Supreme Court Preview: Free Enterprise Fund v. Public Company Accounting Oversight Board

by David H. Gans, Director of the Human Rights, Civil Rights, and Citizenship Program, Constitutional Accountability Center

Next Monday, as we continue to eagerly await the Supreme Court’s ruling in Citizens United v. FEC, the Court will hear another of the Term’s most important cases, Free Enterprise Fund v. Public Company v. Accounting Oversight Board. Like Citizens United, Free Enterprise Fund tests the Roberts Court’s willingness to make radical changes in existing constitutional doctrines based on its understanding of constitutional first principles.  Free Enterprise Fund involves a constitutional challenge to the Public Company Accounting Oversight Board (“the Board”).  Created in 2002 as part of the Sarbanes-Oxley Act passed in the wake of the Enron and related financial auditing scandals, the Board ensures oversight of audits of public corporations that are subject to federal securities laws by establishing auditing and ethical standards, conducting investigations, and imposing sanctions when appropriate.  The Board is appointed by the SEC, subject to the SEC’s comprehensive control, and may be removed by the SEC for dereliction of duty.

The Fund’s attack on the constitutionality of the Board centers on the fact that the President of the United States has neither the power to appoint Board members, nor the power to remove them.  The Fund argues that Article II of the Constitution vests all executive power in the President, and that Congress flouted Article II’s constitutional mandate in stripping the President of both the power to appoint the Board’s members and the power to remove Board members if they fail to carry out their duties consistent with the President’s wishes.  In the Fund’s view, this broad presidential power secures political accountability, and the Board’s structure – accountable directly to the SEC and indirectly to Congress – frustrates the framers’ constitutional scheme.

These arguments could easily lead to a ruling invalidating the Board without making major inroads in the law of separation of powers.  The Board is fairly unique among federal agencies – since the President lacks both the power to appoint or remove its members – and a majority of the Justices could decide to invalidate the Board on this narrow ground.  But the case could well become one of the Term’s blockbusters because the Fund’s and its amici’s arguments, if accepted in their broadest formulation, have the potential to remake decades of constitutional doctrine, and require Congress to reconfigure the so-called independent agencies – such as the SEC, FTC, FCC, and the Federal Reserve – all of which were created to be free of direct presidential supervision.  In 1938, in a case called Humphrey’s Executor v. United States, the Supreme Court upheld the constitutionality of restrictions on presidential power to remove members of independent agencies, and that ruling has been repeatedly reaffirmed since.   Humphrey’s Executor was bitterly attacked by the Reagan Justice Department – where both Chief Justice Roberts and Justice Alito served – as a flagrant violation of Article II’s vesting of all executive power in a so-called  “unitary executive,” and Free Enterprise Fund gives the Roberts Court a chance to weigh in on these issues.  The case thus tests whether the Roberts Court will make law gradually, staying within the boundaries set by established doctrines, or will seek to upend settled constitutional doctrine by reading the Constitution to give the President unlimited power over executive officials.

Below, the D.C. Circuit rejected the Fund’s challenge by a 2-1 vote, observing that the “bulk of the Fund’s challenge was fought – and lost – over seventy years ago when the Supreme Court decided Humphrey’s Executor.”  Judge Kavanaugh wrote a spirited dissent, which in essence argued that Humphrey’s Executor was inconsistent with constitutional text and history, and should not be extended to permit Congress to create the Board, whose members are neither appointed nor removable by the President.

Judge Kavanaugh’s dissent was a game changer, making the case a front and center attack on the continuing constitutional vitality of independent agencies and the Court’s precedents permitting limitations on the President’s removal power.  His dissent made the case for plenary presidential power over all executive officers based on the text of Article II, in particular the clause vesting executive power in the President, and on a series of votes taken by the First Congress that recognized the President’s power to remove high-level executive officers (now known as the “Decision of 1789”), and both the Fund and its amici rely on the Vesting Clause and the “Decision of 1789” in their briefs to the Court.  In their view, the Constitution vests executive power in the President, a point the First Congress affirmed in the “Decision of 1789,” making congressional efforts to wrest removal authority from the President unconstitutional.

While the Fund’s brief stops well short of asking the Court to overrule any past precedents – in the Fund’s view, both text and history and the Court’s past precedents demand invalidation of the Board – the Fund’s amici push the envelope, pressing the Court to overrule a number of its separation of powers precedents, including Humphrey’s Executor and Morrison v. Olsen, the 1988 decision rejecting a challenge to the Independent Counsel statute.  For example, a brief filed by ten leading conservative constitutional scholars, including originalists Steven Calabresi, Michael Stokes Paulsen and others, argues that the Constitution’s text and history give the President a constitutional right to remove all persons exercising executive authority, forbidding Congress from imposing any restrictions on the President’s removal power.  Their position, if adopted, would overthrow decades of Supreme Court precedent.

The difficulty with these arguments is that the text of Article II simply does not create a President with unlimited executive powers.   Rather than creating an all-powerful President, the inescapable fact of the matter is that Article II grants the President a number of specific, discrete powers, and the unfettered power to remove federal officers simply is not among them.  The President has a constitutional right to nominate, and with the consent of the Senate, appoint certain officers – such as ambassadors, public ministers, and Supreme Court justices.  Likewise, Article II gives the President the right to demand that the principal officer of each of the executive departments gives written opinions on his or her official duties. Article II, however, is silent about removal.  If the Vesting Clause gave the President all executive powers – on the theory that all means all – the wide array of specific, discrete clauses granting presidential powers would be reduced to little more than surplusage.

Further, under our Constitution’s scheme, Article II executive powers cannot be understood in isolation but must be considered against the wealth of powers specifically granted to Congress by Article I.  We often forget that Article I’s Necessary and Proper Clause does not relate only to the execution of congressional powers.  It grants Congress the power to “make all Laws which shall be necessary and proper for carrying into execution of the foregoing Powers” i.e., Article I powers, as well as “all other powers vested by this Constitution in the Government of the United States, or in any Department of Officer thereof.”  Thus, the text specifically recognizes that Congress has a say about the design and operation of Executive Branch agencies.  To be sure, Congress must respect the specific grants of power given to the President in Article II, but a  removal power is conspicuously absent from the list of powers granted to the President in Article II.  This scheme may not satisfy those who view an all-powerful President as necessary for political accountability, but it serves other critical values.  In the words of Justice Jackson, “[w]hile the Constitution diffuses power the better to secure liberty, it also contemplates that practice will integrate the dispersed powers into a workable government.  It enjoins on the branches separateness but independence, autonomy but reciprocity.”

Nothing in the “Decision of 1789” calls for a different result.  The actions of the First Congress – while of course hugely consequential – did not create a de facto Removal Clause in Article II, and the debates in Congress revealed very deep divisions among the framers about how to fill in the gaps left by the Constitution’s silence on removal.  Because of the utter lack of consensus, and all the twists and turns in the debate, there is a still thriving scholarly debate about whether there even was a “Decision of 1789.”  (For those interested in all the complexities of the debates, Prof. Sai Prakash’s 2006 article, “New Light on the Decision of 1789,” in the Cornell Law Review makes for a great read.)  Indeed, on the central question at issue in Free Enterprise Fund – whether Congress may place limits on the President’s removal powers – there is now widespread agreement that the “Decision of 1789” – whatever weight it deserves – did not decide that question.

Representing the Board, Solicitor General Elena Kagan largely avoids text and history, choosing instead to emphasize the Court’s many precedents that support upholding the Board’s constitutionality, going all the way back to the Supreme Court’s decisions of the early 19th Century.  While the government’s brief does not rest on first principles, a number of eminent constitutional and administrative law scholars stress these arguments in an amicus brief they filed in support of the Board.  Led by Columbia professors Henry Paul Monaghan and Gillian Metzger, and joined by David Strauss, Jerry Mashaw, and Richard Stewart, these scholars argue that the Court’s precedents in Humphrey’s Executor and later cases are in line with text and history:  the President does not have an unlimited constitutionally-based removal power, and Congress may create so-called independent agencies, and limit the President’s power to remove their officers if he disagrees with their policy judgments.

The scholars supporting the Board take the conservative originalists to task for paying insufficient attention to what the Constitution actually says about presidential power in Article II.  Their brief begins on common ground – all agree that Article II creates a unitary executive.  But they contest the assumption that the Vesting Clause creates a President with unlimited power, including the power to remove at will any executive officer of the government.  In their view, the vague and broadly-worded text of the Vesting Clause is too slim a reed to sustain a radical revision of separation-of-powers law.  And, in line with the scholarly consensus on the “Decision of 1789,” they emphasize that the “Decision,” such as it is, did not speak to whether Congress could limit the President’s removal power.

Thus, Free Enterprise Fund puts before the Justices two opposing visions of the Constitution’s text and history, one trumpeting an all-powerful President, the other recognizing Congress’ role in determining the makeup and structure of the executive branch, as well as the President’s power over those agencies.  We should all be watching closely on December 7 to see what the Justices have to say about this very live debate concerning the Constitution’s first principles when it comes to the power of the President.