Corporate Governance

FEF v. PCAOB: Plaintiffs Seek Reconsideration

By J. Robert Brown

The challenge to the constitutionality of the PCAOB lives on.  Plaintiffs lost at the trial level and lost at the court of appeals.  Before taking a stab at cert, they have filed a petition for rehearing and rehearing en banc.  The missive is mostly a rehash of the issues already litigated and resolved, with special prominence given to the only judge so far to agree with their arguments (Judge Kavanaugh).  

The critical issue is the double layer of removal restrictions.  Members of the PCAOB are appointed by the SEC and can only be removed by the SEC for cause.  It is this attenuated influence that is at the heart of the constitutional challenge. Plaintiffs pose the proper question.  They argue that "the President has been 'completely stripped' of his removal power."  Thus, the president can only remove rogue board members by somehow forcing the SEC to do it.  

For the plaintiffs to win, the en banc court will have to accept that the double layer of restrictions is per se unconstitutional, irrespective of the duties assigned to the PCAOB.  After all, Morrison, the key case in this area, defined the test as whether the restriction on removal interfered with the president's ability to carry out his or her constitutionally assigned duties.  Overseeing accounting firms is not a very big or important part of the president's duties.  

The petition is filed on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on September 24, 2008 (boomark / email).