Lucia v. Sec. & Exch. Comm'n

• Decision Date: 21 June 2018
• Docket Number: No. 17–130.,17–130.
• Citation: Lucia v. Sec. & Exch. Comm'n, 138 S.Ct. 2044, 201 L.Ed.2d 464 (2018)
• Parties: Raymond J. LUCIA, et al., Petitioners v. SECURITIES AND EXCHANGE COMMISSION.
• Court: U.S. Supreme Court

138 S.Ct. 2044

201 L.Ed.2d 464

Raymond J. LUCIA, et al., Petitioners

v.SECURITIES AND EXCHANGE COMMISSION.

No. 17–130.

Supreme Court of the United States

Argued April 23, 2018.

Decided June 21, 2018.

Mark Perry, Washington, D.C., for Petitioners.

Jeffrey B. Wall, Washington, D.C., for Respondent Supporting Petitioners.

Anton Metlitsky, New York, NY, appointed by this Court, as amicus curiae, supporting the judgment below.

Noel J. Francisco, Solicitor General, Chad A. Readler, Acting Assistant Attorney General, Jeffrey B. Wall, Edwin S. Kneedler, Deputy Solicitors General, Hashim M. Mooppan, Deputy Assistant Attorney General, Allon Kedem, Assistant to the Solicitor General, Joshua M. Salzman, Attorney, Department of Justice, Washington, D.C., for Respondent Supporting Petitioners.

Mark A. Perry, Jason Neal, Kellam M. Conover, Shannon U. Han, Stephen P. Dent, Minh Nguyen–Dang, Gibson, Dunn & Crutcher LLP, Washington, D.C., for Petitioners.

Justice KAGAN delivered the opinion of the Court.

The Appointments Clause of the Constitution lays out the permissible methods of appointing "Officers of the United States," a class of government officials distinct from mere employees. Art. II, § 2, cl. 2. This case requires us to decide whether administrative law judges (ALJs) of the Securities and Exchange Commission (SEC or Commission) qualify as such "Officers." In keeping with Freytag v. Commissioner, 501 U.S. 868, 111 S.Ct. 2631, 115 L.Ed.2d 764 (1991), we hold that they do.

I

The SEC has statutory authority to enforce the nation's securities laws. One way it can do so is by instituting an administrative proceeding against an alleged wrongdoer. By law, the Commission may itself preside over such a proceeding. See 17 C.F.R. § 201.110 (2017). But the Commission also may, and typically does, delegate that task to an ALJ. See ibid. ; 15 U.S.C. § 78d–1(a). The SEC currently has five ALJs. Other staff members, rather than the Commission proper, selected them all. See App. to Pet. for Cert. 295a–297a.

An ALJ assigned to hear an SEC enforcement action has extensive powers—the "authority to do all things necessary and appropriate to discharge his or her duties" and ensure a "fair and orderly" adversarial proceeding. §§ 201.111, 200.14(a). Those powers "include, but are not limited to," supervising discovery; issuing, revoking, or modifying subpoenas; deciding motions; ruling on the admissibility of evidence; administering oaths; hearing and examining witnesses; generally "[r]egulating the course of" the proceeding and the "conduct of the parties and their counsel"; and imposing sanctions for "[c]ontemptuous conduct" or violations of procedural requirements. §§ 201.111, 201.180 ; see §§ 200.14(a), 201.230. As that list suggests, an SEC ALJ exercises authority "comparable to" that of a federal district judge conducting a bench trial. Butz v. Economou, 438 U.S. 478, 513, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978).

After a hearing ends, the ALJ issues an "initial decision." § 201.360(a)(1). That decision must set out "findings and conclusions" about all "material issues of fact [and] law"; it also must include the "appropriate order, sanction, relief, or denial thereof." § 201.360(b). The Commission can then review the ALJ's decision, either upon request or sua sponte . See § 201.360(d)(1). But if it opts against review, the Commission "issue[s] an order that the [ALJ's] decision has become final." § 201.360(d)(2). At that point, the initial decision is "deemed the action of the Commission." § 78d–1(c).

This case began when the SEC instituted an administrative proceeding against petitioner Raymond Lucia and his investment company. Lucia marketed a retirement savings strategy called "Buckets of Money." In the SEC's view, Lucia used misleading slideshow presentations to deceive prospective clients. The SEC charged Lucia under the Investment Advisers Act, § 80b–1 et seq., and assigned ALJ Cameron Elliot to adjudicate the case. After nine days of testimony and argument, Judge Elliot issued an initial decision concluding that Lucia had violated the Act and imposing sanctions, including civil penalties of $300,000 and a lifetime bar from the investment industry. In his decision, Judge Elliot made factual findings about only one of the four ways the SEC thought Lucia's slideshow misled investors. The Commission thus remanded for factfinding on the other three claims, explaining that an ALJ's "personal experience with the witnesses" places him "in the best position to make findings of fact" and "resolve any conflicts in the evidence." App. to Pet. for Cert. 241a. Judge Elliot then made additional findings of deception and issued a revised initial decision, with the same sanctions. See id., at 118a.

On appeal to the SEC, Lucia argued that the administrative proceeding was invalid because Judge Elliot had not been constitutionally appointed. According to Lucia, the Commission's ALJs are "Officers of the United States" and thus subject to the Appointments Clause. Under that Clause, Lucia noted, only the President, "Courts of Law," or "Heads of Departments" can appoint "Officers." See Art. II, § 2, cl. 2. And none of those actors had made Judge Elliot an ALJ. To be sure, the Commission itself counts as a "Head[ ] of Department[ ]." Ibid .; see Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477, 511–513, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010). But the Commission had left the task of appointing ALJs, including Judge Elliot, to SEC staff members. See supra, at 2049. As a result, Lucia contended, Judge Elliot lacked constitutional authority to do his job.

The Commission rejected Lucia's argument. It held that the SEC's ALJs are not "Officers of the United States." Instead, they are "mere employees"—officials with lesser responsibilities who fall outside the Appointments Clause's ambit. App. to Pet. for Cert. 87a. The Commission reasoned that its ALJs do not "exercise significant authority independent of [its own] supervision." Id., at 88a. Because that is so (said the SEC), they need no special, high-level appointment. See id., at 86a.

Lucia's claim fared no better in the Court of Appeals for the D.C. Circuit. A panel of that court seconded the Commission's view that SEC ALJs are employees rather than officers, and so are not subject to the Appointments Clause. See 832 F.3d 277, 283–289 (2016). Lucia then petitioned for rehearing en banc. The Court of Appeals granted that request and heard argument in the case. But the ten members of the en banc court divided evenly, resulting in a per curiam order denying Lucia's claim. See 868 F.3d 1021 (2017). That decision conflicted with one from the Court of Appeals for the Tenth Circuit. See Bandimere v. SEC, 844 F.3d 1168, 1179 (2016).

Lucia asked us to resolve the split by deciding whether the Commission's ALJs are "Officers of the United States within the meaning of the Appointments Clause." Pet. for Cert. i. Up to that point, the Federal Government (as represented by the Department of Justice) had defended the Commission's position that SEC ALJs are employees, not officers. But in responding to Lucia's petition, the Government switched sides.¹ So when we granted the petition, 583 U.S. ––––, 138 S.Ct. 736, 199 L.Ed.2d 602 (2018), we also appointed an amicus curiae to defend the judgment below.² We now reverse.

II

The sole question here is whether the Commission's ALJs are "Officers of the United States" or simply employees of the Federal Government. The Appointments Clause prescribes the exclusive means of appointing "Officers." Only the President, a court of law, or a head of department can do so. See Art. II, § 2, cl. 2.³ And as all parties agree, none of those actors appointed Judge Elliot before he heard Lucia's case; instead, SEC staff members gave him an ALJ slot. See Brief for Petitioners 15; Brief for United States 38; Brief for Court–Appointed Amicus Curiae 21. So if the Commission's ALJs are constitutional officers, Lucia raises a valid Appointments Clause claim. The only way to defeat his position is to show that those ALJs are not officers at all, but instead non-officer employees—part of the broad swath of "lesser functionaries" in the Government's workforce. Buckley v. Valeo, 424 U.S. 1, 126, n. 162, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam ). For if that is true, the Appointments Clause cares not a whit about who named them. See United States v. Germaine, 99 U.S. 508, 510, 25 L.Ed. 482 (1879).

Two decisions set out this Court's basic framework for distinguishing between officers and employees. Germaine held that "civil surgeons" (doctors hired to perform various physical exams) were mere employees because their duties were "occasional or temporary" rather than "continuing and permanent." Id., at 511–512. Stressing "ideas of tenure [and] duration," the Court there made clear that an individual must occupy a "continuing" position established by law to qualify as an officer. Id., at 511. Buckley then set out another requirement, central to this case. It determined that members of a federal commission were officers only after finding that they "exercis[ed] significant authority pursuant to the laws of the United States." 424 U.S., at 126, 96 S.Ct. 612. The inquiry thus focused on the extent of power an individual wields in carrying out his assigned functions.

Both the amicus and the Government urge us to elaborate on Buckley 's "significant authority" test, but another of our precedents makes that project unnecessary. The standard is no doubt framed in general terms, tempting advocates to add whatever glosses best suit their arguments. See Brief for Amicus Curiae 14 (contending that an individual wields "significant authority" when he has "(i) the power to bind the government or private parties (ii) in her own name rather than in the name of a superior officer"); Reply Brief for United States 2 (countering that an individual wields that authority when he has "the power to bind the...