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Supreme Court debates constitutionality of SEC’s in-house judges

The Supreme Court heard arguments Monday in a case challenging the SEC's use of in-house administrative judges that also has broader implications for many federal agency administrative judges and the validity of their past rulings.

The case, Raymond J. Lucia and Raymond J. Lucia Cos. Inc. vs. Securities and Exchange Commission, asks the justices to decide whether SEC administrative law judges are officers of the U.S. and not simply agency employees. Under the Constitution, officers must be appointed by the president, the head of a federal agency or a court. SEC administrative law judges are selected by the chief administrative law judge at the SEC, so if the high court determines that they are officers, their appointments could be unconstitutional and their rulings susceptible to challenges.

A ruling is expected before the court adjourns in late June.

While SEC officials defend their use of their administrative law judges, they are without White House support because the U.S. solicitor general on behalf of the executive branch sided with Mr. Lucia, a former financial adviser barred by the SEC from the industry who argues that they are officers. That prompted the Supreme Court to appoint attorney Anton Metlitsky as amicus curiae to press for upholding the judgment against Mr. Lucia. He said that SEC judges are not appointed officers because they do not have the authority to make binding decisions and the commission reviews each decision.

Several justices raised concerns about how reversing the judgment against Mr. Lucia on the constitutional question could affect other decisions made by administrative judges at the SEC, with 106 cases potentially affected, as well other federal agencies, including the Social Security Administration.

"If we are talking about all the other agencies, we're … talking in the thousands (of affected cases)?" Justice Sonia Sotomayor asked Mr. Lucia's lawyer, Mark Perry of Gibson Dunn & Crutcher.

Attorney Ken Berg with Ulmer & Berne, who is representing another client pressing the constitutionality issue in the 10th U.S. Circuit Court of Appeals in Denver, noted that 14 of the 18 amicus briefs in the Supreme Court case argued for ruling against the SEC. While the odds of that happening are good, he said, "the court's decision will likely leave open more questions than it will answer."