In a 7-2 ruling, the Supreme Court held today that Securities and Exchange Commission (SEC) administrative law judges (ALJ) are “officers of the United States,” subject to the Constitution’s Appointments Clause. The text of today’s opinion (Lucia v. Securities and Exchange Commission) is available here.

Administrative law judges (ALJ) of the SEC are generally considered civil-service employees and not appointees of the agency. ALJs adjudicate enforcement proceedings the SEC brings against private individuals. In this case, petitioner Raymond Lucia, a wealth management professional, was charged with violating securities laws, including the Investment Advisers Act. Here, the ALJ concluded Lucia violated the law and imposed sanctions.

Lucia appealed, arguing the administrative proceeding was “invalid” because the ALJ was not “constitutionally appointed.” Lucia stressed SEC ALJs are subject to the Appointments Clause as “Officers of the United States.” However, both the SEC and the Court of Appeals for the D.C. Circuit rejected Lucia’s argument, holding that “SEC ALJs are not ‘Officers of the United States,’ but are instead mere employees and importantly, not subject to the Appointments Clause.”

Today, the Supreme Court considered whether administrative law judges of the Securities and Exchange Commission are Officers of the United States within the meaning of the Appointments Clause.

The Court cited Freytag v. Commissioner, 501 U.S. 86 (1991), which concerned special trial judges (STJ) of the U.S. Tax Court. In Freytag, the Court recognized that “STJs are officers,” and “hold a continuing office established by law.”  The Court in Freytag further noted that STJs “take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders.”

Guided by the holding in Freytag, the Court today declared that “[t]he Commission’s ALJs, like the Tax Court’s STJs, hold a continuing office established by law. SEC ALJs ‘receive[ ] a career appointment’ . . . to a position created by statute. And they exercise the same ‘significant discretion’ when carrying out the same ‘important functions’ as STJs do.” Additionally, the Court noted the critical distinction between STJs and ALJs and stated, “In a major Tax Court case, a regular Tax Court judge must always review an STJ’s opinion, and that opinion comes to nothing unless the regular judge adopts it. By contrast, the SEC can decide against reviewing an ALJ’s decision, and when it does so the ALJ’s decision itself ‘becomes final’ and is ‘deemed the action of the Commission.’”

In reversing earlier rulings, the Court found ALJs qualify as “officers” and concluded that “the ‘appropriate’ remedy for an adjudication tainted with an appointments violation is a new ‘hearing before a properly appointed’ official.”

Arguably, the implications of today’s ruling are not entirely certain and could present issues for the USDA’s National Appeals Division and the Office of Administrative Law Judges. Ronald Mann at scotusblog.com remarked, “Because the opinion contains no obvious narrowing limitations, it is entirely possible that it will extend to invalidate all existing appointments of ALJs.”