Free Enterprise Fund v. Public Co. Accounting Oversight Board

177 L. Ed. 2d 706, 130 S. Ct. 3138, 561 U.S. 477, 22 Fla. L. Weekly Fed. S 685, 2010 U.S. LEXIS 5524, 78 U.S.L.W. 4766
CourtSupreme Court of the United States
DecidedJune 28, 2010
DocketNo. 08-861
StatusPublished
Cited by23 cases

This text of 177 L. Ed. 2d 706 (Free Enterprise Fund v. Public Co. Accounting Oversight Board) is published on Counsel Stack Legal Research, covering Supreme Court of the United States primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Free Enterprise Fund v. Public Co. Accounting Oversight Board, 177 L. Ed. 2d 706, 130 S. Ct. 3138, 561 U.S. 477, 22 Fla. L. Weekly Fed. S 685, 2010 U.S. LEXIS 5524, 78 U.S.L.W. 4766 (U.S. 2010).

Opinions

OPINION OF THE COURT

[561 U.S. 483]

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 Executors 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 cause. Likewise, in United States v. Perkins, 116 U.S. 483, 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

[561 U.S. 484]

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 IPs 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, 101 L. Ed. 2d 569.

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After a series of celebrated accounting debacles, Congress enacted the Sarbanes-Oxley Act of 2002, 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

[561 U.S. 485]

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 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

[561 U.S. 486]

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 [719]*719States’ ” 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).

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177 L. Ed. 2d 706, 130 S. Ct. 3138, 561 U.S. 477, 22 Fla. L. Weekly Fed. S 685, 2010 U.S. LEXIS 5524, 78 U.S.L.W. 4766, Counsel Stack Legal Research, https://law.counselstack.com/opinion/free-enterprise-fund-v-public-co-accounting-oversight-board-scotus-2010.