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Case number 15-1345.

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Raymond J. Lucia, Companies, Inc.

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at Elle Petitioners versus Securities and Exchange Commission.

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Mr. Perry for the petitioners.

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Mr. Stern for the respondent.

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Mr. Perry, good morning.

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Good morning, Your Honors.

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May it please the Court.

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The Supreme Court has held that a federal adjudicator who presides over a trial-like adversary proceeding is an officer of the United States even if

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his decisions are reviewed discretionarily by a higher authority.

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That is the unmistakable import of Freytag and Edmund.

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Judge Elliott, who presided over the trial in this case, is such an officer, and the SEC itself told us as much.

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When he was appointed, the SEC issued a press release that said, quote,

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Administrative law judges are independent judicial officers who conduct public hearings in a manner similar to non-jury trials, and federal district courts issue initial decisions and have authority to impose a broad range of sanctions.

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end quote.

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And when Judge Elliott presided over the trial in this case, in a black robe, sitting behind a high bench, backed by the flag and symbols of office, my client Ray Lucia certainly understood that he was in the presence of sovereign authority.

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And when Judge Elliott

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past sentence on Mr. Lucia, barring him for life from his chosen profession, he exercised significant authority on behalf of the United States.

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After all, Your Honors, why did Mr. Lucia and the government lawyers and Mr. Lucia's counsel all stand when Judge Elliott walked into the courtroom, just like we all stood this morning when this panel walked into the courtroom?

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What matters for our analysis in determining whether the judge here, the administrative law judge, was an officer?

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Is it only what the Congress specified in the statute, his or her authority is?

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Or is it the statute plus the regulations?

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that the agency has promulgated, or is it the statute plus the regulations in practice, and I suppose also press releases?

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Judge Wilkins, practice is of course important, regulations are important, but we have to always start, we submit, with the statute.

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And the statutory authority conferred by Congress to hear adversarial proceedings, trial proceedings under APA sections 556 and 557 is conferred on exactly three categories of officers.

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Agencies,

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members of agencies, or administrative law judges.

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So we start with the APA, and we know that we're not talking about the whole universe of the federal government.

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We're talking about a very carefully defined.

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And we know that the first two categories are officers.

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Agencies and their members, the SEC, are officers.

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So the third category, under the principle of a eustim generis and others, is also an officer.

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And we know that further by the Organic Act of the SEC, the Exchange Act, which specifies

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in so many words that ALJs of the SEC are, quote, officers.

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And we know from the Supreme Court's decision in Germain that when the Congress uses the term officer, it means a constitutional officer.

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Well, Mr. Perry, if what Congress said were determinative, and I think OLC in its 2007 opinion expressly said it's not, because it would be circular.

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Congress could just define someone by using the term.

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I think we have

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A term that's like the term jurisdiction, which sometimes means jurisdiction in the Article III sense, sometimes doesn't.

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Officer sometimes means officer in the separation of powers sense in the appointments clause sense, sometimes it doesn't.

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So we have to look at the exercise of sovereign authority.

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And you mentioned that the ALJ here entered a bar, but wasn't it in fact the commission

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that entered the bar and isn't that in the statute that it's only when the commission adopts what the ALJ has proposed that it becomes in fact effective.

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I need to answer that in two steps.

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First, when a party seeks review by the commission, the commission does review an ALJ's decision.

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Of course, it exercises deferential review as to all factual questions, as it did in this case with respect to the witnesses, the two investors or seminar attendees who came to the case.

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And second, that level of review, that kind of discretionary review, does not matter.

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Edmund said that in so many words, and it's important to tie your two questions together, Your Honors, to go back to the statute.

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15 USC 78D1 says that the Commission has the discretionary review of these decisions.

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It does not have to review them.

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The Commission itself admits, I take it, that if they don't review,

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Then the decision has to be rendered by an officer because it comes to this court then on substantial evidence review and no officer will have passed on it.

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If Congress gave the commission the discretion not to review, as it did in the statute, then this decision that the commission may choose not to review must be rendered by an officer.

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There is no other conclusion available from the statutory scheme.

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don't we assume regularity on the part of government employees?

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If my clerk's draft is going to go out over my signature, I could choose not to review it.

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But I would be failing in my duty if I did that.

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And here, the opinions are going out as the opinions of the commission.

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And you refer to that they don't have to review them, but the statute actually makes them the commission's decision.

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So I would assume that the commission is in fact

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reviewing all of them.

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Judge Pillard, that's not correct factually or legally.

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First, the ALJ decisions, unlike your law clerks, go out over the ALJ's name.

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They are required by regulation to be published on the SEC's docket as the ALJ's decision.

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Law clerks, secretaries, file clerks, gardeners do not publish decisions of the United States in their own name on the SEC's docket or any other agency.

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Legally, the commission may review, but it does not review.

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And the Bandimir Court, in footnotes 25 and 36, made this point very clearly.

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There is nothing submitted by the commission that says they do review.

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They may review, but they do not.

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And 90% of the ALJ decisions rendered in this agency are never reviewed by the ALJ.

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This is why I asked you the question I did a few minutes ago.

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Your argument seems to be that we can look not just at the statute, but at practice and regulations.

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And if all of that shows that there's significant authority, then the person at issue can be an officer.

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Well, what if the statute grants the person in that position broad authority, but the regulations

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in the practice say that the person will not exercise that authority.

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And let's suppose the SEC had a regulation that said that ALJs can do nothing more than preside over depositions and hear evidence.

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Are they still an officer?

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Your Honor, I would submit that presiding over depositions and hearing evidence and deciding on the admissibility of evidence, therefore shaping the administrative record.

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Let's make it easy.

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They don't even do that.

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If somebody has an objection, then they call an SEC commissioner, and the commissioner decides the rules of the objection.

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Judge Wilkins.

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To answer your first question, if the statute gives them the authority, that authority must be exercised by a constitutionally competent officer and the agency cannot by regulation change the status of the officer.

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If the Congress has vested powers in an individual,

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then those powers must be exercised by a constitutional officer, whether or not they are rated.

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Can I ask a question about that?

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So that sounds like it's a statutory grant of authority that's dispositive.

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So as I read the statute here, with respect to the SEC, which is 78D1A, it grants potential authority not only to administrative law judges, but also to employees.

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Yes.

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So would that mean that because employees can potentially be the repository of the delegated authority, that every employee also is an officer?

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No, Your Honor, because you have to read that delegation in conjunction with APA Section 556 and 557, which makes clear that hearings on the record can only be conducted by an agency, a member of an agency, or an administrative law judge.

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So that while the SEC organic statute allows delegation to other things, for example, the ministerial finality orders that Judge Pillard referred to are entered by the clerk of the commission.

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I don't think he's an officer or the secretary of the commission.

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I don't think he's an officer.

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He is just conducting, just like the clerk of a court may enter a mandate.

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This point, though, in the organic statute separating administrative law judges from employees is another indicium of congressional intent to say that law judges are not employees.

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So your view, it doesn't matter what the agency says about the ALJ's role.

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All we have to look at is this statute and the APA.

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And we know just from those two that ALJs and the SEC are officers.

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We know that here, Your Honor.

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We have a series of hypothetical questions whether the agency could limit powers.

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And I'd like to stress that the importance under the Supreme Court's cases is the powers that the officer has, not the powers that they don't have.

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You know, the government has an argument that the touchstone is this or the touchstone is that.

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There is no constitutional touchstone, because if there were, you'd have a roadmap for evasion by Congress.

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What there is is a collection of powers.

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The court, the Supreme Court, has looked at practice.

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For example, in the Rider case, the court found the highest military court's deferential standard of review in a judicial decision rather than in a statute or regulation, which is the same as we have in this case.

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And therefore, Rider's controlling on that point.

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The Commission doesn't ever redo the trial and hear the witnesses, does it?

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The Commission has the authority to do that.

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It has never done that, in my knowledge, since the Exchange Act was adopted in 1934.

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For the credibility of the witnesses,

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is assessed solely by the administrative law judge.

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Judge Kavanaugh, in fact, in this case at JA65, the commission remanded the administrative law judge, stressing the, quote, vital role that the administrative law judge plays in shaping the record and saying that the commission's review is, quote, no substitute for the law judge's assessment of witness credibility and demeanor and so forth.

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And the commission gives

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great deference, in fact, near total deference.

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I'm not aware of any Commission decision that has ever overturned a law judge determination of factual finding based on credibility, so that we have a deferential standard of review.

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We also have the law judge... Mr. Perry, did Mr. Lucia seek Commission review of any question of credibility in this case?

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We did, Judge Pillard, not that it would matter for the ultimate outcome here, but we challenged the ALJ's determination that based on the two seminar attendees' testimony that either materiality or science was found because the overwhelming evidence in the record was to the contrary.

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And the commission simply adopted the ALJ's determination as to those witnesses as part of its opinion.

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And that's at JA-115 is the commission opinions, and 105, I believe, is the ALJ's.

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determination as to credibility.

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I was just going to say, you were pointing us to 557, but under 557, on appeal from or review of the initial decision, the agency has all the powers which it would have in making the initial decision.

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So the commission actually has authority to call witnesses, to make credibility determinations, to redo anything it feels that it should, no?

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The commission has that authority.

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It has never exercised it, to my knowledge, Judge Piller.

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Mr. Perry, I want to ask you about the effect of free tag on this case.

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I agree with you that free tag properly read does not require final authority.

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I agree with you about that.

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And I also agree with you at a certain level that the STJs there look a lot like the ALJs here.

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But what about the court's emphasis in Freetag on the fact that the tax court was an institution that exercised judicial authority?

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It said that it was like a district court, and it said it could punish contempt by fine or imprisonment.

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It could subpoena witnesses.

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And it pointed out that its actions are reviewed by the Court of Appeals as if it's a district court, and it compared that to our review of administrative agencies under the APA.

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In other words, and these STJs could exercise the full power of the tax court.

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So when we think about free tag and its impact here, don't we have to

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give a lot of weight to the fact that the tax court is just a very different institution than the SEC, and the employees or officers within it have very different powers, and that we need to be careful about extending free tag in a way that would affect all other non-judicial administrative agencies.

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Judge Tatel, the Supreme Court has not identified or distinguished among the branches.

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It has held that Article 1 adjudicators are officers in Seibold, which is the judges of elections, and in Freytag.

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It's held that Article 2 adjudicators are officers in Ryder, Weiss,

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and Edmund.

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It's held that Article 3 adjudicators are officers in Hennan, the clerks, and Alred and Gobart, the commissioners, who are now magistrate judges.

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And in all of those cases, the branch in which the power is nominally assigned does not matter so much as what the powers are.

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And why did the court make such a deal, such a big deal, in free tag of distinguishing the tax court from other administrative agencies when the issue before it

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was whether these STJs were, in fact, inferior officers or not.

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I mean, it must have had some relevance to the court's thinking about this issue.

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The opinion has two separate parts.

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The part that had discussed whether the tax court is an Article 1 court of record was joined only by five justices.

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There was a 5-4 decision on that point.

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And that mattered only to the appointing authority, whether or not the tax court could appoint the officers.

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The court was 9-0 on whether the STJs were officers.

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That was the separate part of the opinion in which the judicial power has no role, the contempt power has no role.

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That's a totally separate question.

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And here we know the appointing power rests in the SEC because 31-05 of the APA says the agency shall appoint.

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Judge Taito, another point is- Why do you say the contempt power had no role in that part?

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Because I thought the court said

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In describing what the STJs do, they take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders.

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Judge Finnevosson and SECALJs can do all of those things.

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And this is a very important point.

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The tax court had contempt power by statute.

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The STJs did not have contempt power.

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So you've pieced your way through the statutes, and I don't necessarily disagree with you.

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That language is in there about what the STJs can do, and I guess it's possible that that's because all of the tax court's authority was delegated to STJs?

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That's not correct, Judge Trinivasan.

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If you look back through what the government said in that case, the STJs had a limited subset of the tax court's authority.

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When the court said power to enforce compliance with discovery orders,

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They were saying, issue subpoenas, require attendance at depositions, and impose consequences on the parties, including default judgments and adverse evidentiary findings, for failure to comply with those things.

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SECALJs have exactly the same power under the SEC's regulations and the Organic Act or the Exchange Act.

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They can issue subpoenas.

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They can require attendance at depositions.

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If you don't show up at a deposition and you're a party, the court, the ALJ can find facts against you or can interrupt default judgment.

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It may not have contempt power in sense of fining or imprisonment, but that's not surprising because in general, contempt power is for the Article III courts to exercise.

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And if there's one thing we know for certain, these judges are not in Article III.

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I thought Article I courts did have contempt power.

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Your Honor, only by statute, Your Honor.

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The notion of an Article I court, of course, is not constitutional.

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It's creative.

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And by statute, Article I courts and Article II courts, you know, some military judges have contempt power, some don't.

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The court has never said that contempt, and certainly they've never said what the SEC says in its brief in this court, that contempt is the hallmark of an adjudicatory official.

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We know that's false.

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The commissioners in Alredd and Gobart, the clerk in Hennan, did not have any contempt powers, but they were judicial officers, just like the ALJ's judicial officers.

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So can I just ask just on the details of Freytag, so this last clause that says the power to enforce compliance with discovery orders, if we assume that that's referring to the tax court,

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The tax court's authority over power to enforce compliance with discovery orders is different from the authority that SEC ALJs have.

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STJs could directly enforce them in the manners I've just said by default.

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But the tax court?

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Or STJs can apply to the tax court for a contempt sanction, just like an ALJ through the SEC can apply to a district court.

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I guess I'm asking a different question, which is if we just assume that if we compare the tax court's authority in Freytag

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with SECALJ authority.

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And I know that you think that's an inapposite comparison.

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I get that.

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But I'm just saying, if we assume that that's a relevant comparison, then there would be a difference.

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Yes, Your Honor, because administrative agencies, including the SEC, do not have contempt powers.

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That's one of the differences.

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The institutional differences between Article II and Article III is that contempt doesn't come with the executive for good and proper reasons.

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The prosecutorial function is already vast and dangerous enough.

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We wouldn't want to give summarily summary powers to executive officers

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without the independence check of Article 3.

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Two quick questions about the consequences of agreeing with you.

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One is, I think you said in your brief that we can confine a decision to just the SEC ALJs and that wouldn't affect the thousand or so other ALJs who work for independent agencies.

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Is that right?

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Judge Tatel, the question in this case is... Well, how would that be?

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Your Honor, first, this is a petition for review, so the only question before the court is the SEC ALJs.

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I understand the point... I understand that.

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That's why I asked you the question about the implications for other ALJs.

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When we issue an opinion that states a principle about whether these ALJs are inferior officers, we need to think about whether or not that affects every ALJ that works for an independent agency.

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As best we can tell, and I'll let Mr. Stern give the government's view, there are 142 ALJs in the federal system that conduct adversarial enforcement proceedings subject to 556 and 557 of the APA.

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142 ALJs in 24 agencies.

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The government hasn't put that information in the record.

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We have done that in our research.

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There's nothing in the record.

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And again, this is a petition for review.

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I want to be careful of not going outside the record without telling you that's what I'm doing.

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But as best we can tell, there are 142 judges that would be affected.

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The other judges, the vast majority of them, are Social Security judges.

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The government, the United States Justice Department, takes the position in the next case at page 18 of its brief that the fact that those judges are engaged in the doling out of government largesse rather than executing enforcement powers on behalf of the president makes all the difference.

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I don't know if that's true or not, but the government has taken that position.

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And for present purposes, it seems to me it's at least an arguable distinction.

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We tried to find, in response to your concern, Your Honor, the number of judges that are actually like the SECALJs.

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And I believe that number is 142.

[00:19:49] Speaker 03:
Mr. Perry, I'm curious.

[00:19:51] Speaker 07:
And what about, I just had one more question about the implications.

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The dissenter in the 10th Circuit case raised the question of whether under free enterprise fund, if they're inferior offices, they would lose their tenure protection.

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Do you have a view about that?

[00:20:06] Speaker 03:
Yes, Your Honor, I think it's a very difficult and consequential constitutional question.

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It is not the same question as in free enterprise fund as the Supreme Court made clear in footnote 10.

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It turns in part on the functions of the officers.

[00:20:19] Speaker 07:
Doesn't it just turn on whether they're inferior officers?

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Your Honor, if they're an inferior officer appointed by a principal officer who has tenure protection, how can, don't you have dual layer tenure protection then?

[00:20:37] Speaker 03:
Your Honor, in this case, you actually potentially have triple layer, because the appointing authority is the SEC.

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The removing authority would be either the SEC or the MSPB, or both in conjunction.

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The SEC has been assumed to have removal protection, although never decided.

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The MSPB does have statutory removal protection.

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And there's a further constitutional question, I would submit, whether the Congress can split the appointing authority from the removal authority.

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I think that is a good question.

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That's what happened in the free enterprise fund.

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raised two points.

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One, that they might be employees rather than officers, and even if they were officers, that they exercise adjudicative authority, and therefore that might be a distinction.

[00:21:15] Speaker 06:
I don't know whether that will turn out to be a distinction, but there were two things listed in that footnote.

[00:21:20] Speaker 06:
I agree with that.

[00:21:20] Speaker 07:
So what was your answer then to my question?

[00:21:23] Speaker 07:
How do I think about the implications of free enterprise with this case?

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Assuming I agree with you that they're inferior officers, do they lose their tenure protection or not?

[00:21:33] Speaker 03:
Your honor, I think there will be litigation over that.

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I think that is a significant question.

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It hasn't been briefed in this case.

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It hasn't been raised in this case.

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I'm not trying to duck the question.

[00:21:41] Speaker 07:
No, I know.

[00:21:42] Speaker 07:
But you're asking us to extend a free tag to how many?

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120?

[00:21:47] Speaker 07:
What did you say?

[00:21:48] Speaker 03:
142, your honor.

[00:21:50] Speaker 07:
142 ALJs for independent agencies.

[00:21:54] Speaker 07:
Don't you think we should know what the consequences of that are in terms of the possibility that they'll lose their tenure protection, given that free enterprise seems to suggest that they will?

[00:22:07] Speaker 03:
Judge Tatel, if following the Constitution has consequences, then consequences must be faced.

[00:22:12] Speaker 03:
The answer is not to avoid following the Constitution.

[00:22:15] Speaker 03:
If they are officers, then they are officers.

[00:22:17] Speaker 03:
And all things follow.

[00:22:19] Speaker 07:
My question was whether or not, as we think about whether to extend free tag beyond the tax court,

[00:22:28] Speaker 07:
We should consider the fact that if we do, we might be raising significant constitutional questions with respect to the other 120 ALJs.

[00:22:36] Speaker 03:
Judge Datil, first, it's not an extension, it's an application.

[00:22:39] Speaker 03:
There's no extension required because these ALGs are so close within FRETAC.

[00:22:45] Speaker 03:
There will be questions.

[00:22:46] Speaker 03:
It does not mean the ALJs will lose their for-cause protections.

[00:22:49] Speaker 03:
It may mean the MSPB loses its for-cause protections, for example.

[00:22:53] Speaker 03:
It may be that this Court or the Supreme Court would decide that Congress cannot split the appointing and removal points.

[00:22:59] Speaker 03:
I agree with you, Your Honor.

[00:23:00] Speaker 03:
These are hard questions.

[00:23:01] Speaker 03:
These are significant constitutional questions.

[00:23:03] Speaker 03:
They would be appropriately litigated in another case.

[00:23:07] Speaker 03:
They are not presented here by either party for good reason because they're not presented.

[00:23:12] Speaker 03:
And after I come back to the statute, the appointing power, which is all that is at issue here, is specified in the APA.

[00:23:18] Speaker 03:
Section 3105 says each agency shall appoint its ALJs.

[00:23:22] Speaker 03:
The SEC has never disputed that it could come into compliance with the Appointments Clause without changing a single statute of regulation.

[00:23:29] Speaker 03:
Whether that has removal consequences,

[00:23:32] Speaker 03:
I agree is important.

[00:23:34] Speaker 03:
I agree is likely to engender litigation.

[00:23:36] Speaker 03:
I personally think, for what it's worth, there are constitutional defects through and through this system that this is not the first case the court will see.

[00:23:43] Speaker 03:
But ruling them not to be officers is not the way to end that litigation because you'll still have the conflict with the Bandimere decision where the 10th Circuit properly held they are officers.

[00:23:52] Speaker 03:
If that conflict remains, it will have to go to the Supreme Court for resolution.

[00:23:55] Speaker 02:
Mr. Perry, you refer several times in your brief to this ALJ system as creating a pet court of the SEC and allowing the SEC to litigate on its home

[00:24:09] Speaker 02:
court, but it seems like the remedy that you would be seeking here, which is to make the SEC ALJs more directly politically accountable to the head of the agency, would run in exactly the opposite direction from a cure for the what you call pet status of this court.

[00:24:28] Speaker 03:
Judge Pillard, the Appointments Clause is about accountability and transparency, not independence.

[00:24:32] Speaker 03:
And it's important for the public, for respondents in enforcement proceedings, for the commission itself, and for this court, which reviews more of these cases than any other judicial body, to understand the line of authority that runs from the commission of the ALJ.

[00:24:45] Speaker 03:
The ALJ, for example, in this case, Cameron Elliott, Judge Elliott, has never been reversed by the commission at the time we filed this petition for review.

[00:24:51] Speaker 03:
He couldn't get any more closely tied.

[00:24:53] Speaker 03:
And the court should know why.

[00:24:54] Speaker 06:
That problem, to follow up on Judge Pillard's question, that problem's going to be exacerbated

[00:24:58] Speaker 06:
by the remedy here, potentially, because they're going to be appointed directly by the SEC commissioners.

[00:25:04] Speaker 06:
And presumably, that's even more of a captive court.

[00:25:09] Speaker 03:
Judge Kavanaugh, the basic premise of the Appointments Clause is there should be no more than one degree of separation between the president and the officers of the United States.

[00:25:17] Speaker 03:
Right.

[00:25:18] Speaker 06:
I understand your legal theory.

[00:25:19] Speaker 06:
It's just there's a mismatch, arguably, between the rhetoric, some of the rhetoric, and the legal theory.

[00:25:24] Speaker 03:
Judge Kavanaugh, the- It's more of a Crowley-Benson rhetoric.

[00:25:29] Speaker 03:
As I said in the press release, announced that they are independent judicial officers.

[00:25:32] Speaker 03:
That's the position they used to take in this court.

[00:25:35] Speaker 03:
Now they're saying they're employees, like file clerks and gardeners, and they're not independent at all.

[00:25:39] Speaker 02:
The theory, Mr. Perry, is if an agency with everyone in which has to be accountable to the president wants to know what non-policy related people, non-political people would decide

[00:25:55] Speaker 02:
They can set up something that looks independent.

[00:25:58] Speaker 02:
They can say, let's have a jury look at this.

[00:26:00] Speaker 02:
Let's call them in, give them this case, and see what these independent people would come up with.

[00:26:06] Speaker 02:
At the end of the day, we have to make the decision, we the commission.

[00:26:10] Speaker 02:
But we would like to have some input.

[00:26:13] Speaker 02:
from an entity and here it's the ALJ system that looks independent.

[00:26:18] Speaker 02:
Let me just ask you the question, Mr. Perry, the question I have for you is what is the power that these ALJs have to bind

[00:26:28] Speaker 02:
third parties or the government itself.

[00:26:31] Speaker 02:
And that's the phrase from the Bradbury OLC opinion.

[00:26:36] Speaker 02:
What makes someone an officer is the authority to bind third parties or the government itself.

[00:26:42] Speaker 02:
What authority do these ALJs have to do either of those things?

[00:26:44] Speaker 03:
So one simple example, they can issue subpoenas which compel attendance of witnesses, third party witnesses, government witnesses, party witnesses, with consequences of non-appearance.

[00:26:55] Speaker 03:
They issue oaths and affirmations.

[00:26:56] Speaker 02:
People don't show up and there's no consequence.

[00:26:59] Speaker 03:
That's not correct, Your Honor.

[00:27:00] Speaker 03:
If it's a party, you get a default judgment issued against you.

[00:27:03] Speaker 02:
And if the default judgment is issued against you and you have to go to the Commission to make that effective?

[00:27:08] Speaker 03:
Your Honor, and the Commission is not going to reverse that because you violated the rules.

[00:27:11] Speaker 02:
They have to go to the Commission to make it effective, no?

[00:27:13] Speaker 03:
They can rule on the admissibility of evidence, the initiated decisions.

[00:27:16] Speaker 03:
And as to your former point, the framers identified this.

[00:27:19] Speaker 03:
I just want to be clear on this.

[00:27:20] Speaker 10:
I'm sorry, Judge Miller.

[00:27:21] Speaker 10:
To make sure I understand, can they or can they not independently enter the default judgment now?

[00:27:27] Speaker 03:
They can independently issue a default judgment.

[00:27:29] Speaker 10:
The Commission has said that it... Can they enter one that has operative effect without the Commission's sign-off or approval or acquiescence?

[00:27:36] Speaker 03:
Yes, under the statute, the Commission said that in Alchemy Ventures.

[00:27:39] Speaker 03:
The Commission has said that its preferred method is that they issue an initial decision, but the Commission expressly confirmed that all default judgments are judicially enforceable and did not disavow any of the previous ones.

[00:27:50] Speaker 02:
Which comes to the Constitutional... That was a remedial ratification, Mr. Perry.

[00:27:54] Speaker 02:
That was not a decision of law.

[00:27:56] Speaker 02:
And in fact, I wonder what the remedy is here, if the Commission

[00:28:00] Speaker 02:
If these ALJs are found to violate the Appointments Clause, wouldn't under Buckley and our precedence the remedy be that the Commission could ratify?

[00:28:10] Speaker 03:
No, Your Honor, Ryder and so forth.

[00:28:12] Speaker 03:
If I could reserve the remainder of my time.

[00:28:15] Speaker 09:
All right, Mr. Stern.

[00:28:45] Speaker 05:
Judge Henderson, may it please the court.

[00:28:48] Speaker 05:
I'd like to begin with the court's permission where the court left off with my friend Mr. Perry about the issues of binding and accountability.

[00:29:05] Speaker 05:
there should be no doubt where accountability for a decision of the commission lies.

[00:29:14] Speaker 05:
It lies with the commission itself, which consists of members who were appointed by the president with the advice and the consent of the Senate.

[00:29:28] Speaker 05:
And that follows from the commissions

[00:29:31] Speaker 05:
The organic statute commission is accountable in a court of law, as it is in this case, as well as in the court of public opinion.

[00:29:44] Speaker 05:
Now, the organic statute which Council has stressed

[00:29:50] Speaker 05:
simply a delegation statute.

[00:29:52] Speaker 05:
It's not particular to administrative law judges.

[00:29:57] Speaker 05:
It's the commission's general, it's the general authority of the commission to delegate.

[00:30:04] Speaker 05:
And what it says is that the commission has authority to delegate certain but not all functions, and it at all times retains the power to take back

[00:30:18] Speaker 05:
anything that it delegates, and it also says that nothing that is delegated can become the, can be deemed statutes where the action of the commission, unless the commission declines, is the word in the statute, unless the commission declines to exercise its right to take back and review and make its own determination.

[00:30:46] Speaker 01:
So in your view, is there anything that the SECALJ can do of his or her own force to bind parties or the government itself without the commission's imprimatur?

[00:30:58] Speaker 05:
No.

[00:30:59] Speaker 01:
At least two of the examples that have been cited are default judgments, and then there's the question about the contempt power.

[00:31:06] Speaker 05:
Yeah, the, to take the default judgment, first judgment of ASIN, the, in alchemy ventures, the commission said that certainly as a prospective matter, even a default judgment would be, could not become final and take effect without the commission issuing its own finality order.

[00:31:29] Speaker 05:
But also the default judgment, I mean, let's understand what that means and why you would even need

[00:31:36] Speaker 05:
you know, whether you might not even need an officer in such a case.

[00:31:42] Speaker 05:
I mean, this is a case where nobody shows up.

[00:31:45] Speaker 05:
I mean, if nobody shows up, what you're recording is the absence of a contest.

[00:31:52] Speaker 05:
But whatever the case may be, and whoever you could delegate such an issue to, the Commission has said that it

[00:32:04] Speaker 05:
that even orders in such cases only become commission orders upon the issuance of the commission's own finality order.

[00:32:16] Speaker 10:
And I would like to know... Just to clarify, is there anything that the ALJs can do that will have operative legal effect

[00:32:25] Speaker 10:
on third parties or binding the government based on SEC inaction, or does there have to be affirmative SEC action in each case?

[00:32:36] Speaker 05:
There has to be a finality order in each case and it should be stressed that any party or any third party, not the commission itself, whether a friend has cited one case in his brief in which the commission declined to take review of an enforcement decision.

[00:32:56] Speaker 08:
But this emphasis on finality, that was an alternative holding in Freitag, right?

[00:33:01] Speaker 08:
I mean, that's not the sole holding in Freitag.

[00:33:04] Speaker 05:
Oh, no, quite right, Your Honor.

[00:33:07] Speaker 05:
I mean, I think finality is crucial in Freitag, but I don't want to sort of turn away from the court's other observations in that case.

[00:33:16] Speaker 05:
What I do think is important here, though, if I'm happy to move to Freitag,

[00:33:23] Speaker 05:
But I'd like to just clarify, if I could, just the way that the Commission operates and just to clarify that anyone who seeks the Commission's review is dissatisfied with an ALJ decision.

[00:33:40] Speaker 06:
But the Commission never does the trial.

[00:33:44] Speaker 06:
The Commission never makes the credibility judgments that are critical in the trial.

[00:33:50] Speaker 06:
The Commission never makes the evidentiary rulings

[00:33:54] Speaker 06:
that are critical to the outcome of the trial.

[00:33:58] Speaker 06:
Credibility and evidentiary rulings are essential in any fact-finding situation, and the Commission does not do that.

[00:34:05] Speaker 06:
The judge does that.

[00:34:07] Speaker 05:
I mean, the Commission specifically, in its discussion, in this case at JA 159 through 61, the Commission talks about what it actually does.

[00:34:17] Speaker 06:
Does it ever hear live witnesses?

[00:34:19] Speaker 05:
I don't know the answer to that.

[00:34:23] Speaker 06:
I think the answer is no.

[00:34:24] Speaker 06:
And that is an obvious division of authority that makes sense in terms of commission practice.

[00:34:31] Speaker 06:
Why would it redo the whole trial?

[00:34:33] Speaker 06:
But it also underscores my concern about this case is that fact-finding trials, livelihoods are affected, determined based on the credibility judgment based at the trial and also based on the evidentiary rulings.

[00:34:50] Speaker 06:
is making those determinations.

[00:34:52] Speaker 06:
And the question is whether that one person in making those determinations is exercising significant authority, recognizing that that's an undefined term, but that's what we have to decide, I think.

[00:35:02] Speaker 05:
I do think it's important what, I mean I don't know, I mean the record does not have the empirical evidence of the number of cases in which a commission adds to the record, disagrees with evidentiary determinations.

[00:35:18] Speaker 05:
What we do know is that the commission review has the power

[00:35:23] Speaker 05:
to review de novo, all questions of fact as well as questions of law.

[00:35:29] Speaker 06:
You can't do credibility without seeing.

[00:35:31] Speaker 06:
You would agree, I think, that assessment of credibility is a critical function of trial decision-making.

[00:35:37] Speaker 05:
I believe it's in K versus FCC that this court specifically holds that a court that an agency

[00:35:45] Speaker 05:
sort of head, has the power to review credibility determinations.

[00:35:51] Speaker 01:
I thought your argument was, in response to Judge Kavanaugh's question, isn't your position that even if it's never happened, if it's never in the history of the SEC happened that there's been a credibility reassessment by the Commission itself as opposed to the ALJ, under your view, query whether it's ultimately right or wrong, but under your view, the withholding of the legal authority to review it is enough.

[00:36:14] Speaker 05:
That's correct.

[00:36:16] Speaker 05:
I was merely clarifying that I guess maybe I misunderstood the question.

[00:36:22] Speaker 06:
But you understood it.

[00:36:23] Speaker 06:
I just think the fact that they have

[00:36:28] Speaker 06:
the reserved residual authority to review or conduct a new trial.

[00:36:32] Speaker 06:
Reviews, I would think, not good enough for people who claim that the credibility determinations are essential to the outcome, which of course they are.

[00:36:40] Speaker 05:
I mean, the Commission expressly states in its discussion that if it finds that a credibility determination is at odds with the rest of the evidence, it is not going to be bound by it.

[00:36:50] Speaker 05:
And it certainly has that power.

[00:36:53] Speaker 06:
It happens very rarely

[00:36:54] Speaker 06:
of course, and it can only happen very rarely because the commission's not having a new trial.

[00:37:02] Speaker 05:
Your Honor, again, I do think that our position is that outlined by Judge Renovason.

[00:37:09] Speaker 06:
Right, I think that's right.

[00:37:10] Speaker 06:
He's saying your position is that it doesn't matter.

[00:37:12] Speaker 06:
My point is we're supposed to determine

[00:37:15] Speaker 06:
under the Supreme Court's test whether this person, this judge, is exercising significant authority.

[00:37:21] Speaker 06:
We have some precedent that helps give us some contours of that, but otherwise that's the question.

[00:37:26] Speaker 06:
And my point is, in a trial, the person who makes the credibility determinations makes the evidentiary rulings.

[00:37:34] Speaker 06:
and is the only person who ever does those two things, subject to some paper review later, paper review, it seems like significant authority to me, especially when you're doing things like lifetime bars and massive sanctions against people.

[00:37:52] Speaker 05:
Whatever, I mean, we not only have no empirical evidence on how often a commission deals and rejects matters of credibility, but we know for sure that the commission has the power to disagree with evidentiary determinations.

[00:38:11] Speaker 05:
There's no restriction.

[00:38:13] Speaker 06:
It's a deferential standard, isn't it?

[00:38:15] Speaker 05:
No.

[00:38:16] Speaker 05:
No, there's not, Your Honor.

[00:38:17] Speaker 06:
Credibility?

[00:38:17] Speaker 05:
The one area where the commission is likely to defer is credibility, not on any other evidentiary determination.

[00:38:28] Speaker 05:
And even with respect to credibility, if that's contrary to the rest of the evidence, the commission is going to reject the credibility determination.

[00:38:40] Speaker 10:
Can agency action, just the way the agency conducts proceedings, make someone an officer?

[00:38:47] Speaker 10:
I mean, if it turned out that the way the SEC was handling credibility determinations was deemed to be dispositive of whether they're an officer or not, can the agency practice have that effect, or do we have to look at whether?

[00:39:01] Speaker 10:
Congress created them as officers, and if the agency's doing something wrong, that's for the agency to fix.

[00:39:07] Speaker 05:
I think that one would look to what the statute, what the power is, because that also goes to the question of whose decision it is and who's accountable.

[00:39:22] Speaker 05:
If the SEC issues decisions that are reversed by this court upon looking at substantial evidence,

[00:39:29] Speaker 05:
It's the SEC's decision that's being reversed.

[00:39:33] Speaker 05:
The SEC is accountable in this court, in the Supreme Court.

[00:39:36] Speaker 05:
It's accountable to Congress.

[00:39:38] Speaker 05:
Nobody thinks that the Commission's ALJs are the accountable party.

[00:39:43] Speaker 05:
And although there's a reference to being sentenced by an ALJ, no action of an ALJ, no sanction in this case or any other case, takes effect upon the issuance

[00:39:57] Speaker 05:
of an ALJ sanction and with respect to the power to enforce a discovery order, the ALJ not only can issue a subpoena, lots of people can issue subpoenas, the ALJ has

[00:40:14] Speaker 05:
no power whatsoever to enforce the subpoena.

[00:40:18] Speaker 05:
As the SEC explained in its decision, before a subpoena can be enforced, that has to go to the commission itself, and then the commission has to go to district court.

[00:40:32] Speaker 05:
And it's only at the point when a district court issues an order to enforce a discovery order.

[00:40:39] Speaker 10:
What about contempt?

[00:40:40] Speaker 05:
Contempt is a possibility.

[00:40:42] Speaker 10:
What about contempt?

[00:40:43] Speaker 10:
What is the authority to control the proceeding that the ALJ has?

[00:40:49] Speaker 05:
As the Commission explained, the power is to tell someone to leave the room.

[00:40:55] Speaker 05:
I mean, literally, that's the power.

[00:40:58] Speaker 05:
And that's immediately appealable to the commission.

[00:41:01] Speaker 10:
But that takes effect right then.

[00:41:04] Speaker 10:
That takes effect.

[00:41:05] Speaker 05:
It's immediately appealable.

[00:41:07] Speaker 05:
That's the extent of it.

[00:41:10] Speaker 06:
Mr. Stern.

[00:41:11] Speaker 06:
Magistrate judges, how are they officers under your theory of this case?

[00:41:15] Speaker 06:
And if so, why?

[00:41:17] Speaker 05:
The magistrate judges do have contempt power.

[00:41:23] Speaker 05:
They've got all sorts of authority, including issuing warrants.

[00:41:27] Speaker 05:
They can, they have got a list of it somewhere.

[00:41:31] Speaker 05:
It's not in front of me, but even, but Gobart has a partial list of the powers that existed at that time for the commissioners.

[00:41:41] Speaker 05:
There are more powers now.

[00:41:43] Speaker 05:
There are powers that a ALJ

[00:41:46] Speaker 05:
does not have.

[00:41:48] Speaker 05:
They are some sort of subset of the powers of a court of law.

[00:41:55] Speaker 05:
And with respect to the contempt power, and the Supreme Court really has said that the contempt power is the hallmark of a court of law, and it's quite true that the reason that Article I courts have the powers of an Article III court is not because of Article III, it's because of the statute that

[00:42:15] Speaker 01:
So on Article 1, so there is that language in Freytag that says that the SGJs have the power to enforce compliance with discovery orders.

[00:42:24] Speaker 01:
And there's a question as to which that applies to the STJs or to the tax court.

[00:42:29] Speaker 01:
So if it was, if what the Freight Tag Court was looking at, I don't know if it's Freight Tag, Freight Tag or whatever, I don't know how to pronounce it, but if what the court was looking at was the power of the STJs, do you see a difference between the power of the STJs as to the ability to enforce compliance with discovery orders and Freight Tag versus the power of SEC ALJs to do the same thing here?

[00:42:52] Speaker 05:
We do our understanding.

[00:42:55] Speaker 05:
We haven't been able to ascertain exactly what

[00:43:00] Speaker 05:
whether in the one class of cases that was an issue at Freitag that there, what exactly the contempt power is for an STJ.

[00:43:10] Speaker 05:
These arguments regarding the going back to the tax court to get a contempt enforced, I don't believe appear in petitioners briefs, so I'm not

[00:43:23] Speaker 05:
able to respond to them, but what I do think is important is that contempt and the language that's in Freytag about, you know, the sentence that talks about those powers especially is taken sort of verbatim from the Second Circuit decision that had previously addressed the orders and tried to track down the origin of that.

[00:43:45] Speaker 05:
It's very hard.

[00:43:46] Speaker 05:
to find it.

[00:43:49] Speaker 05:
But Freitag was a large part about, and I think Mr. Perry is correct, that most of the discussion of Freitag, and it's a separate discussion, but most of the discussion in Freitag is about whether the tax court is issuing, is exercising the judicial power.

[00:44:10] Speaker 05:
I'm sorry.

[00:44:14] Speaker 07:
I want to add, since you brought up Freytag, your position on Freytag is that Freytag requires final authority for someone to be an inferior officer, and that ALJs have no final authority, therefore they're not inferior officers.

[00:44:30] Speaker 07:
I didn't see, if I don't agree with that interpretation of Freytag, if I think that Freytag means that if you have final authority, you are an inferior officer, but you don't have to have it to be one if you have significant authority.

[00:44:46] Speaker 07:
If that's the way I read it, do you have an argument, and I didn't see it in your brief, but do you have an argument that if that's the proper reading of Freytag, that SEC ALJs are still not

[00:44:59] Speaker 07:
inferior officers because they don't exercise significant authority?

[00:45:03] Speaker 05:
Yes, Your Honor.

[00:45:04] Speaker 07:
And what is that?

[00:45:05] Speaker 07:
I mean, our answer is just... You have to put it in turn just to help out with your answer.

[00:45:11] Speaker 07:
You need to answer my question in some way other than saying their decisions aren't final.

[00:45:16] Speaker 07:
Excuse me, Your Honor.

[00:45:17] Speaker 07:
I didn't hear the end of the question.

[00:45:20] Speaker ?:
Okay.

[00:45:20] Speaker 07:
So why aren't there, what is it about their authority, what is it about their activities that from which we can conclude they don't exercise sufficiently significant authority to qualify as an inferior officer?

[00:45:37] Speaker 05:
I think that, I mean, part of it is what we've been discussing with respect to the court's reference.

[00:45:44] Speaker 05:
I mean, one of the three or four powers cited by the Supreme Court is the power to enforce compliance with discovery orders.

[00:45:54] Speaker 07:
You're going back to finality now.

[00:45:56] Speaker 05:
No, no, Your Honor, we're not.

[00:45:58] Speaker 05:
You're not?

[00:45:58] Speaker 05:
No, that's one of the powers where the Supreme Court says, and I fully understand the differing views of Judge Williams and Judge Randolph in Landry about the relative importance to give to the finality ruling in Freitag and the sentence dealing with the other powers.

[00:46:19] Speaker 05:
And we're not trying to run away from that sentence.

[00:46:23] Speaker 05:
And we think that even taking, just focusing solely on that,

[00:46:28] Speaker 05:
That's where the court's reference to enforcing discovery orders comes in.

[00:46:34] Speaker 05:
The finality, and remember, nobody was disputing that the special trial judges were officers most of the time, and the government's argument was simply that in one class of cases where they could not issue the final orders, that they ceased to be officers for those purposes.

[00:46:56] Speaker 05:
And one of the Supreme Court's

[00:46:58] Speaker 05:
holdings at least, was that that's not true.

[00:47:03] Speaker 05:
If you are an officer who issues these final decisions as was conceded, you don't stop being an officer at the point where you do this other category of cases.

[00:47:15] Speaker 05:
But then when the court is talking about that other category of cases and it says, and it refers to

[00:47:23] Speaker 05:
the functions that the special trial judge is exercising there, one of the powers that it cites is the power to enforce compliance with discovery orders.

[00:47:37] Speaker 05:
So that's something that the court is looking at, not in connection with... I think that was necessary to the court's holding because it says they take testimony.

[00:47:47] Speaker 06:
That applies here, correct?

[00:47:48] Speaker 06:
They conduct trials, that applies here.

[00:47:51] Speaker 06:
They rule on the admissibility of evidence and have the power to enforce compliance with discovery orders.

[00:47:57] Speaker 06:
So they list four things, three of which you can see the ALJs here do, correct?

[00:48:03] Speaker 05:
But they do them, that's correct.

[00:48:05] Speaker 06:
And the next sentence says, in the course of carrying out these important functions, presumably meaning each of those functions is important, the special trial judges exercise significant discretion

[00:48:19] Speaker 06:
Again, that seems to apply.

[00:48:21] Speaker 06:
100% here too, significant discretion here for the ALJs on taking testimony, conducting trials, and ruling on the admissibility of evidence.

[00:48:29] Speaker 05:
But I think it was very much part of the court's analysis that all this was happening within a court of law.

[00:48:38] Speaker 06:
Maybe, but that's not what it says.

[00:48:40] Speaker 06:
Because it just lists those powers, says they're all important, says they involve significant discretion.

[00:48:45] Speaker 06:
So your whole case, and I understand why you're doing this, has to hang on that fourth one

[00:48:50] Speaker 06:
having been necessary, not just sufficient.

[00:48:54] Speaker 05:
Well, I think that the fourth one is particularly important because it is connected to the entire framework in which the court was examining the role of the special trial judge.

[00:49:11] Speaker 05:
I mean, the whole question there was whether someone who functioned in an Article I court

[00:49:17] Speaker 05:
and sometimes issued final decisions, sometimes did not, but was always issuing the array of powers that are vested otherwise in an Article I court, including the ability to call on the marshals to enforce an order, whether that person was an officer.

[00:49:39] Speaker 00:
We're really trying to figure out how this works with the SEC.

[00:49:44] Speaker 00:
And to follow up on Judge Tatel's question, what is the principle that's being articulated here?

[00:49:52] Speaker 00:
Because we get all down in the weeds with the specific things that these judges, that the judges or the ALJs can do.

[00:50:01] Speaker 00:
But the real question is we're trying to figure out how do we decide whether what they're doing is significant.

[00:50:11] Speaker 00:
And you seem to be saying it doesn't really matter what they do, how much authority they have, they run trials, they do all of this.

[00:50:19] Speaker 00:
But in the end, it's the commission that has the final say.

[00:50:25] Speaker 00:
So it's almost, I guess my question is,

[00:50:29] Speaker 00:
Can you articulate, then, what is the principle?

[00:50:33] Speaker 00:
Let's assume that they could do everything that a Article III judge could do, but the commission would have the final say.

[00:50:43] Speaker 00:
So would your argument be, then, their activities are not significant?

[00:50:48] Speaker 05:
I mean, I would have to see what that statute looked like.

[00:50:54] Speaker 05:
I mean, if it was really everything an Article 3 judge could do, subject to review, I mean, if in effect a court, I mean, if a statute were essentially to recreate a sort of judicial framework, I mean, I'm sorry, Judge Graham,

[00:51:11] Speaker 00:
I'm not trying to put this into the judicial framework.

[00:51:14] Speaker 00:
I'm just trying to get at how, what is the definition then for you of significance?

[00:51:21] Speaker 00:
Because if, let's say, they have enormous powers, incredible discretion, but at the end of the day, it still has to be signed off in some way by the commission, then as your argument, then their actions can't be significant.

[00:51:39] Speaker 00:
Because that seems like a finality argument.

[00:51:43] Speaker 05:
No, it's not a finality argument in the same sense, I think.

[00:51:49] Speaker 05:
I mean, there are a lot of people in the government who exercise very extensive authority, and they do it pursuant often to informal delegations.

[00:52:01] Speaker 05:
A chief of staff of a officer may be told sort of,

[00:52:06] Speaker 05:
I want you to go out, and I want these two parties who've got conflicting views to come to you, and I want you guys to try and reach a resolution of the matter.

[00:52:18] Speaker 05:
If you can reach one, that's great.

[00:52:21] Speaker 05:
If you can't, I'm going to have to decide it.

[00:52:24] Speaker 05:
The chief of staff doesn't thereby become an officer.

[00:52:27] Speaker 05:
Nobody's saying he's not really important.

[00:52:30] Speaker 08:
So if you're recognizing that finality is not the principle, what is the principle?

[00:52:34] Speaker 08:
How do we determine

[00:52:36] Speaker 08:
What is significant activity that makes someone an officer?

[00:52:42] Speaker 05:
I wish I had a bright line rule.

[00:52:45] Speaker 05:
I don't have one.

[00:52:47] Speaker 05:
I thought you were relying on the tabs.

[00:52:49] Speaker 07:
Well, your bright line rule is finality.

[00:52:51] Speaker 07:
That's your bright line rule in your brief.

[00:52:53] Speaker 07:
It's finality.

[00:52:55] Speaker 07:
That's why I asked you the question of whether, if that isn't the bright line rule, what is it?

[00:52:59] Speaker 05:
I think that the... Attempt then, right?

[00:53:02] Speaker 05:
I think... It's all you have.

[00:53:04] Speaker 05:
Your Honor, I think that when you... That there is... That what Frytag... And we know that Frytag doesn't... I mean, at least in the mind of the Chief Justice, didn't dispose of this case.

[00:53:18] Speaker 05:
You know, like a footnote 10 in free enterprise is any indication.

[00:53:24] Speaker 06:
If finality is not the dividing line, then I think your argument is someone who takes testimony, conducts trials, rules on the admissibility of evidence, and has the power to enforce compliance with discovery orders

[00:53:41] Speaker 06:
is an officer, but someone who takes testimony, conducts trials, and rules on the admissibility of evidence, but doesn't have the last power, is not an officer.

[00:53:50] Speaker 05:
I think within, and I think that I would add, within a court.

[00:53:57] Speaker 05:
I think, I mean, Freitag is all about... Did I correctly describe your argument?

[00:54:01] Speaker 05:
With the addition of in a court.

[00:54:05] Speaker 05:
I mean, I think that what we're saying is Freytag's very brief discussion about those four powers has to be understood within the context in which those... What does within a court add to it?

[00:54:21] Speaker 01:
Because this is what I'm not completely following, which is...

[00:54:24] Speaker 01:
If the purpose of being within a court, like within an Article I court, is that there's authority to issue a final decision, I think there's a terminological issue going on here because there's the final ultimate decision.

[00:54:35] Speaker 01:
That's one thing.

[00:54:35] Speaker 01:
And then there's things that you can do along the way to a final decision that can themselves be final.

[00:54:40] Speaker 01:
If we're talking about the category of cases in Freytag in which the special trial judge didn't have authority to issue a final ultimate decision, so we're only in the B4 category under the language of Freytag,

[00:54:51] Speaker 01:
then I thought that your argument was that even as to that category, a special trial judge still had significant authority as to that category.

[00:55:01] Speaker 01:
They couldn't issue a final ultimate decision, but they could do one final thing, which is with respect to contempt.

[00:55:07] Speaker 01:
And that was significant.

[00:55:09] Speaker 01:
That's different from SEC ALJs who can't do anything with respect to contempt without sign-off.

[00:55:15] Speaker 05:
Yes, that is certainly, again, I would just add that this is all within the framework of a court of law, but yes.

[00:55:22] Speaker 01:
That's what I don't understand.

[00:55:23] Speaker 01:
Within the framework of a court of law, what is that adding to it if the framework of a court of law, you're in a class of cases in which the court can't issue a final decision?

[00:55:32] Speaker 05:
I just think when the content power, the power to enforce compliance with discovery orders is mentioned,

[00:55:38] Speaker 05:
then what that means has to be understood with the way all of these things happen in a court of law.

[00:55:47] Speaker 05:
I'm sort of making much out of a comparatively modest point, but I do think that it is very significant that when Congress enacted the APA, it considered the whole question of whether to create a court, which it would have been a court, or whether to make the

[00:56:08] Speaker 05:
political heads of the agencies accountable for the decisions of their agents.

[00:56:14] Speaker 08:
But the Appointments Clause is not so limited.

[00:56:16] Speaker 08:
The language of the Appointments Clause is speaking in terms of officers.

[00:56:19] Speaker 08:
And to go back to Judge Brown's point, I'd like you to go back to a higher level of generality.

[00:56:24] Speaker 08:
What is the principle that we are supposed to follow to determine, if it's not finality, to determine whether someone is an officer?

[00:56:33] Speaker 05:
Well, one of them is, I think... Isn't that the inquiry?

[00:56:37] Speaker 08:
We ought to ask that first and then see if the SECALJs fit under that rubric.

[00:56:45] Speaker 08:
So what's the principle?

[00:56:46] Speaker 05:
I mean, the principle, I think, I mean, one of the principles is that which Judge Pillard cited from the 2007 OLC opinion about binding the ability to bind the government, the third parties, and exercising significant power of authority.

[00:57:06] Speaker 08:
But your chief of staff that you talked about earlier doesn't bind the government.

[00:57:10] Speaker 08:
He's not an officer.

[00:57:12] Speaker 08:
Could be an officer.

[00:57:13] Speaker 05:
He could be, but there's no reason for him or her to be an officer.

[00:57:19] Speaker 10:
Maybe it'll help me understand if I can have a comparison point.

[00:57:21] Speaker 10:
So contempt power is a trigger.

[00:57:23] Speaker 10:
Why isn't the admission of evidence the power to decide

[00:57:27] Speaker 10:
what comes into the record and what does not.

[00:57:31] Speaker 10:
An exercise of significant authority.

[00:57:34] Speaker 05:
Your Honor, even if that were, the commission has plenary power to decide what the record is.

[00:57:41] Speaker 10:
I'm asking, so is your position that that does constitute, if someone who has the power to control the admission of evidence, put aside the whole contempt thing, that could also qualify you as an officer if,

[00:57:55] Speaker 10:
if you could make the final decision on whether a piece of evidence comes in.

[00:58:00] Speaker 05:
I think that would be a harder case than this one.

[00:58:03] Speaker 07:
Mr. Stern, I asked Mr. Perry about the consequences of us ruling that the SEC ALJs are inferior officers, and he said that there are about 120 equivalent ALJs in other regulatory agencies.

[00:58:24] Speaker 07:
Do you think that that's about right?

[00:58:27] Speaker 05:
I don't know how that figure was arrived at.

[00:58:33] Speaker 07:
Would you want to just tell us, what do you think the consequences of our ruling that there in Ferocious will be throughout the rest of the ALJ community?

[00:58:43] Speaker 05:
I mean, I can't tell you what the end consequences will be.

[00:58:46] Speaker 05:
I know what the arguments are because some of them have already been made in both identified by

[00:58:54] Speaker 05:
the Bandimir decision and some of them have been made in the Timbervest case, which has been briefed in this court and has been held in abeyance pending the resolution of this case and the arguments... So you don't have a sense of... What about free enterprise?

[00:59:11] Speaker 07:
Do you have a view about whether it would... what impact it would have on ALJs who are inferior officers?

[00:59:19] Speaker 07:
Would they lose their tenure protection?

[00:59:20] Speaker 05:
Your Honor, I don't want to get out ahead of the Solicitor General on these questions.

[00:59:26] Speaker 05:
I mean, obviously, I mean, I think Judge Kavanaugh was right that there are two parts to the free enterprise footnote.

[00:59:33] Speaker 05:
The court both notes the Landry decision and also... Well, all it said in the footnote was it wasn't deciding this question with respect to ALJs.

[00:59:43] Speaker 07:
That's all.

[00:59:44] Speaker 07:
It just says it wasn't deciding it.

[00:59:45] Speaker 05:
That's correct, Your Honor.

[00:59:47] Speaker 07:
And that's why I'm asking you the question about whether you have a view about whether if they are inferior officers, they're subject to, they lose their tenure protection.

[00:59:57] Speaker 05:
Your Honor, I don't want to predict the outcome of those cases.

[01:00:01] Speaker 05:
I will tell you that that is the argument that is being made, that there is the argument.

[01:00:06] Speaker 05:
Mr. Perry suggests there's a triple for cause removal in this case.

[01:00:11] Speaker 05:
I mean, it should be understood, I mean,

[01:00:14] Speaker 05:
The way that ALJs are removed is an agency head has to go to the Merit Systems Protection Board.

[01:00:25] Speaker 05:
The removal operates by the Merit Systems Protection Board making a finding of cause after a hearing.

[01:00:35] Speaker 05:
And that's an upfront determination.

[01:00:37] Speaker 05:
That's not a remedy after an ALJ.

[01:00:40] Speaker 05:
has been removed.

[01:00:42] Speaker 05:
That's the way the whole removal process works up initial and that's consistent with the whole design of the APA.

[01:00:52] Speaker 06:
Two things on this one is presumably the government will argue based on footnote 10 if you were to lose this case that

[01:00:59] Speaker 06:
free enterprise fund does not kick in because they're adjudicative officers.

[01:01:04] Speaker 06:
Presumably, you'll make that argument.

[01:01:06] Speaker 06:
You may lose that argument.

[01:01:07] Speaker 06:
If you lose that argument, then the question will be which for cause removal goes.

[01:01:13] Speaker 06:
Presumably, that would be the MSP's, PB's protection, not the ALJ's.

[01:01:18] Speaker 06:
Although, again, who knows?

[01:01:21] Speaker 05:
Your Honor, I just recently read a law review article that suggested that the answer would be one that I'm sure this court would be happy with, which is that this court appoint all of the administrative court judges.

[01:01:34] Speaker 05:
I read that too.

[01:01:34] Speaker 06:
That's not, I don't think that's going to happen.

[01:01:37] Speaker 05:
This is why I'm reluctant to speculate on the remedies if we were unfortunately to lose a series of cases, and we hope that we win this case now so that we don't at least in the immediate future get to the remedy issue.

[01:01:52] Speaker 01:
On ALJs, as I understand Mr. Perry's argument, he was talking about 140 that excluded SSA ALJs.

[01:01:58] Speaker 01:
Has the government taken a position on whether SSA ALJs

[01:02:02] Speaker 01:
are inferior officers or employees.

[01:02:03] Speaker 05:
That case, I believe that there's been a first case that's been filed in a district court.

[01:02:12] Speaker 05:
I don't know that it's been briefed yet.

[01:02:16] Speaker 05:
There are, as we suggested, I think that Mr. Perry may have been referring to our initial panel brief where we sort of noted some distinctions that

[01:02:28] Speaker 05:
could be drawn.

[01:02:29] Speaker 05:
I mean, under this Court's Tucker Decisions Court indicated that there are three broad questions, sort of a finality and significance and discretion, and presumably this Court, if it were reviewing it, would be considering all of those questions in determining whether SSA ALJs were officers, but we haven't briefed that, and I'm a little

[01:02:58] Speaker 05:
sort of reluctant to go too much further than that.

[01:03:00] Speaker 02:
Mr. Chair, what's the government's position on what the relief would be were this Court to find that the appointment of the ALJs are inferior officers under the Appointments Clause?

[01:03:13] Speaker 05:
We haven't explicitly taken a position.

[01:03:19] Speaker 05:
We have not urged that it would be harmless error because this court's precedents suggest that it would not be, and that's not a question before the in-bank court.

[01:03:36] Speaker 05:
So whether a Solicitor General and some other proceeding

[01:03:41] Speaker 05:
want to argue that.

[01:03:42] Speaker 05:
I don't know.

[01:03:43] Speaker 05:
We have not argued it here.

[01:03:44] Speaker 04:
I'm trying to make sure I understand the government's position with respect to something that I asked your friend on the other side about, and that is

[01:03:57] Speaker 04:
Do we determine whether an ALJ here is an officer based solely on the statute or do we take into account what happens in the real world or what happens with what authority is delegated by regulation?

[01:04:21] Speaker 05:
I think that the primary question is the one that Mr. Perry identified, the statute, but what we know is that both at the statutory level and in the practice level that's discussed at length by the SEC, that in this case,

[01:04:40] Speaker 05:
With the SEC ALJs, we know what's going on.

[01:04:45] Speaker 05:
We think that the statute and the practice are entirely consistent.

[01:04:50] Speaker 05:
I just would like to just briefly note that there has been sort of a statistic sort of tossed around about, I didn't mean tossed around, I meant there's been a statistic offered that

[01:05:03] Speaker 05:
which I believe is based on petitioners like review of, it's not in the record, of SEC decisions that something like referring to the large number of finality orders that are issued in cases where there's not plenary review.

[01:05:24] Speaker 05:
And the SEC looked into my understanding is

[01:05:29] Speaker 05:
that in the very vast majority of those cases involve cases where nobody shows up in district court.

[01:05:36] Speaker 05:
There are frequently cases involving shell corporations where the whole issue is that no registrations had been made and that's

[01:05:45] Speaker 05:
And obviously, nobody then is seeking commission review.

[01:05:49] Speaker 05:
But what is clear is that whenever somebody does seek commission review, that they get it.

[01:05:56] Speaker 05:
And the commission's careful decision in this case, I think, is an example of the kind of review that they... Just one follow-up.

[01:06:04] Speaker 04:
Just I want to make sure I understand your response to another question that I asked your friend on the other side.

[01:06:12] Speaker 04:
Is the government's position that

[01:06:16] Speaker 04:
If we were to write an opinion that said an ALJ that has powers A, B, C, and D is an officer, that the SEC could promulgate a regulation saying that the ALJs will no longer exercise powers A, B, C, and D, but will instead just

[01:06:45] Speaker 04:
preside over depositions that then ALJs aren't officers anymore.

[01:06:51] Speaker 04:
I'm just trying to understand what your position is as far as what, if any, wiggle room the commission has by regulation to change the status of an official.

[01:07:06] Speaker 05:
Well, I mean, the commission can use ALJs in any manner that it sees fit consistent with the limitations on its delegation powers.

[01:07:18] Speaker 05:
So it could use, I'm not suggesting that this is a good idea, but I mean, at least in theory, it could, as Your Honor says,

[01:07:28] Speaker 05:
sort of put them in more of the role of a special master, have them preside over hearings, not make various kinds of findings.

[01:07:38] Speaker 05:
I mean, it would really depend what this court thought was the ABCD of what could not be done consistent with not being an officer.

[01:07:48] Speaker 05:
But what we do think is that the Commission has in fact done everything

[01:07:54] Speaker 05:
that it needs to do to make sure that its ALJs are not... I understand that.

[01:08:00] Speaker 04:
I'd just like to get an answer to this specific question.

[01:08:05] Speaker 04:
If the commission changed its regulations tomorrow to say that ALJs are forbidden to do anything more than what a special master would do, just to use your example.

[01:08:24] Speaker 04:
Would that change the legal analysis so that the ALJ is no longer an officer or does it only matter what authority potentially the ALJ has by statute?

[01:08:38] Speaker 05:
I don't know that anybody would have standing to challenge a regime like that in which nobody was functioning in the way an ALJ does unless they thought that the special master was also a problem.

[01:09:00] Speaker 04:
I mean, like the idea that the commission... Well, I mean, I'm just saying the next case would be someone like Mr. Lucia had a matter and this ALJ acting as a special master presided over some aspect of the hearing.

[01:09:18] Speaker 04:
The rest of the hearing was conducted by the commission.

[01:09:21] Speaker 04:
What I'm trying to understand is what effect, if any, do regulations limiting

[01:09:31] Speaker 04:
an official's authority play in the analysis of whether they're an officer?

[01:09:39] Speaker 05:
I mean, if I'm understanding Your Honor's question correctly, essentially what you're describing is that the Commission would cease to be using ALJs in anything like their present form.

[01:09:53] Speaker 05:
They could assign the tasks that you're describing to any employee under their delegation statute.

[01:10:00] Speaker 05:
And if someone thought that that was a problem, they could challenge that.

[01:10:05] Speaker 05:
But I think then that would become the question.

[01:10:09] Speaker 05:
But I think that we would no longer be really talking about administrative law judges, sort of in any recognized or even technical sense.

[01:10:19] Speaker 00:
I just wanted to ask about Landry, because that was the basis of the panel's decision here, and that case found finality to be dispositive.

[01:10:39] Speaker 00:
I'm not sure, but it seems that you are not making that argument.

[01:10:47] Speaker 05:
I guess we assume that the court took the case in bank because it wanted us to address the question of even if the court thought that there was more to it than finality, would the

[01:11:02] Speaker 05:
would that be, would it alter the outcome?

[01:11:06] Speaker 05:
And we think that in fact the, we do think finality and the fact that the special tax judges were officers was crucial to the court, like were officers for most purposes, was crucial to the court's thinking.

[01:11:22] Speaker 05:
We think that Landry, as we

[01:11:24] Speaker 05:
sort of urge to the panel when the panel concluded that we think that Landry was correct, but we also think that if the court were to consider that Landry was not a sufficient basis to rule for us in this case, that all of the rest of the Freitag opinion and the sort of rest of Supreme Court jurisprudence would lead the court to exactly the same bottom line.

[01:11:53] Speaker 10:
Can I just ask one more question?

[01:11:55] Speaker 10:
Once an ALJ decision issues, the Commission could sue Espante review it or someone could ask for it.

[01:12:04] Speaker 10:
But before that final decision, that final order from the SEC comes out, assume no party petitions for it.

[01:12:12] Speaker 10:
What does the SEC do?

[01:12:13] Speaker 10:
Does anybody look at that ALJ decision?

[01:12:15] Speaker 05:
Well, we know, I mean, the commission has provided sufficient time for itself to decide.

[01:12:22] Speaker 10:
I guess it's got time.

[01:12:23] Speaker 10:
Does anybody do anything?

[01:12:24] Speaker 05:
Well, we know that in some cases, at least, the commission exercises sua sponte review.

[01:12:29] Speaker 05:
It's not on the record exactly how the review process works, but certainly nothing, until the commission enters a finality order, there is no effect whatsoever.

[01:12:45] Speaker 10:
I'm asking what the basis is for entry of that order.

[01:12:50] Speaker 10:
Is there anything in the record or any

[01:12:52] Speaker 10:
regulation or a manual or anything that leads us to understand that somebody at the commission level looks at the ALJ order, even if it's one of these cases.

[01:13:01] Speaker 05:
We know that the commission is looking at them because it sometimes exercises a review and issues finality orders.

[01:13:09] Speaker 05:
The precise extent of review in each case, I can't speak to that, Your Honor.

[01:13:17] Speaker 05:
Thank you very much.

[01:13:18] Speaker 09:
How much time does Mr. Perry have?

[01:13:23] Speaker 03:
Judge Millett, after 42 days, the commission has to enter a finality order.

[01:13:27] Speaker 03:
It has no discretion.

[01:13:28] Speaker 03:
It has no options.

[01:13:29] Speaker 03:
42 days, 21 days for the petition, 21 days for the response.

[01:13:32] Speaker 02:
But the single commissioner disagreed.

[01:13:34] Speaker 02:
The commissioner could bring it before the commission, right?

[01:13:36] Speaker 03:
If they don't, they have to enter a finality order.

[01:13:37] Speaker 02:
And in every single case in which somebody has asked, they've gotten review before the commission.

[01:13:41] Speaker 02:
Is that not right?

[01:13:41] Speaker 03:
your honor, the point is if there's no ask, they don't.

[01:13:44] Speaker 03:
This is a case about what powers ALJs have, not what they don't.

[01:13:48] Speaker 03:
I would like to make one point on our bottle.

[01:13:51] Speaker 08:
Before you do that, could you answer, my question is finality is not the principle.

[01:13:55] Speaker 08:
What is the principle?

[01:13:56] Speaker 03:
That was the point I was going to make.

[01:13:58] Speaker 03:
The principle is

[01:13:59] Speaker 03:
The principle is what powers they have.

[01:14:02] Speaker 03:
The court gave us four points at page 881 and 882 of Freytag.

[01:14:06] Speaker 03:
And it basically says the power to shape the record.

[01:14:09] Speaker 03:
Discovery, controlling discovery, admitting evidence, ruling on taking testimony, and conducting a trial.

[01:14:16] Speaker 03:
That is what makes an adjudicator an officer.

[01:14:18] Speaker 03:
Mr. Stern, what is it about those that make an adjudicator an officer?

[01:14:23] Speaker 03:
Well, besides the fact that the Supreme Court has held that they are, they are the common sense notion of what a judge is.

[01:14:29] Speaker 03:
And again, let me come back to the point of Judge Elliott sitting on a bench in a black robe.

[01:14:33] Speaker 03:
Why is he there?

[01:14:34] Speaker 03:
Why is he not being pursued by the FBI for impersonating a judge?

[01:14:37] Speaker 03:
It's because he has been invested by Congress with the authority to make that record.

[01:14:41] Speaker 03:
And the bright line we would submit, Your Honor, is any federal adjudicator... You know, these people used to be called hearing examiners and they didn't wear black robes.

[01:14:50] Speaker 07:
Your Honor... Were they not inferior officers then?

[01:14:53] Speaker 03:
They were, and... No, that can't possibly be the point.

[01:14:57] Speaker 03:
I will take the court to the statute.

[01:14:58] Speaker 03:
Okay.

[01:14:59] Speaker 03:
5 USC, Section 556C.

[01:15:02] Speaker 07:
I mean, they didn't suddenly become inferior officers when they started being called ALJs and wearing robes.

[01:15:08] Speaker 03:
They have been inferior officers since 1946, at least, Your Honor, with the modern APA.

[01:15:12] Speaker 03:
With 556C describes the list of powers that if a federal official executes and is authorized to execute those powers is an officer.

[01:15:21] Speaker 03:
These ALJs.

[01:15:23] Speaker 10:
I'm sorry, I just want to back you up.

[01:15:24] Speaker 10:
I want to assume, just assume outside this case, assume that an ALJ is purely recommendatory.

[01:15:32] Speaker 10:
That's all they can do is recommend things, but they also have the ability to

[01:15:40] Speaker 10:
conduct a hearing to create a record and rule on the admissibility and exclusion of evidence.

[01:15:48] Speaker 10:
No contempt power, no judgments, interlocutory or final can be entered that have legal effect, but they can, the one thing they can do is control the admission or exclusion of evidence in the assembly of a hearing record.

[01:16:01] Speaker 10:
Would that make them an officer?

[01:16:03] Speaker 03:
In a hearing on the record under 556, yes, Your Honor.

[01:16:06] Speaker 10:
So you don't even need the other things?

[01:16:07] Speaker 03:
Your Honor, the powers are listed, and the APA gives two options, recommended decision or initial decisions.

[01:16:12] Speaker 03:
We think there's a distinction if the court retains landry, as we said to the panel, but the real answer, the right answer we submit, is the list of powers in 556C, which the commission has adopted in its regulation 201 series, which are listed out on page 1178 in an helpful chart in the Bandimor decision, show

[01:16:32] Speaker 03:
that the taking of testimony, the controlling of depositions, the admission of evidence, the exclusion of evidence, the evaluation of witness credibility, and the rendering of initial decision, all is the powers of a judge, of an officer of the United States.

[01:16:46] Speaker 02:
Mr. Perry, is it your view, looking back at our decision in Tucker,

[01:16:50] Speaker 02:
that the collection due process presiding employees are also officers, and that the officers in compromise that do settlement work for the IRS, are those also going to be officers of the United States?

[01:17:05] Speaker 02:
And is Mr. Stern's example of chief of staff, are those all officers under your theory?

[01:17:11] Speaker 03:
Your honor, those are all hard questions.

[01:17:12] Speaker 03:
My submission is limited to ALJs under 556B and C, because that's what we have in this case.

[01:17:18] Speaker 03:
This is a petition for review of agency action, and we are asking this court to declare that a 556B and C ALJ is an officer of the United States.

[01:17:26] Speaker 03:
That is a Freytag Edmonds controlled question.

[01:17:29] Speaker 02:
The ramifications for- What about a chief of staff if somebody is not appointed consistent with the Appointments Clause but operates as a chief of staff in the way Mr. Stern proposed?

[01:17:39] Speaker 02:
Officer or no?

[01:17:40] Speaker 03:
Your Honor, outside the realm of adjudicators, I would leave that to some other case.

[01:17:45] Speaker 03:
The 2007 OLC opinion, as Your Honor knows, segregates officers depending on their functions and roles, and footnote 10 of free enterprise does as well, and I think we have a line of authority involving federal adjudicators.

[01:17:57] Speaker 03:
that runs from Siebold and Hennan through Freytag and Edmond.

[01:18:01] Speaker 03:
Seven times the court has looked, the Supreme Court has looked at a federal adjudicator and seven times they've said they're officers.

[01:18:06] Speaker 03:
Whether non-adjudicative officials are also officers involves a separate analysis, not present in this case, and we're not suggesting that the decision in this case would control all those officers.

[01:18:16] Speaker 02:
Koleshkin, due process officers or not?

[01:18:18] Speaker 02:
I mean, those are adjudicative officers in some sense.

[01:18:20] Speaker 03:
in some sense, Your Honor, which is why I think it is very helpful that we have here an ALJ specified in the APA under Section 556.

[01:18:29] Speaker 03:
We have a cabined category of officers.

[01:18:31] Speaker 03:
There are many officials in the United States government, and the case or controversy requirement really demands that they be considered in their own terms, on their own merits, with a full record as to them.

[01:18:41] Speaker 03:
The only record we have here is as to these SECLJs, and as to them we submit the overwhelming

[01:18:48] Speaker 03:
information shows that they have more authority than the judges in Freytag.

[01:18:51] Speaker 03:
They have more authority than the judges in Edmund.

[01:18:54] Speaker 03:
They decide these cases.

[01:18:56] Speaker 03:
They are subject to review.

[01:18:58] Speaker 02:
Mr. Stern, I think... Judges in Edmund, if there is no petition for review, have the authority to sentence people to death or prison.

[01:19:05] Speaker 02:
You think they have more authority here?

[01:19:08] Speaker 03:
And the judge here, Judge Elliott, sentenced my client to a lifetime bar against practicing his profession.

[01:19:13] Speaker 03:
And if he didn't petition for review, that decision is final by operating without.

[01:19:16] Speaker 02:
Judge Edmond had the authority to do that with no decision by any higher authority.

[01:19:21] Speaker 03:
So does the judge here, Your Honor?

[01:19:23] Speaker 02:
No.

[01:19:23] Speaker 02:
They have to be ratified by the Securities Exchange Commission.

[01:19:26] Speaker 03:
We just disagree on that, Judge Pillard.

[01:19:27] Speaker 03:
But I would refer the court to 15 USC 78D1C, which says that I'm right.

[01:19:32] Speaker 03:
And with respect, you're not.

[01:19:34] Speaker 09:
Thank you.