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Do Review Commission ALJ Hearings Comport with the Constitution?

Jan.04.2017

On December 27, 2016, in Bandimere v. SEC (No. 15-9586), the U.S. Court of Appeals for the 10th Circuit set aside an enforcement order of the United States Securities and Exchange Commission (SEC) on the ground that the order had been issued by a SEC administrative law judge (ALJ) who had been unconstitutionally named to his position. That decision, which can be found here, was the subject of a recent Crowell & Moring alert. Because the implications of the court’s decision extend beyond the SEC enforcement context, arguably to all federal regulatory programs that utilize ALJs, including enforcement contests arising under the Federal Mine Safety and Health Act of 1977 (“Mine Act”), which are heard in the first instance by ALJs of the Federal Mine Safety and Health Review Commission (“Commission”), operators with mining operations in the United States should take careful note of this decision.

As operators are aware, the Mine Act and federal mine safety and health regulations are enforced by the Department of Labor’s Mine Safety and Health Administration (MSHA). Among other things, contests of citations and penalties and charges of retaliation under Mine Act Section 105(c) are heard in the first instance by Commission ALJs. The 10th Circuit’s decision in Bandimere throws that entire statutorily created system into constitutional doubt because, unlike the commissioners themselves, who are appointed by the President, Commission ALJs are not appointed – they are hired as civil servants through the Office of Personnel Management (OPM).

In Bandimere, the 10th Circuit held that SEC ALJs were “inferior officers,” not “employees,” of the SEC, and therefore were constitutionally required to be appointed (either by the President, a court, or their department head). Because, instead, they hold their offices by virtue of employment through OPM, their employment is “in violation of the Appointments Clause.” What this meant for the Bandimere defendant is that the SEC’s enforcement order against him was vacated. But the holding throws a cloud over every aspect of the federal ALJ corps, including those of the Commission.

The Bandimere holding turns on the 10th Circuit’s view of the role ALJs play (specifically in SEC enforcement proceedings, but by implication across the entire spectrum of the federal ALJ corps). Relying on Supreme Court precedent, the court said that whether a position constitutes that of an “inferior officer” necessitating appointment turns on three factors: (1) whether the position was established by law; (2) whether the duties, salary and means of appointment are specified by statute; and (3) whether the position exercises significant discretion in carrying out important functions. The court found that the position of SEC ALJ satisfied all three factors, and that SEC ALJs were therefore “inferior officers” requiring appointment.

The logic of the 10th Circuit arguably applies on all fours with Commission ALJs. After all, Commission ALJs no less than SEC ALJs are hired through the OPM hiring process and possess more or less the same important duties as SEC ALJs. Indeed, Commission ALJs arguably possess even greater discretion and authority to carry out important functions because, unlike SEC ALJs (and most other agency ALJs), Commission ALJs are not employed by the enforcement agency itself (i.e., MSHA) or the larger executive department in which it resides (i.e., the Department of Labor). Accordingly, their findings and decisions are not subject to review by higher-level officials within the enforcement agency. Their decisions are, of course, subject to review by the Commission itself, but Commission review is discretionary (and, in practice, relatively rare) and, even where review is exercised, the Commission does not possess plenary fact-finding authority. Rather, ALJ findings of fact are reviewed by the Commission under the deferential “substantial evidence” standard.

To be clear, none of this calls into question MSHA’s authority to inspect mines, issue citations and orders, and assess civil penalties. Nor does it call into question the authority of the Commission itself, since the commissioners are duly appointed. Finally, it does not call into question the use of ALJs, at least conceptually, to hear MSHA enforcement and discrimination cases in the first instance.

But what the 10th Circuit’s decision does do is call into question whether, under the current OPM hiring process, any of the sitting Commission ALJs may constitutionally hear, decide, and rule upon cases brought before them. Arguably, they cannot – if the rationale of the 10th Circuit in Bandimere were to be followed.

For the time being, the Bandimere decision is limited to the 10th Circuit, and, as pointed out in our initial alert, the D.C. Circuit reached a contrary result in August (concluding SEC ALJs were employees, not “inferior officers”). So the issue is well positioned for resolution by the Supreme Court. Be that as it may, inasmuch as the nation’s mining takes place outside of the jurisdictional reach of the D.C. Circuit, operators may want to discuss the implications of the Bandimere decision with counsel and consider whether to raise the constitutionality of the adjudication process before Commission ALJs as an added defense to any pending or future penalty contests or discrimination cases.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Daniel W. Wolff
Partner – Washington, D.C.
Phone: +1 202.624.2621
Email: dwolff@crowell.com