Tuesday, September 26, 2017

The Appointments Clause -- Again

By Steve Stapleton

Recently the United States Court of Appeals for the Fifth Circuit stayed an order of the Federal Deposit Insurance Corporation (FDIC) which assessed a civil penalty against Cornelius Burgess for improper expense practices and misuse of bank property.(*1)  The FDIC had adopted the recommendations of an FDIC administrative law judge (ALJ) and Burgess asserted that the AJL was an inferior “Officer of the United States” who holds his office in violation of the Appointments Clause to the United States Constitution.  While the court, in issuing the stay, did not decide the merits of the case, the court nevertheless found that Burgess was likely to succeed on the merits.

The Appointments Clause to the U.S. Constitution(*2) divides government employees into three categories:  Principal officers, who must be appointed by the President with “the Advice and Consent of the Senate,” inferior Officers, who may be appointed by the President alone, the Courts of Law or Heads of Departments and, lastly, non-Officer employees who are consigned to the position of “lesser functionaries.”  A government worker is an “Officer of the United States” subject to the Appointments Clause if he or she exercises “significant authority pursuant to the laws of the United States.”(*3)  For example, the Supreme Court in Freytag v. Commissioner,(*4) thus held that a Special Trial Judge (STJ) in the United States Tax Court, as Article I court, was an inferior Officer subject to the Clause.  

The D.C. Circuit in Landry v. FDIC,(*5) held that FDIC AJLs are not inferior Officers, and therefore not subject to the Clause, the same question addressed by the Fifth Circuit.  That court recently applied the same rationale to hold that SEC ALJs are also not “inferior Officers.”(*6)  The Tenth Circuit in Bandimere v. SEC,(*7) had rejected the D.C. Circuit’s interpretation of Freytag and held that final decision-making authority is not a necessary condition to Officer status, further concluding that SEC ALJs are inferior Officers, thus setting up a circuit split.

In Freytag, the relevant statute authorized the STJ to decide certain cases, but in others, to “hear and prepare proposed findings and an opinion,” without issuing a decision.  Freytag, in that case, had argued that the STJ was an inferior Officer within the meaning of the Appointments Clause and had not been appointed in accordance with its requirements.  The Supreme Court agreed holding that STJ’s held significant statutory duties and discretion and that such brought them within the Appointments Clause.  

The Fifth Circuit concluded however that the Supreme Court’s additional statement – that thee duties and discretion coupled with the power to enter final judgments – was mere dicta and the Fifth Circuit concluded that final decision-making is not a necessary condition for Officer status.

Congress and the courts have held that many who adjudicate disputes with a certain independence of judgment are “inferior Officers,” among which are Magistrate judges,(*8) bankruptcy judges,(*9) military trial and appellate judges,(*10) among others.  With bankruptcy judges, Congress invoked the Judicial Vesting Option and gave U.S. Courts of Appeals, an Article III court, the power to appoint all bankruptcy judges.(*11)  Similarly, U.S. District Courts, also Article III courts, have the power to appoint magistrate judges.(*12)  “Courts of Law,” vested with the appointments power, could also be non-Article III courts, such as the U.S. Tax Court.(*13)

Nevertheless, the Appointments Clause is back on the burner again with the concomitant question as to the constitutionality of adjudications by those whose appointment is arguably outside the Appointments Clause.  Where it will go remains to be seen.

  1. Burgess v. FDIC, No 17-60579 (5th Cir., September 7, 2017).
  2. U.S. CONST. art. II, § 2, cl. 2.
  3. Edmund v. United States, 520 U.S. 651, 662 (1997).
  4. 501 U.S.868, 881-82 (1991).
  5. 204 F.3d 1125 (D.C. Cir. 2000).
  6. Raymond J. Lucia Companies, Inc. v. SEC, 832 F.3d 277, 285-89 (D.C. Cir. 2016).
  7. 844 F.3d 1168 (10th Cir. 2016).
  8. Pacemaker Diagnostic Clinic of Am., Inc. v. Instromedix, Inc., 725 F.2d 537, 545 (9th Cir. 1984)(en banc).
  9. 28 U.S.C. § 152(a).
  10. Weiss v. United States, 510 U.S. 163 (1994).
  11. 28 U.S.C. §152(a).
  12. 28 U.S.C. § 631(a).
  13. Freytag, supra at 919 (Scalia, J., concurring)(interpreting the Excepting Clause to mean that inferior officers would have to appoint lesser officials).

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