Corporate Governance

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (Arguments before the DC CIrcuit) (Part 7)

By J. Robert Brown

Oral argument at the DC Circuit was spirited, with published reports suggesting that the most pointed questions came from Judge Kavanaugh.  The judges did not seem particularly concerned with the Appointments Clause issue, particularly the status of the SEC as a department.  Much of the discussion focused on removal, with one judge describing the arrangement as "an independent agency within an independent agency." 

Thus, the main concern seemed to be with what one judge on the panel called "two levels of for cause removal away from the president."

• THE COURT: Right. Right. And the distinction is, and again, the distinction is, this is two levels of for cause removal away from the president. Humphrey's Executor, which was commonly thought to be the outer limit of encroachment on Presidential authority was one level of for cause removal away. Never before has there been an officer that is two  levels of for cause removal away.

The panel relentlessly asked for examples of any other "two level for cause removal" provision.  Counsel for the Defendants in particular had trouble coming up with examples.

• THE COURT: Let me ask you this. Your brief says there is nothing novel about this. Are you aware of any inferior officers in independent agencies who are subject to for cause removal?
• MR. LAMKEN: Any inferior officer who happens to be civil service protected would be subject to removal.
• THE COURT: Officer. Officer.
• MR. LAMKEN: Yes. Meyer makes clear that Congress can make inferior officers subject to --
• THE COURT: I asked for examples.
• MR. LAMKEN: I don't have any examples for you.
• THE COURT: I don't think there are any.
• MR. LAMKEN: I don't know whether there are or not.
• THE COURT: I don't think there have been any.

As we have noted in a prior post, there are examples.  With respect to the Board of Governors of the Postal System, the Board is an independent body.  See 39 USCS § 202(a)(creating an 11 person board with members only subject to removal "for cause").  The Board's enabling statute gives it the authority to appoint an Inspector General who can only be removed by the Board and only for cause.  See  39 USCS § 202 (3)("The Inspector General may at any time be removed upon the written concurrence of at least 7 Governors, but only for cause.").  It's not a separate agency reporting to the Postal Board but it is example of two levels of "for cause" removal. 

Similarly, there are restrictions on presidential removal authority even more extreme than two levels of "for cause" restrictions.  The Personnel Appeals Board within the GAO is independent, with members appointed by Comptroller General and receiving five year terms.  31 USCS § 751.  Only they can remove themselves.  See 31 USCS § 751(d)("A member may be removed by a majority of the Board (except the member subject to removal) only for inefficiency, neglect of duty, or malfeasance in office.").  In other words, while the President can influence the PCAOB through its authority to remove members of the Commission, neither the President nor the President's appointees have any authority to remove members of the Personnel Appeals Board.

The issue is not the two layers of for cause removal.  As a practical matter, the President's authority to remove an inferior officer appointed by the head of an independent agency is, by definition, highly circumscribed, irrespective of the standard for removal applicable to the head of the independent agency.  Thus, in this case, the court must resolve whether it is constitutional for an independent agency to have the authority to appoint an inferior officer of any kind.  That there is a double layer of "for cause" removal requirements is largely irrelevant.

We have posted on the DU Corporate Governance web site most if not all of the important documents on the case, including the assorted amici filed in the appellate case.

Full post as published by The Race to the Bottom on July 03, 2008 (boomark / email).