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Free Enterprise Fund v. Public Company Accounting Oversight Board

Supreme Court of the United States · 2010 · Constitutional Law

Constitutional Lawseparation of powersremoval powerdouble for-causeunitary executiveAppointments ClauseArticle IITake Care Clause

Facts

Congress created the Public Company Accounting Oversight Board in the Sarbanes-Oxley Act to regulate accounting firms that audit public companies. The Board's five members are appointed by the Securities and Exchange Commission, and the parties agreed that SEC Commissioners themselves are removable by the President only for cause under Humphrey's Executor. Board members likewise could not be removed by the SEC at will, but only for good cause shown under detailed statutory procedures and specified grounds. Petitioners, subject to the Board's regulatory and investigative authority, challenged the Board's constitutionality.

Issue

Whether Congress may, consistent with Article II, place officers who exercise significant executive power behind two layers of for-cause removal protection, so that the President cannot directly remove them and cannot freely remove the officers who decide whether they should be removed. The case also asked whether the Board members were validly appointed under the Appointments Clause.

Rule

Article II's vesting of the executive power in the President forbids giving executive officers more than one level of good-cause tenure protection when that structure prevents the President from overseeing the faithfulness of those who execute the laws. A statute that imposes such unconstitutional removal restrictions may be cured by severing those tenure provisions, leaving the officers removable at will by the appointing department head. Officers whose work is directed and supervised at some level by principal officers appointed by the President with Senate consent are inferior officers, and a freestanding component of the Executive Branch such as the SEC is a Department whose multimember commission may serve as its Head for Appointments Clause purposes.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Congress creates the Nutritional Labeling Review Board, housed under the Federal Food Standards Commission. The Commission's five members are removable by the President only for inefficiency, neglect of duty, or malfeasance, and Board members may be removed by the Commission only after a hearing for willful violations of the labeling laws or willful abuse of authority. The Board investigates manufacturers and imposes civil penalties.

A cereal company under investigation challenges the Board's structure. How should a court rule on the Article II issue?

Explanation. The majority held that Article II forbids multilevel protection from removal for officers exercising significant executive power. Here, the President cannot remove the commissioners at will, and the commissioners cannot remove Board members at will. That double for-cause arrangement prevents adequate presidential oversight of those executing the laws. The defect does not turn on whether the Board members are principal officers; the majority treated similarly supervised officers exercising significant executive power as impermissibly insulated by two protected layers.