Executive Order On Administrative Law Judges Not As Alarming In Context

Executive Order On Administrative Law Judges Not As Alarming In Context

On July 10, 2018, President Trump issued an executive order exempting federal administrative law judges (“ALJs”) from the competitive service, or civil service system.  This was in response to the Supreme Court’s recent decision in Lucia v. SEC, where the court held that SEC ALJs are “inferior officers” within the meaning of the Appointments Clause of the constitution, and therefore are required to be appointed by the president, the courts or the head of a federal agency or department.  In the case of SEC ALJs, the five members of the Commission constitute the head of a department, but its ALJs have historically been appointed through a merit selection system.  That is no more.

Many have voiced concern that moving to a system whereby appointments are made by the Commissioners – political appointees who owe their positions to the president – rather than through a merit selection system, could increase the likelihood that future ALJs will also be political appointees, concerned less with objectively applying the law and more with toeing a particular party line, or satisfying the political-appointee boss who appointed them.  Indeed, Justice Breyer’s dissent in Lucia spoke to this very issue.  As he recounted, the ALJ position was created by the 1946 Administrative Procedure Act, an important feature of which was to give ALJs “independence and tenure within the civil service system.”  In other words, they were intended to be less a creature of the particular agency in which they served and more a neutral, qualified, judicial officer.  They were insulated from political pressure by the requirement that they could be removed only for cause, which was to be adjudicated before the Merit Systems Protections Board.  Justice Breyer saw two potential consequences of changing the appointment’s process for ALJs, namely, it “would risk transforming administrative law judges from independent adjudicators into dependent decisionmakers, serving at the pleasure of the Commission,” and “threatens to change the nature of our merit-based civil service as it has existed from the time of President Chester Alan Arthur.”

These are very real concerns, particularly in an era with a president who is more overtly political than his predecessors, placing a premium on personal loyalty and casting virtually everything he dislikes in political terms.  Yet, the new process under the Executive Order is actually more in line with what the Framers intended in devising the Appointments Clause.  As the Court noted in Freytag v. Comm. Of IRS, on which the Lucia court relied: “The Framers understood, however, that by limiting the appointment power, they could ensure that those who wielded it were accountable to political force and the will of the people.  Thus, the Clause bespeaks a principle of limitation by dividing the power to appoint the principal federal officers – ambassadors, ministers, heads of departments, and judges – between the Executive and Legislative Branches.  Even with respect to ‘inferior Officers,’ the Clause allows Congress only limited authority to devolve appointment power on the President, his heads of departments, and the courts of law.”  (Emphasis added.)

In other words, the Framers intended persons holding the power to appoint inferior officers, like ALJs, be subject to public accountability for those inferior officers’ conduct in office, presumably including their decisions and behavior.  Naturally, then, persons having authority to appoint, such as the SEC Commissioners, will seek to appoint people who apply the law within a band of expectation that doesn’t go too far outside acceptable boundaries.  A person appointed to be an ALJ who came with a particular political orientation, or who routinely rendered decisions reflecting a particular social, political or economic point of view would stand out in quite obvious fashion and garner the wrong type of attention for his agency.  Hence, it doesn’t follow that Commission-appointed ALJs will necessarily be guided in their decisions by political considerations, or succumb to political pressure, as Breyer intimated.  While that risk does exist,  of course, there are numerous checks built into the system that limit how far off-the-reservation a given ALJ can go in making nakedly political decisions.

For example, as only the appointment process is changed, an SEC ALJ’s initial decision still has to be approved by the Commission to become final.  To the extent a particular decision substantially departs from prior decisions in similar cases, i.e., the Commission can correct it before it becomes final.  Alternatively, if the decision becomes final – whether by affirmative adoption or passage of time – and the respondent appeals, the Commission has a second chance to correct it before it leaves the agency.

Third, since two of the five Commissioners are always from the party out of power (currently, the Democrats), a nakedly political decision, by either the ALJ or the majority of the Commission in the case of an appeal, would likely be commented on by the dissenting Commissioners, elevating the issue to the market, policy makers, commentators, academicians and the defense bar.

Fourth, where the internal appeals process fails, the aggrieved party can appeal to the appropriate Circuit Court of Appeals, where established precedent would likely put a check on any radical or outlier decision.  By the time such a matter got to the Circuit Court, enough constituencies would have become aware of it that it would likely become a matter of concern and urgency, as occurred with the increasing number of challenges to ALJ appointments that led ultimately to Lucia .  This would have the effect of putting a spotlight on the particular ALJ, not a place most administrative law judges are accustomed to being, or want to be, as it brings unwanted attention and political pressure to their agency and the persons who head it.  Finally, there is the matter of personal reputation.  Persons who serve as judicial officers, including ALJs, want to have their opinions respected and grounded in law.  Issuing controversial decisions in a well-established area of law is not consistent with these goals, and would suggest someone with a desire to stand out, or to make a name for himself or herself.  But, serving as a federal ALJ is just not the platform for launching that type of more ambitious career.

And, as the executive order notes, “ALJs must display appropriate temperament, legal acumen, impartiality and sound judgment.”  As long as these attributes drive the appointment decision, the world should not tremble before this change.

Ron Wood

Ron Wood

Ron Wood is a partner with Brown White & Osborn LLP. A former Assistant Director in the SEC's Division of Enforcement, Executive Director in the Law Division at Morgan Stanley, and litigation partner with Proskauer LLP, he practices securities law with a focus on regulatory and enforcement matters. He also conducts internal investigations and complex commercial litigation.
Ron Wood