Case No. 17-130 | D.C. Cir.
Lucia v. SEC comes to the Court on an appeal from the D.C. Circuit and presents the question of whether the Administrative Law Judges (“ALJs”) who preside at SEC proceedings are “Officers of the United States” according to the Constitution. U.S. Const. Art. II, § 2, cl. 2.
The case began with an allegation by the SEC that components of Petitioner Raymond Lucia’s financial seminar were in conflict with a handful of different securities statutes. The charges largely concerned slides that Lucia used to describe his investment plan, which he dubbed “Buckets of Money.” The slides contained information about how the plan might have fared throughout various periods of history. The SEC asserted that these scenarios were misleading. Lucia, on the other hand, claimed that the examples in the slides were merely hypothetical, and that they were clearly presented as such.
The ensuing adjudication was referred to one of the SEC’s ALJs. At the end of the proceeding, the ALJ ruled against Lucia. Thereafter, the ALJ was instructed “to make additional factual findings.” Brief for the Respondent at 6, Lucia v. SEC, No 17-130 (U.S. filed Nov. 29, 2017). Subsequently, the ALJ again ruled against Lucia.
In his appeal of the decision, Lucia claimed that the ALJ who decided his case was subject to the requirements of the Constitution’s Appointments Clause, which empowers the President to “appoint . . . all . . . Officers of the United States,” subject to Senate approval. U.S. Const. Art. II, § 2, cl.2. The SEC declined to accept this argument. Lucia appealed to the D.C. Circuit, but was unsuccessful.
When faced with the same issue, the Tenth Circuit reached the opposite conclusion, ruling that the SEC’s ALJs must be selected according to the procedures of the Appointments Clause. Subsequently, the D.C. Circuit, sitting en banc, affirmed its previous holding, thus creating a circuit split.
This case comes before the Court in an interesting posture, as the SEC has changed its own position on the issue over the course of the litigation and now agrees with Lucia that ALJs should be required to adhere to all the requirements of the Appointments Clause. See generally Brief for Respondent Supporting Petitioners, Lucia v. SEC, No. 17-130 (U.S. filed Feb. 21, 2018). For this reason, the Court has appointed an amicus curiae to argue in favor of the D.C. Circuit’s holding.
The outcome in this case may depend on the Court’s ability to distinguish SEC ALJ’s from the “special trial judges” of the U.S. Tax Court who were at issue in Freytag v. Commissioner, 501 U.S. 868 (1991). In that case, the Court held that the special trial judges were not properly considered mere “employees” because “the degree of [their] authority” was “significant.” Freytag, 501 U.S. at 881 (some internal quotation marks omitted). The outcome of the case promises to be significant, as it could have major effects on how and, most importantly, by whom the SEC’s ALJs are selected.