A divided panel of the DC Circuit this morning, in Free Enterprise Fund v. Public Company Accounting Oversight Board, No. 07-5127 (D.C. Cir. Aug. 22, 2008), rejected a challenge to the Public Company Accounting Oversight Board’s appointment on separation of powers grounds; because of the lack of a severability clause in Sarbanes-Oxley, the challenge presented the possibility that the court would have had to declare the entire statute unconstitutional. Judge Judith Rogers, joined by Judge Janice Rogers Brown, found that the statute did not unduly dilute the executive branch’s control over the PCAOB:
We hold, first, that the Act does not encroach upon the Appointment power because, in view of the [SEC]’s comprehensive control of the Board, Board members are subject to direction and supervision of the Commission and thus are inferior officers not required to be appointed by the President. Second, we hold that the for-cause limitations on the Commission’s power to remove Board members and the President’s power to remove Commissioners do not strip the President of sufficient power to influence the Board and thus do not contravene separation of powers, as that principle embraces independent agencies like the Commission and their exercise of broad authority over their subordinates.
Slip op. at 3 (emphasis added). In short, the court found “no instance in which the Board can make policy that the Commission cannot override.” Id. at 33. The court did, however, find that the constitutional challenge was properly presented and did not require exhaustion of administrative review procedures. Id. at 7-8. Judge Brett Kavanaugh dissented, on essentially similar grounds to Justice Scalia’s masterful (but lone) dissent in the 1988 independent counsel case, Morrison v. Olson, although he also argued that the constitutional problems here go beyond those in Morrison:
The President’s power to remove is critical to the President’s power to control the Executive Branch and perform his Article II responsibilities. Yet under this statute, the President is two levels of for-cause removal away from Board members, a previously unheard-of
restriction on and attenuation of the President’s authority over executive officers. This structure effectively eliminates any Presidential power to control the PCAOB, notwithstanding that the Board performs numerous regulatory and lawenforcement functions at the core of the executive power. So far as the parties, including the United States as intervenor, have been able to determine in the research reflected in their exhaustive and excellent briefs, never before in American history has there been an independent agency whose heads are appointed by and removable only for cause by another independent agency, rather than by the President or his alter ego. But that is the case with PCAOB members, who are removable for cause only by the SEC – and it is undisputed that the SEC as an independent agency is not the President’s
Presumably, the plaintiffs will petition the Supreme Court for cert; it remains to be seen if the Court takes the case.
UPDATE: The plaintiffs say they will either petition for cert or for rehearing en banc by the full DC Circuit.