Legal Sidebari

Supreme Court Holds That SEC
Administrative Law Judges Are “Officers”
Subject to the Appointments Clause
June 22, 2018
On June 21, 2018, the Supreme Court released its opinion in Lucia v. Securities and Exchange
Commission (SEC), holding that SEC administrative law judges (ALJs) are “Officers of the United
States” within the meaning of the Appointments Clause and, as such, must be appointed by the
Commission rather than SEC staff. The Court granted Mr. Lucia—whose challenge concerned an adverse
decision by an SEC ALJ who was not so appointed—a new hearing before a different ALJ. The Supreme
Court’s decision is as significant for the questions that it resolves (i.e., the officer status of SEC ALJs and
the remedy in Mr. Lucia’s case) as for the legal issues it leaves for later cases. With over 100 SEC cases
involving ALJs pending before the agency when the SEC acted to “ratif[y] the agency’s prior
appointment” of its five ALJs, and nearly 2,000 ALJs situated in over twenty-five agencies across the
federal government (the vast majority of whom serve the Social Security Administration), the specter of
challenges to other ALJ proceedings and decisions looms large, as agencies and lower courts begin to
examine Lucia’s scope.
Background
The Appointments Clause provides that the President “shall nominate, and by and with the Advice and
Consent of the Senate, shall appoint . . . Officers of the United States”—which the Court refers to as
“principal officers”—but allows Congress to vest the appointment of “inferior” officers “in the President
alone, in the Courts of Law, or in the Heads of Departments.” (The Commission falls into the last
category of department head.) The Constitution does not establish an appointment requirement for non-
officer employees in the federal workforce.
The central question in Lucia was whether SEC ALJs are inferior officers or mere employees, calling into
focus the distinctions made in prior Court decisions—three of which took center stage in the Lucia
opinion. First, in its 1879 decision in United States v. Germaine, the Court held that a civil surgeon
appointed by the pension commissioner to perform examinations on an episodic basis was not an officer
because, among other reasons, his duties were not “continuing and permanent” in nature. Much later, in
its 1976 decision in Buckley v. Valeo, the Court held that “any appointee [to a federal office] exercising
Congressional Research Service
https://crsreports.congress.gov
LSB10153
CRS INSIGHT
Prepared for Members and
Committees of Congress

---

Congressional Research Service
2
significant authority pursuant to the laws of the United States” is an officer—a test that the Court applied
to determine that members of the Federal Election Commission, who exercised “direct and wide-ranging”
enforcement powers and “broad administrative powers,” were officers. Then, in 1991, the Court held in
Freytag v. Commissioner that special trial judges of the U.S. Tax Court (STJs) were officers because:
(1) their office is “established by Law” with statutorily prescribed duties, salary, and means of
appointment; (2) the judges perform “important functions” in that they “take testimony, conduct trials,
rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders”;
and (3) the judges “exercise significant discretion” in performing these tasks. The Court further reasoned
that even if the STJs’ duties were not so significant, they would still qualify as officers because they could
render final decisions in certain types of cases.
The Lucia Decision
In an opinion authored by Justice Kagan (and joined by Chief Justice Roberts and Justices Kennedy,
Thomas, Alito, and Gorsuch), the Court held that SEC ALJs are officers subject to the Appointments
Clause. The opinion began by noting that the Germaine and Buckley decisions “set out [the] basic
framework for distinguishing between officers and employees.” Because no party disputed that SEC ALJs
met Germaine’s requirement of occupying a “‘continuing’ position established by law,” the Court
observed that the “central” concern was the meaning of Buckley’s “significant authority” test. While
acknowledging that the “standard is no doubt framed in general terms,” the Court declined to “refine or
enhance” Buckley’s test, reasoning that the later Freytag decision “says everything necessary to decide
this case.”
In the Court’s view, SEC ALJs are “near-carbon copies” of the STJs at issue in Freytag. Setting forth the
“important functions” listed in Freytag “point for point,” the Court observed that like STJs, SEC ALJs:
(1) take testimony, (2) conduct trials, and (3) rule on the admissibility of evidence. The Court did not find
differences in the manner in which the two types of officials enforce compliance with discovery orders
(the fourth function in Freytag’s list) or between the Commission’s and the Tax Court’s standards of
review for factual findings (a consideration not relied on in the Freytag decision) dispositive. In addition,
the Court reasoned that SEC ALJs “issue decisions much like [those of STJs]—except with potentially
more independent effect.” Whereas STJs prepare proposed findings and decisions that a Tax Court judge
must review and adopt in a “major case like Freytag,” SEC ALJs issue initial decisions that the
Commission has discretion to review. Moreover, once the Commission issues an order declining review,
an SEC ALJ’s decision, by statute, is “deemed the action of the Commission.” Although noting the
parallels in decisionmaking authority, the Court rejected the conclusion of the appellate panel and two
dissenting Justices that “final decisionmaking authority is a sine qua non of officer status,” reasoning that
the Freytag Court discussed STJs’ ability to render final decisions in certain types of cases as an
“alternative basis” for viewing those judges as officers. In doing so, the Court resolved a circuit split on
the significance of final decisionmaking authority to officer status.
Having found that SEC ALJs are officers and noting that the ALJ who presided over Mr. Lucia’s case was
not appointed as such, the Court proceeded to address the remedy for the Appointments Clause defect.
Citing its prior decision in Ryder v. United States—which involved improperly appointed judges of a
Coast Guard court—for the principle that “‘one who makes a timely challenge to the constitutional
validity of the appointment of an officer who adjudicates his case’ is entitled to relief,” the Court adopted
Ryder’s remedy of a new hearing. However, the Court held that a different ALJ or the Commission itself
must preside over Mr. Lucia’s new hearing because the ALJ who issued the initial decision “cannot be
expected to consider the matter as though he had not adjudicated it before.” This additional prescription,
the Court reasoned, although perhaps not strictly necessary to resolve the constitutional defect, is the best
means to incentivize litigants to bring Appointments Clause violations to the courts’ attention.

---

Congressional Research Service
3
Open Issues
The Court’s opinion left open several issues that are likely to be the subject of future litigation.
What Else and What Alone Constitutes Significant Authority?
As previously noted, the Court declined to further elucidate Buckley’s significant authority test in light of
the close fit it perceived between SEC ALJs and the STJs at issue in Freytag. And even in discussing the
overlap between the functions of SEC ALJs and STJs, the Court declined to decide which, if any, of
Freytag’s “important functions” are necessary to officer status. Several Justices took aim at this approach
in two separate opinions. Justice Thomas (joined by Justice Gorsuch), while agreeing that SEC ALJs are
officers under Freytag, argued that the Court’s precedents are ill-suited to resolving all Appointments
Clause questions because they “discuss what is sufficient to make someone an officer,” instead of
delineating what is “necessary” to do so. Justice Thomas proposed a definition of officer “based on the
original public meaning of ‘Officers of the United States,’” which he distilled to any federal civil official
who performs a “continuous” statutory duty, regardless of the “importance or significance” of the
official’s functions. Like Justice Thomas, Justice Sotomayor (in a dissenting opinion joined by Justice
Ginsburg) expressed concern that the “Court’s decisions have yet to articulate the types of powers that
will be deemed significant enough to constitute ‘significant authority.’” However, in contrast to Justice
Thomas’s concurrence, Justice Sotomayor argued, in line with the lower court that adjudicated Lucia’s
appeal, that “one requisite component of ‘significant authority’ is the ability to make final, binding
decisions on behalf of the Government,” meaning that “a person who merely advises and provides
recommendations to an officer would not herself qualify as an officer.” Applying this test, Justice
Sotomayor concluded that SEC ALJs are not officers because the Commission retains “plenary authority”
over ALJ proceedings and because an ALJs’ initial decision does not become final until the Commission
issues a finality order.
The majority’s adherence to Buckley’s “significant authority” standard is potentially narrower than Justice
Thomas’s proposed test and broader than Justice Sotomayor’s, and it is unclear at this stage how many of
the nearly 2,000 ALJs situated across the federal government—to the extent they have not been
appointed—exercise Freytag-like functions or other important duties and discretion that might rise to the
level of significant authority. In addition, it is unclear whether: (1) the nature of SEC adjudications, which
the Court repeatedly described in its opinion as “adversarial,” or (2) the role of the ALJ in such
proceedings, which the Court likened to a federal trial judge, would provide a basis for distinguishing
between ALJs who preside over hearings in enforcement proceedings and those, such as the 1600 or more
Social Security Administration ALJs, who typically render decisions in benefits determinations. Mr.
Lucia’s counsel drew this distinction at oral argument, but Justices Kagan and Sotomayor seemed to
express skepticism that this factor alone could provide a principled basis to distinguish between officers
and non-officers. Nonetheless, in line with Freytag and Lucia, it does appear that when an ALJ has
“significant discretion” in carrying out a host of “important functions” in a trial-like setting, such
authority is sufficient to require an appointment that comports with the Appointments Clause.
Are Statutory Limitations on the Removal of SEC ALJs Constitutional?
Perhaps an even bigger question looming after Lucia pertains to the constitutionality of how ALJs,
including SEC ALJs, are removed from office. Currently, SEC ALJs, unlike officers performing core
executive functions, are not removable from office at the discretion of their superior officer. Instead, the
Commission may remove an ALJ “only for good cause established and determined by the Merit Systems
Protection Board,” an independent agency that oversees the federal civil service system and likewise
enjoys for-cause removal protections. Congress created this structure to provide ALJs with “independence
and tenure within the existing Civil Service system,” in response to criticisms that these officials were
“mere tools of the agency concerned” and “subservient to the agency heads.”

---

Congressional Research Service
4
This structure, coupled with Lucia’s conclusion that SEC ALJs constitute officers, raises a separate
constitutional question: whether the removal protections for SEC ALJs violate separation-of-powers
principles enunciated by the Court’s decision in Free Enterprise Fund v. Public Company Accounting
Oversight Board (PCAOB). In Free Enterprise Fund, the Court held that Congress, by providing for two
layers of removal protection for PCAOB members in the Sarbanes-Oxley Act, violated Article II of the
Constitution by interfering with the President’s non-delegable duty to ensure the faithful execution of the
laws. In fact, the U.S. Solicitor General urged the Court to opine in Lucia not only on the appointment of
ALJs, but also on their removal.
Notwithstanding Justice Breyer’s separate opinion arguing that the removal question is integral to
deciding the Appointments Clause question and could have been avoided by deciding the case on
statutory, rather than constitutional grounds, the Lucia majority expressly declined to address the
constitutionality of limitations on SEC ALJs’ removal because the lower courts had not done so. Going
forward, however, the question of the propriety of the removal provisions for SEC ALJs (and potentially
other ALJs) will likely be the subject of further litigation. On the one hand, SEC ALJs perform
adjudicative functions, and several Supreme Court removal decisions have provided Congress more
leeway in crafting removal protections for executive branch officers that perform adjudicative functions
to prevent such officers from control or coercive influence in adjudicating disputes before them. On the
other hand, such cases did not arise in the context of dual layers of removal protection, and it remains to
be seen whether Free Enterprise Fund’s holding prohibiting the specific tenure protections for PCAOB
members would control with respect to ALJs who are deemed officers and can only be removed from
office for cause by the MSPB. While the Solicitor General’s office argues that the removal provisions for
ALJs raise serious separation-of-powers concerns by leaving neither the President nor the Commission
politically accountable for ALJ decisions, other commentators and amici have raised concerns that
eliminating removal protections for ALJs would threaten the independence of executive branch
adjudications.
The appointments and removal issues are only two of several unanswered questions from the
Lucia opinion. Questions also remain as to whether ALJs within the SEC are properly appointed
following a ratification order that the Commission issued shortly before the Court granted
certiorari in Lucia. The Lucia opinion also raises questions about the remedy for Appointments
Clause violations in other cases. In this vein, Lucia, while providing some answers, leaves open
many other issues for future litigation that will inform the future of administrative adjudications.

Author Information

Victoria L. Killion

Legislative Attorney

---

Congressional Research Service
5


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
LSB10153 · VERSION 2 · NEW

---