The US federal judge in New York who two weeks ago reserved judgment regarding Barbara Duka’s efforts to enjoin the Securities and Exchange Commission from proceeding with an enforcement action against her before an administrative law judge granted the injunction last week. This was because, claimed the judge, without an injunction, Ms. Duka “would be forced into an unconstitutional proceeding”; would not be able to recover monetary damages from the SEC for any potential harm because the agency enjoys sovereign immunity; and would not be able to obtain an injunction against an administrative hearing by a court of appeals after an administrative hearing because the hearing would already have been concluded. The judge again concluded that Ms. Duka would likely prevail on the merits in any full hearing because an administrative law judge is a so-called “inferior officer” under the US Constitution that can only be appointed by the President, courts of law or by heads of departments (this is part of the so-called “Appointments Clause” of the US Constitution). Here, the administrative law judge proposed to oversee Ms. Duka’s case was not appointed by any commissioners of the SEC. After the US federal judge’s decision, the ALJ scheduled to hear the SEC’s case against Ms. Duka cancelled all pending administrative proceedings. Two weeks ago the US federal judge had given the SEC seven days to cure the method of its ALJ appointment, but the SEC did not correct the appointment method. (Click here for a further discussion in the article “Federal Judges in NY and Georgia Rule Against SEC for Enforcement Action Forum Choice Because of ALJ Selection Process” in the August 3- 7 and 10, 2015 edition of Bridging the Week.)
Legal Weeds: It may seem odd that a US federal judge invites the Securities and Exchange Commission to cure a problem that it warns will cause him otherwise to enjoin commencement of an administrative hearing against the subject of an enforcement action, gives the SEC seven days to fix the problem, but, notwithstanding, the SEC declines the invitation. The SEC must fear that if it, in fact, cures every current situation where an administrative law judge was not appointed by one of its commissioners, it opens to attack under the Appointments Clause of the US Constitution ongoing hearings, as well as prior and pending decisions rendered by ALJs. Stay tuned.