Lucia v. Securities and Exchange Commission, 585 U.S. ___ (2018)
The Securities and Exchange Commission (SEC) has authority to enforce securities laws by instituting an administrative proceeding against an alleged wrongdoer, typically overseen by an administrative law judge (ALJ). Other staff members, rather than the Commission, selected all of the five current ALJs, who have “authority to do all things necessary and appropriate” to ensure a “fair and orderly” adversarial proceeding, 17 CFR 201.111, 200.14(a). After a hearing, the ALJ issues an initial decision. The Commission can review that decision, but if it opts against review, it issues an order that the initial decision is “deemed the action of the Commission,” 15 U.S.C. 78d–1(c). The SEC charged Lucia and assigned ALJ Elliot to adjudicate the case. Following a hearing, Elliot issued an initial decision concluding that Lucia had violated the law and imposing sanctions. Lucia argued that the proceeding was invalid because SEC ALJs are “Officers of the United States,” subject to the Appointments Clause. Under that Clause, only the President, “Courts of Law,” or “Heads of Departments” can appoint “Officers.” The SEC and the D. C. Circuit rejected Lucia’s argument. The Supreme Court reversed. SEC ALJs are subject to the Appointments Clause. To qualify as an officer, rather than an employee, an individual must occupy a “continuing” position established by law, and must “exercis[e] significant authority pursuant to the laws of the United States,” SEC ALJs hold a continuing office established 5 U.S.C. 556–557, 5372, 3105, and exercise “significant discretion." The ALJs have nearly all the tools of federal trial judges: they take testimony, conduct trials, rule on the admissibility of evidence, can enforce compliance with discovery orders, and prepare proposed findings and an opinion including remedies. Judge Elliot heard and decided Lucia’s case without a constitutional appointment.
Securities and Exchange Commission’s ALJs are “Officers of the United States,” subject to the Appointments Clause.
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
Lucia et al. v. Securities and Exchange Commission
certiorari to the united states court of appeals for the district of columbia circuit
No. 17–130. Argued April 23, 2018—Decided June 21, 2018
The Securities and Exchange Commission (SEC or Commission) has statutory authority to enforce the nation’s securities laws. One way it can do so is by instituting an administrative proceeding against an alleged wrongdoer. Typically, the Commission delegates the task of presiding over such a proceeding to an administrative law judge (ALJ). The SEC currently has five ALJs. Other staff members, rather than the Commission proper, selected them all. An ALJ assigned to hear an SEC enforcement action has the “authority to do all things necessary and appropriate” to ensure a “fair and orderly” adversarial proceeding. 17 CFR §§201.111, 200.14(a). After a hearing ends, the ALJ issues an initial decision. The Commission can review that decision, but if it opts against review, it issues an order that the initial decision has become final. See §201.360(d). The initial decision is then “deemed the action of the Commission.” 15 U. S. C. §78d–1(c).
The SEC charged petitioner Raymond Lucia with violating certain securities laws and assigned ALJ Cameron Elliot to adjudicate the case. Following a hearing, Judge Elliot issued an initial decision concluding that Lucia had violated the law and imposing sanctions. On appeal to the SEC, Lucia argued that the administrative proceeding was invalid because Judge Elliot had not been constitutionally appointed. According to Lucia, SEC ALJs are “Officers of the United States” and thus subject to the Appointments Clause. Under that Clause, only the President, “Courts of Law,” or “Heads of Departments” can appoint such “Officers.” But none of those actors had made Judge Elliot an ALJ. The SEC and the Court of Appeals for the D. C. Circuit rejected Lucia’s argument, holding that SEC ALJs are not “Officers of the United States,” but are instead mere employees—officials with lesser responsibilities who are not subject to the Appointments Clause.
Held: The Commission’s ALJs are “Officers of the United States,” subject to the Appointments Clause. Pp. 5–13.
(a) This Court’s decisions in United States v. Germaine, 99 U. S. 508, and Buckley v. Valeo, 424 U. S. 1, set out the basic framework for distinguishing between officers and employees. To qualify as an officer, rather than an employee, an individual must occupy a “continuing” position established by law, Germaine, 99 U. S., at 511, and must “exercis[e] significant authority pursuant to the laws of the United States,” Buckley, 424 U. S., at 126.
In Freytag v. Commissioner, 501 U. S. 868, the Court applied this framework to “special trial judges” (STJs) of the United States Tax Court. STJs could issue the final decision of the Tax Court in “comparatively narrow and minor matters.” Id., at 873. In more major matters, they could preside over the hearing but could not issue a final decision. Instead, they were to “prepare proposed findings and an opinion” for a regular Tax Court judge to consider. Ibid. The proceeding challenged in Freytag was a major one. The losing parties argued on appeal that the STJ who presided over their hearing was not constitutionally appointed.
This Court held that STJs are officers. Citing Germaine, the Freytag Court first found that STJs hold a continuing office established by law. See 501 U. S., at 881. The Court then considered, as Buckley demands, the “significance” of the “authority” STJs wield. 501 U. S., at 881. The Government had argued that STJs are employees in all cases in which they could not enter a final decision. But the Court thought that the Government’s focus on finality “ignore[d] the significance of the duties and discretion that [STJs] possess.” Ibid. Describing the responsibilities involved in presiding over adversarial hearings, the Court said: STJs “take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders.” Id., at 881–882. And the Court observed that “[i]n the course of carrying out these important functions,” STJs “exercise significant discretion.” Id., at 882.
Freytag’s analysis decides this case. The Commission’s ALJs, like the Tax Court’s STJs, hold a continuing office established by law. SEC ALJs “receive[ ] a career appointment,” 5 CFR §930.204(a), to a position created by statute, see 5 U. S. C. §§556–557, 5372, 3105. And they exercise the same “significant discretion” when carrying out the same “important functions” as STJs do. Freytag, 501 U. S., at 882. Both sets of officials have all the authority needed to ensure fair and orderly adversarial hearings—indeed, nearly all the tools of federal trial judges. The Commission’s ALJs, like the Tax Court’s STJs, “take testimony,” “conduct trials,” “rule on the admissibility of evidence,” and “have the power to enforce compliance with discovery orders.” Id., at 881–882. So point for point from Freytag’s list, SEC ALJs have equivalent duties and powers as STJs in conducting adversarial inquiries.
Moreover, at the close of those proceedings, SEC ALJs issue decisions much like that in Freytag. STJs prepare proposed findings and an opinion adjudicating charges and assessing tax liabilities. Similarly, the Commission’s ALJs issue initial decisions containing factual findings, legal conclusions, and appropriate remedies. And what happens next reveals that the ALJ can play the more autonomous role. In a major Tax Court case, a regular Tax Court judge must always review an STJ’s opinion, and that opinion comes to nothing unless the regular judge adopts it. By contrast, the SEC can decide against reviewing an ALJ’s decision, and when it does so the ALJ’s decision itself “becomes final” and is “deemed the action of the Commission.” 17 CFR §201.360(d)(2); 15 U. S. C. §78d–1(c). Pp. 5–11.
(b) Judge Elliot heard and decided Lucia’s case without a constitutional appointment. “[O]ne who makes a timely challenge to the constitutional validity of the appointment of an officer who adjudicates his case” is entitled to relief. Ryder v. United States, 515 U. S. 177, 182. Lucia made just such a timely challenge. And the “appropriate” remedy for an adjudication tainted with an appointments violation is a new “hearing before a properly appointed” official. Id., at 183, 188. In this case, that official cannot be Judge Elliot, even if he has by now received a constitutional appointment. Having already both heard Lucia’s case and issued an initial decision on the merits, he cannot be expected to consider the matter as though he had not adjudicated it before. To cure the constitutional error, another ALJ (or the Commission itself) must hold the new hearing. Pp. 12–13.
868 F. 3d 1021, reversed and remanded.
Kagan, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Thomas, Alito, and Gorsuch, JJ., joined. Thomas, J., filed a concurring opinion, in which Gorsuch, J., joined. Breyer, J., filed an opinion concurring in the judgment in part and dissenting in part, in which Ginsburg and Sotomayor, JJ., joined as to Part III. Sotomayor, J., filed a dissenting opinion, in which Ginsburg, J., joined.
JUDGMENT ISSUED. |
Judgment REVERSED and case REMANDED. Kagan, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Thomas, Alito, and Gorsuch, JJ., joined. Thomas, J., filed a concurring opinion, in which Gorsuch, J., joined. Breyer, J., filed an opinion concurring in the judgment in part and dissenting in part, in which Ginsburg and Sotomayor, JJ., joined as to Part III. Sotomayor, J., filed a dissenting opinion, in which Ginsburg, J., joined. |
Argued. For petitioners: Mark Perry, Washington, D. C. For respondent in support of petitioners: Jeffrey B. Wall, Deputy Solicitor General, Department of Justice, Washington, D. C. For Court-appointed amicus curiae in support of the judgment below: Anton Metlitsky, New York, N. Y. |
Record received from the United States Securities and Exchange Commission. The record is electronic. |
Reply of respondent Securities and Exchange Commission in support of petitioners filed. (Distributed) |
Motion of the Solicitor General for divided argument GRANTED. |
Reply of petitioners Raymond J. Lucia, et al. filed. (Distributed) |
Brief amicus curiae of National Organization of Social Security Claimants' Representatives filed. (Distributed) |
Brief amici curiae of David Zaring filed. (Distributed) |
Brief amici curiae of Constitutional and Administrative Law Scholars filed. (Distributed) |
Brief amicus curiae of Cornell Securities Law Clinic filed. (Distributed) |
Brief amicus curiae of American Federation of Labor and Congress of Industrial Organizations filed. (Distributed) |
Brief amicus curiae of National Black Lung Association filed. (Distributed) |
Brief amicus curiae of Association of Administrative Law Judges filed. (Distributed) |
Motion of the Solicitor General for divided argument filed. |
Record requested from the U.S.C.A. District of Columbia Circuit. |
Brief of Court-appointed amicus curiae in suport of the judgment below filed. (Distributed) |
CIRCULATED |
Brief amicus curiae of Scholars of Corpus Linguistics filed. |
Brief amicus curiae of New Civil Liberties Alliance filed. |
Brief amici curiae of Urska Velikonja and Joseph A. Grundfest in support of neither party filed. |
Brief amici curiae of Administrative Law Scholars in support of neither party filed. |
Brief amicus curiae of Washington Legal Foundation filed. |
Brief amicus curiae of The Chamber of Commerce of the United States filed. |
Brief amicus curiae of Equity Dealers of America filed. |
Brief amicus curiae of Professor Jennifer L. Mascott filed. |
Brief amicus curiae of Wing F. Chau filed. |
Brief amici curiae of States of Utah, et al. filed. |
Brief amici curiae of J.S. Oliver Capital Management, L.P. and Ian O. Mausner filed. |
Brief amici curiae of RD Legal Capital, LLC and Roni Dersovitz filed. |
Brief amicus curiae of Pacific Legal Foundation filed. |
Brief amicus curiae of The Forum of United States Administrative Law Judges in support of neither party filed. |
Brief amicus curiae of Federal Administrative Law Judges Conference in support of neither party filed. |
SET FOR ARGUMENT on Monday, April 23, 2018. |
Brief amicus curiae of SHOW, Inc. filed. |
Brief amicus curiae of Anthony Michael Sabino filed. |
Brief amicus curiae of Cato Institute filed. |
Brief of petitioners Raymond J. Lucia, et al. filed. |
Brief of respondent Securities and Exchange Commission in support of petitioners filed. |
Motion to dispense with printing the joint appendix filed by petitioners GRANTED. |
Motion to dispense with printing the joint appendix filed by petitioners Raymond J. Lucia, et al. |
The joint appendix, petitioners' brief on the merits, and brief of respondent Securities and Exchange Commission shall be filed on or before February 21, 2018. Any amicus curiae briefs in support of petitioners or in support of neither party shall be filed on or before February 28, 2018. |
Blanket Consent filed by Respondent, Securities and Exchange Commission |
The brief of Court-Appointed amicus curiae in support of the judgment below shall be filed on or before March 26, 2018. Any other amicus curiae brief supporting affirmance (the judgment below) shall be filed on or before April 2, 2018. |
Letter of petitioners Raymond J. Lucia, et al. on behalf of the parties filed. |
Anton Metlitsky, Esquire, of New York, New York, is invited to brief and argue this case, as amicus curiae, in support of the judgment below. |
Blanket Consent filed by Petitioners, Raymond J. Lucia, et al.. |
Petition GRANTED. |
DISTRIBUTED for Conference of 1/12/2018. |
DISTRIBUTED for Conference of 1/5/2018. |
Reply of petitioners Raymond J. Lucia, et al. filed. (Distributed) |
Brief of respondent Securities and Exchange Commission filed. |
Order further extending time to file response to petition to and including November 29, 2017. |
Motion to extend the time to file a response from November 15, 2017 to November 29, 2017, submitted to The Clerk. |
Order further extending time to file response to petition to and including November 15, 2017. |
Letter of October 17, 2017 from counsel for petitioners received. |
Brief amicus curiae of Anthony Michael Sabino filed. |
Order further extending time to file response to petition to and including October 25, 2017. |
Brief amicus curiae of The Chamber of Commerce of the United States filed. |
Brief amicus curiae of Pacific Legal Foundation filed. |
Brief amicus curiae of Cato Institute filed. |
Brief amicus curiae of Mark Cuban filed. |
Order extending time to file response to petition to and including September 25, 2017. |
Blanket Consent filed by Petitioners, Raymond J. Lucia, et al. on 07/31/2017 |
Petition for a writ of certiorari filed. (Response due August 25, 2017) |