Powers separation case may yield a blockbuster high court ruling

Journal Record, The (Oklahoma City), Oct 7, 2008 by Marie Price

A dispute one appellate judge called the most important separation-of-powers case involving presidential appointment and removal authority in 20 years could reach the U.S. Supreme Court toward the end of the justices' current term.

Whether this term or next, says an Oklahoma law professor, it could supply one of those eyebrow-raising rulings the court became known for over the past couple of terms.

"It really could be a blockbuster, or indeed a very big case," said Oklahoma City University School of Law professor Michael O'Shea.

Free Enterprise Fund v. Public Company Accounting Oversight Board involves a challenge to an independent board created in the wake of Enron and similar scandals to ride herd on firms that audit public companies.

Free Enterprise Fund, a free-market advocacy group, challenged the PCAOB as a violation of separation of powers.

At issue is the fact that members of the board are appointed, not by the president as are members of most high-level executive-branch entities, but by the U.S. Securities and Exchange Commission.

"It has a very unusual structure," said O'Shea.

He also said that PCAOB members can only be removed by the SEC, and then only for cause.

"They don't serve at the will of the SEC," O'Shea said.

The SEC retains oversight authority over sanctions handed down by the board.

The plaintiffs in the case argued that this "twice removed" procedure violates both the separation of powers and the Appointments Clause in Article II of the U.S. Constitution.

A panel of the U.S. Court of Appeals for the District of Columbia Circuit disagreed, and ruled in favor of the board.

The appeals court said that members of the PCAOB are inferior officers and do not have to be appointed by the president. The majority also said the for-cause limitations on board members' removal by the SEC do not strip the president of sufficient power to influence the board and therefore do not contravene the separation of powers.

Regardless of what the D.C. Circuit does, O'Shea expects the Supreme Court to take the case, because of the fundamental importance of clarifying the separation-of-powers issue.

If and when the case reaches the Supreme Court, O'Shea's prediction is that a majority would hold the PCAOB unconstitutional, as it is currently structured, although it could be restructured in a manner to cure the problem.

"The question is, what level of accountability to the president, and ultimately to the American people who elect the president democratically, is required for federal administrative agencies to have?" he said. "At what point is the agency so unaccountable that it violates Article II?"

O'Shea said officials with many federal agencies and boards serve at the will of the president, who can sack them as he pleases, as long as it's not for a prohibited reason, such as discrimination.

Members of some agencies, such as the SEC and Federal Trade Commission, are appointed by the president, but can only be removed for cause, such as some type of malfeasance.

"Those are the so-called independent agencies," O'Shea said.

He said a 1926 case, Myers v. U.S., held that the president had pretty much untrammeled power to remove executive-branch officials.

However, in 1935, the Supreme Court held in the Humphrey's Executor decision that administrative officers who carry out quasi- judicial or quasi-legislative functions can only be removed according to procedures outlined in federal law by Congress.

The Humphrey's case involved Franklin Roosevelt's attempts to axe William Humphrey, a Herbert Hoover nominee, from the FTC, whose members could only be removed for inefficiency, neglect of duty, or malfeasance.

The 1935 justices held that, because the FTC carries out certain legislative functions, Roosevelt acted improperly in firing Humphrey for a reason other than those outlined by Congress.

O'Shea said that Humphrey's is governing law currently.

"Now with the PCAOB, we've got an agency whose members can't be removed at will, can only be removed for cause, that is appointed by an independent agency," he said. "It's like at another level of remove from the president himself."

The PCAOB case is now awaiting a decision on whether it will be reheard by the full D.C. Circuit Court.

If the appeals court grants a rehearing, O'Shea said, the case almost certainly won't be heard by the nation's highest court this term. If a rehearing is denied swiftly, he said, there is an outside chance the justices may decide to hear the case toward the end of the term.