Administrative Law - Appointments Clause - D.C. Circuit Holds That the SEC Chairman Is Not the "Head" of the SEC

Harvard Law Review, June 2009 | Go to article overview

Administrative Law - Appointments Clause - D.C. Circuit Holds That the SEC Chairman Is Not the "Head" of the SEC


ADMINISTRATIVE LAW--APPOINTMENTS CLAUSE--D.C. CIRCUIT HOLDS THAT THE SEC CHAIRMAN IS NOT THE "HEAD" OF THE SEC.--Free Enterprise Fund v. Public Co. Accounting Oversight Board, 537 F.3d 667 (D.C. Cir. 2008), cert. granted, 77 U.S.L.W. 3431 (U.S. May 18, 2009) (No. 08-861).

The Appointments Clause of the Constitution grants the President the sole power to appoint officers of the United States with the advice and consent of the Senate. (1) But there is an exception for so-called "inferior Officers," whose appointment Congress may vest in "Heads of Departments." (2) Although there has been much litigation trying to distinguish inferior from principal officers, (3) the definition of "Heads of Departments" has received much less attention. Recently, in Free Enterprise Fund v. Public Co. Accounting Oversight Board, (4) the D.C. Circuit upheld the constitutionality of the Sarbanes-Oxley Act of 2002 (5) against a facial challenge that it violated the Appointments Clause and separation of powers principles. (6) In rejecting the Appointments Clause challenge, the D.C. Circuit held that the Chairman of the Securities and Exchange Commission (SEC) is not the "Head" of the SEC for Appointments Clause purposes. (7) But a contextual analysis of the Chairman's powers shows otherwise, and the majority's holding undermines the purposes of the Appointments Clause by diffusing appointment power to the less politically accountable multimember Commission.

In the wake of the Enron and WorldCom accounting scandals, Congress passed the Sarbanes-Oxley Act to improve the regulation of accounting firms. (8) The Act created a Public Company Accounting Oversight Board with the power to supervise and sanction accounting companies. (9) The five SEC commissioners oversee the Board (10) and collectively appoint the Board's five members, (11) who are removable by the Commission "for good cause shown." (12) Commission members are themselves appointed by the President with the advice and consent of the Senate (13) and can only be removed by the President for cause. (14)

The Free Enterprise Fund, a public interest organization, and Beckstead & Watts, an accounting firm, filed a complaint in the U.S. District Court for the District of Columbia alleging that the creation of the Board violated the nondelegation doctrine, the Appointments Clause, and separation of powers principles. (15) The district court awarded summary judgment to the Board on all counts. (16)

The plaintiffs claimed that Board members were principal, not inferior, officers under the Appointments Clause, and could therefore only be appointed by the President. (17) Because it allowed the Commission to appoint the Board's members, the Act was facially unconstitutional. The district court disagreed, holding that Board members were inferior officers because they were subject to oversight and removal by the Commission. (18) The plaintiffs argued in the alternative that the SEC could not be vested with appointment power because it was not a "Department" under the Appointments Clause, and even if it was a department, the Chairman and not the multimember Commission was the "Head." (19) The district court disagreed in part, holding that the SEC was a department, but agreed with the plaintiffs that only the SEC Chairman, and not the Commission, was the head with the power to appoint inferior officers. (20) But since the Chairman had voted for each of the Board members, the district court held that the plaintiffs lacked standing to pursue this claim. (21)

The plaintiffs also argued that the Board violated separation of powers principles. Given the Board's ability to exercise "wide-ranging, core executive power," the plaintiffs maintained that the Act unconstitutionally "undermines the President's ability to perform his constitutional duties" (22) due to the Act's "double for-cause limitation on removal." (23) This limitation means the President's ability to influence the Board through removal is separated by two levels: the President can only remove Commission members for cause, and the Commission members can only remove Board members for cause. …

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