Note 4.a. (insert at page 80): A circuit split over ALJ appointments

In Freytag, as discussed in note 4 above, the question of whether Special Trial Judges were inferior officers was uncontroversial—STJs were clearly inferior to the Chief Judge of the Tax Court and were thus subject to the relevant requirements of the Appointments Clause. About a decade after Freytag, the D.C. Circuit reached the opposite conclusion about ALJs in Landry v. FDIC; it held that because ALJs do not render final agency decisions they are employees, not officers, and thus can be appointed outside of the procedures dictated by Article II. The question of ALJ appointments has recently reemerged, and has resulted in split decisions of the Tenth and D.C. Circuits.

The Chief ALJ of the SEC is responsible for appointing ALJs for the Commission. The SEC does not contend that the Chief ALJ qualifies as the President or one of the “courts of law, or . . . the heads of departments” that Congress may authorize to appoint inferior officers under the Appointments Clause. Rather, the SEC argues that its ALJs are employees, not officers, such that their appointment is not controlled by Article II. As a result, if SEC ALJs are inferior officers, their appointment violates the Clause; if they are employees, it does not.

The D.C. Circuit upheld the SEC’s appointment process. Following Landry, it concluded that SEC ALJs are employees because they do not have final decision-making authority. Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, 283 (D.C. Cir. 2016). The Tenth Circuit, facing exactly the same issue, disagreed. Bandimere v. SEC, 844 F.3d 1168 (2016). It held that the SEC ALJs were inferior officers and described its disagreement with the D.C. Circuit as follows:

This past August, the D.C. Circuit [in Lucia] addressed the same question we face here. The D.C. Circuit followed Landry and concluded that SEC ALJs are employees and not inferior officers. The holding was based on the court’s conclusion that SEC ALJs cannot render final decisions. We disagree . . . that final decision-making power is dispositive to the question at hand. First, both the agency and Landry place undue weight on final decision-making authority. Freytag stated the government’s argument that STJs should be deemed employees when they lacked the ability to enter final decisions “ignore[d] the significance of the duties and discretion that [STJs] possess.” 501 U.S. at 881. The Supreme Court held STJs are inferior officers because their office was established by law; their duties, salaries and means of appointments were “specified by statute”; and they “exercise[d] significant discretion” in “carrying out . . . important functions.” Id. at 881-82. . . . In short, the Court [in Freytag] did not make final decision-making power the essence of inferior officer status. Nor do we.

Id. at 1182-85 (citations omitted). The Tenth Circuit denied the SEC’s request for rehearing en banc on May 3, 2017. The D.C. Circuit granted Lucia’s petition for rehearing en banc on February 17, 2017. An equally divided en banc D.C. Circuit denied Lucia’s petition on June 26, 2017. The resulting circuit split is an extremely strong candidate for Supreme Court review, yet at the time of this writing, a petition for certiorari to the Court has not been filed in either case.

Note 7.a. (insert at page 85): Removal power and single-headed “independent” agencies

 As you read in note 7 above, the nature of independent agencies is a source of debate. As a descriptive matter, however, what we describe as independent agencies almost always have a some common features: they are headed by a multi-member commission or board, and their leaders are protected from presidential removal by statutory provisions that allow the President to fire them only when he has cause to do so. These removal limitations were upheld as constitutional for FTC commissioners in Humphrey’s Executor.

Then along came the Consumer Financial Protection Bureau (CFPB). The CFPB was created in 2010. It is an independent agency that is responsible for enforcing nineteen different consumer protection statutes. It is headed by a single Director who, in order to maintain her political independence, Congress protected from removal by the President except in instances of “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. § 5491(c)(3).

In 2014, the CFPB brought an enforcement action against PHH Corporation, a mortgage lender, based on allegations that PHH made illegal mortgage insurance referrals. Among its other defenses, PHH Corporation argued that the CFPB’s structure violated Article II of the constitution. More specifically, PHH argued that the CFPB’s structure unduly interfered with presidential control over the executive branch because it concentrated power in a single individual that was not fully accountable to the President. Unlike the singular head of an executive agency, the CFPB Director cannot be removed at will, and unlike the members of other independent agencies, the Director is not constrained by other board members or commissioners. A three-judge panel of the D.C. Circuit agreed. It held that the CFPB’s structure interfered with personal liberty in violation of Article II because:

[T]o help preserve individual liberty under Article II, the heads of executive agencies are accountable to and checked by the President, and the heads of independent agencies, although not accountable to or checked by the President, are at least accountable to and checked by their fellow commissioners or board members. No head of either an executive agency or an independent agency operates unilaterally without any check on his or her authority. Therefore, no independent agency exercising substantial executive authority has ever been headed by a single person.

PHH Corp. v. CFPB, 839 F.3d 1, 6 (D.C. Cir. 2016). The panel opinion remedied the perceived constitutional problem by severing the Director’s removal protections from the statute, effectively making the CFPB an executive agency, with a single head that serves at the pleasure of the President. Id. at 39 (“As a result, the CFPB now will operate as an executive agency. The President of the United States now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”).

The CFPB sought and was granted rehearing en banc. Oral argument was held on May 24, 2017. As of the time of this writing, the decision of the en banc court is still pending. While the impact of this case may seem somewhat limited due to the unique structure of the CFPB, the court’s reasoning is relevant to the question addressed elsewhere in this section—what is the rationale behind independent agencies and how far may Congress go in protecting administrators from political influence?

Note 11 (insert in place of last paragraph of note on page 90):

 Prior to 2017, Congress had invalidated only one rule via the CRA, a hotly contested OSHA regulation that would have addressed repetitive motion injuries in a wide range of businesses. Adopted late in the Clinton Administration, the rule was promptly eliminated in March of 2001 after Republicans took control of both houses of Congress and the White House. The CRA then lay dormant for sixteen years, until 2017 when Republicans once again occupied both political branches under the new Trump Administration. In the spring of 2017, while the CRA’s streamlined repeal procedures were still available, Congress and the President eliminated fourteen of the fifteen regulations considered for repeal via the CRA. The lone survivor was an Interior Department rule to limit methane emissions that was saved by one vote in the Senate, 51-49. For obvious reasons, use of the CRA is most likely when one party controls both the legislative and executive branches. It is even more likely in the period right after a party takes control from its opposing party. It is unclear, however, whether the recent explosion in congressional use of the CRA will carry over to the next instance in which both political branches are within the control of a single party.