Wednesday, May 20, 2009
The Supreme Court on Monday granted cert. in Free Enterprise Fund v. Public Co. Accounting Oversight Board, the D.C. Circuit case upholding (2-1 and 5-4 against en banc review) that portion of the Sarbanes-Oxley Act that created an independent Board, the PCAOB, to enforce Sarbanes-Oxley. PCAOB members are appointed by and under the authority of the SEC, itself an independent agency. The plaintiff-appellants argued that the PCAOB violates the Appointments Clause and separation-of-powers principles. The D.C. Circuit rejected those arguments and upheld the Act. The full D.C. Circuit opinion is here; my edited (and substantially shorter) version is here.
The plaintiff-appellants argued that the PCAOB violates the Appointments Clause, because PCAOB members are "officers" by virtue of their independence. (Under the Appointments Clause, only the President may appoint, with the advice and consent of the Senate, "officers"; Congress may vest the appointment of "inferior officers" in the President, the courts, or heads of departments.) Plaintiff-appellants point to members' appointments by the independent SEC (not the President), the heightened standard for removing a member (only if the member "has willfully violated" any provision of the Act), and the PCAOB's authority to investigate violations of Sarbanes-Oxley without SEC control or oversight.
The D.C. Circuit flatly rejected these arguments, holding that PCAOB members were subject to greater control than Coast Guard judges in Edmond v. United States and the independent counsel in Morrison v. Olson, both upheld by the Court.
The plaintiff-appellants' separation-of-powers argument is more interesting. This argument is based upon the excessive attenuation of Presidential control over the PCAOB. In short, they argue the President can direct the independent PCAOB only through the independent SEC, creating an inulated body within an insulated body.
For unitary executives--who in their purest form reject any independent body within the executive branch--the PCAOB is doubly troubling. It means that the President can't absolutely control even those who control an insulated board--a kind of double-reinforced wall between the law enforcers (the PCAOB) and the President, and thus a big problem for those who see the executive as unitary. Free Enterprise Fund gives them an opportunity to test their theory.
The D.C. Circuit rejected the separation-of-powers argument. That court held that a President's attenuated control over independent agencies has been tolerated since Humphrey's Executor v. United States in 1935.
But the claim may receive a different reception at the Supreme Court. The plaintiff-appellants led their cert. petition with this claim, putting the issue squarely before the Court. But they also carefully tempered the claim by citing and navigating Edmond and Morrison. The argument thus appears modest--based upon, not attempting to overturn, these landmark cases--but it also opens the door for a much more sweeping ruling on independent agencies, the unitary executive theory, and, ultimately, Congress's authority to create and empower agencies within the executive branch.