In July, Justice Elena Kagan, writing for the majority in Lucia v. Securities and Exchange Commission, authored a narrow opinion that has potentially broad implications. The subject matter in Lucia was the constitutional appointment of administrative law judges (ALJ). Many agencies were potentially affected, but none as much as the Social Security Administration (SSA), which relies on over 1,600 ALJs to adjudicate hundreds of thousands of hearings every year, deciding whether some of the most vulnerable segments of our population, the physically and mentally impaired, meet the regulatory criteria to receive benefits that many of them need to live. Kagan may have answered the specific question posed to the court in Lucia (whether or not the SEC‘s ALJs were required to be appointed under the appointments clause of the Constitution or not), but in doing so she triggered many more questions, most of which still have no answer and may not for some time to come.
When Ray Lucia, a well-known radio personality and financial adviser, was found guilty by an ALJ of misleading investors and subsequently faced $300,000 in civil penalties and a lifetime ban from the investment community, he appealed the ALJ’s initial decision, focusing on the ALJ himself, arguing that he was unconstitutionally appointed. This argument did not find any traction with the U.S. Securities and Exchange Commission, and fared no better before the U.S. Court of Appeals for the Tenth Circuit. Lucia finally petitioned to the U.S. Supreme Court for relief.
In July, Kagan, writing for the majority, held that Lucia’s position was correct and that the SEC’s ALJs are rightly considered inferior officers, and therefore, under the appointments clause, they require appointment by either the president or the head of a department. Kagan’s decision relied heavily on the test used in Freytag v. Commissioner, which compared the powers of the SEC’s ALJs with those of Article III judges and found them to be equivalent. This equivalency meant that the SEC’s ALJs must be appointed in according with the appointments clause, and, as that had not occurred in Lucia’s case, he was due a new hearing before a properly appointed ALJ.
With this opinion, Kagan potentially invalidated the results of an almost uncountable number of administrative adjudications. While that number may be minimal within an agency such as the SEC, which employs only five ALJs, it is of no small consequence in the SSA, the largest employer by far of ALJs. But does Lucia even implicate the SSA ALJs? And if so, is it ultimately a bad thing?
Following Lucia, many claimants around the country have filed objections and appeals based on the unconstitutional appointment of the ALJ who heard their disability claim for the SSA. Some claimants raised objections at, or soon after, their administrative hearing, others relied on appeals after their claims were denied, both within the administrative process as well as in the federal courts. The success of these objections and appeals will be seen in the months and years to come, but there is little doubt that the executive and the SSA are taking them seriously and remain unsure of the outcome.
A leaked memorandum from the Office of the Solicitor General to the agency heads made it clear that, while they should not immediately concede timeliness in these matters, voluntary remand in cases involving Lucia appeals was the recommended course of action where timeliness was indisputable. An emergency bulletin released by the SSA a few weeks later made it clear that they were adopting the solicitor general’s recommendations.
While the posture of the SSA on this matter is clear, what is not clear is whether SSA would actually have a losing position in litigating these appeals even when timeliness is undisputed. Lucia is very narrowly written, however, Kagan’s reasoning and reliance on Freytag implicates at least those ALJs involved in adversarial hearings, similar to a traditional U.S. court of law, as opposed to ALJs involved in nonadversarial hearings, such as those in SSA, where they investigate the facts and develop the arguments both for and against each party. At oral argument, when pressed by Justices Anthony Kennedy and Ruth Bader Ginsburg as to how a decision in favor of Lucia would affect ALJs in other agencies, such as the SSA, Lucia’s attorney assured the justices that only approximately 150 federal ALJs preside over adversarial hearings similar to those at the SEC, specifically noting that SSA judges do not preside over adversarial hearings. This is consistent with Lucia’s brief, which suggested that a decision in favor of Lucia would only apply to adversarial ALJs. While it may be argued that the SSA is attempting to mitigate the risk of litigation by adopting these positions, they are actually opening the floodgates to such litigation, as their position and publications post-Lucia may become evidence of the appropriate application of the holding in the case.
Assuming that Lucia does apply to the SSA, there is the question of whether or not the solution proposed by the solicitor general is sufficient: that the agencies have the department heads ratify the prior appointments of incumbent ALJs, both at the time they were initially appointed (retroactive ratification) and on the day the ratification was to occur. [The author was present in a hearing during which the presiding ALJ was forced to excuse himself to be ratified.] The solicitor general recognizes that while retroactive ratification may be held invalid, in a year or two we will have a better idea of the legitimacy of the ratification solution as a whole, as the first cases challenging its legitimacy will have wound their way through the system. As both the ratifications and the appointments require either the president or a department head, SSA’s current lack of a commissioner, or even an acting commissioner, does not offer clarity to the situation.
Ultimately, does Lucia matter to those who practice before the SSA and other agencies? Perhaps. The loudest cries from practitioners come from the fear of losing the agency independence that the ALJs have enjoyed for decades. Days after the Lucia opinion came down, an executive order was issued exempting ALJs from the competitive service and removing the Office of Personnel Management from their selection. As a result, where there had been a clearly defined process of vetting, ranking and selecting candidates for ALJ hiring; following the executive order these quality controls and safeguards of agency independence are gone. But perhaps it doesn’t matter.
Without diminishing the significance of the drastic change of this long-standing practice—as it is so drastic a change—it can be argued that political and agency independence is preserved as long as removal remains independent. For now, the independent management of ALJ removal remains with the Merit Systems Protection Board (MSPB) and still requires “good cause.” Although the solicitor general’s argument before the justices in Lucia that the “good cause” requirement was also unconstitutional may give one pause, it is notable that Kagan chose not to decide or address that issue.
Appointment alone is not destiny, nor is it control. While Lucia makes it possible that ALJs appointed going forward will be less qualified, it does not necessarily mean that they will lose their independence, either from the agency or the executive. That loss of political and agency independence would pose the greatest risk to both the impartiality of the agency adjudicator and the rights of those they regulate.
Nicholas Feden is a founding member of the Social Security disability appellate division at Pond Lehocky Stern Giordano. His practice focuses on handling complex disability claims that cannot be resolved at the administrative level and require an appeal to the federal courts. Contact him at email@example.com.