Crisis response or road to recovery?
On June 21, 2018, the US Supreme Court handed down a decision with significant ramifications for United States agencies that failed to follow the appropriate constitutional processes for appointing administrative law judges. In Lucia v. SEC, the Court held that the Securities and Exchange Commission’s administrative law judges were not properly appointed under the US Constitution and, as result, do not have authority to sit in judgment in agency proceedings. The Court’s opinion not only creates uncertainty in administrative proceedings currently pending in front of administrative law judges who had not been properly appointed when the cases had been initiated, but also calls into question the validity of years of prior administrative decisions, and has major implications for administrative law judges at over twenty-five other agencies.
In Lucia, the SEC brought an administrative proceeding against Raymond Lucia and his investment company for using allegedly misleading presentations in meetings with prospective clients in purported violation of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 et. seq. (“Advisers Act”). The administrative law judge assigned to the case ultimately concluded that Mr. Lucia violated the Advisers Act, ordered him to pay civil penalties in the amount of US$300,000, and barred him from the investment industry for life. Mr. Lucia appealed the decision, arguing that the proceeding was invalid because the administrative law judge had not been constitutionally appointed as an “Officer of the United States” as required by the Appointments Clause.
The Supreme Court, resolving a split between the DC Circuit and Tenth Circuit, agreed with Mr. Lucia. The Court found that because the SEC’s administrative law judges occupy a “continuing” or “permanent” position and have significant authority, they are “Officers of the United States” under the Appointments Clause. As a result, the Court found that the SEC’s administrative law judges must be appointed by the President or the "Head of the Department,” which includes the Commission itself, and that the Commission must afford Mr. Lucia a new hearing with an administrative law judge holding the proper constitutional appointment.
While the Court's opinion made clear that administrative law judges must be properly appointed under the Appointments Clause, it left several critical issues unresolved. For example, on November 30, 2017, while Lucia was still under review, the Commission issued an administrative order ratifying the prior appointments of its administrative law judges. The Court acknowledged the Commission's ratification order in its opinion but refused to determine whether it cured the defect in the appointment of administrative law judges in pending cases. Likely as a result of the Court's refusal to address the impact of the order, the Commission issued a subsequent order on June 21, 2018 staying all pending administrative proceedings for thirty days to determine a constitutionally valid path forward in those cases. The order specifies, however, that in the interim the Commission may assign any proceeding pending before an administrative law judge to the Commission itself or to a member of the Commission.
 The Court specified that the administrative law judge presiding over the new hearing could not be the administrative law judge that had previously sat in judgment even if he received a proper appointment because that administrative law judge could not consider the matter as if he had not adjudicated it before.
N.B. The authors thank Manny Levitt, who is in the process of obtaining admission to the DC bar, for his substantial assistance in preparing this article.
The Corporate Insolvency and Governance Act 2020 (CIGA) of the United Kingdom received the Royal Assent on June 26 and is now in force.