D.C. Circuit Deadlocks on Challenge to SEC Judges

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By Rob Tricchinelli

A D.C. Circuit ruling that the SEC’s in-house judges don’t run afoul of the Constitution will stand, after a full slate of judges on the influential appeals court deadlocked on the issue, 5-5 ( Raymond J. Lucia Cos. v. SEC , 2017 BL 219034, D.C. Cir. en banc, No. 15-1345, 6/26/17 ).

The court’s failure to consider the legality of the ALJ appointment process makes it more like that it will be taken up by the U.S Supreme Court, because it preserves a split with the Tenth Circuit..

“Given the circuit split and the recent public attention on the so-called administrative state, this would certainly be a good candidate for review,” Jeff Kern, a partner at Sheppard, Mullin, Richter & Hampton LLP in New York, told Bloomberg BNA.

Former investment adviser Raymond J. Lucia argued that the Securities and Exchange Commission’s administrative law judges were hired in violation of the Appointments Clause. He was challenging a ruling from an ALJ that barred him from the industry and slapped him with a six-figure fine, but a three-judge panel of the D.C. Circuit ruled in August that the appointments were constitutional.

The full court heard oral arguments in May but issued a one-page per curiam order June 26 that it was divided and would decline to review the ruling en banc.

Circuit Split

The Tenth Circuit in December ruled that the ALJ hiring process violates the Appointments Clause because the judges aren’t appointed by the president or the agency’s commissioners.

“We look forward to the Supreme Court’s resolution of the conflict between the D.C. Circuit and the Tenth Circuit on whether SEC ALJs are Officers of the United States,” Lucia’s attorney, Mark A. Perry of Gibson, Dunn & Crutcher LLP in Washington, told Bloomberg BNA in an email.

If the case reaches the high court, new Justice Neil Gorsuch could prove important, given his past decisions that showed skepticism of judicial deference to agencies in disputes.

“An argument that the Constitution does not actually vest administrative law judges with the power the agency claims they have might have a strong appeal to him, if the issue ever reaches the Supreme Court,” Kern said.


The agency has put on hold any cases in its administrative forum that could end up in the Tenth Circuit on appeal.

The dispute ultimately turns on whether the ALJs are considered “officers” of the U.S., which would subject them to the Appointments Clause. The SEC has argued that the ALJs are merely employees because their decisions aren’t automatically final and can be reviewed by the commissioners.

The agency declined to comment.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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