Supreme Court Raises Many Issues With Ruling on SEC Administrative Law Judges

On June 21, 2018, the Supreme Court decided Lucia v. Securities and Exchange Commission, in which it said by a 6-3 majority that the Securities and Exchange Commission’s (the “SEC”) Administrative Law Judges (the “ALJs”) must be chosen under the Appointments Clause of the Constitution by “Heads of Departments”, i.e., the SEC Commissioners.  The court said that the powers of an ALJ make them officers rather than mere employees.  While the decision is not entirely surprising given the court’s prior cases, it did raise a number of questions. The court said, for example, that the plaintiff was entitled to a new hearing before a properly appointed ALJ, but the SEC had “ratified” ALJ appointments and the court did not decide whether Commissioner approval of ALJs after their appointment is consistent with the requirements of the constitution.  The court has also thrown in doubt  the process for other agency ALJs. Some analysts think that the SEC might get rid of the ALJ process altogether to avoid further problems, which means bringing many cases in court.