United States: The Trump Administration's Move Against SEC Judges.

Last Updated: December 28 2017
Article by Daniel R. Walfish

The Trump administration's new position on the constitutionality of the U.S. Securities and Exchange Commission's administrative law judges is more far- reaching and potentially consequential than is generally understood. On Nov. 29, the U.S. solicitor general, who speaks for the federal government before the U.S. Supreme Court, filed a brief urging the court to review the case of Raymond J. Lucia v. SEC. Lucia is seeking to overturn an SEC fine and professional bar based on the argument that the ALJ in his case was not properly appointed. In an about-face, the solicitor general now agrees with Lucia that the SEC's ALJs are "officers" subject to the appointments clause of the Constitution, not mere employees, as the SEC had argued.

What has received less attention is that the administration's brief urges the court to go beyond the requirements for appointing ALJs (an issue that has divided many federal judges and is ripe for Supreme Court review) and consider also the restrictions on removing them from office — an issue that was not passed on below and on which there is no judicial disagreement. Nevertheless, citing the Supreme Court's 2010 decision in Free Enterprise Fund v. Public Company Accounting Oversight Board, the solicitor general all but states that the traditional system of tenure protections for ALJs is unconstitutional — even though no court has adopted that view.

Were the Supreme Court to do so, it could undermine protections not just for ALJs at the SEC and other agencies, but also for senior civil servants in a range of federal agencies, who by design are insulated from political and other forms of reprisal. The administration's position is likely a product of the "unitary executive" theory popular among some conservative theorists, which holds that the president should have relatively unfettered control of executive branch agencies, and is skeptical of restrictions on his power to remove officials in them.

Historically, the SEC's ALJs were hired through a competitive civil service system, without involvement from the SEC's politically appointed chairman and other commissioners. Lucia (like others in recent years who have been charged in the SEC's administrative tribunal) has argued that this hiring practice violated the appointments clause.

The appointments clause is designed to preserve political accountability and the separation of powers among the three branches of government. It requires the government's senior-most "officers" to be presidentially appointed and Senate-confirmed, and provides that certain other officials — referred to

as "inferior officers" — can be appointed by the head of an executive branch agency if Congress allows.1 The term "inferior officers" can be confusing: their stature is high relative to most federal workers, who are considered mere employees and are outside the scope of the appointments clause altogether. Lucia argues that the SEC's ALJs have enough authority and responsibility to be considered "inferior officers." If so, the argument goes, then the proceedings involving the ALJs were void because the ALJs were not actually appointed by the commissioners atop the SEC.

Whether the SEC's ALJs are subject to the appointments clause has sharply divided many judges of the federal courts of appeals. In August of 2016, a D.C. Circuit panel held in Lucia's case that the ALJs are mere employees.2 Four months later, in David F. Bandimere v. SEC, a Tenth Circuit panel, by a 2-1 vote, reached the opposite conclusion — that the ALJs are "inferior officers" subject to the appointments clause.3

Until the Lucia filing, the Trump administration had maintained the position of the Obama administration that the ALJs are not subject to the appointments clause.4 But the solicitor general's new brief, which was not signed by SEC lawyers — presumably they objected — abandons the SEC's historic position, and agrees that the SEC's ALJs have to be directly appointed by the SEC's commissioners. (With Lucia and the government now aligned, the Supreme Court will have to appoint amicus counsel to defend the judgment below.)

On one level, this arcane issue is likely to be relatively inconsequential for future cases. On Nov. 30, in response to the solicitor general filing the day before, the SEC's commissioners formally ratified the appointment of the ALJs. (This move does not impact those, like Lucia, whose cases have concluded within the SEC.5) The ratification, and the prospect of future commission-level approval of ALJ hires, arguably weakens the ALJs' appearance of independence, but only slightly.

The larger issue is that the solicitor general's brief encourages the court to go out of its way to "reframe the question presented or add a question presented to address the issue of removal."6 In so doing, the administration is taking aim at one of the foundations of the administrative state. ALJs have been around since the Administrative Procedure Act of 1946 (APA). In order to remove an ALJ, a proceeding must be instituted before a separate agency known as the Merit Systems Protection Board, and there must be "cause," meaning a showing of misconduct. This congressionally-established framework insulates ALJs from at-will removal, ensuring that they can perform their fact-finding function with independence, even as their decisions are ultimately reviewable by senior agency officials who are closer to the political process. (Put differently, Congress did not want ALJs to worry that they could lose their jobs if they rule against the agency.) Similar protections exist for many career civil servants whose independence and expertise is valued.

The 2010 Free Enterprise Fund decision relied on by the solicitor general concerned the constitutionality of the Public Company Accounting Oversight Board. The board, created by the 2002 Sarbanes-Oxley legislation, regulates auditors of public companies. The board is supervised by the SEC, and its members are selected by the SEC's commissioners. The Supreme Court held, by a 5-4 vote along familiar ideological lines, that the framework for removing members of the board encroached too much on presidential prerogative. In particular, the accounting board members were "officers" insulated from the president's removal power by two layers of "only for cause" protection. The board members by statute were removable only for cause, not at the will of the SEC commissioners, and the SEC commissioners are assumed to be removable only for cause, not at the will of the president. Chief Justice John G. Roberts Jr.'s opinion for the court held that the board members must be removable at the will of the SEC commissioners.

The ALJs at the SEC and other agencies also enjoy at least two layers of protection against being fired at the will of the president — in that both the ALJs and the MSPB enjoy "only for cause" protection.7 However, the chief justice added a footnote to his Free Enterprise Fund opinion to make clear that the court was not speaking to the ALJ system. He did so in part because it was not clear whether ALJs are "inferior officers" and in part because they often "perform adjudicative rather than enforcement or policymaking functions."8 The first of these grounds may not be available for much longer, depending on what happens in the Lucia case. But the second ground is key: As Justice Stephen G. Breyer explained in dissent, a long-standing tradition protects the "personal independence" of officials who adjudicate disputes by ensuring that they cannot be fired at will.9

The solicitor general's Lucia brief challenges that tradition. It calls on the Supreme Court to take the unusual step of addressing an issue not passed on below, and questions "whether the statutory restrictions on SEC ALJs' removal are consistent with separation-of-powers principles."10 If the Supreme Court agrees to reach this issue, presumably the administration would argue for the ALJs to be removable at the will of the officials atop their agencies, or for another change that weakens their independence — potentially making SEC enforcement proceedings, and other proceedings across the government, less fair. As two judges in the Tenth Circuit pointed out in Bandimere's case, "ALJ insulation from agency control and coercion was a primary goal of the APA."11

Also significant is that decades-old protections for senior civil servants in many agencies — the so-called Senior Executive Service — could be impaired if the Supreme Court follows the administration's lead. This is a foreseeable consequence of extending the Free Enterprise decision that Justice Breyer warned of in his dissent.12 Most, if not all, SES members are arguably "inferior officers," and at least in independent agencies like the SEC, they are insulated by two layers of "only-for-cause" protection. However, as with the ALJs, the Free Enterprise Fund majority did not opine on the status of civil servants in independent agencies.13

The Supreme Court observed in the seminal 1935 case of Humphrey's Executor v. United States that "one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of independence against the latter's will."14 The court — which could grant certiorari next month — should decline the administration's invitation to reach the removal issue, and should preserve the traditions of independence and tenure for ALJs and the civil service.

Originally published in Law360, December 11, 2017


1 The clause reads in relevant part as follows: "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." U.S. Const. Art. 2 § 2 cl. 2.

2 Raymond J. Lucia Cos. v. SEC, 832 F.3d 277 (D.C. Cir. 2016).

3 Bandimere v. SEC, 844 F.3d 1168 (10th Cir. 2016). On Feb. 16, 2017, the full D.C. Circuit agreed to review Lucia's case en banc, but on June 26, 2017, the court, with Chief Judge Merrick Garland recused, split 5-5, which by operation of the D.C. Circuit's rules automatically affirmed the panel's decision. Raymond J. Lucia Co., 868 F.3d 1021 (D.C. Cir. 2017); D.C. Cir. R. 35(d). Meanwhile, on March 13, 2017, the SEC asked the full Tenth Circuit to rehear the Bandimere case en banc. On May 3, 2017, the court declined to do so by a 9-2 vote. Bandimere v. SEC, 855 F.3d 1128 (10th Cir. 2017).

4 The SEC's petition for rehearing in the Bandimere case — arguing that the ALJs are mere employees — was authorized by the new administration's solicitor general's office, following deliberation and consultation within the government. See Unopposed Motion for Extension of Time, Bandimere v. SEC, No. 15-9586 (10th Cir. Jan. 31, 2017).

5 Some commentators have questioned whether the Supreme Court would or could accept the case given that the SEC has probably mooted the issue on a going-forward basis. But the issue is not moot as to Lucia himself — he is currently subject to SEC sanctions. That suffices for an Article III "case or controversy." Also, the SEC's ratification is not before the Supreme Court.

6 Br. for Respondent, Lucia v. SEC, No. 17-130, at 26 (U.S. Nov. 29, 2017) ("SG brief").

7 See 5 U.S.C. §§ 1202(d), 7521(a).

8 561 U.S. 477, 507 n.10.

9 561 U.S. at 530.

10 SG brief, at 20.

11 855 F.3d at 1131 (Lucero, J., dissenting from denial of rehearing en banc).

12 561 U.S. at 540-42.

13 561 U.S. at 506-08.

14 295 U.S. 602, 629 (1935).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions