FREE ENT. FUND v. PUBLIC CO. ACCTG. OVERSIGHT BD., No. 08-861.

CourtUnited States Supreme Court
Citation130 S.Ct. 3138,177 L. Ed. 2d 706
Decision Date07 December 2009
PartiesFREE ENTERPRISE FUND and Beckstead and Watts, LLP, Petitioners, v. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD et al.
Docket NumberNo. 08-861.

130 S.Ct. 3138
561 US __
177 L. Ed.
2d 706

FREE ENTERPRISE FUND and Beckstead and Watts, LLP, Petitioners,
v.
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD et al.

No. 08-861.

Supreme Court of United States.

Argued December 7, 2009.
Decided June 28, 2010.


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Michael A. Carvin, Washington, DC, for petitioners.

Solicitor General Elena Kagan, Washington, DC, for respondent United States.

Jeffrey A. Lamken, Washington, DC, for respondents Public Company Accounting Oversight Board.

David M. Becker, General Counsel, Mark D. Cahn, Deputy General Counsel, Jacob H. Stillman, Solicitor, John W. Avery, Senior Litigation Counsel, Securities and Exchange Commission, Washington, D.C., Elena Kagan, Solicitor General, Counsel of Record, Tony West, Assistant Attorney General, Edwin S. Kneedler, Deputy Solicitor General, Curtis E. Gannon, Assistant to the Solicitor General, Mark B. Stern, Mark R. Freeman, Attorneys, Department of Justice, Washington, D.C., for respondent.

J. Gordon Seymour, Jacob N. Lesser, Mary I. Peters, Public Company Accounting Oversight Board, Washington, D.C., Jeffrey A. Lamken, Counsel of Record, Robert K. Kry, MoloLamken LLP, Washington, D.C., James R. Doty, Baker Botts LLP, Washington, D.C., for Respondents Public Company Accounting Oversight Board, Bill Gradison, Daniel L. Goelzer, and Charles D. Niemeier.

Kenneth W. Starr, Malibu, CA, Viet D. Dinh, Bancroft Associates PLLC, Washington, DC, Michael A. Carvin, Counsel of Record, Noel J. Francisco, Christian A. Vergonis, Jones Day, Washington, DC, Sam Kazman, Hans Bader, Competitive Enterprise Institute, Washington, DC, for petitioners.

Chief Justice ROBERTS delivered the opinion of the Court.

Our Constitution divided the "powers of the new Federal Government into three defined categories, Legislative, Executive, and Judicial." INS v. Chadha, 462 U.S. 919, 951, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983). Article II vests "[t]he executive Power ... in a President of the United States of America," who must "take Care that the Laws be faithfully executed." Art. II, § 1, cl. 1; id., § 3. In light of "[t]he impossibility that one man should be able to perform all the great business of the State," the Constitution provides for executive officers to "assist the supreme Magistrate in discharging the duties of his trust." 30 Writings of George Washington 334 (J. Fitzpatrick ed.1939).

Since 1789, the Constitution has been understood to empower the President to keep these officers accountable—by removing them from office, if necessary. See generally Myers v. United States, 272 U.S. 52, 47 S.Ct. 21, 71 L.Ed. 160 (1926). This Court has determined, however, that this authority is not without limit. In Humphrey's Executor v. United States, 295 U.S. 602, 55 S.Ct. 869, 79 L.Ed. 1611 (1935), we held that Congress can, under certain circumstances, create independent agencies run by principal officers appointed by the President, whom the President may not remove at will but only for good

130 S.Ct. 3147

cause. Likewise, in United States v. Perkins, 116 U.S. 483, 21 Ct.Cl. 499, 6 S.Ct. 449, 29 L.Ed. 700 (1886), and Morrison v. Olson, 487 U.S. 654, 108 S.Ct. 2597, 101 L.Ed.2d 569 (1988), the Court sustained similar restrictions on the power of principal executive officers—themselves responsible to the President—to remove their own inferiors. The parties do not ask us to reexamine any of these precedents, and we do not do so.

We are asked, however, to consider a new situation not yet encountered by the Court. The question is whether these separate layers of protection may be combined. May the President be restricted in his ability to remove a principal officer, who is in turn restricted in his ability to remove an inferior officer, even though that inferior officer determines the policy and enforces the laws of the United States?

We hold that such multilevel protection from removal is contrary to Article II's vesting of the executive power in the President. The President cannot "take Care that the Laws be faithfully executed" if he cannot oversee the faithfulness of the officers who execute them. Here the President cannot remove an officer who enjoys more than one level of good-cause protection, even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President's determination, and whom the President cannot remove simply because that officer disagrees with him. This contravenes the President's "constitutional obligation to ensure the faithful execution of the laws." Id., at 693, 108 S.Ct. 2597.

I

A

After a series of celebrated accounting debacles, Congress enacted the Sarbanes-Oxley Act of 2002 (or Act), 116 Stat. 745. Among other measures, the Act introduced tighter regulation of the accounting industry under a new Public Company Accounting Oversight Board. The Board is composed of five members, appointed to staggered 5-year terms by the Securities and Exchange Commission. It was modeled on private self-regulatory organizations in the securities industry—such as the New York Stock Exchange—that investigate and discipline their own members subject to Commission oversight. Congress created the Board as a private "nonprofit corporation," and Board members and employees are not considered Government "officer[s] or employee[s]" for statutory purposes. 15 U.S.C. §§ 7211(a), (b). The Board can thus recruit its members and employees from the private sector by paying salaries far above the standard Government pay scale. See §§ 7211(f)(4), 7219.1

Unlike the self-regulatory organizations, however, the Board is a Government-created, Government-appointed entity, with expansive powers to govern an entire industry. Every accounting firm—both foreign and domestic—that participates in auditing public companies under the securities laws must register with the Board, pay it an annual fee, and comply with its rules and oversight. §§ 7211(a), 7212(a), (f), 7213, 7216(a)(1). The Board is charged with enforcing the Sarbanes-Oxley Act, the securities laws, the Commission's rules, its own rules, and professional accounting standards. §§ 7215(b)(1), (c)(4). To this

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end, the Board may regulate every detail of an accounting firm's practice, including hiring and professional development, promotion, supervision of audit work, the acceptance of new business and the continuation of old, internal inspection procedures, professional ethics rules, and "such other requirements as the Board may prescribe." § 7213(a)(2)(B).

The Board promulgates auditing and ethics standards, performs routine inspections of all accounting firms, demands documents and testimony, and initiates formal investigations and disciplinary proceedings. §§ 7213-7215 (2006 ed. and Supp. II). The willful violation of any Board rule is treated as a willful violation of the Securities Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. § 78a et seq.—a federal crime punishable by up to 20 years' imprisonment or $25 million in fines ($5 million for a natural person). §§ 78ff(a), 7202(b)(1) (2006 ed.). And the Board itself can issue severe sanctions in its disciplinary proceedings, up to and including the permanent revocation of a firm's registration, a permanent ban on a person's associating with any registered firm, and money penalties of $15 million ($750,000 for a natural person). § 7215(c)(4). Despite the provisions specifying that Board members are not Government officials for statutory purposes, the parties agree that the Board is "part of the Government" for constitutional purposes, Lebron v. National Railroad Passenger Corporation, 513 U.S. 374, 397, 115 S.Ct. 961, 130 L.Ed.2d 902 (1995), and that its members are "`Officers of the United States'" who "exercis[e] significant authority pursuant to the laws of the United States," Buckley v. Valeo, 424 U.S. 1, 125-126, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam) (quoting Art. II, § 2, cl. 2); cf. Brief for Petitioners 9, n. 1; Brief for United States 29, n. 8.

The Act places the Board under the SEC's oversight, particularly with respect to the issuance of rules or the imposition of sanctions (both of which are subject to Commission approval and alteration). §§ 7217(b)-(c). But the individual members of the Board—like the officers and directors of the self-regulatory organizations—are substantially insulated from the Commission's control. The Commission cannot remove Board members at will, but only "for good cause shown," "in accordance with" certain procedures. § 7211(e)(6).

Those procedures require a Commission finding, "on the record" and "after notice and opportunity for a hearing," that the Board member

"(A) has willfully violated any provision of th[e] Act, the rules of the Board, or the securities laws;
"(B) has willfully abused the authority of that member; or
"(C) without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by any registered public accounting firm or any associated person thereof." § 7217(d)(3).

Removal of a Board member requires a formal Commission order and is subject to judicial review. See 5 U.S.C. §§ 554(a), 556(a), 557(a), (c)(B); 15 U.S.C. § 78y(a)(1). Similar procedures govern the Commission's removal of officers and directors of the private self-regulatory organizations. See § 78s(h)(4). The parties agree that the Commissioners cannot themselves be removed by the President except under the Humphrey's Executor standard of "inefficiency, neglect of duty, or malfeasance in office," 295 U.S., at 620, 55 S.Ct. 869...

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24 practice notes
  • State v. United States Dep't of Health, Nos. 11–11021
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • 12 August 2011
    ...provision from the remainder of the statute. See, e.g., Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. ––––, ––––, 130 S.Ct. 3138, 3161–62, 177 L.Ed.2d 706 (2010) (holding tenure provision severable from Sarbanes–Oxley Act); New York v. United States, 505 U.S. at 186–187, 1......
  • Goudy-Bachman v. United States Dep't of Health & Human Servs., Civil Action No. 1:10–CV–763.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • 13 September 2011
    ...precedent can indicate a constitutional infirmity.” (citing Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., ––– U.S. ––––, 130 S.Ct. 3138, 3159–60, 177 L.Ed.2d 706 (2010))); Printz v. United States, 521 U.S. 898, 905, 907–08, 918, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997) (stating that ......
  • Va. Office for Prot. & Advocacy v. Stewart, No. 09–529.
    • United States
    • United States Supreme Court
    • 19 April 2011
    ...can indicate a constitutional infirmity, see, e.g., Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. ––––, ––––, 130 S.Ct. 3138, 3159–3160, 177 L.Ed.2d 706 (2010), and our sovereign-immunity decisions have traditionally 131 S.Ct. 1642warned against " ‘anomalous and ......
  • Norris v. Salazar, Civil Action No. 09–01042 (BAH).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • 17 August 2012
    ...DOI. The CFA is an independent agency, not a component of DOI. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., ––– U.S. ––––, 130 S.Ct. 3138, 3215, 177 L.Ed.2d 706 (2010) (designating the CFA as an independent agency). Thus, the Secretary of the CFA is the only party amenable to ......
  • Request a trial to view additional results
24 cases
  • State v. United States Dep't of Health, Nos. 11–11021
    • United States
    • United States Courts of Appeals. United States Court of Appeals (11th Circuit)
    • 12 August 2011
    ...provision from the remainder of the statute. See, e.g., Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. ––––, ––––, 130 S.Ct. 3138, 3161–62, 177 L.Ed.2d 706 (2010) (holding tenure provision severable from Sarbanes–Oxley Act); New York v. United States, 505 U.S. at 186–187, 1......
  • Goudy-Bachman v. United States Dep't of Health & Human Servs., Civil Action No. 1:10–CV–763.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • 13 September 2011
    ...precedent can indicate a constitutional infirmity.” (citing Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., ––– U.S. ––––, 130 S.Ct. 3138, 3159–60, 177 L.Ed.2d 706 (2010))); Printz v. United States, 521 U.S. 898, 905, 907–08, 918, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997) (stating that ......
  • Va. Office for Prot. & Advocacy v. Stewart, No. 09–529.
    • United States
    • United States Supreme Court
    • 19 April 2011
    ...can indicate a constitutional infirmity, see, e.g., Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. ––––, ––––, 130 S.Ct. 3138, 3159–3160, 177 L.Ed.2d 706 (2010), and our sovereign-immunity decisions have traditionally 131 S.Ct. 1642warned against " ‘anomalous and ......
  • Norris v. Salazar, Civil Action No. 09–01042 (BAH).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • 17 August 2012
    ...DOI. The CFA is an independent agency, not a component of DOI. See Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., ––– U.S. ––––, 130 S.Ct. 3138, 3215, 177 L.Ed.2d 706 (2010) (designating the CFA as an independent agency). Thus, the Secretary of the CFA is the only party amenable to ......
  • Request a trial to view additional results

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