High Court Asks if SEC Judge Dispute Affects Other Agencies

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Jennifer Bennett

Several U.S. Supreme Court justices pondered what a case involving SEC in-house judges might mean for judges at other federal agencies during oral arguments April 23.

Justices Anthony Kennedy and Ruth Bader Ginsburg both asked how a decision in favor of investment adviser Raymond J. Lucia would affect administrative law judges (ALJs) at other agencies such as the Social Security Administration. Lucia, who was fined and barred from acting as an investment adviser after a 2013 Securities and Exchange Commission ALJ decision, contends the agency’s judges weren’t constitutionally appointed and that the decision against him should be vacated.

About 1,900 ALJs serve throughout the federal government, and as of March 2017, over 1,600 of those hear benefits determination cases for the SSA. Appointment procedures vary by agency and aren’t always clear. Mark A. Perry, Lucia’s attorney, told the justices only about 150 federal ALJs preside over adversarial hearings similar to those at the SEC. SSA judges don’t preside over “adversarial hearings,” Perry, a partner at Gibson, Dunn & Crutcher LLP’s Washington office, told the court. Perry in Lucia’s February brief suggested any decision wouldn’t apply to nonadversarial SSA ALJs.

Justice Sonia Sotomayor asked Perry to explain why some ALJ proceedings are nonadversarial. One difference is that individuals come before some ALJs—such as those making benefits determinations at SSA—voluntarily, Perry said. The five SEC ALJs, in contrast, preside over cases the agency brings against individuals to enforce federal securities laws and regulations.

Deputy Solicitor General Jeffrey B. Wall told the court that Justice Stephen Breyer had suggested in a 2010 dissenting opinion that all ALJs are officers subject to the Appointments Clause. Wall’s office was arguing in favor of Lucia. During the Obama Administration, the government had argued SEC ALJs weren’t officers.

Breyer, however, said that in that dissent, he was merely listing a parade of “horribles.” He doesn’t “feel that those words are absolutely written in stone,” he added, suggesting he may come to a different conclusion in this case

The more conservative justices didn’t ask as many questions about possible effects on other agencies, and, as in most cases, Justice Clarence Thomas didn’t ask any questions at all. None of the justices seemed entirely convinced as to the case’s proper resolution, and it’s unclear how the court as a whole might rule.

The case is Lucia v. SEC , U.S., No. 17-00130, oral arguments heard 4/23/18 .

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

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

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law