In the past few months, there has been a lot of speculation regarding the future of many administrative agencies under Trump’s administration. However, two current cases

pending in the D.C. Circuit have the potential to have a dramatic impact on administrative agencies and past and present regulatory enforcement actions by such agencies.

In Lucia v. SEC, the SEC brought claims against Lucia for misleading advertising in violation of the Investment Advisers Act of 1940. The enforcement action was initially resolved by an administrative law judge (ALJ); however Luica was later granted a petition for review based on an argument that the administrative hearing was unconstitutional because the ALJ was unconstitutionally appointed. The issue made it up to the U.S. Court of Appeals for the D.C. Circuit who recently held that the ALJ was constitutionally appointed because the judge was an “employee”, not an officer. However, other courts have held just the opposite. In December, the 10th Circuit held in Bandimere v. SEC that ALJs were “inferior officers” and thus must be appointed pursuant to the Appointments Clause. A rehearing en banc has been granted in Lucia to address this issue.

On the heels of Lucia, in PHH v. CFPB, the CFPB brought claims against PHH for violations of the Real Estate Settlement Procedures Act. Similarly, this enforcement proceeding was originally decided by an ALJ. However, PHH appealed the ALJ decision for a multitude of reasons and the appeal has also made it up to the D.C. Circuit where a rehearing en banc was granted last month. In the court’s order granting a rehearing en banc, the court ordered, among other things, that the parties address what the appropriate holding would be in PHH if the court holds in Lucia that the ALJ was unconstitutional.

PHH responded to this issue in its Opening En Banc Brief by stating that if the ALJ in Lucia is found to have been an inferior officer and thus improperly appointed under the Appointments Clause, then the ALJ in PHH was similarly improperly appointed. PHH further argues that since the ALJ was improperly appointed, the entire hearing before the ALJ was invalid and the proceeding cannot be restarted because of “unconstitutional taint.”

The ALJ issue in PHH generally takes second fiddle to PHH’s argument that the CFPB is unconstitutionally structured because its “massive, unchecked federal power in the hands of a single, unaccountable Director” offends separation of powers principles. Under the Consumer Financial Protection Act, the director of the CFPB can only be removed by the President for cause. PHH argues this is unconstitutional because separation of powers provisions prohibit Congress from limiting the President’s ability to remove an executive officer. If the CFPB is found unconstitutional, this would have a major impact on the regulation of financial institutions.

If Lucia and PHH are decided against the respective agencies, this can have an impact on all administrative agencies. Not only would agencies have to revise the way they appoint their in-house judges, but if the court determines in both Lucia and PHH that the ALJ was inappropriately appointed, this may cause a storm of entities claiming various enforcement actions are invalid and should be vacated. Current regulatory schemes affecting financial institutions could further be upset by a finding that the CFPB is invalid. This issue is likely to remain unresolved for awhile and it is clearly too early for either side to feel safe claiming a win. The existing circuit split combined with the potential significant impact of the resolution of these issues may make these issues a candidate for Supreme Court review. For now though, en banc oral arguments for both cases are scheduled for May 24, 2017 before an eleven judge panel of the D.C. Circuit.