Officer, Employee or Tools: The Role of Administrative Law Judges

By Stephen C. Embry, Esq., Embry and Neusner

The Supreme Court on June 21, 2018 rendered a decision in Lucia et al. v. Securities and Exchange Commission, __ U.S. __, 2018 U.S. LEXIS 3836, No. 17-130, which may have significant impact on the role that Administrative law judges play in the interpretation of the Longshore and Harbor Workers' Compensation Act, as well as other laws, and which raises the spectre of an attack on the impartiality on the judges.

The court interpreted the narrow issue of whether the system employed by the SEC in selecting Administrative Law Judges was constitutional.

Lucia argued that the decision was invalid because the Administrative Law Judge had not been appointed subject to the appointment's clause of the United States Constitution, Article II, Section 2, Clause 2.

The Supreme Court agreed, and the decision in Lucia was overturned.

This decision, in some ways, is fact specific based upon the procedures used by the SEC to adjudicate matters arising before it.

The SEC, in some cases, would as a Commission, preside over the proceedings before it, acting as appointed officers of the United States, but the Commission often and typically would delegate the task to an administrative law judge.

The Administrative Law Judges were not selected by the Commission but instead, the Security and Exchange Commission staff.

The ALJs would supervise their proceedings, issue subpoenas, rule on admission of evidence, decide motions, administer oaths, hear and examine witnesses, and impose sanctions for contemptuous behavior or violation of procedural rules. These powers were “comparable” to that exercised by a federal district court judge conducting a bench trial.

At the end of the hearing, the SEC Administrative Law Judge would make findings of fact and include an order for sanctions relief or denial of the same. The Security and Exchange Commission would then either review the decision or issue an order making the Administrative Law Judge decision final or allow it to become final. Had the Commission held its own hearing or appointed the ALJ, the decision would likely have been that the administrative law judge acting in the case had been made an officer, but the ALJ in this case was instead selected by the staff, and the Commission did not hold a hearing on the matter.

The question presented was whether the ALJ, having been appointed by the SEC staff, was an officer of the United States, or whether the SEC must appoint the Administrative Law Judge.

The Supreme Court states the criteria distinguishing between the two classifications, in United States v. Germaine, 99 U.S. 508 (1879), which held that an officer of the United States must have “a continuing position.”

In Buckley v. Valeo, 424 U.S. 1 (1976), the Court focused on the extent of the powers exercised, and in Freytag v. Commissioner, 501 U.S. 868 (1991), the court listed factors to be considered in determining whether the Judge exercised significant authority, such as required to be designated as an officer of the United States.

Freytag involved special tax judges (STJ’s) of the tax court who in most cases would issue a proposed finding of fact, which would then be adopted or rejected by a regular tax court judge. In Freytag, the STJs would examine witnesses, administer oaths, rule on evidence, and enforce conduct. The tax court rules presumed the STJs findings to be correct.

The decision in Lucia may have a significance for the Department of Labor's Administrative Law Judge, who seemed to possess the characteristics of the Freytag STJs. However, there are other issues which may distinguish the role Administrative law judges play in hearing cases under the Longshore and Harbor Workers' Compensation Act.

Justices Sotomayor and Ginsburg, in their dissent, suggested that one of the requisite components of the “significant authority test” is the ability to make final binding decisions on behalf of the government, and that a person who merely provides recommendations to an “officer” would not need to qualify as an officer. Thus, the preservation of the final authority to reverse or affirm the recommendations of the Administrative Law Judge by the agency would leave the administrative law judge as an employee. The procedure in the Department of Labor varies substantially from the SEC. Prior to 1972, deputy commissioners conducted hearings, took evidence, and rendered decisions, which were then reviewable by federal district judges. The 1972 amendments overhauled the procedure and transferred formal adjudicative powers to the Administrative Law Judges and the Benefits Review Board.[fn1]

The Benefits Review Board thus took over intermediate review functions which had previously been assigned to the federal courts.[fn2]

The Board members are appointed by the Secretary of Labor under the specific mandate of 33 U.S.C. § 921(b)(1). In 1982, the Secretary of Labor removed board members Kalaris and Miller, who brought actions for injunctive relief and who argued that they were Article III judges.

The D.C. district court held that the Board members were not judges, but instead officers of the United States, subject to removal by the Secretary of Labor. They held this to be constitutional, since Congress could confer an adjunct jurisdiction to decide liability in Maritime cases, to administrative agencies.[fn3]

In National Steel & Shipbuilding, 600 F.2d 1288 (9th Cir., 1979), the court noted that in creating the Board, Congress had granted the Board and its members mandatory powers to review the Administrative Law Judges’ decisions, which did not become final until the Board members/officers approved the underlying decision on case of request for review thus the decision of ALJ’s under the Longshore Act are subject to review by officers of the United States, Board members or Federal Courts.

The status of administrative law judges hearing cases arising under the Longshore and Harbor Workers’ Compensation Act is also fundamentally distinguishable from the SEC scheme in several ways.

While they seem to meet the functional status test of Freytag, and the procedures regarding their selection is more consistent with the requirement that they be appointed by the head of the agency.

The APA provides that each agency shall appoint as many administrative law judges as are necessary for proceedings required to be conducted in accordance with Section 556 and 557 of this Title 5 U.S.C. § 3105.

The Administrative Law Judges under the Department of Labor are thus to be appointed by the Secretary of Labor; however, it is not clear whether this has been done on the past.

In December of 2017, the Secretary of Labor, as a precautionary measure in light of the pending Lucia decision, issued an appointment to Administrative Law Judges clarifying that they were officers of the United States.

Thus, by specific appointment, Administrative Law Judges hearing longshore cases have received the appropriate appointment by the agency as opposed to being selected by the staff of the agency as was done at the SEC, at least since December 2017.

The Administrative Law Judges hearing cases under the Longshore and Harbor Workers’ Compensation Act also have a constitutional protection which is distinguishable from the status of the SEC administrative law judges, or in fact ALJs hearing cases in other agencies.

The United States Constitution provides that the judicial powers of the United States shall be extended to all cases of admiralty and maritime jurisdiction.[fn4]

It was this constitutional preservation of admiralty powers to the United States government that was one of the basis for the finding the States could not extend their workers' compensation acts.[fn5]

This led Congress to pass the Longshore and Harbor Workers’ Compensation Act in 1927, assigning to the Department of Labor the power to hear and decide such admiralty claims.[fn6] In Crowell v. Benson, the court noted that Congress could change the modes of hearing for such claims, including eliminating the right to trial by juries and assigning such hearings to administrative agencies. The Longshore Judges are thus Constitutional Maritime Judges, at least in some sense.

Until 1972, the Deputy Commissioners of the Department of Labor were responsible for the hearing of such claims. The 1972 amendments to the Act transferred those powers specifically to the administrative law judges, created by the Administrative Practices Act, 33 U.S.C. § 919(d). Thus, Administrative Law Judges hearing longshore claims are acting in admiralty and trace their powers back to the congressional power to regulate maritime activity, rooted in the United States Constitution. This is opposed to ALJ’s in other agencies who simply derive their powers from legislation passed by Congress and/or the Administrative Practices Act.

Thus, functionally and fundamentally, the status of administrative law judges exercising admiralty powers under 33 U.S.C. § 919 are distinguishable from Lucia.

This point was made by Justice Breyer in his concurring opinion in Lucia, where he noted that he could find no other agency than the SECs whose rules permitted delegation to the staff of the power to appoint administrative law judges.

Lucia does, however, raise a secondary question, namely whether administrative law judges may be removed from office by political edict.

Justice Breyer and other justices in Lucia noted that the independence of Administrative Law Judges has been provided by the Administrative Practices Act to prevent the administrative Law Judges from becoming mere tools of their agencies. The Administrative Procedures Act specifically grants administrative law judges independence and tenure.

The government in Lucia initially supported the Commissions position that the ALJ was constitutionally appointed, but in mid-course changed its position, requiring the Supreme Court to appoint counsel for the SEC to argue its position.

Remarkably the government went further, arguing that not only was the ALJ’s appointment unconstitutional but that ALJ’s were not independent and should be subject to removal if they did not follow the agencies orders.

On July 10, 2018 President Trump has issued an executive order removing the Administrative Law Judges from civil service appointment and competitive exam. Future appointments will be based on the discretion of political operatives thus potentially threatening the independence of the judges.

OPM has issued a memorandum indicating that the only qualifications are that the ALJ is in possession of a license to practice law. The veteran’s preference has been elimination, but the OPM indicates that the preference should be followed as far as administratively possible.

OPM further states that incumbent ALJ’s shall remain in the competitive service as long as they remain in their current position but that appointment by reinstatement or interagency transfer is not available.

The Executive Order provides that “Except as required by statutes, the Civil Service Rules and Regulations shall not apply to removals.”

These changes threaten the continuation of an administrative law system free from the spectre of political influence. Initially the Department Political Officers now have the discretion to consider the political results of potential appointments, interjecting at the very least the politicization of the appointment process. There are increased by the asserted removal powers. The APA tenure provision has been hamstrung or ended, and the ALJ’s must keep a finger raised to detect which way the wind blows.

On a constitutional level the changes threaten the constitutional separation of power provisions. Since the birth of administrative law, there has been concern that housing ALJ’s in Executive Departments threatened the separation doctrine. Exquisite care has been taken to prevent this by requiring competitive civil service protection and “good cause” requirements for removal. These protections have now been weakened or removed.

The precedent of Kalaris v. Donovan now provides a warning for the future. It permitted the removal of members of the Board for political purposes, since the Board members were not subject to APA and civil service protection based on “good cause”. Following this, the Administrative Law Judges sought the creation of an independent corps of judges not housed in individual departments. This effect did not succeed, and the spectre of politicization of the judges is now more realistic.

One of the bases for the APA was to guarantee that ALJ’s, although housed in the executive branch would be independent actors not subject to political influence.

Lucia thus raises the stark vision of Christmases future where private parties’ rights are subject to political direction and instructions, and ALJ’s are not independent.

It is reasonable to expect that knives are being sharpened in anticipation of future litigation, or political action on this issue.

Footnotes:

1. Kalaris v. Donovan, 697 F.2d 376 (1983).

2. Kalaris v. Donovan, 697 F.2d 376 (1983).

3. Crowell v. Benson, 285 U.S. 22 (1932).

4. The Genessee Chief, 53 U.S. 459 (1851).

5. Seward and Knickerbocker Ice Company v. Stewart, 253 U.S. 149 (1920).

6. Crowell v. Benson, 285 U.S. 22 (1932).

© Copyright 2018 Embry and Neusner. All rights reserved. Reprinted with permission. This article will appear in an upcoming issue of Benefits Review Board Service Longshore Reporter (LexisNexis).