Comparative Administrative Law Blog

[Cases] Presidential Oversight of Independent Agencies - Free Enterprise Fund v. Public Company Accounting Oversight Board (U.S. Supreme Court)

The Supreme Court heard oral argument on Monday in Free Enterprise Fund v. Public Company Accounting Oversight Board (08-861), an important separation of powers case.

In 2002, Congress passed the Sarbanes-Oxley Act, which created the Public Company Accounting Oversight Board (P.C.A.O.B.) to regulate auditors of public companies. The justices considered yesterday whether Congress had violated separation of powers principles by creating this board. The problem, critics of the law say, is that the board is too insulated from presidential oversight. 

According to a New York Times article (Adam Liptak, Court Spars on Oversight of Agencies, N.Y. Times, December 7, 2009) the board is overseen by the Securities and Exchange Commission, itself an independent agency. Under the Sarbanes-Oxley Act, board members are doubly insulated from presidential control. The S.E.C., but not the president, can remove them, and only for cause. One level up, the president can remove S.E.C. commissioners, but again only for cause.

"In other words," Chief Justice Roberts said at the argument, "the president can't remove the S.E.C. commissioners at will. They can't remove the P.C.A.O.B. commissioners at will." The net result, the Chief Justice said, was two layers of insulation - "for-cause squared," he called it. He suggested that Congress had gone too far in telling the executive branch how to conduct its business.

Michael A. Carvin, representing an accounting firm challenging the law, told the justices that "the board is unique among federal regulatory agencies in that the president can neither appoint nor remove its members" and so "is stripped of the traditional means of control that he has over the traditional independent agencies."

The solicitor general, Elena Kagan, urged the Court not to become fixated on the president's removal authority. "Removal is not the ultimate constitutional question," Ms. Kagan said. "The ultimate constitutional question is the level of presidential control." Here, she said, the president has no less control over the board than he has over the S.E.C. itself. She presented this argument as a syllogism. The president, she said, has "constitutionally sufficient control over the S.E.C." The commission, in turn, has "comprehensive control over the accounting board." "Therefore," she said, "the president has constitutionally sufficient control over the accounting board."

According to the same N.Y.T. article, "she faced heavy fire from the court's more conservative justices. ‘Oh, no, no,' Chief Justice Roberts said, ‘because you have an extra layer there.' Justice Alito asked whether five layers of for-cause removal would be constitutional. 'It depends,' Ms. Kagan said.

Given the novel structure of the accounting board, the court may well decide the case on narrow grounds.But the case may also allow the court to address the general question of how much oversight the executive branch must have over independent agencies."

The transcript of the oral argument is available on the Supreme Court's website here. There is also a post on this case on the ScotusBlog here.

 

Comments

akis.psygkas said:

Rick Pildes has posted a two-part comment on this case on Balkinization. It is available here balkin.blogspot.com/.../structure-of-government-and-todays.html and here balkin.blogspot.com/.../structure-of-government-and-argument-in.html

# February 3, 2012 2:41 PM
Leave a Comment

(required) 

(required) 

(optional)

(required)