CHAPTER 6 FROM ADMINISTRATIVE LAW JUDGES TO INFERIOR OFFICERS AND THE CONSEQUENCES OF UNCONSTITUTIONAL APPOINTMENTS FOR FEDERAL AGENCIES

• Jurisdiction: United States

Natural Resources Development and the Administrative State: Navigating Federal Agency Regulation and Litigation
(Feb 2019)
CHAPTER 6
FROM ADMINISTRATIVE LAW JUDGES TO INFERIOR OFFICERS AND THE CONSEQUENCES OF UNCONSTITUTIONAL APPOINTMENTS FOR FEDERAL AGENCIES
Laura Lopez
David Zisser
Jones & Keller P.C.
Denver, CO

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LAURA LOPEZ is a corporate and securities associate at Jones & Keller, in Denver, CO. Her focus includes securities offerings, corporate governance, mergers and acquisitions, and finance. Prior to joining Jones & Keller, Ms. Lopez was a Fellow with the Denver City Attorney's Office-Municipal Operations Section where she worked on public finance, real estate, and corporate governance issues arising out of multi-million-dollar public-private partnership transactions. Ms. Lopez is actively involved in the Colorado legal community and currently serves on the Executive Committee for the Colorado Pledge to Diversity and the Center for Legal Inclusiveness. She is also a mentor for Law School Yes We Can. During law school, Ms. Lopez gained invaluable experience working at Newmont Mining Corporation, clerking at an international law firm, and serving as a Judicial Intern at the Colorado Court of Appeals. Additionally, she participated in the Jessup International Moot Court Team, the Civil Litigation Clinic, and the Student Bar Association. Ms. Lopez is an alumnus of the University of Denver-Sturm College of Law and Oklahoma State University.

DDAVID A. ZISSER is a shareholder in the Denver law firm of Jones & Keller, P.C., who specializes in representing individuals and entities in investigations and litigation involving the U.S. Securities and Exchange Commission, the Colorado Division of Securities, and FINRA. He also has had substantial experience defending private and class action litigation seeking damages under federal and state securities laws, shareholder derivative actions, and common law and statutory claims governing the conduct of all types of business entities. Before moving to Denver in 1981 to begin private practice, David was an attorney with the SEC's Division of Enforcement in Washington, D.C. David is a fellow of the American College of Trial Lawyers. He is included consistently in Colorado Super Lawyers by Thomson Reuters in the specialty of Securities Litigation, and has earned an AV® Preeminent Peer Review Rating from Martindale-Hubbell. David has spoken on securities law issues at the Rocky Mountain Securities Conference and the CBA Securities Law Subsection. David received his law degree from the Georgetown University Law Center, and his undergraduate degree from the Johns Hopkins University.

INTRODUCTION

Although the Federal government is frequently described as having three branches, the legislative, executive, and judicial, there is a fourth branch, consisting of administrative agencies.¹ There are few aspects of American life, particularly in the world of commerce, that are not affected by these regulatory authorities. And, because the commissions or individuals who head administrative agencies are not elected, their political accountability, and the political accountability of the agencies themselves, is a matter of important concern.

In its recent decision in Raymond J. Lucia Companies v. SEC, the Supreme Court of the United States ("Supreme Court" or "SCOTUS") addressed the political accountability of important agency actors; administrative law judges ("ALJs").² ALJs adjudicate a wide range of matters in internal agency court systems, from alleged violations of federal mine safety requirements to eligibility for social security benefits.

This paper addresses recent developments in the law leading to Lucia. The starting point is Art. II, Section 2, cl. 2 of the U.S. Constitution, the Appointments Clause.

APPOINTMENTS CLAUSE

The President shall [appoint] ...all other Officers of the United States, which shall be established by Law: but the 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.³ The Appointments Clause vests the authority in Congress to decide who can properly appoint inferior officers, but such authority only extends to three parties: (1) Presidents, (2) Courts of Law, and (3) Heads of Departments.

Congress itself lacks the authority to appoint inferior officers. "[An] inferior officer, for purposes of [the] [A]ppointments [C]lause, generally connotes a relationship with some higher ranking officer or officers below the President; whether one is an "inferior" officer depends on whether he has a superior, and it is not enough that other officers may be identified who formally maintain higher rank, or possess responsibilities of greater magnitude."⁴ "This clause providing that Congress may by law vest appointment of such inferior officers, as they think proper, in the President alone, the Courts of Law, or the Heads of Departments was adopted to enable Congress in its wisdom to authorize the Courts of Law to share with the Executive the appointing power of

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federal officers."⁵ This same notion extends to the Heads of Department whereby they share the authority to appoint individuals to analogous positions to that of the federal officers, i.e., inferior officers. This paper assesses the history and current case law concerning what constitutes an inferior officer, the proper appointing process of such individuals, and the implications of current law on agencies who have deviated from the constitutional process of appointing such officers.

A BRIEF HISTORY OF THE COMPLICATIONS ARISING WHEN DEFINING WHETHER OFFICIALS WHOSE FUNCTIONS ARE SIMILAR TO THOSE OF A TRIAL JUDGE ARE INFERIOR OFFICERS

1. Freytag - 1991

Freytag v. Commissioner is the Supreme Court's foundational case on whether an official who acts in a role similar to a trial judge is an "inferior officer" who must be appointed under the Appointments Clause.⁶ In Freytag, the Supreme Court addressed for the first time the Appointments Clause issue of whether a special trial judge in the Tax Court serves as an employee or an inferior officer of the United States.⁷ The Court deferred to the same standard two lower courts imposed when deciding the issue, they determined the special trial judges exercised a significant level of discretion leading the Court to conclude the special trial judges qualified as "inferior officers" and therefore their appointments must abide by the Appointments Clause.⁸

The Supreme Court identified the following factors to demonstrate the authority special trial judges possess to conclude they constitute inferior officers: (1) the office of special trial judge is "established by law" and (2) the duties, salary, and means of appointment for such office is also created by statute.⁹ The Court distinguished the statutorily created position of the special trial judge from persons who are hired on a temporary, episodic basis, whose position and functions are not statutory. The Court noted the tasks of a special trial judge consist of more than "ministerial" responsibilities, because such judges exercise significant discretion when they conduct trials, rule on the admissibility of evidence, and enforce discovery orders. The Court solidified the standard for inferior officers: a continual statutory position coupled with exercising significant discretion.

The Court then rejected the argument posed by the Government, that the ability to make a "final decision" was essential to being an inferior officer, by reiterating its stance on a continual statutory position and significant discretion.¹⁰ The Court further rejected the Government's attempt at discrediting the special trial judge's position by dismissing the Government's reliance

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on a standing argument. The Court noted such argument is "beside the point."¹¹ The Court proceeded to state special trial judges' positions do not shift due to their changing duties.¹² Special trial judges cannot fall under both the umbrella of inferior officers and employees because they assume every day administrative tasks in addition to their adjudicatory obligations.¹³ A special trial judge is either an inferior officer who must be appointed subject to the Appointments Clause or he falls outside of the scope of such appointment.¹⁴

After the Court's analysis of the foregoing issue, it held special trial judges are "inferior" officers whose appointment must be made in conformity with the Appointments Clause.¹⁵ The Supreme Court also found the special trial judges in Freytag had in fact been appointed in conformity with the Appointments Clause.

2. Landry - 2000

In Landry, the District of Columbia Circuit Court addressed the question of whether administrative law judges working for the F.D.I.C. were inferior officers or mere employees. The Court articulated what it viewed as the problem with previous definitions: "The line between "mere" employees and inferior officers is anything but bright."¹⁶ After the majority emphasized what it perceived as a lack of clarity and consistency in the Supreme Court, Landry attempted to discern a standard for differentiating when a person is an employee or an inferior officer by examining the history of the roles of employees in other cases.¹⁷ The Court distinguished the special trial judges at issue in Freytag from the administrative law judges in Landry by pointing to special trial judges' ability to render final decisions in limited situations as opposed to the administrative law judges at the F.D.I.C., who merely provide "recommended decisions, recommended finding of facts, recommended conclusions of law and proposed orders."¹⁸ Judge Randolph, who wrote a separate opinion concurring in the judgment, stated the majority in Landry misinterpreted Freytag by relying on the final decision making power of judges to determine whether they are inferior officers or employees, a...