "appointed" ALJs in all pending actions and lifted an earlier stay of all Commission enforcement actions subject to later appeal to the 10th Circuit (and its holding in Bandimere).

For the SEC, the Solicitor General, argued "the government is now of the view that such ALJs are inferior officers because they exercise 'significant authority pursuant to the laws of the United States." Brief at 10. The government asked the Court to grant certiorari in the case and appoint an amicus to defend the D.C. Circuit's opinion. Id. Finally, DOJ concluded, "if appropriate, the Court should … address the issue of [the "for-cause"] removal [requirement for current ALJs]." Id. at 26.

It's unclear how the Court will react to this turn-about: It may hold that the SEC's action and re-review moots the case; it may take a broad view, with an opinion that widely affects ALJ determinations across the administrative state or it may simply reverse and remand.

What is clear, though, is that the government and the SEC easily could have taken these steps three years ago (when the issue started gaining currency), instead of reflexively defending the status quo at taxpayer expense.

Brief for Respondent (SEC) in Lucia v. SEC, No. 17-130 (U.S. filed Nov. 29, 2017) is here.

SEC action ratifying ALJ appointments is here.

I've been following the issue, here (re 5th Cir. Burgess opinion), and here (re 10th Cir. Bandimere opinion, creating Circuit split).

Thomas K. Potter, III ( is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 31 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2017 by Thomas K. Potter, III (all rights reserved).

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