State AG-Private Atty Alliances Must Be Put To The Lucia Test

The appointments clause of the US Constitution guards fundamental democratic principles by ensuring that all "officers of the United States" are accountable to the people.¹

For principal officers — such as judges and ambassadors — it provides that the president shall have nomination power, but the Senate must confirm the nominee.² For inferior officers, "Congress may by law vest the appointment [power] ... in the President alone, in the courts of law, or in the heads of departments."³ As the U.S. Supreme Court has explained, "the Appointments Clause was designed to ensure public accountability for both the making of a bad appointment and the rejection of a good one."⁴

In Lucia v. U.S. Securities and Exchange Commission, the US Supreme Court held that administrative law judges, or ALJs, of the SEC qualified as "officers" and, accordingly, needed to be appointed in accordance with the appointments clause.⁵ Lucia's straightforward holding left a rather large and important question in its wake: If SEC ALJs are officers, what other public servants might be subject to appointments clause requirements as well?

Recent Cases Interpreting Lucia

Lucia created a wave of litigation responding to this question through challenges to the appointment of federal officers, including to the appointment of public servants like administrative patent judges,⁶ the special counsel investigating Russian interference with U.S. elections,⁷ ALJs at the Social Security Administration,⁸ and members of the Benefits Review Board.⁹

While the federal challenges pile up, two cases decided last month — one by the U.S. Supreme Court and one by the Missouri Supreme Court — indicate that state court challenges might soon emerge as the next frontier of appointments clause challenges.

First, on June 1, the US Supreme Court held that the members of the Puerto Rico Oversight and Management Board were not officers of the United States for appointments clause purposes because the board enjoyed "primarily local powers and duties."¹⁰ In doing so, the court explained that Lucia's test applied only to officials whose "duties ... were indisputably federal or national in nature."¹¹

In territories like Puerto Rico, which are regulated in large part by federal statutes, the court reasoned that a strict application of the appointments clause would actually harm Congress' flexibility to support local — rather than federal — accountability for territorial officers exercising authority under the laws of the United States (such as allowing for the election of governors and mayors in U.S. territories).¹²

Second, although the federal appointments clause has no binding effect on state officials, the Missouri Supreme Court recently applied Lucia in analyzing whether the composition of the state's clean water commission was constitutional for the purposes of issuing a "swine concentrated animal feeding operation" permit.¹³

There, the court held that, just as the petitioner in Lucia had standing to challenge the appointment of the SEC ALJ without showing a specific harm, the Missouri petitioner did not have to "prove a differently composed commission" would have acted differently to proceed with its suit.¹⁴ Instead, it was permitted to challenge the "constitutional validity of the commission's composition" simply because it was subject to the commission's authority.¹⁵

Implications for State Law Constitutional Arguments

These recent cases show that, although Lucia's specific appointments clause holding does not apply to all state officials, its focus on democratic accountability extends beyond the federal setting. And in state constitutions, as in the U.S. Constitution, accountability is often linked to the hiring and firing of officials. In fact, most state constitutions contain appointments clauses of some sort (although there are often state-by-state differences in how officers are appointed under their respective constitutional provisions).¹⁶

For example, some states do not distinguish between principal and inferior officers, instead requiring the governor to appoint all state officers.¹⁷ Some states allow significant legislative involvement in the appointment process.¹⁸ Other states impose residency requirements for officers.¹⁹

Notwithstanding these textual differences, all states adhere to the basic appointments clause principle that "officers" ultimately must be accountable to the public and be appointed in accordance with some delineated procedure that can be traced back to an elected official in a constitutional branch of government.²⁰ And because states often look to federal precedent to guide their interpretation of similar state constitutional provisions,²¹ the discussion of cases interpreting the federal appointments clause can fill in the gaps in state law.

In light of how Lucia has reinvigorated challenges based on the appointments clause, and in view of the recent decisions using Lucia to examine the propriety of local officers, it makes sense to reexamine not only the appointment of federal officials, but also to question the now-common practice of allowing private attorneys to prosecute civil enforcement actions on behalf of state attorneys general, especially when it is done on a contingency-fee basis.

Absent valid appointment of the attorney prosecuting a civil enforcement action, state law may not permit the case to be prosecuted as an action on behalf of the state.

The Rise of Private Attorneys Prosecuting State Civil Enforcement Actions on Contingency

In recent years, state attorneys general have increasingly turned to private attorneys to prosecute civil enforcement actions in their name.²² This practice started with tobacco litigation, but it has expanded to other areas, such as competition law, financial services, products liability and environmental litigation.

The cases frequently seek millions — if not billions — of dollars in damages or civil penalties and, in many cases, the private attorneys are compensated on a contingency-fee basis. In one Texas tobacco case, for example, the private attorneys representing the state made a staggering "$3.3 billion in fees — approximately $92,000 per hour."²³

Courts and commentators have documented the policy concerns arising from this practice.²⁴ As the California Supreme Court held more than 35 years ago, the act of a private attorney entering a contingency arrangement for a public nuisance prosecution on behalf of the state "is antithetical to the standard of neutrality that an attorney representing the government must meet."²⁵ In other words, serious concerns arise when private attorneys can wield the full force of the state to achieve personal financial gain.

In an article published by the Institute for Legal Reform, John Beisner, Jessica Davidson Miller and Terrell McSweeny noted that "in many cases, the private attorneys — not the attorney general — are the catalysts for these [civil enforcement] suits."²⁶ Moreover, because contingency fee suits do not require an appropriation of public dollars, they are not subject to legislative debate or any other public scrutiny, and the decision to file them — along with the decision of who to select as counsel — "are not made in the sunshine."²⁷

Appointments Clause Challenges to Private Attorneys Prosecuting Civil Enforcement Actions on Behalf of the State

Although parties have challenged the states' payment of contingency fees to private counsel prosecuting state enforcement actions on due process grounds, there are other constitutional bases for these challenges as well. The policy concerns discussed above all stem from the erosion of democratic accountability that the appointments clause was designed to prevent.

Three strands of precedent make clear that any attorney prosecuting a civil enforcement action on behalf of the state should be considered an officer subject to the appointments clause — and subject to all other rules and obligations that come with the privilege of serving as a public official.

First, in Buckley v. Valeo, the Supreme Court announced a test for distinguishing between an officer (who must be appointed through a constitutional process) and an employee (who need not be). Specifically, an individual who "exercise[es] significant authority pursuant to the laws of the United States" is an officer.²⁸ Applying this test, Buckley held that "conducting civil litigation in the courts of the United States for vindicating public rights" was an exercise of significant authority that must be "discharged only by persons who are 'Officers of the United States.'"²⁹

In addressing concerns about "employing private contractors or individuals to perform certain tasks now performed by the [U.S.] Department of Justice employees," the Office of Legal Counsel similarly stated that "the authority to direct litigation on behalf of the United States may not be vested in persons who are not officers of the United States appointed in the proper manner under Article II, Section 2, Clause 2 of the Constitution."³⁰

Simply put, private individuals, who are not accountable to or controlled by the executive branch, may not "determine the policy of the United States, or interpret and apply federal law in any way that binds the United States or affects the legal rights of third parties."³¹

This reasoning applies squarely to private attorneys litigating on behalf of state attorneys general. In developing case strategy, compiling evidence, and arguing motions, attorneys must interpret and apply state law in a way that both binds the state and affects the third-party rights of the defendants it has sued. Without the safeguards of appointments clause accountability, private attorneys are nothing more than "private contractors or individuals" who have been hired to perform "certain tasks now performed by" the state attorney general, a practice that the Department of Justice's Office of Legal Counsel has expressly disparaged.³²

Second, attorneys litigating in the name of a state are officers regardless of whether they are litigating civil or criminal matters.³³ As former Attorney General Robert H. Jackson stated, "{t}he prosecutor has more control over life, liberty, and reputation than any other person in America. His discretion is tremendous."³⁴ Or, stated more recently: "Prosecutors must wield broad powers to investigate effectively criminal activity, but elected officials must exercise sufficient control over prosecutors, principally by setting boundaries in law, to enable the public to know who to credit or blame for exercises of prosecutorial authority."³⁵

Given this extraordinary power, prosecutors are considered officers even when they are appointed only for a limited purpose or a set duration.³⁶

Like prosecutors, attorneys prosecuting civil enforcement cases "wield broad powers" that must be confined by legal boundaries, even when they are appointed only for a single issue or case.³⁷ Like prosecutors, these attorneys purport to represent the public, punish wrongdoing in the name of the state, and need not establish constitutional standing to bring suit.

They can also demand punitive relief in the form of massive fines and civil penalties.³⁸ They investigate claims through discovery; introduce and object to evidence; write, file and argue motions; and put on a trial, just as prosecutors do. They typically control the course of the litigation in the name of the state. It follows that, for the purposes of the appointments clause, anyone prosecuting a civil enforcement action in the name of a state should be treated the same as attorneys prosecuting criminal cases.³⁹ That is, they should be considered public officers.

Third, as illustrated by Lucia, it should not matter that private civil enforcement attorneys are nominally supervised by a superior officer, or that they may not have authority to make certain decisions.⁴⁰ Indeed, Lucia explicitly rejected the argument that ALJs were not officers because the SEC retained authority to review their judgments de novo and the ALJ "could not enter a final decision."⁴¹

Instead of making "finality" the crux of the analysis, the court focused on the "significant discretion" that ALJs exercised in carrying out "important functions."⁴² Specifically, it noted that, ALJs (1) "take testimony," (2) "conduct trials," (3) "rule on the admissibility of evidence" in ways that "critically shape the administrative record," and (4) "have the power to enforce compliance with discovery orders."⁴³

Attorneys prosecuting civil enforcement actions similarly maintain "significant discretion" in affecting individuals' and the state's rights through litigation. Although they may need attorney general approval for major decisions such as the initiation of proceedings or settlement of the case, the attorneys involved in the day-to-day litigation of a civil enforcement make strategic decisions that directly affect the private parties against whom they are litigating, and bind the state through their representations to the court.

Thus, as Buckley announced, attorneys prosecuting civil matters for the sovereign exercise sufficient authority to render them officers subject to the appointments clause.⁴⁴

Conclusion

Considering that private attorneys wield substantial power in prosecuting major litigations on behalf of the government, it is only logical that they be considered public officials. And given that they often pocket a substantial portion of the recovery that would otherwise go to the state, it is only reasonable that these officials be publicly accountable. Accordingly, especially in the wake of Lucia, litigants subject to state attorney general actions prosecuted by private counsel should consider whether their appointment satisfies basic constitutional safeguards under the relevant state's appointments clause.