Countdown to the National Lawyers Convention: Administrative Law Judges and the SEC

The Securities and Exchange Commission's growing tendency to resort to enforcement before its administrative law judges rather than Article III judges has given rise to several constitutional challenges to the use of ALJs at the SEC and elsewhere. At least one of these challenges prevailed in  Charles Hill v. SEC (N.D.Ga.) See legal press coverage here and here.  Several constitutional issues raised in Hill and in similar other cases will be the topic of a Federalist Society National Lawyers Convention panel organized by the Corporations, Securities and Antitrust practice group. 

First, there is the question whether administrative law judges -- the SEC's ALJs specifically and all ALJs more generally -- are appointed consistently with Article II. If ALJs constitute "inferior officers," the Appointments Clause and its excepting provision govern their appointments. Acts by ALJs appointed inconsistently with the Appointments Clause are constitutionally infirm. For a detailed early diagnosis of this problem, see Professor Kent Barnett's article.

Second, in order to take care that the laws are faithfully executed, the President must maintain constitutional supervisory authority over subordinates aiding him in executing the laws. Although Humphrey's Executor recognized a limited congressional power to grant one layer of tenure protection between the President and an executive branch officer, Congress may not shield subordinates from presidential superintendence by creating multiple layers of insulation from presidential accountability. The Free Enterprise Fund raised this problem of agency "matryoshka dolls" in its case against the PCAOB. This problem presents itself yet again with the SEC: the ALJs, protected by good cause tenure against removal by the Merit Systems Protection Board, are additionally housed within an independent regulatory agency itself insulated from presidential removal power. This level of independence may effectively vest the ALJs with executive power that Article II tells us is only "vested in a President of the United States." 

Third, that the SEC’s ALJs are so partial to the Commission, see, e.g., here, raises real questions about whether executive adjudicatory practice affords parties with the due process guaranteed by the Fifth Amendment.  

Finally, the SEC's decision to bring civil enforcement proceedings before administrative adjudicators invites reappraisal of the use of non-Article III adjudicators in lieu of federal courts. Both at the SEC and elsewhere, non-article III adjudication has expanded significantly over the years as considerations of administrative convenience have trumped any concern about party entitlement to Article III adjudication. Will the courts continue to allow this erosion of the federal court’s traditional function as an impartial adjudicator? Our panel will tackle these questions that affect the regulated community.