## Facts

- Congress created the Public Company Accounting Oversight Board (PCAOB) in the Sarbanes–Oxley Act to regulate and discipline accounting firms that audit public companies.
- PCAOB members are appointed by the Securities and Exchange Commission (SEC) to staggered five-year terms.
- Registered accounting firms must comply with PCAOB rules and are subject to PCAOB inspections, investigations, and sanctions.
- The SEC may remove PCAOB members only for good cause and through specified procedures.
- SEC Commissioners are themselves removable by the President only for cause.
- After the PCAOB criticized Beckstead and Watts, LLP in an inspection report and began a formal investigation, the firm and Free Enterprise Fund sued for declaratory and injunctive relief, claiming the PCAOB’s structure violated separation of powers and the Appointments Clause.
- The district court dismissed the complaint, and the D.C. Circuit affirmed, concluding PCAOB members were inferior officers supervised by the SEC and that the structure was constitutional.

## Issues

1. Whether dual for-cause restrictions—SEC for-cause removal of PCAOB members combined with for-cause presidential removal of SEC Commissioners—violate Article II by unduly limiting presidential control over execution of the laws.
2. Whether PCAOB members were appointed in violation of the Appointments Clause because they were not properly appointed as inferior officers by a “Head” of a “Department.”

## Decision

- The Court held that dual for-cause limits on removal of PCAOB members violate the separation of powers.
- The Court severed the offending tenure protections, leaving the PCAOB intact but making its members removable at will by the SEC.
- The Court upheld the appointment method, holding PCAOB members are inferior officers and may be appointed by the SEC under the Appointments Clause.
- The judgment was affirmed in part, reversed in part, and remanded.

## Legal Principles

- Article II requires sufficient presidential control to maintain accountability for the execution of federal law, and removal authority is a central mechanism for that control.
- Congress may impose some for-cause removal limits, but it may not combine separate for-cause protections to create a dual layer of insulation between the President and officers exercising significant executive authority.
- When an inferior officer is subject to substantial supervision by an executive-branch entity, Congress may vest appointment of that officer in a “Head[] of Department[]” under the Appointments Clause.
- A multi-member commission heading a freestanding executive-branch component can qualify as a “Head” for Appointments Clause purposes.
- When a discrete statutory restriction is unconstitutional, severance is appropriate where the remaining statutory scheme can function and there is no clear indication Congress would have preferred no agency to a constitutionally restructured one.

## Conclusion

The Court invalidated the PCAOB’s dual for-cause removal protections as incompatible with Article II accountability, severed those provisions to permit at-will SEC removal of Board members, and upheld the SEC’s appointment of PCAOB members as a permissible appointment of inferior officers.


Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477 (2010)