So says a 2-1 majority on the D.C. Circuit. The 92-page opinion is here. HT to Jay Brown, who already has three four posts up (one, two, three, and four).
Posted by Matt Bodie on August 22, 2008 at 02:10 PM
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Many lawyers and legal scholars, like corporate-law expert Stephen Bainbridge and securities-regulation expert Donna Nagy, have questioned the constitutionality of the board (PCAOB) set up by Sarbanes-Oxley. See, e.g., Donna M. Nagy, “Playing Peekaboo with Constitutional Law: The PCAOB and Its Public Private Status,” 80 Notre Dame L. Rev. 975(2005).
The divided court ruling rejecting the constitutional challenge to the PCAOB is not only internally inconsistent (as I have explained above), but also rests on factual premises conceded to be false by a Senator who voted to create the PCAOB.
The 2-to-1 decision by the D.C. Circuit claimed, over a strong dissent by Judge Kavanaugh, that PCAOB members really weren’t powerful enough, or independent enough, to be “principal officers” who needed to be appointed by the President with the advice and consent of the Senate, as the text of the Constitution’s Appointments Clause explicitly mandates.
But the very legislators who voted to create the PCAOB often saw things differently. For example, a Senator who voted to pass Sarbanes-Oxley said that the law gave the PCAOB “massive power,” “unchecked power by design.”
Posted by: Hans Bader | Aug 24, 2008 12:03:16 PM
This court decision, issued by a divided court over a sharp dissent, rests on reasoning that is disturbingly inconsistent.
This case is a constitutional challenge to the PCAOB, the regulatory board set up by Sarbanes-Oxley, as a violation of the Appointments Clause and separation of powers. The PCAOB is enormously important: The red tape generated by the board has cost the stock market over $1 trillion, according to a University of Rochester study, and annually imposes compliance costs of over $35 billion for just its rules regulating “internal controls,” while providing only illusory benefits for investors (paragons of Sarbanes-Oxley compliance have included Countrywide Financial and other mismanaged subprime mortgage lenders), and driving businesses and jobs overseas (IPOs have dramatically fallen).
A Senator who voted to create the PCAOB predicted that it would have “massive power,” “unchecked power by design.”
But rather than being picked by the President with Senate approval, the way important government officials are supposed to be, PCAOB members are picked by SEC Commissioners as a group (which led to a disorganized selection process for the first PCAOB members, as the GAO has noted).
The constitutional challenge says that violates the Appointments Clause of the Constitution, which requires that government officials be picked by the President or (for minor officials) by the “Head of a Department.” The challenge also argued that the PCAOB members are so unaccountable to the president, who can’t remove them (the SEC Commissioners collectively can, but only for “willful” misconduct), that it violates separation of powers.
In order to reject the constitutional challenges, the court’s majority had to rely on inconsistent reasoning. First, it claimed that the SEC’s Chairman is NOT the SEC’s head, but rather “simply one” of “several commissioners,” making the SEC Commissioners collectively the head of the SEC. See Opinion, at pg. 20 (“The [SEC’s] Chairman . . . is simply one Commissioner”); Opinion, pg. 21 (“The commission” is a body “whose ‘Head’ consists of the several commissioners”). Only by doing that could it rule that the SEC Commissioners collectively are the “Head” of a department and thus are permitted by the Appointments Clause to make appointments. (Never mind that the Chairman has been described by the SEC itself as its “chief executive” and “head”).
Then, just a few pages later, it suddenly suggested just the opposite: that the SEC’s chairman was, after all, the SEC’s head. Confronted with the argument that the PCAOB is not accountable to the President through his appointees, such as the SEC’s chairman (who, unlike other SEC commissioners, serves at the president’s pleasure), the court stated that the President does have indirect influence over the PCAOB through the SEC, because the president picks the SEC Chairman, who “dominates commission policymaking.” See Opinion, Pg. 24. But if the Chairman so “dominates commission policymaking,” that is because he is the SEC’s actual “head” (its “top executive,” as the SEC concedes), not a mere figurehead.
Is it too much to ask that courts at least use consistent reasoning? Especially in an important case like this, which Judge Kavanaugh noted is “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.”
Posted by: Hans Bader | Aug 24, 2008 11:57:28 AM