This morning the Court held unconstitutional a provision of the Sarbanes-Oxley Act that protects members of a newly created Public Company Accounting Oversight Board from removal except for good cause.  In Free Enterprise Fund v. Public Company Accounting Oversight Board (No. 08-861), a five-Justice majority held that because the Board is overseen by the Securities and Exchange Commission, whose members are also removable only for cause, the Act unconstitutionally interfered with the President's authority to oversee the execution of federal law.   However, in a disappointment to petitioners (an advocacy group and an accounting firm being investigated by the Board), the Court did not declare the Board itself unconstitutional.  Instead, the Court simply excised the for-cause limitation on the Board members' tenure.  As a result, the decision today is likely more important for what it portends in future cases than it is for its consequences for the parties in this particular litigation.

The Majority Decision

Writing for the majority, the Chief Justice begins from first principles.  The Constitution gives the President the responsibility to ensure that the laws are faithfully executed.  As a practical matter, the most important way in which the President can exercise that responsibility is through choosing, supervising, and "“ if necessary "“ firing inferior government officials.  Undue interference with that authority, the Court explains, undermines a central feature of our democracy "“ that the President shall be accountable to the people for the operation of the executive branch.  That, in effect, the buck stops with the President, not with his subordinates.

Despite this seemingly broad view of the President's authority, the Court takes pains to acknowledge that it has previously approved two varieties of "good cause" limitations –  the first, a limit on the President's power to fire high-level officials (like the Commissioners of the Federal Trade Commission) except for good cause, and the second, laws that protect lower level employees from termination except for good cause when good cause is judged by higher-level officials whom the President can fire at will.

But this case, the Court holds, is different.  Here, the SEC cannot remove members of the Board without good cause, and the President cannot remove members of the SEC without good cause.  This two-tiered scheme, the majority concludes, goes too far.  In past cases approving a single layer of protection, the Court explains, "[i]t was the President"”or a subordinate he could remove at will"”who decided whether the officer's conduct merited removal under the good-cause standard.  The Act before us does something quite different. It not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists."

"Without the ability to oversee the Board, or to attribute the Board's failings to those whom he can oversee, the President is no longer the judge of the Board's conduct. He is not the one who decides whether Board members are abusing their offices or neglecting their duties."

Notably, the majority rejects one of the central premises for creating independent agencies "“ the need for some problems to be dealt with by experts insulated from politics.   "[W]here, in all this," the Chief Justice asks, "is the role for oversight by an elected President? The Constitution requires that a President chosen by the entire Nation oversee the execution of the laws."  If that kind of accountability causes inefficiencies or other problems, the majority writes, that is not a reason to depart from the constitutional design.

(The Court also rejects, unanimously, petitioners' objection that the statute violates the Appointment Clause because members of the Board are not appointed by the President and confirmed by the Senate.)

The Remedy

The petitioners had hoped to persuade the Court that because the Board was unconstitutionally insulated from presidential authority, all of its exercise of authority (including its investigation of the petitioner accounting firm) was unconstitutional.  The Court disagreed, holding instead that it was appropriate to simply sever as unconstitutional the second layer of "good cause" protection, leaving Board members subject to removal by the SEC without cause.

Dissent

Justice Breyer, joined by Justices Stevens, Ginsburg, and Sotomayor, dissented.

The text of the Constitution, Justice Breyer begins, does not answer the question of how much insulation of federal officials is permitted, consistent with separation-of-powers principles.  Nor, in the dissent's view, does history or the Court's past cases provide any clear answer.  Instead, the analysis should be a functional one in which the judiciary should give some deference to the comparative expertise of the political branches, which concurred in giving the Board the protection challenged in this case.

In the dissent's view, two layers of "good-cause" protection do not unduly limit the President's ability to oversee government operations.  The two layers only matter if the President and the SEC disagree about whether to remove a Board member.  If the President wants to remove a member, but the SEC disagrees, it is the first layer of protection (that is, the SEC's good-cause protection) that thwarts the President's will, not the second; and the majority leaves that first layer in place.  And if the SEC wants to remove a Board member, but the President disagrees, then the second layer of protection (that is, the requirement that the SEC have good cause for removing the Board member) actually impedes the SEC's ability to fire the member against the President's wishes.

And in actual practice, the dissent argues, the SEC and the President have ways of controlling the Board (by issuing regulations, controlling budgets, etc.), other than by threatening removal.

Analysis

The reach of today's decision is unclear.  On the one hand, it has little practical effect on the PCAOB, which will continue its present operations unimpeded, but without the protection of good-cause removal.  However, as Justice Breyer's dissent suggests, the legal rule adopted by the Court may well have broader implications, and the rationale for adopting it may have profound implications years down the road.

Justice Breyer identifies 573 officials who can only be removed for "good cause" by higher-level officials whom the President may only remove for "good cause."  This includes, he says, the leadership of the Nuclear Regulatory Commission and the Social Security Administration, as well as the executive directors of the Federal Energy Regulatory Commission and the Federal Trade Commission, and the general counsels of a number of federal entities.  In addition, he argues, the conception of "inferior officer" is so ill-defined it may well include thousands of others, including all of the government's administrative law judges and much of the military.

The majority suggests that some such challenges may be unsuccessful, but does not really dispute Justice Breyer's assertion that challenges to the statutes providing dual-layer protection to such officials are at least colorable.  Two of the institutions the dissent cites "“ the Federal Energy Regulatory Commission and the Federal Trade Commission "“ exercise authority over very large portions of the economy and their decisions are frequently challenged by very sophisticated counsel for private businesses.  On the other hand, the outcome of today's decision shows that there is little upside in a successful challenge, since the only consequence will be the severance of one layer of "good-cause" protection, not the invalidation of the officials' authority.

The more important consequence may be long term.  Stripping away an extra layer of protection from hundreds (perhaps thousands) of federal officials may well affect they way they do their job (negatively, in the dissent's view, as the officials respond inappropriately to political pressure; positively, in the majority's view, as the federal bureaucracy is held more accountable to the President and, consequently, to the people).

Moreover, today's decision may lay the seeds for even greater changes in the future.  One might think from the Court's discussion of first principles that any limitation on the President's authority to remove federal officials from office would be unconstitutional.  To be sure, the Court explains up front that "[t]he parties do not ask us to reexamine any of these precedents, and we do not do so."  But the Court does not, however, say whether it would uphold those precedents in a future case in which the issue was presented.  That said, the fact that the Court remedies the constitutional violation here through excising only a single layer of good cause protection from the scheme does seem to indicate that there is not yet a majority willing to go any further.

But that may change.  The decisions' sweeping language and broad rationale suggest to me that there are some Justices (including the Chief Justice) who would go further if changes at the Court someday permit it.  And if that happens, it seems likely to me that the Court will rely on the reasoning in this case to justify greater restrictions on Congress's power to insulate independent administrative bodies from presidential control.

Posted in Free Enterprise Fund v. PCAOB, Merits Cases