On February 6, the Agriculture Marketing Service (AMS) posted a notice in the Federal Register announcing it will delay further rulemaking on a Federal Milk Marketing Order (FMMO) in California[1] while it awaits the US Supreme Court’s decision in Lucia v. Securities & Exchange Commission.[2] On January 12, 2018, the Supreme Court granted certiorari to resolve a circuit split between the US Court of Appeals for the Tenth Circuit and for the DC Circuit.[3]

Lucia calls into question whether administrative law judges (ALJs) working for the SEC are “inferior officers” under the Constitution and therefore fall under its Appointments Clause, which arguably mandates that ALJs be appointed by the president, a court, or a department head. While the immediate impact on the US Department of Agriculture’s (USDA’s) announcement will frustrate California dairy farmers, the broader impact is that a wide range of administrative proceedings within the USDA have been placed in abeyance pending Supreme Court action.

ALJs at USDA, like many other agencies, are not appointed but are chosen through a somewhat independent merit-based hiring system. If the Supreme Court in Lucia determines that such ALJs still function as government employees, the current selection process would be constitutional. But if it determines that ALJs have the power and responsibilities of “inferior officers,” they must be appointed by the president or an agency head to be constitutional.

In recent years, the SEC has increasingly used its own administrative proceedings, rather than federal courts, as the preferred forum for bringing its enforcement actions. Respondents have brought challenges asserting that the use of such proceedings is unfair and unconstitutional. In that context, the SEC has historically taken the position in these challenges that the Commission’s ALJs were employees, not officers. However, a circuit split on the issue has emerged in the last year.

In Lucia, the DC Circuit Court sided with the SEC’s position that ALJs are employees and therefore outside the scope of the Appointments Clause. The circuit court’s decision turned on the scope of an ALJ’s authority to resolve SEC enforcement disputes, observing that “generally an appointee is an Officer, and not an employee who falls beyond the reach of the Clause, if the appointee exercises ‘significant authority pursuant to the laws of the United States.’”[4] Whether government officials exercise “significant authority” is determined by (1) the significance of the matters resolved, (2) the discretion they exercise in reaching their decisions, and (3) the finality of those decisions.[5] Because the DC Circuit Court determined that ALJs lack the authority to issue final decisions, the court ruled that ALJs are in fact mere employees and their selection is thus constitutional.

In a notable shift, the US solicitor general submitted a brief urging the Supreme Court to grant Lucia’s petition for certiorari, agreeing that SEC enforcement hearings were unconstitutional because ALJs serve as inferior officers.[6] The following day, the SEC, as “head of the department,” ratified the appointments of five ALJs in an effort to make their hiring compliant with the Appointments Clause.[7] Although the SEC’s decision to ratify the hiring of its ALJs in some sense resolved the issued in Lucia with regard to ALJs at the SEC, the solicitor general is still seeking certiorari in order to resolve the existing circuit split.

While the ultimate impact of the case on the SEC may now be limited, as seen with USDA’s notice this week, the Lucia ruling could still have a significant impact on administrative proceedings conducted by other agencies. In fact, the solicitor general’s brief noted that the issue before the court “affects not merely the Commission’s enforcement of the federal securities laws, but also the conduct of adversarial administrative proceedings in other agencies within the government.”[8] Currently, more than 50 statutes administered by agencies within the USDA require administrative hearings, including those related to animal welfare, dairy prices, food safety inspections, and meat packing.[9] Other agencies that could also be affected include the Environmental Protection Agency, the Federal Energy Regulatory Commission, and the Consumer Financial Protection Bureau.

USDA’s decision to delay the FMMO rulemaking is already having a negative impact on California dairy producers, who may not be able to wait until the Supreme Court renders a decision in the matter. In letters last week, California dairy producers and trade associations urged USDA to move forward in its rulemaking given what they characterized as the chronic decline in milk production in California.[10] Similar concerns in other USDA program areas are likely to arise between now and the issuance of the Court’s decision, which would presumably come by the end of its term in June.