The PCAOB Anti-climax

The much vaunted challenge to the constitutionality of the PCAOB and of Sarbanes-Oxley itself has ended with a whimper rather than a bang.

The decision in Free Enterprise Fund v. PCAOB can be downloaded from the SCOTUSwiki here.

In a 5-4 decision authored by CJ Roberts, the Court held that the statutory provisions for removal of PCAOB members were unconstitutional. Under SOX, the members could be removed only by the SEC and only for cause. Under prior law, the President can remove members of the SEC pnly “inefficiency, neglect of duty, or malfeasance in office.” Humphrey’s Executor v. United States, 295 U. S. 602, 620.

Although the Supreme Court long has upheld statutes -- like the one creating the SEC -- creating an independent agency whose head(s) may be removed only for cause, the Court had never addressed a double layer of tenure of the sort created by SOX.

CJ Roberts explained that:

In those cases, however, only one level of protected tenure separated the President from an officer exercising executive power. It was the President—or a subordinate he could remove at will—who decided whether the officer’s conduct merited removal under the good-cause standard.

The Act before us does something quite different. It not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists. That decision is vested instead in other tenured officers—the Commissioners— none of whom is subject to the President’s direct control. The result is a Board that is not accountable to the Presi­dent, and a President who is not responsible for the Board. ...

This novel structure does not merely add to the Board’s independence, but transforms it. Neither the President, nor anyone directly responsible to him, nor even an officer whose conduct he may review only for good cause, has full control over the Board. The President is stripped of the power our precedents have preserved, and his ability to execute the laws—by holding his subordinates accountable for their conduct—is impaired.

That arrangement is contrary to Article II’s vesting of the executive power in the President. Without the ability to oversee the Board, or to attribute the Board’s failings to those whom he can oversee, the President is no longer the judge of the Board’s conduct. He is not the one who de­cides whether Board members are abusing their offices or neglecting their duties. He can neither ensure that the laws are faithfully executed, nor be held responsible for a Board member’s breach of faith. This violates the basic principle that the President “cannot delegate ultimate responsibility or the active obligation to supervise that goes with it,” because Article II “makes a single President responsible for the actions of the Executive Branch.” Clinton v. Jones, 520 U. S. 681, 712–713 (1997) (BREYER, J., concurring in judgment).

Given that one level of what the Court called "tenure protection" long has been constitutional, why should the creation of a second be a problem? The court explained:

The added layer of tenure protection makes a difference. Without a layer of insulation between the Commission and the Board, the Commission could remove a Board member at any time, and therefore would be fully responsible for what the Board does. The President could then hold the Commission to account for its supervision of the Board, to the same extent that he may hold the Commission to account for everything else it does.

A second level of tenure protection changes the nature of the President’s review. Now the Commission cannot remove a Board member at will. The President therefore cannot hold the Commission fully accountable for the Board’s conduct, to the same extent that he may hold the Commission accountable for everything else that it does. The Commissioners are not responsible for the Board’s actions. They are only responsible for their own determi­nation of whether the Act’s rigorous good-cause standard is met. And even if the President disagrees with their determination, he is powerless to intervene—unless that determination is so unreasonable as to constitute “inefficiency, neglect of duty, or malfeasance in office.” Humphrey’s Executor, 295 U. S., at 620 (internal quotation marks omitted).

The opinion then goes on for page after page of learned discourse on the importance of Presidential power to oversee the Executive Branch.

Now we come to the remedy. As I've often noted, SOX had no severability clause. Yet, as I predicted yesterday, the court was unwilling to strike down the entire PCAOB-- let alone all of SOX.

“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.” Ayotte v. Planned Parenthood of Northern New Eng., 546 U. S. 320, 328–329 (2006). Be­ cause “[t]he unconstitutionality of a part of an Act does not necessarily defeat or affect the validity of its remaining provisions,” Champlin Refining Co. v. Corporation Comm’n of Okla., 286 U. S. 210, 234 (1932), the “normal rule” is “that partial, rather than facial, invalidation is the required course,” Brockett v. Spokane Arcades, Inc., 472 U. S. 491, 504 (1985). 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 Sarbanes-Oxley Act remains “‘fully operative as a law’” with these tenure restrictions excised. New York, 505 U. S., at 186 (quoting Alaska Airlines, Inc. v. Brock, 480 U. S. 678, 684 (1987)). We therefore must sustain its remaining provisions “[u]nless it is evident that the Legis­ lature would not have enacted those provisions . . . inde­pendently of that which is [invalid].” Ibid. (internal quo­tation marks omitted). Though this inquiry can some­ times be “elusive,” Chadha, 462 U. S., at 932, the answer here seems clear: The remaining provisions are not “incapable of functioning independently,” Alaska Airlines, 480 U. S., at 684, and nothing in the statute’s text or historical context makes it “evident” that Congress, faced with the limitations imposed by the Constitution, would have pre­ferred no Board at all to a Board whose members are removable at will.

So, after all the years of litigation, what's the result? The "removal restrictions are invalid," which "leaves the Board removable by the Commission at will, and leaves the President separated from Board members by only a single level of good-cause tenure. The Commission is then fully responsible for the Board’s ac­tions, which are no less subject than the Commission’s own functions to Presidential oversight."

I confess to being unpersuaded. In a footnote, the majority explained that "The second layer matters precisely when the President finds it necessary to have a subordinate officer removed, and a statute prevents him from doing so." So suppose the President wanted a PCAOB member removed. He still has no power to do so. So the President asks the SEC to fire the PCAOB member. Granted, the SEC now could fire the member without cause. But suppose the SEC declined to do so. The President still has no power to punish the SEC members. He still can only remove them for “inefficiency, neglect of duty, or malfeasance in office.” Humphrey’s Executor, 295 U.S. at 620.

I find myself in complete accord with Justice Breyer's dissent, which argues that:

But so long as the President is legitimately foreclosed from removing the Commissioners except for cause (as the majority assumes), nullifying the Commission’s power to remove Board members only for cause will not resolve the problem the Court has identified: The President will still be “powerless to intervene” by removing the Board members if the Commission reasonably decides not to do so.

In other words, the Court fails to show why two layers of “for cause” protection—Layer One insulating the Commissioners from the President, and Layer Two insulating the Board from the Commissioners—impose any more serious limitation upon the President’s powers than one layer.

CJ Roberts nowhere adequately answers that basic objection.

The real problem here is the Supreme Court's decades long acquiescence in the creation of a fourth branch of government comprised of independent agencies over which the President has power of removal only for cause. It is not sio much the double level of tenure protection that offends the President's constitutional prerogatives, as the existence of any level of protection.

As Gary Lawson argued in The Rise and Rise of the Administrative State, 107 Harv. L. Rev. 1231, 1242 (1994), for example, “if a statute vests discretionary authority directly in an agency official (as do most regulatory statutes) rather than in the President, the Article II Vesting Clause seems to require that such discretionary authority be subject to the President's control." Yet, it is not. In Legislative Courts, Administrative Agencies, and the Northern Pipeline Decision, 1983 Duke L.J. 197, Martin Redish acknowledged the practical problems that would follow if the Supreme Court were to strike down the independent agencies as unconstitutional, nevertheless also contended that the language of the Constitution simply does not allow such agencies.

In sum, CJ Roberts slapped a bandaid on a gaping canyon in the Constitution. The decision is wholly unpersuasive.

And a stunning anti-climax.

Update: Jonathan Adler nicely summarizes the holding:

To summarize what the Court did: It held that Congress many not insulate a federal officer from executive control through double for-cause removal authority. So while it is acceptable for Congress to prevent the removal of SEC commissioners except for cause, Congress cannot also require cause for the removal of officers who are only removable by the SEC. In reaching this conclusion the Court held that the members of the PCAOB are, in fact, officers. Stripped of the for-cause requirement for removal, PCAOB members are sufficiently controlled by the SEC that they are “inferior” officers, and thus may be appointed by the SEC (and not the President). Further, the Court held, once thefor-cause limitation on removal is removed, there is no constitutional problem with the PCAOB as constituted nor with the scope of its authority, so it may continue to operate as it has.

He also excerpts some key passages from the majority opinion and provides brief commentary on them. Go read it.

Update: Rick Pildes sees the opinion as a snoozer, as well:

I view Chief Justice Roberts's opinion, for a 5-4 Court, as a symbolic victory for the "unitary executive branch" view of the Presidency, but as little more than symbolic. The decision has no practical effect at all on the Sarbanes-Oxley Act; the SEC and the Board that administers the Act will go on as before. Indeed, lost in the headlines will be the fact that the Court actually rejected all the most expansive constitutional challenges to the SEC and to SOX. It accepted only the most narrow challenge; the Court held that the SEC had to have the power to remove Board members at will, rather than being able to remove them only for "good cause" (as SOX essentially provided). And even on that score, the Court simply severed the offending provision from the law and told the SEC and the Board to get on with continuing to administer SOX.

I agree completely. Although, unlike Pildes, I'm sad--even a little mad--about it.