Are Administrative Law Judges Unconstitutional?

According to this decision last week, the answer may be “yes”—at least for administrative law judges who decide cases for the SEC.  That is because a federal judge in Atlanta found that ALJs are “inferior officers” under the Constitution, who under Article II, must be appointed by the President, the Judiciary, or "heads of departments." (SEC ALJs are instead appointed by a chief ALJ). 

As Kent Barnett argued last week, and whose excellent paper on the subject is cited in the opinion, there’s an easy fix for the SEC because the SEC is already considered a “department” and has authority to appoint ALJs itself. But the opinion raises new concerns for other ALJs in the administrative state, who together hear over 250,000 cases a year.  That’s because many agencies are not freestanding departments--like the Consumer Financial Protection Bureau, which operates inside of the Federal Reserve. Two more thoughts after the jump.    

First, it’s interesting to see how the SEC has become a dramatic example of the tension between the Appointment Clause and the need for agencies to provide an “impartial tribunal.”  For those who appear in agency hearings, the Appointment Clause may require department-heads of a law-enforcement agency to appoint administrative law judges themselves. But by forcing the SEC to directly appoint ALJs, the Court (somewhat) weakens structural protections long considered necessary to make administrative proceedings more independent by isolating agency adjudicators from staff involved in the investigation or prosecution of a case.[1]  Notably, the decision comes just as judges and commentators, like Judge Rakoff, Joseph Grundfest and the defense bar, argue that the SEC enjoys a "home court" advantage in its own administrative proceedings.  This is one part of the “quandary” that Kent addresses in his fine article.  Kent H. Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797 (2013).

Second, the court dismissed the defendant’s argument that administrative law judges, who cannot be fired without “good cause,” threaten the President’s power to supervise and "remove" officers under Article II.  The Supreme Court in Free Enterprise Fund v. PCAOB raised this question when it held that Congress violated Article II by creating too much job-protection for members of the PCAOB, a public body charged with investigating and disciplining public auditing companies.  The Court found those board members were too insulated from the President’s control because they enjoyed "two levels" of tenure-protection.  That is, the President could only fire someone at the PCAOB for “good cause,” if the President first went through the SEC, whose members also could not be removed without “good cause.” 

At the time, Justice Breyer, in dissent, worried about the implications of the decision for administrative law judges.  ALJs also cannot be removed absent “good cause” by the Merit Systems Protection Board.  See 5 U.S.C.§ 7521(a).  And the members of the Merit Systems Protection Board are themselves protected from removal by the President absent good cause.  In response, the Supreme Court observed in a footnote that ALJs were probably different because (1) they might not be officers at all (some ALJs only issue recommendations, not binding judgments) and (2) administrative law judges performed a “quasi-judicial” function. 

Last week, the District Court said that first conclusion was probably wrong: many ALJs have much more authority to make binding decisions of law than the Supreme Court recognized in Free Enterprise.  But it similarly suggested that ALJs could enjoy extra job protection because they perform a “quasi-judicial” function.  I think that’s the right result, but it raises an important question: why are administrative law judges more “quasi-judicial” than a disciplinary board also charged with investigating and adjudicating complaints about public auditors?  See Free Enterprise Fund v. PCAOB, (Breyer, dissenting) (“The Court suggests, for example, that its rule may not apply where an inferior officer “perform[s] adjudicative … functions.” But the Accounting Board performs adjudicative functions. What, then, are we to make of the Court’s potential exception? And would such an exception apply to an administrative law judge who also has important administrative duties beyond pure adjudication?”)

I think the most persuasive answer, under the majority's reasoning, is that the PCAOB board members exercised way more than just adjudicative power.  The PCAOB also could make new regulations and enforce them.  What frustrated the exercise of executive power under Article II, for the majority, was PCAOB's combined adjudicative-policymaking-enforcement power. If so, as Kevin Stack argues, that’s a somewhat new concept.  To my knowledge, the Supreme Court has avoided decisions that dictate who inside the agency can prosecute, make rules, or adjudicate cases.[2]  Moreover, that answer is not totally satisfying given the ways different agencies define and use "adjudication." The NLRB and the FTC, for example, have long advanced very important substantive policies through adjudication.  In other agencies, adjudicative officers also enjoy significant enforcement authority.  See, e.g., 8 CFR §1003.9, 34 CFR §81.4 (2009).  

Hopefully, this case represents a small first step toward clarifying the important role ALJs play, and the protections they deserve, in the administrative state. 

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[1]  Lisa Schultz Bressman, Beyond Accountability: Arbitrariness and Legitimacy in the Administrative State, 78 N.Y.U. L. REV. 461, 472 (2003) (arguing that Congress sought to remedy concerns about impartiality produced by combination of functions).

[2] See, e.g., SEC v. Chenery Corp, 332 U.S. 194 (1947); Withrow v. Larkin, 421U.S. 35, 58 (1975) (permitting the “combination of investigative and adjudicative functions” as a matter of Due Process); Gary Lawson, The Rise and Rise of the Administrative State, 107 Harv . L. Rev. 1231, 1249 (1994) (“The post-New Deal Supreme Court has never seriously questioned the constitutionality of this combination of functions in agencies.”); Gillian E. Metzger, The Interdependent Relationship Between Internal and External Separation of Powers, 59 Emory L.J. 423, 429-34, 453-57 (2009); see also RICHARD J. PIERCE, JR., ADMINISTRATIVE LAW TREATISE § 9.9, at 889 (“[T]he Court has never held an adjudicatory regime unconstitutional on the basis that the functions were insufficiently separated.”)