United States: Supreme Court Rules SEC ALJ Appointments Unconstitutional But Leaves Important Questions Unanswered

On June 21, 2018, the Supreme Court ruled in Lucia v. SEC that administrative law judges ("ALJs") employed by the Securities and Exchange Commission ("SEC") to adjudicate enforcement actions are executive inferior "officers" within the meaning of the Appointments Clause of the U.S. Constitution, resolving a split between the Tenth and D.C. Circuits.1 As such, SEC ALJs must be appointed by the President, a court of law, or the head of a department or agency, and not selected by SEC staff, as has been the agency's longtime practice.2 Justice Kagan, writing for the majority, declined to address the validity of the SEC's effort in November 2017 to retroactively "ratify" the prior "appointments of the sitting SEC ALJs," as well as the constitutionality of statutory tenure protections on removing SEC ALJs. The decision all but ensures future litigation on these thorny ratification and removal issues.

Lucia came to the Court from the D.C. Circuit, where Raymond Lucia challenged sanctions imposed by the SEC on the basis that the ALJ presiding over his case was an officer of the United States who had not been appointed in accordance with the Appointments Clause. This defect, Lucia argued, rendered the ALJ's decision—which was later confirmed by the SEC—a legal nullity.3 A panel of the D.C. Circuit disagreed, finding that SEC ALJs are mere employees of the agency and not subject to the Appointments Clause.4 Months later, a divided panel of the Tenth Circuit reached the opposite conclusion.5

While Lucia's petition for a writ of certiorari was pending in the Supreme Court, the Justice Department—which had up to that time defended the constitutionality of the SEC's ALJs in the courts of appeals—switched the litigating position of the SEC and conceded that the ALJs are, in fact, officers of the United States.6 This about-face prompted the SEC to issue an order in November 2017 "ratify[ing] the agency's prior appointment of" its five ALJs and establishing procedural steps, including the remand of administrative cases to an ALJ for readjudication, intended to cure the constitutional issues presented in those cases.7

The Supreme Court explained that its holding was compelled by its earlier decision in Freytag v. Commissioner,8 which the Court characterized as involving "adjudicative officials who are near-carbon copies of the [SEC's] ALJs."9 The ALJs hold a continuing office established by law and possess significant discretion in carrying out their adjudicative functions (including the ability to receive evidence, as well as the ability to make factual findings, render legal conclusions, and mete out appropriate remedies), and thus qualify as Article II "officers."10 The Court also rejected the argument that SEC ALJs are mere employees because their opinions are subject to higher levels of review (a position adopted by the D.C. Circuit in Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), and upon which the D.C. Circuit panel relied in Lucia).11

Having concluded that the ALJ who presided over Lucia's case was not constitutionally appointed, the Supreme Court remanded for rehearing before a different ALJ who has been constitutionally appointed, or before the SEC itself. In crafting this remedy, the Court did not squarely address the SEC's attempt to retroactively ratify the appointments of all its currently-serving ALJs in November 2017, observing that this issue was not yet ripe for resolution in this case.12

The majority also avoided the nettlesome question of whether the statutory removal restrictions applicable to ALJs are an impermissible limitation on the President's Article II power to remove executive officers at will, preferring to wait for "thorough lower court opinions to guide [the high court's] analysis of the merits."13 In his separate opinion, Justice Breyer took issue with the Court's failure to consider the "embedded" statutory removal question before the constitutional Appointments Clause question. According to Justice Breyer, the Court's decision to rule on constitutional grounds and leave for another day the statutory removal question "risks . . . unraveling, step-by-step, the foundations of the Federal Government's administrative adjudication system as it has existed for decades, and perhaps of the merit-based civil-service system in general."14

The Court's narrow reasoning in Lucia leaves much to be decided in the months and years to come. Indeed, the same day the Lucia decision was handed down, the SEC issued an order to "stay any pending administrative proceeding" before an ALJ for "30 days or further [pending] order of the Commission."15 Litigants in ongoing SEC proceedings will no doubt continue to challenge the propriety of the Commission's post hoc effort to ratify the "appointments" of its judges. Similarly, separation-of-powers challenges based on two-level tenure protections of the Commission's ALJs will continue to be pressed in the federal courts.

The Lucia decision will do little to quell constitutional challenges to in-house judges across the administrative state, leading to a potential reconfiguration of how federal agencies appoint, oversee, and terminate their in-house judges.


1.Lucia v. SEC, No. 17–130, slip op. (June 21, 2018), https://www.supremecourt.gov/opinions/17pdf/17-130_4f14.pdf. The Court did not explore whether SEC ALJs were considered "principal" or "inferior" officers within the meaning of Appointments Clause, as the distinction was unnecessary to decide the case.

2. U.S. Const. art. II, § 2, cl. 2.

3. Raymond J. Lucia Companies, Inc. v. SEC, 832 F.3d 277, 283 (D.C. Cir. 2016), pet. denied upon rehearing en banc by an equally divided court, 868 F.3d 1021 (D.C. Cir. 2017), rev'd sub nom. Lucia v. SEC, No. 17–130, slip op. (June 21, 2018), https://www.supremecourt.gov/opinions/17pdf/17-130_4f14.pdf.

4. The full D.C. Circuit, sitting en banc, reheard Lucia's case, but divided evenly, leaving the panel opinion in place.

5.See Bandimere v. SEC, 844 F.3d 1168 (2016), petition for cert. filed, No. 17–475 (U.S. Sept. 29, 2017).

6. The Supreme Court appointed an amicus to defend the judgment below that the SEC's ALJs were not "officers" within the meaning of the Appointments Clause.

7. Order, In re: Pending Administrative Proceedings (Nov. 30, 2017), https://www.sec.gov/litigation/opinions/2017/33-10440.pdf.

8. 501 U.S. 868 (1991).

9.See Lucia, No. 17–130, slip op. at 6.

10.Id. at 8–10.

11.Id. at 11; see also 832 F.3d at 284–88.

12.Lucia, No. 17–130, slip op. at 12–13 & n.6.

13i.Id. at 4 n.1 (quoting Zivotofsky v. Clinton, 566 U.S. 189, 201 (2012)).

14.Id. (Breyer, J. concurring and dissenting op.) at 1, 14.

15. Order, In re: Pending Administrative Proceedings (June 21, 2018), https://www.sec.gov/litigation/opinions/2018/33-10510.pdf. The Order does not preclude the Commission "from assigning any proceeding currently pending before an administrative law judge to the Commission itself or any member of the Commission at any time."

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