Lexplug logoLexplug

Free Enterprise Fund v. Public Company Accounting Oversight Bd.

United States Supreme Court
561 U.S. 477 (2010)
ELI5:

Rule of Law:

A statutory scheme that provides two layers of "for-cause" removal protection for an executive officer impermissibly interferes with the President's Article II authority to oversee the executive branch and take care that the laws be faithfully executed.


Facts:

  • In response to accounting scandals, Congress passed the Sarbanes-Oxley Act of 2002, creating the Public Company Accounting Oversight Board (PCAOB) to regulate the public accounting industry.
  • The PCAOB is composed of five members appointed by the Securities and Exchange Commission (SEC), an independent agency.
  • The Act specifies that members of the PCAOB may be removed by the SEC only "for good cause shown," following a formal hearing and based on specific findings of misconduct.
  • The parties agreed that the Commissioners of the SEC are themselves protected from at-will removal by the President, and can only be removed for "inefficiency, neglect of duty, or malfeasance in office."
  • This structure created two layers of for-cause tenure protection between the President and the members of the PCAOB.
  • The PCAOB initiated an inspection of the accounting firm Beckstead and Watts, LLP, released a critical report, and began a formal investigation into the firm's practices.
  • The Free Enterprise Fund, a nonprofit organization including Beckstead and Watts as a member, challenged the PCAOB's authority.

Procedural Posture:

  • The Free Enterprise Fund and Beckstead and Watts, LLP, sued the PCAOB and its members in the U.S. District Court for the District of Columbia.
  • The plaintiffs sought a declaratory judgment that the PCAOB's structure was unconstitutional and an injunction against its operations.
  • The United States intervened to defend the Sarbanes-Oxley Act.
  • The District Court granted summary judgment in favor of the PCAOB.
  • The plaintiffs, as appellants, appealed the decision to the U.S. Court of Appeals for the D.C. Circuit.
  • A divided panel of the D.C. Circuit affirmed the district court's judgment, holding that the PCAOB's structure was constitutional.
  • The Supreme Court of the United States granted certiorari.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a statutory provision that grants members of the Public Company Accounting Oversight Board (PCAOB) "for-cause" removal protection by the Securities and Exchange Commission (SEC), whose own Commissioners are removable by the President only for cause, violate the constitutional separation of powers?


Opinions:

Majority - Chief Justice Roberts

Yes. The dual for-cause limitations on the removal of Board members contravene the Constitution’s separation of powers. Article II vests the executive power in the President, who must be able to hold executive officers accountable to ensure the laws are faithfully executed. While the Court has previously upheld a single layer of for-cause protection for officers in independent agencies (Humphrey's Executor) or for inferior officers removable by a principal officer (Morrison), the dual-layer protection here is unprecedented and unconstitutional. This structure severs the chain of accountability, as the President cannot hold the SEC Commissioners responsible for the PCAOB's actions if the Commissioners themselves cannot remove PCAOB members at will. This diffusion of power means the President is no longer the judge of the Board's conduct, undermining his constitutional duty. The proper remedy is to sever the for-cause removal provision for PCAOB members, making them removable at will by the SEC and restoring a constitutionally permissible single layer of tenure protection.


Dissenting - Justice Breyer

No. The statute's dual for-cause removal provision does not significantly interfere with the President's executive power and violates no separation-of-powers principle. The majority's holding is overly formalistic and ignores the practical realities of government, where presidential control is exercised through various means beyond the removal power. The SEC retains virtually absolute control over the PCAOB’s rules, sanctions, and budget, which provides sufficient oversight. Furthermore, insulating the Board's expert, adjudicatory functions from political pressure serves a legitimate governmental purpose. The majority's rigid, bright-line rule threatens to disrupt the administration of law by calling into question the constitutionality of numerous other governmental structures, including administrative law judges and the civil service, which feature similar layered tenure protections.



Analysis:

This decision establishes a significant limit on Congress's ability to insulate independent agencies from presidential oversight, specifically invalidating dual-layer for-cause removal protections. It reinforces a key tenet of the unitary executive theory, which emphasizes the President's need for control over the executive branch to maintain accountability to the electorate. The Court’s remedy of severing the offending provision, rather than invalidating the entire agency, provided a less disruptive outcome. However, the ruling creates considerable uncertainty for other government structures with multiple layers of tenure, potentially impacting the job security of thousands of federal officials like administrative law judges and senior civil servants in independent agencies.

🤖 Gunnerbot:
Query Free Enterprise Fund v. Public Company Accounting Oversight Bd. (2010) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for Free Enterprise Fund v. Public Company Accounting Oversight Bd.