United States: Administrative Proceedings In Peril? Supreme Court Grants Certiorari In Lucia v. SEC

Key Points

  • On January 12, 2018, the Supreme Court granted certiorari in Lucia v. SEC, to resolve a circuit split over whether the SEC's administrative law judges serve in violation of the Appointments Clause of the Constitution.
  • Under the Appointments Clause, "inferior officers" must be appointed by officials accountable to the president. Historically, SEC ALJs were not appointed, but rather selected by SEC staff through a merits-based hiring process, consistent with the government's long-held position that SEC ALJs were "mere employees"—not inferior officers—and thus not subject to the Appointments Clause.
  • After years of litigation around the country, the government unexpectedly reversed course, agreeing with the Petitioner in Lucia that SEC ALJs are, in fact, "inferior officers." The SEC responded in step by ratifying the appointment of its ALJs as such, which some hypothesized would moot the controversy. The Supreme Court nonetheless granted certiorari, opening the door to a decision that could have vast ramifications for numerous federal agencies that rely on the use of ALJs, including with respect to the validity of thousands of past decisions by ALJs.


The U.S. Securities and Exchange Commission (SEC) can bring an enforcement action either in federal court or in its administrative proceedings forum over which an SEC administrative law judge (ALJ) presides.

SEC administrative proceedings are substantially different from federal court: there is limited pretrial discovery and motion practice, special evidentiary rules created by the SEC, no right to a jury (the ALJ decides both legal and factual issues), and a longer appellate process that affords Chevron deference to legal determinations made by the SEC.

Unsurprisingly, many have criticized these administrative proceedings as giving an unfair home court advantage to the SEC that can be said to serve as prosecutor, judge and jury.1 These criticisms have led to a wave of litigation under various grounds, with a constitutional challenge ultimately opening the door to Supreme Court review.

The constitutional challenge arises under the Appointments Clause, which requires "inferior officers" to be appointed by officials accountable to the President.2 Inferior officers are those who exercise significant authority based on the discretion and powers that they are granted.3

The SEC's ALJs are not appointed, but rather chosen through a merit-selection hiring process. If the ALJs function as mere government employees, this selection process is constitutional. But, if ALJs have the power and responsibilities of "inferior officers," they must be appointed by the President or by the SEC itself in order to be consistent with the Constitution.

Circuit Split

An ALJ decision in December 2013 subjected Lucia, an investment advisor, to $300,000 in fines and a lifetime ban from investment work. Lucia appealed, arguing that ALJs are inferior officers who serve in violation of the Appointments Clause because they are not appointed by the President or the SEC. In June 2017, the D.C. Circuit disagreed with Lucia, holding that because ALJs do not "issue final decisions," they are not inferior officers, but instead mere employees that do not implicate the Appointments Clause.4

Meanwhile, the 10th Circuit reached the opposite conclusion in Bandimere v. SEC, holding that ALJs' considerable power and discretion in shaping the administrative record is sufficient to confer "inferior officer" status.5 Because the ALJ was not constitutionally appointed, the 10th Circuit overturned the ALJ's decision,6 and the SEC shortly thereafter paused all administrative proceedings in the 10th Circuit.7

While Lucia's petition for Supreme Court review was pending,8 two major twists occurred. First, the Solicitor General's office filed a brief with the Supreme Court on November 29, 2017, reversing its prior position and stating that the government now views SEC ALJs as inferior officers who should be subject to the Appointments Clause. Second, the SEC announced just one day later that it had formally ratified the appointment of its ALJs, which many hypothesized might moot the issue before the Supreme Court.

Supreme Court Review and Impact

On January 12, 2018, the Supreme Court granted certiorari in Lucia v. SEC9 to resolve the issue. Its ultimate decision might have minimal impact on the SEC. The SEC has only five ALJs. By ratifying these ALJs' appointments, and implementing a simple appointment process going forward, the practical change to the SEC's administrative proceedings might be quite insignificant. But, the potential ramifications for other federal agencies that use ALJs could be substantial.

The Social Security Administration, for example, has more than 1,500 ALJs. Establishing a process to ensure the constitutionality of their appointments could be a considerable undertaking. For numerous other federal agencies that select ALJs and use them in enforcement proceedings in a manner similar to the SEC (such as the Federal Energy Regulatory Commission and the Environmental Protection Agency), substantial challenges to these ALJs' appointments and decision-making authority are sure to come.

The Supreme Court could hear oral arguments in Lucia in the coming months. Stay tuned.


1 See, e.g., Hon. Jed S. Rakoff, U.S. Dist. Judge, S.D.N.Y., Keynote Address at PLI Securities Regulation Institute: Is the S.E.C. Becoming a Law Unto Itself? (Nov. 5, 2014), [https://perma.cc/5N8A-TNYN] (noting "[i]t is hardly surprising . . . that the SEC won 100% of its internal administrative hearings in the fiscal year ending September 30, 2014, whereas it won only 61% of its trials in federal court during the same period"); Russell G. Ryan, The SEC as Prosecutor and Judge, Wall St. J. (Aug. 4, 2014, 7:36 PM), https://www.wsj.com/articles/ russell-g-ryan-the-sec-as-prosecutor-and-judge-1407195362; Jean Eaglesham, SEC Wins with In-House Judges, Wall St. J. (May 6, 2015, 10:30 PM), https://www.wsj.com/articles/sec-wins-with-in-house-judges-1430965803.

2 U.S. Const. art. II, § 2, cl. 2.

3 Freytag v. Comm'r, 501 U.S. 868 (1991).

4 Lucia v. SEC, 868 F.3d 1021 (D.C. Cir. 2017) (en banc), aff'g 832 F.3d 277 (D.C. Cir. 2016).

5 Bandimere v. SEC, 844 F.3d 1168 (10th Cir. 2016), reh'g denied, 855 F.3d 1128 (10th Cir. 2017).

6 Id.

7 Order, In Re: Pending Administrative Proceedings, Securities Act Release No. 10365, Exchange Act Release No. 80741, Investment Advisers Act Release No. 4708, Investment Company Act Release No. 32643 (May 22, 2017).

8 Lucia v. SEC, 868 F.3d 1021 (D.C. Cir. 2017), petition for cert. filed, 2017 WL 3189046 (U.S. July 21, 2017) (No. 17-130).

9 Lucia v. SEC, 868 F.3d 1021 (D.C. Cir. 2017), cert. granted, 2018 WL 386565 (U.S. Jan. 12, 2018) (No. 17-130).

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
Sheppard Mullin Richter & Hampton
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must 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