Originally published May 18, 2009
Keywords: Sarbanes-Oxley, Separation of Powers, Free Enterprise Fund v. Public Co. Accounting Oversight Board
Today the Supreme Court granted certiorari in one case of interest to the business community:
Sarbanes-Oxley Act—Separation of Powers
Title I of the Sarbanes-Oxley Act of 2002 ("Act") established the Public Company Accounting Oversight Board ("PCAOB") and empowered it to promulgate and enforce rules for accounting firms that audit public companies. Under the Act, the PCAOB's members are appointed by the Commissioners of the Securities and Exchange Commission ("SEC"), who may remove PCAOB members only "for cause." Today the Supreme Court granted certiorari in Free Enterprise Fund v. Public Co. Accounting Oversight Board, No. 08-861, to decide whether the provisions of the Act establishing the PCAOB violate the separation of powers or the Appointments Clause.
The Court's decision will have obvious importance to firms that are subject to PCAOB oversight. The decision could also establish or modify separation-of-powers principles more generally, thereby limiting or expanding the ability of Congress and federal agencies to regulate businesses and other entities in different contexts.
The plaintiffs (petitioners in the Supreme Court) are a non-profit public-interest organization and a member of the organization that was being investigated by the PCAOB. The defendants (respondents in the Supreme Court) are the PCAOB and the United States, which intervened to defend the constitutionality of the Act. Arguing that the provisions of the Act governing the appointment, oversight, and dismissal of PCAOB members violate the Appointments Clause (U.S. Const. art. II, § 2, cl. 2) and separation-of-powers principles, the plaintiffs sought declaratory and injunctive relief prohibiting further action by the PCAOB against the plaintiff that was being investigated. The district court granted summary judgment to the defendants, and a divided panel of the DC Circuit affirmed.
The court of appeals majority rejected both of the Appointments Clause arguments advanced by the plaintiffs. The majority first rejected the argument that the PCAOB's members are principal officers rather than "inferior officers" under the Appointments Clause, and that they must therefore be appointed by the President. Citing the control that the Act gives the SEC over the PCAOB's activities, the majority concluded that the PCAOB's members are "inferior officers." The majority next rejected the argument that the appointment of the PCAOB's members could not be delegated to the SEC, because the SEC is not a "Department" under the Appointments Clause, and because, in any event, the "Head" of a department under the Appointments Clause cannot be a collective body like the Commissioners of the SEC. The majority found the SEC sufficiently akin to a cabinet-level entity to constitute a "Department," and it held that the "Head" of a department need not be an individual.
The court of appeals majority also rejected the plaintiffs' separation-of-powers argument. The plaintiffs argued that the Act unconstitutionally impinged on the President's power over the PCAOB as head of the Executive Branch, because it allowed the PCAOB's members to be removed by the SEC alone, and then only "for cause," and because the SEC Commissioners themselves can be removed by the President only "for cause." The majority found that the President had sufficient indirect power over the PCAOB, through his control of the SEC, for the Act to pass constitutional muster.
In dissent, Judge Kavanaugh argued that the PCAOB's members were principal officers, rendering their method of appointment violative of the Appointments Clause, and that the President's control over the PCAOB was too attenuated to satisfy separation-of-powers principles.
Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on July 9, and amicus briefs in support of the respondents will be due on August 10.
* * * * * *
Today, the Supreme Court also invited the Solicitor General to file a brief expressing the views of the United States in one other case of interest to the business community:
Lewis v. City of Chicago, No. 08-974. The question presented is whether, in a case involving an allegation of disparate impact under Title VII of the Civil Rights Act of 1964, the 300-day limitation period for filing a charge of discrimination with the Equal Employment Opportunity Commission begins to run (a) when the employer announces the allegedly unlawful employment practice or (b) when the employer uses the practice.
Please visit us at www.appellate.net.
Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
Copyright 2009. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.
