Recently, a colleague at lunch asked me if I was familiar with a case involving the constitutionality of Securities and Exchange Commission administrative law judge proceedings. (Both the CATO Institute and the Wall Street Journal have covered the case.) What appears to be an obscure constitutional case that lawyers talk about at lunch, could actual have a profound impact on the construction industry.
The case is question is a Northern District of Georgia case, Hill v. SEC. The SEC charged the plaintiff with insider trading and brought an administrative cease and desist proceeding against him seeking a civil penalty and disgorgement of his profits on the alleged insider transaction. SEC administrative proceedings are first adjudicated before an administrative law judge (“ALJ”), who hears evidence and renders an initial decision.
Hill brought an action in federal court seeking an injunction alleging that the ALJ’s appointment violated Article II of the United States Constitution. For you non-constitutional scholars, Article II states which federal officials must be appointed by the President and confirmed by the Senate and which officers may be appointed by the President, the Courts, or the “Heads of Departments” alone. The Constitution refers to the later as “inferior officers.” The Plaintiff argued that ALJ’s were inferior officers and, therefore, could only be appointed by the President, the Courts, or the commissioner of the SEC and because they were not any action taken by them was unconstitutional.
Plaintiff claimed that SEC ALJ’s were inferior officers because they exercised “significant authority pursuant to the laws of the United States.” On the other hand, the SEC argued that ALJ’s are merely employees and, therefore, do not need to be appointed pursuant to Article II of the Constitution.
In an opinion issued earlier this month, the Court agreed with the plaintiff that the SEC’s ALJ’s are inferior officers. Accordingly, the Court granted an injunction prohibiting the SEC’s ALJ from hearing the SEC’s case against the plaintiff.
So, how does this case impact the construction industry? Because the Court’s rationale that SEC ALJs are inferior officers is not limited to SEC ALJ’s and should apply to all agency ALJ’s who are not appointed by the President, the Courts, or Heads of Departments, such as ALJ’s for the National Labor Relations Board.
NLRB ALJ’s function almost identically to their SEC counterparts. Like their SEC counterparts, NLRB ALJ’s take testimony, conduct trials, rule on admissibility of evidence, can issue sanctions, and entering default judgment, all factors the Court in Hill found significant. Also, like their SEC counterparts, NLRB ALJ’s are not appointed by the President, the Courts, or the head of the NLRB. Rather, like SEC ALJ’s, they are selected through an open application process by the Office of Personnel Management. Moreover, the NRLB is not a cabinet level agency, and, therefore, the NLRB commissioners can simply appoint all current ALJ’s to solve the problem.
Given the controversy surrounding the NLRB’s new ambush election rules and its pending joint employer rule and the willingness by construction industry trade associations to challenge these rules in Court, it might not be long before the constitutionality of the NLRB’s ALJ program is also challenged.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
