Opinion ID: 4111397
Heading Depth: 3
Heading Rank: 1

Heading: Final Decision-Making Power

Text: In rejecting Mr. Bandimere’s Appointments Clause argument during agency review, the SEC’s opinion concluded the ALJs are not inferior officers because they ______________________________________ Cont. See Rivera v. Illinois, 556 U.S. 148, 161 (2009) (stating “constitutional errors concerning the qualification of the jury or judge” require automatic reversal (emphasis omitted)); Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 796 F.3d 111, 123 (D.C. Cir. 2015) (“[A]n Appointments Clause violation is a structural error that warrants reversal regardless of whether prejudice can be shown.”); United States v. Solon, 596 F.3d 1206, 1211 (10th Cir. 2010) (stating structural errors are subject to automatic reversal). Mr. Bandimere argues, “[The SEC ALJ] is an inferior officer whose unconstitutional appointment is a structural constitutional error that invalidates the proceeding.” Aplt. Br. at 18. The SEC does not dispute that an Appointments Clause error here is structural and that there is no need to show prejudice. - 23 - cannot render final decisions and the agency retains authority to review ALJs’ decisions de novo. The SEC makes similar arguments here. It contends the Freytag Court relied on the STJs’ final decision-making power when it held they were inferior officers. The agency draws on Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000), in which the D.C. Circuit attempted to distinguish Freytag and held that FDIC ALJs were employees. 204 F.3d at 1134. In Landry, the D.C. Circuit stated Freytag “laid exceptional stress on the STJs’ final decisionmaking power.” Id. The court therefore considered dispositive the FDIC ALJs’ inability to render final decisions. Id. This past August, the D.C. Circuit addressed the same question we face here. Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283 (D.C. Cir. 2016). The D.C. Circuit followed Landry and concluded that SEC ALJs are employees and not inferior officers. Id. at 283-89. The holding was based on the court’s conclusion that SEC ALJs cannot render final decisions. Id. at 285 (“[T]he parties principally disagree about whether [SEC] ALJs issue final decisions of the [SEC]. Our analysis begins, and ends, there.”). We disagree with the SEC’s reading of Freytag and its argument that final decision-making power is dispositive to the question at hand. First, both the agency and Landry place undue weight on final decision-making authority. Freytag stated the government’s argument that STJs should be deemed employees when they lacked the ability to enter final decisions “ignore[d] the significance of the duties and discretion that [STJs] possess.” 501 U.S. at 881. The - 24 - Supreme Court held STJs are inferior officers because their office was established by law; their duties, salaries and means of appointments were “specified by statute”; and they “exercise[d] significant discretion” in “carrying out . . . important functions.” Id. at 881-82. Moreover, Freytag agreed with the Second Circuit’s Samuels decision, id., which held that STJs are inferior officers because they “exercise a great deal of discretion and perform important functions” in § 7443A(b)(4) cases, Samuels, 930 F.2d at 986. The Second Circuit did not rely on the STJs’ ability to enter final decisions under § 7443A(b)(1), (2), and (3). Id. at 985-86. Rather, it said STJs are inferior officers even though “the ultimate decisional authority in cases under section 7443A(b)(4) rests with the Tax Court judges.” Id. at 985. Like Freytag, Samuels hinged on the STJs’ duties and not on final decision-making power. After stating its holding that STJs are inferior officers based on their duties, the Freytag Court responded to the government’s standing argument. 501 U.S. at 882. The Court stated, “Even if the duties of special trial judges under subsection (b)(4) were not as significant as we and the two courts have found them to be, our conclusion would be unchanged.” Id. (emphasis added). This sentence reaffirms what the Court previously concluded: it “found” the duties of the STJs are sufficiently significant to make them inferior officers. Id. That conclusion did not depend on the STJs’ authority to make final - 25 - decisions.32 Further, the Court’s “even if” argument was a response to (1) the government’s concession that STJs are inferior officers in § 7443A(b)(1), (2), and (3) cases, where they had final decision-making authority,33 and (2) the government’s argument that the petitioners lacked standing to rely on the STJs’ authority in those types of cases to establish the STJs’ inferior officer status in § 7443A(b)(4) cases.34 Based on the 32 Judge Randolph rebutted the Landry majority by arguing the following: The [Freytag] Court introduced its alternative holding thus: “Even if the duties of special trial judges [just described] were not as significant as we and the two courts have found them to be, our conclusion would be unchanged.” 501 U.S. at 882 (italics added). What “conclusion” did the Court have in mind? The conclusion it had reached in the preceding paragraphs—namely, that although special trial judges may not render final decisions, they are nevertheless inferior officers of the United States within the meaning of Article II, § 2, cl. 2. The same conclusion, the same holding, had also been rendered in [Samuels], a decision the Supreme Court cited and expressly approved. See 501 U.S. at 881. There the Second Circuit held that a special trial judge performing the same advisory function as the judge in Freytag was an inferior officer; the court of appeals did not mention the fact that in other types of cases, the judge could issue final judgments. Landry, 204 F.3d at 1142 (Randolph, J., concurring). 33 “The Commissioner concedes that in cases governed by subsections (b)(1), (2), and (3), special trial judges act as inferior officers who exercise independent authority.” 501 U.S. at 882. 34 “But the Commissioner urges that petitioners may not rely on the extensive power wielded by the [STJ] in declaratory judgment proceedings and limited-amount tax cases because petitioners lack standing to assert the rights of taxpayers whose cases are assigned to [STJs] under subsections (b)(1), (2), and (3).” Id. Continued . . . - 26 - government’s concession, the Court stated STJs could not transform to employees by “perform[ing] duties that may be performed by an employee not subject to the Appointments Clause.” Id. The Court thus rejected the standing argument as “beside the point.” Id. The Court’s rejection of the government’s standing argument is a far cry from holding that final decision-making authority is the predicate for inferior officer status. Indeed, the Court did not hold that STJs are inferior officers because they have final decision-making authority in § 7443A(b)(1), (2), and (3) cases. Rather, it accepted the government’s concession that STJs are inferior officers in those cases for the purpose of responding to the standing argument. Thus, the Court’s “even if” argument did not modify or supplant its holding that STJs were inferior officers based on the “significance of [their] duties and discretion.” Id. at 881. The SEC reads Freytag as elevating final decision-making authority to the crux of inferior officer status. But properly read, Freytag did not place “exceptional stress” on final decision-making power.35 To the contrary, it rebutted the government’s argument that STJs were inferior officers when they lacked final decision-making power (i.e., ______________________________________ Cont. 35 Compare Freytag, 501 U.S. at 881-82 (rejecting the government’s argument that STJs were employees when they lacked final decision-making power), with Landry, 204 F.3d at 1134 (asserting Freytag “laid exceptional stress on the STJs’ final decisionmaking power”). - 27 - § 7443A(b)(4) cases) because the argument “ignore[d] the significance of the duties and discretion that [STJs] possess.” Freytag, 501 U.S. at 881. Final decision-making power is relevant in determining whether a public servant exercises significant authority. But that does not mean every inferior officer must possess final decision-making power. Freytag’s holding undermines that contention. In short, the Court did not make final decision-making power the essence of inferior officer status. Nor do we. Second, the SEC’s argument finds no support in other Supreme Court decisions describing inferior officers. In Edmond, the Supreme Court considered final decisionmaking power as relevant to the difference between a principal and inferior officer, not the difference between an officer and an employee. 520 U.S. at 665. The Court held Coast Guard Court of Criminal Appeals judges were inferior officers instead of principal officers because they “ha[d] no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers, and hence they [were] inferior within the meaning of Article II.” Id. In other words, the Court classified the judges as inferior officers even though they had no final decision-making power. Id. In Buckley, the Court held FEC commissioners were inferior officers because they exercised “significant authority,” including the “responsibility for conducting civil litigation in the courts of the United States for vindicating public rights.” 424 U.S. at 125-26, 140. The Buckley Court analyzed significant authority as a matter of degree without discussing final decision-making power. Id.; see also Ass’n of Am. Railroads v. - 28 - U.S. Dep’t of Transp., 821 F.3d 19, 38 (D.C. Cir. 2016) (stating Edmond “clarified [that] the degree of an individual’s authority is relevant in marking the line between officer and nonofficer, not between principal and inferior officer” (citing Edmond, 520 U.S. at 662)). The Court has not equated significant authority with final decision-making power in Buckley, Freytag, Edmond, or elsewhere. Nor has it indicated that each of the officers it has deemed inferior possesses that power.36 Further, Justice Breyer has stated that “efforts to define [‘inferior Officer’] inevitably conclude that the term’s sweep is unusually broad.” Free Enter. Fund, 561 U.S. at 539 (Breyer, J., dissenting). Third, supervision by superior officers is not unique to employees. It is a common feature of inferior officers as well.37 The military judges at issue in Edmond were inferior 36 Whether SEC ALJs can enter final decisions is not dispositive to our holding because it was not dispositive to Freytag’s holding. Nevertheless, the SEC’s argument that its ALJs can never enter final decisions is not airtight. Without a timely petition for review, SEC ALJ’s actions are “deemed the action of the Commission.” 15 U.S.C. § 78d-1(c). The agency retains authority to review initial decisions de novo and may determine the date on which an unchallenged initial decision is final. 15 U.S.C. § 78d- 1(b); 17 C.F.R. § 201.360(d)(2); Lucia, 832 F.3d at 286-87. But the agency may simply enter an order stating an initial decision is final without engaging in any review. 17 C.F.R. § 201.360(d)(2). And the agency can also decline to review an initial decision even when there is a timely petition for review. 17 C.F.R. § 201.411(b)(2). Thus, the Exchange Act and the agency’s regulations provide a path for an initial decision to become final without plenary agency review. In practice, most initial decisions follow that path—90 percent. See SEC, ALJ Initial Decisions, https://www.sec.gov/alj/aljdec .shtml. 37 Edmond, 520 U.S. at 663 (stating an inferior officer is “directed and supervised at some level by others who were appointed by Presidential nomination with advice and consent of the Senate”); Landry, 204 F.3d at 1142 (Randolph, J., concurring) (“The fact that an ALJ cannot render a final decision and is subject to the ultimate supervision of the Continued . . . - 29 - officers based on their inability to “render a final decision . . . unless permitted to do so by other Executive officers.” 520 U.S. at 665. Thus, the fact that the SEC can reverse its ALJs does not mean they are employees rather than inferior officers.