There’s yet more strangeness afoot in the world of financial regulation. No, it’s not the CFPB this time. It’s the generally more staid Securities and Exchange Commission (SEC). Earlier this week, the Department of Justice weighed in on Lucia v. SEC, a case challenging the constitutionality of the SEC’s in-house judges, known as Administrative Law Judges (ALJs). What is strange is that the DOJ sided with Raymond Lucia and against the SEC. Seemingly in response, the SEC took action and ratified the appointment of its ALJs, a move it had been resisting for some time.

The case is currently with the Supreme Court where the Court is considering whether it will hear and decide the matter. The question is whether ALJs are “mere employees” or are instead “inferior officers.” If the latter, their appointment is subject to the appointments clause in the Constitution, which permits Congress to “vest the appointment of such inferior officers, as they think proper, in the President alone, in the courts of law, or in the heads of departments.” Since the process for appointing ALJs has (until recently) not been done by any of these, if they are indeed inferior officers, their appointment would be unconstitutional.

Cato has filed an amicus brief in support of Lucia. Given the great discretion that ALJs wield – hearing and ruling on both the admissibility and credibility of evidence, presiding over hearings, and issuing opinions – it is strange to say they are not inferior officers. Resting on the finality of the decisions alone seems insufficient. And indeed in another case arguing the same issue, whether SEC ALJs are inferior officers, a federal appeals court in Colorado ruled that they are. Since there is now a circuit split, with appeals courts in two circuits issuing opposite rulings, it seems likely the Supreme Court will hear the case to decide the issue.

The appeal to the Supreme Court is of a decision by the federal court of appeals in D.C., which ruled that, because ALJs’ opinions are not final and can be reviewed by the SEC commissioners, the ALJs are not in fact inferior officers.

The problem for the D.C. Circuit Court of Appeals is that it already ruled on this question. In Landry v. FDIC, the D.C. Circuit found that ALJs at the FDIC are not inferior officers because their opinions are not final. This is the case on which the D.C. Circuit relied in Lucia.  Landry was also appealed to the Supreme Court, but the Court did not take it up.

Speaking of Landry. When Landry was pending before the Supreme Court, just as Lucia is now, the Department of Justice weighed in on that case, just as it did recently in Lucia. But that time, the DOJ sided with the FDIC, arguing that the lack of finality in ALJ decisions makes them mere employees and not inferior officers. Exactly the opposite of what DOJ is now arguing in Lucia.

Although it is generally unusual for the government to be on both sides of a case, it is not the first time this DOJ has weighed in opposite a government agency. In another case that is still pending before the D.C. Circuit, the DOJ submitted a brief in support of PHH, a mortgage company challenging the constitutionality of the structure of the CFPB. PHH has argued that the CFPB’s structure, with a single director at its head that is arguably not removable except for cause by the president, is unconstitutional. Cato has also submitted a brief in this case, supporting PHH’s challenge to the CFPB’s structure.

Both PHH and Lucia present similar threats to executive power and in both cases the DOJ is making a similar argument: certain structures in each limit the president’s ability to fulfill his constitutional duty to “take care that the laws be faithfully executed.” In the case of the CFPB, it is the president’s inability to remove the director except for cause that DOJ argues frustrates the president’s ability to fulfill his duty. In the case of the SEC, it is both the fact that ALJs are not directly appointed by the head of the SEC (who are in turn appointed by the president) and that they are subsequently only removable for cause that limits the president’s authority.

I am certainly not one to argue for an overly powerful executive. However, the president is at least an elected official and therefore accountable to the people. As I have argued (over and over again), the structure of the CFPB offers almost no accountability to the people, and the SEC’s method for selecting ALJs has presented similar issues.

So has the SEC fixed the problem by ratifying the appointment of its ALJs? Sort of, but it may have caused other problems. The question of whether ALJs are properly appointed has been percolating for awhile. There are likely two reasons that the SEC didn’t just ratify the ALJs’ appointments when the issue arose. First, the ratification could be seen as an admission that ALJs were not previously appointed properly, and it could therefore call into question all decisions already issued by SEC ALJs in the past. Indeed, Lucia’s case remains live because the ALJ issued the opinion in that case before the ratification. Second, the SEC has only five of the more than 2,000 ALJs in various federal agencies, who are selected through the same process. Admitting that the SEC’s ALJs are not properly appointed could call into question both the appointment of and decisions made by the thousands of other ALJs throughout the federal government. The SEC’s action may therefore have wide-ranging consequences in the days and months ahead.

Beyond the highly technical question of whether ALJs have been properly appointed is the bigger question of whether their current employment at enforcement agencies like the SEC is good policy. In many cases, there is concurrent jurisdiction between ALJs and federal courts. Federal courts, of course, are established under Article III of the constitution and are subject to certain safeguards as our judicial branch. Allowing the government’s lawyers to choose whether to bring a case against someone in federal court or before the agency’s own ALJ, while the defendant has no such option, presents if not a question of actual constitutional due process at least a question of fairness. That, however, will be a fight for another day as it is not a question presented to the Court in Lucia. Although it is one that the SEC would be well advised to consider on its own, especially while its ALJ program is in its current state of flux.