Raymond J. Lucia Cos. v. Sec. & Exch. Comm'n, No. 15–1345

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Writing for the CourtRogers, Circuit Judge
Citation832 F.3d 277
Parties Raymond J. Lucia Companies, Inc. and Raymond J. Lucia, Petitioners v. Securities and Exchange Commission, Respondent
Docket NumberNo. 15–1345
Decision Date09 August 2016

832 F.3d 277

Raymond J. Lucia Companies, Inc. and Raymond J. Lucia, Petitioners
v.
Securities and Exchange Commission, Respondent

No. 15–1345

United States Court of Appeals, District of Columbia Circuit.

Argued May 13, 2016
Decided August 9, 2016


Mark A. Perry argued the cause for petitioners. With him on the briefs were Jonathan C. Bond, Jonathan C. Dickey, Palo Alto, CA, and Marc J. Fagel, San Francisco, CA.

Paul D. Clement, Washington, DC, Jeffrey M. Harris, and Christopher G. Michel were on the brief for amici curiae Ironbridge Global IV Ltd. and Ironbridge Global Partners, LLC in support of petitioners.

Kenneth B. Weckstein and Stephen A. Best, Washington, DC, were on the brief for amicus curiae Mark Cuban in support of petitioners.

Mark B. Stern, Attorney, U.S. Department of Justice, and Dominick V. Freda, Senior Litigation Counsel, Securities and Exchange Commission, argued the cause for respondent. With them on the joint brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, U.S. Department of Justice, Beth S. Brinkmann, Deputy Assistant Attorney General, Mark R. Freeman, Melissa N. Patterson, Megan Barbero, Daniel J. Aguilar, and Tyce R. Walters, Attorneys, Michael A. Conley, Solicitor, Securities and Exchange Commission, and Martin V. Totaro, Attorney, Washington, DC.

Before: Rogers, Pillard and Wilkins, Circuit Judges.

Rogers, Circuit Judge:

Raymond J. Lucia and Raymond J. Lucia Companies, Inc., petition for review of the decision of the Securities and Exchange Commission imposing sanctions for violations of the Investment Advisers Act of 1940 and the rule against misleading advertising. Upon granting a petition for review of an initial decision by an administrative law judge (“ALJ”), the Commission rejected petitioners' challenges to the liability and sanctions determinations and petitioners' argument that the administrative hearing was an unconstitutional procedure because the administrative law judge who heard the enforcement action was unconstitutionally appointed. Petitioners now renew these arguments, including that the judge was a constitutional Officer who must be appointed pursuant to the Appointments Clause, U.S. CONST. art. II, § 2, cl. 2. For the following reasons, we deny the petition for review.

832 F.3d 281

I.

In the Securities Exchange Act of 1934, Congress determined that transactions in securities conducted over exchanges and over-the-counter markets were “affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto.” 15 U.S.C. § 78b. To carry out the regulation of the securities markets, Congress established the Securities and Exchange Commission, to be composed of five commissioners appointed by the President with the advice and consent of the Senate. Id. § 78d(a). Over time Congress expanded the responsibilities of the Commission, and by 1960 it was administering six statutes, see 1962 U.S.C.C.A.N. 2150, 2156, including the Investment Advisers Act of 1940, 15 U.S.C. § 80b–21. In 1961, pursuant the Reorganization Act of 1949, Pub. L. No. 81–109, ch. 226, 63 Stat. 203 (now codified as amended at 5 U.S.C. §§ 901 –912 ), the President sent Congress a proposal to allow the Commission to delegate some of its responsibilities to divisions and individuals within the Commission. See 1961 U.S.C.C.A.N. 1351, 1351–52. The proposal was designed to provide “for greater flexibility in the handling of the business before the Commission, permitting its disposition at different levels so as better to promote its efficient dispatch.” Id. at 1351. Further, this ability to delegate tasks would “relieve the Commissioners from the necessity of dealing with many matters of lesser importance and thus conserve their time for the consideration of major matters of policy and planning.” Id.

In response, Congress enacted “An Act to Authorize the Securities and Exchange Commission to Delegate Certain Functions,” Pub. L. No. 87–592, 76 Stat. 394, 394–95 (1962). Congress made three main changes to the President's proposal: a single Commissioner's vote was sufficient to require Commission review, the authority to delegate did not extend to the Commission's rulemaking authority, and in certain instances review was mandatory for adversely affected parties in circumstances not at issue here. Compare 1961 U.S.C.C.A.N. at 1352, with 76 Stat. at 394–95. Except for modification of when Commission review is mandatory, see An Act to Amend the Securities and Exchange Act of 1934, Pub. L. No. 94–29, § 25, 89 Stat. 97, 163 (1975), and substitution of “administrative law judge” for “hearing examiner, see Pub. L. No. 95–251, § 2(a)(4), 92 Stat. 183, 183 (1978), the current version of the statute, codified at 15 U.S.C. § 78d–1, has not been amended in any material respect since its enactment in 1962, see Securities and Exchange Commission Authorization Act of 1987, Pub. L. No. 100–181, § 308, 101 Stat. 1249, 1254–55.

Section 78d–1 has three basic parts. Subsection (a) provides that “the Securities and Exchange Commission shall have the authority to delegate, by published order or rule, any of its functions to a division of the Commission, an individual Commissioner, an [ALJ], or an employee or employee board, including functions with respect to hearing, determining, ordering, certifying, reporting, or otherwise acting as to any work, business, or matter.” 15 U.S.C. § 78d–1(a). Subsection (b) provides that the “Commission shall retain a discretionary right to review the [delegated] action ... upon its own initiative or upon petition of a party to or intervenor in such action.” Id. § 78d–1(b). It also lists when Commission review of a petition is mandatory. Id. Subsection (c) provides:

If the [Commission's] right to exercise such review is declined, or if no such review is sought within the time stated in the rules promulgated by the Commission, then the action of any such
832 F.3d 282
division of the Commission, individual Commissioner, [ALJ], employee, or employee board, shall, for all purposes, including appeal or review thereof, be deemed the action of the Commission.

Id. § 78d–1(c).

The Commission has authority to pursue alleged violators of the securities laws by filing a civil suit in the federal district court or by instituting a civil administrative action. See 15 U.S.C. §§ 78u, 78u–2, 78u–3, 78v ; see also id. §§ 77h–1, 77t(b), 80b–9. By rule, the Commission has delegated to its ALJs authority to conduct administrative hearings, 17 C.F.R. § 200.30–9, and “[t]o make an initial decision in any proceeding at which the [ALJ] presides in which a hearing is required to be conducted in conformity with the [Administrative Procedure Act (“APA”) ] (5 U.S.C. 557 ),” id. § 200.30–9(a) ; see id. §§ 200.14, 201.111. The ALJs have authority to, among other things, administer oaths, issue subpoenas, rule on offers of proof, examine witnesses, rule upon motions, id. §§ 200.14, 201.111, enter orders of default, see id. § 201.155, and punish contemptuous conduct by excluding a contemptuous person from a hearing, see id. § 201.180(a); on the other hand, they lack authority to seek court enforcement of subpoenas and have no authority to punish disobedience of discovery orders or other orders with contempt sanctions of fine or imprisonment.

In any event, the Commission retains discretion to review an ALJ's initial decision either on its own initiative or upon a petition for review filed by a party or aggrieved person. 15 U.S.C. § 78d–1(b) ; see also 17 C.F.R. § 201.411(b)–(c). Other than where a petition for review triggers mandatory review, 15 U.S.C. § 78d–1(b) ; see also 17 C.F.R. § 201.411(b)(1), the Commission may deny review, 17 C.F.R. § 201.411(b)(2). By rule, the Commission has established time limits for filing a petition for review, id. §§ 201.360(b), 201.410(b), and, when no petition is filed, for ordering review on its own initiative, id. § 201.411(c). Further, by rule, the Commission has established a procedure for finalizing its decisions. Id. § 201.360(d). If no review of the initial decision is sought or ordered upon the Commission's own initiative, then the Commission will issue an order advising that it has declined review and specifying the “date on which sanctions, if any, take effect”; notice of the order will be published in the Commission's docket and on its website. Id. § 201.360(d)(2). Thus, by rule, the initial “decision becomes final upon issuance of the order,” id. , and then because review has been declined, by statute “the action of” the ALJ, in the initial decision, “shall ... be deemed the action of the Commission.” 15 U.S.C. § 78d–1(c).

Here, the Commission instituted an administrative enforcement action against petitioners for alleged violations of anti-fraud provisions of the Investment Advisers Act based on how they presented their “Buckets of Money” retirement wealth-management strategy to prospective clients.1 It ordered an ALJ to conduct a

832 F.3d 283

public hearing, Raymond J. Lucia Cos., Inc. , Exchange Act Release No. 67781, 2012 WL 3838150 (Sep. 5, 2012), and thereafter an ALJ issued an initial decision finding liability based only on one of the four charged misrepresentations and imposing sanctions,...

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44 practice notes
  • McCray v. Soc. Sec. Admin., No. CIV 19-0090 JB/GBW
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 28 Enero 2020
    ...and held that the SEC's ALJs are subject to the Appointments Clause. See 844 F.3d at 1179-1182 ; Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283 (D.C. Cir. 2016) (Rogers, J., joined by Pillard and Wilkins, JJ.). As it reached this conclusion, the Tenth Circuit rejected the SEC's argum......
  • PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15–1177
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • 11 Octubre 2016
    ...Broadcasting System, Inc. v. Copyright Royalty Board , 684 F.3d 1332, 1334, 1336–37 (D.C. Cir. 2012), and Raymond J. Lucia Cos. v. SEC , 832 F.3d 277, 283–84 (D.C. Cir.2016). It can be irresponsible for a court to unduly delay ruling on such a fundamental and ultimately unavoidable structur......
  • Bandimere v. U.S. Sec. & Exch. Comm'n, No. 15-9586
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 27 Diciembre 2016
    ...final decisions. Id.This past August, the D.C. Circuit addressed the same question we face here. Raymond J. Lucia Cos., Inc. v. SEC , 832 F.3d 277, 283 (D.C. Cir. 2016). The D.C. Circuit followed Landry and concluded that SEC ALJs are employees and not inferior officers. Id. at 283–89. The ......
  • Lucia v. Sec. & Exch. Comm'n, No. 17–130.
    • United States
    • United States Supreme Court
    • 21 Junio 2018
    ...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 th......
  • Request a trial to view additional results
43 cases
  • McCray v. Soc. Sec. Admin., No. CIV 19-0090 JB/GBW
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • 28 Enero 2020
    ...and held that the SEC's ALJs are subject to the Appointments Clause. See 844 F.3d at 1179-1182 ; Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283 (D.C. Cir. 2016) (Rogers, J., joined by Pillard and Wilkins, JJ.). As it reached this conclusion, the Tenth Circuit rejected the SEC's argum......
  • PHH Corp. v. Consumer Fin. Prot. Bureau, No. 15–1177
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • 11 Octubre 2016
    ...Broadcasting System, Inc. v. Copyright Royalty Board , 684 F.3d 1332, 1334, 1336–37 (D.C. Cir. 2012), and Raymond J. Lucia Cos. v. SEC , 832 F.3d 277, 283–84 (D.C. Cir.2016). It can be irresponsible for a court to unduly delay ruling on such a fundamental and ultimately unavoidable structur......
  • Bandimere v. U.S. Sec. & Exch. Comm'n, No. 15-9586
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 27 Diciembre 2016
    ...final decisions. Id.This past August, the D.C. Circuit addressed the same question we face here. Raymond J. Lucia Cos., Inc. v. SEC , 832 F.3d 277, 283 (D.C. Cir. 2016). The D.C. Circuit followed Landry and concluded that SEC ALJs are employees and not inferior officers. Id. at 283–89. The ......
  • Lucia v. Sec. & Exch. Comm'n, No. 17–130.
    • United States
    • United States Supreme Court
    • 21 Junio 2018
    ...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 th......
  • Request a trial to view additional results
1 firm's commentaries
  • In The Shadow Of Lucia: The Uncertain Future Of SEC Administrative Proceedings
    • United States
    • Mondaq United States
    • 23 Junio 2022
    ...challenge to federal court, but the DC Circuit rejected the argument that the appointment of SEC ALJs was unconstitutional. Lucia v. SEC, 832 F.3d 277, 284-89 (D.C. Cir. 2016). The Supreme Court thereafter granted certiorari and, in June 2018, issued a decision reversing the DC Circuit and ......
1 books & journal articles
  • SECURITIES FRAUD
    • United States
    • American Criminal Law Review Nbr. 58-3, July 2021
    • 1 Julio 2021
    ...more detailed discussion of the federal statute of limitations, see Section III.D, supra notes 412–426. 455. Raymond J. Lucia Cos. v. SEC, 832 F.3d 277 (D.C. Cir. 2016). 456. Id. at 283–88 (holding that SEC ALJs are not inferior off‌icers and, thus, rejecting Lucia’s argument that their app......

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