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Early Commentary on Free Enterprise Fund v. PCAOB:

NYU law professor Rick Pildes has a lengthy post on Balkinization previewing Free Enterprise Fund v. PCAOB, "the most important challenge in two decades in the ongoing debate between those who believe in the "unitary executive branch" theory of Art. II of the Constitution and those who endorse the constitutional validity of independent agencies." Prof. Pildes, who represented amici supporting the PCAOB below, doubts the Supreme Court will invalidate the Board unless it is willing to challenge the constitutionality of independent agencies. I am not so sure.

As I read it, Prof. Pildes' argument rests on the claim that the Board is under the SEC's near-complete control, and thus the Board's members are inferior officers. This may be true insofar as the SEC's authority over the Board is concerned, but the statute also provides that Board members can only be removed for cause. This structural feature necessarily attenuates the SEC's practical control over the Board — even if SEC retains near-plenary authority to direct or overturn Board actions — and dramatically diminishes any Presidential control over the Board. Structure matters, and agency costs are real. Accepting that independent agencies are constitutional (either on first principles or precedent), does not mean that anything goes. It may be kosher to create an agency at one level of remove from direct Presidential authority, and still impermissible to nest one independent agency within another. Or, to paraphrase Judge Kavanaugh's dissent below, accepting Humphrey's Executor does not require accepting Humphrey's Executor squared. I would agree with Prof. Pildes, however, that it may be difficult for the Cort to invalidate the PCAOB without casting doubt on other Appointments Clause precedents, such as Morrison v. Olson.

Former Solicitor General Kenneth Starr and former Assistant AG Viet Dinh have a different take on the case, as they represent the plaintiffs. Last Friday they had an op-ed in the WSJ arguing not only that the PCAOB is unconstitutional, but also that the Board's "lack of an accountable structure has likely contributed to what members of both parties see as its policy failures."

This is a fascinating and potentially important case (as I stressed to my Administrative Law students last year), and it is definitely worth watching.

UPDATE: Professor Bainbridge has more here.

Soronel Haetir (mail):
I find Pildes' argument that such agencies could be created inferior to the Federal Reserve even more frightening. At least SEC board members are government actors.
5.18.2009 3:02pm
frankcross (mail):
I don't get this. Aren't many inferior officers removable only for cause? Including independent prosecutors.
5.18.2009 3:47pm
Jonathan H. Adler (mail) (www):
Frank --

In every case of which I am aware, if an officer can only be removed for cause, it is either the President (or an officer who serves at the pleasure of the President) who makes the removal decision. Here, however, the decision to remove a board member for cause is to be made by the SEC, and SEC members, in turn, are only removable for cause. Even the independent counsel statute could be viewed as less problematic, for while the IC had substantial independence, the independent counsel was removable for cause by the President's "alter ego," the AG. that said, I think there are real tensions between Judge Kavanaugh's dissent below and the rationale of Morrison v. Olson.

JHA
5.18.2009 4:02pm
dmv (www):

This structural feature necessarily attenuates the SEC's practical control over the Board -- even if SEC retains near-plenary authority to direct or overturn Board actions....

That seemed to me exactly backwards. In other words, the structural feature that PCAOB members are removable only for cause by SEC members does nothing to attenuate practical control over the board. If anything, it merely attenuates "theoretical" control. In other words, this type of nested board messes up the pretty lines of the story we tell about inferior officers, but that's it.

Pildes' point was that, aside from removal power, the SEC otherwise pretty much has as much control over the PCAOB as it wants. He says that "the SEC can take over Board functions, refuse to approve Board proposed rules, can control the Board's budget, and the like. . . ." If the SEC has that much power over the PCAOB, the removal power issue seems like a mere formalism.

Maybe your argument is that this particular formalism must be absolutely maintained and protected, I don't know, but if you're talking about "practical control," I think it's pretty clear Pildes has the better of the argument here. Assuming his facts are correct, of course.
5.18.2009 4:34pm
Soronel Haetir (mail):
dmv,

The problem with that control argument is that the SEC only has that control if the SEC members agree amongst themselves. You read the lower court opinion and the agency argues both that the SEC chair is and is not an agency head (principal officer).

Even the SEC chair removal without cause only removes that person from the chair aiui, not from the SEC entirely.
5.18.2009 4:53pm
Jonathan H. Adler (mail) (www):
dmv --

Whether the for-cause removal requirement is a "mere formalism" is precisely the issue. A for-cause removal requirement necessarily reduces the degree of control the SEC has over the PCAOB -- indeed, that's the whole point of imposing such a limitation. However great the amount of control the SEC has over the Board, it is less than it would have were the PCAOB members removable at will.

Pildes suggested that to invalidate the PCAOB on these grounds is necessarily to question the constitutionality of all independent agencies. I disagree, as I think one can make a distinction between the creation of an independent agency, over which the President has attenuated control, and the creation of a structurally independent agency within such an agency (defining "structurally independent" in terms of removal authority).

Further, insofar as one desires bright-line rules in this area, the removal standard may be a better ground upon which to rest a decision than some effort to balance the nature of the Board's powers with the degree of control exercised by the SEC. Of course, all of this assumes that the constitution imposes some constraints on the structural composition of independent agencies. I believe there is a limit, and I do not believe that embracing such a limit necessarily entails embracing a hard-line version of the unitary executive.

JHA
5.18.2009 5:20pm
dmv (www):
Well, fair enough. :)

However great the amount of control the SEC has over the Board, it is less than it would have were the PCAOB members removable at will.

So the argument then seems to turn on whether the margin between control other than through removal power and control through removal power is constitutionally significant?

Well. I guess the first step is whether we're going to insist on bright-line rules for this kind of thing. It seems, though, that insisting on bright-line rules, while helpful in terms of certainty, may harm our ability to craft newer or different approaches to administrative government. This case seems to be an illustration of exactly that tension, if I'm reading it right (and I cheerfully concede that I very well may not be reading it right at all). If we must hew to a bright-line rule here, aren't we reducing the amount of flexibility we're allowing Congress to exercise in creating regulatory or administrative regimes?

Is this really the case worth fighting that fight over? Should I retake Admin Law? :P
5.18.2009 5:40pm
New Pseudonym:
I find it surprising that lawyers who are so careful in defining terms in briefs (hereinafter "lawyers") throw around PCAOB without a single mention of the Public Corporation Accountability Oversight Board (hereinafter . . .).
5.18.2009 5:48pm
dmv (www):
N.P.:

Don't be silly.

It was incorporated by reference to Pildes' post on Balkinization. ;)
5.18.2009 5:51pm
TalkingHead:
There are already serious tensions between existing Appointments Clause precedents, e.g. Morrison v. Olson and Edmond. This is a good opportunity for the Court to clear up the status of their relationship. If the Edmond subordinate interpretation of "inferior officer" had governed in Morrison v. Olson, the outcome would have been different -- pretty strong evidence that Morrison was overruled sub silentio by Edmond. PACOB, in turn, might help us better understand the contours of the subordinate principle, i.e. what does it mean to be subordinate?
5.18.2009 6:26pm
Dilan Esper (mail) (www):
At least SEC board members are government actors.

As is the Federal Open Market Committee.

Seriously, if there is a more tired and wrong talking point than the argument that the Fed (or at least the portion that controls monetary policy) isn't a government entity, I have yet to see it.
5.18.2009 6:50pm
frankcross (mail):
Aren't the independent agencies full of civil service officers who can be removed only for cause?
5.18.2009 7:17pm
Hans Bader (mail) (www):
Rick Pildes's argument is based one one false, straw man after another, that simply ignores the arguments actually made in Free Enterprise Fund v. Public Company Accounting Oversight Board.

First, he claims without any basis whatsoever that a challenge to the PCAOB is a challenge to all independent agencies, when in fact the challengers have complained precisely that the PCAOB is UNLIKE other independent agencies in its unaccountability. (The PCAOB is utterly unlike virtually all independent agencies. Its members are not appointed by the President, unlike classic independent agencies, whose heads are appointed by the President with the consent of the Senate. It is radically more removed from vetting by the President and the Senate).

Second, he falsely claims that a successful challenge must be based on a separation-of-powers-based "unitary executive" theory, when in fact a challenge can prevail based solely on even the most limited reading of the text of the Constitution's Appointments Clause.

I am one of the very lawyers who helped bring the constitutional challenge to the PCAOB's appointment, and wrote an article arguing that it is unconstitutional. And yet, I have been a critic of the "unitary executive" theory, in this blog and elsewhere (such as arguing that Congress could limit the President's surveillance powers under FISA, even if the surveillance in question did not violate the Fourth Amendment).

(Not that the "unitary executive" theory is necessarily contrary to Supreme Court precedent. A majority of the current Supreme Court justices accept a mild variant of the theory, although I personally don't. Of course, legally speaking, it is the Justices' opinion that matters, not mine, in deciding why the PCAOB is unconstitutional).

Nor is there any basis to Pildes's claim that the challengers' argument calls into question the existence of independent agencies. Quite the contrary. In the Humphreys' Executor case that correctly established the legitimacy of independent agencies like the SEC, the Supreme Court reasoned that they were permissible precisely because they were NOT departments of the executive branch like cabinet agencies, and were NOT alter egos of the president, but rather were "quasi-judicial" and "quasi-legislative."

Given that that is the case, it is ridiculous to argue, as the PCAOB does, that the mere commissioners of such agencies (not even their chairmen), can, collectively, appoint members of the PCAOB, the way a cabinet secretary could if PCAOB members were inferior officers who can be picked by the "Head" of a Department. (The Appointments Clause requires principal officers to be picked by the President, and even "inferior officers" must be picked either by the President or the "Head" of a "Department").

As the Wall Street Journal once noted, the legal argument for the PCAOB is simply incoherent:

"The Appointments Clause of the U.S. Constitution requires that 'officers of the United States' be appointed by the President or by the head of a department. Yet under Sarbox, the SEC Commissioners as a group pick PCAOB members. The President can neither appoint nor remove the officials, an arrangement that may violate the separation of powers.

"The D.C. Circuit Court of Appeals voted to uphold the PCAOB provision last year in a 2-to-1 ruling at odds with itself. To reject the Appointments Clause challenge, the court held that the SEC Commissioners, rather than the Chairman alone, serve as the collective "head" of the agency and can therefore pick PCAOB members without violating the Constitution. But to reject the separation of powers challenge, the same ruling suggests that the SEC Chairman is in fact the head of the agency. The court reasoned that since the SEC Chairman, unlike the Commissioners, serves at the pleasure of the President, the PCAOB is indirectly accountable to the White House and thus is constitutional. Got that?"
5.19.2009 2:16pm

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