We blogged last week about a New York federal court’s decision in Duka v. SEC conditionally sustaining a facial challenge to an administrative enforcement proceeding conducted by Administrative Law Judges (“ALJs”) of the Securities and Exchange Commission. In that case, Judge Richard M. Berman, of the Southern District of New York, held that SEC ALJs are “inferior officers” of the United States for purposes of the U.S. Constitution’s Appointments Clause and that the ALJs at issue had not been appointed by the SEC Commissioners, in seeming violation of that constitutional provision. However, the court gave the SEC seven days to cure the defect “by having the SEC Commissioners issue an appointment or preside over the matter themselves.”
The SEC refused to take the bait. The SEC informed the court on August 10, 2015 that the Commission has already heard argument on the constitutional challenge in at least one proceeding, but has not yet issued a decision or taken any other action.
The District Court therefore issued the anticipated preliminary injunction on August 12, 2015, holding that the plaintiff had shown both (i) a substantial likelihood of success on the merits of her claim that the SEC’s ALJ appointments violated the Appointments Clause and (ii) irreparable injury from continuation of a likely unconstitutional administrative proceeding.
The Appointments Clause – Article II, § 2 of the Constitution – provides that “the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” Most SEC ALJs (including those overseeing the plaintiff’s case here) are not appointed by the SEC’s Commissioners, but rather obtain their positions through the regular civil-service hiring process. Judge Berman’s order turned solely on his conclusion that the constitutional violation arose from the SEC’s use of ALJs not appointed by the Commission.
As in his prior ruling, Judge Berman found no basis for the plaintiff’s second contention: that the ALJs’ two levels of tenure protection violate the Constitution’s separation of powers, specifically, the President’s power to appoint and remove Executive branch officers.
The SEC will presumably appeal Judge Berman’s ruling to the Second Circuit. The SEC has already appealed to the Eleventh Circuit from a similar ruling by the U.S. District Court for the Northern District of Georgia in Hill v. SEC, No. 1:15-cv-1801-LMM, 2015 WL 4307088, at *6 (N.D. Ga. June 8, 2015). We will see which appellate court rules first.
We will continue to monitor this developing story. We previously wrote about constitutional challenges to SEC administrative proceedings here, here, here, and here.