M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, June 28, 2010

PCAOB Unconstitutional

The Supreme Court just handed down its opinion in the PCAOB case.  The court ruled along familiar 5-4 lines that the way the accounting board was created in violation of the President's appointment power.  From the opinion:

The Government errs in arguing that, even if some constraints on the removal of inferior executive officers might violate the Constitution, the restrictions here do not.  There is no construction of the Commission’s good-cause removal power that is broad enough to avoid invalidation.  Nor is the Commission’s broad power over Board functions the equivalent of a power to remove Board members. Altering the Board’s budget or powers is not a meaningful way to control an inferior officer; the Commission cannot supervise individual Board members if it must destroy the Board in order to fix it.  Moreover, the Commission’s power over the Board is hardly plenary, as the Board may take significant enforcement actions largely independently of the Commission.  Enacting new SEC rules through the required notice and comment procedures would be a poor means of micro-managing the Board, and without certain findings, the Act forbids any general rule requiring SEC preapproval of Board actions.  Finally, the Sarbanes-Oxley Act is highly unusual in committing substantial executive authority to officers protected by two layers of good-cause removal.

I'll admit it, there's a little too much con law on this blog for me these days.  


Update:  The Court's ruling that the appointments process used to staff PCAOB is unconstitutional does not mean that the entire Sarbanes-Oxley Act is unconstitutional.  The court considered the question severable: 

We reject such a broad holding.  Instead, we agree with the Government that the unconstitutional tenure provisions are severable from the remainder of the statute.  “Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,” severing any “problematic portions while leaving the remainder intact.” […]  Because “[t]he unconstitutionality of a part of an Act does not necessarily defeat or affect the validity of its remaining provisions,” […] the “normal rule” is “that partial, rather than facial, invalidation is the required course,” Putting to one side petitioners’ Appointments Clause challenges (addressed below), the existence of the Board does not violate the separation of powers, but the substantive removal restrictions imposed by §§7211(e)(6) and 7217(d)(3) do.

The PCAOB Appointments Clause falls.  The rest of it stands.


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