Lucia v. SEC: Who’s the Officer in Charge Here?

By: Esmat Hanano, IAC Student Intern Spring 2018

The Securities and Exchange Commission (SEC) is in the spotlight again, but not for any regulations or judgments it issued. Rather, the very structure of the SEC is the newsworthy topic because of a pending Supreme Court case: Lucia v. SEC. Lucia has not been set for oral argument; however, it is already causing quite a stir within the legal community because of the potential implications a decision by the Court will have. The main issue to be decided in Lucia is “[w]hether administrative law judges of the Securities and Exchange Commission are Officers of the United States within the meaning of the Appointments Clause.” While this seems like a boring issue worthy of only the most avid Supreme Court nerd, a decision one way or the other will have lasting impact that goes well beyond the SEC. Administrative law judges (ALJs) hand down enforcement orders for the SEC and a myriad of other agencies such as the Federal Deposit Insurance Corporation (FDIC). The work that ALJs perform is integral to the functioning of a regulatory agency and they are one of the main enforcement tools available to the Executive branch when it comes to civil remedies.

The controversy surrounding ALJs stems from the very nature of the work that they do. Article II of the Constitution requires inferior officers of the Executive branch to be appointed by the President, federal courts, or agency heads. ALJs are hired through a bureaucratic process like other federal employees. Unlike other federal employees, they wield considerable power and are often the main civil enforcement tool of regulatory agencies. If the Court rules that ALJs are unconstitutional, then it casts the very structure of the modern regulatory state into chaos because of the heavy reliance on ALJs. The Court will have to grapple with whether pending SEC proceedings are invalidated by their ruling, and whether the SEC can continue to operate non-Article III courts as a federal agency. Complicating the decision even further is the Trump administration’s decision to switch sides after the Court accepted the case. The change in position by the administration required the Court to appoint Anton Metlitsky to defend the SEC. With so much at stake in the case, it is likely that any decision by the Court will be the headline in legal news for some time.