June 28, 2010
Goodbye, Old PCAOB, and Hello, New PCAOB
Posted by David Zaring

The Court invalidated the for cause removal protections enjoyed by the PCAOB today, and in doing so, it illustrated how to find an agency to be unconstitutional, without really doing anything important at all.  As Tom Goldstein predicted, CJ Roberts wrote the 5-4 opinion. 

  • Here's the removal protection enjoyed by the Board that the Court struck down, as summarized by the Court:
    • A Board member cannot be removed except for willful violations of the Act, Board rules, or the securities laws; willful abuse of authority; or unreasonable failure to enforce compliance—as determined in a formal Commission order, rendered on the record and after notice and an opportunity for a hearing. §7217(d)(3); see §78y(a). The Act does not even give the Commission power to fire Board members for violations of other laws that do not relate to the Act, the securities laws, or the Board’s authority.
  • The reason this matters is because of a line of jurisprudence suggesting that the president must have the power to execute the laws passed by Congress.  But if he can't fire some bureaucrats with responsibility over those laws, he doesn't have control over how they execute them.  This is a separation of powers problem:
    • The Constitution that makes the President accountable to the people for executing the laws also gives him the power to do so. That power includes, as a general matter, the authority to remove those who assist him in carrying out his duties. Without such power, the President could not be held fully accountable for discharging his own responsibilities; the buck would stop somewhere else.  
  • So the Board's protections from removal are unconstitutional.  Does that invalidate everything the Board has done?  Seems logical, as it was an unconstitutionally created agency.  As Bainbridge notes, SOx doesn't come with a severability clause, and the petitioners wanted everything PCAOB has ever done to be nullified.  That would have been a sorta big deal, at least if you tink that PCAOB itself is doing important work.  But no:
    • 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 the Board survives, just not its job protections.  Moreover, in an appointments clause challenge to the Board, the Court explicitly brought the SEC within the confines of constitutional law, making it the equivalent of a head of a department within the executive branch:
    • As a constitutional matter, we see no reason why a multimember body may not be the “Hea[d]” of a “Departmen[t]” that it governs. [And]
    • the Commission is a freestanding component of the Executive Branch, not subordinate to or contained within any other such component, it constitutes a “Departmen[t]” for the purposes of the Appointments Clause.
  • So really, the Court didn't do anything at all to PCAOB, which will continue exactly as before, only with its members removable by the President SEC, and took care to suggest that the SEC itself was an ordinary part of the executive branch, even though its members also enjoy for cause protections:
    • Concluding that the removal restrictions are invalid 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.
  • The remedy is the key, and although the Court didn't explain the remedy too clearly, it basically excised the removal protections, making members of the PCAOB removable at will by the President SEC (this may be defined a bit more clearly on remand by the DC Circuit), and handed petitioners a pretty empty declaratory victory:
    • petitioners are not entitled to broad injunctive relief against the Board’s continued operations. But they are entitled to declaratory relief sufficient to ensure that the reporting requirements and auditing standards to which they are subject will be enforced only by a constitutional agency accountable to the Executive.
  • It underscored that the opinion had nothing to do with the ordinary job protections of the civil service.  It wrote cautiously in general:
    • We do not decide the status of other Government employees, nor do we decide whether “lesser functionaries subordinate to officers of the United States” must be subject to the same sortof control as those who exercise “significant authority pursuant to the laws.” Buckley, supra, at 126, and n. 162.
  • It's an unconventional remedy, actually, and it makes this decision much less dramatic than it threatened to be.  What the majority and dissent are left to argue about, really, are purely symbolic questions of whether we are being drowned by bureaucrats v. whether Congress shouldn't have the power to structure the government essentially as it wants.  I predict these stirring words will often be quoted from Roberts's opinion:
    • One can have a government that functions without being ruled by functionaries, and a government that benefits from expertise without being ruled by experts. Our Constitution was adopted to enable the people to govern themselves, through their elected leaders. The growth of the Executive Branch, which now wields vast power and touches almost every aspect of daily life, heightens the concern that it may slip from the Executive’s control, and thus from that of the people.

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