This article, co-authored by Allyson Baker, Peter S. Frechette, and Andrew T. Hernacki, previously appeared on the Venable blog, and is republished here with permission. This case is highlighted today in anticipation of oral arguments taking place tomorrow, May 24, in PHH Corp. v. Consumer Financial Protection Bureau.
The Tenth Circuit has solidified a circuit split with the D.C. Circuit regarding the status and appointment of the Securities and Exchange Commission (SEC) administrative law judges (ALJ). A majority of the three-judge panel that heard the Bandimere case in December of 2016 ruled that ALJs are "inferior officers" under the Appointments Clause. As such, the ALJ should have been, but was not, constitutionally appointed, requiring the SEC's judgment to be set aside. On May 3, 2017, a majority of the full Tenth Circuit declined to rehear the case en banc, with two judges dissenting.
In declining to change course, the Tenth Circuit remains split from the D.C. Circuit, which ruled in Raymond J. Lucia Companies, Inc. v. SEC that SEC ALJs are not "inferior officers" under the Appointments Clause. The split focuses primarily on differing applications of the Supreme Court's decision in Freytag v. Commissioner of Internal Revenue — and is centered on whether courts should look to a broad array of factors contributing to the "exercise significant discretion" in "carrying out . . . important functions" (Tenth Circuit), or whether courts need primarily look to the ability to render final decisions (D.C. Circuit) when determining the status of agency personnel.
To date, argument surrounding ALJs' status as "inferior officers" has centered on the SEC. However, as we noted previously, the D.C. Circuit has directly imported the Appointments Clause issue into Consumer Financial Protection Bureau (CFPB) jurisprudence, specifically requesting briefing on the "appropriate disposition" of the PHH Corp. case, if the en banc D.C. Circuit concludes that an SEC ALJ is an inferior officer rather than an employee.
Application of the SEC Appointments Clause issue from Lucia/Bandimere to the CFPB would revolve around the similarities between the administrative adjudicatory frameworks of the two agencies and the authorities wielded by each agencies' ALJs. If the D.C. Circuit reverses course in Lucia, the court will need to compare the duties and discretion of SEC ALJs to those used by the CFPB.
In PHH, the ALJ Appointments Clause issue presents an additional (and perhaps alternative) constitutional question to the D.C. Circuit's review of the panel's ruling regarding the structure of the CFPB. Oral arguments for both Lucia and PHH are scheduled for May 24, 2017.