Breaking News

Sarbanes-Oxley and its devilish details


The Supreme Court’s major precedents on the President’s control over the Executive Branch may be few in number, but they seem to have left a legacy of complexity that makes it hard for Justices to see grand constitutional themes amid all of the details.  In the latest review of that core structural question on Monday, the Court dwelled at great length on finite facts before Justice Samuel A. Alito, Jr., finally broke through to the basic point.

For much of the oral argument in Free Enterprise Fund v. Public Company Accounting Oversight Board (08-861), it sounded as if the Court would never get beyond the specifics of the way that Board does it work — and is (or is not) supervised — under the Sarbanes-Oxley Act creating that new agency to monitor the auditing of corporate finance.  Washington lawyer Michael A. Carvin, seeking to mount a sweeping attack on the Board’s supposedly unchecked power to use governmental power, was bedeviled repeatedly by probing questions on mundane operating details.

Without exception, Justices seemingly of differing perspectives on the separation-of-powers questions that are lurking in Sarbanes-Oxley, wanted to know just how the Board worked, and just what its relationship was with the one federal agency that seems to have some oversight of it: the Securities and Exchange Commission.  So, for all of his first stint at the lectern, Carvin was able to launch few rhetorical flourishes about the perceived threat to the Presidency from a free-lancing regulatory board not under his Executive thumb.

The pursuit of the technicalities was so diligent that Justice Stephen G. Breyer sparred with Carvin over whether any federal statute regulated the President’s power to fire an SEC chairman or commissioner — as if that would settle anything about the President’s lack of power over the members of the accounting Board.

When the defender of Sarbanes-Oxley’s creation of the Board, U.S. Solicitor General Elena Kagan, took the lectern, it seemed as if the substance would not change.  She spent most of her opening minutes on her point that the Board can hardly do anything without having to look over its shoulder to see whether it was pleasing to the SEC.

Her portrait of a abjectly subordinate Board was so vivid that, at one point, Chief Justice John G. Roberts, Jr., was led to wonder why Congress had set up “a separate board if it’s going to be entirely controlled by the SEC.”  Still, that and other exchanges showed that the argument was still focused on the Board-SEC links, not on the ultimate question of the President’s prerogatives.

Finally, midway through Kagan’s presentation, Justice Alito stepped in for the first time. “As a practical matter,” he asked, “does the President have any ability to control what the Board does?” Kagan replied that the Chief Executive has as much power to do so as he has to oversee what the SEC does.  Alito was not persuaded. He wanted to know if the President, objecting to the very large salaries that the Board’s members are paid, could do anything to change them.  Kagan said the President or one of his aides could call up the SEC and express his outrage.

Slyly, Justice Antonin Scalia suggested that the President could only ask “would you please change it?”  Scalia said even he could do that, implying that his intervention would have as much effect as the President’s.  Kagan then conceded that the President can’t order around the SEC members.

The exchange had the positive effect of bringing the Court back to the foundation question, not of the Board-SEC relationship, but with the President-Board relationship.  Kagan insisted that Sarbanes-Oxley does not “go an inch further” in limiting presidential power than the Court had gone in the 1935 precedent in Humphrey’s Executor v. U.S.

Chief Justice Roberts then joined more actively in the fray, suggesting that Sarbanes-Oxley introduces an entirely new limit on presidential authority to fire those carrying out Executive functions, by putting the President an additional layer away from controlling the Board.  The Act, Roberts said, “goes further because you have got to rely on the SEC to get to the Board.”  Alito chimed in, saying that “the more layers” of limits on presidential removal power “the less control the President has.”

Those were exactly the kinds of exchanges that Carvin had wanted to stimulate, because in those lies the separation-of-powers arguments he was pressing.

Speaking for the Board itself, Washington lawyer Jeffrey A. Lamken devoted his time, as he did his brief, to reinforcing Kagan’s arguments about how pervasive SEC oversight of the Board is.  “It is the judgment and the decision of the SEC that controls. The Board can propose, but it’s the SEC that decides.”  In time, however, the Justices who are skeptical of Sarbanes-Oxley put the focus back on presidential power.

Justice Scalia, for example, asked rhetorically: “Congress set up that agency to be independent from the President. That was the whole purpose of it, wasn’t it?”

Carvin spent his rebuttal time trying to drive home his defense of presidential authority, and the plight of that authority in the wake of Sarbanes-Oxley.  What Kagan and Lamken had been arguing, Carvin said, were merely “fictional realities” about SEC’s power to rein in the Board.  “This Court has emphasized countless times,” he said, “that your analyze separation of powers cases with respecdt to the practical consequences…with respect to bright lines and high walls..and with great skepticism of Congress’s subtle encroachments.”