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In Lucia v. SEC, the SEC fined the petitioner Raymond J. Lucia $300,000 and barred him from working as an investment advisor for anti-fraud violations of the anti-fraud provisions of the Investment Advisers Act. The petitioner requested SEC review, arguing that the administrative proceedings were invalid, as the administrative law judge (ALJ) who decided his case was unconstitutionally appointed. ALJs are appointed by SEC staff in a manner that Lucia claimed violated the Appointments Clause under Article II, Section 2, Clause 2 of the Constitution. When the SEC ruled against Lucia, he appealed to the D.C. Circuit which denied the petition for review by a divided court, issuing a new decision affirming the SEC's decision as required under D.C. Circuit Rule 35(d).
In a 7-2 decision, the Supreme Court ruled in favor of the petitioner. Join us as our experts discuss this important ruling.
Mark Chenoweth, Executive Director and General Counsel, New Civil Liberties Alliance
Dr. John C. Eastman, Henry Salvatori Professor of Law and Community Service and Director, Center for Constitutional Jurisprudence, Dale E. Fowler School of Law, Chapman University
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Operator: Welcome to The Federalist Society's practice group podcast. The following podcast, hosted by The Federalist Society's Litigation and Federalism and Separation of Powers practice groups, was recorded on Friday, June 22, 2018, during a live Courthouse Steps teleforum conference call held exclusively for Federalist Society members.
Ms. Laura Flint: Welcome to The Federalist Society's teleforum conference call. This afternoon, we'll discuss the recent Supreme Court decision in Lucia v. SEC. My name is Laura Flint. I'm the Deputy Director of practice groups here at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.
Today, we are happy to have with us Mark Chenoweth, Executive Director and General Counsel at the New Civil Liberties Alliance, and Dr. John C. Eastman, Henry Salvatori Professor of Law at Chapman Law School and Senior Fellow at the Clairmont Institute.
After hearing from our speakers, we'll go to audience Q&A. Thank your for sitting with us, Professor Eastman. The floor is yours.
Dr. John Eastman: Uh, thanks very much, and thanks to The Federalist Society for, uh, for organizing this, uh, this, uh, discussion, uh, and all of the discussions they do on the Courthouse Steps.
It's an important time of year at the Supreme Court as, as Supreme Court watchers, uh, wait anxiously at 10:00 a.m. every, every Monday, and now Wednesday, and Thursday, and Friday mornings waiting for cases to be decided.
Um, uh, this one, uh, kind of has a narrow application in its particular ruling, but very broad implications, and we're going to talk about that. The case is Lucia v. Securities Exchange Commission, or Lucia, Lucia -- I'm a little bit more Italian, so I may say Lucia on occasion. Um, I don't quite know how Mr. Lucia pronounces it himself. Um, but the issue was, uh, whether the, uh, um, appointment of administrative law judges in the Securities and Exchange Commission, um, was constitutional. Mr. Lucia was, was charged with, uh, uh, various securities violations, uh, his case gets before this administrative law judge, and he challenges the constitutionality of the appointment.
Um, a, a little background before we get to his particular challenge, and that is, you know, looking at the text of the Constitution itself. Article II, Section 2, gives to the President the power to make appointments by and with the advice and consent of the Senate of all officers of the United States. Now, principal officers, that's the only route available to appoint principal officers. So your, your cabinet secretaries, your heads of, of major agencies, um, judges, Supreme Court justices, uh, -- I said judges, that's an open question -- Supreme Court justices, all have to be appointed, nominated by the President, and then only, uh, appointed after the advice and consent of the Senate, uh, signs off on the nomination or gives them the confirmation.
Um, but the Constitution sets out an alternative mechanism, um, that can be utilized if Congress, by law, uh, uh, says so. And that is for inferior officers, those who -- kind of the next layer down. Um, uh, Congress can, by the statute that creates those inferi- off-, inferior officers, uh, place the appointment, uh, of them in the President alone, so no Senate Confirmation, or in the courts of law alone—no Senate confirmation—or in the heads of departments. And it's the heads of the departments language that's at issue here. Um, these administrative law judges were not appointed, uh, by the Securities and Exchange Commission itself, which collectively is the head of department. They were appointed by other, uh, lower officials in the Security and Exchange Commission.
Um, and, and Lucia's challenge was that they, for-, uh, that everybody concedes that if these folks were inferior officers and not mere employees, that constitutional ap-, -- that appointment process would have been unconstitutional. Uh, and, and what -- you get to the Supreme Court, uh, opinion by Justice Kagan, writing for, um, uh, the 7-2 majority—although, although Justice Breyer only concurs in part, uh, but that's six votes in the majority all joining Justice Kagan's majority opinion—uh, says that because, uh, these administrative law judges, uh, uh, exercise, uh, significant authority, and because they have a continuing position established by law, they are officers of the United States, not mere employees, and therefore, they could only be appointed by the head of the department. Since the head of the department—the commission itself—did not appoint them, uh, then it was a pretty easy case under governing Supreme Court precedent that, you know, 25 years ago in a case, um, out of the Internal Revenue Service called Freytag, uh, that these are inferior officers. They have to be appointed by the head of the department. They weren't, and therefore, the appointment was illegal. Um, and so Mr. Lucia wins the case, it's now going to have to go back.
Uh, now what happened in the interim is the Securities and Exchange Commission, realizing their problem, has subsequently, on its own, appointed all of their administrative law judges. And so the court's holding was, "You've got to send it back to have a hearing before a duly appointed administrative law judge, and it can't be the same one who just decided the case after being unlawfully appointed. It has to be somebody else."
So that's, that's where we stand on the, on the court decision itself. Let me touch on a couple of the disputes that come out with the concurring opinions and the dissent. Justice Thomas, joined by Justice Gorsuch, uh, write separately, concurring in full with Justice Kagan's opinion. Uh, but he would go further and say, "Look, instead of looking to the precedent in Freytag v. the Internal Revenue Service Commissioner, we ought to actually look at what the language of the Constitution meant at the time it was written, the public meaning that would have been evident to those that ratified the Constitution."
And for Justice Thomas, that means that all federal civil officials who perform a statutory duty are officers in the United States and have to be appointed according to the Constitution's, uh, appointments clause. Uh, if they're inferior officers, that appointment can be vested in, in the President alone, or a court, or the head of a department. If they're principal officers, they have to be -- uh, go through the, the Senate confirmation process.
Justice Breyer was, I think, very troubled by the implications of that for the self, uh, on autopilot administrative state, or the administrative bureaucracy that has grown up over the last 60 or 70 years, a bureaucracy that he's a big fan of. So he didn’t want to reach the constitutional questions here at all. He says there was no authority for the Securities and Exchange Commission to delegate its appointment authority to, uh, other officials in the Securities and Exchange Commission, and therefore, uh, the, the delegation they, they, they made was itself a violation of the Administrative Procedures Act rather than of the Constitution.
Uh, he does that, I think, because he wants to keep in place the entire infrastructure of administrative law interpretations being handled in administrative agencies themselves, um, uh, because the administrative state just can't operate, uh, to the extent, the expansive extent that it currently does if we have to stick with the Constitution's reading of what the appointments clause requires. And so he's trying to find another way to protect the administrative bureaucracy, um, uh, uh, even though, even though, uh, the SEC was going to lose in this particular case.
Uh, Justice Sotomayor, uh, joined by Justice Ginsburg, dissent. They would, uh, have distinguished the old, uh, Internal Revenue Service case, saying that was -- those were special law judges, these are administrative law judges, there's a difference. Um, Justice Kagan, you know, I think, in her majority opinion quite correctly goes through point, by point, by point between the two cases and say their virtually identical. If anything, the argument against the Securities and Exchange Commission here is even stronger that it was against the IRS Commissioner in that old case. Uh, so, uh, I, I, I think what Justice Sotomayor and Ginsburg really want to do is overrule Freytag, um, and that would be an even bigger protection for the administrative bureaucracy, which they seem bent on, on, uh, on doing.
So that's the, that's the -- sure, we've got a, we've got a major constitutional issue here. It is part of…and I'll put it in kind of grand context a little bit, and then we're -- I'm going to pass it to Mark to talk about some of the things that could have been addressed by the court that weren't. And the bigger context is we're seeing now increasingly the court really cognizant of how its various doctrines over the years have bolstered a largely unconstitutional exercise of, of power in the unelected administrative agencies, or in the unelected bureaucracy. And this decision, uh, this week, uh, is, is, you know, yet another nail in the coffin of that free-wheeling administrative law bureaucracy just writing laws and enforcing the laws and, and, uh, adjudicating the laws that they've written and enforced, all by the same group of people, contrary to, you know, one of the most basic precepts of separation of power that our Constitution embodies, um, in, you know, in, you know, from the, from the great, uh, political philosophy of people like, uh, a modest view, uh, it goes right back to the founding.
So I think there's this renewed, um, appreciation of the, of the structural beauty and design of the Constitution and how much, uh, over the last half century or more we've deviated from it with now increasingly recognized, pretty bad consequences. So this is, uh, this -- I think this case is important as a component of that bar-, broader fight about, um, just where is -- what, what is the legal authority for this huge administrative bureaucracy there's -- that is, that is original over the last three quarters of a century?
So that's the significance of the case from my perspective, and, uh, Mark can talk about some of the lingering issues that are undecided that are going to make it even more significant. Mark, back to you.
Mr. Mr. Mark Chenoweth: Well, thanks, John. That's a great summary, and, and let me, uh, thank The Federalist Society as well for the opportunity to participate in today's, uh, teleforum. It is much appreciated.
Uh, there are several things that the Court did not decide, uh, in Lucia. And, interestingly, whether or not administrative law judges are principal officers or inferior officers is, is the first of these. The Court, in Footnote 3 of the majority opinion, notes that the government and Mr. Lucia both agreed that administrative law Judge Elliot was an inferior officer here, but the Court did not decide that fact, it, it assumed it, and another plaintiff could challenge that. Or if not, challenge that with regard to SEC ALJs might find, uh, that there are other ALJs, uh, elsewhere in the administration, or in a different context, different kind of case, uh, where, uh, there, there -- a strong claim might be made or put forward that, uh, an ALJ is a principal officer in some way. And as John's discussion, uh, suggested, if that were to happen, then those individuals would have to be appointed by the President and confirmed by the Senate and could not just be a, appointed by, uh, the SEC Commission.
A second issue that the Court did not decide is whether the statutory restrictions on removing administrative law judges are constitutional or not. Uh, the Court, in Footnote 1 of the majority opinion, notes, uh, that the Solicitor General sought a second question on that at the search stage of this case, uh, but that question was not granted. Even so, the, the Solicitor General's merits brief again asked the Court to address that question, and at oral argument, uh, the government again pressed that point. Uh, Noel Francisco even told a Federalist Society lunch meeting here in D.C. last month, uh, that the answer to that question was part of why Lucia was a, was a case that mattered so much. Uh, and, uh, but again, the Court did not address that while deciding.
Um, while I agree with, with the Solicitor General that deciding that would have been important, um, the Court said that no lower court had addressed that question and, and that the Supreme Court usually relies on lower court analysis before, uh, jumping, uh, into, you know, contested questions, uh, like that. Um, and, and, we can come back to that, but, uh, I, uh, it's true, but there are reasons why the Court could've jumped into this now had it wanted to do so.
Uh, the third issue that the Court did not decide is what counts as significant authority. As, as John said, the, the test for whether someone is an officer, uh, boils down to whether they hold a continuing position—uh, that's under the Germaine precedent—and then whether or not they exercised significant authority, and that's under the Buckley v. Vallejo, uh precedent. And, you know, no one contests that the ALJs have a continuing position, so the question here is, is just whether they exercise significant authority.
And some participants in the case wanted, uh, wanted the Court to use Lucia to elaborate, uh, on, uh, the, the test for exercising significant authority that had been laid out in Buckley v. Vallejo. Both, uh, Kagan's majority opinion and the Thomas concurrence joined by Justice Gorsuch acknowledge that, uh, that the Court has not provided much guidance on this question, uh, in the past. Uh, but since, uh, the majority in, in Kagan in particular, regarded Lucia as a, as a near carbon copy with the Freytag case, the Lucia majority saw no need to articulate further guidance here. Um, uh, quote, unquote, "Maybe one day," Kagan, uh, suggested, "but that day is not this one."
And, uh, and a, again, as John suggested, the, the, the majority regarded this case as an a fortiori case that, uh, because the SEC ALJs had, if anything, a bit more last word, uh, ca-, capacity then the, uh, special judges 9at issue in Freytag, uh, this case was already decided. And in, in fact, there's one sentence in the decision that essentially the entire decision boils down to, which is, uh, if, uh, -- which means that, you know, Freytag decided the entire case.
A fourth question that was not decided here, uh, is, uh, is whether each of the items that the, that, uh, the Court discusses as being in common between the judges in Freytag and the judges—uh, the SEC ALJs—whether each of those items is necessary for someone conducting adversarial hearings to count as an officer. So, for example, what if an officer can't take testimony, or -- excuse me, I shouldn't say officer. What if an administrative judge can't take testimony, or can't discipline attorneys, or can't make factual findings, but does everything else? Uh, the Court leaves us grasping in the dark as to whether that person is going to be, uh, deemed, uh, an officer of the United States, uh, or not in a, in a future case.
Um, the one thing the Court does suggest is that final decision-making authority is not, uh, the sine qua non of officer status. Uh, Sotomayor puts that forward in, in her dissent as something that, that should be, uh, the test in, in, a reason for finding the SEC ALJs not to be, uh, officers. But Kagan notes that Freytag explicitly rejected that theory, uh, and that there didn't seem any appetite on the part of the majority to, uh, to revisit that question.
Uh, a fifth question that the Court left open is on the remedy front, the Court sent Lucia back for a hearing, uh, before a different ALJ. But the Court explicitly said that it does not hold that a new officer is required for every appointments clause violation, uh, on rehearing. Um, and so had the problem been with the Commission itself rather than one of the Commissions ALJs, uh, where no substitute decision maker would have been available when, in sending the case back, the Court suggests that the, the rule of necessity would presumably have kicked in, and, and that, uh, the same decision maker could have reheard, uh, the case. Uh, I'm not convinced that that's, that that's true, and that's not the holding here. That's, that's just dicta on the Court's part. I think that's sub-, subject to challenge in the future, uh, under different circumstances.
And the last point that I'll, that I'll, uh, suggest that the Court, uh, left open is that it did not decide whether the SECs ratification attempt of the malappointed ALJs, uh, was sufficient. Uh, Mr. Lucia took issue with the, uh, SECs attempt to, uh, ex post ratify the, the ALJs, uh, and, uh, and make them constitutional going forward. Uh, but, but, cagily, uh, the Court suggested that the commission itself could hear the case on remand, uh, and to avoid testing the validity of the ratification order in this case. So, on remand, I guess we get to find out whether or not the SEC can take a hint.
I, I did want to, uh, to give a quick shout out, uh, to Jennifer Mascott, who was quoted widely. Uh, Jennifer, Professor Jennifer Mascott at George Mason at the Antonin Scalia Law School, was quoted widely in the, in the Thomas, uh, concurrence on the question of what the original public meaning, uh, of an officer of the United States was. And she's on NCLAs, uh, board of advisors, so I wanted to just compliment her for, uh, for receiving, uh, so much attention in the, in the concurrence and then maybe throw it open to, uh, -- back, back to you, John. I think you talked about we could have some discussion back and forth, uh, before we answer questions.
Dr. John Eastman: Sure. And, and I'll add my congratulations to Jennifer as well. It's, it's wonderful, uh, uh, uh, confirmation of your scholarship when the Supreme Court, particularly the originalists on the Supreme Court, cite it. So, uh, congratulations.
Um, there's, there's one other lurking issue here, and I, I, I think it's actually the granddaddy issue, uh, as, as we look at the implications of this case, uh, more broadly than just a Securities and Exchange Commission. Um, you know, there are over 1,300 ALJs over at the Social Security Administration. Uh, Justice Kagan's opinion actu-, al-, al-, also suggests that, um, even beyond administrative law judges, we might have officer status, um, to people who have been treated as employees who actually write regulations. Um, the courts are deferring to those regulations that they've written interpreting statues. Um, uh, oftentimes, uh, they initiate enforcement proceedings based on the regulations they've written. Um, so the regulation writers, uh, at the layer down below a commission or a head of an agency, I think all of those folks might well be deemed officers now under Justice Kagan's opinion, and certainly under Justice Thomas', uh, concurrence opinion. Um, and, and, that, that, then, um, you know, shows how broad, uh, the impact of this ruling might be.
But it also forces us, us to confront, I think, the, the, the real granddaddy issue which is why is this stuff going on in Article II, the branch of government? The Executive is supposed to enforce the law; it's not supposed to write them. That's Congress' job. And it's not supposed to adjudicate the enforcement of those laws; that's Article III's job. And what we have going on here is the Securities and Exchange Commission is writing its own regulations, or worse, um, delegating that authority to, uh, to, to employees, uh, in the Securities and Exchange Commission to write, write its regulations. Other people in the Securities and Exchange Commission are doing the executive job of enforcing those regulations. And then, yet other people in the Securities and Exchange Commission, all in the same agency, and all technically, you know, owing their jobs to the same, um, uh, political, politically accountable head of the agency, uh, they are adjudicating the enforcement of those laws that they wrote, the very definition of tyranny, according to Montesquieu, the Executive, the Legislative, and the Judicial functions all combined in the same hands.
Um, and so, you know, one of the things that's a-, appeared this week on the commentary on this case is how, um, threatening it is to the independence of the administrative law judges, that we wanted those folks independent, so we wouldn't be, um, uh, you know, doing the bidding of their master, the Securities and Exchange Commission, but they're in the same agency anyway. And if we need the independence, it's a, it's a, um, it's a, um, requirement that the founders recognized, and they didn't, you know, Chinese wall off separate parts off of a same executive agency to accomplish separation of powers principles. They walled it off even more broadly than that into separate branches of government.
And if we really need independence as a -- for the adjudication phase of this stuff, as I believe we do, um, it ought to be over in Article III itself, rather than somehow in Article II, in under the Executive Authority. Otherwise, you're either undermining the Chief Executive's authority to control the Executive branch, um, uh, or, or undermining the independence that's necessary for a fair adjudication of whether somebody's actually violated the law or not. And, you know, this is, this is an issue that is growing increasingly large as the administrative state continues to expand, uh, and yet it has largely been untouched for 75 years. And I think cases like this are going to force us to confront it. Um, uh, and then I'll, I'll, I'll say something about the, the, the --
Mr. Mark Chenoweth: -- Can, can I jump in on, on those two points before you, you get to your next one there, John?
Dr. John Eastman: Sure, yes.
Mr. Mark Chenoweth: Uh, first, on your point about the -- some of the, the lower tier reg writers, uh, being inferior officers under this decision, I think you're absolutely right about that. And, and of course, that's a double-edged sword because on the one hand, uh, there, there's a requirement in issuing regulations in many of these, uh, in many of these agencies that the regulation actually be issued, uh, and sometimes it's by the head of the department, or sometimes it's by an officer of the United States has to be the one who issues the regulation. And they haven’t been really good about following that, that, direction in some of the, the agencies. Uh, and in fact, I believe, uh, Pacific Legal Foundation is bringing litigation on that theory, uh, right now, that, that some agencies have been issuing regulations essentially under the wrong person's name.
Uh, but, but the second -- the reason it's a double-edged sword is because, even though that problem could be solved by these folks being deemed officers now, uh, under, under Kagan's opinion, they weren't properly appointed, uh, under, under, under the appointments clause, uh, to, to have the officer status that they hold. So, uh, I think you could see, a, a, sort of a, another way of challenging, uh, some of the, uh, some of the reg writers, just as the ALJs were challenged here.
And then, on, on your second point about independence, uh, I couldn't agree more. That was actually the, the reason why the New Civil Liberties Alliance jumped into this case, uh, with an amicus brief, uh, is, is precisely because we agree with, with the gist of what you were saying, John, that, uh, that's there's a real problem with bringing all of these things, uh, within an, an administrative agency. And part of what we focused on in our amicus brief was to show the Court—and apparently Justice Breyer didn't read our brief, or wasn't persuaded by it, because he glosses right over this point—that the, that the, the current ALJs at the SEC are not independent. Uh, they have to, uh, conform to the SECs rules. They're not allowed to, to, for example, hear a constitutional challenge, uh, to one of the agencies rules. They have to assume that the rules, uh, are, are legitimate that they're operating under.
And there're all kinds of other bias that we go into based on how they're selected, uh, now, and the fact that they don't have prior securities law expertise that they bring with them. Uh, Cameron Elliot, who was the administrative law judge in this case, for example, was brought over from the Social Security Administration where he had been an ALJ. He did not have prior securities law expertise. Uh, so the fact that -- I, I think the tradeoff that sometimes people think we're making in the administrative state is that we are taking some constitutional shortcuts, but we're getting expertise in the bargain. Uh, but that -- it turns out that's not true. We're giving up the constitutional rights, and we're not even getting the expertise in most cases.
Dr. John Eastman: Well, and, and, and e-, and, and even if they were experts, sometimes I'm more nervous about experts deciding things than I am common sense ordinary citizens.
Mr. Mark Chenoweth: Particularly when they're not independents.
Dr. John Eastman: That's right. Exactly. The other issue that, that I want to elaborate on, on, um, one of the ones that you talked about that was not addressed by the Court, and that is, uh, the, the, the peek-a-boo (PCAOB) issue. The Free Enterprise v. the Public Accounting Boards, uh, case from just a couple years ago, that when you've got two layers of for-cause removal, um, uh, that the, that the administrative law judge could only be removed for cause by the Securities Exchange Commission, which itself can be removed only for cause, you have really undermined the ability of the President to do his constitutional duty to take care that the laws be faithfully executed.
There are a lot of reasons why somebody ought to be removed because they're simply not in line with the President's own policies, and the Executive Branch exists entirely under the authority of the President. Um, various lower officers are, are designated by statute, but their authority is derivative of the authority that the Constitution sets out under Article II to the President. And if you have these insulation efforts so that executive officials, uh, cannot be answerable to the President because of restrictions on their removal, the Court has held that's unconstitutional. Uh, the double for-cause removal was the holding of the peek-a-boo (PCAOB) case. Uh, I love that acronym. I -- you know, we -- congress needs to pay more attention to how they put words together so we don't come up with these silly acronyms.
But, but, that's, that's another ground why even now, if we get the appointment part fixed, why, why Noel Francisco in the Solicitor General's Office is trying to get the Court to say, "Look, and you've also got this peek-a-boo (PCAOB) double removal for-cause problem that makes them unconstitutional even if the appointment problem is fixed on the front end." Um, and I, I, I, if, if I were Mr. Lucia's lawyers, I would be arguing that on remand as well, uh, because, uh, you, you, you know --
And it's again, it's going back to the original design of the Constitution. The politic-, these political branches are not supposed to be able to operate independently of the political authority from which their power derives. Their power to operate exists by virtue of Constitution's Article II. And if the President doesn't have any authority over the lying officers in the various agencies, they are operating as rogues, technically, as rogues without any political accountability. And that's not the constitutional system that, uh, Article II sets up.
And I think the Court has, uh, increasingly come to the realization that some of these, um, mechanisms that were set up by statue, just are really -- flout that basic separation of powers doctrine. And it's not just some archaic doctrine. That separation of powers doctrine is there to ensure that we don't get government acting tyrannically against its citizens. Uh, and, and the lack of political accountability that flows from some of these statutory schemes is ripe for that kind of abuse. And I think, I think that the courts, um, you know, they're still, they're still playing at the margins, kind of, uh, uh, you know, chipping away at the edge of the, uh, brick rather than going to the foundation of the problem. But we're getting closer, and closer, and closer to that foundation the more and more of these cases that come down.
Mr. Mark Chenoweth: And if you notice some potential cases, let John or me know, because our organizations like to bring these kinds of lawsuits.
Dr. John Eastman: Indeed, indeed. Well, with that, I think, I think we can open it up for questions if you want.
Mr. Mark Chenoweth: A-, absolutely. I'm ready to do that. I was just going to say while people are thinking of their questions, uh, that, uh, um, that the other way to test this, in addition to Mr. Lucia, uh, bringing up the issue of, of, uh, double for-cause removal, would be for President Trump to, uh, to just fire Administrative Judge Elliot this afternoon, and, uh, and test it that way.
Dr. John Eastman: We could. We could do a whole bunch, though. Now, uh, one of the common criticisms from, from, the, the, the defenders of the, of the bureaucracy is that there, there's just too much work. You would flood the courts. You can't possibly do it. Uh, don't be so unpragmatic. Uh, government's just too big. Uh, and all of the things they do is -- there's just too much. We've got to come up with these kinds of mechanisms. And I would say, you know, you're absolutely right. There's just too much that government's doing, and we can't do it by the constitutional way, but the resolution is not to ignore the Constitution.
The resolution is for the government to quit doing so much. And, and I think our founders and their devotion to the notion of limited government understood that. And one of the reasons these constitutional checks are in place is to make sure that we didn't get a government that got so big that it can't be controlled. Um, and, you know, and the, the refusal over the last three quarters of a century to enforce these core constitutional doctrines is what has, has led to this burgeoning bureaucracy that seems on autopilot, accountable to nobody—not the President, not to the citizens who vote for them. Uh, you know, and, and that's just intolerable in a, in a governmental system that is supposed to be rooted in the consent of the people.
Ms. Laura Flint: Let's go to audience questions. In a moment you'll hear a prompt indicating that the floor mode has been turned on. After that, to request the floor, enter star, then the pound key.
When we get to your request, you'll hear a prompt, and then you may ask your question. We will answer questions in the order in which they are received.
Again, to ask a question, please enter star, then the pound key on your telephone keypad.
Let's go to our first audience question.
Gregory Dolan: Uh, hi. Good afternoon and thank you for doing this very informative teleforum. This is Gregory Dolan from the University of Baltimore, and I wanted to pick up on something that was, I think, mentioned throughout, um, and, and in some sense, in, um, how much is this case, especially for this Department of Justice and perhaps some Justice on this Court, is a bit of a stalking horse. So when I read the, um, DOJs Solicitor General's briefs, uh, and so the emphasis on the removal powers are what kept coming, what kept coming back to my mind is this really is about not so much this case, but really about the CFPB that's coming down the pike.
And taking, um, so taking the Department of Justice briefs, taking the Justice Kennedy's concurrence in Pereira when he said just that perhaps we should reexamine Chevron, it does seem that there is this kind of bubbling up, not just on tinkering with appointments, but, um, on this entire cross examination of administrative state as a whole, both on the Presidential power to control the entirety of the administrative state, such as the under removal proceedings, but also as well as the Judiciary's power to control administrative state to the extent where we're going to reexamine Chevron and have the, you know, uh, the judges actually interpret the law.
And so I was just wondering whether you've seen any of that either going back to the oral arguments, or in the opinion itself, or, you know, interspread (sic) with other opinions released around the same time, as well as what the DOJ is doing indicates is coming up, up the, up the pike.
Dr. John Eastman: I, you know, I -- it's a terrific question and a, and a, I think, a spot-on insight into what's going on. I mean, let's look at it from the perspective of the lawyers in the Solicitor General's office at the Department of Justice. Uh, you've got, you've got two, uh, models of what they're, uh, representative, uh, legal duty is. Uh, it's their duty to represent the agency, um, to push its claims of power based on any plausible argument derived from prior precedent that it can. Or is its duty to faithfully, uh, to, to implement the President's duty to faithfully execute the laws, which includes not taking stands that they themselves think are beyond the constitutional authority, even if there had been prior court decisions saying that that might have been okay.
And, and most Solicitor Generals in the past have taken the former view that the agency itself is, is its client. And, of course, the agency wants more power, they want more deference to their decisions, they want less oversight, they want less political accountability. Uh, the current SG, I think, to his great credit, is taking the latter stance, that our duty is to the Constitution. We take the same oath, the President takes the same oath, that the judges take, uh, and that is to faithfully execute the law. That includes the law of the Constitution.
And if, and if we've added a bunch of unconstitutional barnacles to the ship of state over decades of inattention to those constitutional constraints, our job is to try and remove those barnacles and get back to what the Constitution actually requires, and start raising those questions again, rather than, just like the frog who boils himself in, in, in slow boiling water, you know, gradually getting to the point where our, our administrative state is simply unrecognizable as a matter of constitutional authority.
And so I, I, I do think cases like this are -- and not a stalking horse. I think they're more, you know, chipping away at some of those barnacles to get back to the, the, to the true form, separation of powers form of the Constitution. And the implications will play out in lots of other areas as well, but I, I think that's a good a thing. And quite frankly, I, I, I think of the, the Solicitor General's office doing that kind of thing is long overdue.
Mr. Mark Chenoweth: I, yeah, I wouldn't say stalking horse, I would say that the administrative state is starting to collapse of, of its own weight, uh, in, in some respect. And, you know, I, I applaud the Solicitor General for -- and, John, I can't remember if you mentioned this or not, but the, the government switched sides in this case, right at the, at the D.C. Circuit below, the government was on the other side of the case arguing that these ALJs were not, uh, uh, officers, that they were mere employees. And so the fact that the Solicitor General was willing to switch sides on this, I think, is very much to his, to his credit.
Uh, that said, a-, as John knows, uh, uh, you know, I had a, a cert petition in front of the Supreme Court that, that was denied about this time last year in a case called Gordon v. CFPB, uh, in which, uh, John's outfit had filed a, an amicus brief in support of the cert petition where we were challenging, uh, the Consumer Financial Protection, uh, Bureau director's ability to bring cases, uh, to, to bring enforcement actions at a point in time when he had not been properly appointed. And the court had already held that he had not been properly appointed, but it denied cert on the question of whether he could, uh, you know, bring lawsuits at a point in time when he was not properly, uh, properly installed.
And so, no, Francisco was not place yet. This was under, uh, then-acting Solicitor General, uh, Wahl. So, uh, so I can't, uh, so maybe the outcome would have been different, uh, at least in terms of the SG's position on the case, uh, if, uh, if Noel had been there.
But there have been -- I guess my point to, to the question is there have been other opportunities for the court to chip away at the administrative state that it has taken a pass on. Uh, and so, uh, you know, I don't think that, uh -- and I think that's unfortunate. I think that there are many other things that need to be corrected, uh, and, uh, and I hope that, that this is a sign of things to come and that the denial of sur in the Gordon case, uh, last year proves to be the exception to the rule.
Ms. Laura Flint: Let's go to our next audience question.
Bob Fitzpatrick: Hi, this is Bob Fitzpatrick in D.C. Uh, great presentation. Uh, I am a, uh, I, I represent real people. I'm not a law professor, uh, I don't write amicus briefs, uh, I represent people either, uh, one way or the other before ALJs. So I have two questions. Uh, I assume these issues are jurisdictional, so my concern is typically jurisdiction can be raised at any time. So I like my ALJ, let's say. I win my case before my ALJ. My opponent doesn't raise these issues at the front end, but after I win at the back end of being jurisdiction, can they raise it? So that's one concern, is timing.
Second question is I assume, uh, if I am before an ALJ at the state level, which I oftentimes am, or at the District of Columbia level where there's a whole different kettle of fish in terms of what constitutional provisions apply, do I have to look -- I assume I do not look necessarily to the Federal Constitution, but I look to the Ohio, Virginia, whatever jurisdiction I may be in, to its Constitution to make these same arguments. Those are my two questions.
Mr. Mark Chenoweth: So with regard to the first question, uh, subject matter jurisdiction, uh, is something you that you could, could bring up later, but personal jurisdiction is waivable, so that's, that's, that's not something that you can, uh, uh, complain about at the, at the back end.
Dr. John Eastman: And let me add to that. I think Justice Kagan's opinion in fashioning the remedy says if you, if you had raised the, uh, appointment issue when you were before the ALJ, you've waived it, they won't be able to raise it. So, uh, w-, w-, w-, w-, uh, they're, they're not going to reopen, you know, 50 years' or 30 years' worth of ALJ decisions as a result of, of the ruling in Lucia yes-, uh, this week.
Mr. Mark Chenoweth: Right, but, but in terms of whether you can raise some of these same sorts of objections at the state and local level, I, I think the answer is, uh, is absolutely. Uh, it may not -- there may not be US Constitutional objections at the, at the state or local level, in fact, uh, chances are there won't be, uh, at least not of this variety. But there, um, there could well be parallel provisions in state constitutions that would allow similar challenges, uh, to be made.
Dr. John Eastman: But, but it would depend on what's in the state constitutions. Some states have, uh, stricter separation of powers, uh, issues in place in their state constitutions, some have, uh, uh, looser ones. Some have appointments clauses, uh, similar to the federal government's, others, others don't and it's much more free-wheeling. And so it would really be state-by-state specific on whether this kind of an argument out have any, uh, any, uh, any traction in a state, in a state ALJ proceeding.
Ms. Laura Flint: We have one more caller in the queue. Let's go to that caller.
Ken Fowler: Hey, gentlemen. This is Ken Fowler. I'm in New York. Uh, thank you for the presentation. This is rea-, uh, very interesting. Um, I have a, a two-part question. First is whether, um0, you, you think that there are any obvious examples of other ALJs in, in other departments that will or won't be aff-, uh, impacted by the logic and reasoning of, of this decision. Um, I think the CFPB, the FTC, uh, International Trade Commission, CFTC, and, um, possibly a few more have ALJs, um, all with varying regulations. And so, so it'll be interesting to see how that plays out and what are your thoughts there.
And then, two, non-ALJs who might be affected. Obviously now we've had STJs and ALJs, um, where the courts decided they are officers, but you mentioned reg writers, and I'm wondering if there might be other individuals who are also, um, going to be subject to challenges here.
Mr. Mark Chenoweth: Well, in terms of --
Dr. John Eastman: Well, I, I, I --
Mr. Mark Chenoweth: Go ahead, John.
Dr. John Eastman: Go ahead.
Mr. Mark Chenoweth: How about I answer about the judges and you answer about the reg writers?
Dr. John Eastman: Oh, sure. Go ahead.
Mr. Mark Chenoweth: Okay. Uh, what I was going to say is that the, uh, uh, -- one distinction between ALJs that -- John, John mentioned that there are something like 1,300 ALJs over at the Social Security Administration. One difference between, uh, among ALJs is that ones at the Social Security Administration and the Veterans Administration, for example, are adjudicating benefits, uh, different kinds of governmental benefits that people are supposed, you know, have a statutory, uh, uh, I'm trying to avoid the word entitlement, but have, uh, under certain statutory parameters, they, they can get those benefits. Uh, that's very different from what the ALJs are doing at the SEC or some of the other agencies you mentioned where you're, you're really talking about individual's rights, the right to, to, in Mr. Lucia's case, to continue to, uh, to practice his profession as, as, as a, uh, stockbroker, uh, uh, of some kind or another.
Uh, and I, my, my initial take would be that this decision will not have as much of an impact on ALJs in the benefits context of Social Security or Veterans, uh, Affairs, uh, which is, again, the lion's share. Uh, the vast majority of -- if, if there's 1,300 there, there's something like 150 ALJs everywhere else combined. Uh, but I do think that those folks who are, like the SEC ALJs are, are, uh, uh, dealing with these rights adjudication questions will very much be impacted by this decision.
Dr. John Eastman: And, you know, I think, um, the, the kind of principle you can tease out of Justice Kagan's opinion on this is, um, are, are, in, in, in the conduct of exer-, exercising executive enforcement authority, have they then taken the next step and start adjudicating that prosecution. And if that's the case, not only should that person be a, an officer appointed according to the appointments clause, but that person, by logic, uh, may well have to be in Article III rather than in Article II.
That's not the case on the benefits side because we are still, uh, implementing or enforcing the law in deciding who meets the eligibility criteria. Um, uh, the, the challenge to that enforcement decision, uh, can be brought then in a court where you have the Article III adjudication of it. We're just doing some preliminary -- it's not, it's not really an adjudication, it's a determination by the Executive on how to, uh, enforce or apply the benefit statute here, and I think, I think that's an important difference.
In, in the SEC context, this person was charged with violating an SEC regulation. Um, the, the regulation itself, uh, assuming it was properly derived from an authority statute, uh, is a, is a, exercise of executive power. But then the ALJ is deciding whether that enforcement action, uh, you know, whether the person should be convicted or charged under that enforcement action or not.
So in the response to the prosecution, the executive function, have you now crossed the line into a judicial function? And if you have, I, uh, you know, I, I would take those people out and put them over in Article III themselves. Um, oh, there may be too many. Well, if there are too many, just, you know, reduce the budget for the agency and increase the budget for the court and add a bunch of magistrate judges to do the function, the judicial function, that these ALJs are doing.
Mr. Mark Chenoweth: There's only five ALJs at the SEC. It would only take five judges being added to the federal judiciary to solve this constitutional problem. I think we should do it.
Ms. Laura Flint: Again, to ask a question, please enter star, then the pound key on your telephone keypad.
Mr. Mark Chenoweth: To, to one of the points that, that John made, uh, about, uh, sort of, uh, the, the executive versus the judicial function happening here, one of the things that jumped out at me in Sotomayor's dissent, uh, was that she, she talked about officers as being people who bind the rights of others. And, and I said, "Bind the rights of others?" That's not something that Article II, or, excuse me, that, uh, uh, yeah, that Article II officials are supposed to be able to do. Binding the rights of others is something that only Congress can do, or the Article III courts can do. Uh, so I, I thought that was, uh, a fascinating offering from her, that that should be the distinction of what makes a, an officer of the United States.
Ms. Laura Flint: We --
Dr. John Eastman: -- And, and, since Mark gave a victory lap to Jennifer on his board, um, I think that I'm going to take a victory lap on behalf of our own Center for Constitutional Jurisprudence here, because we started more than a decade ago, in our briefing to the Supreme Court, raising a number of these administrative law issues. The pushback against the administrative state, the deference doctrines that the court had developed over years that effectively undermine not just the legislative authority of Article I's congress, but the judicial authority of the Article III courts, and was pushing more and more of these, uh, decision-making for law making, for executing and for judging, all to the administrative agencies. And we started pressing back against that with -- there are real problems with these deference doctrines and these real problems with these appointments authorities.
And I think, I think when, uh, when some of the justices started writing concurring opinions raising those issues, all of a sudden, um, everybody in town is now looking and realizing how far we removed our -- removed we've become from the real structure of the Constitution and starting to question, uh, the validity of all those things. That's, uh, I think why we now are seeing so many of these cases coming forward. Lawyers at all the major firms, in-house counsel at all the major industries, are now adding these, uh, counts to their complaints challenging, uh, adjudicative rulings against them and the various agencies, and they're starting to get some traction. And I, I, it's, it's a, it's a, a, a very encouraging sign that it is possible, even though we've got far removed from the Constitution, that there's a path back.
Mr. Mark Chenoweth: Amen.
Ms. Laura Flint: We have two questions in the queue, so let's go to that next caller.
Megan Murphy [sp]: Hi, my name is Megan Murphy. I'm a law student. Thank you, thank you for taking my question. I'm wondering, to the extent that you're aware of it, um, do you have any thoughts in light of yesterday's decision about the appointment clause case before the bankruptcy judge in Puerto Rico regarding the establishment of a supervisory board there?
Mr. Mark Chenoweth: I'm not familiar with that case, so I can't comment on that one.
Dr. John Eastman: Yeah, I'm, I'm not either. Although, uh, the bankruptcy, the bankruptcy judges, uh, it's always been a question in my mind whether the Constitution's, uh, appointment authority is being properly implemented there as well. But I don't know the particular case well enough to be able to comment.
Ms. Laura Flint: Let's go to our next question.
Caller 5: The Merit Systems Protection Board has what they call AJs, or administrative judges. They, uh, they don't have some of the protections of administrative law judges of other departments. And these AJs of the MSPB deal with a lot of things, some of which actually, uh, deal with the rights of an individual. For example, if, if I'm a federal civilian employee, and I allegedly commit a, a prohibited personnel practice, the Office of Special Counsel can bring a proceeding in the MSPB which can result in my loss of federal civilian employment and disqualification from future employment. I'm wondering how this, uh, case would apply to the AJs of the Merit Systems Protection Board.
Dr. John Eastman: Well, I, I think it would apply. And I think, I think you could, you could do Justice Kagan's analysis and go side by side with what the authority, uh, of the AJs in the MSPB are and compare it to Freytag and now to the SEC and find that there's a pretty strong overlap. In fact, in fact this is a huge issue. You -- people may recall that one of the early, um, challenges to President Obama's DACA program, uh, was down in Texas. Uh, and the court ruled that, uh, that, um, the, the, the President acted illegally, uh, because, uh, uh, the statute says, you know, the, uh, lying officers in the immigration services are -- shall, uh, uh, uh, put into removal proceedings anybody who they come across who's here illegally. Uh, that was the initial tentative ruling in the case.
And then somebody pointed out, well, these are, these are government employees. Their whole action, their whole challenge needs to be before the Merit Systems Protection Board. And so here, and so they, they punted a major judicial case and issue over to an executive agency that is supposed to be enforcing, not adjudicating. And so not just, not just the, uh, the Freytag and now Lucia problem, but I think the broader, uh, Article II versus Article III problem, uh, that we've been discussing is at issue in that, in, in, in that context.
Caller 5: Thank you.
Ms. Laura Flint: Again, to ask a question, please enter star, then the pound key on your telephone keypad. Let's go to the next caller.
Bill Hodes: Um, hi, uh, John. Uh, this is, uh, Bill Hodes, uh, formerly from Indiana, now Florida, from 1996 days. Uh, I just wanted to, uh, follow up on the very last couple of comments about how the administrative state problem can blend over into a clash between Article II and Article III, uh, which I agree with completely. But there's one -- a comment was made that one way of getting out of some of these problems is to turn some of the ALJs, if there are only five of them, into magistrate judges.
And I just wanted to remind that although that would certainly solve the appointments clause problem, it wouldn’t solve all of the, the other separation of powers because magistrates are not Article III judges. They don't have life tenure and so on, so there wouldn't be an appointments clause problem with them, but you would have -- there's sort of -- they're housed in the Judicial Branch, but they, uh, a-, and they are judicial officers, but they are definitely not Article III judges. And so there, there would have to be tinkering with, you know, how somebody at the margins of Article II interact with somebody, uh, at the margins of Article III.
Mr. Mark Chenoweth: John and I were talking about this issue a little bit before the, before the call, and one of the things I said was, uh, imagine what a difference it would make if litigants had to agree to appear in front of an ALJ, like you have to agree to appear in front of a magistrate judge in Federal District Court. Uh, I mean, the, the, the incentives for ALJs to actually deal fairly with litigants would be so much different in that context that what their current incentives are where they, they report to the SEC commissioners, their salaries are determined by the S -- I mean, there're all these factors that, that can contribute to the, the lack of independence the ALJs have that would be vastly improved by moving them from Article II to Article III. It doesn't solve everything, uh, but it would be vastly improved.
And for, for one thing, the Federal Rules of Evidence would apply, which they don't apply in ALJ proceedings. Due process would apply. The discovery rules would be better. Uh, you could have a jury under, uh, many circumstances. I mean -- one of the things that, that I really coughed at in reading Kagan's majority opinion is she says at one point that SEC ALJs have quote, unquote, "All the tools necessary to conduct a fair trial." Uh, no, they don't. That's just not true. Uh, the, the kind of trials that are conducted by ALJs are vastly different from what's done by a federal magistrate judge, or certainly by a Federal District Court judge.
Bill Hodes: No, and I, uh, I, I, I agree with those, uh, but I think there, there still is, uh, a gap there, because, uh, the point you make about you have to agree to at least hear the, the, the full, the full boat of your litigation, uh, before an ALJ -- I'm sorry, before a Federal magistrate, but the alternative, if you don't agree, is you go to an Article III judge. In an, in an agency, there sort of is no other place to go, unless you're proposing to take all of these adjudications and put them, uh, as a default before Article III judges --
Mr. Mark Chenoweth: -- Precisely.
Bill Hodes: -- which I don't, I don't, I don't, but I don't think that's realistic because, say what you want about the mission creep of the, or mi-, mission domination of the administrative state, uh, since, you know, 1930s and 40s, or since Wilson. Uh, but, uh, it would be -- that would be just in-, insanely, uh, uh, costly to have, you know, hundreds and hundreds of extra Article III judges. Uh, I think that's probably not --
Mr. Mark Chenoweth: -- It's only five. It's only five SEC ALJs.
Bill Hodes: Right, but it -- so, so you're, you're saying you would, you would make them life ten-, -- you would say no more ALJs everybody goes to Federal District Court?
Mr. Mark Chenoweth: That would be one option. I mean, that would be the constitutional option, I think. And it would be -- I don't this would solve the problem, but it would be better. I, I think it would be an improvement over the status quo to say, "Well, the agency can propose to proceed in front of the ALJ, but if the defendant prefers to be in Federal District Court, then the defendant can opt for that."
Bill Hodes: Hmm. Yeah, then, then, then that would solve my problem.
Dr. John Eastman: Very good. Well, I think, I think we're nearly at the end of our time. Uh, I want to again thank The Federalist Society for hosting this and all of those of you that, that, that joined us on this call. Um, uh, Federalist Society, you got any closing remarks?
Ms. Laura Flint: Um, our next regularly scheduled telephone conference call is scheduled for Wednesday at 12 noon, and that will be a Courthouse Steps decision for Gill v. Whitford. Keep an eye out for upcoming emails. We expect a bunch of supreme court decisions on Monday and probably Tuesday of next week, so we'll be announcing a lot of teleforum calls. On behalf of The Federalist --
Dr. John Eastman: -- Thank you, Laura.
Ms. Laura Flint: You're welcome. On behalf of The Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today. Would either of you like to make closing remarks?
Mr. Mark Chenoweth: I think I've said my piece.
Dr. John Eastman: Yeah, I just wanted to reiterate the, uh, the importance, although still chipping away at the edges, the importance of raising these fundamental constitutional separation of powers questions for the ultimate enhancement of liberty for all of us, and, uh, I applaud the Court and a, and a pretty significantly overwhelming majority of the Court that, uh, is now appreciating the importance of these kinds of issues.
Ms. Laura Flint: Well, thank you both for joining us. We welcome listener feedback by email at email@example.com. Thank you all for joining us. We are adjourned.
Operator: Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.