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Supreme Court should limit SEC’s arbitrary legal authority

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Imagine one day, after having run a successful business for 40 years without incident, the government accuses you of breaking the law. Imagine further that if the government proves its case, you could lose your company and be permanently banned from working in your chosen field. But, you might say to yourself, at least the government can’t do anything until it proves its case in court before an impartial jury. Except that’s often not true — administrative agencies routinely avoid court and instead proceed against individuals in administrative “actions” that are overseen by judges who work for the same agencies bringing the actions.

Last week the Supreme Court heard arguments in a in a case that could challenge this unaccountable way of pursuing justice. The legal issue before the court is whether administrative law judges (ALJs) of the Securities and Exchange Commission (SEC) are “officers of the United States” within the meaning of the Constitution’s Appointments Clause, which sounds rather technical. But the case illustrates the dangers of a powerful and unaccountable government in which agencies are allowed to serve as judge, jury and executioner, so to speak, in civil enforcement actions.

{mosads}Here’s the background: In 2012, the SEC accused investment adviser Raymond Lucia of violating federal securities laws and SEC rules. Instead of trying to prove its case in a court of law before an impartial jury, the SEC opted to proceed against Lucia in an “administrative enforcement action.”


In these proceedings, the accused is not afforded the right to a jury, and many safeguards that would apply to protect defendants in court are loosened to the government’s advantage. Further, the SEC’s case is judged by an ALJ who himself is employed by the SEC.

In other words, in these administrative hearings, the SEC serves as both a party and judge — an arbitrary arrangement that violates an ancient legal maxim (“no one shall be his own judge or decide his own case”), a prohibition once widely recognized because of the obvious potential for biased decision-making.

Here, after concluding that the SEC had proven its case, the SEC’s judge permanently barred Lucia from working as an investment adviser, revoked his company’s registration, and ordered — in what was supposedly a non-criminal matter — $300,000 in penalties. Lucia then appealed the decision to the SEC’s five commissioners, who — not surprisingly — affirmed their employee’s decision. Only after jumping through these administrative hoops was Lucia finally able to seek relief in a court of law, which brings us back to the Supreme Court case being heard this week.

Lucia argues that the ALJ’s decision is void because, although the judge acted in the capacity of an “officer of the United States,” he was never confirmed through the Appointments Clause. Most people think about this clause only when high-profile appointments, such as Supreme Court nominations, are in the news. But it has enormous consequences, because under current Supreme Court jurisprudence, all federal employees who exercise “significant authority” are “officers” subject to Appointments Clause requirements.

The SEC judge who adjudicated Lucia’s case certainly meets this test. He heard testimony, ruled on evidentiary matters, made findings of fact and conclusions of law, and issued penalties. These are duties routinely carried out by federal judges, who themselves are subject to the Appointments Clause. Therefore, the Supreme Court likely will rule that the ALJ is an “officer” of the United States.

But the Supreme Court should go further. As set forth in Pacific Legal Foundation’s friend-of-the-court brief filed in support of Lucia, we contend that the “significant authority” test is too strict, and we encourage the court to return to the original definition of “officer of the United States” — any federal employee who has continuing responsibility for a sovereign, governmental duty. By treating more federal employees as “officers of the United States,” this definition would better serve the purposes of the Appointments Clause — furthering the Constitution’s separation-of-powers doctrine, ensuring government accountability, protecting individual liberty.

Here’s why. First, the Appointments Clause provides only two means of appointment: (1) “principal” officers such as Supreme Court justices, ambassadors and department secretaries, must be nominated by the president and approved by two-thirds of the Senate; or (2) if Congress has so provided, “inferior officers” may be appointed by the president, department heads or courts of law.

Accordingly, the Appointments Clause requires cooperation among the branches. For example, the president cannot unilaterally seat a Supreme Court justice, nor can he appoint “inferior officers” unless a duly enacted law allows him to do so. But the clause also prevents the branches from intruding on one another’s authority. For example, Congress cannot write a law and create thousands of offices within the executive branch without giving the president some control over who fills those offices.

Further, limits on appointment power ensure that those who wield the power are “accountable to political force and the will of the people.” And as Justice Antonin Scalia once observed, the Appointments Clause was one means of holding the head of the executive branch accountable: the president is “directly dependent on the people, and since there is only one president, he is responsible.”

That’s particularly important given the growing reach of the modern regulatory state, which “wields vast power” that “touches almost every aspect of daily life.” Such a massive concentration of power threatens Americans’ “liberty and security” and demands accountability. A ruling in favor of Lucia will mark significant progress toward that goal.

Oliver J. Dunford is an attorney for Pacific Legal Foundation, which litigates nationwide to achieve court victories enforcing the Constitution’s guarantee of individual liberty.

Tags Government Supreme Court of the United States United States Constitution

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