Balancing the Duties: the Tenth Circuit’s Instructional on How to See the Big Picture

Author: Petra Ingerson Bergman, Associate Member, University of Cincinnati Law Review

Article II, Section 2, Clause 2 of the United States Constitution vests in the President of the United States the power to appoint public officials with the advice and consent of the Senate.[1] This clause, known as the Appointment Clause, serves as “a bulwark against one branch aggrandizing its power at the expense of another branch.”[2] By requiring the advice and consent of the Senate, the President’s appointment power is checked by the legislature to ensure that officers of the United States are thoroughly vetted to assume a role with “significant authority.”[3] The Constitution bifurcates officers of the United States into classes; principal officers and inferior officers.[4] Whereas principal officers must be nominated by the President with the advice and consent of the Senate, Congress may vest the power to appoint inferior officers solely in the hands of the President, the courts, or the heads of departments.[5]  

Although the Constitution clearly differentiates inferior officers from principal officers, courts have struggled to narrowly define an inferior officer. The inability to precisely define an inferior officer precipitated the current split between Circuit Courts as to whether Administrative Law Judges (ALJs) are inferior officers who must be appointed in accordance with the Appointment Clause.[6] In Bandimere v. United States SEC, the Tenth Circuit correctly held that the ALJs are inferior officers and must be appointed in accordance with the Appointment Clause.[7]

Bandimere v. United States SEC: a Repudiation of D.C. Circuit’s Interpretation of Freytag

The Securities and Exchange Commission (SEC) is a one of the country’s many administrative agencies, and is tasked with “protect[ing] investors, maintain[ing] fair, orderly, and efficient markets, and facilitate[ing] capital formation.”[8] Similar to other administrative agencies, the SEC enjoys “enforcement authority.”[9] In performing its enforcement duties, the SEC brought an administrative action against the plaintiff, Mr. Bandimere, for violating a number of securities laws.[10] The ALJ presiding over the case found for the SEC, holding Mr. Bandimere liable and banned him from the working in the securities industry.[11] The SEC reviewed the case and reached the same conclusion as the ALJ.[12] However, Mr. Bandimere challenged the ALJ’s ruling on the grounds that the ALJ was an inferior officer who had not been appointed in accordance with the Appointments Clause.[13] The SEC rejected the proposition that the ALJ was an inferior officer.[14] In response, Mr. Bandimere appealed to the Tenth Circuit.[15]

The Tenth Circuit entirely rebutted the D.C. Circuits handling of Freytag v. Commissioner, reasoning that the D.C. Circuit had misapplied Freytag in its Landry v. FDIC decision.[16] First, the Tenth Circuit contended that, in Landry, the D.C. Circuit focused too heavily on the ALJs lack of final decision making authority.[17]  Accordingly, the Tenth Circuit rejected the D.C. Circuit’s overreliance on decision making authority as shortsighted; decision making authority is only one factor amongst many that must be considered.[18] Second, the Tenth Circuit also took issue with the D.C. Circuit’s naiveté of the Supreme Court ruling in Edmond, wherein the Supreme Court found that final decision making authority was “relevant to the difference between a principal and inferior officer, not the difference between an inferior officer and an employee.”[19] Lastly, the Tenth Circuit rejected the D.C. Circuit’s contention that the SEC’s ability to reverse the ALJ’s ruling foreclosed ALJ’s from being inferior officers.[20]

Final Decision Making Authority: a Factor, not the Crux.

Interestingly, the Tenth Circuit began its opinion in Bandimere by reminding the audience that the drafters of the Appointments Clause “could not have contemplated” the “notion of administrative law judges.”[21] This opening demonstrates that the Constitution’s text has its limits and calls attention to the need to partake in careful interpretation of an inferior officer. Indeed, the task of identifying the precise combination of duties and authorities to bring about the label of inferior officer has vexed many courts.[22] This trying task elicited Justice Breyer to call the early efforts “circular” in logic and to “conclude that the term’s sweep is unusually broad.”[23]

Despite the definitional uncertainty, in Freytag, the Supreme Court explicitly stated that the argument focusing on “lack[ing] authority to enter a final decision […] ignore[d] the significance of the duties and discretion that special trial judges possess.”[24] Furthermore, the Supreme Court stated that an adjudicative official can be “distinguish[ed]” from others when their role is “established by Law” and their duties are statutorily specified.[25] Amongst the specified duties, the Supreme Court highlighted that the duty of rendering final decisions as a “significant duty”.[26] Within their duties, the Supreme Court stated that adjudicative officials “exercise significant discretion” including “take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders.”[27] Following the aforementioned list of “significant duties”, the Supreme Court then concluded that even if those duties were not a part of the adjudicative officer’s role, the officer would still be considered an inferior officer because of the officer’s ability to render final decisions.[28] By comprehensively dissecting adjudicative officer’s significant role, including the impressive duties and considerable discretion, the Supreme Court cogently communicated the factors to consider in determining whether an adjudicative officer is an inferior officer.

Crucially, whereas the D.C. Circuit failed appreciate the Supreme Court’s careful dissection of an adjudicative officer’s role, the Tenth Circuit recognized the meaning behind the Supreme Court’s words; only if the adjudicative officer has no broad discretion in the exercise of his significant duties will the final decision making authority be considered as outcome determinative.[29] However, the D.C. Circuit read the discussion of final decision making authority to be outcome determinative, regardless of an analysis of the adjudicative official’s duty and discretion.[30] The Tenth Circuit succinctly clarifies that final decision making authority is not the “crux of inferior officer status.”[31] Instead, final decision making authority is a factor to consider in analyzing an adjudicative official’s authority and discretion; an adjudicative official will be considered an inferior officer under the Appointments Clause, despite lacking final decision making authority, if that official exercises broad discretion in performing “significant duties.”[32]

Conclusion

In Bandimere, the Tenth Circuit ruled correctly in accordance with Freytag because, much like the Supreme Court, the court took a more holistic approach to defining an inferior officer. Moreover, the court properly identified the D.C. Circuit’s misinterpretation of Freytag by highlighting the D.C. Circuit’s overreliance on the final decision making authority as dispositive of an inquiry. Removing the D.C. Circuit’s narrow focus on final decision making authority allowed the Tenth Circuit to properly see that the duties of an ALJ need not include final decision making authority to rise to the level of “significant duties” under the Appointments Clause.

[1] U.S. Const. art II, §2, cl. 2.

[2] Ryder v. United States, 515 U.S. 177, 182 (1995).

[3] Id.

[4] U.S. Const. art II, §2, cl. 2.

[5] Freytag v. CIR, 501 U.S. 868, 880–882 (1991).

[6] Bandimere v. United States SEC, 844 F.3d 1168 (10th Cir. 2016); Landry v. FDIC, 204 F.3d 1125 ( D.C. Cir. 2000).

[7] Bandimere, 844 F.3d at 1168.

[8] SEC.gov, What We Do (2017), https://www.sec.gov/about/whatwedo.shtml (last visited Feb 27, 2017).

[9] Id.

[10] Bandimere, 844 F.3d. at 1171.

[11] Id.

[12] Id.

[13]Id.

[14] Bandimere, 844 F.3d at 1171.

[15] Id.

[16] Id. at 1182; Landry, 204 F.3d at 1125.

[17] Bandimere, 844 F.3d at 1182.

[18] Id. at 1184.

[19] Edmond v. United States, 520 U.S. 651, 665 (1997).

[20] Bandimere, 844 F.3d at 1185.

[21] Id. at 1170.

[22] Id. at 1173.

[23] Landry, 204 F.3d at 1132-33;  Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 539 (2009)

[24] Freytag v. Commissioner, 501 U.S. 868, 881 (1991).

[25] Id. at 881.

[26] Id.

[27] Id. at 882.

[28] Id.

[29] Bandimere, 844 F.3d at 1182; Kent Barnett, Resolving the ALJ Quandary, 66 Vand. L. Rev. 797, 813. Emphasis that of the author.

[30] Bandimere, 844 F.3dat 1183; Barnett, 66 Vand. L. Rev. 797, 813. Emphasis that of the author.

[31] Id.

[32] Id; Stacy M. Lindstedt, Developing the Duffy Defect: Identifying Which Government Workers Are Constitutionally Required to Be Appointed, 76 Mo. L. Rev. 1143, 1144.

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