Administrative law judges are executive-branch as distinct from judicial officers, yet the President has no power to remove them; at the Securities and Exchange Commission and many other federal agencies, they are themselves employed by the agency on whose enforcement cases they must render quasi-judicial rulings. In recent years federal judges have expressed unease about whether assigning ALJs this particular combination of adjudicatory powers and institutional affiliations is entirely consistent with the U.S. Constitution, and now a Cato Institute amicus brief, in the D.C. Circuit case of Timbervest LLC v. Securities and Exchange Commission, urges courts to take the next logical step and rule that it is not. [Ilya Shapiro and Thaya Brook Knight; earlier here, here, here here, etc.]
The Securities and Exchange Commission practice of trying many complaints before administrative law judges (ALJs) who are its own employees, rather than before federal courts, has grown increasingly controversial lately and now one defendant’s challenge to the practice has prevailed — at least for the moment. A federal judge in Atlanta has ruled that because ALJs are “inferior officers” under the constitution, they cannot be simply employed like other federal workers by an agency like the SEC. Writes Thaya Knight at Cato, “there is a fairly easy fix available to the SEC: the five commissioners can simply appoint the existing ALJs to their current positions…. [but] other agencies could face greater difficulties.” But Daniel Fisher quotes Prof. Philip Hamburger as saying the ruling could still prove “profoundly important,” leading to the unraveling of other aspects of administrative law arrangements within agencies. More: W$J (commission fighting off at least seven legal challenges; in one instance it “asked one of its own judges to submit a formal statement about whether he has ever felt pressure to favor the agency”), Adam Zimmerman/PrawfsBlawg.
The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court.
Previously, the agency had tended to use the ALJs (administrative law judges) for relatively cut-and-dried enforcement actions, while taking more complex or cutting-edge disputes to federal court. Now, following the Dodd-Frank expansion of its powers, it prefers ALJs even for many complex and demanding cases arising from charges such as insider trading. Defendants enjoy a range of protections in federal court that are not provided in administrative litigation, including juries as well as the presence of federal judges who are independent of agency control, held to a more demanding ethical code, and drawn generally from higher and more sophisticated circles within the legal profession. Read the entire Bainbridge commentary, with followups linking Henry Manne (adjudicatory actions are ways to avoid the more demanding process of rulemaking) and Keith Bishop (current system open to constitutional challenge?).
“The agency is dodging the courts by turning to its own administrative law judges to decide its cases.” [Russell Ryan (King & Spalding), WSJ op-ed, paywalled]
- Nice little Supreme Court you got there, be a shame if anyone came around to mess it up, say Sens. Whitehouse, Blumenthal, Gillibrand, Hirono, and Durbin in incendiary “enemy-of-the-court” brief [Robert Barnes, Washington Post/Laredo Morning Times; David French, National Review; James Huffman, Inside Sources]
- Cato podcast triple-header, all with Caleb Brown: Trevor Burrus and Ilya Shapiro on Gundy v. U.S. and the limits of Congressional delegation, Ilya Shapiro and Clark Neily on the aftermath of double-jeopardy case Gamble v. U.S., and Trevor Burrus on the First Amendment case Manhattan Community Access Corporation v. Halleck (cable public access channel not a state actor);
- Criminal forfeiture, where used, should track lines of individual owner and asset responsibility, not the loose all-for-one joint-and-several-liability standards of some civil litigation [Trevor Burrus on Cato certiorari petition in Peithman v. U.S.]
- Federalist Society National Student Symposium panel on “The Original Understanding of the Privileges and Immunities Clause” with Randy Barnett, Rebecca Zietlow, Kurt Lash, Ilan Wurman, and moderated by Judge Amul Thapar;
- On the independence of administrative law judges, issues left over from Lucia v. U.S. are now coming back up in SEC proceedings [William Yeatman on Cato Fifth Circuit amicus brief in Cochran v. U.S.]
- Take-land-now, pay-later procedures may get pipelines built faster but at the expense of property owners’ rights. SCOTUS should act to assure just and timely compensation [Ilya Shapiro on Cato certiorari petition in Givens v. Mountain Valley Pipeline]
On Sept. 12 Justice Elena Kagan spoke at Hannah Senesh Community Day School in Brooklyn, interviewed by journalist Dahlia Lithwick. Steven Mazie, Supreme Court correspondent for The Economist, covered the speech on Twitter and a print account by Rob Abruzzese at the Brooklyn Daily Eagle confirms the same general points. From Mazie’s account, slightly edited for readability:
KAGAN: People viewing the judiciary as legitimate is part of the “marvel” of the third branch of government.
But that’s fragile. People can lose that faith in “unelected, pretty old” justices. If we lose that, we’re losing something incredibly important to American constitutional democracy.
This is a dangerous time for the court, because people see us as an extension of the political process. “It’s dangerous if in big cases, divisions follow ineluctably from political decisions.”
You have to try as hard as you can to find ways to avoid 5-4 decisions “by taking big questions and making them small.” Recently, we’ve had good practice in that. During 8-member court, we had to try hard to avoid 4-4s and find consensus. Sometimes it had a ridiculous air to it, “since we left the big thing that had to be decided out there.”
We kept on talking until we achieved consensus, and CJ Roberts gets huge credit for that.
I cited this passage Monday at Cato’s Constitution Day as going far to explain several cases this past term in which Kagan took an important role, including Masterpiece Cakeshop (where she and Justice Stephen Breyer joined conservatives in deciding the case on different grounds than those most strenuously contested), Lucia v. SEC (in which she wrote for the court to decide a structural question on administrative law judges narrowly while sidestepping contentious issues of separation of powers and presidential authority) and above all in the partisan gerrymandering cases (decided unanimously without addressing the principal merits, and with a Kagan-authored concurrence on behalf of the four liberals).
Caleb Brown interviews Trevor Burrus and me for the Cato Daily Podcast on Lucia v. SEC, Thursday’s Supreme Court case on the Appointments Clause and administrative law. Crossing to join with the conservatives, Justice Elena Kagan wrote a narrowly tailored opinion invalidating the method by which the Securities and Exchange Commission had appointed its five administrative law judges at the time of the dispute (it has since fixed its appointment method). The majority opinion carefully sidesteps the issue of how ALJs may properly be removed; Justice Breyer, who largely concurred with the result on separate grounds, explored some of those issues in his opinion. See also Ilya Shapiro on June 21 as “government structure day” at the Supreme Court, and with more on the merits. Related: Federalist Society forum on Michael Rappaport proposal for replacement of ALJs with Article III judges.
- After oral argument, case challenging agencies’ use of in-house administrative law judges (Lucia v. SEC) remains hard to predict [Ilya Shapiro, Cato; earlier]
- In dissent from cert denial: “Justices Thomas and Gorsuch Argue for Rejecting Deference to Agency Interpretation of Agency Regulations” [Eugene Volokh, Ilya Shapiro and Matthew Larosiere on Garco Construction, Inc. v. Speer]
- High court still gun shy [Trevor Burrus and Matthew Larosiere on refusal to review Maryland felon gun possession ban] Ninth Circuit ruling on zoning exclusion of firearms business deserves cert review [Shapiro and Larosiere on Teixeira v. Alameda County] Court denies cert in widely watched Defense Distributed First Amendment case on dissemination of plans for 3-D printed weapon [Smith Pachter, earlier] A historical look: “The American Indian foundation of American gun culture” [David Kopel]
- “The Supreme Court’s grant of a Contracts Clause case for the first time in a quarter-century reminds me that a certain John G. Roberts wrote a student note on the Clause back in 1978 (available at 92 Harv. L. Rev. 86).” [Aditya Bamzai on Twitter]
- University of Chicago Law Review special issue on Justice Scalia [Will Baude; other recent Scalia scholarship includes articles on his influence in implied rights of action and standing]
- Case on cert petition before SCOTUS could clarify law on distribution of property after church schisms [Samuel Bray on Protestant Episcopal Church in the Diocese of South Carolina v. Episcopal Church]
- Big news: U.S. Department of Justice changes sides in Lucia v. SEC, challenge to constitutionality of SEC use of administrative law judges [Thaya Brook Knight, Cato; Knight and Ilya Shapiro in August; Kevin Daley, Daily Caller]
- Cyan v. Beaver County Employees Retirement Fund, oral argument Nov. 28: SCOTUS considers limits on securities class actions in state courts [Washington Legal Foundation]
- GAO: 2013 financial-agency guidance on leveraged lending was in effect a rulemaking, but wasn’t submitted to Congress as required. Time for review [Michelle Price, Davide Scigliuzzo, Reuters]
- Missed, from last March: shareholder class action lawyers suing Sprint sought to charge for 6,905 hours of work by (as it turned out) disbarred attorney [Joe Palazzolo and Sara Randazzo, WSJ; Doug Austin, eDiscovery Daily Blog]
- Joseph Stiglitz would like to outlaw Bitcoin [Jim Epstein, Reason]
- Bad idea watch: “Chicago Council Considers Banning Cashless Stores” [Charles Blain, Market Urbanism Report]
- “The Rise of Financial Regulation by Settlement” [Matthew C. Turk, Columbia Law School Blue Sky Blog]
- Before buying into the idea that fractional reserve banking has some sort of fraudulent roots, consider the common law concepts of detinue, bailment, and debt [George Selgin, Cato]
- Cato files brief urging Supreme Court to clarify constitutional status of SEC’s use of in-house administrative law judges [Thaya Brook Knight on Lucia v. SEC]
- Between FATCA and the Patriot Act, American extraterritorial banking rules keep wreaking havoc on other countries [Ernesto Londoño, New York Times on Uruguay legal marijuana businesses]
- “Congress Can Rescind the CFPB’s Gift to Trial Lawyers” [Ted Frank, WSJ]
- “Absent Reform, Little Relief in Sight from Chronic “Merger Tax” Class-Action Litigation” [Anthony Rickey, WLF]