Montesquieu Invoked for Challenge to SEC Appointments

WASHINGTON (CN) – An 18th century philosophe made an appearance at the Supreme Court on Monday for a challenge to how the Securities and Exchange Commission installs judges.

Gibson Dunn attorney Mark Perry made the reference this morning while enumerating the powers of the SEC’s administrative law judges. Contrasting these officers against typical agency employees, Perry noted that they can develop a record in enforcement actions, conduct trials and make rulings that become final if the SEC declines to review them.

“These are all sovereign powers that governments give to judges,” Perry said. “The puissance de juger, as Montesquieu put it. And those are powers that ordinary citizens, private citizens, simply do not have, absent agreement of the parties, and that governments when they delegate them must do to officers.”

Montesquieu is credited with articulating the separation-of-powers theory, which laid the foundation for the appointments clause of the U.S. Constitution, among numerous other legal frameworks.

The appointments clause requires that the president, courts or department heads appoint inferior officers of the United States, and Perry told the Supreme Court that this principle is trampled by the SEC’s custom of having administrative law judges take office on appointment from the agency’s chief judge.

Perry’s client, Raymond Lucia, challenged the scheme after an SEC administrative law judge banned him for life from working as an investment adviser. Because the SEC declined to review Lucia’s punishment, the judge’s decision became the agency’s final action.

Among those supporting Lucia’s challenge is the United States, putting Deputy Solicitor General Jeffrey Wall in the unusual position Monday of siding with a person challenging a federal agency.

Echoing Perry’s argument, Wall relied heavily on the 1991 decision in Freytag v. Commissioner, which found special judges for the U.S. Tax court were inferior officers under the Constitution.

“The idea behind the appointments clause is you’ve got to have a clear line of accountability,” Wall said. “And this court said in Freytag and Free Enterprise, when you diffuse the appointment power, you diffuse accountability.”

But some of the justices focused meanwhile on the intent of the Framers to insulate SEC judges from the political process.

“In other words, this is a situation where we have adjudications, where we typically think we want the decision maker to be insulated from political pressure,” Justice Elena Kagan said. “So wouldn’t putting those decision makers even closer to the political body only exacerbate the problem that you’re complaining of?”

With the government on Lucia’s side, the court appointed O’Melveny & Meyers partner Anton Metlitsky to defend the current regime Monday as amicus curiae.

Metlitsky denied that the accountability at the heart of the appointments clause is frustrated by the SEC’s installation of administrative law judges, saying citizens still know to blame the head of an agency for decisions they do not like. He

“Other than a narrow historically grounded exception concerning diplomatic offices, an officer of the United States is someone with power to bind the government or private parties in the name of his own office,” Metlitsky said. “In contrast, someone whose acts have no binding effect without the sanction of an officer is not himself an officer of the United States.”

But the justices struggled to find who would qualify as an officer under Metlitsky’s proposal.

“I mean, anybody, an attorney who tries a case on behalf of the government has the power to bind, makes decisions during the course of a trial that are not reviewed by anybody else, I won’t call this witness, I won’t ask this question,” Justice Samuel Alito said. “Okay. So the power to bind is enormous.”

Chief Justice John Roberts honed in on this issue of accountability as well.

“The commission can say, ‘don’t blame us, we didn’t do it,'” Roberts said. “‘The president can say, ‘don’t blame me, I didn’t appoint them.’ And instead it’s something in the administrative bureaucracy which operates as insulation from the political accountability that the drafters of the Constitution intended.”

Justice Stephen Breyer voiced concern meanwhile that subjecting administrative law judges to the political process by defining them as officers would be the effective end of a merit-based civil service in the federal government.

“I don’t know that anyone in this case has methodically gone through civil service positions to tell me whether or not, if we decide one way or the other and on the theory, we are driving wedges of dependence into what was to be since Chester Alan Arthur, a merit-based civil service,” Breyer said.

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