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Lucia v. Securities and Exchange Commission (Decided June 21, 2018)

The Supreme Court ordains big changes at federal agencies

In Lucia v. SEC, the Court took Constitutional issue with the way the agency’s administrative judges are appointed. The ruling ordered a change which may have consequences across all federal agencies.

Administrative judges

There are judges in regular courts and then there are judges in administrative courts (i.e. in federal agencies). For example, if you have an issue about Social Security benefits, you’ll be seeing an administrative judge in the Social Security Administration – not a judge in the judicial branch but in the executive.

The Constitution specifies that certain roles within agencies must be appointed formally. This case asked if the SEC judicial roles are significant enough to require formal appointment.

The underlying case

The case started with an SEC investigation against Lucia. The agency was concerned that Lucia and his investment advisory company were advertising a misleading investment strategy (called “Buckets of Money,” naturally). The administrative judge determined Lucia had violated the law by presenting misleading figures about how the strategy would have performed.

The decision disbarred Lucia for life from being an investment advisor. Lucia in turn brought this dispute complaining that the judge hadn’t been appointed correctly.

Question before the Court

The Supreme Court was asked to determine if the judge – and other SEC judges with the same role – were appointed in the manner the Constitution demands.

The case was analyzed in accordance with the Appointments Clause of the Constitution. According to the Appointments Clause, all “Officers” must be appointed by either the President, a “Court of Law” or a “Head” of an agency. SEC judges are appointed through a formal agency process, but not by the agency head.

So are they “Officers”?

The Constitution itself does not specifically state which agency roles fall into the “Officer” characterization. But the Supreme Court has extrapolated. An Officer is an agency official who exercises “significant authority pursuant to the laws of the United States,” (Buckley v. Valeo, 1976).

After Buckley, the Court made a decision ruling tax court judges “Officers.” That case, Freytag v. Commissioner (1991), led to the decision the Court made today.

The ruling

The Supreme Court ruled that the SEC judges have roles very similar to the roles of the tax court judges in Freytag. The SEC judges even have slightly more authority. Our infographic outlines the comparison.

So what does that mean for Lucia? Lucia will get a chance to have his case heard by someone who was properly appointed. It turns out, the SEC already has gone through a formal appointment process for its judges (the SEC jumped ship on its own side of the argument and agreed with Lucia already). However, the Court specified that Lucia will have to get a hearing from a judge other than the one who already decided his case.

This case could have far-reaching consequences because the decision did not limit the ruling to SEC judges. It could affect administrative judges in other agencies, like the Social Security Administration. Even limiting to the SSA, there are a lot. Certainly, the ruling leaves the door open for additional lawsuits to challenge the appointments of other agencys’ judges.

Lucia v. Securities and Exchange Commission (Decided June 21, 2018)

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About the Author

Mariam Morshedi

Mariam Morshedi

Mariam Morshedi is the Founder and Executive Director of Subscript Law. Before starting Subscript Law, she practiced civil rights law for AARP Foundation, where she litigated housing, consumer and disability rights issues.

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