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Are more than 1,000 federal administrative law judges violating the U.S. Constitution? The U.S. Supreme Court soon may get the opportunity to tackle that fundamental question in a case challenging the appointment of administrative law judges (ALJs) by the Office of Thrift Supervision (OTS), a division of the U.S. Treasury Department. These ALJs are “inferior officers” under the appointments clause, contends John C. Deal, of Columbus, Ohio’s Kegler, Brown, Hill & Ritter, counsel to Michael D. Landry, who was banned from the banking industry by the Federal Deposit Insurance Corp. on the recommendation of an Office of Thrift Supervision administrative law judge. As inferior officers, Deal argued unsuccessfully in the U.S. Court of Appeals for the District of Columbia, ALJs must be appointed by “heads of departments.” The thrift office, he insisted, is a bureau, not a department. Deal plans to ask the Supreme Court to overturn the D.C. Circuit’s recent ruling that the banking agencies’ ALJs are employees, not inferior officers, and so present no appointments clause problem. If Deal is correct, and if regulatory/enforcement agencies such as the FDIC and the Office of Thrift Supervision are not departments under the appointments clause, “then all these ALJs are unconstitutional,” says administrative law scholar Jeffrey Lubbers, of American University Washington College of Law. Under the appointments clause, the president, with the Senate’s advice and consent, appoints the principal officers of the executive branch, but Congress “may by Law vest the Appointment of such inferior officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” Federal ALJs, established by the Administrative Procedure Act, conduct formal, trial-type hearings, make findings of fact and law and issue initial or recommended decisions. There are more than 1,300 ALJs assigned to 31 federal agencies, with the greatest number employed by the Social Security Administration. In the Federal Institutions Reform, Recovery and Enforcement Act, Congress instructed federal banking agencies to create a pool of ALJs. In April 1996, the FDIC notified Landry, senior vice president and chief financial officer of a Louisiana bank, that it intended to seek an order removing him for activities connected with a capital enhancement plan for his bank. The agency assigned the matter to an ALJ who had been hired by the Office of Thrift Supervision. His recommendations were reviewed de novo by the board of directors of the FDIC, which made the final decision. In Landry’s appeal of that decision to remove him, a three-judge panel split 2-1 in March on whether the ALJ was an inferior officer within the meaning of the appointments clause or an employee, as the FDIC contended. Landry v. FDIC, No. 99-1230. Although conceding that the “line between ‘mere’ employees and inferior officers is anything but bright,” Judge Stephen Williams, writing for the majority, said the determining factor here was that the ALJ only made recommendations. Judge Williams relied heavily on Freytag v. Commissioner, 501 U.S. 868(1991), in which, he said, the Supreme Court identified final decision-making authority as key to its holding that special trial judges appointed by the U.S. Tax Court were inferior officers. But Judge A. Raymond Randolph disagreed: “The fact that an ALJ cannot render a final decision and is subject to the ultimate supervision of the FDIC shows only that the ALJ shares the common characteristic of an ‘inferior Officer.’” A FUNCTIONAL DIFFERENCE Because the panel found that ALJs were employees, it did not reach the question of whether any of the federal banking agencies was a department for purposes of the appointments clause. “Most ALJs do make final decisions, and those are appealable,” says Prof. Lubbers. “So the Landry decision does not settle the question for 90 percent of ALJs in the government.” The Supreme Court has “never been able to come up with a conceptually elegant way to distinguish between inferior officers and employees,” says administrative law litigator John F. Cooney, of Washington, D.C.’s Venable, Baetjer, Howard & Civiletti. The high court has also labored to define the difference between a principal officer and an inferior officer, he adds. “The Supreme Court has always looked at the specific function involved and made a rough-and-ready determination of the importance of the function,” he explains. “I think that’s how they’d look at an ALJ case.” HIERARCHICAL ACCOUNTABILITY Separation-of-powers scholar Peter Shane, of the University of Pittsburgh School of Law, agrees. “The reason why the president and Senate share authority for the installation of principal officers is because there is intended to be a hierarchical accountability through the executive branch to the president.” However, there are people who perform “critical functions” but are not directly accountable to the president, but instead to those principal officers, he adds. “The question becomes: Which functions are critical?” The Supreme Court has had just as much trouble defining “department” as it did “officer.” In Freytag, it split on whether the Tax Court was a department or a court of law, and it left open whether agencies are departments. Cooney and Shane see little difference between agencies and departments. “The typical understanding we had when I was at OMB was that for most purposes, there wasn’t a difference,” says Cooney, referring to the Office of Management and Budget. But before the high court gets to the “agency vs. department” question under the appointments clause, it must face the inferior-officer question. And before it answers that one, it has to decide to take Landry, which will be filed by May 30. There are no conflicts within the circuits — a key criterion for high court review — on this issue, concedes Deal. But, he says, “Four times in the last decade the Supreme Court has granted cert. to resolve appointments clause challenges to various categories of judges. Essentially the Supreme Court, by what it has done, recognized this as a structural constitutional issue that needs to be resolved.” Deal relies on those four cases, which include Freytag. Military judges were the focus of the other three: Edmond v. U.S., 520 U.S. 651 (1997); Ryder v. U.S., 515 U.S. 177 (1995) and Weiss v. U.S., 510 U.S. 163 (1994). In all four cases, he notes, the justices found the different judges to be inferior officers. By focusing on final-decision authority, the D.C. Circuit panel ruled narrowly, which could make the case less attractive, suggests Lubbers. But, he adds, “The question is going to come up again. The next time an enforcement case is brought, some other smart lawyer is going to question whether the EPA is a department and can appoint ALJs. “If the court wants to clarify the issue knowing it will come up soon, Landry might be the case.”

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