After spending the last few years ferociously denying that there was any constitutional issue with the manner in which SEC Administrative Law Judges (ALJs) were appointed to their position, this morning, the SEC announced that it had “ratified” the prior appointment of each of its ALJs – Murray, Foelak, Elliot, Grimes and Patil.   You can read the SEC order here.  

For anyone who is or was the subject of an administrative proceeding before the SEC, this is a big deal.  Why?  The history of this issue is pretty extensive, and we have offered several prior blog posts on it.  Most succinctly, the issue is this:  The Constitution sets forth how inferior officers can be appointed.  The SEC ALJs were not appointed using that process.  Respondents in SEC actions have, lately, filed appeals challenging the constitutionality of the proceedings because the ALJs were not properly appointed.  One of those cases has requested certiori by the United States Supreme Court. 

In today’s order, the SEC formally appointed the five ALJs listed above.  That means, that as of today, the five judges are appointed in compliance with the Constitution.  The SEC, it appears form this order, takes the position that this cures any potential issues relating to Constitutionality.  Specifically, the Commission says  that ratification of the judges’ appointments is made with the intent  to “put to rest any claim that administrative proceedings pending before, or presided over by, Commission administrative law judges violate the Appointments Clause [of the United States Constitution].”  The SEC also outright  admits in today’s Order that its action was prompted by the Amicus Brief filed by the Solicitor General of the United States (filed yesterday), urging the United States Supreme Court to consider and resolve the Appointment Clause issue.

What does this mean?  Well, that depends.  If you have not yet, but will in the future, be called to defend yourself in an administrative proceeding before an SEC ALJ, this means your judge has been properly appointed (and you will not have a claim, on appeal, for vacatur of a decision based on the Appointments Clause). 

If you are currently the subject of an ALJ administrative proceeding where the initial decision has not yet been rendered, your judge must re-review the entire record, allow the parties to submit new evidence, re-examine all prior judicial rulings, and issue an order regarding the same.  Your deadlines are tolled until your judge issues this order.

If you have already been before the ALJ and he or she has issued an initial decision and your case is now pending before the SEC, your initial decision is remanded.  Your ALJ must reconsider the record, including all evidentiary decisions and rulings, allow the parties to submit new evidence, review the initial decision, and issue an order reversing or ratifying the same.

If your case has already resulted in an initial decision and a Commission order affirming that decision your decision is…..?  The SEC seems to think this settles the issue, and the Order is silent on such cases (including the many cases on appeal to circuits across the United States).  I’m confident that the petitioners in those appeals will disagree.  I’d wager they will argue that the SEC’s action today, formally appointing the judges in accordance with the Constitution, will be viewed as an admission, by the Government, that it did not properly appoint these ALJs at the start. 

That leaves us with the big questions:  What is the retroactive effect here?  If the petitioners are correct that prior ALJ proceedings were held before an unconstitutionally appointed tribunal, how can that constitutionality be rectified? Does this ratification have any effect on decisions unconstitutionally rendered by prior judges (who are not subject to this ratification Order)? Will the Supreme Court see this as rectification of the issue (mooting the need to hear the case) or an admission by the SEC that it failed to honor the Appointments Clause?

We shall see.  Until then, we anxiously wait to see whether SCOTUS grants cert and then, if they do, the ruling.  While we wait, ALJs have until February 16, 2018 to ratify or otherwise revise their initial decisions and/or prior rulings.  It will be interesting to see what, if any, revisions they make.