Free Enterprise Fund v. Public Company Accounting Oversight Board (2010)

561 U.S. 477

Case Year: 2010

Case Ruling: 5-4

Opinion Justice: Roberts

FACTS

The Public Company Accounting Oversight Board was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002 and was given expansive powers to govern an entire industry. Every accounting firm that audits public companies under the securities laws must register with the board, pay it an annual fee, and comply with its rules and oversight. The board may inspect firms, initiate formal investigations, and issue sanctions in its disciplinary proceedings. While the Securities and Exchange Commission (SEC) has oversight of the board, it cannot remove board members at will, but only "for good cause shown” and in accordance with specified procedures. SEC commissioners, in turn, cannot themselves be removed by the president except for "inefficiency, neglect of duty, or malfeasance in office."

The board inspected Beckstead and Watts, an accounting firm. It released a report critical of its auditing procedures and began a formal investigation. The firm and Free Enterprise Fund, an organization of which the firm is a member, sued the board and its members, asking that the board be declared unconstitutional. Free Enterprise argued that the Sarbanes-Oxley Act violated the separation of powers doctrine by giving executive power to board members without subjecting them to the control of the president. Free Enterprise argued that board members were insulated from presidential control by two layers of tenure protection: board members could only be removed by the SEC for good cause, and the SEC commissioners could in turn only be removed by the president for good cause. Petitioners also challenged the board's appointment as violating the appointments clause of Article II, which requires officers to be appointed by the president with the Senate's advice and consent, or—in the case of "inferior Officers"—by "the President alone, . . . the Courts of Law, or . . . the Heads of Departments.”

 

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 (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." (Writings of George Washington).

Since 1789, the Constitution has been understood to empower the President to keep these officers accountable—by removing them from office, if necessary. This Court has determined, however, that this authority is not without limit. InHumphrey's Executor v. United States (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 cause. Likewise, in United States v. Perkins (1886), and Morrison v. Olson (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."

We hold that the dual for-cause limitations on the removal of Board members contravene the Constitution's separation of powers. . . .

As explained, we have previously upheld limited restrictions on the President's removal power. In those cases, however, only one level of protected tenure separated the President from an officer exercising executive power. It was the President—or a subordinate he could remove at will—who decided whether the officer's conduct merited removal under the good-cause standard.

The Act before us does something quite different. It not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists. That decision is vested instead in other tenured officers—the Commissioners—none of whom is subject to the President's direct control. The result is a Board that is not accountable to the President, and a President who is not responsible for the Board.

The added layer of tenure protection makes a difference. Without a layer of insulation between the Commission and the Board, the Commission could remove a Board member at any time, and therefore would be fully responsible for what the Board does. The President could then hold the Commission to account for its supervision of the Board, to the same extent that he may hold the Commission to account for everything else it does.

A second level of tenure protection changes the nature of the President's review. Now the Commission cannot remove a Board member at will. The President therefore cannot hold the Commission fully accountable for the Board's conduct, to the same extent that he may hold the Commission accountable for everything else that it does. The Commissioners are not responsible for the Board's actions. They are only responsible for their own determination of whether the Act's rigorous good-cause standard is met. And even if the President disagrees with their determination, he is powerless to intervene—unless that determination is so unreasonable as to constitute "inefficiency, neglect of duty, or malfeasance in office." Humphrey's Executor.

This novel structure does not merely add to the Board's independence, but transforms it. Neither the President, nor anyone directly responsible to him, nor even an officer whose conduct he may review only for good cause, has full control over the Board. The President is stripped of the power our precedents have preserved, and his ability to execute the laws—by holding his subordinates accountable for their conduct—is impaired.

That arrangement is contrary to Article II's vesting of the executive power in the President. Without the ability to oversee the Board, or to attribute the Board's failings to those whom he can oversee, the President is no longer the judge of the Board's conduct. He is not the one who decides whether Board members are abusing their offices or neglecting their duties. He can neither ensure that the laws are faithfully executed, nor be held responsible for a Board member's breach of faith. This violates the basic principle that the President "cannot delegate ultimate responsibility or the active obligation to supervise that goes with it," because Article II "makes a single President responsible for the actions of the Executive Branch." Clinton v. Jones, (1997) (Breyer, J., concurring in judgment).

Indeed, if allowed to stand, this dispersion of responsibility could be multiplied. If Congress can shelter the bureaucracy behind two layers of good-cause tenure, why not a third? At oral argument, the Government was unwilling to concede that even five layers between the President and the Board would be too many. The officers of such an agency—safely encased within a Matryoshka doll of tenure protections—would be immune from Presidential oversight, even as they exercised power in the people's name.

Perhaps an individual President might find advantages in tying his own hands. But the separation of powers does not depend on the views of individual Presidents, nor on whether "the encroached-upon branch approves the encroachment," New York v. United States (1992). The President can always choose to restrain himself in his dealings with subordinates. He cannot, however, choose to bind his successors by diminishing their powers, nor can he escape responsibility for his choices by pretending that they are not his own.

The diffusion of power carries with it a diffusion of accountability. The people do not vote for the "Officers of the United States." Art. II, §2, cl. 2. They instead look to the President to guide the "assistants or deputies . . . subject to his superintendence." The Federalist No. 72 (A. Hamilton). Without a clear and effective chain of command, the public cannot "determine on whom the blame or the punishment of a pernicious measure, or series of pernicious measures ought really to fall." That is why the Framers sought to ensure that "those who are employed in the execution of the law will be in their proper situation, and the chain of dependence be preserved; the lowest officers, the middle grade, and the highest, will depend, as they ought, on the President, and the President on the community." (J. Madison).

By granting the Board executive power without the Executive's oversight, this Act subverts the President's ability to ensure that the laws are faithfully executed—as well as the public's ability to pass judgment on his efforts. The Act's restrictions are incompatible with the Constitution's separation of powers.

Respondents and the dissent resist this conclusion, portraying the Board as "the kind of practical accommodation between the Legislature and the Executive that should be permitted in a workable government." Metropolitan Washington Airports Authority v. Citizens for Abatement of Aircraft Noise, Inc. (1991). According to the dissent, Congress may impose multiple levels of for-cause tenure between the President and his subordinates when it "rests agency independence upon the need for technical expertise." The Board's mission is said to demand both "technical competence" and "apolitical expertise," and its powers may only be exercised by "technical professional experts." In this respect the statute creating the Board is, we are told, simply one example of the "vast numbers of statutes governing vast numbers of subjects, concerned with vast numbers of different problems, [that] provide for, or foresee, their execution or administration through the work of administrators organized within many different kinds of administrative structures, exercising different kinds of administrative authority, to achieve their legislatively mandated objectives."

No one doubts Congress's power to create a vast and varied federal bureaucracy. But where, in all this, is the role for oversight by an elected President? The Constitution requires that a President chosen by the entire Nation oversee the execution of the laws. And the "fact that a given law or procedure is efficient, convenient, and useful in facilitating functions of government, standing alone, will not save it if it is contrary to the Constitution," for "[c]onvenience and efficiency are not the primary objectives—or the hallmarks—of democratic government." Bowsher [v. Synar (1986)].

One can have a government that functions without being ruled by functionaries, and a government that benefits from expertise without being ruled by experts. Our Constitution was adopted to enable the people to govern themselves, through their elected leaders. The growth of the Executive Branch, which now wields vast power and touches almost every aspect of daily life, heightens the concern that it may slip from the Executive's control, and thus from that of the people. This concern is largely absent from the dissent's paean to the administrative state.

For example, the dissent dismisses the importance of removal as a tool of supervision, concluding that the President's "power to get something done" more often depends on "who controls the agency's budget requests and funding, the relationships between one agency or department and another, . . . purely political factors (including Congress' ability to assert influence)," and indeed whether particular unelected officials support or "resist" the President's policies. The Framers did not rest our liberties on such bureaucratic minutiae. As we said in Bowsher, "[t]he separated powers of our Government cannot be permitted to turn on judicial assessment of whether an officer exercising executive power is on good terms with Congress."

In fact, the multilevel protection that the dissent endorses "provides a blueprint for extensive expansion of the legislative power." In a system of checks and balances, "[p]ower abhors a vacuum," and one branch's handicap is another's strength. "Even when a branch does not arrogate power to itself," therefore, it must not "impair another in the performance of its constitutional duties." Loving v. United States (1996). Congress has plenary control over the salary, duties, and even existence of executive offices. Only Presidential oversight can counter its influence. That is why the Constitution vests certain powers in the President that "the Legislature has no right to diminish or modify." (J. Madison).

The Framers created a structure in which "[a] dependence on the people" would be the "primary controul on the government." The Federalist No. 51 (J. Madison). That dependence is maintained, not just by "parchment barriers," id., No. 48, but by letting "[a]mbition . . . counteract ambition," giving each branch "the necessary constitutional means, and personal motives, to resist encroachments of the others," id., No. 51. A key "constitutional means" vested in the President—perhapsthe key means—was "the power of appointing, overseeing, and controlling those who execute the laws.”. . .

The President has been given the power to oversee executive officers; he is not limited, as in Harry Truman's lament, to "persuad[ing]" his unelected subordinates "to do what they ought to do without persuasion." In its pursuit of a "workable government," Congress cannot reduce the Chief Magistrate to a cajoler-in-chief. . . .

Petitioners raise three more challenges to the Board under the Appointments Clause. None has merit.

First, petitioners argue that Board members are principal officers requiring Presidential appointment with the Senate's advice and consent. We held in Edmond v. United States (1997), that "[w]hether one is an 'inferior' officer depends on whether he has a superior," and that "inferior officers' are officers whose work is directed and supervised at some level" by other officers appointed by the President with the Senate's consent. In particular, we noted that "[t]he power to remove officers" at will and without cause "is a powerful tool for control" of an inferior. As explained above, the statutory restrictions on the Commission's power to remove Board members are unconstitutional and void. Given that the Commission is properly viewed, under the Constitution, as possessing the power to remove Board members at will, and given the Commission's other oversight authority, we have no hesitation in concluding that under Edmond the Board members are inferior officers. . . .

But, petitioners argue, the Commission is not a "Departmen[t]" like the "Executive departments" (e.g. , State, Treasury, Defense). . . . Because the Commission is a freestanding component of the Executive Branch, not subordinate to or contained within any other such component, it constitutes a "Departmen[t]" for the purposes of the Appointments Clause.

But petitioners are not done yet. They argue that the full Commission cannot constitutionally appoint Board members, because only the Chairman of the Commission is the Commission's "Hea[d].". . . As a constitutional matter, we see no reason why a multimember body may not be the "Hea[d]" of a "Departmen[t]" that it governs. The Appointments Clause necessarily contemplates collective appointments by the "Courts of Law," Art. II, §2, cl. 2, and each House of Congress, too, appoints its officers collectively, see Art. I, §2, cl. 5; id., §3, cl. 5. . . . We conclude that the Board members have been validly appointed by the full Commission. . . .

The Constitution that makes the President accountable to the people for executing the laws also gives him the power to do so. That power includes, as a general matter, the authority to remove those who assist him in carrying out his duties. Without such power, the President could not be held fully accountable for discharging his own responsibilities; the buck would stop somewhere else. Such diffusion of authority "would greatly diminish the intended and necessary responsibility of the chief magistrate himself." The Federalist No. 70.

While we have sustained in certain cases limits on the President's removal power, the Act before us imposes a new type of restriction—two levels of protection from removal for those who nonetheless exercise significant executive power. Congress cannot limit the President's authority in this way.

JUSTICE BREYER, WITH WHOM JUSTICE STEVENS, JUSTICE GINSBURG, AND JUSTICE SOTOMAYOR JOIN, DISSENTING

The Court holds unconstitutional a statute providing that the Securities and Exchange Commission can remove members of the Public Company Accounting Oversight Board from office only for cause. It argues that granting the "inferior officer[s]" on the Accounting Board "more than one level of good-cause protection . . . contravenes the President's 'constitutional obligation to ensure the faithful execution of the laws." I agree that the Accounting Board members are inferior officers. But in my view the statute does not significantly interfere with the President's "executive Power." Art. II, §1. It violates no separation-of-powers principle. And the Court's contrary holding threatens to disrupt severely the fair and efficient administration of the laws. I consequently dissent. . . .

When previously deciding this kind of nontextual question, the Court has emphasized the importance of examining how a particular provision, taken in context, is likely to function. . . . The Court has thereby written into law Justice Jackson's wise perception that "the Constitution . . . contemplates that practice will integrate the dispersed powers into a workable government." Youngstown Sheet & Tube Co. v. Sawyer (1952).

It is not surprising that the Court in these circumstances has looked to function and context, and not to bright-line rules. For one thing, that approach embodies the intent of the Framers. As Chief Justice Marshall long ago observed, our Constitution is fashioned so as to allow the three coordinate branches, including this Court, to exercise practical judgment in response to changing conditions and "exigencies," which at the time of the founding could be seen only "dimly," and perhaps not at all.

For another, a functional approach permits Congress and the President the flexibility needed to adapt statutory law to changing circumstances. That is why the "powers conferred upon the Federal Government by the Constitution were phrased in language broad enough to allow for the expansion of the Federal Government's role" over time. New York v. United States(1992). Indeed, the Federal Government at the time of the founding consisted of about 2,000 employees and served a population of about 4 million. Today, however, the Federal Government employs about 4.4 million workers who serve a Nation of more than 310 million people living in a society characterized by rapid technological, economic, and social change.

Federal statutes now require or permit Government officials to provide, regulate, or otherwise administer, not only foreign affairs and defense, but also a wide variety of such subjects as taxes, welfare, social security, medicine, pharmaceutical drugs, education, highways, railroads, electricity, natural gas, nuclear power, financial instruments, banking, medical care, public health and safety, the environment, fair employment practices, consumer protection and much else besides. Those statutes create a host of different organizational structures. . . .

The upshot is that today vast numbers of statutes governing vast numbers of subjects, concerned with vast numbers of different problems, provide for, or foresee, their execution or administration through the work of administrators organized within many different kinds of administrative structures, exercising different kinds of administrative authority, to achieve their legislatively mandated objectives. And, given the nature of the Government's work, it is not surprising that administrative units come in many different shapes and sizes.

The functional approach required by our precedents recognizes this administrative complexity and, more importantly, recognizes the various ways presidential power operates within this context—and the various ways in which a removal provision might affect that power. As human beings have known ever since Ulysses tied himself to the mast so as safely to hear the Sirens' song, sometimes it is necessary to disable oneself in order to achieve a broader objective. Thus, legally enforceable commitments—such as contracts, statutes that cannot instantly be changed, and, as in the case before us, the establishment of independent administrative institutions—hold the potential to empower precisely because of their ability to constrain. . . .

These practical reasons not only support our precedents' determination that cases such as this should examine the specific functions and context at issue; they also indicate that judges should hesitate before second-guessing a "for cause" decision made by the other branches. Compared to Congress and the President, the Judiciary possesses an inferior understanding of the realities of administration, and the manner in which power, including and most especially political power, operates in context. . . .

Thus, here, as in similar cases, we should decide the constitutional question in light of the provision's practical functioning in context. And our decision should take account of the Judiciary's comparative lack of institutional expertise.

To what extent then is the Act's "for cause" provision likely, as a practical matter, to limit the President's exercise of executive authority? In practical terms no "for cause" provision can, in isolation, define the full measure of executive power. This is because a legislative decision to place ultimate administrative authority in, say, the Secretary of Agriculture rather than the President, the way in which the statute defines the scope of the power the relevant administrator can exercise, the decision as to who controls the agency's budget requests and funding, the relationships between one agency or department and another, as well as more purely political factors (including Congress' ability to assert influence) are more likely to affect the President's power to get something done. . . .

But even if we put all these other matters to the side, we should still conclude that the "for cause" restriction before us will not restrict presidential power significantly. For one thing, the restriction directly limits, not the President's power, but the power of an already independent agency. The Court seems to have forgotten that fact when it identifies its central constitutional problem: According to the Court, the President "is powerless to intervene" if he has determined that the Board members' "conduct merit[s] removal" because "[t]hat decision is vested instead in other tenured officers—the Commissioners—none of whom is subject to the President's direct control.". . .

In other words, the Court fails to show why two layers of "for cause" protection—Layer One insulating the Commissioners from the President, and Layer Two insulating the Board from the Commissioners—impose any more serious limitation upon thePresident's powers than one layer. . . .

[T]he majority's decision to eliminate only Layer Two accomplishes virtually nothing. And that is because a removal restriction's effect upon presidential power depends not on the presence of a "double-layer" of for-cause removal, as the majority pretends, but rather on the real-world nature of the President's relationship with the Commission. If the President confronts a Commission that seeks to resist his policy preferences—a distinct possibility when, as here, a Commission's membership must reflect both political parties—the restriction on the Commission's ability to remove a Board member is either irrelevant or may actually help the President. And if the President faces a Commission that seeks to implement his policy preferences, Layer One is irrelevant, for the President and Commission see eye to eye. . . .

At the same time, Congress and the President had good reason for enacting the challenged "for cause" provision. First and foremost, the Board adjudicates cases. This Court has long recognized the appropriateness of using "for cause" provisions to protect the personal independence of those who even only sometimes engage in adjudicatory functions. . . . Moreover, in addition to their adjudicative functions, the Accounting Board members supervise, and are themselves, technical professional experts. . . . And this Court has recognized the constitutional legitimacy of a justification that rests agency independence upon the need for technical expertise. . . .

In sum, Congress and the President could reasonably have thought it prudent to insulate the adjudicative Board members from fear of purely politically based removal. . . .

In my view the Court's decision is wrong—very wrong. . . . Its rule of decision is both imprecise and overly broad. In light of the present imprecision, it must either narrow its rule arbitrarily, leaving it to apply virtually alone to the Accounting Board, or it will have to leave in place a broader rule of decision applicable to many other "inferior officers" as well. In doing the latter, it will undermine the President's authority. And it will create an obstacle, indeed pose a serious threat, to the proper functioning of that workable Government that the Constitution seeks to create—in provisions this Court is sworn to uphold.

With respect I dissent.