Preview: Lucia v. SEC

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The SEC fined the petitioner Raymond J. Lucia $300,000 and barred him from working as an investment advisor for anti-fraud violations of the anti-fraud provisions of the Investment Advisers Act. The petitioner requested SEC review, arguing that the administrative proceedings were invalid, as the administrative law judge (ALJ) who decided his case was unconstitutionally appointed. ALJs are appointed by SEC staff in a manner that Lucia claimed violated the Appointments Clause under Article II, Section 2, Clause 2 of the Constitution. When the SEC ruled against Lucia, he appealed to the D.C. Circuit which denied the petition for review by a divided court, issuing a new decision affirming the SEC's decision as required under D.C. Circuit Rule 35(d).



Shane Kelly, Associate, Wiley Rein LLP


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Event Transcript

Speaker 1:                           Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Litigation Practice Group, was recorded on Thursday, March 1, 2018. During a live Teleforum Conference Call, held exclusively for Federalist Society members.

Dean Reuter:                     Welcome to the Practice Groups Teleforum Conference Call, as today we preview the Lucia versus SEC. An important case examining the use of Agency Administrative Law Judges, and Separation of Powers and the Appointments Clause. I'm Dean Reuter, General Council and Vice President, Director of Practice Groups, here at the Federalist Society.

                                                Please note that all expressions of opinion are those of the expert on today's call. Also, this call is being recorded for use as a podcast, and will likely be transcribed, as well. We welcome back returning guest to Teleforum, Shane Kelly.

                                                He's an Associate at the Wiley Rein Law Firm, right here in Washington, D.C. He's gonna begin with an introduction, an overview, and some discussion of prior Appointment Clause cases. Ultimately, we'll be looking to the audience for questions, so please have those in mind, for when we get to that portion of the program, but with these first thoughts, let's turn it over now to Shane Kelly.

Shane Kelly:                        Alright, thank you Dean. And as he mentioned, I'm an Attorney at Wiley Rein, in Washington, D.C. and I work in the White Collar Defense and Government Investigations Practice Group. And today I'm going to be discussing Lucia v. Securities and Exchange Commission for the Supreme Court, and providing background on the issues, and some implications of the decision.

                                                So briefly, the issue is whether the SEC's Administrative Law Judges were appointed in a manner that violated the Constitution. And the case is very important, because the scope of the decision could actually affect a wide variety of Administrative Officials at other agencies, and potentially call into question the structure of a lot of Federal Agencies. And so, although the SEC is involved in this case here, the case really has implications broadly, for the Federal Government.

                                                Today I'm just gonna cover some background on the Constitutional Provision at issue in this case, which is the Appointments Clause. And then we'll talk about the SEC's structure, and the litigation about whether or not it's ALJ's violated the Appointments Clause. And finally, we'll talk more about the case before the Supreme Court.

                                                Just by way of background, the Constitutional Provision at issue in this case is the Appointments Clause, which is Article II, Section 2, Clause 2, of the U.S. Constitution. And it states, he, the President, shall nominate and by and with the advice and consent of the Senate, shall appoint Ambassadors and other Public Ministers and consuls, Judges of the Supreme Court, and all other Officers of the United States, whose appointments are not herein otherwise provided for, and which shall be established by law. But the Congress may, by law, vest the appointment of such Inferior Officers, as they think proper, and the President alone, in the courts of law, or in the Heads of Departments. And so that last .... alone, in the Courts of Law, or in the Heads of Departments.

                                                This clause defines the powers of the President to appoint Government Officials, and the limits on that power. It essentially creates three classes of Government Employees. First, there are Principal Officers, which are discussed in the first part of the Appointments Clause.

                                                The word principal doesn't appear in the language, but that's the term used. And this would be high, Cabinet Level Officials, like the Attorney General, so that's a Principal Officer. And they can only be appointed with the advice and consent of the Senate.

                                                Then the second category is Inferior Officers. Congress can, by law, vest appointment power of Inferior Officers, in three places, the President alone, the Courts of Law, or the Heads of Departments. And the Supreme Court has interpreted the phrase Heads of Departments to mean, basically Agencies and Departments in the Executive Branch that exercise authority under the President. So any top level official of a Cabinet Level Department, or a similar Executive Agency, could receive appointment power to appoint Inferior Officers.

                                                Although, the boundaries of that haven't fully been defined, but that's the general idea. There are a couple of implications from that structure. First, any Inferior Officer that is not appointed by one of those three entities would not be, basically a duly appointed Government Official, under the Constitution. And so, their actions would not be authorized in a proper manner, by the Government.

                                                And then, the second important implication is that Congress's role is limited to advice and consent of Principal Officers, and they cannot delegate to themselves Appointment Power of Inferior Officers. It says in the Heritage Guide to the Constitution, that one of the key worries of the framers, was that Congress would try to kind of take over the Appointment Power for itself, and if you have the authority to both create a position, as Congress does, create an office and then fund it, and also appoint that position, then you have kind of unchecked power to create Government Officials with authority. And so the idea here was that Congress itself cannot be a part of the appointment process, other than in the specific ways that are defined here.

                                                So there are Principal Officers, Inferior Officers, and then the final category is basically ordinary Government Employees. These are, this is the vast majority of people that work for the Federal Government, who are not Principle Officers, they're not Inferior Officers, and they don't have to be hired in accordance with the Appointments Clause. Importantly, the Constitution says absolutely nothing about the boundary between a Principal and Inferior Officer, or about the boundary between an Inferior Officer and a mere Employee.

                                                There's no Constitutional language to parce, in determining whether or not a particular office or person should follow one route, under the Appointments Clause, or can follow another. This just leaves it ambiguous, as to what is Constitutionally necessary, in a specific case. And because there's no clear definition, the Supreme Court has generally taken a case by case approach to these issues. It's not created one specific test, that determines whether a position is a Principal Officer, Inferior Officer, or just an Employee.

                                                But the cases have created Guide Posts, as they often do, about what type of position should fall under each category. The first case I'm gonna talk about, just to get some background on how the Court has looked at these issues before, is Buckley v. Valeo.  And there, the Court reviewed the powers of the Federal Election Commission, under the Federal Election Campaign Act. And under the law, as it was passed by Congress, the FEC was made up of eight members, this is the Federal Election Commission, as it was, in the 70's, immediately after the Watergate Scandal, so it looks very different from the FEC now.

                                                And at that time, Congress passed the Federal Election Campaign Act, created the FEC, and they gave power to appoint some of the members to Congress itself. So certain members of Congress could appoint members of the Federal Election Commission. And one of the questions the Court reviewed, in this case, was whether or not the members of the FEC, as it was constituted at that time, were in fact, Inferior Officers under the Constitution. And if they were Inferior Officers, then Congress could not vest appointment power in itself.

                                                So the Supreme Court held that the appointees of the Federal Election Commission were Officers of the United States, and were not mere employees, because they quote, "Exercised significant authority pursuant to the laws of the United States." And because they had significant authority, exercised pursuant to a public law, they were Officers and they weren't just employees. And the Court said that employees are, quote, "Lesser functionaries subordinate to Officers of the United States." And the Court found that these members were Inferior Officers, because they had substantial discretionary authority to administer the Federal Election Regime, without supervision by any other Officer of the United States.

                                                So in discussing what powers the FEC could wield, given its structure, the Court said that, if it's just as employees they could investigate and disseminate information. So they can receive reports about Federal Election Campaigns and they can give out that information, however, it said, you cannot enforce laws using discretionary authority, if you're just an employee. You can't seek judicial relief, and you can't conduct civil litigation. The Court also found that rule making and regulatory authority was too important to be administered by just employees.

                                                So because the FEC, at that time, had that authority, its members could not be just employees. That case gives some kind of general test, it's obviously quite vague that, what is significant authority pursuant to the laws of the United States? And what does it mean to be a lesser functionary, subordinate to the Officers of the United States? But it gives some guidance.

                                                The next case I'm gonna talk about is Morrison v. Olson. There is a Court review of the Constitutionality of the Independent Council Provisions, of the Ethics and Government Act, passed after Watergate. Under that regime, the Special Division, which was a Special Court, created by the Ethics and Government Act, could appoint an Independent Council to investigate wrongdoing. And in this case, an Independent Council was appointed to investigate Ted Olson, it's the Ted Olson who's more well known now.

                                                And he argued, as a part of that investigation, that the way the Independent Council had been appointed was unconstitutional, on a variety of grounds. The Supreme Court ultimately found that the Independent Council was an Inferior Officer, so not an employee, nor was it a Principal Officer, and for that reason Congress could validly vest the Appointment Power in the Special Division, which was a Court. And the Court said that there were multiple factors that made the Independent Council an Inferior Officer, instead of a Principal Officer.

                                                So one, the Independent Council was subject to removal by a more senior official, in this case the Attorney General, the Independent Council only had limited defined duties. The investigation and prosecution of Federal Crimes, in a very specific case. It's similar to the Special Council Investigation currently, although it was a different regime. But, they would be appointed to investigate a specific instance, they didn't have law enforcement authority ongoing, forever.

                                                Their jurisdiction was defined by the Special Division, so the Special Court defined the jurisdiction of this position. And the office was also limited in tenure, so once the mandate was carried out the office ceased to exist. And so, despite the substantial law enforcement discretionary authority of the Independent Council, which the Court said was enough to make them some kind of Officer of the United States, the Court ultimately found they were just Inferior Officers, because of all the limitations on their authority.

                                                The final case I'm gonna discuss today, just as background, is Freytag v. Commissioner of Internal Revenue. And there the Supreme Court found that a Special Trial Judge in the United States Tax Court, was an Inferior Officer, and therefore the selection needed to comply with the Appointments Clause. In this case, the Special Trial Judges were appointed by the Chief Judge of the Tax Court, and they had ability to kind of conduct tax litigation, but they were not able to render final opinions of the Tax Court, and they basically had a ... the Chief Judge of the Tax Court that would review their findings and propose opinions, but at the same time, they had independent authority to conduct litigation.

                                                And so the Court found that that type of structure, it makes them an Inferior Officer. And I'm just gonna read a quote from the case, 'cause it really neatly ties together all the different facts that the Court found there, made the Special Trial Judges to be Inferior Officers. They said, quote, "The Commissioner reasons that Special Trial Judges may be deemed employees because they lack authority to enter a final decision." But this argument ignores the significance of the duties and discretion that Special Trial Judges possess.

                                                The Office of Special Trial Judges quote, "Established by law, and the duties, salaries, and means of appointment for that office are specified by statute. These characteristics distinguish Special Trial Judges from Special Masters, who are hired by Article III Courts on a temporary episodic basis, whose positions are not established by law, and whose duties and functions are not delineated in a statute. Furthermore, as Special Trial Judges perform more than ministerial tasks, they take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders. In the course of carrying out these important functions, the Special Trial Judges exercise significant discretion."

                                                The Court went on then, to determine if the manner of selection for the Special Trial Judges complied with the Appointments Clause, and  saying that it did, because the Tax Court was a Court of Law. As you can see, from looking at the language of these cases, the key question in this inquiry is really, how much authority, and how independent, is a particular Federal Employee? And do they have so much power that they have to be appointed?

                                                And if they're Officers of the United States, was their appointment in accordance with the Appointment Clause of the Constitution? And that kind of concludes my opening remarks and just background.

Dean Reuter:                     Terrific. Let me do two things now, actually I'm gonna open the floor to questions so people can begin to que up, but I also want to ask you if you would next talk about background on this particular case. Talk about what's at stake, and how the three cases you mentioned, Buckley, Morrison, and Freytag, apply in the current circumstance. But first, let's open the floor to questions.

                                                In a moment we'll all hear an announcement that will say the floor mode is on, after you hear that announcement, if you have a question push the star button and then the pound button on your telephone. Once again, if you have a question, push the star button then the pound button anytime along the way, and Shane Kelly, in the meantime, if you could walk us through this case and how these previous cases in the law might be applied here.

Shane Kelly:                        Absolutely. With regard to this specific case, Lucia is really about the boundary between an employee and an Inferior Officer, in the context of the SEC. So the question is whether or not the SEC's Administrative Law Judges should be considered mere employees, or if they're Inferior Officers. And if it's the latter, if they're Inferior Officers, then they can only be selected in accordance with the Appointments Clause.

                                                And the SEC and its Administrative Law Judges are structured kind of as follows, the SEC is composed of five Commissioners, that are appointed by the President, with the advice and consent of the Senate. But to allow for greater efficiency, Congress has passed laws that give it authority to delegate matters to Administrative Law Judges, sometimes called Hearing Officers. And historically, ALJ's were not selected by the full Commission, they were selected bureaucratically. The SEC staff would select from a pool of candidates identified by the Office of Personnel Management.

                                                So the Commission, the SEC, has authority to bring a civil suit in Federal Court, against violators of Securities Laws, but it can also ensue a Civil Administrative Action. And that's where the ALJ's come in. They conduct administrative hearings, and they can administer oaths, and issue subpoenas, and examine witnesses, and rule on motions, enter orders of default, and they also have a very limited amount of contempt power. So they can exclude people from hearings, if they're being disruptive, or not obeying court orders.

                                                However, ALJ's cannot seek court enforcement of subpoena, and they have no authority to punish disobedience with discovery orders, or fine, or imprison people for contempt. So they have much more limited power than, say, a Federal District Court Judge. And the full Commission can review decisions of ALJ's on its own initiative, or on petition of a party. And for certain categories of actions, review, by the Full Commission, is mandatory, but if the Full Commission chooses not to review an ALJ action, in a specific case, within a specified time period than it's deemed to be an action of the Full Commission, and an order is issued that puts the ALJ's initial decision into effect.

                                                So basically there's a kind of automatic effectiveness, or enforcement, of ALJ decisions unless the Commission seeks to review. And about 90% of ALJ decision are never reviewed by the Full Commission, so the vast majority of ALJ decisions just kind of go into effect. In this specific case, Lucia, an ALJ found that Raymond Lucia had violated provisions of the Investment Advisors Act, for ways that they presented a Wealth Management Strategy to potential customers, called Buckets of Money. Lucia raised the argument that the ALJ that decided the case, was an Inferior Officer and had not been appointed in a manner consistent with the Appointments Clause.

                                                And this argument was raised to the Full Commission at the SEC, and they rejected the argument, no big surprise. And Lucia appealed and sought review from the D.C. Circuit. The D.C. Circuit found, in a unanimous opinion, that the ALJ's were not Officers at all, under the Constitution, they were just employees. And so they did need to be chosen in the manner described in the Appointments Clause.

                                                And because of prior D.C. Circuit precedent, the Court focused on whether or not SEC ALJ decisions were final. And they found that they were not really issuing final decisions, given the structure of further review by the Full Commission. Because Lucia lost before the D.C. Circuit, filed for a rehearing en banc, but in the meantime, a different Circuit Court, The Tenth Circuit, reached basically the opposite result from the D.C. Circuit, in a case called Bandimere v. SEC.

                                                So, in this other case somebody else argued that the SEC's ALJ's were not Constitutionally appointed, and The Tenth Circuit actually agreed with that argument. Finding that they were Inferior Officers, and that they had been unconstitutionally appointed. But it was not a unanimous panel, so the panel opinion was two v. one. and the Court there focused on really the trial judge, the Special Trial Judges in Freytag, founding that the ALJ'S wielded very similar authority to the Special Trial Judges there, and because the appointment was not by the Full Commission of the SEC's ALJ's, a Head of a Department had not appointed the ALJ's, and it violated the Appointments Clause.

                                                And so, on those grounds The Tenth Circuit set aside the SEC's opinion in that case. However, it was not a united opinion, Judge McKay issued a really strong dissent, disagreeing with some majorities reasoning, but also warning that this decision had huge ramifications for ALJ's in other Administrative Agencies. Because the SEC's structure of authority, for its ALJ's, is by no means unique, and so Judge McKay feared that this decision to invalidate the SEC's ALJ's really called into question a lot of different Government entities. That was after the filing for rehearing en banc, the Tenth Circuit came out, creating a Circuit split.

                                                Then the full D.C. Circuit actually granted, en banc review, but then deadlocked on the decision. So they split five v. five, as to whether they should reverse the panel's opinion. And so they issued no opinion, because they were deadlocked and couldn't come to a decision. Basically, where the case ended up is, there was a very clear Circuit split on really a binary question.

                                                Are ALJ's employees or are they Inferior Officers? There's no middle ground there, it has to be yes or no. And there was a direct Circuit split on it. And because this is really a Constitutional question about separation of powers, and it also has a lot of practical effect for a major government agency, all that made the Supreme Court review pretty likely.

                                                The Court ended up granting certiorari in Lucia, and so that's how the case got there. There was a kind of interesting wrinkle in the certiorari process, though, that's worth discussing. The Federal Government actually switched sides in this case. The SEC and the Federal Government took the position, before the D.C. Circuit, that the ALJ's were just employees, and therefor the process was Constitutional.

                                                However, in the certiorari process, the Solicitor General filed a brief saying we agree now, that the ALJ's are Inferior Officers, despite the fact that the SEC had actually won below, they asked the Court to take the case, saying that it had been wrongly decided. And then something else kind of strange happened. So, the day after the Solicitor General filed their brief, basically conceding the unconstitutionality of the ALJ appointments, on November 30, 2017, the Full Commission of the SEC quote, "Ratified the appointment of the existing ALJ's." Essentially trying to make them prospectively Constitutional, by affirming their position.

                                                So, presumably the Full Commission would be a Head of a Department. And so, if the Full Commission chooses them, then they're Constitutional. And so what they tried to do is, basically they issued a press release saying we have ratified the appointment of these people, trying to limit the fallout of the new position of the Government. But it's very unclear whether or not this action would really be sufficient to save them, going forward.

                                                Lucia has argued in it's briefing, before the Supreme Court, that this doesn't really solve the problem, because the hiring process was unconstitutional, and you can't just reinvent what actually happened, post hoc. And that the ratification process here had none of the procedures that a normal appointment does. And so, the irregularities Lucia's saying, this ratification means nothing, the SEC is trying to limit potential fallout by saying all our ALJ's now are fully valid. And the Commission also directed the ALJ's to review all of their open cases, to see if they want to ratify their prior decisions.

                                                Basically, inviting them to go through and say yup, we agree with everything we've done, to try and, again, limit the fallout, in case the Court finds that they were appointed unconstitutionally. That brings us up to Merits Briefing, initial Merits Briefs have been filed. And the argument is now set for April 23, 2018. But because the SEC and Lucia are now on the same side of the Constitutional issue, you basically both agree that the ALJ's are Inferior Officers, the Court appointed somebody else to argue the position, in defense of the D.C. Circuit's opinion, that the SEC's ALJ's are not Inferior Officers, and are just employees.

                                                So the Court appointed Anton Metlisky, from O'Melveny, in New York, to brief and argue that issue. His brief isn't due until the end of March, so we don't yet know what his focus will be. But it's fairly easy to guess what the fault lines will be, in terms of the briefing.

                                                One side will be arguing that the ALJ's do not exercise significant authority, and are really just employees. While the other side, in this case, which will be Lucia and the Solicitor General, will be arguing that the ALJ's do exercise significant authority and are Inferior Officers. It's not a clear issue, because there really are mixed factual indicators here. In some ways they have a lot of authority and discretion, but in other ways, their activities are pretty constrained and controlled by the Full Commission.

                                                Which side of the line it falls on is really what the Court has to decide. The most important precedent here will be Freytag. Because the Court there found that the Special Trial Judges form the Tax Court were Inferior Officers, and in many ways, the ALJ's are pretty similar to them, they both have authority to kind of generally conduct these adjudicated proceedings. But the ALJ's authority is a little more constrained over litigants.

                                                So they don't have full contemp power, and they can't compel discovery, which the Special Trial Judges could there. Whether or not that's enough to push over the line is unclear. If the Court finds that the SEC's ALJ's were Inferior Officers, then at least until November 30, 2017, every single decision, by the SEC's ALJ's would be called into question. Because none of them were appointed in a manner that complied with the Constitution.

                                                It's hard to know, as it always is, how the Court will ultimately come down on this. Because it's not a traditionally ideological case, voting patterns may not fall along conservative or liberal lines. However, as kind of a more philosophical matter, conservatives are probably more likely to be skeptical of the Leviathan of the modern Administrative State, and so they are more likely to see that political accountability is an important component of restraining Administrative Agencies like the SEC. And so they would want to find the SEC's ALJ's unconstitutional, because they are essentially insulated from a politically appointed authority.

                                                That's really the heart of the issue here is, we want people who are exercising significant Government authority to be politically accountable. And if they're not being selected by a politically accountable authority, such as the President, then they are not accountable to anyone. So that's the real issue here, and so conservatives are probably more likely to be skeptical, but again, because it's not a clearly ideological case, it's hard to say how it'll come out.

                                                But the real question, which will probably be the most interesting, and maybe difficult part of the case, will be what remedy could be given in this situation? And if the Court finds that the SEc's ALJ's were Inferior Officers, does that mean that every single decision by them is completely invalid? Council for Lucia has argued in the Merits Briefing that the only possible remedy here, is to set aside the prior findings, in every case, and have a complete rehearing before a Constitutionally appointed ALJ. They want a complete rehearing of everything.

                                                And they cited strings of cases saying that a defect in an adjudicator, such as a biased Trial Judge, just automatically requires a rehearing. There's no other way to remedy the situation. But the problem is, if you apply that to every single case that has been before the SEC's ALJ's, it would just be kind of impossible, it would just create a massive backlog. You'd have to retry years of cases, which would disrupt the ability to enforce the law now. And just really disrupt the function of the SEC.

                                                There's also a question of whether parties could try to challenge previously closed cases. So, if a company has recently, last year, gave $50 million over to the SEC in a fine, could they now file a suit saying that had been wrongly taken from them? The potential to just open the floodgates to lots of challenges and lots of complicated litigation is very real. Really, the question is bigger than the SEC, as well, because depending on how the opinion is written, it could call into question many more ALJ's, of other agencies.

                                                And so the approach to what an appropriate remedy is here, could really cascade through other agencies. What they decide here may end up applying to the Department of Homeland Security, or a bunch of other entities. So they really have to be very thoughtful about how they approach that. One option that has some precedent, would be to treat basically all prior actions of the ALJ's as still binding and valid, but nevertheless require the appointment process to change, going forward.

                                                In Buckley v. Valeo, the Court did something pretty interesting, with regard to the remedy, or the effect of their decision with the FEC, or Federal Election Commission. It basically said that all prior actions of the FEC would still be considered valid, and they also stayed the effect of their opinion for 30 days, when it was issued, so that Congress could reconfigure the structure of the FEC. Instead of just invalidating everything, they basically said all the prior actions were valid, but required a change prospectively. And they drew an analogy to the apportionment case law, before the Court, where acts of Legislators are considered binding, even if the election map is later found to be unconstitutional.

                                                If an election map is unconstitutional, you don't just wipe away an entire Legislative Season, because that would be kind of unworkable. You basically consider those acts to have had de facto legitimacy at the time, and all prior acts are treated as effective, but you still require a change, going forward. If the Court does indicate that the SEC's ALJ's were unconstitutional, they may give a very, very weak remedy for people like Lucia, who are looking to get a total rehearing, and just say everything is valid, but they have to change going forward.

                                                That's really everything I have for my presentation. I look forward to questions. Just some concluding thoughts, this is a very important case. Just because of how it could affect the operation of so many different Federal Agencies.

                                                And while it's really nominally about the SEC, it's really a Constitutional Separation of Powers case, which is why it's so interesting. And the decision here, both how they describe the merits, and what line they draw, and the possible remedy just has huge implications for the rest of the Executive Branch. And if they find that the ALJ's were in fact, Inferior Officers, the real, kind of, interesting part will be figuring out what in the heck to do about it, because it's such a disruptive thing to decide. I look forward to questions, and that's all I have.

Dean Reuter:                     Very good. Thank you so much. We've already opened the floor the questions, if you joined the call late, the floor is open, if you have a question push the star button and then the pound button on your telephone. Our lines are wide open at this point, nobody's qued up.

                                                Let me see if I can get us started here with a question or two. And that is, how much does it matter, whether or not these are final decisions? And how is that assessed? In some cases, the SEC has a much higher win rate, in front of an ALJ, than it does in Federal Court.

                                                These decisions, ultimately, I suppose, are appealable or you can take them to a District Court. But at that point, presumably, the Court begins its analysis with deference to the Agency decision, to the ALJ's decision. So it's not necessarily a final decision, but it's not easily surmountable, does that matter at all?

Shane Kelly:                        Absolutely, it would be ... a challenge to a ALJ decision is an APA appeal, so you have the Substantial Evidence and Abuse of Discretion Standards. But really the issue is, do they have authority to create binding Government Orders, without close supervision? I think is kind of how you might describe it. Because if they look more like a District Court Judge, that can issue an order that nobody else can look at right away, it could be appealed, but at the same time, they have the power to bind party's with the power of law.

                                                Then there needs to be some kind of review of a quote, Officer of the United States, otherwise, their exercising what looks like appointment power. But at the same time, if they're definitely not a rubber stamp, if it's just the first stop in a meaningful review, by another Officer of the United States, then the Court would be more likely to say they are just employees assisting the Commission. Here, the facts are really so mixed, it's very hard, again, because conceivably the Commission could decide to review every single ALJ decision on the Merits, and therefore, the ALJ's would not be exercising much power. So they have the ability to do that, but practically, they don't review very many cases.

                                                And so, it looks a lot like you have the ALJ's binding parties, and making determinations of liability that can be challenged, but in the first instance or have the force of law against the party. So I think you're absolutely right, it's a difficult issue to parce out, and how you look at it really depends on what you're looking for. If just theoretical ability to review is sufficient, then here, the ALJ's do not have binding authority. But if look at it kind of practically, and in operation, it looks like they're operating pretty independently. So it'll be interesting to see how that plays out.

Dean Reuter:                     Another example of the practical versus the maybe du jour versus defacto is that the ALJ, at the Federal Trade Commission, I understand, from Josh [Wright 00:34:25], he's a former Commissioner there, that there's just one ALJ at the Federal Trade Commission. Over the past few decades, so a long period of time, the regulated community has about a 50-50 chance of winning, in front of the ALJ.

                                                And those decisions then can go to the Full Commission. But after that, in 100% of the cases, where the regulated community prevailed in front of the ALJ, the FTC reverses. And in 100% of the cases where the ALJ has found for the Commission, the Commission affirms. Those are some interesting facts that make for interesting application of it.

Shane Kelly:                        A one way review.

Dean Reuter:                     Right.

Shane Kelly:                        And so, at the SEC there are five Administrative Law Judges. Which is essentially the same number of Commissioners of the SEC. And so it's not a big army of subordinates, it's a pretty confined group that has a fair amount of authority. And as you mentioned, the SEC often, for strategic reasons, may choose to go with their ALJ's, as opposed to District Court Litigation.

                                                This case has disrupted their ability to do that, because they've been avoiding sending cases to their ALJ's because of all the uncertainty. But it's a very small group that has a fair amount of power over the regulated community here. And so that's another worry, if you're looking at this as a situation, and you don't feel like the Full Commission is giving it close enough review, that maybe these people should be considered Officers.

Dean Reuter:                     We do have one question, in the audience, if you'd like to join the que push the star button and the pound button, on your telephone. Before we go to that question let me ask just one quick fallow up question. You mentioned the U.S. Solicitor General switched sides in this case, now says that the Administrative Law Judge is an Inferior Officer, and therefore the appointment is unconstitutional. You've also talked about the remedy in this case. Does the Solicitor General's brief touch on, or recommend a remedy, given its position?

Shane Kelly:                        I believe it does not, but let me pull it up really quickly. I believe they didn't.

Dean Reuter:                     Maybe, this is a more general question, how much did the Court pay attention to the impact of a remedy? If there's been a Constitutional violation, and if it goes back 30, 40, 50 years, is it really their business, in doing that sort of legal analysis, to consider the consequences of deciding the case one way or the other?

Shane Kelly:                        Absolutely. It's not a direct question before the Court, in the sense that it wasn't part of the question presented, it's just whether to not they're Inferior Officers. It's conceivable that they will make a finding that they are Inferior Officers, and then remand or just set aside the opinion, but not make any decision about what to do more broadly. I think, in normal cases, there's always a balance of how pragmatic does the Court need to be versus how principled. I think, in this case, because the pragmatic considerations are really so vast, I think they have to at least think about it, and probably do something.

                                                Just because the ability to disrupt so much of the Government's operation is there. I think it would be a little bit irresponsible almost, to just kind of issue an erudite opinion about this very specific question, while not deciding more broadly. The SEC's opinion really did not have a significant amount ... that's what I was just looking at it briefly, did not have much about remedies. They do talk about it a little bit, so there was another issue I didn't discuss, that the Solicitor General put in their brief, which was removal power.

                                                The ALJ's can only be removed for cause. And similarly, the SEC Commissioners can only be removed for cause. To the extent they are not employees, but are, in fact, Officers that should be appointed under the Appointments Clause, there would be basically kind of double removal protection, like a double layer of removal protection. The SEC brought up that issue in their brief, basically saying that that may be called into question, as well, depending on what the Courts decide about that.

                                                And recent cases talking about, removal for cause and the limitations on the President's discretion could apply here. So the SEC argued in their brief, that the question presented really fairly encompasses the removal power one. It wasn't addressed by the D.C. Circuit, or it wasn't addressed by Lucia, but they're basically saying we want you to look at this, too.

                                                Potentially to just kind of clear this up, so that there's not another challenge in the near future. And the SEC basically said the appropriate remedy here will really depend on whether or not the Court concludes that the ALJ's had improper removal power, as well. If this entire class of people was improperly protected, then that's another reason to call it into question.

Dean Reuter:                     Right. Echoing back to the [Peekaboo 00:39:49] Case. Let's take questions from the audience now. We have just one question, if you'd like to join the que, as I mentioned, push the star button then the pound button on your telephone. For now let's take our first call of the day.

Speaker 4:                           Thanks for that recitation of the case. I was gonna ask you, is this gonna have ... 'cause it seems so vast, what they could do, is this gonna have any impact on ...

Shane Kelly:                        So, I think they absolutely could impact positions like Immigration Judges. And really, the fear is that this case ... How they write the opinion, they could say basically anybody similar to this is an Inferior Officer. Or they could rule extremely narrowly and say, because of these very particular facts, that don't apply to most ALJ's, they are Inferior Officers. So it really depends on the breadth of what they're gonna do.

                                                In terms of what I would predict, I think it's probably more likely that they're going to find them to be Inferior Officers. In part because the United States switched positions. So the SEC has had really a bad track record in recent years, before the Court. They've basically lost 9-0 on a number of cases.

                                                And so it could be that they believed they were gonna lose again, and by switching positions they could maybe influence how the case comes out a little more, as opposed to just kind of rejecting the inevitable. I think maybe it's a little more likely, normally when the Court grants certiorari there's a greater chance that the Court will reverse than affirm. I think in about 60% of cases the Court reverses the cases they grant cert on.

                                                Here, I don't think that's quite as meaningful. Because they had a direct, kind of one to one, Circuit split they were more or less kind of obligated to take one of the cases, just to clear up the issue, because it had a lot of significance. So I don't know that that really means much, although it does in a lot of cases, but here, I think because the Government switched sides, and they had to appoint someone to argue the opposite case, I think just coming in, the optics are gonna be that all of the momentum is behind the side finding them to be Inferior Officers.

                                                However, they could be worried about the practical effects and look at this, and because there's not really a clear standard, under the language or text of the Constitution, they could give pragmatic considerations a little more weight. In which case they'd say, we don't want to overturn the apple cart here, and we'll just let things go and try to draw distinctions with our prior cases. As always, it's a little dangerous to make predictions, but that would be my prediction for this case.

Speaker 4:                           Thank you, but one more question, if I could. I mean, the serious, I mean, if you could look at a cataclysmic effect I mean, this could honestly, if they don't pull it back, and if they decide to make it retroactive, which they don't necessarily have to do that, but I mean, you could imagine, I mean, think of how many aliens have been removed or even, although it's not the same in the criminal arena, where they've gone ahead and found things unconstitutional, they said we're gonna start it now and moving forward. It seems to me like there may be some type of practical remedy built into whatever the ruling is, when they end up deciding this case.

Shane Kelly:                        Absolutely.

Speaker 4:                           Do you think it's gonna be nine ... I'm sorry to interrupt you, and you can finish off and I'll stop. What do you think the score's gonna be, at the end? I don't think it's gonna be a five-four, it's probably gonna be a lot higher than that, don't you think?

Shane Kelly:                        Absolutely. I think in this type of case they probably want to speak with more of a unified voice and come to what they feel is an approach people can get behind. So I always think it would be seven-two or higher, or something like that. With regard to Immigration Judges, I don't remember, I maybe spoke a little hastily, I don't remember how exactly they're chosen. And that's really the key issue here, so if under the laws for the Immigration Judges, they're appointed by someone who is in Congress, a Court of Law, or by the President, Courts of Law, or the Head of a Department, then they're totally fine, and this case would not impact them.

                                                However, in a lot of agencies, ALJ's are chosen through a bureaucratic method, such as the SEC, where it's the staff that are choosing them, based on a hiring process through OPM. I don't remember specifically about Immigration Judges, so I'm not sure, but even if it does include Immigration Judges, it really could call into question enforcement actions by all the major Federal Agencies, potentially. And so, the impact is really still large.

                                                They're more or less obligated to think about what it really means and figure out how to cabinet, if necessary. But again, they could decide that the mix of authorities here, doesn't make the ALJ's Inferior Officers. In which case, it's not an issue. The remedy question only comes up if they resolve the merits in favor of Lucia and the Government.

Speaker 4:                           Thanks a lot, appreciate it.

Shane Kelly:                        Thank you.

Dean Reuter:                     Once again, if you have a question push the star button and then the pound button on your telephone. We've got one question pending. Let's go to our next caller.

David:                                   Yes, David [Emerson 00:45:32] with the Berkeley Chapter of the Federalist Society. Interesting situation, question about the survival of the Presidential value of some of the ALJ decisions, and whether that was discussed, briefed, and considered, especially had to do with things that had to do with collateral stop or reliance on those decisions, res judicata, or even chevron deference to those types of decisions in the District Court and whether or not the underlying issues would be susceptible to being disputed or reheard.

Shane Kelly:                        I think that's definitely a question. I don't have a clear answer on that, 'cause I don't know. That issue wasn't raised explicitly in the briefs that I saw, but I think it is definitely a real question. The other ... Buckley v. Valeo, where they basically invalidated the current structure of the Federal Election Commission, there it was a fairly young agency, and so they didn't have a huge set of different types of precedents that had different types of impacts in different arenas.

                                                I would think, again, because of how disruptive it would be, kind of, to the operation of the SEC, and the regulated community here, I would think they wouldn't write something that would say, basically all of these acts have had zero binding value for the Government. Because it would just be so disruptive and difficult for everybody to just wipe away 80 years of regulation, or of regulatory action. And so, again, similar to that case, they may ultimately say, well, they had de facto legitimacy at the time, and so they're gonna be considered valid acts of the Commission, even though, going forward, it has to be different, otherwise they don't have authority to do what they're doing.

                                                I think it's probably very unlikely that they would just wipe away everything that had been previously done, in terms of its legal effects. But in terms of individual adjudications it's possible. So they could say every case that was before them, you have to go back to those same people and retry them if you want to institute that fine or penalty.

                                                But I would think they wouldn't say basically every action can be totally ignored as if it didn't exist, but just because that would be so difficult. But who knows, if they want to take a strong principled stand here, they could conceivably do that.

Dean Reuter:                     Let me make a final call for questions. If you have a question, now's the time to ask it. Push the star button and then the pound button on your telephone. I believe we've had our final question, Shane Kelly. We've got some time left, let me give you a minute or two to express a final thought, if you have one.

Shane Kelly:                        Nothing different than I've already stated. Just I think it's a very interesting question, just 'cause there's very little to hang your hat on, in terms of trying to figure out what the outcome should be. It's possible they'll be looking at the historical context and the framers, but because the language is fairly broad that may not really help much.

                                                And so I think it'll ultimately end up being what does the Court want to do here? And what do they want to do about it? And the answer to both those questions will have a lot of impact on the Federal Government, and it's just an interesting, an abstract, in some ways, but very interesting case to watch. And I look forward to seeing what they do.

Dean Reuter:                     Very good. Well, my thanks to you, Shane Kelly. Thank you for joining us. We will check back with you, probably after this case is argued, maybe there'll be some additional insights coming out of the oral argument. I want to thank the audience as well, for joining us, and for your thoughtful questions.

                                                I would tell you to watch your emails and check the website for the next scheduled Teleforum Conference Call, but I happen to know that's at 2PM today. So we'll begin that in just over an hour, 2PM Eastern Time, at this same number we'll be talking about Class versus U.S. That's a decision that came out of the Supreme Court, and it held a guilty plea does not bar a defendant from raising appeals, based on Constitutional grounds, and there was a strong descent there. So, an interesting result, with an interesting descent. We'll be talking about that at 2PM Eastern Time today. But until that next scheduled Teleforum Conference Call, we are adjourned. Thank you very much everyone.

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