Wednesday, December 28, 2016

Appeals Court Holds That SEC Administrative Law Judges Are Unconstitutional

From the Volokh Conspiracy at the Washington Post:
The U.S. Court of Appeals for the 10th Circuit has bestowed a holiday gift on all of us administrative law nerds (especially for those who should be grading exams). Today, in Bandimere v. SEC, a divided panel held that the Securities and Exchange Commission’s administrative law judges (ALJs) are unconstitutional. Judge Matheson wrote for the court, joined by Judge Briscoe (who also wrote a concurring opinion). Senior judge McKay dissented. This decision is potentially quite significant and creates a circuit split on the underlying Appointments Clause question.
Here’s Judge Matheson’s summary of the opinion:
When the Framers drafted the Appointments Clause of the United States Constitution in 1787, the notion of administrative law judges (“ALJs”) presiding at securities law enforcement hearings could not have been contemplated. Nor could an executive branch made up of more than 4 million people, most of them employees. Some of them are “Officers of the United States,” including principal and inferior
officers, who must be appointed under the Appointments Clause. U.S. Const. art. II, § 2, cl. 2. In this case we consider whether the five ALJs working for the Securities and Exchange Commission (“SEC”) are employees or inferior officers.
Based on Freytag v. Commissioner of Internal Revenue, 501 U.S. 868 (1991), we conclude the SEC ALJ who presided over an administrative enforcement action against Petitioner David Bandimere was an inferior officer. Because the SEC ALJ was not constitutionally appointed, he held his office in violation of the Appointments Clause.
For those who forget, the Appointments Clause, in Article II, section 2 of the Constitution, provides, in relevant part:
[The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but 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.
At issue in Bandimere is whether the SEC’s ALJs are “officers” for the purposes of this clause, and in particular “inferior” officers who may be appointed by heads of departments, such as the chair of the SEC. This matters because SEC ALJs are not so appointed. Rather, they are selected through an internal administrative process.

The panel majority concluded that the ALJs are constitutional officers because, among other things, they exercise significant discretion in carrying out “important functions” delegated by statute, including the imposition of liability and sanctions on those found to have violated relevant SEC rules....MORE