Tuesday, October 17, 2017

Justices asked to reject government petition in ALJ case

By Mark S. Nelson, J.D.

David Bandimere filed an opposition to the government’s bid to persuade the Supreme Court to decide the question of whether the SEC’s administrative law judges are appointed consistent with the U.S. Constitution’s Appointments Clause. A divided Tenth Circuit had granted Bandimere’s petition for review of a Commission decision upholding sanctions against him for securities law violations. According to Bandimere’s lawyers, the government’s certiorari petition should either be denied or granted, but not held pending the outcome of a similar case the justices have been asked to hear. Bandimere also said that if the Court declines to order an “outright” denial of certiorari, he would not disagree with a grant of certiorari in his case (SEC v. Bandimere, October 10, 2017).

The government had made a semi-cryptic argument in its petition for certiorari in Bandimere in favor of the justices instead taking a case from the D.C. Circuit that raises the same question, in which the government said it would soon provide a more fulsome reply (currently due October 25). But the government also hedged its position by asking the Court to hold Bandimere’s petition if it granted certiorari in the D.C. Circuit case, while alternatively urging the court to deny certiorari in Bandimere’s case if it were to decline certiorari in the D.C. Circuit case. Still, it is plausible that the justices may be waiting for a case from the Fifth Circuit regarding the Federal Deposit Insurance Corporation, or yet another case challenging the SEC’s ALJs, as the vehicle to address the Appointments Clause.

Bandimere and Lucia. Bandimere’s lawyers told the justices that Lucia may not be the better case to deal with the Appointments Clause question, as the government had previously suggested, because Lucia has limited precedential value. The Lucia petition for certiorari arrived at the Supreme Court after the three-judge panel’s opinion upholding the SEC’s ALJs had been vacated pending en banc review. An equally divided full D.C. Circuit later issued a brief order denying the petition for review in Lucia. According to Bandimere, Lucia is laden with vehicle issues that do not exist in his case.

The Lucia (rehearing denied) and Bandimere (rehearing denied) cases both arose from SEC administrative proceedings that were then appealed under the securities laws to federal courts of appeal. The D.C. circuit in Lucia upheld the SEC’s ALJs on the ground that they do not issue final opinions. That decision depended on circuit precedent (Landry v. FDIC) that had reached the same conclusion regarding the FDIC ‘s ALJs.

By contrast, the Tenth Circuit held that the SEC’s ALJs were not appointed in a manner consistent with the U.S. Constitution’s Appointments Clause and, in so holding, rejected the D.C. Circuit’s Landry opinion as unpersuasive. Although the Landry court was unanimous regarding the outcome in that case, one judge concurred to emphasize that the Supreme Court’s prior foray into the Appointments Clause arena (Freytag) could be read to find that government officials are inferior officers, rather than employees, even if they do not issue final orders. The Landry concurrence and many respondents in SEC proceedings have emphasized the “significant authority” touchstone in the Supreme Court’s precedents for deciding if a government official is an inferior officer as compared to an employee (See, e.g., Buckley v. Valeo).

Justice Gorsuch. The government’s petition in Bandimere had cited Justice Gorsuch’s presence on the Tenth Circuit as one reason to hold the Bandimere petition in favor of the Lucia petition. Presumably, if then-Judge Gorsuch had participated in the denial of en banc review, he may need to recuse himself in Bandimere, thus raising the potential for a tie vote among the justices. But Bandimere’s lawyers sought to dispel this possibility.

According to Bandimere, there is no indication that Justice Gorsuch participated in the denial of rehearing while still a judge on the Tenth Circuit. Specifically, Bandimere points to the fact that Justice Gorsuch was nominated to the Supreme Court six weeks before the rehearing petition was filed. Moreover, Bandimere said Justice Gorsuch was confirmed to the Supreme Court nearly one month before the Tenth Circuit issued its order denying rehearing (See Senate confirmation vote of April 7, 2017).

Lastly, Bandimere noted that the Tenth Circuit’s order of denial does not include Justice Gorsuch in the list of judges who considered the rehearing petition. For comparison, in Lucia, Judge Garland is explicitly listed as not participating. Judge Garland, who remains Chief Judge of the D.C. Circuit, was formerly a Supreme Court nominee before the change of administration resulted instead in Justice Gorsuch being nominated and confirmed to the Supreme Court.

Fifth Circuit. It is plausible that the justices could wait to hear an Appointments Clause case that involves the FDIC or another respondent in an SEC proceeding. One of the more intriguing possibilities is a case from the Fifth Circuit that stayed an FDIC order, which required a former bank executive to withdraw from the industry, pending the outcome of a petition for review on the merits.

In Burgess, the Fifth Circuit concluded that the ex-bank executive made a “strong showing” that he was likely to succeed on the merits of his petition for review. With respect to the differing authorities possessed by FDIC and SEC ALJs, the court had this to say about Bandimere:
We recognize that the Tenth Circuit in Bandimere noted a number of SEC ALJ responsibilities pointing towards greater final decision-making authority than FDIC ALJs possess in finding that SEC ALJs are constitutional Officers. However, as discussed above, our understanding of the Supreme Court’s decision in Freytag is that the lack of final decision-making authority is not dispositive, and the fact that the Tax Court STJ’s possessed that authority in some cases was not outcome-determinative (footnotes omitted).
The Supreme Court in Free Enterprise (footnote 10) observed that that the D.C. Circuit’s Landry opinion and the question of ALJs’ status under the Appointments Clause was potentially disputed. When the Fifth Circuit issues a merits decision in Burgess, the court may create a clear split with the D.C. Circuit, at least regarding the FDIC’s ALJs. Bandimere’s opposition brief never mentioned Burgess, although the brief did suggest that his case is limited to the SEC’s ALJs (But see Justice Breyer’s dissent in Free Enterprise for a discussion of the possible consequences of a broader decision on ALJs). The government’s petition for certiorari in Bandimere only briefly mentioned Burgess in a footnote.

The case is No. 17-475.

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