The Tenth Circuit recently held that the SEC's in-house judges are "inferior officers" hired in violation of Article II's Appointment Clauses, creating a split with the D.C. Circuit over the issue.
The Tenth Circuit held that the SEC's ALJs were (1) positions "established by law," with (2) "duties, salary, and means of appointment … specified by statute," and (3) "exercise significant discretion" in "carrying out important functions." Thus, they were similar to the special tax judges held inferior officers in Freytag v. Commissioner of Internal Revenue, 501 U.S. 868 (1991). See also Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010).
The Tenth Circuit rejected the SEC's position that ALJs cannot be "inferior officers" because their opinions are not final, but subject to review by the Commission. See Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016) (holding SEC ALJs are not "inferior officers"). That sets up a clear circuit conflict on the issue.
The Tenth Circuit case arose on a petition for review of the SEC's opinion concluding an administrative proceeding. See 15 U.S.C. § § 77i(a), 78y(a)(1).
Many other Circuits have rejected for lack of jurisdiction collateral attacks through federal civil litigation seeking to enjoin administrative proceedings. Bennett v. SEC, No. 15-2584 (4th Cir. Dec. 16, 2016); Hill v. SEC, 825 F. 3d 1236 (11th Cir. 2016); Tilton v. SEC, 824 F. 3d 276 (2nd Cir. 2016); Jarkesy v. SEC, 803 F. 3d 9 (D.C. Cir. 2015); Bebo v. SEC, 799 F. 3d 765 (7th Cir. 2015).
The Tenth Circuit's opinion, Bandimere v. Securities and Exchange Commission, 15-9586 (10th Cir. Dec. 27, 2016), is here: https://www.ca10.uscourts.gov/opinions/15/15-9586.pdf
Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.
© 2016 by Thomas K. Potter, III (all rights reserved).
PartnerTom Potter is a Partner in the firm's Nashville office, and his practice focuses on securities, corporate disputes, and appellate litigation. Tom has over 35 years of experience representing business interests.
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